From Morningstar: 2024-09-17 10:34:00

Morningstar is making changes to how they assign Morningstar Medalist Ratings to funds starting in late October 2024 to improve predictiveness and outcomes for investors. Around 20% of rated funds are expected to see a rating change, with most being downgrades. Gold, Silver, and Bronze ratings are projected to account for around 23% of rated global funds compared to about 30% currently. The Medalist Rating is a forward-looking system that helps predict funds’ performance compared to benchmarks or peer groups based on analyst or algorithm evaluations. Higher ratings indicate the conviction in a fund’s ability to outperform.

Morningstar has been encouraged by the performance of the Medalist Rating since its launch in 2011, with higher-rated funds generally outperforming lower-rated funds. However, highly rated funds haven’t outperformed their benchmark indexes, on average. To address this, they are enhancing the methodology by changing how they estimate a fund’s value compared to its index before fees. This includes shifting away from a historical dispersion-based approach to a method that better considers the likelihood and magnitude of delivering positive value before fees.

The change in methodology is expected to impact around 18% of rated funds globally, with most changes being downgrades. For example, around 40% of funds currently rated Bronze are expected to be assigned Neutral ratings after the change. The impact of the changes will vary by asset class and coverage type, with allocation funds expected to see around 18% of funds affected, and alternative funds experiencing fewer rating changes due to different before-fee alpha potential estimation methods. Changes to Morningstar Medalist Ratings are set to improve the ability to predict which funds will outperform their benchmarks and provide better outcomes for investors.



Read more at Morningstar: Why We’re Enhancing the Morningstar Medalist Rating