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Morningstar expands funds rating system

Ratings company launches Quantitative Rating

Independent investment research provider Morningstar announced the expansion of its fund ratings system by launching Morningstar Quantitative Rating,

Quantitative Rating uses a machine-learning model to rate six times more funds than are rated by Morningstar analysts in the U.S. 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 company said.

The ratings provider explained that Quantitative Rating is an extension of the company’s Morningstar Analyst Rating for funds, 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, the company explained in a press release.

"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."

Morningstar’s manager research analysts assign Analyst Ratings to approximately 1,800 open-end and exchange-traded funds and the new Quantitative Rating product is available for more than 10,000 funds, representing more than 30,000 share classes in the U.S.

The company said it is using an approach rooted in artificial intelligence. The machine-learning model incorporates the decision-making processes of manager research analysts, their past rating decisions, and the data used to support those decisions. Then, the machine-learning model is applied to funds not covered by Morningstar analysts and that process generates the Quantitative Rating.

"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."


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