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Morningstar Medalist Rating

TM

Methodology

Morningstar Research Summary

Version 1.8 Morningstar has conducted research on active and passive investment strategies and their associated
March 25, 2025 vehicles since 1986. From November 2011, this research was expressed globally through the
Morningstar Analyst RatingTM for funds, which Morningstar’s manager research analysts assigned to
Contents strategies and vehicles that they qualitatively analyzed.
1 Overview
2 Forward-Looking Analysis
4 Methodology In 2017, Morningstar expanded its manager research with the launch of the Morningstar Quantitative
9 Pillar Evaluation RatingTM for funds, which used algorithmic techniques to assign ratings to strategies and vehicles that
Morningstar’s manager research analysts didn’t cover. The Morningstar Quantitative Rating was
Appendices
A. Random Forest designed specifically to mimic analyst decision-making as much as possible via a quantitative approach.
B. Algorithmic Pillar Models
C. FAQ on Data Inputs to
In 2023, Morningstar combined the Morningstar Analyst Rating and the Morningstar Quantitative Rating
Algorithmic Model
D. FAQ on Eligibility for Algorithmic into a single, forward-looking rating, the Morningstar Medalist Rating.TM
Assignment
E. FAQ on Separately Managed
The Morningstar Medalist Rating
Accounts Model
F. FAQ on Model Portfolios Model An essential complement to Morningstar’s database of investment information and Morningstar’s suite
G. Special Cases of quantitative research tools, such as the Morningstar RatingTM for funds (the “star rating”) and the
Morningstar Style Box,TM the Morningstar Medalist Rating and accompanying research report:

Global Head, Manager Research × Identify active strategies that Morningstar believes should be able to outperform their Morningstar

Director of Ratings
Category indexes (for example, the Russell 1000 Index for US large-cap blend equity strategies) on a risk-
adjusted basis over time;
Head of Analytics × Identify passive strategies that Morningstar believes should be able to outperform the majority of their
category peers on a risk-adjusted basis over time;
× Call out strategies that Morningstar expects to underperform their category indexes on a
risk-adjusted basis over time;
× Help investors and fund selectors understand the suitability of strategies for an intended purpose and
give clear expectations for the likely behavior of strategies in different market environments;
× Place a strategy and its vehicles in comparative and historical context in terms of criteria such as
expenses, manager tenure, investment style, and asset size; and
× Monitor strategies for changes that could materially affect the suitability and investment opinion.
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Independent Research
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Morningstar
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managers to rate their strategies and associated vehicles and does not permit asset managers to
Page 2 of 49 commission ratings from us. Morningstar commercializes its manager research by including ratings and
reports in various products and services and through licensing its intellectual property.
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Morningstar produces this analysis for the benefit of investors, advisors, and institutions, not asset
managers. Morningstar separates its researchers from any commercial relationships the company may
have with asset managers in order to avoid any real or perceived conflicts of interest. Morningstar’s
assessment aims to provide in-depth, accurate, and useful analysis that will help investors select
strategies that will outperform, avoid those that will underperform, and build more cohesive portfolios.
This analysis is independent and objective, conveying Morningstar’s genuine opinion of a strategy and
associated vehicles, including negative views when warranted.

Forward-Looking Analysis
The Medalist Rating for funds is the summary expression of Morningstar’s forward-looking analysis of
investment strategies as offered via the specific vehicles. Vehicles can include but are not limited to
open-end funds, closed-end funds, exchange-traded funds, and separately managed accounts domiciled
throughout the world. The Medalist Rating does not express a view on a given asset class or peer group;
rather, it seeks to evaluate each strategy and associated vehicle within the context of an appropriate
benchmark and peer group.

Morningstar assigns Medalist Ratings at the vehicle level to accurately capture the impact of fee
differences on expected net-of-fee alpha between different types of vehicles, including different share
classes of the same fund. Morningstar’s research and academic studies have repeatedly shown that a
vehicle’s ability to outperform erodes as fees become higher. Morningstar’s analysis of each specific
vehicle under coverage ensures the most precise accounting possible of fees. For open-end funds, for
example, this means that share classes of the same fund that charge different amounts may receive
different Medalist Ratings.

Morningstar expresses the Medalist Rating on a five-tier scale running from Gold to Negative. For
actively managed funds, Morningstar assigns Gold, Silver, and Bronze ratings to vehicles expected to
add value, or “positive alpha,” over the long term when compared with a relevant category index after
accounting for fees and risk. For passive strategies, Morningstar assigns Gold, Silver, and Bronze ratings
to vehicles expected to deliver alpha that exceeds the lesser of the category median net alpha, or zero,
over the long term. (Morningstar defines “long term” as periods lasting at least five years.)
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Medalist Ratings should be interpreted as follows:
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Page 3 of 49 Rating Actively Managed Vehicles Passively Managed Vehicles

Page 3 of 49 Œ
Morningstar’s top recommendations, Expected to deliver positive net alpha Expected to deliver net alpha (versus the
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these investments are expected to add (versus the category index) that ranks category index) that exceeds the lesser
the most value within their Morningstar among the top 15% of all active of the Morningstar Category median net
Category. investments in the Morningstar alpha or zero and ranks among the top
Category expected to generate positive 15% of all passive investments in the
net alpha. Morningstar Category expected to
achieve the same.

•
Just below Gold but still expected to Expected to deliver positive net alpha Expected to deliver net alpha (versus the
add significant value within their (versus the category index) that ranks category index) that exceeds the lesser
Morningstar Category. among the next 35% of all active of the Morningstar Category median net
investments in the Morningstar alpha or zero and ranks among the next
Category expected to generate positive 35% of all passive investments in the
net alpha. Morningstar Category expected to
achieve the same.
ª
Not expected to perform as well as Gold Expected to deliver positive net alpha Expected to deliver net alpha (versus the
or Silver but should add at least some (versus the category index) that ranks in category index) that exceeds the lesser
value within their Morningstar Category. the bottom half of all active investments of the Morningstar Category median net
in the Morningstar Category expected to alpha or zero and ranks in the bottom
generate positive net alpha. half of all passive investments in the
Morningstar Category expected to
achieve the same.
‰
Not expected to outperform within their Expected to deliver negative net alpha Expected to deliver net alpha (versus the
Morningstar Category but shouldn’t (versus the category index) that ranks in category index) that falls shy of the
subtract as much value as a Negative- the top 70% of all active investments in lesser of the Morningstar Category
rated fund. the Morningstar Category expected to median net alpha or zero and ranks in
generate no alpha or negative net the top 70% of all passive investments
alpha. in the Morningstar Category expected to
fall shy.
Á
Expected to be the worst performers, Expected to deliver negative net alpha Expected to deliver net alpha (versus the
subtracting significant value within their (versus the category index) that ranks in category index) that falls shy of the
Morningstar Category. the bottom 30% of all active lesser of the Morningstar Category
investments in the Morningstar median net alpha or zero and ranks in
Category expected to generate negative the bottom 30% of all passive
net alpha. investments in the Morningstar
Category expected to fall shy.
ˆ
Denotes a change at a rated strategy N/A N/A
that requires further review to
determine its impact on the rating.
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In more Observer
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| 21 March 2025 of manager research, Morningstar’s global analyst team has identified three
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key areas that evidence suggests are crucial to predicting the future gross performance of strategies and
Page 4 of 49 their associated vehicles: People, Parent, and Process. These three pillars form the spine of
Morningstar’s research approach, with analysis coalescing around an evaluation of the strategy’s
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management team, the parent firm, and the underlying investment process itself. In this way, the
analysis considers not just each pillar in isolation but also the interaction between them, which is crucial
to understanding a vehicle’s overall merit.

To provide a consistent, repeatable framework for the Medalist Ratings, reflective of the opportunity set
within their category, Morningstar assigns ratings in three steps: 1) Assess the opportunity to add value;
2) score pillars; 3) derive the rating. Those three steps are described in further detail below.

Assess the Opportunity to Add Value

Different investment styles offer more or fewer opportunities to derive alpha from active management
before fees. US large-cap blend equity strategies, for example, have typically had a more difficult time
generating alpha versus a relevant benchmark like the Russell 1000 Index than have global small-cap
strategies.

To systematically assess the opportunity to add value before fees, it is necessary to first define relevant
peer groups that correspond to different investment styles. To do this, Morningstar aggregates
categories that have been assigned a similar category Index. For example, Morningstar rolls up all US
large-cap blend equity categories from vehicle universes in Europe, Asia, Australia, and the US into a
single aggregate group. This ensures similar vehicles are treated consistently worldwide and makes the
peer groups more robust. These aggregate peer groups are used solely to assess the pre-fee alpha
opportunity for categories following highly similar indexes. (As further explained in this methodology, the
remainder of the ratings setting takes place within a vehicle’s assigned category.)

To assess the opportunity to add value within the aggregate peer group, Morningstar runs rolling three-
year regressions of each constituent vehicle’s gross-of-fee returns against the index chosen for the
aggregate peer group concerned. From these regressions, Morningstar derives each vehicle’s three-year
gross alpha versus the index, repeating this for each rolling period and compiling this series of gross
alphas for all other vehicles that are part of the aggregate peer group. (Morningstar runs these
regressions periodically, adding new rolling three-year measurements to the historical series with the
passage of time. The start date for the regression series is Jan. 1, 2002, or the first date thereafter in the
case of peer groups created subsequently.)

Morningstar then uses the resulting compilation of historical gross alphas to estimate the potential that
funds in the peer group can generate positive gross-of-fee alpha. Specifically, it tallies the number of
positive pre-fee alpha observations in the distribution and divides that by the total number of alpha
observations. This represents the rate at which funds have delivered positive gross alpha historically.
Next, Morningstar derives the median positive gross alpha in the distribution. This represents the likely
magnitude of positive pre-fee alpha when it has been generated in the past. To arrive at its alpha
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potential estimate, Morningstar multiplies the historical ratio of positive gross alphas by the historical
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Page 5 of 49 This APE is the factor used by Morningstar to adjust its estimate of a vehicle's gross alpha up or down
based on the pillar ratings that it assigns to the vehicle. Higher pillar ratings push Morningstar’s
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estimate higher by the magnitude of the APE; conversely, lower pillar ratings pull the estimate down by
the amount of the APE.

These adjustments will be larger in categories that have higher APEs and lower in those with lower
APEs. This ensures the impact of the pillar ratings on a vehicle’s rating is proportionate to the size of the
opportunity set in the peer group. Morningstar calculates separate APEs for active and passive
strategies in each aggregated peer group.

For passively managed vehicles (excluding passive vehicles that are classified as “strategic beta,” which
follow the process for active vehicles described above), we divide the number of negative alphas in the
combined distribution of actively and passively managed vehicles by the total number of observations.
To arrive at the APE for passives, we multiply this ratio by the median of all alphas in the passive
distribution that are above the lesser of zero or the median alpha of the entire passive distribution.

These separate APEs are then applied to active and passive funds, respectively, in the relevant
categories.

Score Pillars
Morningstar assigns scores to the People, Process, and Parent pillars ranging from negative 2 to positive
2. Those scores correspond to the pillar ratings assigned to a vehicle based either on an analyst’s
qualitative assessment or the use of algorithmic techniques (as explained in further detail in the “Pillar
Evaluation” section of this methodology). The pillar ratings take the form of Low, Below Average,
Average, Above Average, and High.

