Are Morningstar Mutual Fund Analysts Taking Happy Pills? Ratings Breakdown.

UPDATE: 8/1/12 - You can see updated ratings as of 6/30/12 here.

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So Morningstar has released new "Analyst Ratings" on 349 US based mutual funds as of 11/15/11. According to Morningstar

"The new scale runs from Gold, Silver, and Bronze on the positive end to Neutral and Negative. Expressed as medals, the top three tiers are reserved for funds our analyst team thinks have sustainable advantages that position them well versus peers and a relevant benchmark on a risk-adjusted basis over the long haul (at least the next five years)"

Morningstar considers Gold, Silver and Bronze to be positive analyst ratings. And obviously the other two are self explanatory. The exact definitions of each are below

Gold: Best-of-breed fund that distinguishes itself across the five pillars and has garnered the analysts’ highest level of conviction;  

Silver: Fund with notable advantages across several, but perhaps not all, of the five pillars—strengths that give the analysts a high level of conviction;

Bronze: Fund with advantages that outweigh any disadvantages across the five pillars, and sufficient level of analyst conviction to warrant a positive rating; 

Neutral: Fund that isn’t likely to deliver standout returns, but also isn’t likely to significantly underperform; and 

Negative: Fund that has at least one flaw likely to significantly hamper future performance, and is considered an inferior offering to its peers.

However, one has to question the way these ratings have been given out for this first batch of 349 funds. 

These must be the parents of Generation Z giving out these ratings because apparently they think you deserve a metal just for showing up. Of the first 349 funds rated, a full 311 or 89% received a "positive" rating deserving of a "metal". Another 30 they are indifferent about and they only have a negative view on 8 or about 2%. 

However, many studies have shown that the majority of actively managed mutual funds actually underperform their benchmarks. Below is a chart from Mclean Heuristics using data from Standard and Poor's Indices verses Active Funds Scorecard.

Clearly that is a sad showing for active managers as a whole. But lets get one thing clear.....I am NOT a supporter of index investing. In fact, I believe index investing (particularly using cap-weighted indexes) only adds to market inefficiency (but that's a rant for another day). 

However, what that chart does show is that if Morningstar was properly distributing it's ratings, it would likely be an inverted version of what they put out. With the majority falling in the "negative" category and the least falling in the "gold" category.

We'll see how the distribution of ratings turns out as Morningstar rolls out more over the next year, but so far it looks to be just as ridiculous as stock ratings given out by the industry. Analysts as a whole in the financial industry are not in short supply of happy pills. After all, Happy Sells!

Updated: 11/17/11 10:20pm ET

Complete listing of New Morningstar Analyst Ratings for Mutual Funds (All 1683)

UPDATE: 8/1/12 - You can see updated ratings as of 6/30/12 here.
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CORRECTION 11:25pm ET 11/15/11: Please note the reason the comprehensive listing (1,683 funds) is dramatically larger then that announced by Morningstar is because the comprehensive list includes European and Canadian mutual fund rankings. Sorry for the confusion...no need to read the rest of this post! Although you can view all US Fund ratings as of 11/15/11 here.

So Morningstar announced today  the release of it's new Analyst Rating system for Mutual Funds. (Bold added by me).

"Morningstar today published a new Morningstar Analyst Rating on roughly 350 mutual funds sold in the United States. As outlined in a series of recent articles, this new system is the summary view of Morningstar analysts' assessment of a fund's strengths and weaknesses across five key pillars: People, Process, Parent, Performance, and Price."  

"To see the Morningstar Analyst Ratings, read supporting analyses, and learn how funds stack up across the five pillars, visit Morningstar.com. We have roughly 350 Morningstar Analyst Ratings available today and will continue to publish new ratings and accompanying research daily as we ramp up to approximately 1,500 funds by the end of 2012." 

And they talk about the launch in this interview (excerpts below). Supposedly through the end of this year they will have 300-400 funds rated.....and they claim they will "ramp up" to about 1,500 funds by the end of next year.

