(MONEY Magazine) – "The competition is seeing stars." so crowed a recent eye-catching Wall Street Journal ad for the $30 billion AIM fund family. The ad went on to note that AIM's $271 million Limited Maturity Treasury Shares fund and six other family portfolios had won top four- or five-star rankings (out of a possible five) from the rating service Morningstar Inc. But alert readers who scanned the Journal's daily fund listings on the facing page would have noticed that Lipper Analytical Services, the paper's fund data supplier, was giving Limited Maturity a lowly D grade on a scale of A to E. In addition, the Value Line Mutual Fund Survey ranks the same fund as a 2 on a scale from 1 (for the top) to 5.

First, a quick word about the raters. Lipper's rankings appear in about 150 newspapers, while Morningstar ($395 a year; 800-876-5005) and Value Line ($295; 800-284-7607) publish their ratings in the statistical analyses they update for their subscribers every two weeks. (Money uses Morningstar's data but does not publish its star ratings.) Now, the key question for investors: Can the stars, letters and numbers actually help you zero in on top funds?

Fund experts say the short answer is no. The ratings will trip you up if you rely solely on them without scrutinizing the comprehensive information on risk and returns that Morningstar and Value Line also provide on 1,500 to 2,000 stock and bond funds. (Lipper grades 4,300 portfolios but gives details on volatility for 3,500.) Then too, the ratings are purely retrospective and don't predict future performance. "Any list of five-star or No. 1 rankings singles out funds whose market sectors have done well," says president John Markese of the American Association of Individual Investors. "When their sectors cool off, so do the funds."

Markese points out that although the ratings firms factor as many as 10 years of results into the rankings, their methodologies effectively give greater weight to the most recent performance, thus rewarding funds whose investing style has dominated the past two to three years. As a result, portfolios that carry a top ranking today could slip to mediocre status within a year or two if their once sizzling strategy fizzles. Morningstar figures that 40% of its roughly 200 five-star funds slip to a lower rating within a year.

Nonetheless, even the critics agree that the rankings, combined with the wealth of other performance data the services offer, can boost your fund-picking prowess by helping you glean insights into how a portfolio might perform under a variety of market conditions. On that score, the consensus among fund cognoscenti is that Morningstar and Value Line both provide more useful fund-picking data than Lipper does, and that Morningstar's service is most valuable overall for the breadth of its data and depth of its analysis.

Keeping the caveats in mind, here are two ways the rating services can help you. They can:

HELP NARROW YOUR SEARCH FOR FUNDS. Homing in on funds that have been highly rated by one or more of the services at least provides a starting point for you to launch a more detailed investigation of specific candidates you might want to add to your portfolio. "If you know what type of fund you are looking for," says financial planner Ronald Roge of Centerreach, N.Y., "then the statistical analysis these firms offer can show you how specific funds perform vs. their true peers."

PROVIDE INSIGHT INTO A FUND'S RISKINESS. Within limits, that is. Ratings alone can't tell you what kind of a ride you're in for with a fund. For example, Lipper's letter grades simply rank funds according to the quintile in which their raw total return placed them, not taking into account the variability of their gains. The other two services do factor in risk but use different measures: Morningstar looks at how often and by how much the fund's return lags that of 100% safe Treasury bills, while Value Line takes an even tougher stance, penalizing funds for any wide swings in returns, whether up or down. By using Value Line and Morningstar statistical summaries, however, you can track how a fund's returns have fluctuated vs. its peers over the past one to 15 years. This way, you can spot high-performance funds that earned lofty grades but may still be too jumpy for your tastes.

The bottom line: The rating services and their grades can supplement--but never replace--your own critical judgment.