FE Trustnet is set to launch a ratings service for passive funds to be made available to financial advisers on April 22.
Branded the FE Passive Fund Rating, it will use a quantitative methodology to rate “around” 250 exchange-traded funds (ETFs) and open-ended passive funds.
The funds will be ranked on a score between one and five, with five being the highest rating, based on their ability to track their chosen index.
FE has judged the funds based on three main criteria, tracking difference, tracking error and fund size, and said it wanted to move the debate on passive funds “away from just costs”.
Although around 250 passive funds will be rated at the launch of the service, FE said it would look to increase that number “based on customer requests and the availability of indices”.
In order to qualify for a rating, the passive fund has to have at least a three year track record and be available for sale in the UK.