Frustrated with Morningstar? Four steps to a better rating

by Kathryn Morrison

Kathryn Morrison

Mutual fund companies don’t always agree with the Morningstar category to which their fund is assigned. The star rating is purely quantitative, in fact the methodology is posted clearly on their site.


Analyst reports, on the other hand, are qualitative, and as such, might be influenced by what you have to say.

Be proactive. Talk to your Morningstar analyst when:
Morningstar doesn’t have the correct data. Spend the time to review month-to-month numbers with a Morningstar staff member and understand the factors and time periods that go into their formula.


Your management process doesn’t fit neatly into their methodology. If your fund does not fit smoothly into, for example, a “blend” or “growth” box for the important trailing period, perhaps there is room for negotiation.


Manage the fund’s volatility.
Morningstar’s philosophy seems to say that volatility is as important, or more important, than returns. Consequently a fund can significantly outperform its peers and the S & P, but if it is very volatile, the star ranking will suffer.


Create a relationship with your fund’s Morningstar analyst.
There is no substitute for an in-person meeting. Be sure you send a good spokesperson for your style who can articulate your strategy and expected results during all market cycles as well as your pertinent benchmark.


Keep in mind that your fund is defined by much more than stars.
In all your communications with journalists, investment professionals, shareholders and prospects, define yourself in a way that is accurate and attractive. Talk about (and post to your website) things like market capture ratio, numbers of years the fund beat its benchmark, and provide current market commentary from the managers showing your belief in your process. Showcase recent TV and print interviews on your website and stay in front of advisors through emails, conference calls and webinars.


By being proactive, Morningstar ratings will only be one part of your story.