March 5, 2018

Morningstar Expands Fund Ratings System with the Launch of the Morningstar Quantitative Rating™

Powered by a machine-learning model, the new rating broadens Morningstar's rated-fund universe and represents the firm's commitment to providing valuable insights and tools to help investors succeed

CHICAGO, March 5, 2018 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced the expansion of its fund ratings system by launching the Morningstar Quantitative RatingTM (the Quantitative Rating), which uses a machine-learning model to rate six times more funds than are rated by Morningstar analysts in the United States. The launch of the Quantitative Rating represents Morningstar's ongoing commitment to provide investors with a powerful toolkit to assess funds and help them reach their financial goals.

The Quantitative Rating is an extension of the Morningstar Analyst RatingTM for funds (Analyst Rating), which provides an analyst's forward-looking assessment of a fund's ability to outperform its peer group or a relevant benchmark on a risk-adjusted basis over a full market cycle. Morningstar manager research analysts assign Analyst Ratings to approximately 1,800 open-end and exchange-traded funds and together with the Quantitative Rating, cover more than 10,000 funds, representing more than 30,000 share classes in the United States.

"Investors can use the Quantitative Rating, together with our other fund ratings, to assess funds and improve their odds of success," said Jeffrey Ptak, Morningstar's global head of manager research. "The Quantitative Rating algorithmically extends the objective, rigorous analysis that our manager research analysts conduct to thousands of additional funds, providing investors with broader coverage than ever before with the independent perspective they have come to know and trust from Morningstar."

Using an approach rooted in artificial intelligence, Morningstar's machine-learning model incorporates the decision-making processes of manager research analysts, their past rating decisions, and the data used to support those decisions. The machine-learning model is then applied to funds not covered by Morningstar analysts. This process generates the Quantitative Rating, which is analogous to the rating a Morningstar analyst might assign if an analyst covered the fund. The scale for the Quantitative Rating is the same as the Analyst Rating: Gold, Silver, Bronze, Neutral, and Negative. Funds that receive the Quantitative Rating will receive quantitative ratings of Positive, Neutral, or Negative for each of the five pillars—Parent, People, Performance, Price, and Process. Funds will either receive an Analyst Rating or a Quantitative Rating, but not both.

"The expansion of our fund ratings with the Quantitative Rating is a great example of our commitment to innovation and leveraging recent advances in technology to further educate investors," said Lee Davidson, Morningstar's head of quantitative research. "We've trained our machine-learning model to emulate how our analysts make decisions, greatly expanding fund coverage and the proven insights we provide to investors."

Effective today, the Quantitative Rating for funds in the United States will be available for®, Morningstar® Data, Morningstar OfficeSM Cloud, Morningstar DirectSM Cloud, and Morningstar Manager Research. The rating will be available in Morningstar® Essentials™ and Morningstar Advisor® Workstation™ by March 31, 2018. The rating was initially introduced in June 2017 with a limited release in Morningstar DirectSM.  

Morningstar will host a webinar on Wednesday, March 21 at 1 p.m. CT, led by a panel of Morningstar research leaders, about the Quantitative Rating and what's behind the machine-learning technology used to generate the rating; register here for the webinar. The full Quantitative Rating methodology is available here.

Morningstar is continuously working to improve and expand its fund ratings system. In December 2017, Morningstar analyzed the global performance of the Morningstar Analyst Rating for funds, finding that the Analyst Ratings effectively sorted funds based on their average future risk-adjusted returns; the report is available for download here. A shareable infographic about Morningstar's fund ratings and how they can be used by investors to assess funds is available here.

About Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $195 billion in assets under advisement and management as of Dec. 31, 2017. The company has operations in 27 countries.

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Morningstar's Manager Research Group produces various ratings including the Morningstar Analyst Rating for funds and the Morningstar Quantitative Rating for funds. The Analyst Rating is derived from a qualitative assessment process performed by a manager research analyst, whereas the Morningstar Quantitative Rating uses a machine-learning model based on the decision-making processes of Morningstar's analysts, their past ratings decisions, and the data used to support those decisions. In both cases, the Ratings are forward-looking assessments and include assumptions of future events, which may or may not occur or may differ significantly from what was assumed. The Analyst Ratings and Quantitative Ratings are statements of opinions, subject to change, are not to be considered as guarantees and should not be used. Analyst Ratings and Quantitative Ratings are not guarantees nor should they be viewed as an assessment of a fund's or the fund's underlying securities' creditworthiness. This press release is for informational purposes only; references to securities in this press release should not be considered an offer or solicitation to buy or sell the securities.

©2018 Morningstar, Inc. All rights reserved.


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