Morningstar’s European ETF Research Team has launched research reports on the 150 largest individual exchange-traded products (ETPs) in Europe as measured by assets under management. The overarching goal of our research reports on individual exchange-traded products (ETPs) is to provide a broad spectrum of investors with a useful form of distilled due diligence that contains all of the relevant qualitative context and data needed to put ETPs to best use within their portfolios, or those of their clients. This research is the first of its kind in the European ETP market.
Click here to see an example, iShares FTSE 100 ETF.
These research reports will initially be available free of charge on Morningstar’s various European Web sites, including Morningstar.co.uk. By the end of June, the team plans to expand its coverage universe to include the 200 largest ETPs in Europe, representing approximately 70% of European ETP assets.
There are no plans to develop an ETP-specific rating for the European market. The Morningstar Star Rating will continue to be applied to ETPs to facilitate cross-comparability across a broad range of investment vehicles including funds, ETPs, and closed-end funds. Later this year, Morningstar will be introducing new data points that will facilitate ETP rankings based on an estimate of the total cost of ETP ownership. These data points will enable investors to determine which of the multiple ETPs tracking widely-followed benchmarks such as the FTSE 100, EURO STOXX 50, or S&P 500 will be the least costly to own based on the size of their investment and their anticipated holding period.
What follows is an overview of the broad outline of our ETP research reports:
Suitability
The suitability section outlines the best uses of the product in an investor’s portfolio depending on economic circumstances, portfolio focus, and investment outlook. Here, we address whether a product is a core building block or a tactical tool, or, in many instances, when and how it can be used as either one. We also surface the complexities of more exotic products like commodity, leveraged, and inverse ETPs.
Fundamental View
The fundamental view section provides a broad overview of the underlying macroeconomic fundamentals that will affect the product’s performance. Most reports will also address recent valuations of the underlying index in this section, though this will be omitted for some alternative asset classes and strategy-based products.
Index Construction
The index construction section peels back the product label to examine the nuances of the underlying index or reference asset. These features include weighting methodologies, caps, free float adjustments, re-balancing and review periods, dividend treatment, and eligibility criteria—amongst others.
Product Construction
The product construction section defines how the product is built to replicate or otherwise provide the performance of its reference index or asset. Here, we examine replication methods (physical, synthetic), product structure (funds, notes), sources of counterparty risk, measures used to mitigate counterparty risk, dividend distribution policies, and more.
Fees
The fees section explicitly states the product’s all-in expense ratio and frames it within the range of those levied by the most directly comparable competing ETPs.
Alternatives
The alternatives section aims to place the product within its appropriate context in the broader range of investors’ choices. The product will be compared on the basis of explicit carrying costs and trading costs to the most directly comparable ETP alternatives. The product will also be compared to other non-ETP alternatives. For instance, we will compare the relative merits of owning a physically-backed gold ETP to owning physical bullion outright.
To read an ETP's Research Report, simply search for the product on Morningstar.co.uk by either name or ISIN and click that product's Research tab. You can find a full list of ETPs that currently have Morningstar Research Reports by clicking here; this list will be updated going forward as we expand our coverage.
Visit Morningstar's ETF Centre for data, commentary and research on these exchange-traded products.
