what is the morningstar risk rating 
the morningstar risk rating or simply morningstar rating is a ranking given to publicly traded mutual funds and exchange traded funds etfs by the investment research firm morningstar risk is assessed across five levels designed to help investors quickly identify funds to consider for their portfolios funds receive ratings ranging from 1 to 5 with 1 given to the worst performers and 5 for the best the ranking is based on variations in a fund s monthly returns with an emphasis on downside variations as compared to similar funds understanding the morningstar risk ratingmorningstar ratings are based on the fund s past performance as compared to other funds in its morningstar category the risk rating is frequently a starting point for additional research and is not a buy or sell recommendation in the risk rating process 10 of a category s funds with the lowest measured risk are rated as low risk the next 22 5 are rated below average the middle 35 are average the next 22 5 above average while the top 10 are rated as high risk morningstar measures risk for as many as three periods three five and 10 years these separate measures are then weighted and averaged to produce an overall measure for the fund funds with less than three years of performance history are not rated morningstar also provides category ratings and peer group ratings to help investors further compare funds for example as of year end 2018 morningstar assigns a 3 9 star rating to municipal bond funds as a group a 3 4 star rating to domestic stock funds and a 3 star rating to international stock funds morningstar rates individual mutual funds and etfs and sells the ratings along with other research to investors other risk rating providersmorningstar is not the only company that creates risk ratings other rating creators include thomson reuters lipper zacks investment research standard and poor s and thestreet business and finance publications such as forbes and u s news world report also rank and rate funds as well as other asset classes for their readers in many cases they base much of their analyses on ratings from morningstar and the others criticism of morningstar risk ratingswhile morningstar ratings are considered essential in guiding investors toward quality investment decisions they are not immune to criticism some financial analysts have criticized these ratings because they only compare funds to other funds in isolation from the greater marketplace as a result a fund s rating may reflect its suitability for the particular market more than its overall viability and potential for example as prices are rising in a bull market funds with historically safe stocks from companies such as at t tend to perform well conversely when prices are falling in a bear market funds featuring speculative stocks from companies such as tesla motors and charles schwab tend to do better as a result some investors prefer ratings that keep the market conditions in mind such as the ratings generated by forbes example of morningstar risk ratingsto get an idea of how morningstar assigns its risk ratings let s look at its data on the ishares nasdaq biotechnology etf ibb the exchange traded fund is rated as presenting investors with an above average risk rating of three stars on a three five and 10 year basis based on a weighted average of the performance figures over the past 10 years the fund has delivered an annualized total return of 15 38 compared to 11 59 for the benchmark s p 500 index 