How the Morningstar Fund Awards are determined

By Morningstar Analysts |  13-03-19 | 
 
Keeping in line with Morningstar’s tradition, we are proud to present the annual Morningstar Fund Awards. In addition to rewarding fund managers and Asset Management Companies, the awards are also designed to help investors identify the most exceptional funds and fund companies.

Looking purely at  the short term fund performance is often misleading for investors. We at Morningstar are firm believers of the philosophy that long term wealth creation happens through investing in funds that offer good risk-adjusted returns over longer time periods. Such funds tend to offer more predictable returns across market cycles and investors in general tend to have a more uniform investing experience by investing in such funds.

The objective of the quantitatively driven Morningstar Fund Awards is to recognize those funds and fund groups that have added the most value within the context of a relevant peer group for investors over the past year and over the longer-term. Do note, this is distinct from the qualitative ratings issued by Morningstar’s research team.

Risk adjusted performance matters

The awards are annual, so we believe it is appropriate to emphasize a fund’s one-year performance. However, we do not believe that it serves investors well to give awards to funds that have posted a strong one-year return, but have otherwise not delivered good results for investors. Therefore, while the awards methodology emphasizes on the one-year track record, but funds must also have delivered strong three- and five-year returns after adjusting for risk within the awards peer groups in order to obtain an award.

We further use other filters, such as the funds must have been at least in the top half of their respective peer groups in at least three of the past five calendar years. We believe this combination will ensure that the awards are given to funds which have earned strong one-year results, and have also shown they have the ability to earn strong long-term returns without undue risk.

Morningstar Category Awards

These awards are given to the funds with the best risk-adjusted performance within their respective categories as highlighted above, subject to an additional qualitative review. In order to ensure this, Morningstar analysts carry out effective qualitative checks on potential winners to ensure that the performance can be sustainable going forward too. Upon the completion of all the screens, the nominees and winners will be arrived at.

Morningstar Fund House Awards

These awards are given to the fund houses with the strongest performing fund line-ups on a risk-adjusted basis. Fund performance is evaluated within the Morningstar Categories. Fund houses need to have a minimum of 5 funds each in Equity and Debt categories in order to be eligible for the Fund House awards. Money markets are not eligible for inclusion.

For each group, Morningstar will calculate a House Score using the following methodology: Determine the 5-year Morningstar Risk-Adjusted Return (MRAR) for each share class of each fund run by a given house, and the percentile rank of that return score within its Morningstar Category. Determine the average percentile rank of each fund's MRAR by taking the mean MRAR percentile rank of all its classes. Determine the mean percentile rank of each fund house's MRAR by taking the mean of its funds' MRAR percentile ranks (the lower a group's mean percentile rank, the better its performance). Adjust the score using the probability function to compensate for difference in fund house sizes. The adjustment enables us to account for the fact that the number of funds varies from one group to another and therefore makes it possible to compare the different mean scores of the competing groups. Post the above calculations, Morningstar’s qualitative research analysts will conduct a round of checks to arrive at the nominees and the winners.

Detailed methodology

2019 India Fund Awards: Nominees

Past winners of the Morningstar Fund Awards

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