This study examines the Morningstar rating system as a
predictor of mutual fund performance for U.S.
domestic equit funds. We also compare the predictive
abilities of the Morningstar rating system with
those of alternative predictors. The results
indicate findings that are robust across different
samples, ages and styles of funds, and performance
measures. First, low ratings from Morningstar
generally indicate relatively poor future
performance. Second, there is little statistical
evidence that Morningstar's highest-rated funds
outperform the next-to-highest and median-rated
funds. Third, Morningstar ratings, at best, do only
slightly better than the alternative predictors in
forecasting future fund performance.