"Stipp: So, lastly, Karen, this is obviously a very big endeavor for the fund research team. This is something that you're going to be rolling out over time. Can you give us a sense of when we'll expect to see these new reports and how many we'll see to start with and what you'll be doing afterward?

Dolan: ... We're not going to be re-rating our entire universe right off the bat. We are going to be working toward that throughout 2012, but what you'll see from us through the end of 2011 is about 300 to 400 funds will be rated, and then we are going to work up over time. ... We have to keep up with the ratings that we've already launched. So, we have to balance that maintenance of the research that people are relying on us for with the ramp-up of the new ratings. So, throughout 2012 we expect to ramp up to about 1,500 funds rated in this new system."

However, the reality is they have already rated 1,600 Funds and have another 82 listed as "Under Review" status. Clearly they did not secure this very well. You can view the PDF here if you can't still view it directly here http://corporate.morningstar.com/us/documents/AnalystRatings/CurrentAnalystRatings.pdf  

If the ratings are already there, what are their real motives behind only officially releasing the select "300-400" in 2011? How did they decide which ones to release?

The Current Fiduciary Landscape in the Financial Industry (In a simple pie chart)

In broad terms that about sums it up.

The European situation....Telling it like it is!

Great video of Nigel Farage telling other Members of the European Parliament how it is.

Some of the truths he touches on are below (besides his nice rant that their jobs are not needed and they should be fired, which is around the 3min mark)


“….This pretends that everything is going incredibly well. The EU is marred in deep structural crisis. Greece and Portugal and Ireland cannot survive within inside the Euro.”

“…Yes sir, we all want a shared European cooperation for the future, but this most definitely is not the model!”

“By taking away from people there ability to govern themselves and transferring that power to the European Commission, we are headed for a Europe of rebellion and violence. Let’s take the democratic route.”

All those comments are on point.

edit: 11/12/11

Rant for the Revolution T-Shirt (End The Fed Edition)

Thanks goes to Stan at Caveat-news.com for the below graphic. Just got myself a new T-Shirt with this that I'll be sporting at the gym. If you want you can order a T-Shirt or Sweatshirt with this on Zazzle steal the image and go somewhere to save a few bucks. If you choose to order it through me anyway, thanks!

Rant for the Revolution (End The Fed Edition)

Who is Best at Winning Business With Bribes?

Below is an interesting graph of the results from the latest Transparency International survey dubbed the "2011 Bribe Payers Index" . Higher scores means there is a lower perception of bribery by companies from those countries. Therefore, companies from the Netherlands are considered the least shady and companies from Russia are considered the most shady of the 28 countries involved in the survey. However, the report notes the obvious "The index shows that there is no country among the 28 major economies whose companies are perceived to be wholly clean and that do not engage in bribery."

A little background on the survey

"Transparency International’s 2011 Bribe Payers Survey asked more than 3,000 business executives worldwide about their views on the extent to which companies from 28 of the world’s leading economies engage in bribery when doing business abroad (Appendix A). The score for each country is based on the views of the business executives who had come into contact with companies from that country."

The survey then breaks it down by industry.....again the lower the score the higher the perception of bribery.

The survey clearly shows it is well known among business executives that "Public works contracts and construction" is where the most bribing is taking place by a significant margin. Although, I find it interesting that "banking and finance" is ranked where it is. However, I suppose this is a survey about the illegal activity of bribing vs the legalized shady practices of the Federal Reserve system, which in conjunction with the Primary Dealers, engages in what amounts to robbery from savers and tax payers alike......so I guess in that way it makes sense!

An interesting tidbit from the survey points out that prior to May 2011 it was not even a criminal offense for Chinese companies to bribe foreign government officials (not that it means it will actually be enforced). Besides, even when it is considered illegal, many companies just consider the resulting slap on the wrist the cost of doing business. We can be sure the recent AstraZeneca case is just business as usual.

