Funds Seeing Stars?

Michael Sheehan

Physician's Money Digest, September30 2004, Volume 11, Issue 18

Many investors turn to the mutualfund mavens at Morningstar (www.morningstar.com) when they're doingresearch on a mutual fund. Morningstar'spopular star system awards afund anywhere from 1 to 5 stars, basedon risk-adjusted returns, with 5 beingthe best. If your broker is pushing anin-house mutual fund, you should beaware that funds offered by brokeragesare rated fair, at best. The average ratingfor an in-house domestic stock fundoffered by some large brokerage firmsis 3 stars, right in the middle of the starranking system. And it pays to bewary—although Morgan Stanley haspaid a $2-million fine to the NationalAssociation of Securities Dealers forpushing brokers to sell its own funds,brokers may still have hidden incentivesto recommend an in-house fundover other choices.