Does the Morningstar Rating for stocks include a risk component? Yes. The margin of safety required for a given star rating is higher for companies where we have less confidence in the fair value. As a result, companies with high levels of risk, whose cash flow are hard to forecast, will tend to have lower star ratings. Back to top Star ratings rank funds based on their relative performance within their category over the past three, five and ten years. We subtract sales fees from those returns, and we penalize funds that Who hasn’t heard the terms, “5 Star Fund, 4 Star Fund, etc.” but what does that actually mean? How does Morningstar calculate the Star Rating System? Russel Kinnel, Morningstar’s Director of Mutual Fund Research provides an excellent succinct explanation, The rating is based on returns over the trailing three-, five-, and 10-year periods.