Since 1985, a company named Morningstar has provided investors with its rating system, assigning
one to five stars to funds. You will see these stars in all the mutual fund ads.
To determine the number of stars to award a fund, Morningstar scores a fund for risk. Then it
subtracts that figure from the fund’s five-year return to get a risk-adjusted rating.
The top 10% of funds get 5 stars, the next 22.5% get 4 stars, and the next 35% 3 stars, the next
22.5% 2 stars, and the bottom 10% get just 1 star.