Lipper ratings 

Lipper ratings 

Lipper ratings are a system used by investment professionals to rate the performance of mutual funds. The system is designed to give investors an idea of how a fund has performed in the past and how it is likely to perform in the future.  

These ratings are based on several factors, including the fund’s investment return, volatility, and expense ratio. Each factor is given a weight, and the final rating is a composite of these weights.  

Investors can decide where to put their money by using the Lipper ratings. It’s important to keep in mind that past results do not guarantee future outcomes and that the success of a fund can also be influenced by other variables, including its management and investing approach. 

What are Lipper ratings? 

Lipper ratings are a type of investment performance measurement that assesses how well a mutual or exchange-traded fund (ETF) has performed compared to other funds in its category. The rating system is designed to give investors an idea of a fund’s risk-adjusted return, with higher ratings indicating better performance.  

Lipper ratings are based on a fund’s total return, including capital gains and dividends/distributions. The rating system takes into account a fund’s volatility, as well as its performance over different time periods.  

Lipper ratings are assigned on a scale of 1 to 5, where one is considered to be the highest and five to be the lowest. Funds that receive a rating of 1 are considered the best performers in their category, while those with a rating of 5 are the worst.  

Investors should keep in mind that past performance is not necessarily indicative of future results. However, the ratings can be useful in helping to choose between different funds. 

Classification of Lipper ratings 

There are four main types of Lipper ratings: buy, hold, sell, and strong sell.  

• “Buy” ratings indicate that a stock is expected to outperform the market. 
• “Hold” ratings indicate that a stock is expected to perform in line with the market.  
• “Sell” ratings indicate that a stock is expected to underperform the market. 
• “Strong sell” ratings indicate that a stock is expected to underperform the market significantly. 

How is the classification determined? 

The large-cap criteria require that at least 75% of the weighted equity assets of the fund be invested in large-cap securities. Mid-caps and small-caps are also subject to the same 75% model. Lipper ratings allow mid- and small-cap funds to have more statistical latitude regarding how their portfolios are built. 

It is necessary to determine a fund’s style after determining its market cap. Lipper’s “individual Z-score” for every era serves as a means of achieving this. A Z-Score is derived for each feature taken into account, such as dividend yield or return on equity, by deducting the index-weighted average scoring from the fund’s characteristic value-weighted average and dividing the result by the characteristic index-weighted standard deviation. 

Uses of Lipper ratings 

Lipper ratings are a tool that can be used by investors to research and compare different investment funds. The Lipper ratings consider several factors, including a fund’s historical performance, expense ratio, and riskiness of its investments. 

By looking at a fund’s Lipper ratings, investors can quickly see how that fund has performed in the past and how risky it is. 

Drawbacks of Lipper ratings 

Lipper ratings are one of the most commonly used tools for evaluating mutual funds. However, there are some drawbacks to using these ratings.  

• Firstly, Lipper ratings only consider a fund’s past performance, which may not indicate the future results.  
• Second, the ratings do not consider a fund’s fees or expenses, which can significantly impact a fund’s overall performance.  
• Finally, the ratings do not consider the individual investor’s specific investment objectives or risk tolerance, which are very important factors to consider when choosing a mutual fund. 

Frequently Asked Questions