Originally posted Sept. 12, 2024
Morningstar plans to enhance our Quantitative Equity Rating to a more predictive model with greater efficacy and better handling of corporate actions and market events. This change will take place on Dec. 2, 2024.
The QER methodology upgrades will come with decreased coverage compared to the previous methodology. This is due to the introduction of features like the liquidity filter, which ensures we provide actionable ratings on share classes that have active trading volume, and limiting our ratings coverage to common stock share classes. As such, preferred share classes will not qualify for quantitative rating coverage in the updated methodology.
Our quantitative ratings combine our equity data and analyst opinions to expand coverage beyond the capabilities of our analyst staff. Proprietary valuations drive our quantitative equity ratings our analysts assign to stocks. These upgrades to our Quantitative Equity Rating methodology will provide clients with our most precise ratings yet.
Our Analytics team focuses on ways to ensure our quantitative ratings reliably replicate the proprietary valuations, data, and ratings of our seasoned equity analysts. This methodology enhancement makes the below notable adjustments:
- We are moving to a weekly (vs. daily) fair value calculation. Star Ratings will continue to calculate daily to account for price fluctuations.
- Introducing two additional rating values: Under Review and Not Rated.
- More robust corporate action handling, reducing outlier stock calls.
- In a non-linear regression system, we will employ 61 stock factors from Growth, Liquidity, Financial Health, and Profitability.
- We are deploying gradient-boosted regression to estimate fair values, with out-of-sample R2 improving by ~14%.
- We will have improvements to our Autogenerated analysis to account for the specific drivers of the rating.
Upgrading the Quantitative Equity Rating methodology allows Morningstar to improve the company star ratings, allowing us to provide clients with more nuanced analysis and improved model precision.
The Quantitative Equity Rating Star Rating will continue to be published daily, and Morningstar will continue to apply the superscript “Q” designation to ratings assigned quantitatively.
Due to a new liquidity filter, Morningstar expects coverage to decrease from 58k to 39k companies, ensuring our model focuses on a more investable total coverage universe.
Starting Dec. 2, 2024, the updated Morningstar Quantitative Equity Rating methodology will be available in all Morningstar products and platforms globally that currently carry the rating.
In Morningstar Equity API Center Quantitative Rating APIs for all regions, starting Dec. 2, 2024, current data will automatically update to reflect the updated methodology and associated model.
Additionally, for the Quantitative Equity Rating clients will see new rating statuses for Under Review and Not Rated in addition to the current statuses which will remain as numbers. Specifically, the new values are 0 for Not Rated, and 6 for Under Review.
Please note, Morningstar Equity API Center will no longer populate values related to the Solvency Score and its associated data points from the below APIs. If clients are utilizing any of these Solvency Scores, please note they will be no longer available starting on Dec. 2, 2024, and clients should take necessary adjustments to ensure no disruption to their processing, if necessary.
- Proprietary Data Coverage List
- Solvency Score Quant Start
- Solvency Score Quant End
- Proprietary Data Snapshot
- Solvency Score Raw Score
- Solvency Score Decile
- Quant Metrics
- Solvency Score Raw Score
- Solvency Score Decile
- Rating History
- Ratings Snapshot
Further details are in the attached FAQ. Contact Morningstar Support with further questions or needs.