Morningstar has added the rating and researching of passive funds to its services.
So far it has rated just 25 of the most popular index funds in the UK. The research provider said the increase in popularity of and demand for index funds and exchange traded products (ETFs) have led to it putting them on a “level pitch” with actively managed counterparts.
The rating scale for passive funds mirrors that already used for open- and close-ended funds:
Gold: a best-of-breed fund that distinguishes itself across the ‘five pillars’ and has garnered the analysts’ highest level of conviction.
Silver: a fund with notable advantages across several of the five pillars – strengths that give the analysts a high level of conviction.
Bronze: a fund that has advantages that outweigh any disadvantages across the pillars and provides sufficient analyst conviction to warrant a positive rating.
Neutral: a fund that is not likely to deliver standout returns but also is unlikely to significantly underperform.
Negative: a fund that has at least one flaw likely to hamper future performance and that is considered an inferior offering to its peers.
Among the first 25 funds rated, 23 were awarded a silver or bronze rating and two were rated neutral. So far, no fund has received a gold rating.
Passive fund manager Vanguard was the biggest winner in the first group of rated funds. Twelve of the group’s funds were among the 25 rated, all being rated silver or bronze.
All funds were measured against their actively managed peers in their respective Morningstar categories as well as being weighed against their comparable index funds and ETFs.
Morningstar said it should also come as no surprise that the top-rated funds analysed were among the lowest-cost investment options, compared with actively managed funds and investment trusts.
