Morningstar to Introduce Forward-Looking Morningstar Analyst Rating(TM) for Funds, New Uniform Approach for Global Fund Research
June 09 2011 - 12:25PM
PR Newswire (Canada)
TORONTO, June 9 /CNW/ -- TORONTO, June 9 /CNW/ - Morningstar
Research Inc., a Canadian subsidiary of Morningstar, Inc. (NASDAQ:
MORN), a leading provider of independent investment research, today
announced its plans to introduce forward-looking, analyst-driven
global fund ratings and a worldwide, uniform approach for fund
research reports. The ratings and reports will be based on
analysts' convictions about a fund's ability to outperform its
median peer and/or relevant benchmark on a risk-adjusted basis over
the long term. The company plans to launch the new ratings and
research reports in Canada in the fourth quarter. The new
Morningstar Analyst Rating™ for funds is a qualitative,
forward-looking measure based on analyst research, whereas the
well-known Morningstar Rating™ for funds, or the "star rating," is
a purely quantitative, backward-looking measure that rates
historical performance based on risk- and cost-adjusted returns
without any input from Morningstar's analysts. The new analyst
ratings will not replace the star ratings, and the existing star
rating methodology will not change. Morningstar considers the new
Analyst Rating to be an "aptitude test" that is intended to
supplement the star rating, which is an "achievement test."
Morningstar will not charge fund groups to be rated, and its
decision to rate and report on a specific fund is made solely by
the analyst team based on factors such as investor interest and
asset size. In Canada, the new ratings and research reports will
replace the company's "Fund Analyst Picks," a proprietary list of
most-favorite funds chosen by Morningstar's analysts in each
investment category. In markets where Morningstar already has
analyst-driven ratings, such as the United Kingdom, Europe, Asia,
and Australia, the new system will replace the previous ratings
scale. The new Morningstar Analyst Rating™ for funds will be
assigned as one of five ratings--AAA, AA, A, Neutral, or Negative.
Analysts arrive at a rating through an evaluation of five key
pillars Morningstar believes are crucial to predicting the future
success of a fund: People, Process, Parent, Performance, and Price.
If a fund receives a positive rating of AAA, AA, or A, it means
Morningstar analysts think highly of the fund and expect it to
outperform its peer group and/or relevant benchmark on a
risk-adjusted basis over a full market cycle of at least five
years. The ratings scale is as follows: -- Positive Ratings: o AAA:
Best-of-breed fund that distinguishes itself across the five
pillars and has garnered the analysts' highest level of conviction;
o AA: Fund with notable advantages across several, but perhaps not
all, of the five pillars--strengths that give the analysts a high
level of conviction; o A: Fund with advantages that outweigh any
disadvantages across the five pillars, with sufficient level of
analyst conviction to warrant a positive rating; -- Neutral: Fund
that isn't likely to deliver standout returns, but also isn't
likely to significantly underperform; and -- Negative: Fund with at
least one flaw that is likely to significantly hamper future
performance, and is considered an inferior offering to its peers.
"Morningstar has been providing independent, analyst-driven fund
research for 25 years, but we've now codified the various
evaluation methods used by our team of more than 90 analysts around
the world to create one harmonized global rating system. The rating
is designed to supplement the fund due diligence process for
investors and advisors and identify funds worth investing in over
the long term. It is not designed to be a short-term market call on
an asset class. The new rating system better surfaces the work of
our global research team and helps investors determine whether
Morningstar analysts think a fund is worth considering," said Don
Phillips, president of fund research at Morningstar. "Analysts will
assign positive ratings to funds they believe have enduring
advantages and expect to outperform over the long term. Unlike many
of our competitors, our ratings scale is unique because we're not
only identifying good funds, but mediocre and poor ones as well."
