Ratings service launched for tracker funds

FE Trustnet, a research firm, has launched a passive fund ratings service as tracker funds continue to grow in popularity.

The system will rank tracker funds and exchange traded funds (ETFs) on the basis of their tracking error and tracking difference - two measures of how much a fund deviates from the index it seeks to follow. It also takes into account fund size.

"The difference between the best and worst trackers and ETFs is large and can make a significant impact on the value of your investment," said Michael Holland, managing director at FE.

"Some of the worst underperformers are among the oldest vehicles on offer, which proves the positive impact that new technology and best practices are having on the industry."

Funds will be awarded up to five passive crowns, with some 13 funds from iShares - the exchange traded fund arm of BlackRock, the world's largest asset manager - earning the full five, along with funds from Vanguard, Lyxor, Source and others.

However, funds including L&G's UK Index fund, Henderson's UK Tracker and iShares' MSCI Emerging Markets Ucits ETF scored only one crown.

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The launch of the service follows that of Morningstar's passive funds research service in December 2013.

The low cost of trackers and ETFs have attracted growing numbers of UK investors: they now make up some 11.3 per cent of assets under management, compared with 9.9 per cent in February 2014, according to Investment Association numbers.

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