Morningstar to Update Medalist Ratings; Some Downgrades Expected

The change is expected to affect about a fifth of Medalist-rated investments.

Morningstar plans to update the methodology for the Morningstar Medalist Rating, its comprehensive rating for managed investments, and expects to downgrade several investment vehicles as a result.

The Morningstar Medalist Rating is a five-tier system meant to evaluate an investment strategy’s potential to outperform an index or peer group, with ratings assigned on a scale from “gold” to “negative.”

The update, which will begin to take effect on Oct. 29, refines Morningstar’s framework for forecasting returns but maintains the same process for assigning ratings, the research company said.

Using historical data, the updated framework introduces a more precise assessment of how much value a managed investment can add before fees compared to its assigned benchmark. Morningstar expects the updated methodology for this “alpha potential estimate” to change the ratings for about 20% of Medalist-rated investments, mostly downgrades.

“There are a wide range of investment products available today, and Morningstar’s ratings serve to guide investors toward informed decisions,” Jeff Ptak, chief ratings officer at Morningstar, said.

“Our Medalist Rating has done a good job of sorting funds based on future performance, and this methodology enhancement is an opportunity to build on this strength to further empower investors.”

Morningstar is also refining the algorithm that helps evaluate passively managed equity vehicles that aren’t covered by an analyst.

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