What is the Morningstar Star Rating?
The Morningstar Star Rating is derived from a quantitative method in which mutual funds are ranked on the basis of their historical returns (adjusted for risk and costs) over periods of at least three years. These "risk-adjusted returns" are based on the monthly returns of a fund, where downward variations result in a lower score and a consistently good performance is rewarded with a higher score. Another important aspect is costs, making it more difficult for relatively expensive funds to receive a high star rating.
The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star.
This Star Rating is calculated over periods of the past three, five and ten years. If possible, Morningstar will also calculate these ratings for all periods in its Overall Morningstar Star Rating.