(Dow Jones) Morningstar Inc. (MORN), the immensely powerful arbiter of the mutual fund industry, is turning its attention to a corner of the business it has long ignored: closed-end funds.

The Chicago company, which already offers bare-bones closed-end statistics, now promises to shine "a high-powered spotlight" on the vehicles, including a weekly report and write-ups of many individual funds.

In some ways the move is a natural one. Morningstar already offers extensive coverage of conventional mutual funds, exchange-traded funds and even some research into separately managed accounts, hedge funds and variable annuities, so closed-end funds are an obvious omission.

But the change could put Morningstar in a ticklish position. The company has long been known for urging Main Street investors to avoid the temptation to time markets or chase after hot investments, impulses closed-end funds often capitalize on.

Although closed-end funds have been around for decades, they remain a relatively small corner of the fund industry, holding about $230 billion in assets, roughly one third of the amount of money in far newer exchange-traded funds and a small fraction of the $11 trillion in conventional mutual funds, according to the Investment Company Institute. (Morningstar says it has followed closed-end funds in the past but stopped more than a decade ago after their popularity waned.)

Unlike other types of mutual funds, closed-end funds offer investors no promise that they will be able to buy or sell fund shares at prices that match the value of the funds' holdings. In fact, the ability to speculate on price discrepancies-the hope that funds bought a discount will one day turn out to trade at premiums-is a major source of their appeal.

Those aren't the kind of bets Morningstar advocates. The company typically puts emphasis on factors such as cost, management tenure and long-term performance. In fact, it was Morningstar that devised a new performance metric for mutual funds, which it calls "investor returns," to show how frequently investors lose out when they try to jump in and out of funds.

Still, Morningstar probably can do some good by helping small investors navigate closed-end funds' complex trading mechanics. And the change may be good business if investors are willing to pay for research they think will make them money.

But given its hard-earned reputation as an advocate for mom and pop, the move seems to present a conundrum a bit like the one faced by school boards pondering sex-education classes: Will it help people make more informed decisions or just seem like an endorsement of risky behavior?


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