On February 9, 2011, Morningstar India will host its annual fund awards ceremony. If your first reaction is on the lines of: “well, another fund awards ceremony–another opportunity for back-slapping and pleasing everyone”, we aren’t surprised. Ultimately, awards stand or fall on the real motivation behind them, what they honestly aim to achieve and the strength of the process through which winners are identified. And that’s precisely where we distinguish ourselves from the crowd.
The objective of the Morningstar fund awards is to recognise those funds and fund houses that have added the most value within the context of a relevant peer group for investors over the past year and over the long-term. The awards are annual, so we believe it is appropriate to emphasise a fund’s one-year performance. However, we do not wish to give awards to funds that have posted a strong one-year return, but have otherwise not delivered good results for investors over the long-term.
Therefore, the funds must also have delivered strong three-year returns after adjusting for risk in order to obtain an award. Further, they must have been in the top half of their respective peer groups in at least two of the past three calendar years; also, in the most recent calendar year (2010) they must feature in the top half of their respective peer groups. We believe this combination ensures that the awards are given to funds that have been consistent performers. In effect, the winners are funds which have earned both strong one-year returns, and have also displayed the ability to earn strong long-term returns without undue risk.
And then there are the all-important qualitative checks. We certainly do not want to give awards to funds of the “flash in the pan” variety. We study factors like stability in the investment team and adherence to the investment mandate, among others. The intention is to look for repeatability in performance, and in the process try to differentiate skill from luck.
This year, Morningstar India will give out eight category awards and three fund house awards. To know more about the fund awards, read the methodology document, by clicking here.
Watch this space for the list of winners, after the awards ceremony!