FUND RATINGS

Physician's Money Digest, April15 2003, Volume 10, Issue 7

Mutual fund rating services likeMorningstar (800-735-0700; www.morningstar.com) and Value Line(800-634-3583; www.valueline.com)don't claim that their system will helpyou choose a fund that will turn in asuperior performance down the road,but many investors insist on pickingfunds on the basis of those ratings. Astudy from Pace University's LubinSchool of Business questions whetherinvestors should use fund ratings topick winners, citing a narrow performancedifferential between top-ratedand middle-rated funds. The researchersdid find, however, thatMorningstar's stress on risk-adjustedreturns does give it an edge in spottinglosers, with a fairly strong correlationbetween low-rated funds andless-than-stellar performances.