The share of all Canadian funds getting Morningstar Medalist Ratings of Gold, Silver, or Bronze has risen to 27% from 18% under our recently updated scoring methodology. However, upgrades and downgrades varied across the universe by category, fee level, and for algorithm-assigned ratings, whether pillar ratings changed under the new methodology.
Whether upgraded or downgraded, the new, simplified ratings approach and the addition of data points like the Medalist Rating Price Score should make it easier to identify what drives a fund’s Medalist Rating.
What’s Changed in the Medalist Rating
The updated approach includes several changes. Notably, we’ve shifted from a benchmark-relative approach to a category-relative one, redesigned our algorithmic pillar ratings for strategies that our analysts do not cover, added the Medalist Rating Price Score to measure fees relative to category peers, and simplified the Medalist Rating calculation pillar inputs.
Three Patterns in Canadian Medalist Rating Shifts
First, algorithm-assigned pillar ratings were less likely to be Average. That increased dispersion across pillar ratings and, in turn, across Medalist ratings. It led to both upgrades and downgrades.
Second, moving from benchmark-relative to category-relative evaluation means that roughly the same percentage of share classes in each category receive a Gold, Silver, or Bronze rating. Categories that previously had higher medal concentrations saw net downgrades, while categories where medals were less common saw net upgrades.
Third, fees now drive more differentiation across share classes. Because the Medalist Rating Price Score carries meaningful weight in the Medalist calculation, lower-fee share classes such as F-series and ETFs saw more upgrades, while higher-fee share classes saw more downgrades.
Algorithm-Assigned Pillar Ratings Spread Out
For strategies without analyst coverage, Morningstar uses an algorithm that mimics how an analyst would assess each pillar to assign Parent, People, and Process ratings.
People and Process carry significant weight in the Medalist calculation. For active strategies, each accounts for 31.5% of the total score. For passive funds, People has a smaller 6% weight, while Process carries a larger 48% weight.
Under the updated methodology, fewer pillar ratings are Average. More fall above or below that midpoint, which increased dispersion across both pillar ratings and algorithm‑assigned Medalist ratings. That shift drove upgrades and downgrades among algorithm‑rated share classes.
Expected Distribution of Algorithm-Assigned Process Pillar Ratings
The Share of Gold, Silver, and Bronze Ratings Evened Out Across Categories
Under the previous benchmark‑relative approach, the share of Gold, Silver, and Bronze ratings varied by category. Categories where benchmark outperformance was more common tended to have more Medalist‑rated funds, while categories where beating the benchmark was harder had fewer. For example, only 10% of Global Neutral Balanced share classes earned a Medalist rating under the previous methodology, compared with 31% of Canadian Fixed Income share classes.
The updated process pits strategies against category peers rather than benchmarks. This led to a more even distribution of Medalist ratings across categories. In most cases, about one‑quarter of Canadian share classes now earn a Gold, Silver, or Bronze rating.
There was movement in both directions. Categories that previously had a lot of Medalists saw more downgrades, while categories with fewer Medalists saw more upgrades. For example, the share of Global Neutral Balanced share classes with medals rose to 30% from 10%, while Canadian Fixed Income fell to 21% from 31%.
Expected Change in Gold, Silver and Bronze-Rated Share Classes by Category
Fees Play a Bigger Role in Ratings
The new methodology introduced a fee‑competitiveness measure called the Medalist Rating Price Score, which ranks a share class’s fees against category peers on a scale from -2.5 to +2.5. A score below 0 means fees detracted from the rating, while a score above 0 means fees helped it.
MPS accounts for 30% of active funds’ Medalist Rating calculations and 40% of those for passive funds. In Canada, where many mutual funds offer multiple share classes with different fee structures, that means different share classes of the same strategy can receive different Medalist ratings. Fee‑based advice share classes, such as F‑series, averaged an MPS of 1.52, which boosted their Medalist scores. Commission‑based advice share classes, such as A‑series, averaged an MPS of -0.54, which hurt their ratings.
For two share classes of the same active fund, fee differences alone can separate a Gold rating from a Silver. For passive funds, the impact can be larger because price carries more weight in the calculation.
Illustration of How Medalist Price Score Can Impact Medalist Rating
Across Canadian funds, lower‑fee share classes recorded more upgrades than downgrades, while higher‑fee share classes experienced the opposite. As a result, investors are likely to see wider dispersion in Medalist ratings across share classes of the same strategy, driven primarily by fee differences at the vehicle level.
The methodology includes guardrails to ensure price does not overwhelm fundamentals. A Below Average or Low Process or People rating caps a fund at Neutral, while an Average Process and People rating caps it at Bronze.
Understanding Fund-Level Rating Changes
Here’s a practical way to determine whether fees, pillar ratings, or category effects drove a specific fund’s Medalist rating change:
- Start with the Medalist Rating Price Score: MPS shows how a share class’s fees rank against category peers, and whether fees helped or hurt the rating.
- Check whether any pillar ratings are assigned by an algorithm: Analyst‑assigned Parent, People, and Process ratings did not change under the methodology update, but algorithm‑assigned pillars may have. A pillar time series in Morningstar Direct shows whether a pillar rating moved. The Managed Investment Report explains which datapoints drove the result, and the Medalist rating methodology document outlines how algorithmic pillar ratings are calculated.
- Consider category‑level effects: Categories that previously had a high share of benchmark outperformers saw more downgrades once ratings shifted to reflect our conviction versus category peers. In Canada, this effect is most visible in Canadian Fixed Income and Canadian Equity.
