The Morningstar Rating is based on Morningstar risk-adjusted returns. Morningstar rate a fund’s performance over 3, 5 and 10 years. They also award funds an overall rating which is based on a weighted average of the available time-period ratings. This is the rating we usually refer to in our fund documentation.
It’s very important to state that Morningstar are unable to rate every fund available. There are several situations where funds cannot be rated, for example if:
- the fund is less than three years old
- there are not enough comparable funds within the fund's Morningstar category to provide a meaningful ranking
- there is not enough information available about the fund to classify which category it should be judged in
- the fund’s performance history is no longer relevant due to a permanent or major asset allocation change.
All funds that can be rated will, on a monthly basis, be awarded up to five stars as follows (these measurements are applied within each Morningstar category):
- Five stars are awarded to the top performing 10%
- Four stars are awarded to the next 22.5%
- Three stars are awarded to the middle 35%
- Two stars are awarded to the next 22.5%
- One star is awarded to the bottom 10%
Source: Morningstar, May 2011