3 Winners From Our Fund Rating Methodology Changes
Why It Matters
The methodology shift can redirect investor attention and potential flows to actively managed funds that demonstrate durable fundamentals, altering competitive dynamics in target‑date, bank‑loan and municipal bond markets. It also signals Morningstar’s intent to reward manager quality over relative return dispersion, influencing product positioning and fee scrutiny.
Summary
Morningstar simplified its medalist ratings by reducing reliance on past return variance and instead placing greater weight on fund fundamentals, leading to several upgrades. Funds that previously fared poorly under the old variance-focused approach have been promoted for strong people, process and parent ratings as well as competitive fees. Notable upgrades include T. Rowe Price Retirement 2030 (bronze to gold) for its robust underlying funds and glide-path construction, Fidelity Floating Rate High Income (bronze to gold) for its credit research and liquidity management, and Fidelity Intermediate Municipal Income (bronze to gold) for low fees and strong process ratings. The changes favor active strategies in areas where indexing is impractical and better reflect managers’ capabilities.
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