Q:

What are Morningstar five-star funds?

A:

Quick Answer

Morningstar bases its mutual fund ratings on past performance, and the funds in the top 10 percent of each fund category receives a five-star rating, explains Morningstar. Morningstar rates funds on a three-, five- and 10-year basis and averages those ratings to calculate a fund's overall star rating.

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Full Answer

When determining the overall rating of a fund that is between three and five years old, Morningstar assigns the three-year rating to that fund as its overall rating, according to NerdWallet. For funds between five and 10 years old, Morningstar weighs the funds' five-year rating at 60 percent and the three-year rating at 40 percent. In determining the overall rating for funds over 10 years old, Morningstar weighs the 10-year rating at 50 percent, the five-year rating at 30 percent and the three-year rating at 20 percent.

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