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 manner. In particular, it references futures, forwards, short positions, swaps, and options that are held by mutual funds and other managed products.
Latest Investment Research to Download
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 document addresses the Morningstar estimated performance methodology.
This document addresses the Morningstar Equity Research performance methodology overview.
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 transaction is performed on a case by case basis in accordance with Morningstar’s policies and procedures set forth on Morningstar’s website at www.morningstarcreditratings.com.
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.
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 specific plan’s needs.
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 Morningstar’s policies and procedures on a case by case basis and Morningstar may, at any time, decline or refuse to rate a transaction for any number of reasons, including, without limitation, the failure or refusal of the arranger or other third parties to provide information to Morningstar
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) models of stock returns that are independent of the change in corporate payout policy, and allow for a consistent analysis of the historical sources of returns. Our study provides significant theoretical and empirical evidence that total payout models provide superior forecasts of both long- and short-term expected returns.
These criteria address Morningstar Credit Ratings, LLC’s (“Morningstar’s”) methodology for evaluating a securitization trust’s representations and warranties framework with respect to the loan-level reps and warranties available to securitization trust investors. These reps and warranties are typically provided by the loan seller (either directly, or assigned to the trust by the seller from a previous holder in the case of newly originated loans, typically the originator) to give investors remedies when certain loan “defects” may arise. These defects typically relate to aspects of the loan that are part of the origination process. The framework available to remedy a breach of any of these reps and warranties is negotiated between the seller(s) and the trust. The rep and warranty framework can therefore vary substantially between each seller and each trust.
The rating methodology described herein will be applied to the new issue and surveillance ratings by Morningstar Credit Ratings, LLC (“Morningstar”) of securities backed by pools of single-family rental properties ("Single-Family Rental Securities"). The single-family houses generally are investment properties that are rented to existing tenants or available to be rented to new tenants. The methodology is designed to be consistently applied to both new issue and surveillance of Single-Family Rental Securities where applicable. However, as a transaction seasons, actual performance data will influence the assumptions used in determining whether to maintain or change a rating.
The rating criteria described herein will generally be applied to ratings of RMBS Servicer Advance Receivables securitizations (“Advance Securitizations”) by Morningstar Credit Ratings, LLC (“Morningstar”). The methodology is designed to be easy to understand and the framework can be consistently applied to Morningstar-rated advance securitizations while incorporating issuer-specific quantitative and qualitative data. A rating that is assigned based on these criteria should provide market participants with a risk benchmark that can be used to gauge the relative default risk of a security against that of other servicer advance securities. This methodology will be effective when Morningstar issues its first presale report on an advance securitizations.
Managed accounts can personalize asset allocation, help with savings goals, and make annuity recommendations. Costs and due diligence are often greater than for target-date funds, but managed accounts’ advantages outweigh the disadvantages. We expect managed accounts to become more popular, less expensive, and more efficient.
This guide introduces the reader to the Morningstar CMBS Subordination Model. It starts out with a description of the basic concepts underlying the model and details its primary features. As with any model, ours utilizes a number of assumptions. We endeavor to base these assumptions on empirical data whenever robust data is available and default to industry experience and intuition when it is not. This paper discusses the concept behind the assumptions.
Morningstar’s analysis and considerations for rating securities (“Resecuritization Securities”) backed by CMBS securities (individually, an “Underlying Security”, collectively, “Underlying Securities”) are focused on the resecuritization of a single Underlying Security that is being resecuritized into one or more Resecuritization Securities with new and/or additional creditsupport level(s) (a “Re-Tranching Transaction”), and (2) the resecuritization of a portfolio of Underlying Securities that is being resecuritized into multiple classes of Resecuritization Securities with potentially multiple categories of ratings (a “Re-REMIC Transaction”). References herein to ratings by Morningstar shall mean either: (i) ratings by Morningstar at issuance as an agency selected by the issuer or arranger to rate the related transaction or (ii) initial investor-paid surveillance ratings by Morningstar on the related transaction post issuance for transactions Morningstar did not rate at issuance.
