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‘Not all trackers are equal’ – FE 5 Star Crown ratings updated

22 August 2017

Over half of UK Gilts funds achieved the five FE Passive Crown rating at the latest Passive Crown rebalance, the ratings agency has announced. This compares to just 18% of Global Equities funds.

In total, 268 passive funds were rated in the bi-annual FE Passive Crown ratings rebalance. The ratings are designed to check how well a passive fund is doing its job at tracking its benchmark over three years. FE said the funds are ranked objectively and transparently using a quantitative methodology in which funds are ranked between one and five Passive Crowns.

Oliver Clarke-Williams, portfolio manager at FE, said that the high number of UK Gilts funds which had been awarded five Passive Crown ratings was largely down to the fact that they are highly liquid and easy to replicate, whereas with global equities investors were having to buy a large amount of stocks from every region in the world.

“With none of the Sterling Corporate Bond and Property funds receiving a five Passive Crown rating, it is clear that not all trackers are equal and some markets are significantly more difficult to replicate than others.”

The percentages of five FE Passive Crown funds rated in each sector are (click image to enlarge):

At a group level, BlackRock comes out top with 19 five Passive Crown rated funds followed by Vanguard with 12.

FE added that at the latest rebalance, an additional 40 funds had been rated as a result of continued investor demand for passive funds, with a particular focus on global tracker funds and ETFs.

Clarke-Williams said: “More people are investing in passive funds and are increasingly choosing passive exposure to global markets. Therefore, more due diligence is needed to match that accorded to active funds. FE Passive Crown ratings are a very good way for people to do just that.”

Unrated to five Passive Crowns

The rebalance also saw eight funds, which had been previously unrated (due to lack of three-year performance history) gain a five Passive Crown rating, seven of which are Global Equities funds.

Previously unrated funds that have been awarded a five FE Passive Crown rating and their respective sectors:

• UBS ETF – MSCI World UCITS ETF – Global Equities

• iShares Core MSCI World UCITS ETF – Global Equities

• iShares MSCI World UCITS ETF Inc – Global Equities

• Vanguard Global Stock Index – Global Equities

• iShares Developed World Index (IE) – Global Equities

• iShares Edge MSCI World Minimum Volatility UCITS ETF – Global Equities

• Lyxor UCITS ETF MSCI World – Global Equities

• DB X-Trackers MSCI USA Index UCITS ETF (DR) – North American Equities

FE’s latest Passive Crown ratings follow the recent active Crown rating rebalance in July 2017. FE launched its Passive Crown ratings in 2015 as there had been a gap in the availability of quality research on passive funds owing to their complexity.

Oliver Clarke-Williams concluded: “What these ratings show is that past tracking ability of a passive fund can be used as a guide to how well that group will track an index in the future. The difference between the best and worst trackers/ETFs is large and makes a significant impact on the value of your investment.”



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