With the Morningstar Medalist Rating, investors can rely on a more simplified, expansive rating system for strategy due diligence.
Investors are faced with more choices than ever before. And the options aren’t expected to stagnate or dwindle. Over the past 20 years, the number of managed products has grown steadily at 11% per year. On average, approximately 3,000 new share classes were incepted each month. At the end of 2022, Morningstar databases contained over 750,000 live investment vehicles globally.
Morningstar has one of the largest manager research teams in the world, with over 150 analysts conducting qualitative due diligence. However, even a staff this large can’t keep pace with the growing managed investment universe. The Analyst Rating coverage universe currently sits at 21,400 vehicles globally. The Quantitative Rating, on the other hand, now covers 383,000 vehicles globally.
By bringing these two rating systems together, investors can search, screen, and monitor strategies with a simpler, more straightforward workflow.
The methodology underpinning the Quantitative Rating has always replicated the analyst decision-making process as closely as possible. Whenever we have an analyst opinion on a strategy, we default to that view. We never publish multiple views.
Increasingly, we have been able to leverage inheritance logic to extend analyst views to a wider investment universe. In this context, inheritance refers to relationships between strategies where we believe an analyst's decision on one fund can port over (or be inherited) by another fund.
The most obvious example is our Parent ratings. When a Morningstar analyst rates a Parent, we port over that decision to all strategies offered by that Parent. Similar rules and logic exist to extend analyst decisions across the People and Process Pillars as well.
Today, the Morningstar Quantitative Rating inherits about 55% of its pillar ratings directly from analysts. Approximately 42% of all quantitatively rated strategies system inherit all three pillars from analysts, and 72% of strategies inherit at least one pillar. In essence, the Quantitative Rating is already a hybrid system between analyst and algorithmic inputs.
In reality, two segregated forward-looking rating systems make it more difficult to navigate our software and reports. If an investor wants to screen for Morningstar’s best ideas, for example, they must juggle multiple signals and methodologies. With this merger, we expect strategy due diligence workflows to be much simpler and more intuitive.