Lipper Leader

A Lipper Leader is a measure of a mutual fund's success based on whether it meets a set of goals established by Thomson Reuters, the company that owns the Lipper brand of comparison universes and other fund analytics.

Lipper ranks mutual funds based on five metrics: total return, consistent return, capital preservation, tax efficiency and expenses. The top 20% of funds in each category receive the highest ratings and are named Lipper Leaders. The company names leaders for three-, five-and 10-year periods for each category, as well as overall.

Asset managers, fund companies and financial intermediaries recognize Lipper's benchmarking and classifications as an industry standard, along with those from rival Morningstar.

Lipper Leaders help investors decide which funds meet their investment goals and match their preferences, although they do not attempt to predict future performance. Rather, the leader rankings attempt to complement one another. For example, a fund ranked a Lipper Leader for both tax efficiency and total expenses likely is among the lowest-cost options.

All categories split fund rankings by quintiles. Each fund is compared versus peers for each category. The top 20% are the Lipper Leaders, Lipper ranks the next 20% a 4, and the next 20% a 3, and so on. Lipper updates its ratings once a month.

Of all the Lipper Leader categories, the most widely cited and watched is total return, which takes into account both dividends and price appreciation.

Like all such rating systems, past performance cannot predict future results. Moreover, the Lipper Leaders system cannot identify up-and-coming funds with shorter track records that may outperform over time.

Also of note, there is no Lipper Leader category for risk-adjusted return, or the return relative to each unit of risk taken on by the fund manager. Customers must combine total return with capital preservation and consistent return rankings to even attempt to approximate this measure.

For some customers, the less-popular Lipper Leaders are of particular interest, depending on their investment style.

Take Lipper Leaders for consistent return, for example. This ranking points to funds that did a better job versus peers at avoiding volatile swings. While this metric won’t help shorter-term investors, or those that are more risk-averse, it’s useful to long-term investors who want to avoid funds that put up big performance numbers over a specific short-term period, rather than repeatedly over time.

Some investors who hold substantial assets outside of a 401k or similar tax-advantaged retirement account also pay close attention to Lipper Leaders for tax efficiency.