Identifying Stewardship Mutual Funds for Individual Investors

Abstract

Since the 2003 mutual funds scandal, it has become quite clear that thoughtful, long-term individual investors should focus on identifying and investing in stewardship funds. The purpose of this study is to provide readily available approaches for individual investors to use in the identification of stewardship funds.

First, the nature and attributes of “boutique-style” fund companies likely to provide stewardship funds are presented. Second, Morningstar’s approaches to Fund Ratings, Total Stewardship Grades, and Analyst (Pillar) Ratings are provided and discussed.

Third, Chen and Huang’s quantile regression analysis of the relationships of Morningstar Stewardship Grades, Manager Incentives, and Board Quality with fund performance are provided and discussed.

Fourth, Bogle’s Stewardship Quotient approach is provided and discussed.

Fifth, Zweig’s attributes of stewardship funds that complement Bogle’s approach to identification of stewardship funds is presented.

Keywords: mutual funds, individual investors, boutique funds, fund ratings, total stewardship grades, analyst ratings, Morningstar, manager incentives, board quality, stewardship grades, stewardship quotient, stewardship attributes

JEL Classification: G2, G23, G28