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Finance Dictionary and Glossary of Investment Terms
Morningstar 3-, 5-, and 10-Year Return Rating
Definition 1.
A measure of a mutual fund''s return compared to other funds in its category. To determine a fund''s star rating for a given period (three, five, or 10 years), Morningstar first adjusts for maximum front-end loads, applicable deferred loads, and applicable redemption fees. Then Morningstar calculates the ""excess return"" for each fund, defined as the fund''s load-adjusted return minus the riskless return for 90-day T-bills over the same period. If the fund''s score is in the top 10% of its broad investment category (domestic stock, international stock, taxable bond, or municipal bond), it receives a 5 (highest). If it scores in the next 22.5%, it receives a 4 (above average). If it scores in the middle 35%, it receives a 3 (average). If it scores in the lower 22%, it receives a 2 (below average). If it scores in the bottom 10%, it receives a 1 (lowest).
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