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yogibearbull
Valued Contributor

M* Forward-Looking Analyst Rating Changes

https://www.morningstar.com/articles/935412/looking-forward-to-changes-to-our-forwardlooking-r.html

  • We’re enhancing the Analyst Rating and Quantitative Rating to make them even more useful to investors.
  • We’re making three key changes to the Analyst Rating, putting even more weight on fees, setting a higher bar for active funds, and focusing our assessment on people, process, and parent.
  • We’re leaving the ratings scale unchanged--Gold, Silver, Bronze, Neutral, and Negative--but do expect ratings changes to occur, with downgrades likely to outnumber upgrades.
  • We’re also making companion changes to the Quantitative Rating, which is designed to algorithmically mimic the way analysts assign ratings to funds they cover.
  • We’ll update an initial batch of Analyst Ratings under the new framework on Oct. 31, 2019, with the remainder of the coverage universe to be updated over the subsequent 12 months; we’ll update the Quantitative Ratings en masse in November 2019.

Note that changes will be in M* Analyst Ratings [for covered funds] and latest M* Quantitative ratings [these are auto-generated for funds not covered by analysts].

Above edited based on JP's response.

YBB
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29 Replies
wanttoknow
Explorer ○

Re: M* Forward-Looking Analyst Rating Changes

Can somebody point out a fund with a quantitative "analyst" rating?  

I have never seen this in Mstar, and can't find any reference to it in the "Best Investments" section.

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cegibbs
Participant ○

Re: M* Forward-Looking Analyst Rating Changes

I think M* is doing the right thing by making this change.

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yogibearbull
Valued Contributor

Re: M* Forward-Looking Analyst Rating Changes

@syouth1 may reply.

Tweaking related to fee & performance will also be applied to the new auto-generated quantitative ratings used for funds not covered by analysts.

Edited based on JP's response.

YBB
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syouth1 Employee
Employee

Re: M* Forward-Looking Analyst Rating Changes

Hi yogibearbull.

Thanks for highlighting this article. You're on top of things, as usual. 

One clarification: We're not making any changes to the Star Rating methodology as part of this enhancement. Only the Analyst Rating and the Quantitative Rating. We have no plans at present to change the Star Rating methodology.

I hope this is useful.

Many thanks again.

Kind regards,

Jeff Ptak

Morningstar Research Services

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yogibearbull
Valued Contributor

Re: M* Forward-Looking Analyst Rating Changes

@syouth1 , thanks for the clarification about the analyst ratings [for covered funds] and the latest auto-generated quantitative ratings [for non-covered funds].

I have edited my prior posts to avoid confusion about Star ratings that remain unchanged.

YBB
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rila3400
Contributor ○

Re: M* Forward-Looking Analyst Rating Changes

 

Since I haven't used the M* Quantitative Ratings, I will exclude them from discussion.
The upcoming changes to the M* Analyst Ratings will be beneficial.

I appreciate that there will be a greater emphasis on fees.
Assigning a distinct Analyst Rating for each fund share class instead
of an identical rating for all share classes will enable users to make better fund choices.

Higher standards will be applied for actively managed funds.
In the future, active funds must beat both a relevant index and peer group average after fees
(adjusting for risk) to earn a Gold, Silver, or Bronze rating.
Currently, it's possible for an active fund to beat only their benchmark or their peer group
and still attain a metallic rating.
It is sensible to be more selective when recommending active funds.

After the M* Analyst Ratings are revised, the Performance Pillar will no longer exist.
Performance data will be incorporated within the People, Process, and Parent pillars.
I'll withhold judgement on this particular change until I see how it is actually implemented.

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syouth1 Employee
Employee

Re: M* Forward-Looking Analyst Rating Changes

Hi rila3400.

Thanks for reading the piece and for your feedback/reactions. I found it useful.

I'm glad you're finding some of the changes described potentially beneficial. I understand why you're reserving judgment about way we're absorbing the performance pillar into the other pillars -- it's only natural to want to see how something will work in practice and so the onus will be on us to demonstrate that.

One thing to keep in mind, however -- our analysts will continue to author a 'performance' writeup for every fund they cover. So while the performance pillar rating will cease to exist going forward, you'll still get commentary from the analysts. 

