Subscribing to a stock advice service through a well-known company like Morningstar is a smart way to spend less time researching stocks while building a portfolio of high-performing investments.
Morningstar provides ratings for mutual funds. Morningstar Premium subscribers get unlimited access to the platform’s research tools, fund costs and fees analysis, a robust fund screener tool, and updated ratings at a cost of $199 per year after a 14 day trial.
If you don’t want to make researching and choosing mutual funds your full-time job, you can rely on a platform like Morningstar to give you ideas about which investments may produce the best long-term results.
What is Morningstar?
Founded in 1984, Morningstar is a Chicago-based investment research firm. The company provides mutual fund evaluation tools and ratings to support investors as they build their portfolios. The company has more than $220 billion in assets under management.
Morningstar Rating for mutual funds started in 1985. It’s now the much-enhanced Morningstar Premium stock advisor service.
Morningstar Basic offers some access to portfolio management tools and screeners. With Morningstar Premium, subscribers gain access to Top Investment Picks, Analysts Reports, portfolio management tools, and screeners.
Morningstar is a source for unbiased analysis, commentary, research, and insight. They aren’t a stock buying platform. To take advantage of their advice, you’ll need a brokerage account.
The Financial Industry Regulatory Authority (FINRA) uses Morningstar to analyze mutual funds. FINRA offers investor education materials and tools in their Market Data Center. In 2013, they started using Morningstar’s financial data and technology to relaunch the FINRA Data Center.
How Does Morningstar Choose Funds to Recommend?
Morningstar likes funds with low expense ratios run by managers who invest their own money into the fund. They give preference to firms with a stable corporate culture. Morningstar’s rating history shows that these criteria are excellent predictors of a successful fund.
Are Morningstar Stock Picks Any Good?
Morningstar’s gold-rated diversified U.S. stock funds, managed by the firm’s team of more than 100 fund analysts, beat Standard & Poor’s 500-stock index by an average of .03 percentage points each year over the past ten years.
Morningstar’s gold-rated diversified developed-market foreign stock funds:
- 9.1% average annualized rate of return (as of 2021)
- Beat the MSCI EAFE index by 2.0 percentage points per year
Morningstar’s gold-rated intermediate-term bond funds:
- 5.6% average annualized rate of return (as of 2021)
- Beat Barclays Aggregate U.S. Bond index by 0.6 percentage point per year
Average Morningstar pick U.S. stock funds:
- Came in behind the S&P 500 for the past three years
- Came in behind the S&P 500 for the past five years
According to Russ Kinnel, Morningstar’s director of fund research, actively managed funds have found it challenging to keep up with the stock market’s dramatic ascent over the past few years.
Here is a sample of how three of Morningstar’s gold-rated funds have performed over the years:
Dodge & Cox Income (DODIX):
- Expenses: 0.43%
- Dodge & Cox Income returned an annualized 6.4% compared to Barclays U.S. Aggregate Bond Index through July 18, 2021.
The majority of this fund is invested in government-backed mortgage securities and investment-grade corporate bonds. Since bond prices and rates tend to move in opposite directions, the fund is susceptible to interest rate increases. The fund’s price will hypothetically fall 4.5% if interest rates go up one percentage point.
LKCM Equity (LKEQX):
- Expenses: 0.80%
- LKCM Equity beat the S&P by an average of 0.8% per year with average annualized gains of 9.0% over the past ten years (2011 – 2021).
Manager Luther King uses consistent strategies to choose stocks for this Fort Worth-based fund. Since 1995, this fund has shown solid returns. King, his co-managers, and analyst team focus on large companies with high returns on equity and strong cash flow selling at low prices.
Primecap Odyssey Stock (POSKX):
- Expenses: 0.63%
- Primecap Odyssey Stockbeat the S&P by an average of 1.7% per year with average annualized returns of 9.8% since the fund’s inception in 2004 (as of 2021).
Los Angeles-based Primecap Management has three funds, and this is the quietest option. The fund looks like Vanguard Primecap (VPMCX), which has produced admirable results since its 1984 launch. Vanguard Primecap is closed to new investors.
More than half of Odyssey Stock’s assets are in technology and health care. Nearly all assets are in well-established companies. The fund’s performance varies wildly from the S&P 500, following the trajectory of tech and health sectors.
Morningstar Review: A Warning About Morningstar’s Star Rating System
Morningstar assigns a one-to-five-star ranking to each mutual fund or ETF. Metrics are risk-adjusted and relative. The platform groups funds with similar assets then compares performance to achieve a peer-adjusted rating.
The Morningstar system of rating mutual funds depends on past returns. They don’t take outliers into account. When a fund manager has an unusually bad or good year, those numbers can skew the averages. The star system does not account for whether the fund has consistent leadership or whether managers frequently come and go.
Morningstar offers its subscribers warnings about not depending heavily on star ratings when making investment decisions. Many investors who purchase shares of mutual funds intend to hang on to those funds for decades. It’s worth noting that many highly rated funds in 2004 lost their favorable ratings by 2014. In addition, many low-rated funds went on to produce excellent returns over time.
The firm’s ratings seem to have a measurable effect on investment flow. Strategic Insight notes that four-star and five-star funds enjoyed a net positive investment flow each year between 1998 and 2010. Funds with one-star to three-star ratings suffered negative investment flow every year during the same period.
