Morningstar recently added exchange-traded funds to its “Morningstar Analyst Rating” framework.
While Morningstar announced these ratings would be coming back in September, it published the analyst ratings on Tuesday for more than 250 ETFs listed around the world, including approximately 100 U.S.-listed funds.
The analyst rating assigned to ETFs follows the same methodology Morningstar uses to assign ratings to traditional mutual funds, which should make it easier for investors to compare ETFs against relevant mutual funds.
These ratings – which follow a Gold, Silver, Bronze, Neutral and Negative scale – are a “forward-looking qualitative assessment of a fund’s prospect relative to its peers in its Morningstar category,” according to Ben Johnson, Morningstar’s director of global ETF research.
Narrowing in the United States, Morningstar analysts assigned a Gold rating to 18 ETFs, a Silver rating to 38 ETFs, a Bronze rating to 35 ETFs, and a Neutral rating to 11 ETFs.
“A positive rating or a medalist rating indicates that we expect a fund over a full market cycle to outperform its category while accounting for risk,” Johnson told ThinkAdvisor. “And the distinctions between gold, silver and bronze is really a kind of cascade of levels of convictions.”
So, the gold-rated funds express analysts’ “highest conviction” in a fund’s ability to beat its peers after accounting for fees and risk over a market cycle, according to Johnson.
Among the gold-rated or highest-rated funds, there were two main commonalities.
“The commonalities tended to be that they are tracking indexes that are very broadly diversified and representative of the opportunities that are available to their active peers,” Johnson told ThinkAdvisor. “Furthermore, they have a sustainable edge relative to peers in their category to the extent that they charge very low fees. So all of our gold-rated funds charge fees that are a tiny fraction of the median fees charged by their peers in their category.”
A complete list of the new U.S. ratings is available here.
By Morningstar’s analysis, the following 18 ETFs received gold ratings and, thus, will likely outperform within their respective Morningstar categories.
Most categories featured no gold-rated ETFs, like large value, diversified emerging markets and high-yield bond.
Within the large blend category, nine exchange-traded funds received a gold Morningstar analyst rating.
- Schwab U.S. Broad Market ETF (SCHB)
- Schwab US Large-Cap ETF (SCHX)
- SPDR S&P 500 ETF (SPY)
- Vanguard 500 ETF (VOO)
- Vanguard Large-Cap ETF (VV)
- Vanguard Total Stock Market ETF (VTI)
- Vanguard Dividend Appreciation ETF (VIG)
- iShares Core S&P 500 (IVV)
- iShares Core S&P Total US Stock Mkt (ITOT)
Within the mid-cap blend category, three exchange-traded funds received a gold Morningstar Analyst rating.
- Vanguard Extended Market ETF (VXF)
- iShares Core S&P Mid-Cap (IJH)
- Vanguard Mid-Cap ETF (VO)
Within the Europe stock category, two exchange-traded funds received a gold Morningstar Analyst rating.
- iShares Core MSCI Europe (IEUR)
- Vanguard FTSE Europe ETF (VGK)
Within the small blend category, two exchange-traded funds received a gold Morningstar Analyst rating.
- iShares Core S&P Small-Cap (IJR)
- Vanguard Small-Cap ETF (VB)
Within the short-term bond category, one ETF received a gold Morningstar Analyst rating.
- Vanguard Short-Term Corporate Bond ETF (VCSH)
6. Real Estate:
Within the real estate category, one ETF received a gold Morningstar analyst rating.
- Vanguard REIT ETF (VNQ)
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