Complementing its long-standing active fund grading methodology, the data provider will compare passive funds using historic tracking errors, charges, and the culture and experience of the teams managing the funds.
It said the most important part of the research will concentrate on the process. In particular, it will focus on how groups try to add return to offset fees and expenses, and on the assessment of the inherent operational risks. The attributes of the underlying indices will also be considered, including liquidity and replicability.
Kate Hollis, director of fund research at S&P Capital IQ, said there had been a “massive upsurge” of interest in passive funds.
“In the run-up to UK RDR, established players and new providers alike have introduced plain vanilla low-cost tracker funds reinforcing extreme competitive pressures,” she said.
“We believe the best way to determine which passive funds can achieve a grading, i.e. which funds have achieved their objectives in the past and are likely to achieve them in future, is by combining the quantifiable, such as the costs and historic track record, with the qualitative or the way in which performance has been achieved and the people and processes involved.
“Investors continue to seek greater confidence and transparency in their investments. We are therefore delighted to offer this new grading service that will provide best in-class knowledge for portfolio selection.”
