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 Morningstar Manager Benchmarks contain three distinct series of benchmarks based on key peer grouping factors such as Morningstar Institutional Category, equity style, investment strategy, and market capitalization. Each series has a unique set of co

Morningstar® Investor Return™ (also known as dollar-weighted return) measures how the average investor fared in a fund over a period of time. Investor return incorporates the impact of cash inflows and outflows from purchases and sales and the growth in

This paper outlines our method of calculating the Fixed-Income Ownership Zone, which is where the duration range and the credit quality range intersect in the Morningstar Style Box.

It is well known that the normal distribution model fails to describe the fat tails of markets. The Lévy stable distribution model, meanwhile, has fat tails but leads to an infinite variance, thus complicating risk estimation. This study introduces trunc

This article explains why the air is coming out of the argument that fundamental indexing is a revolutionary innovation.

The importance of asset allocation has been the subject of considerable debate and misunderstanding. What seems like an easy question or topic on the surface is actually quite complicated and filled with nuance. In an article written by Thomas Idzorek, J

This paper provides a brief summary on the importance of asset allocation, while noting that nowhere near 90 percent of the variation in returns is caused by the specific asset allocation mix. It highlights that most time-series variation comes from gene

The 2011 Industry Survey updates much of the data from the 2010 edition while providing new features on asset allocation, performance attribution, and portfolio composition — particularly among retirement-income funds, the terminal funds in many target-d