Morningstar Introduces Forward-Looking Morningstar Analyst Rating for Funds in China

Morningstar, a leading provider of independent investment research, has announced the launch of Morningstar Analyst RatingTM for approximately 80 China-domiciled and China Securities Regulatory Commission-approved open-ended funds.

The Morningstar Analyst RatingTM for funds in China is five-tiered with three positive levels—Gold, Silver, and Bronze—in addition to Neutral and Negative ratings, reports Morningstar in a press release. Analysts arrive at a rating through an evaluation of five key pillars they believe are crucial to predicting the future success of a fund, considering both numeric as well as qualitative factors: People, Process, Parent, Performance, and Price.

Morningstar reserves the top three tiers, expressed as medals, for funds its analyst team thinks have sustainable advantages that position them well versus peers and/or a relevant benchmark on a risk-adjusted basis over a full market cycle of at least five years. The Analyst Ratings are not designed to be a market call on an asset class or a prediction of short-term performance and cannot assess whether a fund is the right fit for an investor’s particular portfolio or risk tolerance.

Xiaohua Xia, Managing Director, China, Morningstar, said: “Morningstar has been producing independent research on funds since the late 1980s. The Morningstar Analyst Rating marks an important step in the evolution of its manager research, which has been applied to funds globally. The launch of Morningstar Analyst Rating in China represents its ongoing commitment to empower investors with an essential toolkit to assess funds, help them make better investment decisions and reach their financial goals.”

Rachel Wang, Director of Manager Research, China, Morningstar, said: “The Morningstar Analyst Rating showcases its analysts’ opinions of the strengths and weaknesses of the funds we cover, and helps investors identify funds its analysts think highly of and those we don’t.”

The Morningstar Analyst Rating supplements the Morningstar RatingTM for funds, commonly known as the “star rating”. The Morningstar Analyst Rating provides a distillation of manager research analysts’ forward-looking views about an investment strategy, while the later assigns one to five stars based on a fund’s past risk-adjusted returns versus category peers.

The new Morningstar Analyst Rating scale is as follows:

Positive Ratings:

• Gold: Best-of-breed fund that distinguishes itself across the five pillars and has garnered the analysts’ highest level of conviction.
• Silver: Fund with notable advantages across several, but perhaps not all, of the five pillars—strengths that give the analysts a high level of conviction.
• Bronze: Fund with advantages that outweigh any disadvantages across the five pillars, and sufficient level of analyst conviction to warrant a positive rating.

Neutral Rating:

• Fund that isn’t likely to deliver standout returns, but also isn’t likely to significantly underperform.

Negative Rating:

• Fund that has at least one flaw likely to significantly hamper future performance and is considered an inferior offering to its peers.

Morningstar is committed to expanding its analyst coverage for funds in China in order to empower investors to better assess funds using Morningstar Analyst Rating.  In determining coverage, analysts evaluate a fund’s investment merit and take into consideration investor demand across the main asset classes that serve as building blocks for portfolio construction. At the first stage, its analysts would assign the Analyst Rating to funds that offer the highest investment merits and garnered the most investor interest. The analyst team will also devote a portion of its coverage universe to smaller funds with distinguishing characteristics. Initially, there will be more positively rated funds because the analyst team is prioritizing funds with the most investment merit and investor interest, which tends to skew toward higher-quality funds. The ratings distribution will even out over time as Morningstar’s analysts ramp up their coverage.

The new Morningstar Analyst Rating for funds in China, along with analysis of the five pillars, is available to Morningstar’s institutional clients through its flagship software, Morningstar DirectTM, effective 29 July 2020.

The full methodology of Morningstar Analyst Rating can be found HERE.