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Deciding What to Invest In? Be Careful About Morningstar Ratings.
Founder & CEO

If you were looking for an example of why Morningstar ratings desperately need reform, look no further than this “Bronze”-rated S&P 500 index fund from JPMorgan, with a stated investment objective of, "Seeks to track the performance of the S&P 500 Index".

It carries an annual net expense ratio of 0.45%...

Expense ratios of JPMorgan Bronze-Rat...

...and an upfront sales charge of up to 5.25%! (That means that every time you invest, they lob off up to 5.25%.)

And note that big gap between performance and the S&P 500 index.

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Yikes.

Contrast that with Vanguard’s S&P 500 index ETF, with a 0.03% expense ratio and zero upfront sales charge - look at that low expense ratio, that net investment return so close to the actual S&P 500%.

Excellent.

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Here we have two ways to invest in the S&P 500, but wildly different fee structures.

By any reasonable analysis, if you’re looking for S&P 500 exposure, the Vanguard fund is a “YES”, the JPMorgan fund is “NO”. 

Using Morningstar’s own rating scale (Gold, Silver, Bronze, Neutral, Negative), that “NO” should translate to “Negative”. 

And yet, somehow Morningstar’s rating system produces a rating of “Bronze” for that high-fee S&P 500 JPMorgan index fund:

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Definitely not the right answer.

I’m hopeful Morningstar’s announced reforms to two of their forward-looking rating systems - set to go live October 31, 2019 - will make for better information for investors. The increased focus on expenses and being specific to share class is a step in the right direction.

We’ll see.



Wallis is the Founder & CEO of AboveBoard Financial, a company reinventing investment advice and insurance with revolutionary transparency and honesty. Wallis spent over 10 years at Goldman Sachs as an investment banker and hedge fund investor in financial institutions. She founded AboveBoard to cut through the BS and present important choices with clarity and compassion. Wallis lives in New York City with her husband and two young children.