Morningstar is actually tumbling after The Wall Street Journal slapped the Chicago, Illinois-based mutual fund rating company using a bad rating of its own.
‘MORN’ was trading down 4 percent Wednesday for its biggest drop in two years following a 4,000-word article within the Journal in which raised serious questions about the effectiveness of Morningstar’s coveted rating system.
The Journal tested Morningstar’s rating system by examining the performance of thousands of funds in which the company reviewed over nearly 15 years. They found in which funds the company rated highly failed to deliver.
While the Journal found in which most 5-star funds outperformed, “on the average, 5-star funds eventually turn into merely ordinary performers.” Only 12 percent of funds given 5 stars did well enough to earn the same rating over the next 5 years.
“Billions of investor dollars hang within the balance,” they wrote.
Morningstar did not respond to a request for comment via CNBC.
The company told the Journal in which the “star rating works well when the idea’s used as intended: as a first-stage screen in which helps identify lower-cost, lower-risk funds with not bad long-term performance.”
“the idea is actually not meant to be used in isolation or as a predictive measure,” Morningstar said. “Reversion to the mean is actually a powerful force in which can affect any investment vehicle.”
Morningstar has been performing well in which year. Even accounting for Wednesday’s decline, the company’s stock is actually up almost 20 percent over the past 12 months.
Click here to read the full story via The Wall Street Journal.