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 paper outlines category definitions applicable to the Mexican market.

Morningstar Credit Ratings Definitions and Other Related Opinions and Identifiers This document sets forth Morningstar's credit definitions, ratings symbols and other related opinions and identifiers for evaluating the credit risk in structured finance t

Ratings of individual debt instruments may be adjusted up or down from the Consolidated Corporate Rating to take into account the individual security's priority of payment. Priority of payment for an individual debt instrument is determined by its issuer

Morningstar's bank credit rating methodology is based on the same key components, or pillars, as its methodology for nonfinancial corporations: Business Risk, Solvency, Distance to Default, and a bank stress test, which is analogous to the Cash Flow Cush

Quality recommendations for current income and income growth from stocks.

A rational approach to asset allocation.

Investing in the wide-moat stocks of today and tomorrow

Research and recommendations for the serious fund investor.

Quality recommendations for current income and income growth from stocks.

Morningstar Category classifications sorts portfolios into peer groups based on their holdings. The categories help investors identify the top performing funds, assess potential risk, and build well-diversified portfolios. Here is how those categories ar

Modern Portfolio Theory Statistics (MPT statistics) are based on the Capital Asset Pricing Model (CAPM) of expected returns developed by Nobel laureate William Sharpe and others in the early 1960s. The CAPM is based on Modern Portfolio Theory (MPT) devel

Estimated holding cost, tracking volatility, market impact cost, and portfolio concentration are all data points used in our ETF ratings. In this document, we describe the method of calculation for each of these points.

This methodology document addresses the target-date fund series rating and research reports methodology. Morningstar Target-Date Fund Series Ratings and Research Reports are designed to help individual investors, financial advisors, plan sponsors, and ot

This document describes the methodology of assigning Morningstar Institutional Categories for portfolios such as mutual funds, exchange-traded funds, and separate-account strategies available for sale in the U.S.

This document is for the investment managers, transfer agents and custodians who send portfolio reports to Morningstar. It covers how portfolio files should be organized in order to ensure that Morningstar can process files in a timely and accurate manne

Morningstar divides countries of the world into 13 different geographic regions, based on equity assets only. The 13 regions can also be folded into three super geographic regions: the Americas, Greater Europe and Greater Asia.

This document addresses the Morningstar estimated performance methodology.

A rational approach to asset allocation

Investing in the wide-moat stocks of today and tomorrow

Research and recommendations for the serious fund investor.

This document addresses the Morningstar Equity Research performance methodology overview.

Quality recommendations for current income and income growth from stocks.

A rational approach to asset allocation

Investing in the wide-moat stocks of today and tomorrow

Research and recommendations for the serious fund investor

Morningstar reviews and updates our categories annually. Morningstar categories provide the peer groups that Morningstar ratings are based upon.

This document sets forth Morningstar's definitions and descriptions of its ratings symbols, ratings outlooks, and surveillance for evaluating the credit risk in structured finance transactions. Morningstar’s determination to review a structured finance t

Investing in the wide-moat stocks of today and tomorrow

A rational approach to asset allocation

Research and recommendations for the serious fund investor

Morningstar calculates gross returns for funds as a simulation of the returns investors would have received had they not paid any expenses. Here are the formulas.

Quality recommendations for current income and income growth from stocks

A rational approach to asset allocation

Investing in the wide-moat stocks of today and tomorrow

Morningstar reviews and updates our categories annually. Morningstar categories provide the peer groups that Morningstar ratings are based upon.

Quality recommendations for current income and income growth from stocks

A rational approach to asset allocation

Selecting a target-date fund is one of the most important decisions a plan sponsor or consultant can make. In this paper, we present an innovative, quantitative approach that Morningstar has developed for determining which glide path will best fit a spe

Investing in the wide-moat stocks of today and tomorrow

Research and recommendations for the serious fund investor

This methodology describes Morningstar’s approach to issuing letter-grade ratings for commercial mortgage- backed securities (CMBS) at issuance. Any determination to issue letter-grade ratings is in Morningstar’s sole discretion in accordance with M

Quality recommendations for current income and income growth from stocks

A rational approach to asset allocation

Since my first StockInvestor cover story in February 2013, I've gradually been laying out the details of my investment strategy--both the high-level principles that make up Morningstar's official philosophy, as well as my personal perspective on how I pl

2015 was a big year for Australian ETPs, with notable themes being asset growth, product proliferation, and price cuts. In this issue we explore these themes and why we expect the future to hold more of the same.

Research and recommendations for the serious fund investor

Quality recommendations for current income and income growth from stocks

A rational approach to asset allocation

The emergence of buybacks as the dominant source of corporate payout over the past three decades fundamentally changed the way returns are supplied to investors, creating the need for a new return model. We develop total payout (dividends plus buybacks)

It was a pretty good year for the economy but a subpar year for investing. Most fund categories were in the red or just slightly in the black in 2015. Falling oil prices, a rising dollar, and our first interest-rate hike since 2006 made for a volatile