Assessment Components

• Performance - measured by Morningstar Risk-Adjusted Returns.

  The Morningstar Risk-Adjusted Return (MRAR) is the guaranteed return that provides the same level of utility to the investor as the specific combination of returns exhibited by the fund. In other words, to risk adjust the returns of two funds means to equalize their risk levels through leverage or de-leverage before comparing them. The end result is an accurate representation of an investments return that accounts for its level of risk. In a simplified manner, MRAR equals the investments Morningstar Return minus its Morningstar Risk. Morningstar’s level of risk is calculated differently than many other methods. The Overall Risk-Adj Return is a weighted average of the available three-, five-, and 10-year ratings.
  For example, Modern Portfolio Theory uses standard deviation as the sole unit of risk. Morningstar Risk, however, gives more weight to downside variation and does not make any assumptions about the distribution of excess returns. Morningstar Return uses historical excess returns as the basis for expected excess returns, rather than relying on analysts forecasts or other probabilities of future returns. For funds, the MRAR is the return used for star rating calculations. Morningstar compares each investments MRAR against other investments in its category to calculate a star rating.

• Sustainability - measured by Historical Corporate Sustainability Score & Historical Sovereign Sustainability Score.

  Historical corporate sustainability score: The Morningstar Historical Corporate Sustainability Score is a weighted average of the trailing 12 months of Morningstar Portfolio Corporate Sustainability Scores. Historical portfolio scores are not equal-weighted; rather, more-recent portfolios are weighted more heavily than older portfolios. Combining the trailing 12 months of portfolio scores adds consistency while still reflecting portfolio managers' current decisions by weighting the most recent portfolio scores more heavily.

  Historical sovereign sustainability score: The Morningstar Historical Sovereign Sustainability Score is a weighted average of the trailing 12 months of Morningstar Portfolio Sovereign Sustainability Scores. Historical portfolio scores are not equal-weighted; rather, more-recent portfolios are weighted more heavily than older portfolios. Combining the trailing 12 months of portfolio scores adds consistency while still reflecting portfolio managers' current decisions by weighting the most recent portfolio scores more heavily.

• Sentiment - measured by Morningstar Medalist Rating.

  The Morningstar Medalist Rating for funds is the summary expression of our forward-looking analysis of investment strategies as offered via the specific vehicles under coverage. Vehicles can include but are not limited to open-end funds, closed-end funds, exchange-traded funds, and separately managed accounts domiciled throughout the world. We assign Morningstar Medalist Ratings at the share-class level for the vehicles that we cover in order to accurately capture the impact of fee differences on expected net-of-fee alpha between different classes of the same vehicle. Our own research and academic studies have repeatedly shown that the ability of a strategy to outperform is eroded as fees become higher. We therefore believe it is essential that our analysis include as precise an evaluation as possible of the fees of each specific vehicle under coverage. For open-end funds, for example, this means that share classes of the same fund that charge different amounts may receive different Morningstar Medalist Ratings. 
   
  The Morningstar Medalist Rating for funds is expressed on a five-tier scale running from Gold to Negative. For actively managed funds, the top three ratings of Gold, Silver, and Bronze all indicate that our analysts expect the rated investment vehicle to produce positive alpha relative to its Morningstar Category index over the long term, meaning a period of at least five years. For passive strategies, the same ratings indicate that we expect the fund to deliver alpha relative to its Morningstar Category index that is above the lesser of the category median or zero over the long term. The Medalist Rating does not express a view on a given asset class or peer group; rather, it seeks to evaluate each strategy and associated vehicle within the context of an appropriate benchmark and peer group. 
   
  Ratings for active strategies should be interpreted as follows, where performance expectations refer to performance over a holding period of at least five years, and where alpha is calculated relative to the standard Morningstar category index: 
   
  Gold 
  These are our top recommendations within their Morningstar Categories. Our evaluation of their key pillars in the context of the fees charged at the share-class level ranks them in the top 15% of all investments with expected positive net-of-fee alpha in their category. 
   
  Silver 
  These sit just below Gold but are also among our strongest investment ideas within their Morningstar Categories. Our evaluation of their key pillars in the context of the fees charged at the share-class level ranks them in the next 35% of all vehicles with expected positive net-of-fee alpha in their category. 
   
  Bronze 
  We do not expect these investments to perform as well as Gold or Silver offerings, but we still expect them to deliver positive net-of-fee alpha. Our evaluation of their key pillars in the context of the fees charged at the share-class level ranks them in the bottom 50% of all vehicles with expected positive net-of-fee alpha in their category. 
   
  Neutral 
  We expect these investments to deliver net-of-fee alpha that is less than or equal to zero. Our evaluation of their key pillars in the context of the fees charged at the share-class level ranks them in the top 70% of all vehicles with net-of-fee alpha less than or equal to zero in their category. 
   
  Negative 
  These are the worst investments within their Morningstar Categories in terms of our expected net-of-fee alpha. Our evaluation of their key pillars at the price level for the rated vehicle and associated share class(es) ranks them in the bottom 30% of all vehicles with expected net-of-fee alpha that is less than or equal to zero in their category. 
   
  Morningstar may also use one other designation in place of a rating: 
   
  Under Review 
  This designation means that a change at a rated strategy requires further review to determine the impact on the rating.