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Shooting For The Stars

In September, Lipper unveiled the final three components of its Lipper Leaders rating system, its attempt to go head to head with Morningstar's well-known Five Star rating system and to establish a greater presence in the intermediary market.

Designed to help investors assess mutual funds, the Lipper Leaders rating system is comprised of five main categories: .total return, tax efficiency, expense, consistent return and preservation.

Lipper contends its rating system is superior to Morningstar's five-star rating system because Morningstar's model assumes all investors are the same, while Lipper Leaders caters to the individual's preferences. However, rating systems hold only limited value, particularly because they are based on past performance, some say [see MFMN 9/2/02].

But Phillips, for one, is not a fan of Lipper's new rating process, saying it is just another way of packaging past performance data. That, he said, is of limited value. "All of the slicing and dicing of past performance is useful only to a certain point," he said, noting that includes Morningstar's five-star system, as well. "You have to get down to the holdings level." He said Morningstar will concentrate on nuances of style in products it is planning for the future.

"What's the investment posture of the fund?" Phillips asked, noting that overlap and other considerations are things investors could use more of to help them determine the correct answers.