Academics find evidence of bond fund misclassification by Morningstar

‘Widespread problem’ researchers claim

clock • 2 min read

An academic research paper has found evidence that mutual fund managers misclassify their holdings, resulting in "pervasive misclassifications across the universe of US fixed income mutual funds by Morningstar, who relies on these reported holdings".

The paper, Don't take their word for it: The Misclassification of Bond Mutual Funds, by professors Huaizhi Chen, Lauren Cohen and Umit Gurun, claims to be the first systematic study comparing fund reported asset profiles provided by Morningstar against their actual portfolio holdings. The researchers said they had focused on the largest of intermediaries that provide data on categorisation and riskiness at the fund level, which is Morningstar. It found that the misclassification occurred where funds report more investment-grade assets than are actually held in their portfolios, making...

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