Derive the Rating

Active Strategies
Morningstar starts with the assumption that a vehicle will deliver a gross-of-fee alpha of zero. The pillar
scores are then used in conjunction with set pillar weightings and the APE for the vehicle’s assigned
category to derive a gross-of-fee expected alpha. The pillars are weighted as follows for actively
managed vehicles:

People: 45%
Process: 45%
Parent: 10%
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The equation to derive an actively managed vehicle’s expected gross-of-fee alpha is thus:
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(0.45 * People Score * APE)
Page 6 of 49 + (0.45 * Process Score * APE)
+ (0.10 * Parent Score * APE)
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= Expected gross-of-fee alpha
where “APE” = Alpha potential estimate for the peer group

To obtain expected net-of-fee alpha, Morningstar subtracts the relevant cost ratio from its estimate of
expected gross-of-fee alpha.

Expected gross-of-fee alpha

– Expense ratio
= Expected net-of-fee alpha

Arithmetically, this means that expenses have as much weight in the net alpha calculation as the other
three pillars combined.

Once Morningstar has estimated a vehicle’s expected net-of-fee alpha, it compares that vehicle’s
expected net alpha with that of all other actively managed investments in its category, over a 12-month
average. This includes vehicles for which Morningstar has derived net alpha estimates using pillar
scores that were assigned by algorithmic means. The vehicle’s estimated net alpha must be positive for
it to be eligible for a Gold, Silver, or Bronze rating; otherwise, it will be assigned a Neutral or Negative
rating. Morningstar assigns ratings to actively managed vehicles as follows:

Œ
Top 15% of actively managed vehicles with positive expected net-of-fee alpha over a 12-month average

•
Next 35% of actively managed vehicles with positive expected net-of-fee alpha over a 12-month average

ª
Bottom 50% of actively managed vehicles with positive expected net-of-fee alpha over a 12-month average

‰
Top 70% of actively managed vehicles with negative or zero expected net-of-fee alpha over a 12-month average

Á
Bottom 30% of actively managed vehicles with negative or zero expected net-of-fee alpha over a 12-month average

To prevent frequent ratings changes when offerings are near the threshold between ratings levels,
Morningstar applies a buffer. For a more detailed description of the buffering procedure, see Appendix
G: Special Cases. In addition, for categories where fewer than 10% of share classes would otherwise
earn a medal, share classes that would otherwise not earn a medal will be pulled up into Bronze
according to the rank of their expected net alphas. This will be done for passively managed vehicles and
actively managed vehicles (calculated separately) in categories where medals fall below the 10% floor,
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with the additional requirement that there must be at least 20 total classes of the cohort (whether active
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Page 7 of 49 Passive Strategies

Morningstar derives the rating for passive strategies using the same process as for actively managed
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strategies but with a few differences. As with active strategies, Morningstar starts with the assumption
that a passive investment will deliver a gross-of-fee alpha of zero. Similarly, the pillar scores are then
used in conjunction with set pillar weightings and the APE of passives for the vehicle’s assigned
category to derive a gross-of-fee expected alpha.

The process for deriving ratings for passive strategies differs from the process for deriving ratings for
active strategies in the way pillars are weighted. To reflect the lesser importance of the management
team to the success of passive strategies and, conversely, to emphasize the primacy of the underlying
process, including index construction, Morningstar weights the pillars as follows:

People: 10%
Process: 80%
Parent: 10%

The equation to derive a passively managed vehicle’s expected gross-of-fee alpha is thus:

(0.10 * People Score * APE)

+ (0.80 * Process Score * APE)
+ (0.10 * Parent Score * APE)
= Expected gross-of-fee alpha
where “APE” = Alpha potential estimate for the peer group

To obtain expected net-of-fee alpha, Morningstar subtracts the relevant cost ratio from its estimate of
expected gross-of-fee alpha.

Expected gross-of-fee alpha

– Expense ratio
= Expected net-of-fee alpha

Once Morningstar has estimated a passive vehicle’s expected net-of-fee alpha, it compares that
vehicle’s expected net alpha with that of all other passively managed investments in its category over a
12-month average. This includes vehicles for which Morningstar has derived net alpha estimates using
pillar scores that were assigned by algorithmic means. To be eligible for a Gold, Silver, or Bronze rating,
a passively managed vehicle’s estimated net alpha must exceed the lesser of the category’s median net
alpha or zero; otherwise, it will be assigned a Neutral or Negative rating. Morningstar assigns ratings to
passively managed vehicles as follows:
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12-month average
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•
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Next 35% of passive vehicles whose expected net alpha exceeds lesser of zero or category median net alpha over a
12-month average
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ª
Bottom 50% of passive vehicles whose expected net alpha exceeds lesser of zero or category median net alpha over a
12-month average

‰
Top 70% of passive vehicles whose expected net alpha does not exceed lesser of zero or category median net alpha
over a 12-month average

Á
Bottom 30% of passive vehicles whose expected net alpha does not exceed lesser of zero or category median net alpha
over a 12-month average

Strategic-beta strategies are vehicles that track indexes employing rules-based strategies to generate
excess returns. Given this, when assigning ratings to strategic-beta strategies, Morningstar follows the
approach outlined for passive strategies above, including applying the relevant pillar weightings.
However, instead of sorting and ranking strategic-beta vehicles against other passively managed, non-
strategic-beta vehicles in the same category, Morningstar sorts and ranks strategic-beta vehicles against
actively managed strategies in the same category.

To prevent frequent ratings changes when offerings are near the threshold between ratings levels,
Morningstar applies a buffer. Morningstar also caps the ratings of passively managed vehicles in certain
circumstances. For a more detailed description of the buffering and ratings-cap procedures, see
Appendix G: Special Cases. In addition, for categories where fewer than 10% of share classes would
otherwise earn a medal, share classes that would otherwise not earn a medal will be pulled up into
Bronze according to the rank of their expected net alphas. This will be done for passively managed
vehicles and actively managed vehicles (calculated separately) in categories where medals fall below
the 10% floor, with the additional requirement that there must be at least 20 total classes of the cohort
(whether active or passive) in the category for the ratings floor to take effect for it.

Performance and Price

Morningstar evaluates a vehicle’s performance as part of its overall assessment. However, performance
is not a distinct pillar. Rather, Morningstar considers performance within the context of the other pillar
assessments it conducts, notably People and Process. This ensures that performance doesn’t play an
outsize role in the overall assessment while tying performance analysis to factors that Morningstar’s
research has found are better predictors of future outcomes, like the prudence and repeatability of a
vehicle’s investment approach; the depth, breadth, and continuity of the management team
implementing the strategy; and the investor-centricity of the parent firm that stands behind the
vehicle concerned.
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Likewise, Morningstar takes fees into account when assigning ratings to vehicles but does not maintain
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subtracting them from its estimate of a vehicle’s expected gross alpha. In this way, fees have as much
Page 9 of 49 weight in the calculation as the other three pillars combined and are incorporated in a way that mirrors
how they reduce gross investment returns basis point for basis point in practice.
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Special Cases
For further information on cases where Morningstar adapts the ratings assignment process to special
circumstances that may arise, see Appendix G: Special Cases.

Pillar Evaluation
The following sections detail the process by which Morningstar assigns pillar ratings to vehicles. Broadly
speaking, Morningstar assigns pillar ratings to vehicles in one of three ways:

Approach Description

Directly, by Analysts Pillar ratings assigned by analysts to vehicles they cover, based on their qualitative assessment.
When analysts cover a vehicle, they assign all three pillars: People, Process, and Parent.

Indirectly, by Analysts Pillar ratings are assigned to vehicles that are not covered directly by analysts.

This is achieved by mapping the pillar ratings that analysts have assigned to vehicles they cover to
uncovered vehicles that are related in some way to the vehicles they cover.

These relationships can take a few forms, such as when an uncovered vehicle follows the same
strategy as a covered vehicle, when an uncovered vehicle is managed by the same team that runs
a covered vehicle, or when an uncovered vehicle shares the same parent firm as a covered vehicle.

Directly, by Algorithm Pillar ratings are assigned algorithmically to vehicles not assigned pillar ratings directly or indirectly
by an analyst.

For any given pillar—for example, Process—a pillar rating may be assigned either by an analyst—
directly or indirectly—or by algorithm, but not both. In other words, a vehicle will not receive a pillar
rating assigned by an analyst and a pillar rating assigned algorithmically for the same pillar. Rather, it
will receive one or the other, depending on whether the vehicle is being directly or indirectly covered by
analysts.

That said, it is possible for a vehicle to receive one or more pillar ratings assigned indirectly by analysts
and one or more pillar ratings assigned algorithmically. For instance, an uncovered vehicle could be
indirectly assigned People and Process pillar ratings and directly assigned a Parent Pillar rating by the
algorithm.

The Analyst-Driven % data point displays the weighted percentage of a vehicle’s pillar ratings assigned
directly or indirectly by analysts. For example, if the People and Parent ratings are assigned directly or
indirectly by analysts but the Process rating is assigned algorithmically, the Analyst-Driven % for an
actively managed vehicle would disclose that 55% of the pillar weighting was assigned by analysts and
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Page 10 of 49 The following sections describe the pillar evaluation process under each of these three approaches in
further detail.
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Pillar Assignment: Directly, by Analysts

This section explains how Morningstar determines which vehicles it will assign to analysts for coverage
and provides an overview of the assessments analysts make when evaluating the People, Process, and
Parent pillars in assigning ratings to the vehicles they cover.

How Morningstar Makes Coverage Decisions

As Morningstar analysts directly assign pillar ratings only to vehicles on their coverage lists, it is worth
taking a moment to review the principles Morningstar follows in determining which vehicles will be
covered by analysts.

In making coverage decisions, Morningstar seeks to ensure that users of its research have access to
analysis on a broad spectrum of vehicles that are important to them and meet their needs for portfolio
construction. Hence, Morningstar doesn’t determine coverage strictly based on quantitative screens of
investment returns, net assets, or performance history. Moreover, analyst teams have ample discretion
in determining their coverage universe, focusing on investment merit, investor interest, and client
demand.

Although these criteria can tilt coverage toward vehicles that are larger in terms of assets under
management, analysts will cover new and/or small vehicles if they have merit. In addition, Morningstar
frequently canvasses its analyst team, internal consulting units, and external users of Morningstar’s
research to identify offerings that might merit coverage. Regional coverage committees internal to the
manager research team must approve all coverage decisions.

People
The overall quality of a strategy’s investment team is a significant key to a strategy’s ability to deliver
superior performance relative to its benchmark and/or peers. Evaluating an investment team requires
that analysts assess, among other things, the individuals who make the key decisions on the portfolio; if
there is more than one person in charge, how conflicts are resolved; resources that directly support the
managers’ work on the strategy; other resources that are not part of the team; the expertise and
relevance of available resources to the strategy; and how incentive pay influences decision-making and
team stability.
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The relevant personnel are judged along several axes:
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× Experience and ability
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× Workload
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× Communication/information flow
× Temperament
× Alignment of interests
× Key-person risk
× Team stability

Process
Morningstar analysts are style-agnostic, meaning that, for equity strategies, they do not prefer value to
growth or momentum or vice versa. For fixed-income strategies, both high-quality and credit-sensitive
styles are viable. For multi-asset strategies, a wide range of approaches to asset allocation can succeed.
Analysts look for strategies with a performance objective and investment process (for both security
selection and portfolio construction) that is sensible, clearly defined, and repeatable. It must also be
implemented effectively. In addition, the portfolio should be constructed in a manner that is consistent
with the investment process and performance objective. Analysts seek to understand the context in
which managers think about risk and how this is expressed when constructing the portfolio. Morningstar
analysts make extensive use of Morningstar’s global database and holdings-based analytical capabilities
to evaluate the portfolio. Analysts look for strategies with a process distinctive enough to generate
standout results in the future.

