Morningstar updates ratings for closed and open-ended comparison

Morningstar has changed its methodology for rating closed-ended funds, with the aim of making it easier for investors to compare risk-adjusted performance against open-ended equivalents.

The ratings agency is now using net asset value to determine a fund's rating rather than the market closing price.

It is also using its own categories to compare funds, where previously it used the Association of Investment Companies sectors.

This change will make analysis more relevant, by comparing funds against peers from both the open-ended and closed-ended spheres, as well as exchange-traded funds.

"The changes to our closed-end fund rating methodology are intended to assist advisers in their whole-of-market proposition", said Jackie Beard, director of closed-end fund research.

"Risk-adjusted performance comparisons - on a vehicle-agnostic basis - are
now possible, which means investors and advisers can more readily compare the Morningstar Ratings of investment trusts with those of similar open-ended and exchange-traded funds.

"We wanted to make this change ahead of the industry's shift to a fee-based advice model, when a greater interest in investment trusts is expected to emerge."

The Morningstar Rating for closed-end funds is calculated on the fourth business day of each month and is available on the fifth business day in all Morningstar products.
The closed-end fund methodology does not adjust for transaction costs.