I hope this is helpful to you.

Thanks again.

Kind regards,

Jeff Ptak

Morningstar Research Services

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Fundsmaster
Follower ○○

Re: M* Forward-Looking Analyst Rating Changes

Jeff,

I have a question re: rating changes for different share classes of funds.  Fundamentally, this change is sound; however, with the growth/expansion of different share classes over time, this could become data overload.  Once these changes are implemented, will there be modifications to other M* tools to allow search/selection on specific share classes?

Thanks for all this good work.....

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MstarJeffreyP
Explorer ○

Re: M* Forward-Looking Analyst Rating Changes

Hi Fundsmaster. 

Thanks for your question. Short answer: I don’t know. :( You’re right that the Analyst Ratings will now be tailored to each shareclass. I would not think this would present a problem in our tools provided you can specify the particular shareclass you’re interested in. That’s supported in Premium Fund Screener, for instance, provided you know the ticker. 

Does this help? I hope it does. Let me know if you have any follow up questions, though. 

Thanks again for using our research and providing valuable feedback. 

Kind regards,

Jeff Ptak

Morningstar Research Services

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yogibearbull
Valued Contributor

Re: M* Forward-Looking Analyst Rating Changes

Would the treatment of loads change? Loads & fees differentiate fund classes. M* now ignores loads except in some risk-adjusted and after-tax data.

The SEC requires load-adjusted performance in fund publications & ads although performance without loads can also be mentioned.

YBB
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MstarJeffreyP
Explorer ○

Re: M* Forward-Looking Analyst Rating Changes

Hi yogibearbull. 

Thanks for your question.

The answer is no—our analysis will not consider loads. That’s the same as now, as the analysts do not incorporate loads into their assessments today. (The same applies to after-tax performance, which we don’t incorporate into our analysis or attempt to predict. 

I hope this is useful. 

Kind regards,

Jeff Ptak

Morningstar Research Services

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buddy17
Explorer ○

Re: M* Forward-Looking Analyst Rating Changes

I'm looking forward to seeing how this plays out, especially with the performance rating being built into the other pillars. One suggestion for the different ratings per share class based on fees is to try and incorporate all share classes and their respective ratings on the same report. It would be nice to see all ratings at once for all share classes and not have to try and track down each share class symbol and look at all the reports separately.

Oddly enough, I think it will be interesting to see the list of funds that get updated first. Will there be any method to choosing which funds are updated first? Oldest reports first? More active funds first? Certain categories? Etc, etc....
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syouth1 Employee
Employee

Re: M* Forward-Looking Analyst Rating Changes

Hi buddy17.

Thanks for your feedback.

We'll take your suggestion under advisement. You're correct that as of now the reports don't show the ratings for all of the other share classes of that fund -- just the rating of the fund share class concerned. That hasn't been an issue to this point mainly because every share class had the same rating, so the rating you'd see for the share class you were looking at was the same as that of all other share classes. But different story going forward so we'll give your suggestion some thought and see what we can do. 

With respect to your question re which funds will be re-rated at launch: It's safe to assume that it'll be a combination of doing some ratings in parallel (i.e., re-rating funds due in October 2019 under the new framework and then launching that batch on 10/31) and pulling forward other ratings that are due after 10/31. We're conferring as a team to determine which funds we'll be pulling forward. We expect to re-rate hundreds of funds on 10/31.

I hope this is useful to you.

Thanks again.

Kind regards,

Jeff Ptak

Morningstar Research Services

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buddy17
Explorer ○

Re: M* Forward-Looking Analyst Rating Changes


@syouth1 wrote:

Hi buddy17.

Thanks for your feedback.

We'll take your suggestion under advisement. You're correct that as of now the reports don't show the ratings for all of the other share classes of that fund -- just the rating of the fund share class concerned. That hasn't been an issue to this point mainly because every share class had the same rating, so the rating you'd see for the share class you were looking at was the same as that of all other share classes. But different story going forward so we'll give your suggestion some thought and see what we can do. 

