Morningstar Ratings and Mutual FundPerformance

Abstract

This study examines the Morningstar rating system as apredictor of mutual fund performance for U.S.domestic equit funds. We also compare the predictiveabilities of the Morningstar rating system withthose of alternative predictors. The resultsindicate findings that are robust across differentsamples, ages and styles of funds, and performancemeasures. First, low ratings from Morningstargenerally indicate relatively poor futureperformance. Second, there is little statisticalevidence that Morningstar's highest-rated fundsoutperform the next-to-highest and median-ratedfunds. Third, Morningstar ratings, at best, do onlyslightly better than the alternative predictors inforecasting future fund performance.