More specifically, analysts seek to understand:

× The investment philosophy that underpins the strategy;

× The key “edge” of the process as executed by the manager;
× Elements that are systematic and repeatable, if any;
× The fit of the process with the resources backing the strategy and with the size of the asset base
tied to the strategy (including all vehicles across all domiciles);
× Whether the process has been consistently applied, as demonstrated by the composition of the
portfolio over time;
× The risks entailed in the process, from a portfolio-bias point of view and from an ability-to-execute
point of view;
× The managers’ approach to risk management;
× Analysts’ expectations for performance in different market environments assuming the process
is adhered to;
× Whether there is reason to believe the process can add value across the cycle versus the relevant
benchmark or category on a risk-adjusted basis;
× The suitability of the strategy for different types of investors given the risks one would expect to
see in its portfolio; and
× Any historical changes in approach or style, and the reasons for those changes.
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Morningstar
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2025parent organization is important in evaluating both active and passive funds.
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Although other factors may have a more immediate impact, they would not be durable without backing
Page 12 of 49 from the asset-management firm. Further, the asset manager and its management set the tone for key
elements of Morningstar’s evaluation, including capacity management, risk management, recruitment
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and retention of talent, and firmwide policies, such as incentive pay, which drive or impede the
alignment of the firm's interests with those of fund investors.

Beyond these operational areas, Morningstar analysts prefer firms that have a culture of stewardship
and put investors first to those that are too heavily weighted to salesmanship. The former tend to
operate within their circle of competence, do a good job of aligning manager interests with those of
investors in their funds, charge reasonable fees, communicate well with strategy investors, and treat
investors' capital as if it were their own. Firms oriented to putting their own interests too much to the
fore might be characterized by their view of investors as sales opportunities—they tend to offer faddish
products in an attempt to gather assets and have higher charges and incentive programs that do a poor
job of aligning managers’ interests with those of investors. Although relatively few firms fall obviously to
one extreme or another, determining where an asset manager falls on the spectrum is a key part of the
parent research approach.

Key areas of evaluation include:

× Recruitment and retention of talent

× Organizational structure
× Capacity management
× Organizational and business strategy
× Quality of product lineup
× Alignment of interests with investors
× Regulatory compliance
× Investment/group culture

Pillar Assignment: Indirectly, by Analyst

In some circumstances, Morningstar will map pillar ratings assigned to vehicles that are not covered
directly by analysts. This is achieved by mapping the pillar ratings that analysts have assigned to
vehicles they cover to uncovered vehicles that are related in some way to the vehicles they cover. These
relationships can take a few forms, such as when an uncovered vehicle follows the same strategy as a
covered vehicle; when an uncovered vehicle is managed by the same team that runs a covered vehicle;
or when an uncovered vehicle shares the same parent firm as a covered vehicle.

The following section explains these relationships, breaking the mapping down by strategy type and
pillars that are mapped.
Page 13 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Actively Managed and Passively Managed Strategies
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People and
Healthcare Process
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| 21 March 2025Mapped
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When an analyst covers a vehicle that follows a given strategy (as codified by Morningstar’s StrategyID
Page 13 of 49 data point), Morningstar maps the covered vehicle’s People and Process pillar ratings to any other
uncovered vehicles that follow the same strategy (that is, share the same StrategyID).
Page 13 of 49

This ensures that the analyst’s view is leveraged whenever available and promotes consistency when
assigning People and Process pillar ratings to vehicles that follow the same strategy.

Actively Managed and Passively Managed Strategies

Parent Pillar Mapped
When an analyst covers a vehicle that is associated with a given parent firm (as codified by
Morningstar’s BrandingID data point), Morningstar maps the covered vehicle’s Parent Pillar ratings to
any other uncovered vehicles associated with the same parent (that is, share the same BrandingID).

This ensures that the analyst’s view is leveraged whenever available and promotes consistency when
assigning Parent Pillar ratings to vehicles associated with a given parent firm.

Actively Managed Only Strategies

People Pillar Mapped
When an analyst covers a vehicle that is managed by a given individual (as codified by Morningstar’s
PersonID data point), Morningstar associates the People Pillar rating assigned to that vehicle with the
manager concerned.1

Morningstar then maps the People Pillar rating associated with a given manager (identified by the
PersonID data point) to any other uncovered vehicles on which the manager’s name (that is, PersonID)
appears, provided the uncovered vehicles are not following the same strategy (that is, do not share the
same StrategyID) as any of the covered vehicles from which the manager’s People Pillar rating
was mapped.

To arrive at the overall People Pillar rating for an uncovered vehicle being run by multiple managers,
Morningstar averages the People Pillar ratings associated with each PersonID data point, weighting by
manager tenure.

This ensures that the analyst’s view is leveraged whenever available and promotes consistency when
assigning People Pillar ratings to vehicles associated with a given manager. In these cases, if the
longest-tenured manager is covered directly by an analyst on any other strategy, the People Pillar rating
is considered mapped from an analyst.

1 Analyst-assigned People Pillar ratings are assumed to apply equally to all named managers for a covered vehicle and are associated with each
individual manager’s PersonID. If a given manager is part of more than one team and those teams are assigned different People Pillar ratings by
analysts covering those vehicles, Morningstar takes an average of the different People Pillar ratings and associates that average with the
PersonID. When an analyst-assigned People rating is not available for a given manager, Morningstar assigns a People Pillar rating algorithmically,
associating it with that PersonID.
Page 14 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Passively Managed Only Strategies
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People Pillar
Healthcare Mapped
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Page 14 of 49
When an analyst covers a vehicle that is managed by a given individual (as codified by Morningstar’s
Page 14 of 49 PersonID data point), Morningstar associates the People Pillar rating assigned to that vehicle with the
manager concerned.1
Page 14 of 49

Morningstar then maps the People Pillar rating associated with a given manager (identified by the
PersonID data point) to any other uncovered vehicles on which the manager’s name (that is, PersonID)
appears, provided the uncovered vehicles are not following the same strategy (that is, do not share the
same StrategyID) as any of the covered vehicles from which the manager’s People Pillar rating was
mapped and the uncovered vehicles are in the same asset class and BrandingID as the covered vehicles.

This ensures that the analyst’s view is leveraged whenever available and promotes consistency when
assigning People Pillar ratings to vehicles associated with a given manager.

Passively Managed Only Strategies

Process Pillar Mapped
When an analyst covers a passively managed vehicle that tracks a particular index (as codified by
Morningstar’s IndexID data point), Morningstar associates the Process Pillar rating assigned to that
vehicle with the index concerned.

Morningstar then maps the Process Pillar rating associated with a given index (identified by the IndexID
data point) to any other uncovered passively managed vehicles that track the same index (that is, share
the same IndexID), provided the uncovered vehicles are not following the same strategy (that is, do not
share the same StrategyID) as any of the covered vehicles from which the index’s Process Pillar rating
was mapped.

This ensures that the analyst’s view is leveraged whenever available and promotes consistency when
assigning Process Pillar ratings to passively managed vehicles associated with a given index.

Pillar Assignment: Directly, by Algorithm

Morningstar has developed a machine-learning model and a rules-based model to expand its coverage
beyond ratings assigned directly or indirectly by analysts. The model algorithmically derives pillar ratings
for vehicles not assigned ratings directly or indirectly by analysts. It does so by using the decision-
making processes of analysts, their past ratings decisions, and the data used to support those decisions.
These pillar ratings are then used to derive each vehicle’s Medalist Rating as described elsewhere in this
methodology.

1 Analyst-assigned People Pillar ratings are assumed to apply equally to all named managers for a covered vehicle and are associated with each
individual manager’s PersonID. If a given manager is part of more than one team and those teams are assigned different People Pillar ratings by
analysts covering those vehicles, Morningstar takes an average of the different People Pillar ratings and associates that average with the
PersonID. When an analyst-assigned People rating is not available for a given manager, Morningstar assigns a People Pillar rating algorithmically,
associating it with that PersonID.
Page 15 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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With this algorithmic approach, Morningstar can rate more than 10 times as many vehicles than would
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be feasible
Healthcare through
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| 21 March 2025 coverage alone. Additionally, the algorithmic approach allows for monthly
Page 15 of 49
updates of each vehicle’s rating, a much higher frequency than the roughly annual update schedule that
Page 15 of 49 analysts observe when assigning ratings. When pillar scores are assigned Directly, by Algorithm, the
overall rating is assessed on a monthly cadence—utilizing a month-end date on an approximate one-
Page 15 of 49
month lag.

To be eligible for pillar ratings assigned by algorithm, a vehicle must meet the following requirements:

× The oldest share class of the Strategy (as codified by Morningstar's StrategyID datapoint) must be at
least one year old.
× It must be classified as one of the following investment types: open-end funds, ETFs, SMAs, model
portfolios, collective investment trusts, variable annuity subaccounts, and variable life subaccounts.
× It must not currently have a pillar rating assigned directly or indirectly by an analyst.
× It must reside in a category that Morningstar has classified as eligible to receive ratings. (Some
categories are ineligible for ratings.)

Algorithmic Pillar Evaluation Methodology

Morningstar uses a series of six individual machine-learning models working in unison and a rules-based
model to algorithmically assess a vehicle and assign the People, Process, and Parent pillar ratings to it.
The models are designed to provide a best approximation for the analyst’s evaluation of the same pillars
were the analysts to cover it. Medalist Ratings are derived from the pillar ratings as specified elsewhere
in this methodology.

To estimate the pillar ratings, Morningstar uses a machine-learning algorithm known as a "random
forest" or a rules-based model to fit a relationship between the vehicle’s pillar ratings and its attributes.
(For further details on the random forest model methodology, see Appendix A: Random Forest; for
further details on the rules-based model methodology for Process Pillar ratings of passively managed
vehicles, see “Process Pillar Model for Passively Managed Equity Vehicles – Rules-Based” under
Appendix B: Algorithmic Pillar Models.) Currently, only the Process Pillar ratings for passively managed
equity vehicles are estimated using a rules-based model.

For Pillar ratings using the random-forest model, two random forest models were estimated per pillar
that seek to determine the probability that the fund will be rated Positive or Negative, respectively.
There are three pillars, so Morningstar estimated six individual random forest models to answer these
questions and produce six probabilities. Then, at the pillar level, Morningstar aggregates these
probabilities to produce one overall pillar rating.

To estimate the pillar ratings, Morningstar collects data from vehicles with analyst-assigned pillar
ratings. In total, 180-plus attributes and 10,000-plus rating updates were considered in order to train the
random forest model. After numerous iterations, only the attributes most crucial to classifying each pillar
rating were retained. (For further details on the pillar rating estimation process, see Appendix B:
Algorithmic Pillar Models.)
Page 16 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Each pillar
Healthcare rating
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March 2025 using a combination of two random forest models. First, a model is
Page 16 of 49
estimated that seeks to distinguish vehicles based on whether that vehicle’s pillar rating would be rated
Page 16 of 49 Positive, defined as High or Above Average. Second, a different model is estimated that seeks to
distinguish vehicles based on whether that vehicle’s pillar rating would be rated Negative, defined as
Page 16 of 49
Low or Below Average. Each model puts out probability scores that the vehicle would be Positive or
Negative. By combining these two probabilities via a weighted summation, a more robust estimator is
achieved.

𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑃𝑖𝑙𝑙𝑎𝑟 𝑅𝑎𝑡𝑖𝑛𝑔 = (𝑃𝑟𝑜𝑏(𝑃𝑜𝑠𝑖𝑡𝑖𝑣𝑒) + [1 − 𝑃𝑟𝑜𝑏(𝑁𝑒𝑔𝑎𝑡𝑖𝑣𝑒)]

The output for these pillar ratings will, therefore, be on a scale of 0 to 1. The closer to 1 a vehicle’s
estimated pillar rating is, the more likely it is that the true pillar rating is High. Similarly, the closer to 0 a
vehicle’s estimated pillar rating is, the more likely that the true pillar rating is Low. After the ratings were
computed, thresholds were assigned that tended to correspond to natural distinctions between the five
rating options for each pillar.

