September 16, 2008
Michael Sheehan

Physician's Money Digest, May 31 2003, Volume 10, Issue 10


A new study that puts mutualfund ratings under the microscopeconcludes that those 4- and 5-starratings may not be worth all thatmuch to the average investor. ThePace University study, whichtracked funds from 1995 through2000, uncovered so-so performancesfor highly rated funds whencompared with those in the middleof the bunch. Lower rated funds, onthe other hand, were likely to earntheir poor marks by slumping evenfurther. Funds use high ratings tomarket themselves, and investorstend to use the ratings when choosingfunds. Funds that earntop marks pull in more cash. Fundswith 4- and 5-star ratings fromMorningstar had net inflows of $80billion last year, while lower-ratedcounterparts had net outflows ofapproximately $108 billion.