With respect to your question re which funds will be re-rated at launch: It's safe to assume that it'll be a combination of doing some ratings in parallel (i.e., re-rating funds due in October 2019 under the new framework and then launching that batch on 10/31) and pulling forward other ratings that are due after 10/31. We're conferring as a team to determine which funds we'll be pulling forward. We expect to re-rate hundreds of funds on 10/31.

I hope this is useful to you.

Thanks again.

Kind regards,

Jeff Ptak

Morningstar Research Services


@syouth1, have the new ratings/reports been released? Looks like they were planned for 10/31 but I don't see anything on the M* Investment Research Center. 

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Community Manager RyanM Community Manager
Community Manager

Re: M* Forward-Looking Analyst Rating Changes

Here is an article Jeffrey Ptak published today on the site:

Introducing the Enhanced Morningstar Analyst Rating for Funds

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syouth1 Employee
Employee

Re: M* Forward-Looking Analyst Rating Changes

Hi buddy17.

Thanks for your reply. 

Here's a list of the funds that have been assigned Analyst Ratings under the enhanced methodology thus far. 

Name Ticker
American Funds American High-Inc 529A CITAX
American Funds American High-Inc 529C CITCX
American Funds American High-Inc 529E CITEX
American Funds American High-Inc 529F1 CITFX
American Funds American High-Inc A AHITX
American Funds American High-Inc C AHTCX
American Funds American High-Inc F1 AHTFX
American Funds American High-Inc F2 AHIFX
American Funds American High-Inc F3 HIGFX
American Funds American High-Inc R1 RITAX
American Funds American High-Inc R2 RITBX
American Funds American High-Inc R2E RTEHX
American Funds American High-Inc R3 RITCX
American Funds American High-Inc R4 RITEX
American Funds American High-Inc R5 RITFX
American Funds American High-Inc R5E RITHX
American Funds American High-Inc R6 RITGX
American Funds Cnsrv Gr & Inc 529-A CIPAX
American Funds Cnsrv Gr & Inc 529-C CIPCX
American Funds Cnsrv Gr & Inc 529-E CIPEX
American Funds Cnsrv Gr & Inc 529-F-1 CIPFX
American Funds Cnsrv Gr & Inc A INPAX
American Funds Cnsrv Gr & Inc ABLE-A CIPGX
American Funds Cnsrv Gr & Inc C INPCX
American Funds Cnsrv Gr & Inc F-1 INPFX
American Funds Cnsrv Gr & Inc F-2 INPEX
American Funds Cnsrv Gr & Inc F-3 INPDX
American Funds Cnsrv Gr & Inc R-1 RNCAX
American Funds Cnsrv Gr & Inc R-2 RINBX
American Funds Cnsrv Gr & Inc R-2E RNBEX
American Funds Cnsrv Gr & Inc R-3 RNCCX
American Funds Cnsrv Gr & Inc R-4 RINEX
American Funds Cnsrv Gr & Inc R-5 RINFX
American Funds Cnsrv Gr & Inc R-5E RGOFX
American Funds Cnsrv Gr & Inc R-6 RINGX
American Funds Growth and Inc Port 529A CGNAX
American Funds Growth and Inc Port 529C CGNCX
American Funds Growth and Inc Port 529E CGNEX
American Funds Growth and Inc Port 529F1 CGNFX
American Funds Growth and Inc Port A GAIOX
American Funds Growth and Inc Port C GAITX
American Funds Growth and Inc Port F1 GAIFX
American Funds Growth and Inc Port F2 GAIEX
American Funds Growth and Inc Port F3 GAIHX
American Funds Growth and Inc Port R1 RGNAX
American Funds Growth and Inc Port R2 RGNBX
American Funds Growth and Inc Port R2E RBEGX
American Funds Growth and Inc Port R3 RAICX
American Funds Growth and Inc Port R4 RGNEX
American Funds Growth and Inc Port R5 RGNFX
