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Morningstar has now rated 924 mutual funds..only 60 received negative ratings

WallStreetRanterWallStreetRanter
edited August 2012 in Fund Discussions
I have been following the morningstar analyst ratings for mutual funds since they started in November of last year. While the were very positively biased at the start supposedly because they were focusing on the "biggest and best"....even now that 924 have been rated only 60 have received negative ratings. What's even more interesting is the fact that they have rated 29 index funds and only 2 were rated neutral and only 1 negative. This despite the fact that essentially the best an index fund should be able to be rated is neutral "Fund that isn’t likely to deliver standout returns, but also isn’t likely to significantly underperform".

This is what their ratings are supposed to mean:
"The Analyst Rating is based on the analyst's conviction in the fund's ability to outperform its peer group and/or RELEVANT BENCHMARK on a risk-adjusted basis over the long term. If a fund receives a positive rating of Gold, Silver, or Bronze, it means Morningstar analysts think highly of the fund and expect it to outperform over a full market cycle of at least five years."

No index fund can be expected to beat it's relevant benchmark on a risk-adjusted basis. I have a full breakdown of the ratings here http://www.wallstreetrant.com/2012/08/morningstar-continues-rollout-of.html and you can also see the complete listing there as well.

What meaning does a metal rating have if an index can achieve it? Why exactly do you need analysts to find you a fund to match it's index performance?

Comments

  • InvestorInvestor
    Why do you compare Managed funds to peer group and index funds to the index. If you apply the same criteria Index funds to a group that includes an asset class peer group consisting of managed and passive funds, you might see that index funds beat most of the group and I would expect that index funds have positive ratings.
  • WallStreetRanterWallStreetRanter
    I'm not sure when I was comparing managed funds to a peer group but index funds to the index? All funds should be judged to a relevant benchmark (index).....and yes, as my post talks about--a majority of managed funds underperform their relevant benchmark. But my point is index returns, just like average managed fund returns are not deserving of "metal" ratings.
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