Morningstar gives own rating system an ‘F’, switches to colors

Morningstar Inc. has headed off a potential glitch in its upcoming forward-looking ratings system for mutual funds by deciding to use Gold, Silver and Bronze as positive ratings instead of the previously announced AAA, AA, and A.
The change is designed to avoid any confusion between the new ratings on funds and those commonly used to rate bonds, according to company spokesperson Margaret Cohen.
“We just wanted to make sure there won’t be any confusion with the credit ratings for bonds,” she said.
The new ratings system, which was first announced in June and is still scheduled for a roll out this year, will not replace the company’s existing star ratings for mutual funds.
Unlike the star ratings system, which is based on historical performance, the new analyst ratings are expected to be broader in scope, qualitative, more flexible, and include much of Morningstar’s research into stewardship at the fund company level.
“The star rating is like an achievement test, and the new analyst rating is like an aptitude test,” Morningstar’s president of fund research Don Phillips said at the June announcement.
“This is not a market call; we won’t be second-guessing money managers,” he added. “This is not a short-term predictor and it’s not a credit rating.”

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