The intuition underlying this method is subtle yet important. First, the weighted summation captures
information about a vehicle along two dimensions: the likelihood that a vehicle’s pillar is High and the
likelihood that a vehicle is not Low. In practice, this has the result of classifying many Average pillars as
decidedly not High and not Low.

Furthermore, by using two models to estimate a pillar rating, Morningstar can distinguish between data
points that are important to each model individually. It makes intuitive sense that the data points that
might lead an analyst to assign a High rating could be different from those that might lead the analyst to
assign a Low rating. By adding that flexibility, the model’s estimation is improved. Empirically, several
pillar models exhibited significant overlap in data points used to estimate each model, but that did not
always hold.

People and Process Pillar Business Logic

Morningstar implements business rules to ensure that People and Process pillar ratings do not vary
between related vehicles, such as different share classes of the same fund. Morningstar also
implements business rules to prevent People ratings from varying within portfolio management teams.

Technically, each fund share class will have its own People and Process Pillar scores produced by the
model, but steps are taken to ensure that these are consistent for funds that follow the same strategy,
as codified by Morningstar's StrategyID datapoint. To ensure this, Morningstar implements an asset-
weighted average of raw People and Process Pillar scores across share classes, with the weightings
determined by share-class-level net assets. In the case where net assets are not available, share-class-
level ratings will be equally weighted. To ensure the People Pillar rating is applied consistently to a
team, Morningstar creates manager-level scores by averaging the People Pillar scores of the funds they
manage. Morningstar then rolls back up People Pillar scores for funds by averaging the manager scores,
weighted by tenure. For funds that do not report manager names, this logic is not applied. The final raw
Page 17 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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pillar scores, after smoothing, asset-weighting, and adjusting for teams, are saved as the pillar rating
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estimateObserver
Healthcare for the| 21current month
March 2025 for each fund share class.
Page 17 of 49

Page 17 of 49 For passive investments, the analyst team assigns the same People Pillar to all products linked to a firm.
To mimic this behavior, the algorithmic system will assign the same People rating to all passive
Page 17 of 49
investments within an asset class at a firm. (This is done within asset classes to acknowledge that
subject-matter expertise can vary by asset class within firms.) Similarly, the analyst team assigns the
same Process Pillar to all index products tracking the same benchmark. The algorithmic system applies
the same logic by averaging all raw Process Pillar scores tied to a primary prospectus benchmark.

For passive investments, Morningstar also implements business rules to ensure consistency between
Process Pillar ratings issued directly by analysts, those inherited indirectly from analysts, or those
algorithmically generated. If the analyst team assigns the Process a rating of Below Average or lower,
the strategy will not be eligible for a Medalist Rating above Neutral in our system. We have codified this
rule to apply to all Medalist Ratings whether algorithmic or analyst-generated: If an investment is issued
a Process Pillar rating of Below Average or lower, its overall rating will be capped at Neutral across all
Medalist Ratings. In addition, algorithmically assigned People scores are limited to Above Average for
passive investments.

Parent Pillar Business Logic

Morningstar implements business rules to ensure consistency between Parent Pillar ratings issued
directly by analysts and those inherited indirectly from analysts or those algorithmically generated. If the
analyst team assigns the Parent a rating of Low, none of that Parent’s investment vehicles will receive a
Medalist Rating above Neutral in our system. We have codified this rule to apply to all Medalist Ratings
whether algorithmic or analyst-generated: If an investment is issued a Parent Pillar rating of Low, its
overall rating will be capped at Neutral across all Medalist Ratings.

Smoothing Algorithm
After raw pillar scores have been computed, a smoothing algorithm is utilized to reduce intermonth
volatility. This algorithm takes the average of the current raw pillar scores and the two prior months’ raw
pillar scores to create a three-month moving average. The three-month moving average was chosen to
balance the desire to reduce unnecessary volatility of ratings from month to month and allow the ratings
to be adaptable to significant changes at the fund, such as a manager change.

Pillar Threshold
For those pillars where an Analyst Rating is not available, pillar ratings (High, Above Average, Average,
Below Average, or Low) are assigned according to a static threshold to the raw pillar scores using a
symmetric distribution of 10%, 22.5%, 35%, 22.5%, and 10%.
Page 18 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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If raw pillar score ≤ 0.10, then 1—Low
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If 0.10 <Observer
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| 21 March ≤
2025 0.325, then 2—Below Average
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If 0.325 < raw pillar score ≤ 0.675, then 3—Average
Page 18 of 49 If 0.675 < raw pillar score ≤ 0.90, then 4—Above Average
If raw pillar score > 0.90, then 5—High
Page 18 of 49

Pillar Buffers
To stabilize the pillar ratings of vehicles whose raw pillar scores sit near the breakpoints, a buffering
system is utilized. For the Parent Pillar, the buffer is 5%; for the People Pillar, the buffer is 7.5%; and for
the Process Pillar, the buffer is 7.5%. A vehicle near a pillar threshold must move past the buffer before
the rating changes. For example, a vehicle below the 10.0 percentile for Parent must move to the 15.0
percentile before the pillar rating upgrades to Below Average from Low. Similarly, a vehicle above the
10.0 percentile will need to move below the 5.0 percentile before being downgraded to Low from Below
Average.

Data Coverage
The Data Coverage % data point is a summary metric describing the level of data completeness used to
generate the overall rating. If the pillar is assigned directly or indirectly by analysts, the pillar has
complete data availability, as no model was used to estimate the pillar score. If the pillar is assigned
directly by the algorithm, Morningstar counts the number of data points feeding both the positive and
negative models and counts whether the vehicle has strategy-specific data available. A simple
percentage is calculated per pillar. Each pillar-completeness metric is scaled by the weightings listed in
the section "Derive the Rating." For example, consider an active fund where all three pillar ratings are
indirectly assigned by an analyst. In that scenario, the Data Coverage % data point would be 100%.
However, if the analyst coverage changed and the People Pillar was no longer indirectly assigned by an
analyst, then the People Pillar would be assigned directly by an algorithm. Across both the Positive and
Negative People models, the algorithm uses 28 data points. Suppose the fund has all the input data for
those data points except for the Manager Excess Return 5 Yr data point, which appears in both the
Positive and Negative models. Under that scenario, Morningstar would have coverage of 26 out of 28
required People Pillar data points, or 92.9%. Since the People Pillar is a 45% weighting for active funds,
that would mean the overall data coverage would be 96.9% (45% for the Process Pillar plus 10% for the
Parent Pillar plus 41.9% for the People Pillar). K
Page 19 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Appendix A: Random Forest
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A random
Healthcare forest
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an ensemble
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of the predictions of several submodels. In the case of a random forest, these submodels are typically
Page 19 of 49 regression or classification trees (hence the “forest” in “random forest”). To understand the random
forest model, we must first understand how these trees are fit.
Page 19 of 49

Regression Trees
A regression tree is a model based on the idea of splitting data into separate buckets based on your
input variables. A visualization of a typical regression tree is shown in Exhibit 1. The tree is fit from the
top down, splitting the data into a more complex structure as you go. The end nodes contain groupings
of records from your input data. Each grouping contains records that are similar to each other based on
the splits that have been made in the tree.

Exhibit 1 Sample Regression Tree With Dummy Data

Source: Morningstar Inc.

How Are Splits Determined?

The tree is composed of nodes, which are then split until they reach terminal nodes that no longer split.
Each split represents a division of our data based on a particular input variable, such as alpha, or total
return five-year versus the category average (Exhibit 1). The algorithm determines where to make these
splits by attempting to split our data using all possible split points for all of the input variables, and it
chooses the split variable and split point to maximize the difference between the variance of the unsplit
data and the sum of the variances of the two groups of split data as shown in the following function.

∑(𝑦 − 𝑦̅𝑝𝑟𝑒𝑠𝑝𝑙𝑖𝑡 )2 ∑(𝑦 − 𝑦̅𝑙𝑒𝑓𝑡 )2 ∑(𝑦 − 𝑦̅𝑟𝑖𝑔ℎ𝑡 )2

𝑉𝑎𝑟𝐷𝑖𝑓𝑓 = −| + |
𝑁𝑝𝑟𝑒𝑠𝑝𝑙𝑖𝑡 𝑁𝑙𝑒𝑓𝑡 𝑁𝑟𝑖𝑔ℎ𝑡
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Intuitively,
Healthcare we |want
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21 March split that maximizes the function because the maximizing split is the one that
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reduces the heterogeneity of our output variable the most. That is, the companies that are grouped on
Page 20 of 49 each side of the split are more like each other than the grouping before the split.

Page 20 of 49
A regression or classification tree will generally continue splitting until a set of user-defined conditions
has been met. One of the conditions for this tree is the significance of the split. That is, if the split does
not reduce heterogeneity beyond a user-defined threshold, then it will not be made. Another condition
commonly used is to place a floor on the number of records in each end node. These conditions can be
made more or less constrictive to tailor the model's bias-variance trade-off.

How Are the End-Node Values Assigned?

Each tree, once fully split, can be used to generate predictions on new data. If a new record is run
through the tree, it will inevitably fall into one of the terminal nodes. The prediction for this record then
becomes the arithmetic mean of the output variable for all of the training set records that fell into that
terminal node.

Aggregating the Trees

Now that we understand how trees are fit and how they can generate predictions, we can move further
in our understanding of random forests. To arrive at an end prediction from a random forest, we first fit
N trees (where N can be whatever number desired—in practice, 100 to 500 are common values), and
we run our input variables through each of the N trees to arrive at N individual predictions. From there,
we take the simple arithmetic mean of the N predictions to arrive at the random forest's prediction.

A logical question at this point is: Why would the N trees we fit generate different predictions if we give
them the same data? The answer is: They wouldn't. That's why we give each tree a different and random
subset of our data for fitting purposes (this is the “random” part of “random forest”). Think of your data
as represented in Exhibit 2.
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Exhibit 21 March
Sample 2025
Random Forest Data Representation
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Source: Morningstar Inc.

A random forest will choose random chunks of your data, including random cross-sectional records as
well as random input variables, as represented by the highlighted sections in Exhibit 2, each time it
attempts to make a new split. While Exhibit 2 shows three random subsets, the actual random forest
model would choose N random subsets of your data, which may overlap, and the variables selected may
not be adjacent. The purpose of this is to provide each of your trees with a differentiated dataset and
thus a differentiated view of the world.

Ensemble models use a “wisdom of crowds” type of approach to prediction. The theory behind this
approach is that many “weak learners,” which are only slightly better than random at predicting your
output variable, can be aggregated to form a “strong learner” so long as the weak learners are not
perfectly correlated. Mathematically, combining differentiated, better-than-random, weak learners will
always result in a strong learner or a better overall prediction than any of your weak learners
individually. The archetypal example of this technique is when a group of individuals is asked to
estimate the number of jellybeans in a large jar. Typically, the average of a large group of guesses is
more accurate than a large percentage of the individual guesses.

