Morningstar is updating the methodology behind its Medalist Ratings in order to help investors more easily identify funds that will outperform average returns and offer competitive fees, the ratings provider has announced.
The updated methodology, which will go live in April 2026, includes a myriad of changes including a new ‘Fund Manager Success’ score, comparing fund performance against category average – rather than the benchmark average – and use more transparent input data in its algorithms. The Medalist Ratings are researched by more than 130 global analysts, and covers over 3,200 fund strategies.
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The ratings scale will remain a five-tier system (Gold, Silver, Bronze, Neutral, and Negative) and continue to break down a fund’s ‘people’, ‘process’ and ‘pillar’ into ratings such as ‘high’, ‘above average’, ‘average’, ‘below average’ and ‘low’. However, firstly, Morningstar is further enhancing the rating by displaying a Medalist Rating Price Score, or MPS, of negative 2.5 to 2.5 to illustrate whether a fund’s fee is a competitive advantage or significant headwind.
“The MPS will boost low-cost funds’ ratings, while discounting those of expensive funds, which empowers investor success because fees are often the best predictor of future performance,” Morningstar explained.
Further, the funds will no be compared to their benchmark’s performance, in favour of comparison with category average performance.
Morningstar also identified that of the 175,000 traditional fund and ETF share classes that received a Medalist Rating, about 150,000 rely on an algorithm to provide at least one pillar score when an analyst hasn’t rated it directly.
“Our current approach uses a machine-learning model to generate these ratings by mimicking how analysts set scores. While the model effectively identifies funds likely to perform well, its adaptive nature makes it difficult to pinpoint which data influenced a fund’s Medalist Rating,” Morningstar explained.
“Starting in April 2026, the algorithmic pillar methodology will use clearer and more-transparent input data. We’ll show simple calculated data points that reflect how a Morningstar analyst would assess each pillar.”
For example, it said, analysts look at managers’ experience when evaluating the People Pillar. The model will now include a new data point – Fund Manager Successful Experience – to measure which funds are run by managers with a proven ability to outperform across their career. This will help determine the People Pillar rating.
For active funds, the methodology will also consider the fund’s cumulative return divided by their tracking error relative to the index, as well as data that measures style drift and volatility.
For passive funds, the ‘process’ pillar carries the most weight and the algorithm will focus on historical ability of passives to outperform actives in a category, volatility of their excess returns versus the category index (tracking error), and concentration risk among portfolios’ top holdings, among other measures.
Finally, Morningstar is also removing Medalist Ratings’ forced distribution curve, which it said has limited the number of Gold-, Silver-, and Bronze-rated funds in each category. This will be replaced by fixed rating thresholds, which should improve stability in the ratings.
“We’re simplifying key elements of our forward-looking Medalist Ratings to increase usability and give investors a clearer view into how ratings are determined,” said Monika Calay (pictured), director of UK manager research at Morningstar. “These updates provide the clear, easy-to-interpret insights the industry has been seeking.”
For a guide to the Medalist Rating changes, click here.
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