Comments on: Morningstar Stars: Are Mutual Fund Star Ratings Any Use?

By: Ben

Ben — Thu, 01 Jul 2010 14:25:13 +0000

I’m hoping you can post some hard numbers, I would love to see by just how much lower expense ratios do better the 4 and 5 start funds.

On the second note, I’ve never liked morning star ratings. It’s a perception scam that cons the majority of people to think that 4 and 5 star funds will outperform the market without ever saying it will.

A good site to quickly look at how a fund has done in the past is fundalarm.com. Same basis as morningstar but better because it tells you why.

By: SJ

SJ — Thu, 01 Jul 2010 13:59:05 +0000

“”I’ve always wondered what they represented myself, but never went through the effort to figure out what they meant”"”

That is what exactly works in favor of morningstar and many many folks including me have done that…Shame on their business practice..

By: Ace

Ace — Thu, 01 Jul 2010 03:49:37 +0000

Mike thanks for posting this! I’ve always wondered what they represented myself, but never went through the effort to figure out what they meant. I’m afraid to admit that I’ve used them in the past to decide which funds were better than others. How naive of me! Thank you for point this out, great tip!

By: Barb Friedberg

Barb Friedberg — Thu, 01 Jul 2010 02:23:11 +0000

The efficient market evidence is so pervasive; just stick with index funds, save time and do better than most. Regards, Barb

By: Dylan

Dylan — Wed, 30 Jun 2010 22:30:30 +0000

It’s pure marketing hype, and too conspicuous of a disclaimer would cost them money. When a fund gets four or five stars, the distribution arm of the fund company pays for permission to put those stars on their marketing materials. Why? Because many brokers have been programed to say something like, “legally, we can’t claim any link to past performance, but I’ve been at this a long time and am a trained professional, blah, blah, blah, and I know there really is a connection. “

By: Mike

Mike — Wed, 30 Jun 2010 21:42:07 +0000

“Well, then, display that conspicuously on your website, Mr.Don.”

I agree that a more conspicuous statement about the intention of the star ratings would be helpful.

I have no data other than anecdotal evidence, but I bet if you polled 100 investors, more than half would say that the express purpose of star ratings is to guess which funds will do well in the future.

By: SJ

SJ — Wed, 30 Jun 2010 15:51:59 +0000

If that is the case with the star ratings, so be it. But they should at least make an attempt to boldly disclose in every page where the star ratings are shown, saying that they are based on past performance. I doubt they would be that candid.

“The star rating is a grade on past performance. It’s an achievement test, not an aptitude test…We never claim that they predict the future.” – Well, then, display that conspicuously on your website, Mr.Don. Its just plain common sense now, isnt it