Andrew Herdman

Morningstar's ETF Ratings -- What's the Use?

Absolutely right of course. The average investor has no time for serious analysis of risk-adjusted returns and proper selection of appropriate factor-weighted benchmarks. So instead we're showered with simplistic ratings of little or no predictive value. Meanwhile, clever fund managers and ETF sponsors show increasing ingenuity in gaming the rather arbitrary fund categorisation and benchmark selection process, whilst disguising their underlying risk factor tilts. Still, it will be interesting to see whether Morningstar tries to keep the funds and ETFs ratings segregated. Otherwise it really could end up looking like the SPIVA results, with lower cost index funds and ETF's dominating the long term performance charts. By the way, does anyone know what licensing fees Morningstar obtains, if any, for the use of its star ratings, as well as for its indexing methodologies?