A Wall Street Journal article titled “The Morningstar Mirage” outlines an analysis, for which I have been waiting at least for a couple of years.
Previously, in John Bogle’s famous book of “the little book of commonsense investing”, I had read a strong argument against investment in actively traded funds vs. exchange-based funds. Well, I know about all the controversy around index-based investing. I, however agree with the very valid argument that a mutual fund manager can rarely (if at all) beat the market over several years.
This article of the Wall Street Journal builds the case and offers substantiated data for the fact that a Morningstar five-star rating IS IN FACT (as Morningstar also advertises clearly) of very little to no value in determining which fund will in the future perform best.
As the article puts it best, and John Bogle outlined as one of the reasons why mutual funds may not be the best possible investments:
“The Journal’s analysis found that most five-star funds perform somewhat better than lower-rated ones, yet on the average, five-star funds eventually turn into merely ordinary performers.”
Reference:
*Wall Street Journal, October 25, 2017, “the morningstar mirage”, https://www.wsj.com/articles/the-morningstar-mirage-1508946687