Research and ratings house van Eyk has announced what it describes as a refinement of the way it rates exchange-traded funds (ETFs) to reflect the important differences between ETFs and other managed funds.
The company said it had simplified its ratings scale for ETFs so that funds which participate in a review and make it through its initial screening process could only be rated an 'A' or 'B'.
van Eyk head of ratings Matt Olsen said the new system recognised that investors had a simple and unambiguous aim when investing in ETFs – to receive a return that closely matched the return of the underlying index.
"ETFs either do the job they were designed to do or they don't," he said.
On that basis, Olsen explained that if it was found there was a high probability a fund would track its underlying index and that it had a strong portfolio construction and investment process (including an appropriate fee structure) and was part of a well-run business, it would be awarded an 'A'.
However, he said that if it lacked these qualities and there was therefore a low probability, it would produce returns similar to the index, it would receive a 'B' rating.
Olsen said van Eyk's rating for a fund which is not sufficiently competitive in its peer group to warrant a review ("Screened") and the "Refused Review" rating for a fund which declines to participate in a review will continue to apply.
