Founded 25 years ago, Morningstar Inc. is a well recognized name in the investment industry, providing research and other services to more than 7.4 million individual investors, 245,000 financial advisers and 4,200 institutional clients.
The company is probably most famous for its Morningstar Rating system, which is a proprietary method of measuring a mutual fund’s performance and relative riskiness.
The system, which debuted in 1985, is a quantitative assessment of a fund’s past performance, as measured from one star (worst rating) to a maximum of five stars (best rating). While the Morningstar (“Star”) Rating is a useful tool in analyzing a mutual fund, even the company stresses that a high rating alone is not a sufficient basis for investment decision.
Morningstar released the results of a study in August that examined the returns of different mutual funds to determine if each one’s respective Star rating was a good determinant
of future performance. The time period for the data was March 2005 through March 2010. Along with Star ratings, other factors were examined, such as the cost an investor pays to own shares in a mutual fund, as stated by its expense ratio.