Morningstar Adds New Commodity, Sector Fund Categories

According to a press release, the new commodity categories are:

• Agriculture: These funds invest in grain and feed products, oilseeds, cotton, dairy, livestock, poultry, and/or horticultural products. Investment can be made directly in physical assets or commodity-linked derivative instruments.
• Broad Basket: These funds invest in a diversified basket of commodity goods including but not limited to grains, minerals, metals, livestock, cotton, oils, sugar, coffee, and cocoa. Investment can be made directly in physical assets or commodity-linked derivative instruments, such as commodity swap agreements.
• Energy: These funds invest in oil (crude, heating and gas), natural gas, coal, kerosene, diesel fuel, and propane. Investment can be made directly in physical assets or commodity-linked derivative instruments.
• Metals: These funds invest in such industrial metals as aluminum, copper, lead, nickel, and zinc. Investment can be made directly in physical assets or commodity-linked derivative instruments.
• Miscellaneous: These funds invest in a specific commodity that does not fit into any of Morningstar’s existing commodity categories and for which not enough funds exist to merit the creation of a separate category.
• Precious Metals: These funds invest in such precious metals such as gold, silver, platinum, and palladium. Investment can be made directly in physical assets or commodity-linked derivative instruments.

The new sector categories are:

• Consumer Discretionary: These funds seek capital appreciation by investing in equity securities of U.S. or non-U.S. companies that are engaged in the manufacturing, sales, or distribution of consumer goods that are non-necessities.
• Consumer Staples: These funds seek capital appreciation by investing in equity securities of U.S. or non-U.S. companies that are engaged in the manufacturing, sales, or distribution of consumer staples.
• Equity Energy: These funds invest primarily in equity securities of U.S. or non-U.S. companies that conduct business primarily in energy-related industries. This includes and is not limited to companies in alternative energy, coal, exploration, oil and gas services, pipelines, natural gas services, and refineries.
• Industrials: These funds seek capital appreciation by investing in equity securities of U.S. or non-U.S. companies that are engaged in services related to cyclical industries. This includes, but is not limited to, companies in aerospace and defense, automotive, chemicals, construction, environmental services, machinery, paper, and transportation.

Morningstar also added a new broad asset class—Commodities—to its current set of six broad asset classes: U.S. Stock, International Stock, Taxable Bond, Municipal Bond, Balanced, and Alternatives. All of the new commodities categories are assigned to this broad asset class, and Morningstar has selected the Morningstar Long-Only Commodity Index as its benchmark.

As a result of the new categories, the Morningstar Rating for funds that are assigned to a different category may change because they will now be rated against a new peer group, the press release said.

The new category assignments will be available in Morningstar’s Web-based products immediately, and will be rolled out in all Morningstar products by the end of July.

The Morningstar Category Classifications methodology is available here.