Think of Morningstar like Uber, and the individual funds as individual drivers. Drivers have an incentive to lie about their hours or their insurance (to maxim

Think of Morningstar like Uber, and the individual funds as individual drivers. Drivers have an incentive to lie about their hours or their insurance (to maximize profits) and Uber/Morningstar can try to force them to be honest, but in the end only so much. Individual funds are returns maximizing, and if they can convince Morningstar (or their ultimate investors) that they are making more return not for taking more risk, but through skill, they will attract assets and make more money. Thus it's explicitly in the fund managers interest to try to maximize return, while minimizing perceived risk. One way of doing that is through purchasing securities which are 'stamped' by a third party as less risky then they are (subprime being the classic example here). Morningstar can try to structure them into reporting their portfolio to avoid this, but that reporting system can always be gamed. Meaning, ultimately like with all investing, if you just trust the passive allocator/machine to make decisions for you based on overly simple or gamable rules...it will end in tears.