Ratings vs. Rankings – A Comparison of Predictability

Abstract

This study questions whether the Feri Trust Rating, the Euro Fondsnote and the Finanztest-Bewertung are able to predict the future performance of German equity mutual funds. These three fund valuations are used to check whether ratings have a higher predictability than rankings using historical data only.

Evidence shows that the predictability depends on the valuation methodology as well as on the forecasting period. The Euro Fondsnote which can be classified as a rating predicts the future performance of equity funds best. Equity funds with low ratings from Euro Fondsnote show most frequently a poorer future performance compared to those with top rating. The rankings Feri Trust Rating and Finanztest-Bewertung reach this result less frequently. The future performance of equity funds with a top rating from Euro Fondsnote or a top ranking from Feri Trust or Finanztest-Bewertung differ not from second and third best funds.

Note: Downloadable document is in German.

Keywords: Mutual Funds, Feri Trust, Fund Ratings, Performance persistence

JEL Classification: G11, G28, G29