Random forests can also be used for classification tasks. They are largely the same as described in this
appendix except for the following changes: Slightly different rules are used for the splitting of nodes in
the individual tree models (Gini coefficient or information gain), and the predictor variable is a binary 0
or 1 rather than a continuous variable. This means that the end predictions of a random forest for
classification purposes can be interpreted as a probability of being a member of the class designated as
1 in your data.
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Appendix B: Algorithmic Pillar Models
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Parent Pillar Model – Random Forest
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What Are the Algorithmic Parent Pillar Threshold Values?
Page 22 of 49
The threshold values for the Parent Pillar are set using a symmetric distribution: 10%, 22.5%, 35%,
22.5%, and 10%. The breakpoints for the labels are below:

× If raw pillar score ≤ 0.10, then 1—Low

× If 0.10 < raw pillar score ≤ 0.325, then 2—Below Average
× If 0.325 < raw pillar score ≤ 0.675, then 3—Average
× If 0.675 < raw pillar score ≤ 0.90, then 4—Above Average
× If raw pillar score > 0.90, then 5—High

What Variables Are Used in Each of the Random Forest Models (Positive and Negative)?
Each model's variables and their ranked relative importance are shown below. Average Actual
Management Fee Rank and Average Net Expense Ratio Rank are the most important inputs to the
Positive Parent Pillar and Negative Parent Pillar model, respectively.

Exhibit 3 Ranked Importance Input Variable for the Quantitative Parent Pillar Model

Source: Morningstar, Inc. Data as of May 28, 2024.

Page 23 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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People Pillar Model – Random Forest
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What Are
Healthcare the |Algorithmic
Observer 21 March 2025 People Pillar Threshold Values?
Page 23 of 49
The threshold values for the People Pillar are set using a symmetric distribution: 10%, 22.5%, 35%,
Page 23 of 49 22.5%, and 10%. The breakpoints for the labels are below:

Page 23 of 49
× If raw pillar score < 0.10, then 1—Low
× If 0.10 < raw pillar score ≤ 0.325, then 2—Below Average
× If 0.325 < raw pillar score ≤ 0.675, then 3—Average
× If 0.675 < raw pillar score ≤ 0.90, then 4—Above Average
× If raw pillar score > 0.90, then 5—High

What Variables Are Used in Each of the Random Forest Models (Positive and Negative)?
Each model's variables and their ranked relative importance are shown below. Success Ratio 5 Yr and
Average Morningstar Rating Overall are the most important inputs for the Positive People Pillar and
Negative People Pillar model, respectively. Please note that Manager Investment and Manager
Investment – 1 Million are currently limited to funds domiciled in the US.

Exhibit 4 Ranked Importance of Input Variables for the Quantitative People Pillar Model

Source: Morningstar, Inc. Data as of Sept. 30, 2022.

Page 24 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Process Pillar Model–Random Forest
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What Types
Healthcare Observerof| 21
Investments
March 2025 Utilize the Random Forest Model to Evaluate a Vehicle’s Process?
Page 24 of 49
We utilize the Random Forest Model to evaluate the Process Pillar for actively managed vehicles,
Page 24 of 49 passively managed fixed income, or allocation vehicles. For passively managed equity vehicles, we
employ a rules-based system, outlined further in "Process Pillar Model – Rules Based."
Page 24 of 49

What Are the Algorithmic Process Pillar Threshold Values?

The threshold values for the Process Pillar are set using a symmetric distribution: 10%, 22.5%, 35%,
22.5%, and 10%. The breakpoints for the labels are below:

× If raw pillar score < 0.10, then 1—Low

× If 0.10 < raw pillar score ≤ 0.325, then 2—Below Average
× If 0.325 < raw pillar score ≤ 0.675, then 3—Average
× If 0.675 < raw pillar score ≤ 0.90, then 4—Above Average
× If raw pillar score > 0.90, then 5—High
Page 25 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
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Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
What Variables Are Used in Each of the Random Forest Models (Positive and Negative)?
Page 25 of 49
Each model’s
Healthcare Observervariables and
| 21 March 2025 their ranked relative importance are shown below. Average Morningstar
Page 25 of 49
Rating 10 Yr and Average Morningstar Rating Overall are the most important inputs for the Positive
Page 25 of 49 Process Pillar and Negative Process Pillar model, respectively.

Page 25 of 49
Exhibit 5 Input Variable Importance for the Quantitative Process Pillar Model

Source: Morningstar, Inc. Data as of Sept. 30, 2022.

Page 26 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
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Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
Process Pillar Model for Passively Managed Equity Vehicles–Rules-Based
Page 26 of 49
How Does
Healthcare Morningstar
Observer | 21 March 2025Assign Algorithmic Process Pillar Ratings for Passively Managed
Page 26 of 49
Equity Vehicles?
Page 26 of 49 To mimic the analyst thought process when evaluating passively managed, non-strategic-beta equity
funds, Morningstar utilizes a rules-based scoring system to algorithmically assign Process Pillar ratings.
Page 26 of 49
This is formulated by first calculating a “base score” based on the historical efficacy of passive
investments relative to their active peers. That “base score” is then adjusted using the fund’s individual
attributes, such as its ability to represent its category’s opportunity set and diversify risk, while
penalizing funds whose benchmark index could be difficult to track.

Which Input Variables Are Utilized When Rating Passive Equity Funds?

Aspect Data Point

Active Versus Passive Alpha Potential Estimate for Peer Group’s Actively Managed Vehicles
Category Median Alpha

Representativeness Number of Equity Holdings, relative to the passive category

Average Market Capitalization, relative to the passive category
Size Score, relative to the passive category
Style Score, relative to the passive category
1 Yr Tracking Error - Category Index, relative to the passive universe
3 Yr Tracking Error - Category Index, relative to the passive universe
3 Yr R-Squared - Category Index, relative to the passive universe
Equity Sector Euclidean Distance - Category Index, relative to the passive universe

Diversification % Assets in Top 10 Holdings

Number of Equity holdings, as % of category average
Tracking Approach Turnover Ratio

How Are the Rules-Based Process Pillar Ratings Derived?

The scores obtained from the “Active versus Passive” aspect are combined into a numerical 2 to 4
(Below Average to Above Average) “base score,” while the scores obtained from the
“Representativeness,” “Diversification,” and “Tracking Approach” aspects are combined and normalized
into a ±1 “swing score.” These two scores are combined to arrive at a raw Process score ranging
from 1 to 5. To ensure rating consistency and ensure all available data is accounted for, the raw scores
are then averaged by primary prospectus benchmark, StrategyID, or FundID (depending on available
data). Finally, the raw Process scores are rounded to the nearest integer of 1 to 5 to arrive at the final
rules-based Process Pillar rating of Low to High, respectively.

How Do You Handle Missing Data?

Morningstar applies various transformation and imputation steps to the raw input data points to ensure
data quality and consistency. Morningstar first replaces all holdings-based data points with the median
data point value of all funds tracking the listed benchmark. Data points calculated relative to an index
(tracking error, R-squared, and sector Euclidean distance) are imputed with either the strategy or
benchmark median values within the category. The turnover ratio data point is imputed with the strategy
median. If any data is missing after these steps, the data point scores will be filled with a predefined
“neutral score” and counted as missing.
Page 27 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
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Healthcare Observer | 21 March 2025
Page 27 of 49
Paper Title | 21 March 2025
Appendix C: FAQ on Data Inputs to Algorithmic Model
Page 27 of 49
Healthcare Observer | 21 March 2025
Page 27 of 49
Are All the Input Variables Used in Each Pillar Model?
Page 27 of 49 No. The input variables depend on the pillar model. For example, Manager Investment is used only
within the Negative People model. The binary signal of investment helps the model sort between
Page 27 of 49
Negative-rated People scores. On the other hand, Manager Investment – 1 Million is used only within
the Positive People model to help discern the positively rated People scores.

How Does Morningstar Normalize the Input Data?

After all data is calculated and collected, Morningstar cross-sectionally normalizes the data by region to
be mean zero and standard deviation 1. This puts everything into the same units (in terms of standard
deviation), which makes the data a bit easier to interpret.

How Does Morningstar Assign Regions?

In order to normalize by region, Morningstar needs to know what funds belong to what regions.
Countries are assigned to regions based on the Morningstar Region classification system. Morningstar
assigns funds to regions based on the fund’s domicile unless the fund’s domicile is not contained within
the set of Available for Sale countries. In that case, Morningstar chooses an Available for Sale country
depending on which of those countries belongs to the domicile with the most industrywide assets (for
example, US > emerging-markets Asia).

How Does Morningstar Handle Missing Data?

First, Morningstar carries forward the latest available data three months. Second, if the data is still
missing, we cross-sectionally impute the median value of the region to which the fund is assigned. We
use region-level imputation, as opposed to category-level, because we want to have a relatively broad
sample of funds on which to draw. Sometimes imputing the median value in the place of missing data
can be harmful, especially when you need to calculate an average (for example, a regression), but in this
case, we believe that we are justified because the random forest algorithm splits data based on
percentiles in the distribution and does not require us to reliably estimate moments. Imputed values will
be treated as “average” and hence likely to pull the final ratings decisions toward Neutral. We think
that, in the absence of any data, the average fund should probably be Neutral and would be the stance
that an analyst would take presumptively before any data about the fund was presented to them.

What Are the Eligible Pillar Ratings for Funds With a Significant Amount of Missing Data?
The High and Low pillar ratings are restricted for funds with the following missing input data: People
Pillar: Manager Experience and Manager Excess Return 3-yr, Manager Excess Return 5-yr
Process Pillar: Trailing Return 5-yr Category Rank, Manager Experience, and Manager Excess Return 3-
Yr, Manager Excess Return 5-Yr.

How Does Morningstar Handle Small Sample Sizes at the BrandingID Level?
The High and Low Parent Pillar ratings are restricted for firms with less than five years of history, or
seven or fewer investment offerings. Additionally, if a parent company has fewer than five investment
Page 28 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Paper Title | 21 March 2025
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Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
offerings, we do not consider the following firm-level data points: Average Morningstar Rating 10 Yr,
Page 28 of 49
Risk-Adjusted
Healthcare Observer Success Ratio
| 21 March 2025 10 Yr, and Success Ratio 10 Yr.
Page 28 of 49

Page 28 of 49 How Does Morningstar Handle Category Changes?

Input data reflects information available at a given time. Therefore, historical data incorporates the
Page 28 of 49
fund's historical category. For performance-related metrics where Morningstar requires a time series of a
fund's category average performance or category index return, Morningstar uses the monthly track
record reflecting the fund's category for that specific month.

How Does Morningstar Handle Multiple Analyst-Assigned Process Ratings to Passive Products
Tracking the Same Benchmark?
Morningstar selects the largest share class with assets under management and then applies the analyst-
assigned Process rating to all other passive products tracking the same benchmark.

What Data Points Are Category-Relative?

First, most data points will be calculated relative to the category (for example, category average alpha,
success ratios, return ranks, beta, fee ranks, star ratings, and so on), but some will not (for example,
tenure, retention ratio, or number of holdings). Morningstar prefers to use category-relative data points
where possible but tends to refrain when the data point is more operational in nature.

What Currency Does Morningstar Use for Calculating Fund Performance Statistics?
To estimate fund performance, Morningstar converts all fund and index returns to US dollars prior to
running the regressions. This eliminates any effects owing to the difference in currency return.

What Does “Average” Stand For?

Average stands for an equally weighted average of all share classes given a BrandingID.

When Are the Input Data and Ratings Updated?

The input data utilized in the ratings model is updated on the 15th business day of each month. Any
changes to input data must be made by this date to be included in the following production run.

When Do New Funds Receive a Rating?

A new share class or fund receives a rating when it has a full month of data present. For example, if a
new fund's inception is on May 12 and the April production run completes on May 18, then the fund will
not receive a rating for the month of April as it has no data for the month of April. Further, when the
May production runs on June 18, the fund will not receive a rating for the month of May because the
data for the month of May is not complete. The first rating the fund will receive will be a rating for the
month of June when June production runs on July 18.

