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 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 cases where the portfolio, management, shareholders, or strategies remain

This document describes the methodology of assigning Morningstar Institutional Categories for portfolios such as mutual funds, exchange-traded funds, and separate-account strategies available for sale in the U.S.

This document addresses the methodology for The Morningstar Category™ classifications for hedge funds. Morningstar supports 31 hedge-fund categories, which map into the following six broad category groups: directional equity, relative value, directional

This methodology document addresses the Morningstar Fixed-Income Style Box™. The Morningstar Style Box helps investors and advisors determine the investment style of a fund.

This article notes that benchmark-relative comparisons will not tell you if the glide path itself is “good.” We believe the evolving asset allocation is going to be the primary driver of performance and have the greatest effect on the level of returns an

In this paper, we define what the equity risk premium is and how it can be used in equilibrium and beat-the-market contexts. We also discuss various other premiums in the market that represent the differential returns of the many different asset classes

Some people argue that investors should allocate assets entirely to bonds, not only because bonds are the safer investment but also because they believe bonds will outperform stocks over the long run. In other words, if bonds can deliver higher returns t

This article explains how the Morningstar Dividend Composite Index and the Morningstar Dividend Leaders Index are constructed. The weighting system used in these indexes is designed so that the indexes are highly macro consistent, investable and have low

Morningstar outlines how The Morningstar Rating™ for stocks is derived, and also outlines the analytical work that feeds into our coverage of stocks. Underlying the rating is a focused methodology and standardized set of procedures and core valuations to

The rating methodology described herein will generally be applied to the new issuance and surveillance of ratings of U.S. residential mortgage-backed securities by Morningstar Credit Ratings, LLC (“Morningstar”). A rating that is assigned based on this m