CHICAGO, July 8, 2019 /CNW/ -- Morningstar, Inc.
(Nasdaq: MORN), a leading provider of independent investment
research, today announced it will enhance two of its
forward-looking fund ratings systems, the Morningstar Analyst
Rating™ for funds (Analyst Rating) and the Morningstar Quantitative
Rating™ for funds (Quantitative Rating). The enhanced ratings,
which are based on an updated assessment framework, will begin to
take effect on Oct. 31, 2019.
The Analyst Rating is Morningstar's forward-looking,
analyst-driven ratings system that takes the form of Gold, Silver,
Bronze, Neutral, and Negative. While the overall ratings scale and
where to access them remains unchanged, Morningstar will change the
underlying methodology analysts follow, setting a higher bar for
funds to earn a Gold, Silver, or Bronze rating and also doubling
down on fees. The Analyst Ratings will also be tailored to
individual fund share classes, taking fee differences into account.
Morningstar will make accompanying updates to the Quantitative
Rating, a companion forward-looking system that uses
machine-learning techniques to assign ratings to funds not covered
by a Morningstar analyst. Those updates will ensure the
Quantitative Rating continues to strongly align with the Analyst
Rating.
"We've been encouraged by the way investors have incorporated
the Analyst Ratings and Quantitative Ratings into the research they
conduct. We're building on that acceptance and making the ratings
more effective and useful to investors," said Jeffrey Ptak, Morningstar's head of global
manager research. "Additionally, the enhanced framework sets a
higher bar for strategies to earn a Gold, Silver, or Bronze rating,
and we are placing a greater emphasis on the importance of
fees."
The enhancements include:
- Simpler framework: The existing assessment framework
revolves around five elements, or "pillars", including People,
Process, Parent, Performance, and Price. Under the new framework,
analysts will assess three of these pillars, People, Process, and
Parent. The analysts will use that assessment to estimate how much
value a strategy can add before fees. Performance and Price will
cease to be standalone pillars, as analysts will incorporate their
performance assessment into the other pillars and express price
differently.
- Greater emphasis on fees: Currently, a strategy's fee
rank within its peer group drives its Price pillar rating, which
feeds into the overall Analyst Rating. Under the new methodology,
analysts will deduct a strategy's expenses from their estimate of
how much value it can add before fees, with that estimate based in
part on the people, process, and parent pillar assessments they
conduct. This approach has the benefit of evaluating costs relative
to what a fund can deliver before fees, yielding a sense of what
value investors will net after fees are taken into account, which
is what ultimately matters. It also puts the fee assessment on the
same plane as the analysts' research into the other three pillars,
ensuring prices gets the weight it deserves.
- Higher bar for active strategies: Analysts will limit
Medalist ratings—Gold, Silver, and Bronze—to active strategies that
can surpass a relevant benchmark and peer group average net of fees
and after accounting for risk. In the past they might have awarded
these ratings to active strategies that could beat their average
peer or an index, but not both.
- Clearer roadmap for investors: Analysts will assign
fewer Medalist ratings to active strategies in areas where analysis
finds there's less payoff to active investing. That payoff estimate
will shape the expectations they form for the success of active
investing and indexing in different areas.
- Tailored to share classes: Today, analysts evaluate a
single representative fund share class and then apply that rating
to all other share classes. In the future, they'll evaluate each
share class on its own by taking fee differences into account. This
could mean share classes that bundle advice and sales fees may see
ratings downgrades.
- Refined pillar ratings: The scale that analysts use to
rate People, Process and Parent will be refined. Today, analysts
rate these pillars using "positive", "neutral", and "negative";
when the enhanced ratings take effect, analysts will assign pillar
ratings on a "high", "above-average", "average", "below average",
and "low" scale.
