Can Morningstar Pick Winning Funds?
NEW YORK ( TheStreet ) -- Morningstar's fund ratings have long carried weight.
Investors flock to mutual funds that earn the top Morningstar grade of five stars.
But this has troubled academic researchers who argue that the star system can only provide limited guidance. The issue is that the ratings rely solely on past performance, and the past doesn't necessarily predict the future, as the boilerplate warnings note.
Morningstar has conceded the point, saying that the stars should only be used by investors as a starting point for research.Now Morningstar has introduced a new system that rewards top funds with ratings of gold, silver or bronze. Although the old star system simply indicates the funds that had the best returns in the past, the new ratings represent Morningstar's judgment about which funds will be winners in the future.
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