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Nadine Youssefnadine.youssef@morningstar.com
Morningstar to Enhance Ratings to Allow Better Comparisons Across Fund Types

Company to introduce forward-looking Morningstar Analyst Rating™ for exchange-traded funds; enhance Morningstar Rating™ for Funds

CHICAGO, Sept. 8, 2016—Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today announced its plans to apply the forward-looking Morningstar Analyst Rating™ to exchange-traded funds (ETFs) globally. The company will also combine ETFs and open-end funds into the same peer group when calculating its quantitative, backward-looking Morningstar Rating™ for funds. Both enhancements will allow investors to more easily compare investments across fund types.

“Investors increasingly see open-end funds and ETFs as interchangeable options when choosing investments. By combining them into the same peer group, investors can more easily compare investments regardless of the product structure,” Ben Johnson, Morningstar’s director of global ETF research, said. “Assigning the qualitative Morningstar Analyst Rating to ETFs will help investors assess an ETF’s future prospects based on the fundamental research our analysts conduct. These enhancements will better support advisors and other financial intermediaries in light of increasingly stringent regulatory requirements such as the U.S. Department of Labor’s fiduciary rule. Our independent research and ratings, which we’ve been providing to investors for more than 30 years, will continue to aid due diligence efforts and serve investors’ best interests.”

Morningstar will assign Analyst Ratings to approximately 300 ETFs later this year and will continue to add Analyst Ratings for ETFs over time. Morningstar’s manager research analysts already publish qualitative ETF analyst reports for more than 650 ETFs worldwide. The Morningstar Analyst Rating is a qualitative rating that signals Morningstar analysts’ conviction in a fund’s ability to outperform relevant peers, including both mutual funds and ETFs, on a risk-adjusted basis over a full market cycle. The Morningstar Analyst Rating follows a five-tiered scale: Gold, Silver, Bronze, Neutral, and Negative. Analysts arrive at a rating through an assessment of five key pillars: parent, people, performance, price, and process.

Johnson added, “We’ve been providing qualitative research and analyst reports on ETFs for more than eight years. Applying our globally consistent Morningstar Analyst Rating methodology to these mainly passive investments is a natural extension of our research process.”

The new Analyst Ratings for ETFs will be available in Morningstar’s flagship platforms for investors, including individual investor website Morningstar.com®, global investment analysis platform Morningstar DirectSM, and global practice and portfolio management solutions Morningstar® Advisor WorkstationSM and Morningstar OfficeSM. The Analyst Ratings for ETFs are also available for licensing through Morningstar® Data.

More information, including the methodology, videos, and frequently asked questions and answers, is available here. Morningstar’s Johnson will host a webinar about the Analyst Rating for ETFs on Wednesday, Sept. 21 at 1 p.m. CT; to register, please click here.

In addition, Morningstar’s plans to combine open-end funds and ETFs into a single peer group will enhance the calculation for the Morningstar Rating, its quantitative, backward-looking measure that rates funds based on their past risk- and cost-adjusted returns. In the United States and Australia, Morningstar plans to calculate the Morningstar Rating, percentage ranks, category averages, and other statistics for funds, regardless of product structure, beginning later this year. Morningstar will also remove the load, or commission/sales charge, adjustment from the Morningstar Rating calculation globally. The updated Morningstar Rating methodology for funds is available here.

“We’ve also found that fewer investors are paying commissions or sales charges, which is why we’re removing the load adjustment from the calculation. When we established the Morningstar Rating methodology, these charges were much more common and we saw a need to highlight the cost for investors. We’re focused on both fairly evaluating the industry’s past and helping investors effectively navigate the future,” Johnson said.

Morningstar has approximately 115 manager research analysts worldwide who cover approximately 4,000 funds. The company provides data on approximately 205,600 open-end mutual funds, 10,300 closed-end funds, and 13,900 exchange-traded product listings as of June 30, 2016.

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, and retirement plan providers and sponsors. Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on nearly 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $185 billion in assets under advisement and management as of June 30, 2016. The company has operations in 27 countries.

Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar analysts’ current expectations about future events and therefore involve unknown risks and uncertainties that may cause Morningstar’s expectations not to occur or to differ significantly from what was expected. Morningstar does not represent its Analyst Ratings to be 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.

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©2016 Morningstar, Inc. All rights reserved.

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