In 2004 Morningstar began assigning Stewardship Grades. Prompted by an investigation of mutual fund improper trading activities by former New York Attorney General Eliot Spitzer, Stewardship Grades are a fund analyst’s subjective assessment of a fund’s commitment to shareholders’ best interest. Funds are graded on a scale of 1 to 10 points on corporate culture, fund boards, current level of fees, and compliance or regulatory history. All categories can earn up to 2 points except corporate culture. Corporate culture gets 4 points. Here is the grading scale:

A – 9 to 10 points
B – 7 to 8.5 points
C – 6 to 6.5 points
D – 3 to 4.5 points
F – 0 to 2.5 points

In April of 2007 the Social Science Research Network published a working paper indicating that mutual funds receiving high Stewardship Grades outperformed funds with bad grades by 19 to 23 basis points per month. That equates to between 2.28% and 2.76% more return in a 12 month period. Of the variables that Morningstar uses, researchers said that “board quality” and “fees” seemed to account for the biggest difference. (source: NAPFA Advisor November 2007)

Rich Feight, CFP
Rich Feight, CFP

Hi, I'm Rich Feight I'm a fee-only Certified Financial Planner, successful business owner, and self-made millionaire that knows how to beat the system and become wealthy. I have a lot of clients that have done it too. I'm also pretty good at finding that ever-elusive work/life balance so many of us strive for. Lucky for you I have an abundant mindset and give all my knowledge away on my blog. So if you want to know what it takes to become a millionaire, follow me.

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