Investing in mutual funds, segregated funds or ETFs (exchange-traded funds) can be a complex undertaking, especially in turbulent economic times. When it comes to measuring fund performance, the Morningstar Rating system is one of the most widely used tools to offer guidance for investors.
What are Morningstar Ratings?
Morningstar Ratings evaluate the strength of a fund based on past performance, risk-adjusted returns and fund expenses. These ratings, represented by a scale of stars ranging from one to five, offer investors a snapshot assessment of a fund's performance relative to its peers within the same category. A five-star rating indicates a fund has performed well compared to similar funds over the long term.
While many segregated funds struggled during 2022 and 2023, CDSPI Advisory Services Inc. ranked number one for performance and achieved superior investment returns, according to Chicago-based MorningStar Direct1.
How to use Morningstar Ratings
Morningstar ratings play a role in investment decision-making for several reasons:
- Performance Comparison: They allow investors to quickly compare a fund's performance against its peers, providing insights into its relative strength or weakness.
- Risk Evaluation: Morningstar ratings consider risk-adjusted returns, helping investors assess a fund's ability to generate returns while managing risk. This assists in aligning investments with risk tolerance and objectives.
- Expense Analysis: By factoring in fund expenses, Morningstar ratings enable investors to evaluate whether a fund's performance justifies its cost, ultimately impacting long-term returns.
- Decision Making: Morningstar ratings offer a simplified method for investors to narrow down their choices and identify funds worthy of further consideration, particularly amidst a vast array of investment options.
The CDSPI Funds
Although 2023 was considered a turbulent year, CDSPI Advisory Services Inc.‘s fund family continued to perform and deliver superior investment returns, as reported by Investment Executive magazine.1 By the conclusion of 2023, CDSPI had successfully maintained 88.1% of its long-term assets under management (AUM) within the first or second quartile, according to Morningstar. This solid performance continued from the previous year, where 66.2% of its AUM stood in the top quartiles, resulting in a two-year average of 77.2%.2
Among CDSPI's family of 41 funds, 29 performed above average, with two funds – the CDSPI Aggressive Equity Fund managed by Fiera Capital Corp. and the CDSPI Emerging Markets Fund managed by Brandes Investment Partners & Co. – earning five stars and ranking as the best in their categories.3
Vice President of Advisory Services, Steven Moscone at CDSPI Advisory Services, commented that “Our CDSPI Funds are managed by some of the best asset management firms with demonstrated expertise and a track record of success within their asset class. We’re very pleased with our funds’ performance over the past 18 months and especially proud of the results from Brandes and Fiera Capital.”
Other Approaches to Assessing Fund Performance
Morningstar acknowledges its rating system is a quantitative measure of a fund's past performance that is not intended to accurately predict future performance. Before investing, investors should conduct thorough due diligence. This may include analyzing a fund's investment strategy, manager tenure, and portfolio composition to ensure alignment with objectives.
Investors, with the help of an Investment Advisor, can also consider alternative methods for evaluating fund performance and philosophy:
- Peer Group Comparison: Comparing a fund's performance against its peers within the same category offers additional context and helps investors assess whether performance is truly exceptional or standard within the industry.
- Fund Philosophy and Objectives: Understanding a fund's investment philosophy and objectives is crucial. Investors should ensure alignment with their own goals, considering factors beyond just ratings.
- Independent Research: Supplementing Morningstar Ratings with independent research from reputable sources aids in gaining a comprehensive understanding. This may include analyzing historical performance data and expert analysis.
“Morningstar ratings are just one tool we use when navigating the complexities of investment choices,” says Shan Janmohamed, an Investment Advisor with CDSPI Advisory Services Inc. “While the rating does offer insights into fund performance, investors should consider their own goals and tolerances for risk. By combining Morningstar ratings with other research and understanding the fund philosophy, we help our clients make strategic investment choices tailored to their objectives and timelines.”
Offsetting Today's Inflationary Climate
In an industry marked by volatility, even in challenging times, disciplined investment strategies lead to success and underscore the importance of sound investment management. While Morningstar Ratings offer historical perspective, regular monitoring of investments is essential to ensure continued alignment with expectations. Factors such as changes in management or performance may necessitate re-evaluation over time.
Inflation erodes your purchasing power and could have a significant impact on your financial plan—and thus your timeline for retirement. But it’s what’s in your portfolio that matters when inflation increases. That’s why the best advice is to meet with an Investment Advisor from CDSPI Advisory Services Inc. They have the ability assess your finances and suggest strategies to rebalance your asset allocation and develop portfolio recommendations that may help offset the risks that inflation poses.
Investment Planning Advisors from CDSPI Advisory Services Inc. are CERTIFIED FINANCIAL PLANNER® professionals who take the time to understand your unique needs and always provide objective, unbiased advice. Our advisors are paid a salary and are not influenced by any outside affiliations or third-party pressures.
If you have any questions about your Financial Plan or investment strategy, please contact our Investment Advisors at 1.800.561.9401 or investments@cdspi.com. You can also go online to book a meeting.
1 Catherine Harris, Seg funds struggled through another difficult year, March 11, 2024, Investment Executive.
2 Ibid.
3 Ibid.