This methodology describes Morningstar’s surveillance approach to rating commercial mortgage-backed securities (CMBS). Morningstar conducts its monitoring and surveillance activities via both an investor-paid subscription platform and an issuer-paid platform that provides letter-grade ratings and ratings outlooks on all CMBS transactions for which we are engaged by the issuer to provide ratings, and an additional subset of CMBS for which Morningstar initiates ratings without an issuer’s mandate to the extent consistent with Morningstar’s policies and procedures. In addition, Morningstar also provides publicly available surveillance with respect to transactions for which Morningstar was hired to rate at issuance.
This paper builds on the Gamma concept by determining the optimal goals-based strategy for financial planning. We find that selecting the right goals to fund and the best way to fund them delivers Gamma.
Operational risk assessment is an opinion regarding the noncredit related risks associated with a servicer’s or vendor’s performance, or expected performance, of certain functions in finance transactions, with an emphasis on how such risks may impact investors, and on the effectiveness of the servicer’s and vendor’s protocols to mitigate such risks. Other information posted to Morningstar’s website at https://ratingagency.morningstar.com, including the “Operational Risk Assessment” link, should be considered and reviewed in conjunction with this document.
As more fully described below, an operational risk assessment is an opinion regarding the non-credit related risks associated with a servicer’s performance, or expected performance, of certain functions in finance transactions, with an emphasis on how such risks may impact investors, and on the effectiveness of the servicer’s protocols to mitigate such risks. Other information posted to Morningstar’s website at https://ratingagency.morningstar.com, including the “Operational Risk Assessment” link thereon, should be considered and reviewed in conjunction with this document.
The asset-backed securities market in the U.S. has evolved from the first equipment lease and auto loan deals issued in the mid-1980s to a dynamic market where a panoply of consumer assets, commercial assets, operating assets and nontraditional assets are being securitized, and new asset classes and structures continue to emerge and develop. Despite the contractions that occurred in the structured finance markets during the 2007 financial crisis and its aftermath, ABS securitizations continue to play a vital role in the capital markets.
This paper is a roundup of notable meetings that Morningstar manager research analysts have held recently with portfolio managers and other fund company representatives.
We discuss how momentum, popularity, price, and performance interact in the market. Offshoot of an article in the Journal of Portfolio Management.
This paper discusses Morningstar's view of the 699 ETF managed strategies it tracks, giving investors and advisors insight into industry performance during Q12014.
The quarterly review of the market across sectors by the Morningstar Markets Research Team.
This paper discusses the potential benefits of Expert Guidance, or professional online retirement advice, on the savings and investing decisions of individual participants of defined contribution plans, such as 401(k) plans.
Morningstar's second annual stewardship survey of the U.S. mutual fund industry examines the relationship between asset managers' stewardship attributes and investor outcomes and continues to find that better stewards of capital generally deliver better overall fund performance.
The recent strength of the U.S. dollar has negatively impacted the performance of international-equity funds that do not hedge their foreign-currency exposure. This paper discusses the impact of foreign-currency movements on these types of portfolios and compares the performances of currency-hedged and unhedged international-equity strategies against the history of the U.S. dollar over the past 40 years.
Eight months after Bill Gross's abrupt departure from PIMCO, Morningstar explores changes to the firm and the recent evolution of its investment team. We further address recent outflows and assess their impact on PIMCO's business model and ability to attract and retain talent.
Women are scarce among U.S. fund managers and underrepresented compared to other professions. This paper finds that, though the sample is relatively small, funds managed by women perform comparably to those managed by men.
Here we offer a framework for building an asset allocation focused on income. These portfolios may appeal to investors who are in draw down mode with their savings.
Morningstar has conducted qualitative research on 529 college-savings plans since 2004. We found that in 2014, the majority of 529 plans continued to use fixed glide paths in their widely used aged-based portfolios despite market-timing risk.
This paper discusses Morningstar's view of the 699 managed strategies investing in exchange-traded funds it tracks, giving investors and advisors insight into first-quarter industry performance in 2015.
This paper shows it's possible to reduce the risk of severe downside events without sacrificing returns. This could improve on traditional diversification.