American Funds Growth and Inc Port R5E RGQFX
American Funds Growth and Inc Port R6 RGNGX
American Funds Growth and Inc PortABLE-A CGNGX
American Funds Moderate Gr & Inc 529-A CBAAX
American Funds Moderate Gr & Inc 529-C CBPCX
American Funds Moderate Gr & Inc 529-E CBAEX
American Funds Moderate Gr & Inc 529-F-1 CBAFX
American Funds Moderate Gr & Inc A BLPAX
American Funds Moderate Gr & Inc ABLE-A CBAGX
American Funds Moderate Gr & Inc C BLPCX
American Funds Moderate Gr & Inc F-1 BLPFX
American Funds Moderate Gr & Inc F-2 BLPEX
American Funds Moderate Gr & Inc F-3 BLPDX
American Funds Moderate Gr & Inc R-1 RBAAX
American Funds Moderate Gr & Inc R-2 RBABX
American Funds Moderate Gr & Inc R-2E RBBEX
American Funds Moderate Gr & Inc R-3 RBACX
American Funds Moderate Gr & Inc R-4 RBAEX
American Funds Moderate Gr & Inc R-5 RBAFX
American Funds Moderate Gr & Inc R-5E RGPFX
American Funds Moderate Gr & Inc R-6 RBAGX
AMG Managers Amundi Short Duration Gov I MANIX
AMG Managers Amundi Short Duration Gov N MGSDX
AMG Managers Amundi Short Duration Gov Z MATZX
AMG Managers Fairpointe Mid Cap I ABMIX
AMG Managers Fairpointe Mid Cap N CHTTX
AMG Managers Fairpointe Mid Cap Z ABIZX
BlackRock High Yield Municipal Instl MAYHX
BlackRock High Yield Municipal Inv A MDYHX
BlackRock High Yield Municipal Inv C MCYHX
BlackRock High Yield Municipal K MKYHX
Eaton Vance Global Income Builder A EDIAX
Eaton Vance Global Income Builder C EDICX
Eaton Vance Global Income Builder I EDIIX
Eaton Vance Global Income Builder R EDIRX
Franklin Equity Income A FISEX
Franklin Equity Income Adv FEIFX
Franklin Equity Income C FRETX
Franklin Equity Income R FREIX
Franklin Equity Income R6 FEIQX
Franklin Low Duration Total Return A FLDAX
Franklin Low Duration Total Return Adv FLDZX
Franklin Low Duration Total Return C FLDCX
Franklin Low Duration Total Return R FLDRX
Franklin Low Duration Total Return R6 FLRRX
Franklin Small Cap Growth A FSGRX
Franklin Small Cap Growth Adv FSSAX
Franklin Small Cap Growth C FCSGX
Franklin Small Cap Growth R FSSRX
Franklin Small Cap Growth R6 FSMLX
Franklin Small Cap Value A FRVLX
Franklin Small Cap Value Adv FVADX
Franklin Small Cap Value C FRVFX
Franklin Small Cap Value R FVFRX
Franklin Small Cap Value R6 FRCSX
Franklin Total Return A FKBAX
Franklin Total Return Adv FBDAX
Franklin Total Return C FCTLX
Franklin Total Return R FTRRX
Franklin Total Return R6 FRERX
Hartford Balanced Income A HBLAX
Hartford Balanced Income C HBLCX
Hartford Balanced Income F HBLFX
Hartford Balanced Income I HBLIX
Hartford Balanced Income R3 HBLRX
Hartford Balanced Income R4 HBLSX
Hartford Balanced Income R5 HBLTX
Hartford Balanced Income R6 HBLVX
Hartford Balanced Income Y HBLYX
Janus Henderson Global Technology A JATAX
Janus Henderson Global Technology C JAGCX
Janus Henderson Global Technology D JNGTX
Janus Henderson Global Technology I JATIX
Janus Henderson Global Technology N JATNX
Janus Henderson Global Technology S JATSX
Janus Henderson Global Technology T JAGTX
JOHCM International Select I JOHIX
JOHCM International Select II JOHAX
JPMorgan Core Plus Bond A ONIAX
JPMorgan Core Plus Bond C OBDCX
JPMorgan Core Plus Bond I HLIPX
JPMorgan Core Plus Bond L JCBIX
JPMorgan Core Plus Bond R2 JCPZX
JPMorgan Core Plus Bond R3 JCPPX
JPMorgan Core Plus Bond R4 JCPQX
JPMorgan Core Plus Bond R5 JCPYX
JPMorgan Core Plus Bond R6 JCPUX
JPMorgan Government Bond A OGGAX
JPMorgan Government Bond C OGVCX
JPMorgan Government Bond I HLGAX
