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.

This document addresses the Morningstar Analyst Rating® for 529 College-Savings Plans methodology, the summary expression of our forward-looking analysis of 529 college-savings plans. Ratings are assigned on a five-tier scale running from Gold to Negativ

This document details the methodology used in The Morningstar Category™ Classifications. Morningstar assigns categories to all types of portfolios, such as mutual funds, variable annuities, and separate accounts.

In this updated and expanded report, we build upon our original examination of synthetic exchange-traded funds (ETFs) in Europe, highlighting recent progress made by providers towards increasing the degree of investor protection within their products and

In this paper, we will discuss proprietary Morningstar ETF data points, which can serve as tools to measure the true cost of ETF ownership. These data points help quantify the investor experience of owning an ETF and allow for better fund selection. Sele

This methodology document addresses the Morningstar global fixed income classification.

This paper explores important differences in the definitions of the expected replacement ratio and elaborate how, like any type of projection involving multiple variables over an extended duration, replacement rate estimates estimates can vary materially

Estimated holding cost, tracking volatility, market impact cost, and portfolio concentration are all data points used in our ETF ratings. In this document, we describe the method of calculation for each of these points.

The purpose of this study is to first establish a framework to evaluate different withdrawal strategies and second to use that framework, in conjunction with Monte Carlo simulations, to determine the optimal withdrawal strategies for various case studies

The sole aim of this paper is to explain why it’s so important for closed-end funds to improve their transparency and release full portfolio holdings on a more frequent basis than has been the case historically.

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