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Morningstar to Launch Analyst Ratings for ETFs

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Morningstar said Thursday that in order to help investors and advisors more easily compare various types of funds, the Chicago-based research firm plans to apply its forward-looking Morningstar Analyst Rating to 300 exchange-traded funds globally, and is “collapsing” open-end mutual funds as well as ETFs into the fund research firm’s star rating.

The “distinction between ETFs, mutual funds and other types of funds is becoming increasingly arbitrary,” Ben Johnson, director of global ETF research at Morningstar, told reporters during the Chicago-based fund-research firm’s annual ETF conference, “as are legacy distinctions that are made toward different types of strategies, be they actively managed, passively managed or somewhere in between.”

Morningstar plans to launch its analyst ratings for ETFs later this year to 100 U.S.-domiciled ETFs, 30 in Canada, 100 in Europe and 40 that are either domiciled or cross-listed in Asia. Morningstar has been assigning analyst ratings to ETFs in Australia since 2014, and rates 50 Australia-domiciled ETFs.

The changes will also help advisors comply with regulatory pressure related to the Department of Labor’s fiduciary rule, Johnson said.

“The burden of proof for [advisors] with respect to the funds they select on behalf of their clients is going to be greater than ever, just given the whole ‘best interest’—you name it—contract; best interest product shelf,” Johnson said during the media briefing. “That is really going to galvanize this concept of the ‘fenceless field’ in that there are no real distinctions that are made between a type of vehicle; type of strategies.”

He said advisors are increasingly, by virtue of regulation, going to have to prove that the investment products and funds in retirement accounts give their clients the best chances of meeting their goals.

Morningstar said it would continue to add to the 300 ETFs that will receive analyst ratings. 


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