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Morningstar Ratings 101: What You Need to Know

A breakdown of Morningstar’s ratings and how they are used

Nov 17, 2017

 

What is the star rating?

The Morningstar RatingTM for funds, often called the star rating, is a purely quantitative, backward-looking measure of a fund’s past performance, measured from one to five stars. Star ratings are calculated at the end of every month. You can search for a fund to see its most recent star rating for free on Morningstar.com.

 

How does the star rating work?

The Morningstar Rating methodology rates funds within the same Morningstar Category based on an enhanced Morningstar Risk-Adjusted Return measure. To receive a Morningstar Rating, a fund must have a record of more than three years. 

 

How is the star rating used?

The Morningstar Rating helps investors assess a fund’s track record relative to its peers. It’s intended for use as the first step in the fund evaluation process. 

 

You can read more about the rating’s performance on Morningstar.com.

 

What measures does Morningstar take to protect investors from misuses of the star ratings in advertising?

We make the most recent ratings available for free to everyone at Morningstar.com, so they can validate any promotions themselves. The most recent ratings are also available on other media websites, brokerage and asset manager websites, and within 401(k) plans. We make the most recent ratings available to advisors through Morningstar DirectSM, Morningstar OfficeSM, and Morningstar® Advisor WorkstationTM

 

We review advertising material sent to us to assist firms with the approval process required by the Financial Industry Regulatory Authority, though not everything is sent to us. And if we encounter an incorrect use—whether it was sent to us or not—we notify the firm and ask them to correct it.

 

If the firm does not correct it, we have the right to terminate the license to use our ratings, per our licensing agreement. We are not aware of an example where a firm’s compliance department did not accept our guidance.

See the most recent star ratings for free on Morningstar.com.


Take Me There

What’s the Morningstar Analyst RatingTM

The Analyst Rating provides an analyst’s forward-looking assessment of a fund’s ability to outperform its peer group or a relevant benchmark on a risk-adjusted basis over a full market cycle. A rating of Gold, Silver, or Bronze reflects an analyst’s conviction in a fund’s prospects for outperformance. Analyst Ratings are continuously monitored and reevaluated at least every 14 months.

 

How does the Morningstar Analyst Rating work? 

Morningstar fund analysts assign the Analyst Rating to funds that have garnered the most investor interest and assets. Analysts evaluate funds based on five key pillars—People, Parent, Process, Performance, and Price. Each analyst evaluation comes from face-to-face interviews with the fund management team, along with analysis of proprietary Morningstar data and fund documents.

 

How is the Morningstar Analyst Rating used?

Investors can use the Analyst Rating to find funds that Morningstar analysts believe will perform better than similar investments over a full market cycle.

 

What is the Morningstar Quantitative RatingTM for funds? 

The Morningstar Quantitative Rating is created by a machine-learning statistical model and analogous to the Analyst Rating a Morningstar analyst might assign to the fund if an analyst covered the fund. Gold, Silver, or Bronze ratings are considered positive. The Quantitative Ratings are calculated monthly.

 

What is the Morningstar Sustainability RatingTM for funds? 

The Morningstar Sustainability Rating is a measure of how well the holdings in a portfolio are managing their environmental, social, and governance, or ESG, risks and opportunities relative to their Morningstar Category peers. The Sustainability Rating is depicted by globe icons where High equals 5 globes and Low equals 1 globe. Sustainability Ratings are updated monthly. 

 

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