Analysts Upgrade 10 Passive Funds

Four tracker funds have been awarded Gold Ratings by Morningstar fund analysts for the first time as they represent some of the best long-term propositions for investors

Hortense Bioy, CFA 16 February, 2015 | 3:25PM
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The Morningstar passive research team has upgraded the Morningstar Analyst Rating for ten UK index funds, including four to Gold.

This is the first time ever in the history of Morningstar that Gold ratings have been awarded to trackers.

These low-cost and highly accurate trackers have received the coveted Gold rating on the basis that they represent some of the best long-term investment propositions in their respective asset classes.

With this in mind, it is perhaps not surprising to see US equity trackers in this golden group – L&G US Index Trust and BlackRock North American Tracker, both upgraded. We have also initiated coverage of Vanguard US Equity Index with a Gold rating. US equity is an asset class notoriously difficult for active managers to add value in; hence our strong conviction that investors would be better served by simply tracking the market.

The opportunity set available to consistently beat the market is equally limited in the UK government bond space. Hence the Gold rating received by Vanguard UK Gov Bond Index.

Also worth highlighting from this review are the Silver ratings awarded to three UK equity trackers – L&G UK Index, BlackRock UK Equity Tracker, and Vanguard FTSE UK AllSh Index UT. All these funds aim to replicate the performance of the FTSE All Share, a broad index that has proven hard for active managers to consistently outperform over time.

These rating changes come at a time when more money is flowing into passive investment products. Tracker funds alone, not including ETFs, now account for more than 11% of UK assets under management, according to The Investment Association.

Meanwhile, competition has intensified, with Vanguard, L&G and Fidelity cutting fees in the last year.

Full list of upgrades & downgrades:

L&G US Index Trust - upgraded to Gold, from Silver

BlackRock North American Tracker - upgraded to Gold, from Bronze

Vanguard FTSE Developed World ex UK Equity Index - upgraded to Gold, from Silver

Vanguard UK Government Bond Index - upgraded to Gold, from Silver

Legal & General UK Index - upgraded to Silver, from Bronze

BlackRock UK Equity Tracker - upgraded to Silver, from Bronze

BlackRock Japan Equity Tracker - upgraded to Silver, from Bronze

Vanguard Global Bond Index GBP Hedged - upgraded to Silver, from Bronze

BlackRock UK Gilts All Stocks Tracker - upgraded to Silver, from Bronze

L&G All Stocks Index Linked Gilt Index - upgraded to Silver, from Bronze

Legal & General Pacific Index Trust - downgraded to Bronze, from Silver

New coverage:

Vanguard US Equity Index – Gold

Vanguard FTSE UK All Share Index Unit Trust - Silver

BlackRock Continental Europe Equity Tracker - Bronze

Legal & General European Index Trust - Bronze

Vanguard FTSE Developed Europe ex-U.K. Equity Index - Bronze

To see the Morningstar Analyst Rating methodology click here

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Hortense Bioy, CFA

Hortense Bioy, CFA  is global head of sustainability research at Morningstar

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