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What is the Lipper Index?

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  • Written By: Brenda Scott
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 December 2016
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A mutual fund is a type of investment in which the combined money of a group of shareholders is used by an investment firm to purchase investment vehicles such as stocks, bonds and money instruments. A mutual fund index is a performance tracking or rating system which compares different mutual funds to one another and tracks their performance. The Lipper Index is the leading mutual fund index created by Lipper Analytical Services, a subsidiary of Thomas Reuters.

The Lipper index was first created in the 1970s to track mutual fund performance in the United States. Over the next decade the company expanded and developed global indices. It is now the leading mutual fund tracking service worldwide with offices in the US, Europe, Asia and the Middle East. The Lipper index calculates mutual fund performance quarterly and annually in a number of ways which allow investors to compare their fund performance to that of similar funds.

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There are several ways to categorize mutual funds including the size or value of the companies in which they invest. This is determined by multiplying the number of each company’s outstanding shares by the value of each share. The result is the market capitalization or cap size of the company. Funds investing in companies with a market value in excess of $8 billion US Dollars (USD) are called large cap funds; those who invest in companies with a value between $1 billion USD and $8 billion USD are mid-cap funds; funds invested in companies with a value under $1 billion USD 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 according to their investment strategies, or if the fund invests in growth stocks, values stocks, or a blend of the two. Growth funds involve the largest element of risk because they invest in more expensive stock from rapidly growing companies. The potential gain is greater as long as the growth rate continues, but the fund is also at risk for a greater loss if growth slows, which would result in a decreased value of the stock shares. Value funds purchase stocks which are undervalued compared to their earnings and are less dependent upon rapid growth to maintain value. Blended funds invest in a combination of growth and value stocks.

Investors with shares of sector funds can also use the Lipper Index to compare their fund’s performance to that of other is the same sector. A sector is segment of the business community. While some funds try to spread their investment risk over several types of industries, sector funds specialize in one area such as technology, energy, aerospace, retail, etc. The Lipper Index also provides fund comparisons based upon countries, financial ratios and fund cash positions.

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