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Mutual funds with good stewardship—fund companies that regard their investors more like partners than “other people’s money”—are more likely to deliver good risk-adjusted returns and have higher survivorship rates, according to Morningstar’s 2011 Mutual Fund Stewardship Grade Research Paper, released Monday.

“The results of this study show a very strong correlation between good stewardship of capital and a positive investor experience,” said Laura Pavlenko Lutton, editorial director of fund research at Morningstar (NasdaqGS: MORN) and one of the authors of the study.

Morningstar assigned Stewardship Grades to about 1,000 funds from more than 40 fund families in 2004 and 2007. In this study, Morningstar looks to see what happened after those grades were given. The authors analyzed how likely it was for a fund with a good grade to be successful, which is defined as those with a Morningstar rating of three or better. According to Lutton, the grades worked; 85 percent of funds with an ‘A’ grade overall in 2007 were found to be successful. Other studies have questioned the predictive value of Morningstar stars; wrote our own fund columnist Stan Luxenberg recently, “Morningstar concedes that its system is not foolproof, but the company has long argued that the stars can provide some guidance.”

Nevertheless, Lutton said the grades have had a lot of traction with advisors because their business depends on their partnership with fund companies. The grades can help advisors identify funds that make the advisor look good and deliver good stewardship with their clients. Since advisors care for their clients’ capital, it would make sense that they’d want fund partners that treat their client’s capital in the same way, Lutton said.

“Funds with top Stewardship Grades are most likely to employ industry best practices and treat fund shareholders like owners, as opposed to treating them like just another dollar through the door.”

To come up with the stewardship grades, Morningstar evaluated a fund’s corporate culture, or how investor-centric it is, a qualitative analysis that made up 40 percent of the grade. Twenty percent of the grade was made up of an evaluation of the fund’s board, including whether the members are independent and invest in the funds they oversee. Morningstar found that 92 percent of fund boards have “skin in the game.” Another 20 percent of the grade is based on whether the fund’s managers also have skin in the game. Fees made up the last 20 percent of the grade; funds with low fees tended to have better risk-adjusted returns, especially over the long term. The research also takes a fund’s regulatory history into account, but it doesn’t add to a fund’s score, as Morningstar hoped all would follow the law as an industry standard.

The customer experience has become more of a focus of the industry in the last 10 years, said Avi Nachmany, director of research at Strategic Insight. “Stewardship is much more of an industry sentiment and has become much more of a common theme and a common focus.”

Asset allocation has also become more a focus as part of the investor experience, rather than chasing the investment du jour, Nachmany said. Last year, at least two-thirds of the funds sold through advisors were in an asset allocation model, according to Strategic Insight.

Regarding stewardship grades, “That’s a good start, but you’re just touching the skin of it,” said Veerendra Virkar, research analyst at Financial Research Corp. in Boston. Virkar believes Morningstar’s analysis is not a complete indicator of a fund’s performance. A better indicator would be to look at funds that consistently perform in the top quartile of their peer categories, as this would put larger fund families on equal footing with those smaller firms that provide more niche products.

Virkar said looking at a fund’s fees, board quality and manager incentives was important, but looking at corporate culture doesn’t quite work. This factor is difficult to measure and highly subjective, as different cultures suit different people.

“There could be multiple paths to the same goal,” he said.

American Funds was one of the fund families that earned an overall Stewardship Grade of ‘A.’ Other fund companies that earned the top grade included Clipper, Davis, Diamond Hill (NasdaqGS: DHIL), Dodge & Cox and PrimeCap. Typically these firms have a good corporate culture, low personnel turnover and reasonable fees, Lutton said. They also tend to play to their strengths, and are unlikely to launch funds out of their expertise.

While no fund family received an overall grade of ‘F,’ some did receive a ‘D,’ including Alliance Bernstein (NYSE: AB), John Hancock (NYSE: JHS), Principal (NYSE: PFG) and Putnam.

Many of the funds that received ‘D’s and ‘F’s didn’t survive, as they were either merged or liquidated, including the Putnam Vista Fund, Putnam Classic Equity Fund, Federated American Leaders Fund and the Royce Technology Value Fund.

About one-third of funds graded ‘F’ in 2004 didn’t survive, while about one-fourth of funds receiving a ‘D’ were liquidated or merged away, Morningstar said. Because the grades seem to correlate to a fund’s longevity, advisors can have a better idea of which funds aren’t going to be around for the long haul, removing a lot of the hassle of having to explain that to investors and having to make new decisions about which funds to invest in, Lutton said.