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Morningstar Ratings: Useful or Useless?

I found this article regarding morningstar ratings by Edwin Choi very interesting.  The bottom line is that their ratings are note very helpful in identifying good mutual funds.



The financial industry generally places more emphasis on style than substance. Because of this, when their work is actually evaluated, results tend to be disappointing. Wall Street’s earnings forecasts? Overly optimistic. Performance of mutual fund managers? Quite embarrassing. You may be wondering: Do Morningstar ratings also belong in the same category?

You’re probably familiar with Morningstar and their one- to five-star mutual fund ratings. Many investors rely on Morningstar for stock and mutual fund research, and mutual fund companies love using Morningstar ratings in their marketing materials. But is there any value in a five-star Morningstar rating? Disclosure: I use Morningstar software sold to investment advisors almost everyday.

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