Ratings and Performance of German Mutual Funds – A Comparison of Feri Trust, Finanztest and FondsNote

Abstract

This study addresses the question whether the Feri Trust Rating, the Finanztest-Bewertung and the FondsNote are able to predict the future performance of German equity mutual funds. Moreover, this study analyzes whether predictability is improved significantly when combining the three fund ratings. The reason is that investors compare fund ratings before decision-making. They invest in funds which uniformly have the best fund rating from different rating agencies.

It is shown that predictability is highest for the Feri Trust Rating and the FondsNote compared to the Finanztest-Bewertung. Nevertheless, the three fund ratings can hardly predict future fund performance. Predictability is enhanced when combining all three fund ratings. However, it depends on the particular fund rating combination, the chosen performance measure and the post-rating period.

Keywords: fund rating, ranking, rating persistence, performance persistence, predictability

JEL Classification: G1, G11, G12, G14