Standard & Poor's Fund Research is to introduce qualitative star ratings for index tracking funds, w...
Standard & Poor's Fund Research is to introduce qualitative star ratings for index tracking funds, which it hopes to launch in August.
The ratings, launched in response to the wide spread of absolute performance of index funds, are an extension of the current Micropal star system.
Five stars is the highest ranking, indicating a fund which S&P ranks in the top 10%. One star represents a fund in the bottom 25%.
James Tew, head of fund research at Standard & Poor's said that index funds were currently given performance-only star ratings against the UK All Companies sector. Quantitative elements are now being added to the rating of index funds.
Of the 17 FTSE 100 index funds that have been in existence for three years or more all but one has a three star or above rating putting them in the top half of UK All Company sector funds. None has earned the top five star rating. There are now 26 FTSE 100 index trackers which S&P rates.
Tew said the new rating would take into account a whole rank of factors, including the research capabilities of the asset manager, computer back up, methodology for dealing with new entrants and departures from the index or mergers, and the full raft of sources of tracking error.
It would assess the approach to replicating the index, whether it was full or partial, as well as the fund's charging regime.
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