Occupy Wall Street and the Tea Party should focus on their core ideas not their ideologies

It annoys me to no end to continuously read about how Occupy Wall Street and the Tea Party have completely opposing views. As the The Atlantic puts it

"Thanks to Occupy Wall Street and the Tea Party, America now has two national protest movements at opposite ends of the ideological spectrum, exemplifying our frenetic political culture. At last, there are diametric outlets for all the angst."

 There have been attempts to talk about their similarities.....such as the below chart from LA Weekly

However, that focuses more on the similarities of the participants than their ideas. 

Then we have this from Slate which says "The Venn diagram below plots the concerns, allies, heroes, and inspirations of the two movements."

Again that was trying to visualize more then just their ideas but it begins to get closer to the main hot button issues which fueled the rise of both movements.

Then there is this venn diagram from James Sinclair and made a little more attractive to the eyes by Ty Mortensen. This hits a lot more on the key issue.

However, I think the reality goes a step further then just this. Corporations have done more then just 'lobby' the government. Corporations have infiltrated the government! This was touched on in a 2009 article "The Quiet Coup" by The Atlantic (Read it if you didn't when it came out, it's just as relevant today, if not more). As it says in the article

"The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government"

Putting aside the irony of someone formerly from the IMF talking about corruption (a rant for another day), it goes on to point out a few of the connections at the time (a web that has only grown since).

"One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.

These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. It has become something of a tradition for Goldman Sachs employees to go into public service after they leave the firm. The flow of Goldman alumni—including Jon Corzine, now the governor of New Jersey, along with Rubin and Paulson—not only placed people with Wall Street’s worldview in the halls of power; it also helped create an image of Goldman (inside the Beltway, at least) as an institution that was itself almost a form of public service."

We all know where Jon Corzine went after being governor...ya corrupt and now defunct MF global. As Dealbook points out about the MF global investigation.

"In a more surprising development, Gary Gensler, head of the Commodity Futures Trading Commission, will no longer participate in the investigation due to his long acquaintance with Mr. Corzine"

Take a wild guess where they knew each other from?

"Mr. Gensler had worked for Mr. Corzine while both were at Goldman Sachs in the 1990s." 

Ya, that was a little too easy. However, my point is not to discuss in detail the depth of corporations infiltration of our government and our regulatory agencies. My point is that the corruption and blurring of the lines between corporations and government is at the heart of both OWS and the Tea Party movements.

By focusing on their CORE IDEAS the movements together have hope of getting something accomplished. Otherwise it seems their messages will get watered down, twisted by the media, and turned into nothing but expressions of the ideologies of the "left" and "right"....something both movements were expressly against.

Both movements from the very start focused on the Federal Reserve. Why not start there? End the Fed.

Rant for a Revolution

I have meant to start this blog for awhile. In fact, I registered the domain in December of last year (and that was after much procrastination!). I must admit the Occupy Wall St. protests have made the Wall Street Rant name appear to have a very strong association with it. While I can't say I have participated in any of the protests, I do support many of their ideas.

I didn't start this blog for so long because I was somewhat obsessed with laying out my core criticisms from the start about the financial industry, the political system, the media and people in general.........then I realized that is the purpose of a book not a blog. So I have decided to stop over-thinking and just do. Besides, I'll be lucky if anyone is reading my posts anyway.

The enthusiasm behind the Occupy Wall St. movement helped push me to finally start this blog. Like many people, camping out to support the cause is not an option. However, real movements are more then just protests on the street. Movements that lead to revolutions are about changing the way people think. It's not just about bombarding the streets with people, it's about bombarding people with facts where ever they are. Hopefully I can do my part on this blog, through the discussion of individual ideas instead of ideologies. I will always be hesitant to associate myself with a specific movement, because movements can be hijacked. Therefore, I will always choose to put my support behind ideas instead of labels.

If you have found my blog, I encourage you to subscribe via RSS or e-mail (links always on the right side) to hear my future rants. I encourage all comments, so feel free to rant back.