CHICAGO, March 3, 2006 – Morningstar, Inc., a leading provider of independent investment research, today announced it has launched a MorningstarTM Rating for exchange-traded funds (ETFs) based in the United States. The Morningstar Rating, often called the “star rating,” is a familiar tool that will help investors and advisors compare the risk-adjusted returns of ETFs with other ETFs and similar open-end mutual funds. Beginning today, Morningstar is providing ratings for 107 ETFs; investors can find them on Morningstar.com and in other Morningstar products.
“Increasingly, investors are using exchange-traded funds as vehicles to help them implement their investment strategies,” said Dan Culloton, senior mutual fund analyst at Morningstar. “By providing ratings on ETFs, we can help investors do their homework and better evaluate whether an ETF makes sense for their portfolios.”
ETFs are often compared with open-end index funds, and the rating provides an additional measure for comparing these investments. The Morningstar Rating for ETFs is derived by comparing each ETF to open-end mutual funds in the same Morningstar Category, or peer group. The rating uses the same methodology as the Morningstar RatingTM for funds. To be eligible for a rating, the ETF must have three years of returns. Because investors must pay commissions to purchase and sell ETFs on an exchange, Morningstar models the trading commissions for an ETF by using a nominal front load and deferred load for each rating period.
The Morningstar Rating for funds was introduced in 1985 and rates mutual funds from 1 to 5 stars based on how well they've performed (after adjusting for risk and accounting for all sales charges) compared with funds that share the same investment style and focus. The rating is designed to be a starting point to help investors narrow the search for funds from a large number to a more manageable group worthy of further research.
Editors’ Note: For more information about the ETF rating methodology, please contact Kathy Panagopoulos or go to http://corporate.morningstar.com/us/ratingforetf.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of investment research in the United States and in major international markets. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutional clients. Morningstar provides data on more than 125,000 investment offerings, including stocks, mutual funds, and similar vehicles. The company has operations in 16 countries.
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