The scale uses gold, silver, bronze, neutral and negative instead of elite, superior, standard, inferior and impaired.
The so-called Morningstar Analyst Rating scale will be used by the company’s analysts around the world and is derived from the five pillar quantitative framework it uses to come to ratings decisions.
Its framework considers people, process, parent, performance and price, and each area is evaluated to arrive at the final rating.
Morningstar’s top three ratings in the new scale are deemed positive, will be expressed as medals and reserved for funds Morningstar analysts think have "sustainable averages" that position them well versus their peers or benchmark.
The scale can be broken down as follows:
Gold – A best-of-breed fund that distinguishes itself across the five pillars and has garnered the analysts’ highest level of conviction.
Silver – A 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 – A fund with advantages that outweigh any disadvantages across the five pillars, and sufficient level of analyst conviction to warrant a positive rating.
Neutral – A fund that isn’t likely to deliver standout returns, but also isn’t likely to significantly underperform.
Negative – A fund that has at least one flaw likely to significantly hamper future performance, and is considered an inferior offering to its peers.
Christopher Traulsen, director of fund research for Europe and Asia at the company, said: "We’re not changing the way we approach fund research and our analysts continue to rate funds based on their conviction of a fund’s ability to outperform.
"While we have retained a five-tier scale, we have bundled our two previous negative views into a single rating – negative – and we now have three positive ratings to provide an additional level of distinction in our positive ratings.
Richard Romer-Lee, joint managing director for OBSR, added: "When OBSR adopts the new rating scale next year, the OBSR AAA rating will directly map to the new gold rating, the AA to the new silver and the A to the new bronze, resulting in a seamless transition for investors and the industry."
