Lipper Indexes: What They Are and How They Work
Lipper Indexes are benchmarks that track the performance of managed-fund strategies by averaging the returns of the largest publicly traded funds that follow a given strategy. They provide a standardized way to compare actively managed mutual funds across asset classes and investment approaches.
How Lipper Indexes are constructed
- Managed by Lipper, a provider of fund data (part of Reuters).
- Each index represents a specific fund strategy (for example, large‑cap growth, international equity, high‑yield bond).
- Funds included are selected by assets under management; the number of funds used typically ranges from about 30 to 100.
- Index performance is derived from averaging the returns of the selected funds for the strategy.
Uses and applications
- Benchmarks: Investment managers and fund sponsors commonly use Lipper Indexes as benchmarks in client reporting and performance comparison.
- Performance analysis: Investors and analysts use the indexes to gauge how a strategy class is performing over various timeframes and market conditions.
- Market insight: Lipper publishes rankings and comparisons that highlight top- and bottom-performing strategies within categories, helping identify trends and relative strengths.
Interpreting Lipper Index performance
- Scope: Because indexes are based on the largest funds, they reflect the performance of prominent fund managers and may not represent smaller or niche funds.
- Variability: Performance can vary widely across strategies and time periods—equity strategies may show large gains or losses in a year, while bond and money-market categories typically exhibit smaller ranges.
- Not directly investable: These indexes are analytical benchmarks rather than investable products; individual fund results can differ materially from index values.
- Dynamic composition: Funds enter and leave the investable universe over time, so index composition and returns change accordingly.
Key takeaways
- Lipper Indexes offer standardized benchmarks for actively managed mutual-fund strategies across asset classes.
- Indexes are constructed by averaging returns of the largest funds in each strategy, usually using 30–100 funds.
- They are widely used for fund reporting and comparative performance analysis but reflect only the largest funds and are not themselves investable.