Morningstar Canada says that its research shows that funds that receive its five-star rating tend to have lower management expense ratios than lower-rated funds.

A comparison of average MERs within fund categories showed that, among the 1,525 funds receiving a Morningstar rating at June 30, five-star funds had the lowest MERs. Four-star funds had below-average MERs, three star funds were near-average, while two and one star funds were more expensive.

“Over time, the impact can be substantial,” says Mark Warywoda, senior analyst with Morningstar Canada. “Fund investors now are forced to pay more attention to improving their odds. If easy money in the markets is a thing of the past, then profit-maximizing investors will have to do the same thing that many corporations are doing now to get their bottom lines back in order: cut back on costs.”

Morningstar’s ratings are based on long-term performance records, and only funds with a three-year track record are subject to the ratings. The ratings are a quantitative, objective assessment of a mutual fund’s historical risk-adjusted performance relative to its peers. In Canada, the peer groups are determined by the fund categories as defined by the Investment Funds Standards Committee.

Among the 22 funds that gained five-star status in June, five were from AIM Funds Management Inc. Three were from C.I. Mutual Funds Inc., giving it 10 top-rated funds, the most of any Canadian fund manager, followed by AIM with eight and Mackenzie Financial Corp. with seven. A total of 152 funds had five-star ratings at June 30.