Morningstar Ratings performance

We launched the revised Morningstar Rating for funds in 2002, and each year since then we've updated a study on how the rating has performed. For background, the rating is a quantitative measure of risk-adjusted performance relative to a category over the past three-, five-, and 10-year periods.

Consistent with past studies, the new study shows that 5-star funds tend to outperform 4-star funds and so on. Thus, the biggest performance gap is from 5-star funds to 1-star funds. This was the case when measured by relative performance and the three-year star rating.

*** [9/5/17] ***

While the star rating has inherent limitations given its reliance on past performance, our analysis suggests that it can be a useful starting point for fund research. Indeed, the star rating appears to point investors toward cheaper funds that are easier to own and likelier to outperform in the future, qualities that correspond with investor success.