JPMorgan Government Bond R2 JGBZX
JPMorgan Government Bond R3 OGGPX
JPMorgan Government Bond R4 OGGQX
JPMorgan Government Bond R6 OGGYX
JPMorgan Limited Duration Bd C OGUCX
JPMorgan Limited Duration Bd R6 JUSUX
JPMorgan Limited Duration Bond A ONUAX
JPMorgan Limited Duration Bond I HLGFX
JPMorgan Mid Cap Value A JAMCX
JPMorgan Mid Cap Value C JCMVX
JPMorgan Mid Cap Value I JMVSX
JPMorgan Mid Cap Value L FLMVX
JPMorgan Mid Cap Value R2 JMVZX
JPMorgan Mid Cap Value R3 JMVPX
JPMorgan Mid Cap Value R4 JMVQX
JPMorgan Mid Cap Value R5 JMVRX
JPMorgan Mid Cap Value R6 JMVYX
JPMorgan Strategic Income Opports A JSOAX
JPMorgan Strategic Income Opports C JSOCX
JPMorgan Strategic Income Opports I JSOSX
JPMorgan Strategic Income Opports R5 JSORX
JPMorgan Strategic Income Opports R6 JSOZX
JPMorgan US Research Enhanced Equity A JDEAX
JPMorgan US Research Enhanced Equity I JDESX
JPMorgan US Research Enhanced Equity L JPIEX
JPMorgan US Research Enhanced Equity R6 JDEUX
MainStay MAP Equity A MAPAX
MainStay MAP Equity B MAPBX
MainStay MAP Equity C MMPCX
MainStay MAP Equity I MUBFX
MainStay MAP Equity Investor MSMIX
MainStay MAP Equity R1 MAPRX
MainStay MAP Equity R2 MPRRX
MainStay MAP Equity R3 MMAPX
MFS Technology A MTCAX
MFS Technology B MTCBX
MFS Technology C MTCCX
MFS Technology I MTCIX
MFS Technology R1 MTCKX
MFS Technology R2 MTERX
MFS Technology R3 MTCHX
MFS Technology R4 MTCJX
MFS Technology R6 MTCLX
MFS Utilities A MMUFX
MFS Utilities B MMUBX
MFS Utilities C MMUCX
MFS Utilities I MMUIX
MFS Utilities R1 MMUGX
MFS Utilities R2 MURRX
MFS Utilities R3 MMUHX
MFS Utilities R4 MMUJX
MFS Utilities R6 MMUKX
PGIM Jennison Equity Income A SPQAX
PGIM Jennison Equity Income B JEIBX
PGIM Jennison Equity Income C AGOCX
PGIM Jennison Equity Income R PJERX
PGIM Jennison Equity Income R6 PJIQX
PGIM Jennison Equity Income Z JDEZX
PGIM Jennison Utility A PRUAX
PGIM Jennison Utility B PRUTX
PGIM Jennison Utility C PCUFX
PGIM Jennison Utility R JDURX
PGIM Jennison Utility R6 PRUQX
PGIM Jennison Utility Z PRUZX
PIMCO International Bond (USD-Hdg) A PFOAX
PIMCO International Bond (USD-Hdg) Adm PFRAX
PIMCO International Bond (USD-Hdg) C PFOCX
PIMCO International Bond (USD-Hdg) I-2 PFBPX
PIMCO International Bond (USD-Hdg) I-3 PFONX
PIMCO International Bond (USD-Hdg) Instl PFORX
PIMCO International Bond (USD-Hdg) R PFRRX
Shenkman Capital Short Dur Hi Inc A SCFAX
Shenkman Capital Short Dur Hi Inc C SCFCX
Shenkman Capital Short Dur Hi Inc F SCFFX
Shenkman Capital Short Dur Hi Inc Inst SCFIX
T. Rowe Price Capital Appreciation PRWCX
T. Rowe Price Capital Appreciation Adv PACLX
T. Rowe Price Capital Appreciation I TRAIX
USAA Intermediate Term Bond R6 URIBX
USAA Intermediate-Term Bond USIBX
USAA Intermediate-Term Bond Adviser UITBX
USAA Intermediate-Term Bond Instl UIITX
Vanguard International Explorer Inv VINEX
VY® T. Rowe Price Capital Apprec A ITRAX
VY® T. Rowe Price Capital Apprec I ITRIX
VY® T. Rowe Price Capital Apprec R6 VPRAX
VY® T. Rowe Price Capital Apprec S ITCSX
VY® T. Rowe Price Capital Apprec S2 ITCTX
Wells Fargo Diversified Cap Bldr A EKBAX
Wells Fargo Diversified Cap Bldr Adm EKBDX
Wells Fargo Diversified Cap Bldr C EKBCX
Wells Fargo Diversified Cap Bldr Inst EKBYX
Wells Fargo Diversified Income Bldr A EKSAX
Wells Fargo Diversified Income Bldr Adm EKSDX
Wells Fargo Diversified Income Bldr C EKSCX
Wells Fargo Diversified Income Bldr Inst EKSYX
Wells Fargo Diversified Income Bldr R6 EKSRX