Why Are Fee Data Points Used as Inputs to the People Pillar Estimation?
Here, fees are directly related to how much a fund charges for managing money for clients for two
reasons. One, model testing shows that fees do help explain the variance in the People Pillar rating.
Two, fees empirically affect all pillars directly or indirectly.
Page 29 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Paper Title | 21 March 2025
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Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
Why Does Morningstar Use the Input Variables Percentage of Assets in Top 10 Holdings for the
Page 29 of 49
ProcessObserver
Healthcare Pillar?| 21What Is the
March 2025 Effective Relationship Between the Variable and the Pillar Rating?
Page 29 of 49
Percentage of Assets in Top 10 Holdings is a good indicator to measure the level of concentration in a
Page 29 of 49 fund portfolio. The higher the top-10 asset percentage, the more concentrated the portfolio. Such
portfolios are implicitly taking on higher risk. The variable reflects a fund’s investment philosophy and
Page 29 of 49
actual investment process.
Page 30 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Paper Title | 21 March 2025
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Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
Appendix D: FAQ on Eligibility for Algorithmic Rating Assignment
Page 30 of 49
Healthcare Observer | 21 March 2025
Page 30 of 49
What Are the Universes Covered?
Page 30 of 49 Algorithmically generated Medalist Ratings cover ETFs, open-end funds, SMAs, CITs, variable annuity
subaccounts, and variable life subaccounts.
Page 30 of 49

How Does Morningstar Assign Pillar Ratings to Subaccounts?

A subaccount receives pillar ratings when the underlying FundID has at least one class with a Medalist
Rating. The subaccount inherits the Parent, Process, and People pillar ratings of the underlying FundID.

What Is the Fee Used in the Ratings for Subaccounts?

The fee data point used is the Total Net Expense ratio. It includes the insurance expense and the
underlying fund expenses. The insurance expense includes M&E Risk Charge, Administrative Charge,
and Distribution Charge.

How Does Morningstar Assign Ratings to Subaccounts?

Ratings are assigned using the same process elsewhere in this methodology. The expected forward
performance is calculated using a combination of pillar ratings, fee, and distribution width of the
underlying FundID's category. The ratings are assigned based on the expected performance threshold
set using the open-end funds' and ETFs' rating distribution.

How Does Morningstar Assign Pillar Ratings to CITs?

A CIT will inherit pillar scores through the processes discussed in the section Pillar Assignment:
Indirectly, by Analyst. A CIT may inherit a pillar score via any of the methods discussed previously and
may inherit the pillar score from an analyst-covered or algorithmically covered fund. The CIT inherits the
Parent, Process, and People ratings and is not eligible for algorithmic coverage by Random Forest.

How Do You Determine the Parent for CITs?

For the purposes of inheritance, we use waterfall logic to determine the Parent. We seek to inherit an
analyst-assigned pillar score wherever possible. We first look for analyst coverage of the Parent firm as
codified by BrandingID. If not available, we will look to the Advisor company and inherit the analyst-
assigned Parent Pillar score, if available. Finally, we will assess if there is an available Parent Pillar score
to inherit via StrategyID.

If analyst-assigned pillars are not available, we will inherit the corresponding algorithmically assigned
pillar score from an open-end fund or ETF. We follow the same logic as listed above, by first looking to
inherit via BrandingID, then Advisor Company, then StrategyID.

If none of the inheritance options listed above are available, the CIT will be ineligible for a Medalist
Rating.
Page 31 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Paper Title | 21 March 2025
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Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
Are There Any Eligibility Criteria Specific to CITs?
Page 31 of 49
CIT dataObserver
Healthcare is self-reported to
| 21 March 2025 Morningstar by fund companies. Fee data can also be negotiable, unlike
Page 31 of 49
traditional mutual funds. Morningstar uses business logic to ensure fees, and the rating, are accurately
Page 31 of 49 accounting for the typical investor experience.

Page 31 of 49
Morningstar uses the reported fee if available. If the reported fee is missing, we will fill the missing
values with the SMA category proxy fee (Exhibit 6). If a fee is reported at above 2.5%, the CIT will be
ineligible for rating, as this is likely a data error.

If a CIT fee is marked as negotiable, or the fee is marked as a "representative fee", Morningstar will
utilize the maximum of the reported fee, or the SMA category proxy fee (Exhibit 6).

Why Does a Fund Not Receive a Rating?

Managed investments must meet data freshness and completeness requirements to be eligible for
ratings.

× Screening logic is applied in certain markets to remove zero-fee share classes that have purchase
constraints as well as share classes for which there is evidence of data irregularities.
× Pillars already assigned ratings by a Morningstar analyst are not eligible for ratings assigned by the
algorithm.
× Investments within a category that do not receive star ratings are not eligible for ratings.
× Investments within the alternative categories of digital assets, equity market neutral, event-driven,
macro trading, multistrategy, options trading, relative value arbitrage, and systematic trend are not
eligible for ratings because of limited peer-group size and limitations on available portfolio data. This
also applies to the commodities focused, derivative income, miscellaneous region, miscellaneous sector,
muni target maturity, trading-inverse commodities, trading-inverse debt, trading-inverse equity, trading-
leveraged debt, trading-leveraged equity, and trading-miscellaneous categories.
× Investments that do not have the necessary fee data available for the most recent month are not
eligible for ratings:
× For investments domiciled in the US, Morningstar Adjusted Prospectus Net
Expense Ratio is necessary.
× For investments domiciled outside the US, Representative Cost is necessary.
× For investments domiciled in Canada where Representative Cost is not available
or is less than the stated Management Fee, the stated Management Fee will be
used.
× Investments within the open-end funds, ETFs, SMAs, CITs, variable annuity subaccounts, or variable life
subaccounts are eligible for ratings. Investments not in one of these universes are not eligible for
ratings.
× Investments must have at least one month of total returns to be eligible for a rating.
× Investments must not be flagged as dormant funds.
× Investments included on Morningstar’s compliance list are not eligible for ratings. These include
investments under the Morningstar brand and investments for which Morningstar has deemed a conflict
of interest.
Page 32 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Paper Title | 21 March 2025
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Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
Appendix E: FAQ on SMAs Model
Page 32 of 49
Healthcare Observer | 21 March 2025
Page 32 of 49
General Information
Page 32 of 49 Universe Coverage
Only SMAs that have been issued by firms flagged as Global Investment Performance Standards-
Page 32 of 49
compliant are eligible to receive an algorithmically generated Medalist Rating.

How Does Morningstar Assign Ratings to SMAs?

Ratings are assigned using the same process as described elsewhere in this methodology. The expected
forward performance is calculated using a combination of pillar ratings, fee, and distribution width of
the underlying FundID's category. The ratings are assigned based on the expected performance
threshold set using the open-end funds' and ETFs’ rating distribution.

What Is the Fee Used in the Ratings for SMAs?

Algorithmically generated Medalist Ratings use the same fee assigned to SMAs as the analyst-
generated Medalist Ratings. The annual fees used for active products as of September 2022 are in
Exhibit 6. Fees for passive products are proxied at 10% of the corresponding active fee.

Exhibit 6 Proxy Fee Used for SMAs

Morningstar Category Proxy Fee, %

US Fund Allocation—15% to 30% Equity 0.3
US Fund Allocation—30% to 50% Equity 0.3
US Fund Allocation—50% to 70% Equity 0.3
US Fund Allocation—70% to 85% Equity 0.3
US Fund Allocation—85%+ Equity 0.3
US Fund Bank Loan 0.2
US Fund China Region 0.4
US Fund Commodities Broad Basket 0.4
US Fund Commodities Focused 0.4
US Fund Communications 0.35
US Fund Consumer Cyclical 0.35
US Fund Consumer Defensive 0.35
US Fund Convertibles 0.2
US Fund Corporate Bond 0.2
US Fund Diversified Emerging Mkts 0.4
US Fund Diversified Pacific/Asia 0.4
US Fund Emerging-Markets Bond 0.2
US Fund Emerging-Markets Local-Currency Bond 0.2
US Fund Energy Limited Partnership 0.35
US Fund Equity Energy 0.35
US Fund Equity Precious Metals 0.35
US Fund Europe Stock 0.4
US Fund Financial 0.35
US Fund Foreign Large Blend 0.4
US Fund Foreign Large Growth 0.4
US Fund Foreign Large Value 0.4
US Fund Foreign Small/Mid Blend 0.4
US Fund Foreign Small/Mid Growth 0.4
US Fund Foreign Small/Mid Value 0.4
US Fund Global Real Estate 0.35
Page 33 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Paper Title | 21 March 2025
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Healthcare Observer | 21 March 2025
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Paper
US Fund | 21 March 2025
Title Health 0.35
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US Fund High-Yield Bond 0.2
Healthcare Observer | 21 March 2025
US Fund High-Yield Muni 0.2
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US Fund India Equity 0.4
US Fund Industrials 0.35
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US Fund Inflation-Protected Bond 0.2
Page 33 of 49 US Fund Infrastructure 0.35
US Fund Intermediate Core Bond 0.2
US Fund Intermediate Core-Plus Bond 0.2
US Fund Intermediate Government 0.2
US Fund Japan Stock 0.4
US Fund Large Blend 0.3
US Fund Large Growth 0.3
US Fund Large Value 0.3
US Fund Latin America Stock 0.4
US Fund Long Government 0.2
US Fund Long-Term Bond 0.2
US Fund Mid-Cap Blend 0.35
US Fund Mid-Cap Growth 0.35
US Fund Mid-Cap Value 0.35
US Fund Miscellaneous Region 0.4
US Fund Miscellaneous Sector 0.35
US Fund Multisector Bond 0.2
US Fund Muni California Intermediate 0.2
US Fund Muni California Long 0.2
US Fund Muni Massachusetts 0.2
US Fund Muni Minnesota 0.2
US Fund Muni National Interm 0.3
US Fund Muni National Long 0.3
US Fund Muni National Short 0.3
US Fund Muni New Jersey 0.3
US Fund Muni New York Intermediate 0.3
US Fund Muni New York Long 0.3
US Fund Muni Ohio 0.3
US Fund Muni Pennsylvania 0.3
US Fund Muni Single State Interm 0.3
US Fund Muni Single State Long 0.3
US Fund Muni Single State Short 0.3
US Fund Muni Target Maturity 0.3
US Fund Natural Resources 0.4
US Fund Nontraditional Bond 0.3
US Fund Pacific/Asia ex-Japan Stk 0.5
US Fund Preferred Stock 0.3
US Fund Real Estate 0.4
US Fund Short Government 0.3
US Fund Short-Term Bond 0.3
US Fund Small Blend 0.5
US Fund Small Growth 0.5
US Fund Small Value 0.5
US Fund Tactical Allocation 0.4
US Fund Target Maturity 0.3
US Fund Target-Date 2000-2010 0.4
US Fund Target-Date 2015 0.4
US Fund Target-Date 2020 0.4
US Fund Target-Date 2025 0.4
US Fund Target-Date 2030 0.4
US Fund Target-Date 2035 0.4
US Fund Target-Date 2040 0.4
Page 34 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Healthcare Observer | 21 March 2025
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Paper
US Fund | 21 March 2025
Title Target-Date 2045 0.4
Page 34 of 49 US Fund Target-Date 2050 0.4
Healthcare Observer | 21 March 2025
US Fund Target-Date 2055 0.4
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US Fund Target-Date 2060+ 0.4
US Fund Target-Date Retirement 0.4
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US Fund Technology 0.4
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US Fund Ultrashort Bond 0.3
US Fund Utilities 0.4
US Fund World Allocation 0.4
US Fund World Bond 0.3
US Fund World Bond-USD Hedged 0.3
US Fund World Large Stock 0.5
US Fund World Small/Mid Stock 0.5

Pillar Models for SMAs

What Is the Distribution Used for the Pillar Ratings?
For those pillars where a pillar rating of an open-end fund or ETF is not available, pillar ratings (High,
Above Average, Average, Below Average, or Low) will be assigned according to a static threshold to the
raw pillar scores using the same symmetric distribution as open-end funds and ETFs.

