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Morningstar Analyst Rating for Funds

Morningstar.com.au  |  26 Jul 2022Text size  Decrease  Increase  |  
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Key Benefits

  • Investors First.
    Morningstar always conducts its research with the end investor in mind.
  • Long History.
    Morningstar has produced written, analyst-driven research on funds dating back to 1986.
  • Independence.
    Morningstar does not charge fund managers to be rated, nor do fund managers commission research or ratings. Morningstar’s decision to report on a fund is determined solely by the analyst team.
  • Relevant Coverage.
    The analyst team bases coverage decisions on asset size, investment merit, and market demand.
  • Full Spectrum Scale.
    The Morningstar Analyst Rating has been developed to identify not only good funds, but also mediocre and poor investments through Neutral and Negative ratings.
  • Local and Global Expertise. Morningstar has a team of more than 100 fund analysts worldwide.

Overview

The need for objective, in-depth, and long-term-focused research on managed funds has never been greater. Morningstar’s fund analyst research provides insights into a fund’s sustainable advantages and forward-looking perspectives into how the fund is likely to behave in a variety of market environments, helping investors, advisers, and other market participants select superior funds, maintain realistic performance expectations, and manage investment portfolios more effectively.

While Morningstar fund research analysts worldwide have long shared a common research philosophy, Morningstar has now brought the various teams’ research processes together, and introducing a new harmonised system of Analyst Ratings for funds.

Although the designations have changed, the underlying principles which have been the basis for our fund analyst research in Australia and New Zealand over the past decade remain the same. 

Investors First. Morningstar always conducts its fund research with the end investor’s best interests in mind.

Independence. Morningstar maintains its independence and objectivity by not charging or accepting payment from fund managers for the production of managed fund research or ratings. We commercialise our fund research by incorporating ratings and research reports into software products and websites, and by licensing our intellectual property after research has been completed. Once a fund has been selected for inclusion, we will publish an Analyst Rating and research report irrespective of whether the outcome is positive or negative. And funds will remain on our coverage list until we, rather than the fund manager, elect to cease coverage.

Relevant Coverage. We determine relevant coverage on the basis of investment merit, asset size, and market demand, to ensure that we cover funds that are most relevant to investors and their advisers. In Australia and New Zealand, we provide analyst research on more than 375 investment strategies mapping to over 4,500 individual funds.

Balanced Ratings Scale. The Morningstar Analyst Rating for funds has been developed to not only identify good funds, but also mediocre and poor ones through neutral and negative ratings. The Analyst Rating is a qualitative, forward-looking measure based on analyst research, while the Morningstar Rating for funds (the ‘star rating’) is a purely quantitative, backwards- looking measure that rates historical performance on the basis of risk-adjusted returns without fund analyst input.

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Local and Global Expertise. Morningstar has more than 100 fund analysts around the world, concentrated in Sydney, London, Chicago, and Toronto. Ten analysts are dedicated to researching Australian and New Zealand funds.

Research Methodology: The Five Pillars

Morningstar evaluates funds on the basis of five key pillars we believe will identify funds most likely to outperform over the long term on a risk-adjusted basis. These five pillars are People, Process, Performance, Parent, and Price. The ultimate view on the individual pillars and how they come together is driven by the analyst's overall assessment and overseen by an Analyst Ratings Committee. The approach serves not as a formula but as a robust analytical framework ensuring consistency across Morningstar's global coverage universe. Our research continues to be based on interviews with investment staff and fundamental analysis, and undertaken on a peer-relative basis. Research reports communicate our opinions clearly and succinctly, and will be updated at least every 12–15 months, or whenever there is a material change to investment process or personnel.

The Five Pillars
Morningstar evalutates funds on the basis of five key pillars which we believe identify funds most likely to outperform over the long term on a risk-adjusted basis.

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Morningstar Analyst Rating™ for Funds

The Morningstar Analyst Rating for funds is the summary expression of Morningstar’s forward-looking analysis. Morningstar analysts assign the ratings globally on a five-tier scale with three positive ratings of Gold, Silver, and Bronze, as well as Neutral, Negative, and Under Review designations. The move to three positive ratings enables our fund research analysts to highlight conviction in a fund more precisely than previously.

The Analyst Rating is based on the analyst’s conviction in the fund’s ability to outperform its peer group and/ or relevant benchmark on a risk-adjusted basis over the long term. The Analyst Rating does not express a view on a given asset class or peer group, but seeks to evaluate each fund within the context of an appropriate benchmark and peer group given what the fund is trying to achieve with its portfolio.

From Morningstar Recommendations to Morningstar Analyst Ratings: The Shift to the New Model

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© 2022 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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