The Morningstar Analyst Rating for funds supplements the Morningstar Ratings for funds, commonly known as the “star rating,” which assigns one to five stars based on a fund’s past risk- and load-adjusted returns versus category peers. In addition, Morningstar launched in-depth Global Fund Reports for a subset of the newly rated funds.
The new five-tiered Morningstar Analyst Rating scale has three positive levels—Gold, Silver and Bronze—in addition to Neutral and Negative ratings. Analysts arrive at a rating through an evaluation of five key pillars they believe are crucial to predicting the future success of a fund, considering both numeric as well as qualitative factors: People, Process, Parent, Performance and Price. Morningstar analysts score these five pillars as Positive, Neutral or Negative, which are then combined for the overall rating.
The Analyst Ratings are not designed to be a market call on an asset class or a prediction of short-term performance, and cannot assess whether a fund is the right fit for an investor’s particular portfolio or risk tolerance.
Morningstar reserves the top three tiers, expressed as medals, for funds its analyst team thinks have sustainable advantages that position them well versus peers and/or a relevant benchmark on a risk-adjusted basis over a full market cycle of at least five years.
Don Phillips, president of fund research for Morningstar, said, "The Morningstar Analyst Rating is an important step in the evolution of our fund research. While the rating system is new, our analysts have been producing independent research on funds since the late 1980s. Our quantitative star rating for funds is a backward-looking achievement test, while the new Analyst Rating is more of an aptitude test, signaling to investors our forward-looking perspective on a fund's ability to be a strong investment option over the long haul. As with the star rating, the Analyst Rating is intended to supplement, not replace, investors' due diligence process."
The new Morningstar Analyst Rating for funds, along with analysis of the five pillars, is available on Morningstar's investment research website for individual investors at www.morningstar.com.