Rating a Robo-Rater

Posted: 20 Apr 2020 Last revised: 5 Nov 2020

See all articles by David Nanigian

David Nanigian

San Diego State University - Fowler College of Business - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: July 6, 2020


Since 2011, Morningstar has issued Morningstar Analyst Ratings on many of the largest mutual funds in the United States. In June 2017, Morningstar launched the Morningstar Quantitative Rating™ to provide a forward‐looking rating on all mutual funds. Morningstar uses a “robo‐rater” machine‐learning model to assign Morningstar Quantitative Ratings. However, the “robo‐rater” cannot utilize the complete set of information available to Morningstar's analyst as it cannot process “soft information.” The purpose of this study is to evaluate if and how this “robo‐rater” is conducive to mutual fund selection. I find no evidence that the “robo‐rater” offers value to investors beyond its assessment of mutual fund expenses and I find that its inability to process “soft information” makes the Morningstar Quantitative Rating™ much less useful than the Morningstar Analyst Rating™. I also examine the relationship between Morningstar Quantitative Rating™ and mutual fund flows and find that the “robo‐rater” has little to no influence on investors' choice of mutual funds.

Paper is available through the Wiley Online Library at https://onlinelibrary.wiley.com/doi/full/10.1002/cfp2.1090

Keywords: FinTech, mutual fund fees, mutual fund flows, mutual fund performance, mutual fund ratings, robo-advising, soft information

JEL Classification: G11, G23, G24

Suggested Citation

Nanigian, David, Rating a Robo-Rater (July 6, 2020). Financial Planning Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3580986 or http://dx.doi.org/10.2139/ssrn.3580986

David Nanigian (Contact Author)

San Diego State University - Fowler College of Business - Finance Department ( email )

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San Diego, CA 92182-8236
United States
213-545-1036 (Phone)

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