Morningstar Analyst Rating launched for funds

Funds data company Morningstar has launched its Morningstar Analyst Rating service that rates products on five factors: people, process, parent, performance, and price.

The Analyst Rating scale produces three positive ratings, a neutral and a negative, expressed as “medals”.

The ratings are only given to funds that Morningstar’s 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.”

Morningstar Analyst Rating scale Definition
 GoldBest-of-breed fund that distinguishes itself across the five pillars and has garnered the analysts’ highest level of conviction
 SilverFund with notable advantages across several, but perhaps not all, of the five pillars-strengths that give the analysts a high level of conviction
 BronzeFund with advantages that outweigh any disadvantages across the five pillars, and sufficient level of analyst conviction to warrant a positive rating
 NeutralFund that isn’t likely to deliver standout returns, but also isn’t likely to significantly underperform
 NegativeFund that has at least one flaw likely to significantly hamper future performance, and is considered an inferior offering to its peers

The new rating replaces Morningstar’s previous qualitative rating scale of Elite, Superior, Standard, Inferior, and Impaired – for investors in the UK, Europe and Asia.

Fund ratings from OBSR, which Morningstar acquired in 2010, will be changed in the first half of 2012. The OBSR rating scale of AAA, AA, and A will transition to the new positive ratings of Gold, Silver, and Bronze.

Christopher Traulsen, Morningstar’s director of fund research for Europe and Asia said: “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.”

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