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.

This paper studies the yearly returns of U.S. real-estate for the period starting in 1978. The best performing category was business real estate. All categories of real estate, as well as stock, bond, and commodity markets, outperformed the inflation rat

The Morningstar Rating for collective investment trusts uses the same methodology as the Morningstar Rating for funds. Ratings are based on risk-adjusted returns for the three-, five-, and 10-year time periods, and then the overall rating is a weighted a

Commercial real estate equity has become an increasingly popular and accessible asset class for investment in the United States over the last 10 years, due in large part to the proliferation and success of real estate investment trusts (REITs). The intro

Morningstar calculates investor returns for open-end mutual funds and exchange-traded funds to capture how the average investor fared in a fund over a period of time. Investor return incorporates the impact of cash inflows and outflows from purchases and

This study examines the extent to which investors are protected by share class limits, and how financial advisors who seek to fulfill their fiduciary and suitability obligations to their clients can determine which share class is suitable given the clien

This paper studies the role of commodities in a strategic asset allocation. There are several methods of obtaining exposure to commodities. This paper focuses on the type of exposure to commodities produced by a fully collateralized total return commodit

The Morningstar Ownership ZoneSM complements the style box to provide an additional layer of detail about an equity portfolio’s investment style.

Financial planners and advisors increasingly recognize that human capital must be taken into account when building optimal portfolios for individual investors. But human capital is not simply another pre-endowed asset class; it contains a unique mortalit

The Morningstar Rating™ for load-waived versions of the class A shares of mutual funds and other load-waived statistics better reflect the investor experience for those individuals who do not pay the fund's front-end sales load, such as retirement-plan p

This study measures historical equity returns over 42 years on the Japanese market by a supply-side approach using accounting data for 24 industries. It also demonstrates a method of constructing expected returns for the future. Equity return is generate