Methodology Documents

Morningstar has conducted research on active and passive investment strategies and their associated vehicles since 1986.

This paper outlines the key assumptions and details behind our quantitative equity rating methodology.

We believe that a company's intrinsic worth results from the future cash flows it can generate. The Morningstar Rating for stocks identifies stocks trading at a discount or premium to their intrinsic worth--or fair value estimate, in Morningstar terminology.

This document describes the rationale for, and the formulas and procedures used in, calculating the Morningstar Rating for funds (commonly called the “star rating”). This methodology applies to funds receiving a star rating from Morningstar.

This paper outlines the key assumptions and details behind our quantitative equity rating methodology.

Morningstar developed the Morningstar Equity Comparables system to give investors and financial professionals an objective benchmark for comparing companies. Morningstar Equity Comparables is genuinely different to other industry classification schemes. We start from the bottom up with comparable companies, as opposed to the top down with sector definitions. For every pair of companies, we determine how similar they are–anywhere from closely comparable to distantly related based on automated analysis of the companies' own business description. We automatically analyse the text of the business description and work out whether companies are talking about similar things as they describe their businesses. Businesses described in similar terms are comparable.

The paper outlines category definitions applicable to the Indian market.

For an investor, risk is not merely the volatility of returns, but the possibility of losing money.

The Morningstar Categories for funds in the Europe/Asia/Africa universe were first established in the early years of the UCITS (Undertaking for Collective Investment in Transferable Securities) Directive to help investors make meaningful comparisons betw

The Morningstar Category™ classification system for funds lets institutions, advisers and investors effectively compare like funds.

The Morningstar Fee Level – 529 for mutual funds was developed to help investors compare a 529 Plan's relative level of fees with those of similar 529 Plans.

The Morningstar Category™ classification system for funds lets institutions, advisers and investors effectively compare like funds.

The paper describes how common quantitative Morningstar ranks are determined.

This document describes the rationale for, and the formulas and procedures used in, calculating the Morningstar Rating™ for funds (commonly called the “star rating”). This methodology applies to funds domiciled or available for sale in Europe, Hong Kong,

The paper outlines category definitions applicable to the Hong Kong market.

The paper discusses different types of performance returns shown by Morningstar products

The paper contains data and product information about the Australian Asset Flows module available in Morningstar Direct

Morningstar's Strategy Database identifies investment undertakings managed by a single team following the same investment process.

The data that drive the fixed income style box is surveyed from fund companies. Morningstar asks fund companies to send the following information on a monthly or quarterly basis for each of their fixed-income and allocation funds.

All managed products are subject to the risk that they may lose value because of the strategies they pursue, the types of securities they invest in, and the uncertainties of investing in general.

The Morningstar Canada Liquid Bond Index (MCLBI) is designed to provide diversified exposure to Canadian dollar denominated federal, provincial, government-guaranteed and corporate debt with an eye toward liquidity.

In March 2004, Morningstar introduced the category classification methodology for Chinese mutual funds. Since that time, there have been significant developments in the Chinese financial market as well as an increase in both the quantity and variety of f

In Canada, Fixed Income funds that are displayed on Morningstar tools may be subject to two different methodologies depending on which tool they appear on.

The Morningstar Fee Level for Insurance funds was developed to help investors compare an investment vehicle’s relative level of fees with those of similar investment vehicles.

The Sector Delta is an equilateral triangle that depicts a portfolio’s super sector allocation, relative to a benchmark, on a two dimensional space.

To help investors understand the different levels of risk of investing in the various categories of funds, Morningstar will calculate a risk level for each of its fund peer group.

The paper details Global Industry Classification (GICS) four level breakdown.

Total portfolio refers to a portfolio with a strategic asset-allocation policy consisting of multiple asset classes implemented with various investment managers. This document outlines several methods of attributing performance, including the classic app

Effective June 30, 2003 Morningstar replaced median market capitalization with geometric average capitalization as a measure of size for a fund's portfolio.

The Federal Reserve Board publishes a group of Treasury bond interest rates of various maturities. These are named Treasury Constant Maturities, the best known being the Ten-Year Treasury Constant Maturity.

Portfolio diversification is generally thought of in terms of market capitalization and investment style, yet sector diversification is equally important.

The Morningstar Style Box provides an intuitive visual representation of style that helps investors build better portfolios and monitor them more accurately

The paper outlines different expense ratio applicable to managed products.

This document provides instructions and guidance for portfolio data providers to complete Morningstar's Advanced Portfolio Template (the "APT")

Morningstar divides the stock universe into three major economic spheres or Super Sectors, Cyclical, Defensive and Sensitive. Within each of these Super Sectors, three groups for Defensive and four groups for Cyclical and Sensitive are defined for a tot

The paper outlines category definitions applicable to the American market.

This document supplements the methodology document for the Morningstar Style BoxTM. This provides additional information about how to rescale the size score for a fund

The structure of an investment portfolio can change over time as the asset manager makes business decisions about distribution channels and the legal structure of the portfolio.

In MM, 2010 Morningstar introduced a new percentile ranking methodology called Distinct Portfolio Category Ranks.

Morningstar Indexes were created to provide investors with accurate benchmarks for performance measurement, as well as offering discrete building blocks for portfolio construction.

The paper describes the use of Monte Carlo simulations in determing investor wealth in EnCorr.

The paper defines the Morningstar Categories for the Chile-domiciled funds.

The Morningstar Manager Benchmarks offer a distinct view into a full range of managed investments for incisive performance, portfolio, and operations data analysis that better captures how money mangers and consultants view the manager and investment uni

The paper discusses four aspects of ETF analysis: Estimated Holding Costs, Tracking Volatility, Market Impact Cost and Portfolio Concentration.

Morningstar’s proprietary classification system is comprised of 11 sectors, 69 industry groups and 148 industries.

The paper discusses the launching of the enhanced cash breakdown calculation for mutual fund portfolios.

The Similar Funds tool will generate a list of investments that are similar to a user-specified offering. This methodology is based upon several factors including the category, special criteria, portfolio allocation, and performance of the fund provided

The paper describes how total returns for net asset values and share prices of closed-end funds are adjusted when a closed-end fund undertakes a rights offering.

Sector groups and sectors can be defined by the parameters detailed in the methodology and based on the portfolio statistics of the most recent portfolio holdings data

Morningstar’s UIT composite return combines the returns of each series within a strategy to measure how the strategy has performed over different time periods

The paper defines the Morningstar Categories for the Japan-domiciled open-end funds.

A master-feeder fund structure allows asset managers to consolidate multiple portfolios into one, therefore realizing economies of scale, resulting in more efficient and effective investment management and achieving operational cost & tax efficiency

The Morningstar Fee Level for funds in Europe, Asia, and Africa was developed to help investors compare a fund share class' fees with those of other retail classes within its same category.

The paper describes how closed-end fund distributions are factored into the toal return calculations for net asset values and share prices.

A commonly used measure of return volatility is the standard deviation of monthly returns multiplied by to express it in the same unit as annual return

The paper outlines category definitions applicable to the Mexican market.