Morningstar Analyst Rating
Identity (2011) (Unimplemented)


While Morningstar's iconic one- to five-star rating system makes it easier for investors to discern which stocks or funds are "good" and "not-so-good", it is often misused. The quantitative ratings are based on calculations of past performance, but it doesn't account for qualitative variables that may affect the future performance of that asset class (e.g. company-wide strategic change, new technology, shifting demographics).

For example, when most investors see a four- or five-star fund on a fund report, they think the fund must be good, and that they should purchase it:

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An analyst's review of the fund in the report will often discuss economic headwinds that may affect the future performance of the fund, but when the ratings are sold to fund companies to be used in marketing materials, this subjective review is lost, and the fund is reduced to "buy" or "don't buy".

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As a result, Morningstar needed a new rating system for its prediction of future performance ("Morningstar Analyst Rating"). The new system needed to:

1. sit alongside the current star rating system ("Morningstar Rating");
2. work in black and white;
3. be culturally neutral;
4. scale well and appear in-line with data;
5. be described in words;
6. appear distinctively Morningstar;
7. reduce the tendency to oversimplify the current ratings.

The horizon from the letter "O" in the word mark visually provided a convenient quantitative/qualitative binary.

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The stars from the current system form the bottom edge of a larger star/sun below the horizon. The qualitative rating sits above, completing the circle. These thinner stars may eventually become the thicker ones below in a subsequent report if the prediction is correct.

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Not all quantitative ratings result in a similarly star-ed qualitative one. As a result, each fund or stock receives its own distinctive combination of stars. They gain "thumbprints" of their own, each distinctive and nuanced, and they invite a deeper investigation on an investor's part.

For example, a 2-star quantitatively- and qualitatively-rated fund (i.e. 2/2 rating) will appear empty and less appealing visually. A 4/2 rated rund will appear visually imbalanced and uncomfortable, and it may suggest that a stock that had done well in the past may be heading towards difficult times. A 4/5 rated fund will appear more stable and may suggest a future with strong, consistent returns.

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This two-tier system can be expressed verbally for television or radio. A call-to-action may follow the rating.

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A report mock-up with the new system in place:

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The new system as it would appear in data tables:

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A rating's usage rights may be sold to a fund company to appear in their own advertisements, like the mock-up below, to market their financial products:

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Ultimately, this proposal was not chosen. Instead, another five-tier rating system based on precious metals was launched in November 2011.