Morningstar to Update Medalist Ratings; Some Downgrades Expected

Morningstar plans to update the methodology for the Morningstar Medalist Rating, its comprehensive rating for managed investments, and expects to downgrade several investment vehicles as a result.

The Morningstar Medalist Rating is a five-tier system meant to evaluate an investment strategy’s potential to outperform an index or peer group, with ratings assigned on a scale from “gold” to “negative.”

The update, which will begin to take effect on Oct. 29, refines Morningstar’s framework for forecasting returns but maintains the same process for assigning ratings, the research company said.

Using historical data, the updated framework introduces a more precise assessment of how much value a managed investment can add before fees compared to its assigned benchmark. Morningstar expects the updated methodology for this “alpha potential estimate” to change the ratings for about 20% of Medalist-rated investments, mostly downgrades.