For years, Morningstar
has had to constantly remind people
that its popular star rating system is backward-looking, not
forward-looking. As Don Phillips
likes to say, "It's an achievement test, not an aptitude test."
This morning, Morningstar revealed that the aptitude test is in the works. At a press conference during Day Two of the
Morningstar conference at the McCormick Place in Chicago, Morningstar officials led by Phillips revealed plans to launch forward-looking global fund ratings for funds.
The company plans to roll out the ratings and research reports in the US, Canada, Europe, Asia, Australia and New Zealand in the fourth quarter.
Morningstar plans to start with 150-200 ratings and reports for U.S. in
Q4 and over the next year, bring the number up to more than 1,500
Morningstar will continue its star ratings.
"We think of the star ratings as an achievement test," Phillips told
journalists. "We think of these new ratings as an aptitude test."
Funds will be given one of five ratings: AAA, AA, A, Neutral and Negative.
Analysts come up with a rating based on five Ps: people, process, parent, performance and price.
Analysts will pick which funds to rate based on factors such as investor
interest and asset size. Morningstar will not charge the fund groups to be rated.
Morningstar plans to make the ratings available for free on Morningstar.com. A written analysis of the fund and an explanation
of the rating will be available via premium membership on the site.
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