The Lipper Index is a mutual fund performance tracking system created by Lipper Analytical Services. It compares mutual funds based on investment strategies, market capitalization, sectors, countries, and financial indices. It calculates performance quarterly and annually.
A mutual fund is a type of investment in which an investment firm uses the combined money of a group of shareholders to purchase investment vehicles, such as stocks, bonds, and monetary instruments. A mutual fund index is a performance tracking or rating system that compares different mutual funds against each other and tracks their performance. The Lipper Index is the leading index of mutual funds created by Lipper Analytical Services, a subsidiary of Thomas Reuters.
The Lipper Index was first created in the 1970s to track the performance of mutual funds in the United States. Over the next decade, the company expanded and developed global indices. It is now the world’s leading mutual fund tracking service with offices in the US, Europe, Asia and the Middle East. The Lipper Index calculates the performance of mutual funds quarterly and annually in a number of ways that allow investors to compare the performance of their funds with that of similar funds.
There are several ways to classify mutual funds, including the size or value of the companies in which they invest. This is determined by multiplying the number of outstanding shares of each company by the value of each share. The result is the market capitalization or the maximum size of the company. Funds that invest in companies with a market value greater than $8 billion US dollars (USD) are called large-cap funds; those that invest in companies worth between $1 billion and $8 billion are mid-cap funds; Funds invested in companies worth less than $1 billion dollars are called small-cap funds. Investors using the Lipper Index can see how their fund performs compared to other funds in the same capitalization category.
The Lipper Index also compares mutual funds based on their investment strategies, or whether the fund invests in growth stocks, equity stocks, or a combination of both. Growth funds carry the greatest element of risk because they invest in the more expensive stocks of fast-growing companies. The potential gain is greater as long as the growth rate continues, but the fund also risks a greater loss if growth slows, which would result in a decline in share value. Value funds buy stocks that are undervalued relative to their earnings and are less dependent on rapid growth to maintain value. Blended funds invest in a mix of growth and value stocks.
Investors in sector fund shares can also use the Lipper Index to compare their fund’s performance with that of another sector in the same sector. A sector is a segment of the business community. While some funds try to spread their investment risk across multiple types of industries, sector funds specialize in one area such as technology, energy, aerospace, retail, etc. The Lipper Index also provides comparisons of funds based on countries, financial indices and funds’ cash positions.
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