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.

When consumption and funding levels are combined and correct modeled, the true cost of retirement is highly personalized based on each household's unique facts and circumstances, and is likely to be lower than amounts determined using traditional models.

This paper offers historical evidence to support the notion that a higher allocation to equities is optimal for investors with longer time horizons and that the time diversification effect is relatively consistent across countries, persisting for differe

Morningstar Global Category Classifications

Occasionally, a fund will move from one Morningstar category to another because of a significant change in its investment process that abruptly leads to a substantially different portfolio. In such cases, the fund’s star rating is treated differently tha

The purpose of this study is to provide a comprehensive comparative analysis of the costs of investing in ETPs and index funds across different asset classes and sub-asset classes.

ETF managed portfolios are investment strategies that typically have more than 50% of portfolio assets invested in ETFs. Primarily available as separate accounts, they represent one of the fastest-growing segments of the managed account universe.

Here, we present a concept that we call “Gamma,” designed to quantify the additional value that can be achieved by an individual investor from making more intelligent financial planning decisions. Gamma will vary for different types of investors and for

In this paper, we explore the historical relationship between employee stock ownership in 401(k) plans and subsequent company stock return on both a relative performance and risk-adjusted basis.

A Morningstar analysis of the average industry glidepath shows it will meet most retirees' spending needs, and funds with significantly different asset allocations have delivered similar returns in recent years. Other factors may contribute to these inve

This methodology document addresses the return calculation for fixed-rate and zero-coupon bonds. The methodology does not currently address other types of bonds such as floating-note bonds, mortgage-backed and asset-backed bonds, Treasury Inflation-Prote

ETF managed portfolios are investment strategies that typically have more than 50% of portfolio assets invested in ETFs. Primarily available as separate accounts, they represent one of the fastest-growing segments of the managed account universe.

This article addresses the issue of the alleged superiority of risk-factor-based asset allocations over the more traditional asset-class-based asset allocation.

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

Research that has led to what is known as the "low volatility anomaly" in cross-sectional stocks from a similar universe indicates that volatility is not compensated with a "volatility" premium. We find evidence of a risk premium, but it depends on the d

Morningstar's quantitative ratings are available for more than 28,000 companies in 86 countries that trade on 64 exchanges, allowing investors to obtain a much greater breadth of the independent perspective they know and trust from Morningstar.

The Global Fund Investor Experience report measures the experiences of mutual fund investors in 24 countries in North America, Europe, Asia, and Africa. Morningstar researchers evaluated countries in four categories—regulation & taxation, disclosure, fee

Morningstar has conducted qualitative, analyst-driven research on 529 college-savings plans since 2004 and has transitioned to a new ratings scale. The Morningstar Analyst Rating® for 529 College-Savings Plans is the summary expression of our forward-loo

Recent literature indicates that a liquidity investment style – the process of investing in relatively less liquid stocks within the liquid universe of publicly traded stocks – has led to excess returns relative to size, value, and momentum. We examine w

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.