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.

After-tax returns are measures of fund performance that take into account the taxes a hypothetical investor pays on fund distributions and capital gains. This methodology document addresses Morningstar’s interpretation of the 2001 Securities and Exchange

This article reviews the motivation for multiplying by root 12 and explains why it does not apply to returns. It then shows the derivation of the correct method to help the reader understand why it is in fact correct.

This paper proposes a new methodology to model ETF premiums and, for the first time, present empirical data on the time-series evolution of ETF premiums and discounts.

Morningstar Target-Date Fund Series Ratings and Research Reports are designed to help individual investors, financial advisors, plan sponsors, and other interested fiduciaries make informed decisions when evaluating a series of target-date funds. Target-

This methodology document addresses the target-date fund series rating and research reports methodology. Morningstar Target-Date Fund Series Ratings and Research Reports are designed to help individual investors, financial advisors, plan sponsors, and ot

In this paper we introduce a model that takes into account current bond yields and allows them to “drift” 3 toward a higher value during retirement using an autoregressive model based primarily on historical relationships between asset classes. This appr

Social Security (SS) is the largest source of retirement income for most Americans. This paper provides the reader with an overview of the SS retirement system and offers insight into key factors that should be considered when determining when to begin r

The rating methodology described herein applies to the new issue of a resecuritization of one or more U.S. nonagency RMBS securities. In a typical Morningstar rated resecuritization, one or more securities are pledged to a trust as eligible collateral. A

The Morningstar Rating™is a quantitative assessment of a fund's past performance--both return and risk--as measured from one to five stars. It uses focused comparison groups to better measure fund manager skill. The Morningstar Rating is intended for us

This methodology document addresses the guidelines for Morningstar's fixed-income survey. This paper provides information about the source of data and the calculation for credit quality, among other guidelines.

This document describes the Morningstar global bank credit rating methodology, which is driven by four key components, or pillars: bank solvency score, bank stress test score, bank business risk score, and distance to default.

This paper explores the potential benefit an investor (i.e., consumer) can achieve by postponing deferrals into a 401(k) plan and paying off credit card debt instead. Through an analysis we determine that an investor who first pays off a credit card and

This paper studies how herd behavior and, in particular, market bubbles might be used to predict crashes.