Four months after news broke that changes were coming, the Morningstar Analyst Rating system for funds is now in place with a new methodology.
The new system gives more weight to fees and sets the bar higher for for active funds, while shifting how Morningstar assigns ratings to fund share classes to account for specific fees being levied on each share class. (See above chart.)
The changes, which had been in the works for some time, impact the gold, silver, bronze, neutral and negative ratings (rolled out in 2011) but not the star ratings.
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“We’ve enhanced the methodology that underpins the Analyst Rating and rated 123 funds under this updated approach; we’ll update the rest of our coverage universe over the next 11 months or so,” according to Jeffrey Ptak, the research firm’s global director of Manager Research.
“Among the initial batch of rated funds, downgrades outnumbered upgrades two to one, with costly funds downgraded four times as often as inexpensive funds,” Ptak, CFA, explained in a blog.