Highly coveted: a brief look at stars

Humans have been fascinated by the stars in the sky since time immemorial. The starry sky was a practical and life-saving navigation aid for early seafarers. Since the mid-19th century, we no longer have to look heavenward to see stars: many people regard the German publisher and author Karl Baedecker as the founder of “star” ratings, which he gave excellent sights, attractions and lodgings for the first time in 1853 in the guide books named after him. This rating concept also gained in popularity after 1926 in the food and drinks industry when the French Michelin Guide book first awarded stars for outstanding cuisine. These days, almost the entire hotel industry and, increasingly, online retail features more or less clearly defined star ratings, which have one primary goal – to give customers a quick idea of the quality of the product.

"The Morningstar Rating system has become a standard in the industry,
to which investors and fund managers alike pay close attention."

Christian Schmitt

In the fund industry, Joe Mansueto began rating funds with his company “Mutual Fund Sourcebook Inc.” in Chicago in 1984, thus providing investors with a decision-making aid for their investments. Introduced just one year later, the 5-star rating system proved such a success that the company name was changed to “Morningstar Inc.” in 1986. Since then, the Morningstar Rating system has become a standard in the industry, to which investors and fund managers alike pay close attention.

The simple concept behind the rating system has been a factor in its success. It measures how good a fund’s performance is relative to comparable funds. Performance in and of itself is not the only factor. How much risk a fund takes to achieve its return is also considered. A fund with greater fluctuation is generally rated lower than a more stable fund that achieved the same return.

To calculate the star ratings, Morningstar divides the funds into categories – for example, by asset classes and investment strategy – to allow for an objective comparison. The funds that beat most of their peers in their category (the top 10%) are given five stars and the next 22.5% are given four stars, while funds that underperformed are given only one (the bottom 10%) or two (the next 22.5% above them) stars.

Since this star rating is based only on past performance, naturally it should not be the only factor investors use when taking investment decisions. That said, Morningstar’s fund ratings have become a fixture of the financial industry and are a good indicator for getting a quick idea of how a fund has performed in the past.

To receive the highly respected Morningstar rating, a fund must have a record of at least three years. The HESPER FUND – Global Solutions has recently passed this threshold, so it was evaluated by Morningstar for the first time at the end of June. The maximum five-star rating it received is an objective reflection of the impressive performance that the ETHENEA portfolio management team has delivered since the launch of the fund in what has been an extremely challenging market environment. ETHENEA’s three other funds also have consistently high ratings: the Ethna-AKTIV (A), the Ethna-DEFENSIV (A) and the Ethna-DYNAMISCH (A) were all given four stars. These ratings are highly coveted by both us and our investors.

Humans have been fascinated by the stars in the sky since time immemorial. The starry sky was a practical and life-saving navigation aid for early seafarers. Since the mid-19th century, we no longer have to look heavenward to see stars: many people regard the German publisher and author Karl Baedecker as the founder of “star” ratings, which he gave excellent sights, attractions and lodgings for the first time in 1853 in the guide books named after him. This rating concept also gained in popularity after 1926 in the food and drinks industry when the French Michelin Guide book first awarded stars for outstanding cuisine. These days, almost the entire hotel industry and, increasingly, online retail features more or less clearly defined star ratings, which have one primary goal – to give customers a quick idea of the quality of the product.

"The Morningstar Rating system has become a standard in the industry, to which investors and fund managers alike pay close attention."

Christian Schmitt

In the fund industry, Joe Mansueto began rating funds with his company “Mutual Fund Sourcebook Inc.” in Chicago in 1984, thus providing investors with a decision-making aid for their investments. Introduced just one year later, the 5-star rating system proved such a success that the company name was changed to “Morningstar Inc.” in 1986. Since then, the Morningstar Rating system has become a standard in the industry, to which investors and fund managers alike pay close attention.

The simple concept behind the rating system has been a factor in its success. It measures how good a fund’s performance is relative to comparable funds. Performance in and of itself is not the only factor. How much risk a fund takes to achieve its return is also considered. A fund with greater fluctuation is generally rated lower than a more stable fund that achieved the same return.

To calculate the star ratings, Morningstar divides the funds into categories – for example, by asset classes and investment strategy – to allow for an objective comparison. The funds that beat most of their peers in their category (the top 10%) are given five stars and the next 22.5% are given four stars, while funds that underperformed are given only one (the bottom 10%) or two (the next 22.5% above them) stars.

Since this star rating is based only on past performance, naturally it should not be the only factor investors use when taking investment decisions. That said, Morningstar’s fund ratings have become a fixture of the financial industry and are a good indicator for getting a quick idea of how a fund has performed in the past.