Fund researcher Morningstar announced today that it will change its rating system for mutual funds this summer. The Morningstar rating, commonly known as the "star rating," will be altered to include a broader number of categories, the company said.
Morningstar said the most significant change will be the addition of 50 categories to the rating system. Before, funds were compared across four broad asset classes U.S. stock, international stock, taxable bond and municipal bond.
The changes will go into effect in July using performance data for the period ending June 30. The company will not change existing ratings for funds that were evaluated before that time.
"When we first introduced the Morningstar rating, most investors owned one or two funds," said Don Phillips, managing director at Morningstar. "Today, investors are searching for multiple funds that play specialized roles in an overall portfolio. As such, a rating based on categories rather than broad asset classes is a more logical starting point for identifying funds that have potential merit."
The companys rating system gives funds a rating of between one and five stars. It was introduced in 1985.