Details About Morningstar’s Premium Subscription Services
Morningstar Premium may work best for investors actively managing their portfolios. Choosing investments, allocating assets, and diversifying a portfolio can be time-consuming and stressful. Morningstar Premium allows investors to take a DIY approach with support from experts with a long track record of success.
Morningstar Premium Basics
- Cost: $0 for Morningstar Basic, $199 per year for Morningstar Premium after a 14-day trial
- Services: Ratings, stock picks, stock research, commentary, analysis, investment tracking
- Types of securities: ETFs, mutual funds, bonds, stocks
- Funds analyzed: 4,000
A Morningstar rating offers a one-to-five-star rating of a fund based on its risk-adjusted return relative to funds in the same category.
Ratings are generated by mathematical measurement only and consider the level of risk and how well a fund performed in the past.
Morningstar divides funds into four categories. A five-star rating goes to only the top 10% of funds in the category. Four-star ratings go to the next 22.5% of funds in the same category. Three-star ratings go to the next 35% of funds.
Morningstar’s star ratings use information from past performance only. Since past performance does not guarantee future success, investors should consider that limitation when evaluating funds using star ratings.
The Portfolio X-Ray Tool provides investors with a means by which to enter investments manually. The tool uses each fund’s quarterly SEC reports to determine asset allocation across an entire portfolio.
The Premium Stock Screener offers investors the ability to zero in on investments as they evaluate stocks, ETFs, and mutual funds.
The SG Screener helps investors find investments that meet their governance, sustainability, and environment guidelines within parameters that include minimum Morningstar ratings.
Analyst Insights and Stock Picks
Analyst Insights offer reports with in-depth summaries of morningstar analysts’ opinions of specific investments. Summaries include forward-looking assessments as well as comparisons to the investment’s Morningstar category and benchmark.
Morningstar Pros and Cons
- In-depth research covers stocks, ETFs, bonds, and mutual funds
- Help to choose the best funds and stocks with Best Investments lists
- Multi-year subscriptions come with a discount
- Information on more than 620,000 investments
- The customizable interface is easy to navigate
- Premium content is behind a paywall
- Month-to-month subscription costs as much as $359/mo
- Star ratings based only on past performance
- Screener tools are not intuitive
- Heavy focus on mutual funds – not as helpful in comparing individual stocks, bonds, or ETFs
Morningstar Customer Reviews
Read reviews from current and past subscription customers before you jump into paying for any stock advising service. Look for online reviews from verified customers on reputable sites like the Better Business Bureau (BBB) and Trustpilot.
There are few customer reviews other than those published by the investing platform as part of their marketing plan. Keep in mind that many customers who enjoy the service and don’t have complaints may not take the time to write a review. It’s more likely that unsatisfied customers will spend time looking for third-party review sites where they can leave bad reviews.
Morningstar Suffers on Trustpilot
Morningstar has just 60 reviews on Trustpilot with an overall rating of 1.9 stars out of 5. See the breakdown below:
- Excellent: 7%
- Great: 3%
- Average: 8%
- Poor: 12%
- Bad: 70%
“I have been a morningstar premium subscriber for ten years. The analysis and data is good enabling you to track your portfolio performance. Sadly the customer support is not premium.”
Customer complaints center around Morningstar’s premium membership and not that the tools did not work correctly. Customers who wrote reviews on Trustpilot also noted that customer service wasn’t helpful when they had problems signing up for the premium service, canceling their subscription, or resetting a password.
Morningstar on the BBB Website
Morningstar Inc. has only received a handful of reviews over the years on the Better Business Bureau (BBB) website. Morningstar’s customer service team has responded to and closed a total of 10 complaints in the last 3 years and 3 complaints in the past 12 months.
Details About Morningstar’s Free Basic Services
Morningstar members who register for a basic account get access to a few decent stock research tools through the platform. Morningstar Basic comes with unlimited access to the site’s article archive and limited access to screeners, portfolio x-ray, and portfolio manager. Basic members do not get to see top investment picks or analyst reports.
Upon initiating a basic membership with Morningstar, new members can choose to get a free issue of Morningstar FundInvestor and a free issue of Morningstar StockInvestor.
How to Get Started With Morningstar Premium
It takes less than 30 seconds to set up a free account on the Morningstar platform. New Basic members have the opportunity to evaluate the Premium tier of services for 14 days, after which they can keep the membership for $30 off of the regular price. The prices (including the discount) are as follows:
- One year: $249 but currently discounted to $199
- Two years: $399
- Three years: $499
Morningstar Premium members can also choose a one-month automatically renewing subscription. Billing starts after the 14-day trial.
Is Morningstar Premium Worth it?
Morningstar Premium could be worth it for investors that want to choose mutual funds to add to their portfolio of investments. Investors who are less interested in mutual funds than in bonds, stocks, and ETFs, may find that other subscriptions to investment advice newsletters and stock picking websites are a better use of their money.
It’s worth mentioning again that Morningstar is not a brokerage. If you want to invest in the funds recommended by Morningstar’s Basic or Premium subscription, you’ll have to open a brokerage account.
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