(MONEY Magazine) – Talk about confusing. Fund tracking firms like Lipper Analytical, Value Line and Morningstar (Money's data source) employ some 40 labels to categorize America's 6,700 stock and bond funds. What's worse is that some funds may be deliberately taking advantage of the labeling confusion to mislead investors.

Here's how. When a fund goes public, the fund tracking outfits assign it to one of their proprietary categories based on the fund's objective and investment policies as described in its prospectus. Then the fun begins. After that initial assignment, fund execs can (and sometimes do) lobby the raters to get the fund switched to a category that, in theory at least, better reflects the fund's true nature.

Guess what? When the funds prevail, according to a study by finance professors Stephen Brown of New York University and William Goetzmann of Yale, the category switchers usually perform better vs. their new peers than they did against their old ones. (The professors examined 237 stock funds that switched categories between 1976 and 1992.) "Our test does not prove funds switched purely to improve their relative returns," notes Goetzmann, "but the results certainly suggest that may be the case."

Furthermore, the researchers found that fund labels don't tell you much about the way a portfolio is likely to behave. When Brown and Goetzmann analyzed the performance of 2,283 stock funds, they found, for example, that fewer than two-thirds of the 391 funds classified as "growth and income" selections actually performed in a manner consistent with an investing style that emphasizes buying the shares of large dividend-paying companies.

To avoid being tripped up by a mislabeled fund, check out your fund's true investing style. Morningstar's and Value Line's main fund publications (available at most major libraries) provide style analyses that show whether a fund primarily buys large, small or medium-size companies and if it takes a growth, value-oriented or blended approach. Only by going beyond the label and examining how your fund invests can you know that your chart topper isn't mopping up against a misdefined field of bogus competitors.

--Penelope Wang