If you've ever researched a mutual fund, chances are you've stumbled across a report by Morningstar, which tracks performance, monitors...

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NEW YORK — If you’ve ever researched a mutual fund, chances are you’ve stumbled across a report by Morningstar, which tracks performance, monitors management and even bestows grades with its well-known rating system.

Five stars from Morningstar are marketing gold for a mutual-fund company, the sort of compliment that gets gleefully trumpeted in advertisements, sales literature and reports sent to shareholders. Spots on the fund tracker’s “picks list” are even more coveted. But there’s another, far less prestigious award you’re not likely hear about from your fund company: It’s the Morningstar “pan,” the booby prize of the fund world.

Parsing through the 2,000-some-odd funds in Morningstar’s database is a full-time job for the company’s team of more than 25 analysts. The picks list currently numbers 136. The list of funds to avoid is shorter, with just 67 names, but considered just as important, said Kunal Kapoor, director of fund analysis at Morningstar.

You might think this dishonor is based solely on poor performance, but it takes a lot more than lousy returns for a fund to be panned, Kapoor said. Analysts also look for inept management, outsized costs and bad strategies. Panned funds are those Morningstar thinks you shouldn’t own because they’re likely to underperform in the future.

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“Our philosophy is to be patient, but there are certain things it’s not worthwhile to be patient about,” Kapoor said. “There are good funds that will underperform from time to time. … The key thing for investors is to separate the contenders from the pretenders. Some funds are truly dogs, and those are the ones we want to identify.”

Consistency of strategy and stability at the top can go a long way for shareholders. Even funds that have these traits can go through difficult periods when their style or asset class falls out of favor, but that alone isn’t a good reason to lose patience. For a fund to be panned, it needs bigger problems than temporary underperformance. It needs an expense structure that disadvantages shareholders, or big-time management problems, from overly frequent personnel changes to more serious issues.