We Launch Analyst Research for Investment Trusts

Morningstar today launched its qualitative research and ratings for investment trusts and other closed-end funds

Holly Cook 11 January, 2012 | 11:05AM Jackie Beard, FCSI
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Morningstar's investor education and quantitative, risk-adjusted ratings for closed-end funds (more commonly known as investment trusts) have helped investors make better portfolio decisions for over a decade now. In an exciting new development, Morningstar has now launched qualitative, analyst-driven research and ratings that enable U.K. investors to make better-informed decisions about their portfolios.

Today, January 11, 2012, we have launched our first Morningstar Analyst Ratings and reports for 32 closed-end funds with ratings ranging from Gold, Silver and Bronze to Neutral and even Negative for those that we deem to be sub-par compared with peers. But our coverage doesn’t stop there. We plan to cover more funds throughout 2012 and already have a target list in mind. However, our coverage needs to be relevant for you so here’s where we’d like your views. If you see a fund that’s not covered, and you want us to give our opinion of it, then please tell us using the feedback form.

Searching for an investment trust or closed-end fund on Morningstar.co.uk will quickly show you whether that fund has been rated; website users can also rank the entire U.K. closed-end fund universe according to our analysts’ views via the Morningstar Investment Trust Quickrank.

This development comes at a crucial time: implementation of the Retail Distribution Review in 2013 will see advisers move to a fee-based model that will require those wanting to stay fully independent to consider all investment products when making recommendations and not just those with which they are more familiar. Morningstar’s independent analysis on some of the most heavily subscribed investment trusts will help investors and advisers as they increasingly turn to these investments.

In reaching our conclusions, we have drawn on the company’s global methodology for fund research that is used by Morningstar fund analysts worldwide. The methodology considers five key factors—people (manager and support research team), process, parent (including board of directors), performance, and fees. We also consider the discount at which a fund has traded historically, in order to give context to the fund’s current discount or premium, both absolute and relative. In addition, we consider the fund’s use of gearing—one of the key structural benefits an investment trust manager has in his tool kit—and review how effectively the manager is using that gearing in the fund, as well as the risk-adjusted performance that it delivers for investors. Each closed-end fund’s board of directors is also reviewed for its ability to act independently in the interests of shareholders.

A Morningstar Analyst Rating is awarded to each investment trust reviewed. The rating scale is the same as the system used for open-end funds, which was announced in November 2011, and comprises:

  • Gold: Best-of-breed fund that distinguishes itself across the five pillars and has garnered the analysts’ highest level of conviction;
  • Silver: Fund with notable advantages across several, but perhaps not all, of the five pillars—strengths that give the analysts a high level of conviction;
  • Bronze: Fund with advantages that outweigh any disadvantages across the five pillars, and sufficient level of analyst conviction to warrant a positive rating;
  • Neutral: Fund that isn’t likely to deliver standout returns, but also isn’t likely to significantly underperform; and
  • Negative: Fund that has at least one flaw likely to significantly hamper future performance, and is considered an inferior offering to its peers.


Ready to start investing? Rank closed-end funds by their Morningstar Analyst Rating here (click on the Morningstar Analyst Rating column to rank trusts from Gold down to Negative). Not sure if investment Trusts are for you? Check our Investment Trust Education Centre. Watch Jackie Beard and peers discuss the new research in this video.

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

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites