Friday, August 27, 2010

Morningstar Finds Mutual Fund Expense Ratio Good Predictor of Success

Source: Morningstar

How Expense Ratios and Star Ratings Predict Success

We test the ability of expense ratios and star ratings to predict funds that will survive and beat their peers. We've run some fresh data on expense ratios and the Morningstar Rating for funds.

I'll share the details on who, what, and when, but first a few grabbers. How often did it pay to heed expense ratios? Every time. How often did it pay to heed the star rating? Most of the time, with a few exceptions. How often did the star rating beat expenses as a predictor? Slightly less than half the time, taking into account funds that expired during the time period.

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