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Lipper Will Alter its Fund Classification Model

Lipper of Summit, N.J. has announced changes in its fund classification model. The company will modify the model for open-end domestic equity funds as well as extend its portfolio-based classification model to include closed-end funds and variable insurance products, according to the company.

Lipper will implement the changes to the classification model for open-end domestic funds beginning March 19. One of the most significant changes will be that Lipper will begin measuring funds against the relevant S&P index (large cap funds vs. S&P 500 Index, etc.) instead of against the other funds in that capitalization group, according to the company. That should give managers and investors a better standard to evaluate individual funds, according to a spokesperson for Lipper.

Also, market capitalization breakpoints will be determined by using the dollar-weighted median of the middle 1000 securities of the S&P 1500. Currently, Lipper calculates breakpoints using a dollar-weighted median that is based on the S&P 400 and 600. That change will lessen the chance that abnormalities will skew the median and will create more accurate breakpoint volatility calculations, according to the spokesperson.

Lipper began classifying open-end diversified equity funds by the actual stocks they are invested in as opposed to their stated investment objectives in September 1999. Lipper will introduce a similar model for closed-end funds and variable insurance products on April 23, according to the company.

"...our system will now ensure that competing [closed-end funds and variable insurance products] can be evaluated on an even footing," said Sarah Dunn, chief executive officer of Lipper in a statement.