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.

This paper studies the impact of accelerated stock price increases on future performance. Accelerated stock price increases are a strong contributor to both poor future performance and a higher probability of reversals. It implies that accelerated growth

Frontier-markets economies represent an earlier stage of development relative to emerging-markets economies and provide a faster-growing, better-diversified investment alternative. This paper provides an overview of the opportunities and risks involved i

In this paper, we compare the costs of ETFs and index funds, looking at expense ratios, tracking performance, tax efficiency, and trading costs.

This paper discusses Morningstar's view of the 699 ETF managed strategies it tracks, giving investors and advisors insight into industry performance during Q3 2014.

Rating shopping is the practice of arrangers and issuers of structured debt products hiring credit rating agencies with the highest ratings or the least stringent rating level requirements. This paper examines the problem and argues that "race to the bot

Deferred income annuities are designed to provide guaranteed income for life, with benefit payments beginning at a later date rather than immediately. This paper discusses the potential benefits and challenges plan sponsors, providers, and participants o

The Morningstar® Stewardship GradeSM measures the extent that fund companies align their interests with fundholders, offering investors and fund a tool to assess client experience against firm practices. This paper examines the relationship between the

This paper discusses Morningstar's view of the 699 ETF managed strategies it tracks, giving investors and advisors insight into industry performance during Q22014.

This paper discusses the potential benefits of Expert Guidance, or professional online retirement advice, on the savings and investing decisions of individual participants of defined contribution plans, such as 401(k) plans.

Issuance activity in U.S. private-label residential mortgage-backed securities (RMBS) continues to stagnate, reflecting structural challenges including regulatory uncertanty and macroeconomic factors. This paper categorizes the hurdles facing the nonagen

This paper offers evidence that investor risk aversion is time-varying and that changes in risk aversion are primarily related to changes in investor expectations instead of historical market returns.

The target-date industry has shown many signs of a maturing, stabilizing market, though there's still plenty of dynamism to be found. Target date funds continue to upend expectations, but other less-favorable trends also continue.

This paper analyzes the trend of decreasing mutual fund fees against the recent history of growing total industry assets under management.

This study focuses on measuring Tracking Efficiency in Chinese equity ETFs. In order to better evaluate Chinese ETFs, this study focuses on more than tracking methods, as it also touches upon the following factors: trading costs, product and index constr

Morningstar has conducted qualitative, analyst-driven research on 529 college-savings plans since 2004, providing data on 84 traditional 529 plans, which are included in this study. Assets in 529 plans continue to climb, and plan sponsors have generally

The Morningstar Fee Level for mutual funds was developed to help investors compare an investment vehicle’s relative level of fees with those of similar investment vehicles. There are three different Morningstar Fee levels: Morningstar Fee Level-Broad, Mo