Seeing (Morning)stars on ETFs

Morningstar’s announcement was headlined The stars have come out for exchange-traded funds. Well, good night Gracie.

Cards on the table: I’m suspicious of any system that attempts to put complex investments, be they mutual funds, ETFs or – coming soon! – hedge funds in a neat little box and then compounds the calumny by slapping little stars on their foreheads as an indicator – however heavily qualified – of which are relatively super, good and toxic for your financial health.

Life just ain’t that simple, and Morningstar’s system is subject to what might most kindly be called random volatility.

One of my own mutual fund investments, the Hussman Strategic Growth Fund (HSGFX), last month leapt from three to five stars, apparently by simple dint of being moved to Morningstar’s new “long-short

Comments

[RogerNusbaum]

I may have picked on this idea once or twice myself. This is an excellent article. The point of not being forward looking is, to me the most important. I think the sector concentration issue is easily mitigated. The financial weight of iShares Belgium needs to be counted into the financial weigting of the entire portfolio.

A given ETF captures a certain effect. Looking at past performance, as the article says, offers no help as to why some should or should not buy the Sweden ETF.