What Are the People and Process Pillar Business Rules Specific to SMAs?
SMAs follow all the business rules that are implemented for open-end funds and ETFs. There are three
notable enhancements.

First, in the case where an analyst has rated a fund belonging to the same strategy or portfolio identifier
or where there is an algorithmically generated Medalist Rating on an open-end fund or ETF belonging to
the same strategy or portfolio identifier, all SMAs under that same strategy or portfolio identifier will
inherit the People and Process Pillar rating assignments as determined by the analyst or the algorithmic
system.

Second, for the People Pillar, Morningstar implements additional mapping using the reported manager
information. For SMAs that report manager names, Morningstar creates manager-level scores by
averaging the People Pillar ratings of the open-end funds and ETFs they manage. Morningstar then rolls
back up People Pillar ratings for accounts by averaging the manager scores, weighted equally. For
accounts that do not report manager names, this logic is not applied.

Third, for the People and Process pillars in cases where the number of input data points for an account is
below a specified threshold, Morningstar pulls the ratings toward the center.
Page 35 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Healthcare Observer | 21 March 2025
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Paper Title | 21 March 2025
What Are the Parent Business Rules Specific to SMAs?
Page 35 of 49
Morningstar
Healthcare assigns
Observer Parent
| 21 March 2025 ratings for SMAs at the advisor level. If an
Page 35 of 49
advisor is not reported, Morningstar assigns Parent ratings at the provider-company level. In the case
Page 35 of 49 where there is a Parent Pillar rating of an open-end fund or ETF for a particular advisor entity,
Morningstar will default to that rating. Likewise, if the account does not have an advisor entity, then
Page 35 of 49
Morningstar will default to the Parent Pillar rating of an open-end fund or ETF for a particular provider
company.

For accounts belonging to a particular branding entity that has multiple provider companies or multiple
advisor entities, Morningstar does not assign a Parent Pillar if there is no rating available through the
mapping system. In the same spirit, if a fund has multiple advisor entities, Morningstar does not
algorithmically rate the account’s Parent Pillar.

What Variables Are Used in Each of the Parent Random Forest Models (Positive and Negative)?
The variables used in each model are found in Exhibit 7.

Exhibit 7 Input Variables for the Quantitative Parent Pillar for Positive and Negative Random Forest Models

Source: Morningstar, Inc.

Page 36 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Healthcare Observer | 21 March 2025
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What Variables Are Used in Each of the People Random Forest Models (Positive and Negative)?
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The variables
Healthcare Observerused in each
| 21 March 2025 model are found in Exhibit 8.
Page 36 of 49

Page 36 of 49
Exhibit 8 Input Variables for the Quantitative People Pillar for Positive and Negative Random Forest Models

Page 36 of 49

Source: Morningstar, Inc.

Page 37 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Healthcare Observer | 21 March 2025
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What Variables Are Used in Each of the Process Random Forest Models (Positive and Negative)?
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The variables
Healthcare Observerused in each
| 21 March 2025 model are found in Exhibit 9.
Page 37 of 49

Page 37 of 49
Exhibit 9 Input Variables for the Quantitative Process Pillar for Positive and Negative Random Forest Models

Page 37 of 49

Source: Morningstar, Inc.

Page 38 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Appendix F: FAQ on Model Portfolios Model
Page 38 of 49
Healthcare Observer | 21 March 2025
Page 38 of 49
General Information
Page 38 of 49 Universe Coverage
Only US-domiciled model portfolios that have been issued by firms flagged as compliant with Global
Page 38 of 49
Investment Performance Standards or that have USD 10 billion in assets under management are eligible
to receive a Medalist Rating. With this new methodology, we are able to cover more than 1,000 model
portfolios.

How Do We Assign Ratings to Model Portfolios?

Ratings are assigned using the same process as open-end funds or ETFs. The expected forward
performance is calculated using a combination of pillar ratings, fee, and distribution width of the
underlying category. The ratings are assigned based on the expected performance threshold set using
the open-end funds' and ETFs' rating distribution.

In order to receive a Silver or Gold rating, models must have more than 18 months of activation returns
and have quarterly holdings.

What Is the Fee Used in the Ratings for Model Portfolios?

The Medalist Rating system calculates fees based on the weighted average expense ratios of the
underlying holdings. For SMA positions, fees are assigned using the Medalist Rating’s Fee Proxy Logic.

The annual fees used for active products are in Exhibit 6. Strategist Fee Proxy Logic will be implemented
based on Broad Category Group, consistent with the methodology used for SMAs. Details of the proxy
logic can be found in Appendix E, Exhibit 6.

Quantitative Pillar Models for Models Methodology

What Is the Distribution Used for the Pillar Ratings?
For those pillars where an existing Medalist Rating of an open-end fund or ETF is not available, pillar
ratings (High, Above Average, Average, Below Average, or Low) will be assigned according to a static
threshold to the raw pillar scores using the same symmetric distribution as open- end funds, ETFs, and
SMAs.

What Are the People and Process Business Rules Specific to Model Portfolios?
Models follow all the business rules that are implemented for open-end funds and ETFs. There are a few
notable enhancements.

First, in the case where an opinion has been issued via an existing Medalist Rating for an open-end
fund, ETF, or SMA belonging to the same strategy or portfolio identifier, all model portfolios under that
same strategy or portfolio identifier will inherit the People and Process Pillar rating assignments as
determined first by the analyst and then by the quantitative system.
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Second, for the People Pillar, we implement additional mapping using the reported manager
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information.
Healthcare For| 21models
Observer that
March 2025 report manager names, we create manager-level scores by averaging the
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People Pillar ratings of the open-end funds and ETFs, or SMAs they manage. We then roll back up
Page 39 of 49 People Pillar ratings for accounts by averaging the manager scores, weighted equally. For accounts that
do not report manager names, this logic is not applied.
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Third, for the People and Process pillars, in cases where the number of input data points for a model
portfolio is below a specified threshold, we pull the ratings toward the center.

Finally, we apply pillar consistency to People and Process, based on a Model’s Strategy Series ID, by
utilizing an average.

What Are the Parent Business Rules Specific to Models?

Morningstar assigns Parent ratings for models at the branding level.

In the case where there is a Medalist Rating for the Parent Pillar of an open-end fund, ETF, or SMA for a
particular entity, model portfolios will inherit the opinion on the managed product.

For model portfolios belonging to a particular branding entity that cannot be inherited, we assign a
Parent Pillar via the random forest model. For a comprehensive list of the data points considered, please
see Appendix E, Exhibit 7.

What Variables Are Used in Each of the Parent Random Forest Models (Positive and Negative)?
The variables used in each model portfolio are the same as the variables used for SMAs. They can be
found in Appendix E, Exhibit 7.
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What Variables Are Used in Each of the People Random Forest Models (Positive and Negative)?
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The variables
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| 21 March 2025 model are found in Exhibit 10.
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Exhibit 10 Input Variables for the Quantitative People Pillar for Positive and Negative Random Forest Models

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Source: Morningstar, Inc.

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What Variables Are Used in Each of the Process Random Forest Models (Positive and Negative)?
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The variables
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| 21 March 2025 model are found in Exhibit 11.
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Exhibit 11 Input Variables for the Quantitative Process Pillar for Positive and Negative Random Forest Models

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Source: Morningstar, Inc.

Page 42 of 49 Morningstar Medalist Rating Methodology | 21 March 2025 | See Important Disclosures at the end of this report.
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Appendix G: Special Cases
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This section describes how Morningstar adapts the ratings assignment process to various circumstances
Page 42 of 49 that may arise.

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Effective Dates for Rating Assignment and Timelines for Publication
Medalist Ratings are assigned and published on two cadences depending on the type of pillar
assignment. This section outlines the assignment, update, and production timeline rules for each type of
pillar score assignment.

Medalist Ratings assigned Directly, by Analyst, are assigned or updated approximately once per year
unless circumstances warrant an interim update. For more detail on this cadence, please see Directly, by
Analyst, below.

Medalist Ratings assigned Indirectly, by Analyst, or Directly, by Algorithm, are updated and published
monthly, utilizing the most recent month-end data and inherited pillar scores or model input data in
force as of that date. For example, ratings utilizing data as of Oct. 31, 2024, would be published on Nov.
26, 2024. Ratings for each monthly production run are typically published on the final Tuesday of each
month. If there is a delay to this schedule, notice will be sent via Morningstar communication channels.

Directly, by Analyst
People and Process Pillar Ratings
× An analyst will update the People and Process pillar ratings approximately once per year unless
circumstances warrant an interim update.
× The “published on” date of the People Pillar rating and the Process Pillar rating denotes the date the
analyst publishes the report that sets forth the People and Process pillar ratings that have been
assigned.
× The “rated on” date of the People Pillar rating and the Process Pillar rating denotes the date the analyst
incorporates the People and Process pillar ratings into the calculation of the overall Medalist Rating.
Typically, the “published on” and “rated on” dates are the same.

Parent Pillar Rating

× An analyst will update the Parent Pillar rating approximately once every 18 months unless circumstances
warrant an interim update.
× The “published on” date of the Parent Pillar rating denotes the date the analyst responsible for covering
that parent firm completes the Parent Pillar rating analysis. The Parent Pillar rating and accompanying
pillar rating text flow into the analyst report of all vehicles linked to that parent firm on that date.
× The “rated on” date of the Parent Pillar rating denotes the first date the Parent pillar rating could be
incorporated into the calculation of the overall Medalist Rating of a vehicle linked to that parent firm.
However, an analyst will not incorporate the Parent Pillar rating into the calculation of the overall
Medalist Rating of a vehicle linked to that parent firm until the next time the analyst publishes a new
report on that vehicle. (The analyst responsible for covering the parent firm and the analyst covering
vehicles linked to that parent firm can be different and, thus, the timing of updates can differ.)
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Indirectly,
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The display and update rules for the pillar ratings are the same as described for Directly, by Analyst
Page 43 of 49 above, with a few differences as noted below. If a single pillar is assigned Indirectly, by Analyst, the
overall rating is calculated each month. The “rated on” date denotes the most recent month-end date
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and reflects the inherited pillar score that was in force as of that date.

People and Process Pillar Ratings

× The “published on” date denotes the date the analyst publishes the report that sets forth the People and
Process pillar ratings that have been assigned to a different vehicle that shares a StrategyID in common
with the vehicle concerned (such as the vehicle being assigned a rating indirectly).
× The “rated on” date denotes the date the People and Process ratings are incorporated into the
calculation of the overall Medalist Rating. Typically, the “rated on” date is the most recent month-end
and reflects the People or Process pillar rating that was in force as of that date. As such, the “rated on”
date can differ from the “published on” date.
× With respect to vehicles that track an index, the Process Pillar rating “published on” date could denote
the date an analyst publishes the report that sets forth the Process Pillar rating that has been assigned
to a different vehicle that tracks the same index.

Parent Pillar Rating

× The Parent Pillar rating “rated on” date denotes the date the Parent Pillar rating is incorporated into the
calculation of the overall Medalist Rating of a vehicle linked to that parent firm. Typically, the “rated on”
date is the most recent month-end and reflects the Parent Pillar rating that was in force as of that date.

