Updated August 17, 2026. Quick answer: they share an icon and share almost nothing else. A stock’s stars are a forward-looking analyst opinion about whether the price is below what the business is worth. A fund’s stars are a backward-looking percentile of past risk-adjusted return against its category, where the top 10% get five stars by definition — so five-star funds always exist, in every category, in every market. Neither rating means what the other means.
The stock star rating is forward-looking
Morningstar’s definition, verbatim:
The Morningstar Rating for stocks—also called the star rating—is a forward-looking, analyst-driven measure of a stock’s current price relative to the analyst’s estimate of what the shares are worth.
The mechanism is a comparison of price against an analyst’s fair value estimate:
Those stocks trading at large discounts to their fair values receive the highest ratings (4 or 5 stars).
A 3-star rating means the current stock price is fairly close to the analyst’s fair value estimate.
So the rating moves when the price moves, even if nothing about the company changes. A stock can go from three stars to five in a bad fortnight for the market. That is the rating working as designed, not a revision of anybody’s opinion of the business. The full mechanism is on the fair value estimate page.
The fund star rating is a percentile of the past
The fund rating is not an opinion at all. It is an arithmetic ranking, and Morningstar’s own licensed description of it — reproduced verbatim inside a fund company’s semi-annual report filed with the SEC on 2026-08-10 — sets out the bands:
The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star.
| Stars | Share of the category | What it describes |
|---|---|---|
| 5 stars | Top 10% | Past risk-adjusted return, relative to category |
| 4 stars | Next 22.5% | Past risk-adjusted return, relative to category |
| 3 stars | Next 35% | Past risk-adjusted return, relative to category |
| 2 stars | Next 22.5% | Past risk-adjusted return, relative to category |
| 1 star | Bottom 10% | Past risk-adjusted return, relative to category |
Three consequences fall straight out of that table, and all three are commonly missed:
- Five-star funds always exist. The bands are percentiles, so 10% of every category is five-star at all times, however that category has actually done.
- The rating is relative to category, not to investing in general. A five-star fund in a category that lost money still lost money.
- It requires history. The rating is calculated only for products with at least a three-year history, so the newest funds have no stars at all.
The three-year period dominates, even in the ten-year rating
The overall rating blends three separate period ratings. The weights look like they favour the longest record, and the same filing explains why that appearance is misleading:
While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
That is Morningstar’s own note, not an outside criticism. Because the most recent three years appear inside the three-, five- and ten-year calculations alike, a strong or weak recent run propagates through all of them. A ten-year star rating is therefore a good deal more sensitive to the recent past than the label suggests.
The underlying measure is a Morningstar Risk-Adjusted Return, which penalises volatility rather than simply ranking raw returns.
Side by side
| Stock stars | Fund stars | |
|---|---|---|
| Direction | Forward-looking | Backward-looking |
| Produced by | An analyst’s judgement | An arithmetic calculation |
| Measures | Price against estimated worth | Past risk-adjusted return against category |
| Five stars means | Trading at a large discount to fair value | In the top 10% of its category’s past record |
| Moves when | The price moves | The past record or the category changes |
| Needs history | No | Yes — at least a three-year history |
So what should you do when you see five stars?
Ask which rating you are looking at, and then ask the question that rating is actually able to answer. On a stock, five stars is a claim about price today. On a fund, it is a description of a finished race.
Whether the fund version predicts anything is a separate question with actual evidence behind it, covered on do Morningstar star ratings predict performance? — and the answer there is easier to understand once you know the rating is built the way this page describes. The signal that has held up better is on expense ratios versus star ratings.
Sources
- Morningstar, “Morningstar Rating for Stocks”, Investing Terms and Definitions. Source document. Read 2026-08-17.
- Saturna Investment Trust, Form N-CSRS (semi-annual report), reporting period ended May 31, 2026. Filed 2026-08-10. Source document. Read 2026-08-17.
Every figure and quotation on this page was taken from the documents above, each fetched and read on 2026-08-17. Where those documents do not answer a question, this page says so rather than filling the gap.
See both ratings on the same screen
Morningstar Investor shows the stock star rating and the fund star rating in their own contexts, with the fair value estimate and category data behind each.
What Morningstar Investor actually is. A paid subscription research platform — not a matching service and not an advisor.
We earn a commission if you subscribe through this link. This is not the only research platform available and does not replace professional advice on your specific tax or estate situation.
Opens on Morningstar’s site in a new tab. Affiliate Disclosure.