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Rakhi Vasavada
Rakhi Vasavada, Financial Advisor
Category: Finance
Satisfied Customers: 4543
Experience:  Attorney and Financial Expert. Have specialization in Financial Laws.Practice experience of over 13 years
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How reliable are www.morningstar.com ratings actively-managed

Resolved Question:

How reliable are www.morningstar.com ratings for choosing actively-managed mutual funds to hold over multiple economic cycles?
Submitted: 1 year ago.
Category: Finance
Expert:  Rakhi Vasavada replied 1 year ago.
Dear Friend,Hello and welcome. Thank you for providing an opportunity to assist you.I understand your frustration. However, note that using Morning star's ratings singularly will not help you much at all. It needs to be read in conjunction with other details. For example -- Expense Ration. The expense ratio is the annual fee for investing in a fund. This fee is charged by the mutual fund manager, and it’s one of my favorite metrics. If you assume that mutual fund managers have no value — which I find to be a very good approximation — you would expect lower costs to predict better performance. Expense ratios are strong predictors of performance. In every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile. So, overall, you will need to see that Expense Ratio needs to be 'greater' than Morning star's rating. IN NUTSHELL, I would recommend using Morning star's rating just as a primary indicator. Rest, you will need to balance it out.The main reason being -- such ratings are based on past performance and they will NOT predict cyclical pattern changes of any industry or a sector.. I am sure this would help. You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.Warm Regards
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