FYI: It’s easy to identify funds with strong records. But as my colleague Russ Kinnel noted recently, it takes more than a strong record to earn a Morningstar Analyst Rating of Gold, Silver, or Bronze. Those medals reflect our expectation that a fund will be a standout performer in the future, and that requires a deeper investigation into a fund’s fundamentals to determine whether it has a sustainable competitive advantage. If our analysts aren’t convinced that a fund can continue to deliver strong results, they’ll assign it a Morningstar Analyst Rating of Neutral or possibly Negative.
When a fund with a great record earns a Neutral rating, we get questions. In the world of bond funds, the reason our analysts take a skeptical view of past performance often comes down to risk. We ask ourselves the following questions: