Morningstar yesterday announced an upcoming change in the way it presents predictive ratings for mutual funds, ETFs and other products it tracks.
In the current system, funds can receive either a Morningstar Analyst Rating or a Morningstar Quantitative Rating. The former is calculated and applied by an analyst, and the latter is algorithmically created.
Each system uses Gold, Silver, Bronze, Neutral and Negative grades, but quantitative ratings add a Q superscript, as in GoldQ. The Q superscript will be discontinued in the second quarter of 2023, when the Analyst and Quantitative ratings will be homogenized into a single Morningstar Medalist Rating, according to yesterday’s announcement.
The underlying research methodology will not change, Morningstar said.
"The united ratings system not only reflects our confidence in the efficacy and quality of the two rating systems, but also, better reflects how the Quantitative Rating and Analyst Rating have been joined at the hip,” Lee Davidson, head of manager and quantitative research at Morningstar, said in a press release announcing the change. “We designed the Quantitative Rating to mimic the way manager research analysts assign ratings.”
Although dropping the Q from Medalist Ratings means users won’t instantly see the method by which a rating was calculated, the Q superscripts will continue to appear in the fund’s three categorical scores, titled Parent, People and Process. So those wishing to gauge the human/machine contribution to a rating need only check the breakdown.
Davidson added that the goal of the change is to simplify matters for advisors and others who use the system. “This should make it easier for investors to analyze, select, and monitor managed investments amid an ever-expanding sea of choices."