Do ETFs Need Ratings?
November 17th at 1:07pm by Tom Lydon
Lately, research firms have been pushed to rate exchange traded funds (ETFs). Some are hoping this will lead to an even wider acceptance of ETFs among investors and that more people will use them if they understand them. AltaVista Independent Research Inc. of New York began offering fundamentally driven research on ETFs online, according to David Hoffman of InvestmentNews. The website helps investors determine aggregate earnings growth, price-earnings ratio,or dividend yield for an ETF. Morningstar began rating ETFs in addition to mutual funds last March. The company focuses more on the index the ETF is following.
The most important thing ratings can add are more credibility and acceptance, because ETFs are already popular among investors. Criticism includes the fact that ratings don’t give enough information, such as weightings of specific stocks. The weighting has a lot to do with the performance, so if a fund is rated high, this can be misleading. Also, some of the advice comes with a heavy price tag, so it may be out of reach.
