The Morningstar Analyst Rating™ for funds is the summary expression of our forward-looking analysis of a fund. Morningstar Analyst Ratings are assigned globally on a five-tier scale running from Gold to Negative.
The top three ratings, Gold, Silver and Bronze, all indicate that our analysts think highly of a fund; the difference between them corresponds to differences in the level of analyst conviction in a fund’s ability to outperform its benchmark and peers through time, within the context of the level of risk taken. The Analyst Rating does not express a view on a given asset class or peer group; rather, it seeks to evaluate each fund within the context of its objective, an appropriate benchmark, and peer group.
Gold: These funds are our highest-conviction recommendations and stand out as best of breed for their investment mandate. By giving a fund a Gold rating, we are expressing an expectation that it will outperform its relevant performance benchmark and/or peer group within the context of the level of risk taken over the long term (defined as a full market cycle or at least five years). To earn a Gold rating, a fund must distinguish itself across the five pillars that are the basis for our analysis. That is, a Gold-rated fund should have a seasoned, talented, and successful manager or management team; a sound, thoughtful process that has been executed skilfully and consistently; a portfolio that’s in harmony with the stated process and that’s capable of delivering a reward that compensates investors for the risks it takes; reasonable expenses; and a strong parent organisation that is focused on responsible stewardship of investor assets.
Silver: Funds that fall in this category are high-conviction recommendations. They have notable advantages across several, but perhaps not all, of the five pillars. With those fundamental strengths, we expect these funds will outperform their relevant performance benchmark and/or peer group within the context of the level of risk taken over the long term (defined as a full market cycle or at least five years). While these are worthy funds with many positive features, they don’t necessarily rise to the standard of best in breed. Funds rated Silver may be working their way up our list of recommended picks as we gain more familiarity and conviction in key pillars or working their way down based on degradation within specific pillars.
Bronze: These funds have advantages that clearly outweigh any disadvantages across the pillars, giving us the conviction to award them a positive rating. As is the case with any fund receiving a positive rating, we expect these funds to beat their relevant performance benchmark and/or peer group within the context of the level of risk taken over a full market cycle (or at least five years). Funds rated Bronze may be working their way up the ratings scale as we gain more familiarity and conviction in key pillars or working their way down based on degradation within specific pillars.
Neutral: These are funds in which we don’t have a strong positive or negative conviction. In our judgment, they aren’t likely to deliver standout returns, but they aren’t likely to seriously underperform their relevant performance benchmark and/or peer group either. A fund that is overly benchmark-conscious could receive this rating as long as its fees are reasonable enough to give it a chance of keeping up with the average fund in the category or a competing index fund. A promising but unproven fund may also receive this rating until we see further evidence that it has the potential to outperform.
Negative: These funds possess at least one flaw that we believe is likely to significantly hamper future performance, such as high fees or an unstable management team. Because of these faults, we believe these funds are inferior to most competitors and will likely underperform their relevant performance benchmark and/or peer group, within the context of the level of risk taken, over a full market cycle. For example, a fund that combines an overly benchmark-conscious strategy with high fees could receive this rating because its strategy lends itself to underperformance.
Read the full methodology here.
