The investment ratings and research firm handed 30% of property funds the top accolade, while only four out of 25 Japanese equities funds (16%), seven out of 44 global equities funds (16%) and eight out of 47 European equities funds (17%) received it.
Oliver Clarke-Williams, portfolio manager at FE, said: “The high number of UK Gilts funds which have been awarded five FE passive crown ratings is largely down to the fact that they are highly liquid and easy to replicate. It is therefore very surprising that none of the index-linked gilts returned a maximum rating given that they operate in a very similar market.
“On the other hand, the absence of any five FE passive crown rated sterling corporate bond funds can be explained by difficulties in replication due to the vast number of holdings in many indices and over-the-counter dealing.”
In total, FE considers 286 passive funds in its bi-annual rebalance, designed to assess how well a passive fund is doing against its benchmark over three years. Funds are ranked using a quantitative methodology based on tracking difference, tracking error and fund size.
Additionally, in the latest rebalance, only 13 out of 62 UK equities funds (21%) received the coveted five-crown rating. Likewise, 12 out of 50 north American equities funds (24%) and six out of 23 emerging market equities (26%) were awarded.
However, the list saw nine funds rated for the first time, including Vanguard’s FTSE 250 UCITS ETF, which leapt straight to a five passive crown rating and the iShares UK credit bond index which achieved a four passive crown.
At a group level, Blackrock (iShares) came out top with 22 five passive crown rated funds followed by Vanguard with 12.
Clarke-Williams added: “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 available for active funds. FE passive crown ratings are a very good way for people to do just that.
“What the ratings show is that the 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.”
This news follows FE’s recent active crown rating rebalance published last month, which saw Neil Woodford’s flagship Equity Income fund downgraded from five crowns to just one, six months after receiving the debut accolade.
