- In April, the Morningstar World Large Stock category received a long overdue break-out into three separate categories for Blend, Growth, and Value.
- This change will benefit value-oriented global equity funds. No funds that are currently in the World Large-Stock Value category, had a five-star rating while in the prior combined category, but there are now five five-star funds in the value crowd. There are many funds in the category that had been executing on their strategies and providing downside risk that had just gotten lost due to the growth skew over the last few years.
- Furthermore, the new methodology isolates nearly all passive funds into the Blend category, which should relieve pressure on active funds that had previously been compared against them.
- The question remains whether this will open up the market for global equity funds now that there is a more nuanced approach from Morningstar. In a recent FUSE survey of advisors – in partnership with WealthManagement.com – the outlook for increased allocations to global equity was the fourth-most bullish, with 41% of advisors expecting to increase global equity.
- However, there is still a significant challenge to global equity due to the lack of consistent sleeves within asset allocation models. It will be interesting to see if more home office and advisor asset allocation models open up sleeves to the new categories and reward those funds that had been buried in the World Large Stock category.
Active/Passive Assets and Market Share of Three Largest Funds, April 2021