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Morningstar may end short ETF ratings

Providers who offer leveraged and “short” exchange-traded funds to UK investors could be set for a blow as Morningstar is considering cutting the products from its star-rating system.

US-based Morningstar’s director of ETFs Scott Burns told reporters at a Chicago conference on Monday that the products are more suitable for traders than long-term investors.

Speaking to Money Marketing after the conference, he said any decision to cut the products from the US rating service would oblige the UK office to follow suit. He says: “Our rating methodology for ETFs would apply worldwide.”

Deutsche Bank’s db x-trackers division, ETF Securities, ProShares and Lyxor are among those offering leveraged versions or short ETFs.

The funds include ETF Securities’ FTSE 100 super short strategy index that returns twice the inverse of the daily percentage change in the level of the FTSE 100 index.

ETF Securities co-head of European sales Scott Thompson says: “They are not a buy and forget type of investment but this is not a failing of the product. They exist to serve clients who want to take advantage of shorter-term opportunities, which have been a key part of investing in the current market.”

But Chelsea Financial Services head of research Juliet Schooling says while ETFs are growing in popularity, markets are difficult to call so in general they remain more suitable for sophisticated clients.

She says: “I think they are for a more sophisticated investor. They are certainly not something that we have had any call for from our clients and Morningstar are right in that they are not really for the general public wanting to invest their savings.”



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  1. Just when investors need information about short and leveraged ETFs, Morningstar is going to CONTINUE its refusal to rate them.
    If you can rate a positive index fund in a bear market, why can you not rate an inverse index fund in a bull market?
    You might also ask Morningstar why when there are more separate accounts than unique mutual funds they place so little emphasis and in fact seldom even mention the separate accounts included in Morningstar Principia Separate Accounts data base.
    With 99% of all mutual fund unwilling to ever take significant enough defensive action to protect investors from markets unfavorable for their style-boxes.
    Considering that half of every dollar invested in retirement savings accounts lost to “conservative” mutual funds and blue-chip company stock, it would seem to be time for portfolio management innovation not denial of innovative services like ETFs and separate accounts.
    Morningstar needs to get its head out of the sand and encourage innovation. They are on the wrong side of this issue.

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