The Morningstar Mirage
From: www.wsj.com
Investors everywhere think a 5-star rating from Morningstar means a mutual fund will be a top performer—it doesn’t
Millions of people trust Morningstar Inc. to help them decide where to put their money.
From pension funds to endowments to financial advisers to individuals, investors rely on Morningstar’s star ratings to help divide $16 trillion among America’s mutual funds, in much the way shoppers use Amazon’s ratings to pick products. A lot of these investors, and the people paid to guide them, take for granted that the number of stars awarded to a mutual fund is a good guide to its future performance.
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