Methodology Documents

Morningstar has conducted research on active and passive investment strategies and their associated vehicles since 1986.

This paper outlines the key assumptions and details behind our quantitative equity rating methodology.

We believe that a company's intrinsic worth results from the future cash flows it can generate. The Morningstar Rating for stocks identifies stocks trading at a discount or premium to their intrinsic worth--or fair value estimate, in Morningstar terminology.

This document describes the rationale for, and the formulas and procedures used in, calculating the Morningstar Rating for funds (commonly called the “star rating”). This methodology applies to funds receiving a star rating from Morningstar.

This paper outlines the key assumptions and details behind our quantitative equity rating methodology.

Morningstar developed the Morningstar Equity Comparables system to give investors and financial professionals an objective benchmark for comparing companies. Morningstar Equity Comparables is genuinely different to other industry classification schemes. We start from the bottom up with comparable companies, as opposed to the top down with sector definitions. For every pair of companies, we determine how similar they are–anywhere from closely comparable to distantly related based on automated analysis of the companies' own business description. We automatically analyse the text of the business description and work out whether companies are talking about similar things as they describe their businesses. Businesses described in similar terms are comparable.

The Sector Delta is an equilateral triangle that depicts a portfolio’s super sector allocation, relative to a benchmark, on a two dimensional space.

This document supplements the methodology document for the Morningstar Style BoxTM. This provides additional information about how to rescale the size score for a fund

Morningstar’s aim is to help investors determine a Listed Investment Companies (LICs) overall investment merit to help them construct diversified portfolios and achieve their goals.

The Morningstar Category™ classification system for funds lets institutions, advisers and investors effectively compare like funds.

The Morningstar Category™ classification system for funds lets institutions, advisers and investors effectively compare like funds.

The Morningstar Category™ classification system for funds lets institutions, advisers and investors effectively compare like funds.

For an investor, risk is not merely the volatility of returns, but the possibility of losing money.

Total portfolio refers to a portfolio with a strategic asset-allocation policy consisting of multiple asset classes implemented with various investment managers. This document outlines several methods of attributing performance, including the classic app

Morningstar's Strategy Database identifies investment undertakings managed by a single team following the same investment process.

This document describes the rationale for, and the formulas and procedures used in, calculating the Morningstar Rating™ for funds (commonly called the “star rating”). This methodology applies to funds domiciled or available for sale in Europe, Hong Kong,

All managed products are subject to the risk that they may lose value because of the strategies they pursue, the types of securities they invest in, and the uncertainties of investing in general.

Numerous academic studies have shown the existence of a momentum effect in stock performance.

Portfolio diversification is generally thought of in terms of market capitalization and investment style, yet sector diversification is equally important.

Sector groups and sectors can be defined by the parameters detailed in the methodology and based on the portfolio statistics of the most recent portfolio holdings data

The data that drive the fixed income style box is surveyed from fund companies. Morningstar asks fund companies to send the following information on a monthly or quarterly basis for each of their fixed-income and allocation funds.

The Morningstar Style Box provides an intuitive visual representation of style that helps investors build better portfolios and monitor them more accurately

In Canada, Fixed Income funds that are displayed on Morningstar tools may be subject to two different methodologies depending on which tool they appear on.

The Morningstar Fee Level – 529 for mutual funds was developed to help investors compare a 529 Plan's relative level of fees with those of similar 529 Plans.

The structure of an investment portfolio can change over time as the asset manager makes business decisions about distribution channels and the legal structure of the portfolio.

Performance attribution analysis consists of comparing a portfolio's performance with that of a benchmark and decomposing the excess return into pieces to explain the impact of various portfolio management decisions.

Each security in a fund portfolio is assigned a detailed asset classification, known as the Detail Type Id. In September 2011 Morningstar updated the list of Detail Type codes.

The paper outlines category definitions applicable to the American market.

The paper outlines category definitions applicable to the Mexican market.

In March 2004, Morningstar introduced the category classification methodology for Chinese mutual funds. Since that time, there have been significant developments in the Chinese financial market as well as an increase in both the quantity and variety of f

Diversified U.S. equity funds and diversified foreign equity funds are categorized based on the three-year average of the fund’s Style Box coordinates (Raw X Value-Growth Score, Raw Y Size Score).

Morningstar divides the stock universe into three major economic spheres or Super Sectors, Cyclical, Defensive and Sensitive. Within each of these Super Sectors, three groups for Defensive and four groups for Cyclical and Sensitive are defined for a tot

Effective June 30, 2003 Morningstar replaced median market capitalization with geometric average capitalization as a measure of size for a fund's portfolio.

A master-feeder fund structure allows asset managers to consolidate multiple portfolios into one, therefore realizing economies of scale, resulting in more efficient and effective investment management and achieving operational cost & tax efficiency

The purpose of this document is to explain Morningstar’s policies in regards to Investment securities converting structure and scenarios involving the display of extended performance

The paper describes how total returns for net asset values and share prices of closed-end funds are adjusted when a closed-end fund undertakes a rights offering.

The paper defines the Morningstar Categories for the Japan-domiciled open-end funds.

Morningstar calculates cash flows in-house on a monthly basis for open-end funds and non-US ETFs and on a daily basis for US ETFs using total net assets and returns for different time periods.

The paper contains data and product information about the Australian Asset Flows module available in Morningstar Direct

This document provides instructions and guidance for portfolio data providers to complete Morningstar's Advanced Portfolio Template (the "APT")

The updated Morningstar Style Box provides an intuitive visual representation of style that helps investors build better portfolios and monitor them more accurately. This methodology document addresses the Morningstar Fixed-Income Style Box™. The Morning

Morningstar places fixed income funds in one of the nine squares of the Morningstar Style Box based on each fund’s duration and average credit quality.

The Morningstar Fee Level for funds in Europe, Asia, and Africa was developed to help investors compare a fund share class' fees with those of other retail classes within its same category.

The Morningstar Fee Level for Insurance funds was developed to help investors compare an investment vehicle’s relative level of fees with those of similar investment vehicles.

The paper outlines different expense ratio applicable to managed products.

In MM, 2010 Morningstar introduced a new percentile ranking methodology called Distinct Portfolio Category Ranks.

To help investors understand the different levels of risk of investing in the various categories of funds, Morningstar will calculate a risk level for each of its fund peer group.

The paper outlines category definitions applicable to the New Zealand market.

The paper outlines category definitions applicable to the Indian market.

The paper outlines category definitions applicable to the Hong Kong market.

The paper describes the use of Monte Carlo simulations in determing investor wealth in EnCorr.

The paper details Global Industry Classification (GICS) four level breakdown.

The paper discusses the characteristics of virtual share class shares which have no independent legal profile of their own and are identical in all other respects to the base currency class of the fund.

The paper outlines Morningstar's equity data definitions.

The Morningstar Canada Liquid Bond Index (MCLBI) is designed to provide diversified exposure to Canadian dollar denominated federal, provincial, government-guaranteed and corporate debt with an eye toward liquidity.

The paper describes how closed-end fund distributions are factored into the toal return calculations for net asset values and share prices.