For funds assigned a one-star rating by Morningstar, it's not the end of the world. That's one takeaway from Tuesday's Fund Track column, penned by Daisy Maxey.

Maxey zeroed in on the White Oak Fund, which had a one-star rating in December when David Kudla, chief investment strategist at Mainstay Capital Management, decided to add it to clients' portfolios.

"Some were appalled" by the decision, Kudla confessed to Maxey. Kudla said he chose the fund because he expected technology to perform well in 2009. This year through October 30, the fund is up 43 percent, whereas its peers advanced about 24 percent on average, Morningstar data show. The fund also outperformed the five-star Amana Trust Growth, which is up 23 percent.

The White Oak Fund was upgraded to a two-star fund in the first quarter.

Kudla told Maxey that he takes the ratings into account, but also looks at other factors. "A rating based on the performance of an aggressive-growth equity fund, which includes the worst bear market since the Great Depression, was not a good indicator of how that fund was about to perform in 2009," he said.

For his part, Morningstar director of mutual-fund research Russ Kinnel said the ratings are intended as a summary of past risk-adjusted performance and do not possess "any great predictive power." 

Edited by: Daniel Tovrov


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