How Morningstar Ratings Affect Fund Flows

What happens to fund flows after a Morningstar rating change? Our latest Manager Research report set out to answer this question by examining how upgrades and downgrades influence investor behavior across US funds.

Building on earlier investment research that identified a connection between fund flows and the backward-looking Morningstar Star Rating, this study expands the analysis to the forward-looking Morningstar Medalist Rating—an analyst-driven assessment of a fund’s people, process, and parent.

The research tracks funds’ net flows after a rating change and compares those flows to category peers over multiple time horizons.

To understand the full depth of these dynamics—and what they mean for investor decision-making—download the report for the complete research and analysis.

Past studies have found a link between fund flows and the Morningstar star rating, a quantitative measure of fund performance. This study extends that research to the Morningstar Medalist Rating and looks at US fund rating changes from January 1, 2011 to December 31, 2025. This builds on a similar study published by Morningstar in 2023.

The current study found a link between the Medalist Rating and fund flows, especially for active funds.

Ratings serve as signals of investment quality and prospects, especially the Morningstar Medalist Rating. Investors respond to both backward-looking performance, like our star rating, and forward-looking conviction, as with the Medalist Rating.

Investor behavior reflects sensitivity to perceived risk and long-term expectations. A star rating downgrade captures recent underperformance, which investors might view as temporary. On the other hand, a Medalist Rating downgrade reflects a reassessment of a fund's long-term prospects.

The link between ratings and flows held across asset classes, and the Medalist Rating carried more weight than the Star Rating on downgrades.

Active fund rating changes were associated with meaningful flow differences.

Funds that gained Medalist status, meaning they were upgraded to Gold, Silver, or Bronze from Negative or Neutral, showed sustained organic growth. These funds reached 39% growth after two years.

After an upgrade in the Medalist Rating, these funds had average net inflows of $42 million one year later and $174 million two years later.

Upgraded passive funds, pulled in more than twice the inflows of downgraded passive funds two years after a rating change. Overall, upgrades consistently attract investor capital across time periods.

Active funds that lost Medalist status or were downgraded to Neutral or Negative, contracted 14% over two years.

Passive funds continued to attract inflows even after downgrades. This dynamic reflects the broader shift toward low-cost indexing.

Downgrades were also particularly impactful for active funds. Unlike passive funds, downgraded active funds shed $116 million in the first year and $222 million in the second, reflecting active fund investors’ sensitivity to shifts in analyst conviction.

After upgrades, active equity, fixed income, and multi-asset and alternative funds showed increasing organic growth in every period. This growth also outpaced their category peers, and the margin widened over time.

After two years, upgraded multi-asset and alternative funds grew 62 percentage points faster than their category, followed by equity and fixed income at 43 and 29 percentage points, respectively.

Downgraded funds in each asset class shrank in every period after the rating change. These funds also shrank faster than their category and the margin widened over time, with fixed income downgrades showing the steepest difference around negative 12 percentage points by two years.

Multi-asset and alternative downgrades lacked sufficient data to draw conclusions.

Both the Medalist Ratings and Star Rating showed around 40% organic growth. However, there are clear differences when it came to downgrades.

Medalist Rating downgrades produced steeper outflows than Star Rating downgrades across every period. After two years, Star Rating downgrades contracted -2%, while Medalist Rating downgrades contracted -12%.

Both types contracted more than category peers, but Medalist Rating downgrades did so by more than twice that of Star Rating downgrades: negative 10 percentage points versus negative four.

Past studies by Morningstar have demonstrated the clear link between Morningstar ratings and fund flows. The current study shows upgrades attract capital while downgrades produced outflows.

This effect is strongest in active funds and meaningful across asset classes. The forward-looking Medalist Rating plays a particularly important role in shaping investor behavior.

These findings reinforce how influential rating changes can be—not just as signals of investment quality, but as catalysts that actively direct investor capital.

By licensing Morningstar Essentials ratings, fund managers can put independent analysis to work in their marketing—pairing trusted, third-party perspectives alongside sell-side research to build investor confidence through transparency. These at-a-glance ratings tell a clear story about a fund’s investment merit and role within a diversified portfolio, helping managers highlight positive rating changes and potentially attract greater inflows.

Explore more practical insights on how ratings drive flows by downloading our complete fund flows guide.