Morningstar Awards: ETF selection process

A diverse jury of non-Morningstar experts selects the winner for Equity ETF, Fixed-Income ETF and Specialty ETF, says Christopher Davis, director of manager research.

Ashley Redmond 25 November, 2014 | 6:00PM Christopher Davis
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Ashley Redmond: I'm Ashley Redmond for and I am here with Christopher Davis, director of manager research. Christopher, thanks so much for joining me.

Christopher Davis: Thanks for having me Ashley.

Redmond: As you know the awards are happening November 26 at the Fairmont Royal York, right here in Toronto. This year it is being hosted by Peter Mansbridge and we are all really excited for the awards. One thing I wanted to [discuss] was the set of ETF Awards which are really popular. Let's focus on Equity ETF, Fixed Income ETF and Specialty ETF--these awards are picked by a jury.

Davis: That’s right.

Redmond: So, who’s on this jury?

Davis: Well, we've got a cross section of the industry; we get ETF analysts, the broker community and the advisor community. We also have an independent researcher, who is the editor of ETF Insight. So, we get really a diverse array of perspectives to weigh in on what their favorite ETFs are in each of those categories.

Redmond: How do they nominate and then select the winner?

Davis: Well, we have a really basic criteria. We require ETFs to have a three year track record to be included in the awards and we try to police conflicts of interest. For example, if there were a Morningstar person on the jury we would prohibit them from voting on any ETF that is licensed to a Morningstar Index.

Redmond: This year is there any Morningstar employees on the jury?

Davis: No, this year it's a completely independent jury.

Redmond: Okay. And for the ETF Provider of the Year, which is another big award—now that is selected by your team, correct?

Davis: That’s right. And so the idea behind this award is to reward an ETF provider that is consistent with Morningstar's values. These are providers that show evidence that they are putting the investor first. So this could be lowering fees or a really worthwhile initiative. It could be an innovation that really benefits investors. We usually steer clear of providers that are launching gimmicky products or have really high fees.

Redmond: When you look at the ETF landscape and take a step back from a broader perspective—do you see the competition really ramping up in these different categories?

Davis: We're really seeing it in the awards. The ETF jurors are voting for a much more diverse array of ETFs versus a couple of years ago. And we're really seeing different kinds of ETFs that cover interesting niches. For example, there is a covered call ETF which would play a real, limited, but interesting role in an investor's portfolio. We're also seeing actively managed or rules-based ETFs.

BMO is a long time player in the ETF business, but you see its rival RBC jumping in the game with quasi-active ETFs. So, it is becoming a real hot house of innovation. Not all of these innovations are good for investors, but on balance I think it's a good thing for the asset management industry in this country.

Redmond: Great, we are looking forward to seeing the winners on November 26.

Davis: I am too.

Redmond: We'll see you November 26 at the Morningstar Awards at the Fairmont Royal York, right here in Toronto.

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Ashley Redmond

Ashley Redmond  Ashley Redmond is a Vancouver-based freelance writer.

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