Rating a Robo-Rater
17 Pages Posted: 20 Apr 2020
Date Written: December 31, 2019
Since 2011, Morningstar has issued Morningstar Analyst Ratings on many of the largest mutual funds in the USA. 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 that the only value of the “robo-rater” is in its assessment of mutual fund expenses and that its inability to process “soft information” makes the Morningstar Quantitative Rating™ much less useful than the Morningstar Analyst Rating™.
Keywords: FinTech, Mutual fund fees, Mutual fund performance, Mutual fund ratings, Robo-advising, Soft information
JEL Classification: G11, G23, G24
Suggested Citation: Suggested Citation