 

We expect another batch of ratings to be released tomorrow morning and then we'll resume our normal updating cadence, will all future ratings assigned under the enhanced methodology. I hope this is helpful.

Kind regards,

Jeff Ptak

Morningstar Research Services

yogibearbull
Valued Contributor

Re: M* Forward-Looking Analyst Rating Changes

@syouth1 , that roll out of new ratings is awfully slow. I am sure that M* has internal algorithms to see the analyst rating changes mostly impacted by class ERs. 

May be M* can put symbol N on new ratings, or O on old ratings - as it has done for Quantitative Q ratings. It is too much from the users to expect them remember the October 2019 date. 

The only reason for the slow roll out that I can guess may be not to upset the fund families - many who advertise on M* or buy its software - with a huge downgrade at once but a slow torture won't make them happy either.

Please run the new algorithm and make changes overnight!

YBB
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MstarJeffreyP
Explorer ○

Re: M* Forward-Looking Analyst Rating Changes

Hi yogibearbull.

Thanks for your note.

The gradual release of the ratings boils down to something pretty mundane--the analysts need to conduct a full review of each fund before rating it, and that can't happen all at once (at least it can't if we're going to try to uphold our research/quality standard). There's actually a regulatory dimension to this in a number of markets where our analyst teams sit in regulated entities -- we can't assign ratings to funds if we haven't done a full review.

It has nothing to do with fund companies and how they might or might not react to the ratings we assign. If we worried about that, we wouldn't rate funds at all, let alone introduce a methodology enhancement that will see more downgrades than upgrades. We don't live to upset fund companies but our job is to call 'em like we see 'em and that inevitably means our views won't always conform to their views or imperatives. That's the way it goes.

We considered distinguishing between the 'old' and 'new' ratings as you describe but opted against because in our view it creates more work for the user and doesn't add a whole lot of value. While it's true for a period of time some of the Analyst Ratings assigned to share classes under the 'old' methodology won't align with the new methodology (this is truest of costly share classes). All the same, we stand by our ratings and feel users should be able to use them confidently in their own research and decisions. In that sense, we agree with you they shouldn't have to remember the 10/31/19 date.

I hope this is useful. Let me know if you have any follow-up questions.

Kind regards,

Jeff Ptak

Morningstar Research Services

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yogibearbull
Valued Contributor

Re: M* Forward-Looking Analyst Rating Changes

@MstarJeffreyP , "All the same, we stand by our ratings and feel users should be able to use them confidently in their own research and decisions. In that sense, we agree with you they shouldn't have to remember the 10/31/19 date."

That is wishful thinking that investors should just trust M* in that the higher ER classes deserve the same analyst rankings than the lower ER ones. I understand the regulatory constraints that you mentioned. But if I was M* CEO [and I am not], I would order the M* research chiefs and analysts to drop everything for a week, and work 24 hours if necessary, to fix these analyst ratings.

Thank you for your response.

YBB
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