| Alert Message
Morningstar rating downgraded.
Alert Definition
Morningstar, one of the most respected research organizations that tracks mutual funds, has decided that this fund deserves a lower overall rating. Morningstar bases its overall ratings (on a scale of one star to five stars with five being best) on a fund’s risk-adjusted performance compared with the performance of other funds in its asset class (domestic stock, international stock, taxable bond, or municipal bond) over the life of a fund. If a fund scores in the top 10% of its category, it receives five stars. If it falls in the next 22.5%, it earns four stars. A place in the middle 35% results in a three star "neutral" rating. Funds in the next 22.5% get two stars and funds in the bottom 10% get one star. Star ratings are recalculated monthly.Fluctuations between the four- and five-star ratings are not significant for long-term investors. A move from a one to a two-star rating is similarly unimportant. A fund’s star-ratings are only a place to start when researching a mutual fund. These ratings compare a fund to a very broad category of peers. A fund could be earning a worse rating simply because its style is out of favor even though, when compared against a narrower group of funds with similar styles, the fund’s performance shines. It’s also important to check to see why a fund’s rating has tailed off. Is the fund underperforming? Has risk soared? Has the manager who built the fund’s track record moved on? Has the fund changed its investment objective? Are new fees sapping returns to investors? It’s wise to call the fund directly to get the very latest scoop. NOTE: Morningstar’s star ratings don’t work very well for idiosyncratic funds. A fund that really doesn’t fit into any group very well can wind up with a low rating simply because the fund zigs when the other funds that Morningstar has lumped in with it zag. Conversely a fund can look better than its peers because it’s following a risky strategy that other managers are avoiding. It’s important to understand exactly why a fund has been downgraded before pulling your money out.
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