The ratings enhancements will begin to take effect on
Oct. 31, 2019. Morningstar will
launch an initial set of Analyst Ratings assigned under the new
methodology on that date, with the remainder to be updated
gradually over the subsequent twelve months. The Morningstar
Quantitative Ratings will be updated in full on Oct. 31, 2019. The updated methodology is
available here, and the current methodology is available here:
Morningstar's Signature Research & Methodology.
For additional information on the ratings enhancement, visit
Morningstar.com. An infographic about Morningstar's fund ratings
and how they can be used by investors to assess funds is
available here.
Morningstar continually evaluates its rating systems and is
evolving to align with investors' needs and empower their success.
Recently, Morningstar also introduced a forthcoming methodology
change to the Morningstar Sustainability Rating™,
enabling investors to make more informed investment decisions by
rating the absolute ESG risk of investor portfolios. More detail is
available on the Morningstar Blog.
The Analyst Rating, Quantitative Rating, and Sustainability
Rating for funds are available to Premium members of
Morningstar.com. Morningstar's Global Fund Reports, in-depth
research reports that include a wealth of data and analysis are
available in Morningstar Direct℠, the company's
web-based global investment analysis platform for institutional
investors, and in Morningstar
Office℠, a global practice and portfolio
management solution for advisors.
Morningstar Analyst Rating™ for funds
Launched in
2011, the Morningstar Analyst Rating for funds is the summary
expression of Morningstar's forward-looking analysis of a fund.
Analyst Ratings are assigned globally on a five-tier scale running
from Gold to Negative. The top three ratings, Gold, Silver, and
Bronze, all indicate that our analysts think highly of a fund; the
difference between them corresponds to differences in the level of
analyst conviction in a fund's ability to outperform its benchmark
and peers through time, within the context of the level of risk
taken. The Analyst Rating does not express a view on a given asset
class or peer group; rather, it seeks to evaluate each fund within
the context of its objective, an appropriate benchmark, and peer
group.
Morningstar Quantitative Rating™ for funds
To expand
the number of funds that Morningstar analysts cover, Morningstar
developed the Morningstar Quantitative Rating in 2017, which uses a
machine-learning model to emulate the decision-making processes of
Morningstar analysts, their past ratings decisions, and the data
used to support those decisions. The machine-learning model is then
applied to the "uncovered" fund universe and creates the
Quantitative Rating, which is analogous to the rating an analyst
might assign to the fund if an analyst covered the fund. With this
quantitative approach, Morningstar can rate nearly 6 times more
funds in the global market.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment
research in North America,
Europe, Australia, and Asia. The company offers an extensive line of
products and services for individual investors, financial advisors,
asset managers, retirement plan providers and sponsors, and
institutional investors in the private capital markets. Morningstar
provides data and research insights on a wide range of investment
offerings, including managed investment products, publicly listed
companies, private capital markets, and real-time global market
data. Morningstar also offers investment management services
through its investment advisory subsidiaries, with more than
$210 billion in assets under
advisement and management as of March 31,
2019. The company has operations in 27 countries. For more
information, visit www.morningstar.com/company. Follow Morningstar
on Twitter @MorningstarInc.
Morningstar's Manager Research Group consists of various
wholly owned subsidiaries of Morningstar, Inc. including, but not
limited to, Morningstar Research Services LLC. 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
Manager Research Group's current expectations about future events
and therefore involve unknown risks and uncertainties that may
cause such expectations not to occur or to differ significantly
from what was expected. Analyst Ratings are not guarantees nor
should they be viewed as an assessment of a fund's or a fund's or
separately managed account's underlying securities'
creditworthiness. This press release is for informational purposes
only; references to securities or a separately managed account
investment strategy in this press release should not be considered
an offer or solicitation to buy or sell the securities or to invest
in accordance with that strategy.
©2019 Morningstar, Inc. All Rights Reserved.
MORN-R
Media Contact:
Sarah Wirth, +1 312 244-7368 or
sarah.wirth@morningstar.com
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SOURCE Morningstar, Inc.