The methodology for Morningstar Fund Awards

By Morningstar |  11-03-20 | 

Morningstar Fund Awards aim to recognise 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.

Long Term Performance Matters

Since the awards are annual, we emphasise a fund’s one-year performance. That said, funds must also have delivered strong three- and five-year year returns after adjusting for risk within the awards peer groups in order to obtain an award. Further, they must have been at least in the top half of their respective peer groups in at least three of the past five calendar years. This combination ensures 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.

Eligible Universe

The smallest 10% of funds in each category are excluded from the awards based on the latest June end portfolio size. In lieu of this measure, analysts may also exclude funds with less than Rs 1,000 crore in assets at 30 June or the nearest date for which assets are available.

There are two types of Morningstar Fund Awards: Morningstar Category Awards and Morningstar Fund House Awards.

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.

Nominees for Morningstar Fund Awards 2020.

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