This analysis examines the persistence of Morningstar four- and five-star ratings among mutual funds and variable annuities for one-year periods, 1997, 1998 and 1999, and for the two-year period, 1998-1999. For those many investors to whom the overall Morningstar rating is useful information in deciding which mutual funds and variable annuities to buy and hold in their investment portfolios, the persistence of a high rating should matter a great deal. The results of this study indicate that persistence is hardly assured and is somewhat variable across years and investment categories. Persistence, however, is more likely among older mutual funds and annuities, and among those whose high rating has withstood the test of time.
Reprinted with permission by the Financial Planning Association, Journal of Financial Planning
September 2000
Mark Warshawsky, Mary DiCarlantonio and Lisa Mullan
The Persistence of Morningstar Ratings
