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Methodology Documents

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Methodology Documents

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 are
Methodology Documents

The Morningstar Fee Level for mutual funds was developed to help investors compare an investment vehicle's relative level of fees with those of similar investment vehicles. There are four different fee levels: Morningstar Fee Level--Broad, Morningstar Fee Level--Distribution, Morningstar Fee Level--Variable Products, and Morningstar Fee Level--Insurance Funds. This methodology applies to all U.S.-based mutual funds and subaccounts in Morningstar's database.
Methodology Documents

Morningstar is undertaking a multistage effort to assess the current landscape and educate the investment community on manager intentionality toward ESG, or sustainable investing. The first stage of this effort is the launch of two sets of intentionality indicators, one built around identifying intentionally sustainable strategies and the other focused on identifying the use of exclusionary screens.
Methodology Documents

Morningstar is undertaking a multistage effort to assess the current landscape and educate the investment community on manager intentionality toward ESG, or sustainable investing. The first stage of this effort is the launch of two sets of intentionality indicators, one built around identifying intentionally sustainable strategies and the other focused on identifying the use of exclusionary screens.
Methodology Documents

To help investors better analyze managed funds along the increasing number of factor dimensions, we introduce the Morningstar Factor Profile, a scientific and intuitive tool to capture the factor exposures of investment portfolios.
Methodology Documents

Morningstar is making revisions on the industry group and industry level in response to market and technology changes. The revised system calibrates the classifications to align more closely with industry standards, clarifies industry definitions, and better reflects industry trends to allow for a more accurate grouping of companies based on market behavior.
Methodology Documents

Morningstar enhances the current Morningstar Sustainability Rating methodology by replacing Sustainalytics' company ESG Rating with its ESG Risk Rating.
Methodology Documents

Target-date funds are designed to be a simple, all-in-one solution that is relatively easy for investors to use. However, these simplifying features can make target-date funds tricky to evaluate. Morningstar Target-Date Fund Series Reports ("the Reports") are designed to help individual investors, financial advisors, consultants, plan sponsors, and other interested fiduciaries make informed decisions when selecting a series of target-date funds.
Methodology Documents

The ability to model the risk of a portfolio is paramount to making investment decisions that maximize utility. Our fundamental factor-based methodology provides a way to forecast risk, but, more important, it provides an intuitive interpretation of the mechanics behind the forecast.
Methodology Documents

In 2018, we released our fund flow models into Morningstar's Investor Pulse tool starting with the U.S. market and expanding globally. Based off "The Fall of Funds" paper, we are implementing the probability of fund shutdown model so these insights can be gleaned in a live setting. The first fund shutdown model implemented is for the U.S. equity market.
Methodology Documents

Morningstar methodology paper explaining the load adjusted return calculations.
Methodology Documents

Morningstar’s goal for this data set is to consistently provide country level geographic segment data that can be used to calculate a company or portfolio’s economic exposure to different geographic regions.
Methodology Documents

The following document explains the circumstances under which Morningstar considers funds and the indexes they track eligible for collection of Index Strategy, Index Weighting, and Strategic Beta Group. The document also details how assignment is determined and regularly reviewed. This document represents Morningstar’s position on the subject; it is not a summary of local regulations.
Methodology Documents

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.
Methodology Documents

This iteration of Morningstar's first energy-based quantitative model explores the improvements proposed in the first quantitative modeling white paper.
Methodology Documents

This Morningstar tool calculates the impact of user-specified macroeconomic and financial system shocks on forecast factor exposures and volatilities. The user can specify multiple shocks at different points in time and calculate the subsequent expected risk and return of the portfolio.
Methodology Documents

Morningstar are introducing 'representative cost' fields, that will contain the best information on the re-occurring cost that are charged via the fund itself, so would not include one-off cost or cost charged by third parties such as advisers or platforms, nor one-off costs charged on entry or exit.
Methodology Documents

The Market-Driven Scenario Analysis tool allows users to select a market index and to specify the percentile dividing the range of the return distribution to determine the impact of user-specified market shocks on factor exposures, portfolio returns, and Value at Risk.
Methodology Documents

This paper seeks to outline the methodology Morningstar uses in calculating the expected future yield as of the portfolio date, from the holdings of the portfolio. The measure is based on Forward Dividend Yield (forward-yield) for stocks and the yield-to-maturity of the fixed income portfolio.
Methodology Documents

We agree that there's much to be skeptical of with the original robo-advisor business model. In fact, we wrote in 2015 about the challenging economics, how many stand-alone robo-advisors wouldn't survive, and robo-advisors integrated with established financial institutions would leapfrog the early leaders. However, new business models are addressing the three faults of the original robo-advisor model: high client acquisition costs, ongoing costs of servicing clients, and low revenue yield on client assets. Lead-generation tools and strategic partnerships are reducing acquisition costs, while building for scale and operating leverage eventually solves service costs. Revenue-enhancement strategies underpin much of our optimism for select robo-advisors becoming profitable. Upselling to human advice, ancillary service offerings, and incorporating proprietary products in portfolios are key revenue drivers. We don't see robo-advisors disrupting moaty financial institutions. Instead, we expect established financial institutions will co-opt the technology and user experience improvements of robo-advisors to expand their own businesses. Among the asset management, wealth management, and online brokerage firms that we cover, we believe Invesco, Credit Suisse, and UBS are trading at the most attractive valuations.
Methodology Documents

Fiduciary responsibility and increased regulations require investors to analyze and understand their risk exposures in a carbon-constrained future. To help investors address this challenge, Morningstar has introduced portfolio carbon metrics that measure the risk that companies in a portfolio face from the transition to a low-carbon economy.
Methodology Documents

Here is the methodology for this designation, which is assigned to portfolios that have low carbon-risk scores and low levels of fossil-fuel exposure.
Methodology Documents

Methodology paper explaining how Morningstar calculates the average bond price for a portfolio.