Meeting Expectation Through Knowledge

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Meeting Expectation Through Knowledge

• A Overview of Tools and Information Available to
  Institutions and Intermediaries to Help Investors
  Better Meet Their Expectations

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Robin Thurston

• Global Director of Research, Media, Marketing
• robin.thurston_at_lipper.reuters.com
• [phone]

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Who is Lipper?

• Founded in 1973
• Helping institutions, intermediaries, and
  investors track and understand mutual funds
• Tracking 120,000 funds in 16 global financial
  centers
• Information is delivered via desktop applications
  (LANA), data feed services, fact sheets, web
  solutions, and Reuters terminals
• Delivering the latest data to hundreds of
  influential newspapers, magazines, and websites

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Current Tools and Information

• Returns Based Style Analysis
• Passive Index Constraints
• Timing Issues
• Problematic Asset Allocation Models Mid-Cap or
  Multi-Cap
• Common Risk Metrics Have they worked in setting
  good expectation?
• Traditional Fund Ratings Helping investors?

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Returns Based Style Analysis

• Based on passive indices (must analyze
  constraints)
• Edges to the Classifications Is it Growth or
  Aggressive Growth?
• Time Series Data
• Since the data used are historical returns, it is
  difficult to draw any conclusions about its
  future risk/return profile.
• Undetected Style Changes
• May indicate style changes that never occurred

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Passive Index Problems

• Rebalancing in Top Stocks
• SP when we feel like it?
• SP 400 has 32 in Top 25 Stocks as of 10/2002
• Russell 1 time a year
• MSCI Recently changed entire methodology to
  include float and whole methodology tied to P/B
  only.
• Market Cap vs. Sales

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SP 500 Barra Growth Top 20 Stocks
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SP 400 Barra Growth Top 20 Stocks
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Dell Chart Market Cap vs. Revenues
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Returns Based Style Analysis Example
SAFECO Northwest
AC Equity Income
Wells Fargo Growth
Hodges Fund
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Multi-Cap Classification
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Asset Allocation

• Few returns based packages check security overlap
• Advisors using traditional Mid-Cap definitions
  can create extreme portfolio overlap if they do
  not understand or acknowledge Multi-Cap funds.

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Security Overlap
Dreyfus Appreciation Fund - Large-Cap
Wells Fargo Growth Equity - Mid-Cap
Scudder Small Co Stock - Small-Cap
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Common Risk Metrics

• Standard Deviation pure risk
• Beta market relative risk
• Sharpe Ratio risk adjusted return
• Tracking Error index relative excess return
• Sortino Ratio downside risk
• Is the portfolio manager holding the same
  securities today as he did 3 years ago?

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Beta Setting Expectations?
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Current Ratings

• Based on classifications that are too broad or on
  classifications that use style analysis as the
  basis for classification
• Miss the mark with intermediaries and individuals
  To broad and dont saying anything about the
  investor or their preferences
• One Size Fits All
• Cannot be personalized to individual investors
  preferences

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Are All Ratings Created Equal?

• AmSouth Large Cap Tr
• Large-Cap Core
• Pioneer High Yield A
• High Yield
• Fidelity Select Software
• Science Technology

Ratings as of 10/31/2002
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Lipper Solutions
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Lipper Classifications

• Better Classification Lead to Better Decisions

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Lipper Classification Universe
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Lipper Classifications

• Equity USDE, Sector, International
• Mixed Equity Balanced and Income
• Fixed Income Taxable and Tax-Exempt
• Money Markets Retail and Institutional
• Total 126 Classifications including Multi-Cap
  on the equity side.

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Active Indices

• A Solution to Passive Indices

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What are Holdings Based Indices?

• Holdings Based Indices are the first indices
  derived from the holdings of active mangers!
• No underlying mangers are revealed.
• Intended to track Lipper Classification averages!
• USDE
• Sector
• Active Indices for Active Managers!
• Each index is on a 45 day lag

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Why Should You Use Lippers Active Indices?

• These new indices give you the first opportunity
  to look into your peer group down to the
  security!
• Sector analysis
• Industry analysis
• Security analysis
• Explain the why questions
• Over and under-weight positions relative to peers
• Cash build up relative to peers
• Finally active managers dont have to use passive
  indices to guess what their peers are doing from
  month to month!

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Breaking Down Perception
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Are You Outperforming?
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Lipper-Barra Mutual Fund Risk Factor

• Taking Competitive Analysis and Risk to a New
  Level

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Lipper - Barra Mutual Fund Risk Factor
Ingredients

• Lipper
• Industry Leading Fund Classification System
• Holdings for 7,500 equity mutual funds
• Barra
• Industry Leading Global Equity Model
• 4 Styles Including technical and fundamental
  data
• 48 Countries from Australia to Venezuela
• 38 Industries from Appliances to Wholesale Trade

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Intuitive Ways to View Risk
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Lipper-Barra Risk Factor Setting the Standard!
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Janus Fund Example
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The Lipper Leader System

• Matching Investors with
• Funds that Fit

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Introducing

• Lipper Leaders!
• Highly sophisticated methodology delivered in a
  simple format for investors to choose specific
  funds that meet their individual goals!
• Allows intermediaries to better communicate which
  funds will help meet their client needs in a
  simple and easy to understand format!
• Helps institutions in the sales and retention
  process by focusing on specific benefits of funds
  for current shareholders and prospective
  investors!
• www.lipperleaders.com

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Lipper Leaders Funds that Fit

• The Lipper Leader system offers a suite of tools
  that guide investors and their advisors in
  selecting funds that suit individual investment
  styles and goals!
• Suitability is a key to
• Helping investors find a fund that they can stick
  with for the long run
• Keep unnecessary taxable distributions in check
  for long-term holders
• Minimize trading-cost impact of short-term
  shareholders on longer-term holders
• Helping investors meet their goals

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Lipper Leaders A Few Basics

• Scores are calculated monthly for all open-end
  equity, mixed equity and fixed-income funds
  except money-market funds
• List of Lipper Leader funds available at no
  charge at www.lipperleaders.com
• Currently launched in 11 counties and 7 languages
• Lipper does not charge for use in advertising

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Lipper Leaders Funds that Fit!

• Not just the right fund..
• But the right fund for the individual investor!
• Selection is a two part process
• What goal is the most important to the investor?
• Which funds are best at meeting those goals?
• As a starting point every investor should review
  their Lipper Leader Score Card!

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Lipper Leaders

• All Measures Calculated with Lipper
  classification (except Preservation)
• Top 20 are designated as Lipper Leaders
• Simple tool for investors and advisors to review
  strong total return performance, consistency of
  performance, downside risk, taxes, and expense
  information

Best
Worst
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Horizon
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Horizon Entry Screen
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Horizon My Lipper Leader Score
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Horizon - Screening
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Horizon Lipper Leader Result Page
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Advanced Research
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Outsourcing Research

• Fund Market Insight Fund Flow Reports Free!
• Fact Sheets
• Standard
• Custom
• 15(c)
• Board Analysis
• Performance Analysis Services
• Customized Peer Analysis
• Data Feeds
• Style Analysis
• Standard Custom

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Q A

• Questions?