And using only the three-year numbers would have denied the funds credit for good performance in their earlier years. So Morningstar cooked up its time-weighted approach. Founders Growth, whose portfolio is fairly similar to that of Janus Olympus, dates back to 1963 and earns four stars, based on its blended performance over the past 10, five and three years. A single month can realign the stars. Stars can turn into meteors.
Old stars are better than new ones.
Warshawsky discovered that funds with at least 10 years of history held onto their top star ratings better than funds with just three years under their belt. Funds that have been around longer also tend to have lower annual expenses, which gives them an enduring performance advantage. Bad ratings are sticky. Blake and Morey found that Morningstar ratings are quite good at predicting which funds will perform poorly. That is, most funds with ratings of one or two stars tend to keep them.