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Funds 206: Gauging Risk and Return Together: The Morningstar Rating

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1.
The Morningstar star ratings are _______.
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Mathematical measures of risk-adjusted performance. Star Ratings are not subjective or assigned by analysts, nor are they meant to predict short-term winners. Star Ratings are created mathematically, and they are based on historical risk and return.
2.
The Morningstar Medalist Rating picks up where commonly used measures of the past leave off.
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True. It is a forward-looking, qualitative rating assigned by Morningstar's 100+ fund analysts. It takes into account many factors that the purely quantitative Morningstar Rating for funds cannot.
3.
Which statement is false?
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The Morningstar Medalist Rating measures a fund's risk-adjusted performance against funds in the same category. It's the Morningstar Rating (star rating) -- not the Morningstar Medalist Rating -- that measures a fund's historical risk-adjusted performance and is a backwards-looking rating. The Morningstar Medalist Rating is a forward-looking measure and is assigned by the Morningstar manager research analyst covering that particular fund.
4.
Morningstar will only rate a fund if _______.
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It has at least three years of performance history. Morningstar rates all funds for up to three periods--the trailing three, five, and 10 years.
5.
Which fund probably earns a five-star rating?
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A fund with extraordinary returns and low risk. Very low returning funds are unlikely to earn high ratings, as are modest-risk, modest-return funds.