It s only natural: Investors often expect a mutual fund that receives a great grade from Morningstar, the respected mutual fund research group, to do well, just as they would expect a restaurant that got a top-notch grade from the Michelin guide to serve a fabulous meal. But in Morningstar s case, a fund with a supreme ranking can still leave a bitter taste.

Since 2007, domestic stock funds performed about the same whether Morningstar gave a fund its best grade of five stars or its lowest, one star. The performance is much worse, however, with bond funds and balanced funds, which contain a mixture of stocks and bonds: The one-star funds outperformed the five-star picks. Morningstar executives say the market s volatility wreaked havoc with its rankings. Nevertheless, those rankings might have led many investors astray. Investors plow 53 percent more money into a fund within six months after it gets an initial five-star ranking than they would have if it didn t get the top grade, according to a study by the Federal Reserve Bank of Atlanta. People are star crazy, says Thomas Meyer, CEO of Meyer Capital Group, a financial advisory firm in Marlton, N.J., whose clients routinely ask for only top-ranked funds.

Chicago-based Morningstar acknowledges its rankings can be star-crossed; it even points out the performance discrepancy in a recent report on its Web site. It rates funds on their past performance relative to funds in the same category. The bottom 10 percent of funds in a category are assigned one star, and the top 10 percent receive five stars. That methodology isn t as effective at capturing big swings in performance, says Russel Kinnel, Morningstar s director of mutual fund research. The firm explains the limitations of its rating system on its Web site; whether people pay attention is another matter.

So why bother with the stars? Many financial advisers say they can serve as a starting point for winnowing the universe of nearly 8,000 funds. They can also act as a red flag. If a fund s rating drops to one star, investors should investigate the reasons behind the downgrade, says Brian Pon, a financial adviser outside San Francisco. Pon says investors should be wary of building a portfolio of only top-rated funds, since the same bets that were responsible for their strong past performances could all backfire at the same time.