Morningstar’s Fund Ratings are a Failure at Predicting Winners
$DIA, $SPY, $QQQ, $VXX
- Those 5 Star ratings are meaningless predictors of future performance.
- Heffernan Capital Management does not buy or rely on any data published by Morningstar
Morningstar Inc. a US publisher of mutual fund ratings that investors use to decide which investments to make, does not reliably pick winning funds.
Morningstar gives funds 1 to 5 Stars for past performance, with 5 the best.
Many investors treat the Stars as a guide to future performance, but over time, the performance of funds with different initial star ratings converges, the WS-J found.
Nearly every asset manager in the world pays Morningstar for the data collected by the company.
About 250,000 financial advisers rely on the Morningstar’s data, services or ratings, making its analysis hugely influential among retirement plans and brokerages.
We here at Heffernan Capital Management do not buy or rely on any data published by Morningstar.
Morningstar groups funds among more than 100 categories based on their investing style or area. It then compares funds to other ones with the same investment focus, not to the overall market.
The Top 10% of funds in each group receive 5 Stars, the bottom 10% get 1 Star, and the rest get 2, 3, of 4 Stars , the WS-J reported Wednesday.
Those 5 Star ratings are meaningless predictors of future performance.
For all of the measured frames, 3, 5 and 10 years, 5 Star domestic equity funds were more likely to turn in a 1 Star performance not a 5 Star performance, means a 5 Star rating for the equity funds was no more an omen of success than it was one of failure,” according to the report.
Morningstar said it never claimed its Star ratings predicted future performance.
The Star system is backward-looking, evaluating past performance.
“We have always been very clear that it’s not intended to predict future performance,” the company said in a written statement.
BlackRock (NYSE:BLK) Chairman and CEO Larry Fink says investors should expect just 4% returns over the next 10 years with a balanced portfolio of stocks and bonds over 10 years.
BlackRock is the world’s biggest money manager with nearly $6-T in assets under management.
Wednesday, the major US stock market indexes finished at: DJIA -112.30 at 23329.46, NAS Comp -34.54 at 6563.88, S&P 500 -11.98 at 2557.15
Volume: Trade in the NYSE came in at: 910-M/shares exchanged.
- NAS Comp +21.9% YTD
- DJIA +18.1% YTD
- S&P 500 +14.2% YTD
- Russell 2000 +10.1% YTD
|HeffX-LTN Analysis for DIA:||Overall||Short||Intermediate||Long|
|Very Bullish (0.53)||Bullish (0.44)||Very Bullish (0.67)||Very Bullish (0.50)|
|HeffX-LTN Analysis for SPY:||Overall||Short||Intermediate||Long|
|Bullish (0.35)||Bullish (0.25)||Bullish (0.39)||Bullish (0.42)|
|HeffX-LTN Analysis for QQQ:||Overall||Short||Intermediate||Long|
|Bullish (0.46)||Bullish (0.40)||Bullish (0.46)||Very Bullish (0.53)|
|HeffX-LTN Analysis for VXX:||Overall||Short||Intermediate||Long|
|Neutral (-0.20)||Neutral (-0.14)||Neutral (-0.07)||Bearish (-0.39)|
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