Unlocking Real Value Blog

AK in the Press: Why New Morningstar Ratings Are No Sea Change

My new opinion piece “Why Morningstar Ratings Are No Sea Change” was published in today’s Ignites; Click here to read the complete piece.

In essence, it’s my belief that the introduction of Morningstar’s new predictive rating program, to supplement its star rating system, will not have a significant impact on the mutual fund industry. In effect, there is not much new in the announcement. Morningstar is essentially trying to emphasize its other research capabilities because they, like most in the industry, know that the stars, while popular, are too often used incorrectly as a gauge of a fund’s future performance.

In reality, the stars are much more about a fund’s past performance, and should only be one of the criteria used in making future fund-buying decisions. A lot of this “new” qualitative information has for a long time been in the fine print of Morningstar’s research reports.

Morningstar is not going away from the system that has helped it build its reputation; it’s merely trying to protect it and extend its life.

I also find the timing of the announcement interesting. The growth of ETFs has put a lot of pressure on the mutual fund industry, as in many cases the flows into ETFs come directly from mutual funds. So perhaps more than shaking up the industry, Morningstar’s announcement is an offensive PR move by the firm to help protect the mutual fund industry.

Just a thought … What do you think?

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