What was the old methodology for computing the Morningstar Rating for mutual funds?
Significant changes were made to the rating methodology, effective June 30, 2002. Previously, funds were rated within one of four broad asset-class-based groups–U.S.-stock funds, international-stock funds, taxable-bond funds, and municipal-bond funds. The new methodology rates funds within much smaller comparison groups, their respective Morningstar categories. The biggest impact of this change is that funds are less likely to receive a high (or low) rating due to a market “tailwind.” For example, under the previous methodology, persistent outperformance by the value investment style resulted in high ratings for most value funds, while growth-oriented funds were likely to receive lower ratings. However, the change also means that some extremely risky funds will now receive five stars (those with the best risk-adjusted return within their category), which was difficult under the old methodology. In addition, a new method is now used for risk adjustment. In the previous methodology, ris
