Morningstar Inc. is overhauling its “star rating” system in the U.S. The new rating will appear in all American Morningstar products beginning in July.

Morningstar’s new star rating will use the same scale of one to five stars, is load-adjusted, and grades on a bell curve so that similar numbers of portfolios receive one and five stars. The most significant change under the new methodology is that funds are ranked and rated within nearly 50 Morningstar categories, rather than across four broad asset classes — U.S. stock, international stock, taxable bond, and municipal bond. In addition, the new star rating will use an enhanced risk-adjusted return measure and accounts for all variations in a fund’s month-to-month performance, with more emphasis on downward risk.

Funds are still rated for up to three time periods – three, five, and 10 years. However, says Morningstar, when a fund changes investment categories, its historical information will be given given less weight, depending on the magnitude of the category change. “This ensures fair comparisons and it also minimizes any incentive for fund companies to change a fund’s investment style in an attempt toreceive a better rating.”

The new Morningstar Rating will use an enhanced risk-adjusted return measure based on “expected utility theory.” The theory, says Morningstar, “recognizes that investors are more concerned about a possible poor outcome than an unexpectedly good outcome and willing to give up some portion of their expected return in exchange for greater certainty of return. The new rating accounts for all variations in a fund’s month-to-month performance, with more emphasis on downward risk.”