In September 2011 Morningstar launched its qualitative forward-looking analyst ratings to
supplement its widely followed backward-looking star ratings. This new system is designed
to convey information about a mutual fund’s future performance using a five-tier scale: Gold,
Silver, Bronze, Neutral, and Negative. We examine both the investor response to analyst rating
initiations and the out-of-sample performance of newly rated funds. We find that investors
respond positively to Gold and Silver rated funds relative to other rated funds. We find little evidence that the new rating system identifies funds that outperform peer funds at horizons of up to 6 months. Overall, it appears that rating initiations influence investor allocation decisions, but it remains unclear whether the ratings provide valuable information regarding long-term, out-of-sample performance.