Lipper revising classification system
December 14, 1998
Lipper Analytical Services is introducing a new fund classification structure for U.S. equity mutual funds. It will be phased in over the next six months.
The new system, which has been under development for the past two years, will categorize funds on the basis of two major factors: market capitalization and aggressiveness. There will be five subdivisions within those categories. The two categories reflect what investors are most concerned about when looking at mutual funds, said Steven Lipper, senior vice president of the company.
The levels of aggressiveness are aggressive equity, growth equity, general equity, value equity and income equity. The capitalization groups include the new classes of "large-cap" and "flex-cap" in addition to the traditional divisions of mid-cap, small-cap and micro-cap. To qualify for a given capitalization group, a fund must have 75 percent of its stock assets below a certain threshold level.
Lipper gave some preliminary examples of how the ratings would change. Fidelity Magellan has been a growth fund. Under the new guidelines, it will be, "large-cap general." Janus Twenty, which has been a capital appreciation fund will be called "large-cap aggressive." Washington Mutual, which has been growth and income will be, "large-cap value."
The most significant change is the new market capitalization category called "flex-cap," Lipper said. Flex-cap funds will have a mixture of large, mid and small-cap stocks. Lipper believes that this category is necessary to avoid forcing funds into a narrow large, mid, or small-cap structure.
The new structure will replace the current classification system by mid-1999. There will be a six-month period during which Lipper will use the old classification system in all reports. During that time, the new classifications will be made available to media and fund company clients on a monthly basis, but Lipper will not be replacing any standard tables until the end of the six-month period.
Lipper Analytical Services also announced last week it is shortening its name to Lipper, Inc.
Simon Thomson, president and CEO of Lipper, said the new name is largely intended to be easier for non-English speaking people to use, reflecting the firm's goal of building its international business.