How we select the Morningstar Fund Awards winners

By Kaustubh Belapurkar |  15-03-22 | 
 
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About the Author
Kaustubh Belapurkar, Director of Manager Research, Morningstar Investment Adviser India.

The winners of Morningstar Fund Awards 2022 will be announced on March 21, 2022. Register for the event here.

Take a look at the past winners since 2009.

The awards methodology emphasises the one-year period, 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. 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.

Types of Morningstar Fund Awards 

  • Morningstar Category Awards
  • Morningstar Fund House Awards

Funds that are excluded 

  • Insurance funds
  • Closed-end funds
  • Funds in unrated Morningstar categories

Categories Eligible for Awards 

Equity 

  • India Large-Cap Equity
  • India Mid-Cap Equity

Fixed Income

  • India Short Duration
  • India Medium to Long Duration

Scoring System

Each fund in a relevant grouping will be scored as follows:

Return Score = 80% of total score

One year: 30% of total score, based on 1-year return percentile rank in Morningstar Category

Three- and five-year: 50% of total score, of which:

  • 40% : 3-year return percentile rank in Morningstar Category
  • 60% : 5-year return percentile rank in Morningstar Category

(Note: 3-year and 5-year scores are scaled to represent 40% and 60% of the long-term portion of the return score, respectively. The 3-year return score constitutes 20% of the total score, and the 5-year return score constitutes 30% of the total score.)

Risk Score: 20% of total score

Of the risk score:

  • 40%: 3-year Morningstar Risk percentile rank in Morningstar Category
  • 60%: 5-year Morningstar Risk percentile rank in Morningstar Category

(Note: 3- and 5-year scores are scaled to represent 40% and 60% of the total risk score, respectively. The 3-year risk score constitutes 8% of the total score, and the five-year risk score constitutes 12% of the total score.)

Based on above weights, the effective weight of each year in the calculation is as follows, including both risk and return (figures are rounded to nearest whole number):

  • Past one year: 48%
  • Second year out: 18%
  • Third year out: 18%
  • Fourth year out: 8%
  • Fifth year out: 8%

The weights are designed to place due emphasis on the most recent year given that the awards are annual in nature, but are also meant to favour those funds that have delivered risk-adjusted outperformance on a sustained basis over the longer term.

Qualitative Review 

Based on the above calculations, the 10 funds with the lowest scores in each Morningstar Awards Category will be reviewed by Morningstar’s qualitative research analysts in that market.

The analysts will complete the following checks:

  • Funds that are deemed inaccessible to local market investors will be excluded.
  • Any fund that is deemed to have deviated from its stated mandate will be removed from consideration.
  • Any fund that has not outperformed its Morningstar category median in at least three of the past five calendar years will be removed from consideration unless Morningstar's qualitative analysts believe a fund has exceptional merit that the criteria fails to capture.

Morningstar Fund House Awards 

The Morningstar Fund House Awards recognise those fund families that have delivered sustained outperformance on a risk-adjusted basis across their fund line-ups.

Award Categories 

  • Morningstar Best Equity Fund House Award: Fund houses with at least five equity funds with Morningstar Ratings available for sale in a given market are eligible.
  • Morningstar Best Fixed-Income Fund House Award: Fund houses with at least five fixed-interest funds with Morningstar Ratings available for sale in a given market are eligible. Money markets are not eligible for inclusion.
  • Morningstar Best Overall Fund House Award: Fund houses with at least five equity funds and five fixed-interest funds with Morningstar Ratings available for sale in a given market are eligible. Money markets are not eligible for inclusion.

Eligible Funds 

Only those funds with five-year Morningstar Ratings are eligible for inclusion in the scoring.

Scoring System 

For each of the above awards, Morningstar will calculate House Scores using the following methodology:

  • Determine the five-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).

Qualitative Review 

Our qualitative analysts in India will review the scoring results and may disqualify a firm if there are extenuating circumstances. These might include (but are not limited to) the loss of a group of talented managers, substantial increases to fund expenses, non-availability of the house's funds to retail investors in the relevant market, or being taken over by another group. Each disqualification must be approved by the heads of Morningstar’s European Research. The review is intended to prevent giving an award on the basis of performance that we believe is unlikely to be repeated due to structural factors.

Awards Selection 

The remaining fund firms with the lowest score in each of the above groups will receive the relevant Morningstar Fund House Award. There will only be one award in each of the categories listed above. If there are fewer than three eligible groups in any of these categories, no award will be made in that category.

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