How to Pick Top Mutual Funds Using Morningstar
Morningstar is a well known and well respected investment research and analysis firm. Morningstar is most popular for its "star ratings" of mutual funds on a 1-5 star scale. Morningstar provides a free trial to view its content (link below). But for full access to all of its data, a paid membership is required. Morningstar rates funds in a variety of categories and uses a number of factors to determine its ratings.
Other People Are Reading
Instructions
-
-
1
Sign up for a free trial or log in to your account at the Morningstar website.
-
2
Click on the "funds" section on the top banner (between options and ETFs). On the left hand side of the page, there are some menus that allow users to sort funds by ratings and performance.
-
-
3
Pick a category of mutual funds to research. There are thousands of mutual funds, some of them bond funds, some of them stock funds, some that buy risky assets, some that buy conservative assets. Look up the ratings and performance information for the types of funds you desire for your portfolio.
-
4
Read some of Morningstar's "mutual fund insight" research articles.
-
5
Take a look at the fundamental data on the funds you are researching. It is important to compare funds' expense ratios and alpha and beta scores to a benchmark. Expense ratios are the expenses the fund charges investors to run the fund. Alpha is a measure of performance, while beta is a measure of risk. Look for funds with a low beta (below 1) and a high alpha (greater than 1).
-
6
Consider index funds, too. Most of the 6,000+ mutual funds in existence are actively managed, meaning that fund managers are actively involved in buying and selling stocks for their funds. Other funds, however, use a passive investing approach. These funds design their investments around the stocks that make up an index such as the S&P 500 index. Passive funds often outperform actively managed funds. Also, consider using ETFs, which are essentially index funds that trade like stocks.
-
1
