Bloomberg’s Kaissar Weighs-In on Morningstar Fund Ratings

In a recent article, Bloomberg columnist Nir Kaissar challenges the rationale of a Wall Street Journal article suggesting that Morningstar mutual fund ratings lead investors to “assume erroneously” how those funds will perform in the future. “That analysis is flawed,” Kaissar writes. “Morningstar awards stars for beating peers, not the market. Given that the vast majority of funds lose to the market, highly rated funds may not be delivering any value to investors. Buying the best poorly performing fund is cold comfort,” he writes. Kaissar suggests that a more helpful exercise would be to gauge whether funds with high ratings […]

Some Thoughts On Improving the Predictive Value of Morningstar’s Ratings

By Jack M. Forehand (@practicalquant) —  The Wall Street Journal article last week that called into question the predictive value of Morningstar star ratings has caused a lot of debate in the investment industry. Many investors rely on Morningstar ratings to select funds and believe that selecting five star funds gives them the best chance of future outperformance. The Journal article shows that relying on those ratings to predict future performance is probably a bad idea. That really is not anything new to anyone who has studied fund performance because past performance has never really been predictive of future results, […]

Morningstar Ratings and Future Fund Performance

In a recent paper published by the firm’s quantitative research team, the Morningstar Rating, also known as the “star rating”, is summarized and evaluated with respect to accuracy. Morningstar now publishes star ratings on more than 217,000 managed investments across 72 countries. The rating system was introduced in 1985 to help investors and advisors better understand and assess the “crowded mutual fund landscape.” It evaluates the performance of a variety of funds (on a risk-adjusted basis and accounting for fees charged) for the period between January 2003 and December 2015 and assigns a rating of between 1 and 5 (lowest […]