Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today launched the Morningstar Analyst RatingTM for funds, the company's new global scale for qualitative fund ratings.
The Morningstar Analyst Rating is a designation assigned by Morningstar fund research analysts around the world and derived from the company's five pillar analytical framework that considers the following key areas: People, Process, Parent, Performance, and Price. Morningstar analysts evaluate each of these areas to arrive at the Analyst Rating.
The Morningstar Analyst Rating scale includes three positive ratings as well as neutral and negative ratings. The top three tiers are expressed as medals and reserved for funds that Morningstar analysts believe have sustainable advantages that position them well versus peers or the relevant benchmark on a risk-adjusted basis over a full market cycle.
The new Morningstar Analyst Rating scale is as follows:
Positive Ratings:
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Gold: Best-of-breed fund that distinguishes itself across the five pillars and has garnered the analysts' highest level of conviction;
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Silver: Fund with notable advantages across several, but perhaps not all, of the five pillars-strengths that give the analysts a high level of conviction;
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Bronze: Fund with advantages that outweigh any disadvantages across the five pillars, and sufficient level of analyst conviction to warrant a positive rating;
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Neutral: Fund that isn't likely to deliver standout returns, but also isn't likely to significantly underperform; and
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Negative: Fund that has at least one flaw likely to significantly hamper future performance, and is considered an inferior offering to its peers.
For investors in the UK, Europe, and Asia, the new Morningstar Analyst Rating replaces Morningstar's previous qualitative rating scale of Elite, Superior, Standard, Inferior, and Impaired.
"We've created a global standard for analyst-driven fund ratings that will be recognizable to investors worldwide," said Christopher Traulsen, Morningstar's director of fund research for Europe and Asia. "We're not changing the way we approach fund research, and our analysts continue to rate funds based on their conviction of a fund's ability to outperform its benchmark or peers over the long term. However, whilst we have retained a five-tier scale, we have bundled our two previous negative views into a single rating-Negative-and we now have three positive ratings-Gold, Silver, and Bronze-to provide an additional level of distinction in our positive ratings. Our new scale gives investors more granular insight into our views on the funds they are likeliest to own and allows us to more clearly signal to investors whether our conviction level on positively rated funds is growing stronger or weaker."
Morningstar began qualitative fund research in the UK and across Europe and Asia in early 2009.
In 2010, Morningstar acquired Old Broad Street Research (OBSR), which has provided qualitative fund ratings in the UK since 2002. OBSR fund ratings will transition to the Morningstar Analyst Ratings in the first half of 2012, when the OBSR rating scale of AAA, AA, and A will transition to the new positive ratings of Gold, Silver, and Bronze.
"Our global rating system represents the penultimate step in bringing together Morningstar and OBSR fund research in the UK market," said Richard Romer-Lee, joint-managing director for OBSR.
"Our combined research team has worked together to deliver a new ratings scale that we can apply to the funds we cover worldwide. When OBSR adopts the new rating scale next year, the OBSR AAA rating will directly map to the new Gold rating, the AA to the new Silver, and the A to the new Bronze, resulting in a seamless transition for investors and the industry."
In addition, Morningstar is launching a new Global Fund Report in the United States this month and in the UK, Europe, and Asia in early 2012, which will replace the current Morningstar Fund Research Report. Like its predecessor, the Global Fund Report is the essential accompaniment to the Morningstar Analyst Rating. It clearly explains the Morningstar analyst's justification for the fund rating and includes a discussion of the analyst's views on each of the five key pillars, through the analyst's assignment of a Positive, Neutral, or Negative designation to each pillar. The reports also include rich, industry-leading data and proprietary Morningstar analytics.
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