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This document describes the rationale for calculating the Morningstar Rating™ for funds (commonly called the "star rating").
 
The Morningstar Rating has the following key characteristics:
 
Morningstar Kategorien

  • The peer group for each fund’s rating is its Morningstar Category™.
  • Ratings are based on funds’ risk-adjusted returns.

Morningstar Category
The original Morningstar Rating was introduced in 1985 and was often used to help investors and advisors choose one or a few funds from among the many available within broadly defined asset classes. Over time though, increasing emphasis had been placed on the importance of funds as portfolio components rather than “stand-alone” investments. In this context, it was important that funds within a particular rating group be valid substitutes for one another in the construction of a diversified portfolio. For this reason, Morningstar now assigns ratings based on comparisons of all funds within a specific Morningstar Category, rather than all funds in a broad asset class.
   
How Does it Work?
To determine a fund’s rating, the fund and its peers are ranked by their Morningstar Risk-Adjusted Returns (MRARs) for each of three time periods: three, five, and 10 years. For each time period, if a fund scores in the top 10% of its peer group, it receives five stars (high); if it falls in the next 22.5%, it receives four stars (above average); a place in the middle 35% earns a fund three stars (average); the lower 22.5% receives two stars (below average); and the lowest 10% earn one star (low).
 
Morningstar calculates ratings only for categories with at least five funds that have a minimum of three years of performance history and report their returns net of fees.
 
The Morningstar RatingTM is based on “expected utility theory,” which recognizes that investors are

a) more concerned about a possible poor outcome than an unexpectedly good outcome and
b) willing to give up some portion of their expected return in exchange for greater certainty of return. The rating accounts for all variations in a fund’s monthly performance, with more emphasis on downward variations. It rewards consistent performance and reduces the possibility of strong short-term performance masking the inherent risk of a fund.


The Star Rating 

Top 10%
Next 22.5%
Middle 35%
Next 22.5%
Flop 10%
 

Funds are rated for up to three periods—the trailing three-, five-, and 10-years.
For a fund that does not change categories during the evaluation period, the overall rating
is calculated using the following weights:
 

Age of fund Overall-Rating
At least three years, but less than five
100% three-year rating
At least five years, but less than 10
60 % five-year Rating
40 % 3-year Rating
At least 10 years 50 % 10-year Rating
30 % five-year Rating
20 % three-year Rating

FAQ

How should investors use Star Ratings?
Star Ratings tell how a fund has performed on a risk-adjusted basis relative to a relevant category in the past. That is a useful piece of information, but it's far from all you need to know to make a smart investment decision. The ratings offer an introduction, not a conclusion to evaluating a fund.
 
Why did a fund lose a star? Or why did a Star Rating change?
It' s based purely on mathematics. A fund's Star Rating is based solely on a formula that Morningstar recalculates each month - there is no subjective input. The loss of a star doesn't mean someone at Morningstar has downgraded the fund - it simply means the fund's relative performance is currently below the cutoff point for its previous rating.

 

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Most recent amendment : 26/04/2018