The Definition of Lipper Rankings
Mutual fund managers and individual investors do a lot of analysis to make the best investment decisions. One information source is Lipper rankings (or ratings), which rank mutual funds by share class based on total historical returns. Lipper rankings have a lot of history behind them and are used industry-wide. In addition to rankings, Lipper also provides analyses and analytical tools.
Other People Are Reading
-
How Lipper Rankings are Compiled
-
Lipper rankings are based on a complicated formula that takes many factors into account. Some of the factors considered are capital preservation, success in lowering expenses, the ability to put off taxes and returns. Funds within the same class are compared to each other, so that the effect is like comparing apples to apples, rather than apples to oranges. The formula assumes that all dividends are reinvested.
Specific Lipper Rankings/Ratings
-
Each mutual fund in a particular group of similar funds is given a Lipper ranking. If there are 75 funds in a particular class, each fund will be ranked X out of 75. The top 20 percent of mutual funds in the class are rated as Lipper Leaders. The next 20 percent are rated as "4," the next 20 percent are "3," the next 20 percent are "2" and the bottom 20 percent are given the lowest rank of "1."
-
What Lipper Rankings Mean
-
Lipper rankings are not predictions of the future, but rather an aggregate system of rating past performance. The rankings are recalculated on the seventh business day of each month and provide information on three-year, five-year, 10-year and overall performance. They give investors and mutual fund managers a historical context for choosing a fund that will best fit the individual's investment needs.
Lipper Rankings Warnings
-
Lipper Rankings are not the be-all, end-all of investment information. To be used properly, they must be analyzed in context. For example, an investor shouldn't only look at an individual mutual fund's Lipper rankings. That's because in a long-running bull market, many mutual funds will have positive three-year earnings. So it's important to compare several funds to one another during that time frame, to see which has the best rankings. Also, Lipper rankings are based on historical data, and it's impossible to predict the future of an investment based only on its past performance.
Where to Find Lipper Rankings
-
Mutual fund managers/companies will provide investors with their funds' Lipper Rankings. They're commonly shown as charts that list out each fund's ranking for the specified period. Investors can see if a fund's rankings are going up or down and how they compare to other funds in the same class. Other similar rankings are also provided by Morningstar and several investment-focused magazines and websites.
-
