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Created on 03.04.2018 | Updated on 13.05.2019

How can I assess the quality of a fund?

Assessing a fund’s quality is an extremely complex task. The easiest way to do this is by looking carefully at the ratings. Ratings are evaluations by independent experts and provide information about the quality of a fund.

Anyone wishing to invest in a fund can choose between thousands of different ones. Rating agencies and financial service providers such as Morningstar, Lipper or Standard & Poor’s (S&P) help you to compare funds by scrutinizing every fund in detail based on various criteria and giving each fund a rating. Here they take account of qualitative and quantitative factors.

What is a good fund?

Performance is an important criterion in fund ratings. As a fund’s performance is only really meaningful in relation to comparative figures, it is generally measured against that of the competition or the market. Performance is often also compared with the risk entered into. This allows you to quickly determine how well a fund is really performing. The second quantitative factor is risk: volatility, for example, provides good information on how significantly a portfolio’s returns fluctuate.

Even fund managers are rated

It is not just hard figures that are decisive factors for rating agencies and financial service providers: they also closely scrutinize the investment process, risk management and even the corporate culture of the fund management company. Finally, it is not just the companies or states whose securities make up the fund that have to be analysed but also the people who select these securities and the strategy they pursue.

How funds are rated

The rating agencies’ and financial service providers’ results are published as grades. They are not school grades but can be given as stars or letters. Morningstar, for example, issues between one and five stars, with five stars being the best rating. This enables investors to easily determine the quality of their fund compared to the competition without having to analyse key figures and coefficients in detail. You can find a selection of rating agencies and financial service providers and their rating scales in the following table.

Rating agency / financial service providers
Rating scale
Explanation
Rating agency / financial service providers
Morningstar
http://www.morningstar.ch/ch/
Rating scale
5 levels
1 to 5 stars
Explanation
Rates funds according to their past performance
Rating agency / financial service providers
Moody’s
Equity Fund Assessment Scale
Rating scale
5 levels
EF-5 to EF-1
Explanation
Rates ETFs by comparing their performance to similar ETFs in the past
Rating agency / financial service providers
Moody’s
Bond Fund Rating Scale
Rating scale
9 levels
C-bf to Aaa-bf
Explanation
Rates funds according to the creditworthiness of the assets held, does not take past performance into account
Rating agency / financial service providers
Lipper
Lipper Leaders Rating
Rating scale
5 levels
1 to 5
Explanation
Evaluates past performance in relation to rival products Top 20% receive a 5
Rating agency / financial service providers
Standard & Poor’s
Fund Credit Quality Ratings
Rating scale
9 levels
Df to AAAf
Explanation
Rates funds according to the creditworthiness of the assets held, does not take past performance into account
Rating agency / financial service providers
Standard & Poor’s
Fund Volatility Ratings
Rating scale
5 levels
S5 to S1
Explanation
Rates the volatility of funds by comparing them to the government bond index in the currency of the fund

Awards for excellent funds

Outstanding funds regularly receive awards. The “Lipper Fund Award” is the most prestigious accolade for funds and is presented once a year by the independent fund analyst Lipper. Lipper gives awards to funds and asset managers who have performed outstandingly well in their category and over a certain period of time.

If you want to get a better idea of a particular fund yourself, you can fall back on fund factsheets. In this article we will explain to you what you should watch out for: “How do I read a fund factsheet?

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