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%...
...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.
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%.
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:
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.