Unlike the backward-looking Morningstar Rating™ (often referred to as the “star rating”), which assigns 1 to 5 stars based on a fund’s past risk- and load-adjusted returns versus category peers, the Analyst Rating is the summary expression of Morningstar’s forward-looking analysis of a fund. Morningstar analysts assign the ratings on a five-tier scale with three positive ratings of Gold, Silver, and Bronze, a Neutral rating, and a Negative rating.
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. If a fund receives a positive rating of Gold, Silver, or Bronze, it means Morningstar analysts think highly of the fund and expect it to outperform over a full market cycle of at least five years. The Analyst Rating is not a market call, and it is not meant to replace investors’ due-diligence process. It cannot assess whether a fund is the right fit for a particular portfolio and risk tolerance. It is intended to supplement investors’ and advisors’ own work on funds and, along with written analysis, provide forward-looking perspective into a fund’s abilities. It picks up where commonly watched measures of the past leave off.
Research Methodology: The Five Pillars
Morningstar evaluates funds based on five key pillars—Process, Performance, People, Parent, and Price—which its analysts believe lead to funds that are more likely to outperform over the long term on a risk-adjusted basis.
Process: What is the fund’s strategy and does management have a competitive advantage enabling it to execute the process well and consistently over time?
Performance: Is the fund’s performance pattern logical given its process? Has the fund earned its keep with strong risk-adjusted returns over relevant time periods?
People: What is Morningstar’s assessment of the manager’s talent, tenure, and resources?
Parent: What priorities prevail at the firm? Stewardship or salesmanship?
Price: Is the fund a good value proposition compared with similar funds sold through similar channels?
The 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. Analysts consider numeric and qualitative factors, but 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.
See Also
Morningstar Analyst Rating for Funds Fact Sheet