Morningstar Australasia plans to change the current analyst rating regime to the Morningstar Medalist Rating in the second quarter of 2023.
In a media release on Tuesday morning, the research house said the new rating will deliver a single, effective rating that is forward-looking. It will allow advisers, AFSLs, and investors to screen, sort, and rank to discover best-in-class managed investment products.
The methodology is not changing, and the three pillars – “people, process, and parent” – will continue to form the basis for the ratings.
Under the Medalist Rating, however, how these three pillars are supported will evolve. From 2023, analyst-assigned pillar assessments will also be assigned to related strategies. Morningstar’s proprietary machine-learning algorithm will evaluate pillars not currently assessed by analysts.
Morningstar will add a ‘Q’ designation to pillar ratings assigned by the algorithm to help investors distinguish between pillars assessed by analysts and those assessed by the algorithm.
The algorithm has been in operation since 2012, and Morningstar has used it for five years to assess managed investments that analysts do not cover in the US and European markets.
The algorithm has also been operating in Australia and New Zealand for five years but has been suppressed from customer view. This algorithmic model has been designed to scale the researcher’s analysts’ insights and replicate analyst processes “as faithfully as possible”.
“Morningstar does not expect any impact with the ratings it assigns to managed investments with this change and analyst assigned pillars and research work will take precedence over the algorithm,” Morningstar director of manager research ratings Annika Bradley said.
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