Morningstar Risk-Adj Ret 3 Yr

The Morningstar Risk-Adjusted Return (MRAR) is the guaranteed return that provides the same level of utility to the investor as the specific combination of returns exhibited by the fund. In other words, to �risk adjust� the returns of two funds means to equalize their risk levels through leverage or de-leverage before comparing them. The end result is an accurate representation of an investment�s return that accounts for its level of risk. In a simplified manner, MRAR equals the investment�s �Morningstar Return� minus its �Morningstar Risk�. Morningstar�s level of risk is calculated differently than many other methods. For example, Modern Portfolio Theory uses standard deviation as the sole unit of risk. Morningstar Risk, however, gives more weight to downside variation and does not make any assumptions about the distribution of excess returns. Morningstar Return uses historical excess returns as the basis for expected excess returns, rather than relying on analysts� forecasts or other probabilities of future returns. For funds, the MRAR is the return used for star rating calculations. Morningstar compares each investment�s MRAR against other investments in its category to calculate a star rating.

Calculation
The calculation is on page 11 and on page 24 in the methodology paper

For the Pros
Which investments use the MRAR for star ratings