RIABiz

News, Vision & Voice for the Advisory Community

RIABiz

Morningstar jumpstarts its star rating system with favorable self-review yet audit finds it misses the mark in bear markets, supporting claim of dubious predictive value cited by Wall Street Journal

The Chicago-based tracker assures investors that its ratings tilt odds in their favor though critics say it's more a gauge of momentum than scientific research.

Author Oisin Breen
August 31, 2022 at 5:08 AM
Admin:
no description available
Jeffrey Ptak: The star rating seems to tip the odds in the investor’s favor.'

Related Moves

Jeff Mello is latest to join eMoney's talent exodus but CEO Ed O'Brien says it's healthy renewal at a firm that added several hundred people since Fidelity bought it

The ex-Goldman Sachs director of strategy and planning at eMoney joins a growing list of departures exacerbated, sources say, by Fidelity putting a wobbly performance reporting software project -- and staff -- on its plate

February 28, 2020 at 11:09 PM

Pete Giza and Damon Deru go for Holy Grail of portfolio rebalancing with software that shuffles stocks, bonds... and asset classes; Believe it?

The RedBlack and TradeWarrior executives see old systems as 'archaic' yet know that the Black Diamonds, Morningstars, Orions and Tamaracs see rebalancing as a loss leader

June 11, 2019 at 9:49 PM


Mentioned in this article:

Morningstar, Inc.
TAMP
Top Executive: Joe Mansueto




Brian Murphy

Brian Murphy

September 6, 2022 — 4:27 AM
Agree with the main points of the article. Any rating system based purely on historical data is going to falter when the market shifts direction...moving into either a bear, or bull, market. There is a rather simple way to handle this however that I haven't seen tried - and that has to do with the diversification within a given fund and the over/underweights to various sectors. One could forecast a fund's risk in a market disruption by using a "downside" covariance matrix approach by assuming something simple like a) all sector correlations move towards 1, and b) beta of individual assets within the fund increase by say 50%. Run a the fund's exposures through this "downside" covariance matrix and you've got a bear market estimate. Then, based on how over, or under, valued the market is you can forecast a probability of market downside risk occurring at any time. Use this as a Bayesian adjustment to Morningstar's standard approach. Maybe the folks at M'star have already played around with this and I'm just unaware, but seems a more robust approach than what's "state of the art" today.

RIABiz Directory

The Industry Sourcebook for RIAs

   |    LISTING


RIABiz Directory sponsored by:

Directory Sponsor Logo