How We Rate ETFs and Mutual Funds: Your Guide to Investing in Funds

QUESTION:  Why should fund investors rely on backward-looking fund ratings?

ANSWER: They should not.

QUESTION: Why has backward-looking fund research dominated for so long?

ANSWER: Most investors are slow to change, and legacy firms invest heavily in marketing and distribution.

QUESTION: How exactly should fund research change?

ANSWER: Fund research should be as rigorous as stock research, which means it should be based on rigorous analysis of the fund’s holdings. A fund is only as good as the stocks it holds.

Our proven-superior Stock Ratings drive our ETF and Mutual Fund Ratings. Our Stock Ratings get their edge from our more disciplined approach and superior fundamental data and financial models – as proven by The Journal of Financial Economics and Ernst & Young.

There are two dri­vers of future fund performance:

  1. Stock-picking (Portfolio Management Rating) and
  2. Fund expenses (Total Annual Costs Rating)

Our Predictive Overall Fund Rating is based on these drivers. Then, we rate all funds based on their ranking:

  1. Top 10%  = Very Attractive Rating
  2. Next 20% = Attractive Rating
  3. Next 40% = Neutral Rating
  4. Next 20% = Unattractive Rating
  5. Bottom 10% = Very Unattractive Rating

We analyze every fund holding based on New Constructs’ stock ratings, which are reg­u­larly fea­tured as among the best by Barron’s. Next, we measure and rank the all-in costs of investing in a fund (Total Annual Costs Rating).

You need a Stock Tracker 50 Membership or higher to view all the content on this page.

Already a member?

Learn more about our research here.

Get Investment Research That Reads the Fine Print