Morningstar May Rate Leveraged ETFs Separately

Morningstar may remove leveraged and inverse exchange-traded funds from its star rating system and track them separately, Scott Burns, the firm’s ETF director, told attendees at Morningstar’s ETF conference last week.

And Howard Atkinson, president of Horizons BetaPro, the only provider of leveraged ETFs in Canada, says he can’t blame them.

“I agree. You can’t compare one-beta ETFs with leveraged ETFs where the investment objective is daily,” Atkinson told the National Post. “They’re no more comparable than bonds and equities are and have a different risk/return profile.”

Burns said the issue came up at Morningstar now that a handful of leveraged ETFs, including two from BetaPro, have a three-year track record, which would qualify them for inclusion in the star rating system. However, should Morningstar create a separate ratings system for leveraged ETFs, the top 15% will automatically qualify for the coveted five-star rating, which could encourage some investors to move into them - a factor Morningstar is weighing.