The Morningstar Analyst Rating™ evaluates funds on five key
pillars, considering both numeric as well as analyst-driven
factors. This approach notably puts only partial weight on past
performance and backward-looking risk measures and does not dismiss
funds that have underperformed or have limited track records. It
will also be more responsive to significant changes at a fund or
parent organization. The five pillars are: -- People: Quality of a
fund's investment team, based on factors including its experience,
stability, structure, communication, and alignment of interests
with fund shareholders; -- Process: Quality of investment
process--in terms of both security selection and portfolio
construction--and whether it is sensible, clearly defined, and
repeatable. Also judges whether the process is effectively
implemented and whether the portfolio is consistent with the stated
process; -- Parent: Quality of the parent organization, including
capacity and risk management, recruitment and retention of talent,
incentive pay, and culture of stewardship; -- Performance:
Evaluation of long-term returns, consistency of performance in
different market conditions, and performance relative to manager
changes and changes in asset size; and -- Price: Evaluation of
annual expense ratios, and performance fees if appropriate, within
the context of the relevant market or cross-border region. The new
analyst ratings for funds will be available for free on
Morningstar.ca™, the company's investment information website for
individual investors. A written analysis of the fund and an
explanation of the Analyst Rating will be available through the
paid Premium Membership on Morningstar.ca. The more in-depth
Morningstar Global Fund Research Report for advisors and
institutions will be available in software products, such as
Morningstar DirectSM, the company's web-based global research
platform for institutional investors. The in-depth reports include
a wealth of analysis, graphics, data, and other statistics.
Morningstar plans to launch analyst ratings and reports for
Canadian funds in the fourth quarter, focusing on funds that have
garnered the most investor interest and assets. In addition to the
largest funds, the analyst team will devote a portion of its
coverage universe to smaller funds with distinguishing
characteristics. Morningstar has more than 90 fund and ETF analysts
worldwide who cover about $9 trillion in assets globally. The
company provides data on approximately 140,000 mutual fund share
classes. "The new Morningstar Analyst Rating for funds represents a
codification of how we share our opinions on funds, and is derived
from the same evaluation process we've been using for many years.
The new rating will allow investors to quickly see our thoughts on
a fund, make comparisons between funds, and ultimately come to an
investment decision," said David O'Leary, director of fund analysis
for Morningstar Canada. In addition, Morningstar plans to adjust
its methodology for the Stewardship Grades for funds in the United
States. Later this year, Morningstar's U.S. fund analyst team will
begin to replace the individual fund grades with parent-level
Stewardship Grades, which is the same model already employed in
Canada, using an A-F grading scale for more than 20 fund firms, and
aims to complete the full shift to the new methodology in 2012. The
parent-level Stewardship Grades will be part of the Parent pillar
in the new Analyst Rating. Morningstar's analysis of stewardship,
which the firm began in 2004, is designed to help investors
research, identify, and compare fund managers and fund companies
that do a good job--or a poor job--of serving fund shareholders'
interests. The company currently assigns Stewardship Grades to more
than 1,000 funds across 45 fund firms. For more information about
the Analyst Rating for funds, please visit
http://global.morningstar.com/AnalystRatingForFunds. About
Morningstar Research and Morningstar, Inc. Morningstar Research
Inc. is a Canadian subsidiary of Chicago-based Morningstar, Inc., a
leading provider of independent investment research in North
America, Europe, Australia, and Asia. The company offers an
extensive line of Internet, software, and print-based products and
services for individuals, financial advisors, and institutions.
Morningstar provides data on approximately 390,000 investment
offerings, including stocks, mutual funds, and similar vehicles,
along with real-time global market data on more than 5 million
equities, indexes, futures, options, commodities, and precious
metals, in addition to foreign exchange and Treasury markets.
Morningstar also offers investment management services and has
nearly $140 billion in assets under advisement and management as of
March 31, 2011. The company has operations in 26 countries. Analyst
Ratings are subjective in nature and should not be used as the sole
basis for investment decisions. Analyst Ratings are based on
Morningstar's current expectations about future events and
therefore involve unknown risks and uncertainties that may cause
Morningstar's expectations not to occur or to differ significantly
from what was expected. Morningstar does not represent its Analyst
Ratings to be guarantees nor should they be viewed as an assessment
of a fund's or the fund's underlying securities' creditworthiness.
©2011 Morningstar, Inc. All rights reserved. To view this news
release in HTML formatting, please use the following URL:
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bMedia Contacts:/b /p p In Toronto: Dijana Vojnovic, +1 416
484-7874 or a
href="mailto:dijana.vojnovic@morningstar.com"dijana.vojnovic@morningstar.com/a
/p p In Chicago: Margaret Kirch Cohen, +1 312-696-6383 or a
href="mailto:margaret.cohen@morningstar.com"margaret.cohen@morningstar.com/a
/p
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