Morningstar Analyst Rating—Another Tool to Add to Your Arsenal of Research

Investment managers are already finding the tool to be useful in their research of funds. PLANSPONSOR spoke with Richard Bird a vice president of investment management at the Central Bank of Utah and a Morningstar Office subscriber. He explained that back in October the bank had planned on replacing one of its funds. However, after the new Morningstar Analyst Ratings were released, the bank decided to keep the fund. The rating system rated this particular fund with a “Gold” rating, and Bird said based on this analysis they decided to keep the fund as part of the bank’s offerings.

The  Morningstar Analyst Ratings are for approximately 350 U.S. funds, and it supplements the Morningstar Rating (also known as “Star Rating”). In an interview with PLANSPONSOR, Russell Kinnel, Morningstar’s director of fund research, said the two ratings can be used together to look at how a fund performed in the past, but to also look at how analysts believe the fund will perform in the future. 

The main differences between the two ratings are that the “Star Rating” is a quantitative rating. “It tells us about a fund’s past in three, five and 10 year periods. It compares funds against their peers,” said Kinnel. “The Star Rating gives us a quick snapshot at the past.” 

The Morningstar Analyst Ratings is forward-looking. “It’s a qualitative rating,” said Kinnel. “It reflects our analysts’ judgment on the future prospect of a fund.”

Bird added, the Central Bank of Utah “uses the “Star Rating” when [they] are looking to replace a fund. “The new system (Analyst Ratings) is used as a factor if we want to exit or keep the fund,” said Bird. “It another outside source for us. It’s a good way to justify why we kept, added or replaced a fund.”

For more information on the Morningstar Analyst Ratings system, see Morningstar Introduces Morningstar Analyst Rating.