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By Jason Stipp and Michael Herbst | 04-05-2013 12:00 PM

What Are Morningstar Medalist Funds?

Medalist funds--those that receive Gold, Silver, and Bronze Analyst Ratings--are likely to outperform their category peers and benchmarks on a risk-adjusted basis over market cycles of at least five years.

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Jason Stipp: I'm Jason Stipp for Morningstar. A big component of our research for mutual funds is the Morningstar Medalist. These are funds that we think have an edge over their peers over the longer term. Here to give us some detail on the Medalist designation is Michael Herbst, a director of mutual fund research here at Morningstar. 

Thanks for joining me, Michael.

Michael Herbst: It's a pleasure to be here. 

Stipp: So, let's talk about the Morningstar Medalist. What is that designation exactly? What does it mean?

Herbst: So the Morningstar Medalists are funds that have been assigned a Morningstar Analyst Rating of Bronze, Silver, or Gold, meaning that those are the funds that we think are likely to outperform their category peer groups and appropriate benchmarks on a risk-adjusted basis over market cycles of at least five years. 

Stipp: So these are not necessarily short-term recommendations, or shouldn't be seen as short-term recommendations?

Herbst: That's absolutely correct. These are not short-term recommendations. They are also not market calls on what specific fund categories or asset classes we think might fare particularly well over the next year or two or three.

Stipp: OK. And you said that this is a part of the Morningstar Analyst Rating. What are the components behind the Analyst Rating? Not every fund that has an Analyst Rating is a Medalist. 

Herbst: That's correct. To assign a Morningstar Analyst Rating, we're looking at five pillars. So we are looking at the People that run the fund, the Process that they are using, the Parent organization or the firm backing that management team. We are also looking at things like Price or expenses. We're also looking at Performance, but we're hoping to get beyond what the performance was, and really shed some light on why that performance was, and what investors could reasonably expect from future performance, given the process and the people running the fund.

Herbst: That's correct. So, for each pillar, we assign a Positive, Negative, or Neutral score, and then we roll up those scores to determine the overall rating.

Stipp: So the ratings are Negative for funds whose prospects we don't particularly like against their peer group, there's a Neutral rating, and then you have the three Medalist ratings: Bronze, Silver, and Gold? 

Herbst: That's absolutely correct.

Stipp: Can you tell me a little bit about how the rating process works? So you discussed the pillars, but how does the rating actually get assigned to a fund?

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