Letter to the WSJ Editors
CEO Kunal Kapoor responds to The Wall Street Journal’s coverage of Morningstar fund ratings
Nov 02, 2017
This letter was published Nov. 2, 2017, by The Wall Street Journal.
I strongly disagree with the assertions made in “Mutual-Fund Ratings Are Not What They Seem” (Page one, Oct. 26). Your own analysis found that 5-star funds outperform 4-star funds, which outperform 3-star funds, which outperform 2-star funds, which beat 1-star funds. Similarly, your own findings on the Analyst Rating support the same conclusion—that it pointed investors toward a universe of funds that have a probability of better performance. That’s not a mirage. That’s tilting the odds of choosing a good fund in investors’ favor.
The Journal also said that “while funds rated highly by the Morningstar analysts did better, the differences among the funds weren’t large.” The fact is that small differences matter over time. Our ratings don’t guarantee success—no ratings system does—but again, they tilt the odds in investors’ favor. That adds value and creates meaningful gains for investors over time.
We have always said the star rating is a starting point for research and shouldn’t be the sole basis for assessing a fund. Nevertheless, some investors (or the advisers who represent them) still take a shortcut approach, which denies them the benefit of a more thorough research and fund-selection process. Our goal is to help investors achieve their financial goals. If we had reason to believe a rating wouldn’t further that mission, we wouldn’t publish it—period. If we had reason to believe investors couldn’t effectively apply a rating in practice, no matter how well intended, we wouldn’t make it available—period. We will continue to serve the interests of investors in a transparent, independent manner.