Investment stars lose their sparkle

Two major fund managers have lost their five-star Morningstar ratings and a swag of other fund managers have been re-rated from four stars to three.

Two major fund managers have lost their five-star Morningstar ratings and a swag of other fund managers have been re-rated from four stars to three.

Mercantile Mutual and Merrill Lynch Mercury have both moved down from five to four stars, while BNP, County, IOOF, JB Were, National Australia, Rothschild and Salomon Smith Barney have moved from four stars to three.

This leaves only three fund managers at the top of the table — Colonial First State, Credit Suisse and Perpetual Investments.

However, Morningstar managing director Graham Rich says fund managers have not in effect been downgraded but re-rated.

“Initially, the benchmarks that fund managers and their funds had to reach to gain five, four, three, two or one stars were derived from the implementation of Morningstar Star Ratings in New Zealand,” he says.

“Our commitment was to review this once a critical mass of Australian fund managers had been reached, at which stage we would recalibrate the fund manager and fund star rating distributions for Australia.”

Morningstar now rates more than 50 per cent of retail funds under management and 1500 Australian funds. Rich says critical mass has now been reached.

“In a sporting context it’s like a re-seeding of teams at the end of a competition. We’ve entered a new period of competition, we’ve looked at the players and how they’ve performed and we’ve re-seeded them,” he says.

Table: Morningstar’s Falling Stars

Fund manager Morningstar Star Rating

31 May 2000 (max = 5) Morningstar Star Rating

30 June 2000 (max = 5)

Mercantile Mutual ***** ****

Merrill Lynch Mercury ***** ****

BNP Paribas **** ***

County **** ***

IOOF **** ***

JB Were & Son **** ***

National Australia **** ***

Rothschild **** ***

Salomon Smith Barney **** ***

Tower *** **