Morningstar gives itself good grades

It was fairly big news in the mutual fund industry when Morningstar revised its rating system in 2002. Frankly, it's still too early to tell, but this year's analysis of how well it has performed suggests that the firm's changes were well worth it. Like previous studies, the latest study shows that higher-star funds tend to outperform funds with fewer stars. The biggest gap in performance was indeed from 1-star funds to 5-star funds. This trend seems to be holding up better the longer the time horizon you use. Bond fund ratings seem to be an even better predictor of longterm performance. So it makes sense to remain hyper-sensitive to your Morningstar ranking. If you are not highly rated, you should have a story as to why.

For more on Morningstar:
- here's a summary of the analysis