Directly, by Algorithm
The display and update rules for the pillar ratings are the same as described for Directly, by Analyst
above with a few differences as noted below. If a single pillar is assigned Directly, by Algorithm, the
overall rating is calculated monthly. The “rated on” date denotes the most recent month-end date and
reflects the input data that was in force as of that date.

People and Process Pillar Ratings

× The People and Process pillar ratings are updated by an algorithm monthly.
× The “published on” date denotes the date the algorithm publishes its report that sets forth the People
and Process pillar ratings it has assigned.
× The “rated on” date denotes the date the People and Process Pillar rating is incorporated into the
calculation of the overall Medalist Rating. Typically, the “rated on” date is the most recent month-end
and reflects the People and Process pillar ratings that were in force as of that date.

Parent Pillar Rating

× The Parent Pillar rating is updated by an algorithm monthly.
× The “published on” date denotes the date the algorithm publishes its report that sets forth the Parent
Pillar rating it has assigned. The Parent Pillar “rated on” date is the date the Parent Pillar rating is
incorporated into the calculation of the overall Medalist Rating of a vehicle linked to that parent firm.
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Typically, the “rated on” date is the most recent month-end and reflects the Parent Pillar rating that was
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Healthcare as of that date.2025
| 21 March
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Page 44 of 49 Ratings Takedown

Morningstar has a number of procedures in place to address potential inaccuracies that may affect
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ratings assignments or the accompanying analysis. In cases where an inaccuracy is identified in regard
to input data or model calculation, Morningstar will remove the affected ratings or analysis from
circulation or prevent publication for that month. By general rule, Morningstar will not adjust the
historical time series of ratings, even if an inaccuracy is identified, to preserve the historical record.

Ratings-Change Buffering and Ratings Cap

To prevent frequent rating changes when actively managed offerings are near the threshold between
rating levels, Morningstar applies a buffer. If there are no changes to a vehicle’s pillar rating, and if the
vehicle’s fee has not changed by more than 5 basis points since the last rating was assigned, then the
vehicle’s expected net alpha must cross a rating’s threshold by at least 0.05% annualized, or 5% of the
category APE, before the rating will change. (The “threshold” refers to the expected net alpha at each
relevant percentile. For active vehicles expected to generate positive net alpha, it is the 15th percentile
for Gold/Silver and the 50th percentile for Silver/Bronze. With respect to active vehicles not expected to
generate positive net alpha, it is the 30th percentile for Neutral/Negative.)

To ensure that ratings of passive vehicles with identical pillar ratings in a given category do not diverge
on the basis of extremely small differences in fees, Morningstar applies the following buffer: For every
combination of People, Process, and Parent pillar ratings assigned to vehicles within a category,
Morningstar calculates the minimum fee and maximum rating. If a passively managed vehicle is
assigned the same combination of People, Process, and Parent pillar ratings and its fees differ from the
minimum fee calculated for that category and pillar combination by less than 3 basis points annualized,
it will earn the maximum rating.

In addition, if a passively managed vehicle is assigned a Process Pillar rating of Average, Below Average,
or Low, Morningstar caps its rating at Bronze.

Target-Date Strategies
Target-date allocation offerings are ranked and rated by share class type (span across target dates)
instead of by individual share classes. Each class in a series consequently has the same rating. Target-
date ratings use the same pillar weighting as actively managed strategies, and their medalist share
classes are defined as having net-of-fee alpha above zero.
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SMAs
21 March 2025
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SMAs are
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Observer March the
2025 methodology for actively managed strategies. Morningstar deducts a proxy
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fee from all SMAs in a given category. The proxy fee is based on a survey of SMA model-delivery fees.
Page 45 of 49 For complete details, see Appendix E.

Page 45 of 49
Model Portfolios
Model portfolios are rated using the methodology for actively managed strategies. For model portfolios
of funds, Morningstar determines the fee based on underlying fund fees and strategist overlay fees. For
model portfolios of securities, Morningstar uses a proxy fee based on a survey of SMA model delivery
fees.

To derive the rating, Morningstar ranks model portfolios by their expected net of fee alpha versus their
category index. Because firms report model portfolio data voluntarily, selection bias exists in model
portfolio categories. Therefore, Morningstar uses the APEs calculated for the equivalent mutual fund
categories to derive expected before-fee alpha and assigns ratings to model portfolios. For complete
details, see Appendix F.

Regional Eligibility Requirements

Morningstar may adjust eligibility requirements for ratings assignments regionally based on input from
local manager research and compliance teams. Below, please find specific eligibility requirements and
ratings business logic by region.

Australia
× Managed investments domiciled in Australia will receive a rating if the % Data Coverage is greater
than 80%.
× For the superannuation, pension, and annuities universes, a Medalist Rating can
be available only for vehicles that have all three pillar ratings directly or indirectly
assigned by an analyst.
× If holdings data is not reported to Morningstar at least semiannually, the maximum rating a managed
investment can receive is Bronze.
× If an investment is domiciled in Australia, and it is required under Australian law to have a Target
Market Determination, a rating will be generated only if Morningstar has been provided with that TMD.
× For the purpose of Parent Pillar assignment and inheritance, the Advisor CompanyID is used in place of
BrandingID.
× Superannuation funds are also eligible for coverage in Australia, Directly by Analyst. Please see the
Morningstar Medalist Rating for Australian Superannuation Funds document on our Signature Research
page for more information.

Other Eligibility Requirements

Managed investments that do not meet data freshness and completeness requirements are not eligible
for ratings. In addition, Morningstar applies screening logic in certain markets to remove zero-fee share
classes that have purchase constraints.
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Currency-Hedged Categories or Share Classes in Unbenchmarked Categories
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Morningstar
Healthcare maintains
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| 21 March 2025 of currency-hedged versions of fund categories that are not currency-
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hedged and sometimes assigns ratings to vehicles residing in a currency-hedged category. In the event
Page 46 of 49 there is no benchmark for such a category, Morningstar follows these steps in assigning ratings:

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× If a benchmarked, unhedged category exists that would otherwise be applicable, Morningstar applies
the APE for that category to the weighted pillar scores for the vehicle in question, then compares the
resulting expected net-of-fee alpha with the alpha thresholds that apply in the same unhedged,
benchmarked category (that is, the expected net alpha at the 15th and 50th percentiles for vehicles
expected to deliver positive net alpha; the expected net alpha at the 30th percentile for vehicles not
expected to deliver positive net alpha).

Otherwise, Morningstar assigns ratings per the following matrix. This is presently used primarily for
funds in unrated, unbenchmarked alternatives categories. K
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Pillar Ratings 21 March 2025 Fee Quintile Relative to Category
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People & Process Parent Cheapest Second Middle Second Costliest
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Cheapest Costliest
Page 47 of 49 High/High High Œ Œ • ª ª
High/Above Average High Œ • • ª ª
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Both Above Average High • ª ª ˇ ˇ
Above Average/Average High ª ˇ ˇ ˇ ¨
Both Average High ˇ ˇ ˇ ¨ ¨
Average/Below Average High ˇ ˇ ¨ ¨ ¨
Both Below Average High ¨ ¨ ¨ ¨ ¨
Below Average/Low High ¨ ¨ ¨ ¨ ¨
Both Low High ¨ ¨ ¨ ¨ ¨

High/High Above Average or Average Œ Œ • ª ª

High/Above Average Above Average or Average • • • ª ª
Both Above Average Above Average or Average ª ª ª ˇ ˇ
Above Average/Average Above Average or Average ˇ ˇ ˇ ˇ ¨
Both Average Above Average or Average ˇ ˇ ˇ ¨ ¨
Average/Below Average Above Average or Average ˇ ˇ ¨ ¨ ¨
Both Below Average Above Average or Average ¨ ¨ ¨ ¨ ¨
Below Average/Low Above Average or Average ¨ ¨ ¨ ¨ ¨
Both Low Above Average or Average ¨ ¨ ¨ ¨ ¨
High/High Below Average Œ • • ª ª
High/Above Average Below Average • • ª ª ª
Both Above Average Below Average ª ª ˇ ˇ ˇ
Above Average/Average Below Average ˇ ˇ ˇ ¨ ¨
Both Average Below Average ˇ ˇ ¨ ¨ ¨
Average/Below Average Below Average ˇ ¨ ¨ ¨ ¨
Both Below Average Below Average ¨ ¨ ¨ ¨ ¨
Below Average/Low Below Average ¨ ¨ ¨ ¨ ¨
Both Low Below Average ¨ ¨ ¨ ¨ ¨

High/High Low Œ • ª ª ª
High/Above Average Low • ª ª ˇ ˇ
Both Above Average Low ª ˇ ˇ ¨ ¨
Above Average/Average Low ˇ ˇ ¨ ¨ ¨
Both Average Low ˇ ¨ ¨ ¨ ¨
Average/Below Average Low ¨ ¨ ¨ ¨ ¨
Both Below Average Low ¨ ¨ ¨ ¨ ¨
Below Average/Low Low ¨ ¨ ¨ ¨ ¨
Both Low Low ¨ ¨ ¨ ¨ ¨
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Historical Analysis Content
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Morningstar
Healthcare generates
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| 21 March 2025 assigned ratings and analysis content on a monthly production
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cycle, while analyst-generated ratings are generally reviewed on a yearly cycle, with updates occurring
Page 48 of 49 ad hoc. All inquiries regarding historical ratings or analysis content can be made by contacting
Morningstar.
Page 48 of 49

Document Version History

Version 1.0 May 2, 2023 Original publication
Version 1.1 Aug. 31, 2023 Addition of Australia
Version 1.2 Nov. 28, 2023 Parent Pillar methodology additions
Version 1.3 Dec. 26, 2023 Update to People Pillar inheritance, Passives business logic
Version 1.4 April 30, 2024 Update to threshold calculation and pillar-level buffers
Version 1.5 May 28, 2024 Removal of Portfolio Transparency
Version 1.6 Oct. 29, 2024 Change to APE calculation, Passive Equity Process model
Version 1.7 Dec. 31, 2024 Clarification to monthly production schedule language.
Version 1.8 March 25, 2025 Addition of CITs to inherited coverage, Strategy age
requirement.
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About Morningstar Manager Research
Page 49 of 49
Morningstar
Healthcare Manager
Observer Research
| 21 March 2025 provides independent, fundamental analysis on managed investment
Page 49 of 49
strategies. Morningstar views are expressed in the form of Medalist Ratings, which are derived through
Page 49 of 49 research of three key pillars—People, Process, and Parent. The Medalist Rating is the summary
expression of Morningstar’s forward-looking analysis of investment strategies as offered via specific
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vehicles using a rating scale of Gold, Silver, Bronze, Neutral, and Negative. A global research team
issues detailed research reports on strategies that span vehicle, asset class, and geography.

Medalist Ratings are not statements of fact, nor are they credit or risk ratings, and should not be used as
the sole basis for investment decisions. A Medalist Rating is not intended to be nor is a guarantee of
future performance.

About Morningstar Manager Research

Morningstar Manager Research Services combines the firm's fund research reports, ratings, software,
tools, and proprietary data with access to Morningstar's manager research analysts. It complements
internal due-diligence functions for institutions such as banks, wealth managers, insurers, sovereign
wealth funds, pensions, endowments, and foundations. Morningstar’s manager research analysts are
employed by various wholly owned subsidiaries of Morningstar, Inc. including but not limited to
Morningstar Research Services LLC (USA), Morningstar UK Ltd, and Morningstar Australasia Pty Ltd.

?
22 West Washington Street
Chicago, IL 60602 USA

©2025 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the
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not warranted to be correct, complete, or accurate. The opinions expressed are as of the date written and are subject to change
without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages, or
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is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior
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