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Stewardship grade

Morningstar issues "Stewardship Grades" to mutual funds based on how well fund managers align their interests with shareholders'. The grades are one piece of information for investors to consider.

Expanded Definition

Investors definitely want the people managing their money to have interests that match theirs. If a money manager is in it for bonuses that aren't based on long-term performance, he or she may run the fund so as to get those bonuses, at the expense of shareholders in it for the long run. For instance, you want to know if the money manager own shares of her own fund?

Morningstar awards grades -- from A (best) to F (worst) -- to mutual funds to help investors evaluate their options. The five factors considered are:

  • Corporate Culture
  • Board Quality
  • Manager Incentives
  • Fees
  • Regulatory History

Corporate culture is the area where funds can earn the most points. For this, Morningstar analysts look at things like: Is the fund company focused on investing or gathering assets? Is the fund company straightforward with investors through clear, pertinent disclosure and responsible marketing? Do talented investors spend their careers at this fund firm?

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