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.

Morningstar created extended performance statistics to "fill in the gap" between the inception date of a new share class or distribution channel and the inception date of the original portfolio. Morningstar will display extended performance under two cir

This survey measures the experiences of mutual fund investors in 22 countries in North America, Europe, Asia, and Africa. Aiming to promote best practices for investors, we rated companies across four categories—Regulation and Taxation, Disclosure, Fees

The financial crisis of 2008 has led many investors to search for tools that minimize downside risk. In our study, we explore one of the promising alternatives to mean-variance optimization (MVO) that incorporates non-normal return distributions—mean-con

The Morningstar Fee Level for mutual funds was developed to help investors compare a fund share class' relative level of fees with those of similar funds. This methodology applies to all U.S.-based mutual funds in Morningstar's database.

This paper addresses the methodology behind Morningstar's procedure for assigning absolute ranks, the formula for percentile ranks, and the assigning of fractional ranks.

In this paper—the first of a series of articles—we discuss the options for and issues involved in creating a universal risk measure that can act as a useful guide for individual investors without misrepresenting the complexity of risk as a concept, with

While style-based investing remains a significant part of portfolio construction in the United States, many European investors have yet to embrace this approach. This article examines Morningstar’s new European style indexes to demonstrate that even over

This paper builds on previous research to investigate whether composites of mutual funds that hold stocks with high momentum outperform composites of mutual funds that hold stocks with low momentum. Additionally, we investigate if composites of mutual fu

Adding longevity insurance to a portfolio is a delicate process. After running hundreds of cases, through Ibbotson's guaranteed product-type optimizer, Ibbotson created guidelines to help advisors and their clients set the optimal allocations in their re

Monte Carlo Simulation has become a standard tool of risk management and its latest incarnations offer several bold advances. We examine the historical use of Monte Carlo simulation in asset allocation analysis as well as three new technologies—interacti

Morningstar Institutional Credit Research enables institutional investors to access our large collection of research and analyses on companies and industries around the globe. Our analysts create detailed full five-year projected pro-forma financial stat