Introducing Morningstar's Analyst Rating for ETFs

As investors look to both mutual funds and ETFs, a new rating helps choose between them.

Christopher Davis 1 November, 2016 | 5:00PM

Investors are making less and less distinction between mutual funds and exchange-traded funds, and that's a good thing. ETFs are mutual funds, albeit ones that trade on a stock exchange. When looking for substitutes, investors should compare both vehicle types against each other. Within Canada, the Morningstar Rating -- more commonly known as the "star rating" -- has long ranked ETFs and mutual funds within the same investment categories based on their historical risk-adjusted performance.

The Morningstar Analyst Rating for ETFs, which we are launching today, is a forward-looking assessment of an ETF's prospects relative to its ETF and mutual fund competitors. We've had qualitative Analyst Ratings for mutual funds since 2011, and extending them into the ETF arena helps investors make effective comparisons across vehicle types. We use the same scale in both types of funds, assigning Gold, Silver, Bronze, Neutral or Negative ratings based on the fund's long-term prospects versus its mutual fund and ETF category rivals. Our methodology is the same as well. Analysts assess the quality of the ETF's people, process, performance, parent organization and price, just as they do in rating mutual funds.

Morningstar analysts now rate more than 300 ETFs globally, including nearly 40 in Canada. While we expect to rate a longer list of strategies, our initial ratings focus primarily on market-cap weighted index trackers and a smaller group of strategic-beta ETFs across major market classes.

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Christopher Davis

Christopher Davis  Christopher Davis is Director of Manager Research at Morningstar Canada.

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