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Morningstar Medalist Rating for Funds

What is the Morningstar Medalist Rating for funds?

The Morningstar Medalist Rating for funds is a five-tier system used to analyze how fees will impact different securities in the long term.

  • The Morningstar Medalist Rating provides investors with assessments of a strategy’s ability to outperform its Morningstar Category index after fees.
  • Research has repeatedly shown that the ability of a strategy to outperform is eroded as fees become higher.

The Morningstar Medalist Rating for funds is used to accurately capture the impact that fees could have on different securities, such as open-end funds, closed-end funds, exchange-traded funds, and more. This five-tier rating system operates on a scale ranging from Gold to Negative, with Gold, Silver, and Bronze ratings indicating that analysts expect that particular investment vehicle to outperform its Morningstar Category index over a long-term period.

The process of calculating the Morningstar Medalist Rating includes analyzing the performance of the asset-management firms that handle various assets and securities and determining whether their processes are sensible and clearly defined. Other factors that are taken into account are the investment philosophy behind the investment vehicle, the level of risk involved in the process, and the manager’s approach to navigating that risk.

The following pillars are used to designate an appropriate Morningstar Medalist Rating for each respective fund:

  • Parent pillar: This pillar analyzes the parent organization in charge of managing the fund.
  • People pillar: This pillar evaluates the managers who are responsible for making key decisions regarding the fund.
  • Process pillar: This pillar determines whether the strategies a parent organization applies to a fund is both effective and repeatable.

How Morningstar Assigns Pillar Ratings

Directly by analysts: Pillar ratings assigned by analysts to vehicles they cover, based on their qualitative assessment. When analysts cover a vehicle, they assign all three pillars—People, Process, and Parent. 

Indirectly by analysts: Pillar ratings assigned to vehicles that are not covered directly by analysts. This is achieved by mapping the pillar ratings that analysts have assigned to vehicles they cover to uncovered vehicles that are related in some way to the vehicles they cover.  

Directly by algorithm: Pillar ratings assigned algorithmically to vehicles not assigned pillar ratings directly or indirectly by an analyst. Morningstar has developed a machine-learning model to expand its coverage beyond ratings assigned directly or indirectly by analysts. The model algorithmically derives pillar ratings for vehicles not assigned ratings directly or indirectly by analysts by using the decision-making processes of analysts, their past ratings decisions, and the data used to support those decisions.