Mutual Funds, Berger, Wall Street Journal discussed on Investing Sense

Automatic TRANSCRIPT

A controversial story last week about morningstar the company that rates mutual funds using a five star system that's where a one star rating is the worst at a fivestar rating has the best yes this may sound odd this whole story was kind of a nothing berger for all of us are already in the industry and here's why just because you're good once doesn't mean that you're good forever sorry decks he's midnight runners sorry iron butterfly just because it was great wads doesn't mean it but you get the idea right so here's the issue covered by the wall street journal they evaluated thousands of funds going back to two thousand three and among the funds that received that their coveted five star rating only tall percent of those guys performed well enough over the following five years to keep that top rating will consumers including investors demand efficient inconvenient solutions and the rating system that morningstar uses if they're trying to boil down and investment to a five star rating system i can only imagine that there are inherent flaws to this approach especially when it comes to fund selection there are inherent flaws i mean this this is the system man and these flaws could totally get in the way of you experiencing consistent investment returns of course morningstar shot back they stated that it star system is back word looking they said that the star system is quote not intended to predict future performance star added that its star system is a quote first stage screen that helps identify lower cost lower risk funds with good longterm performance yeah i mean this we know the height on so on on a pecan morningstar our but their reply did sorta supports the wall street journal's claims i dunno i mean i'll give him the benefit of the doubt by but look you've got a know that these star rating systems or of deliberately irs system you gotta look at these systems more as tools in the toolbox at financial engines we have

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