Ratings & Scores for Asset Allocation Portfolios

How to compare asset allocation ideas and portfolios using risk-adjusted ratings

When comparing different portfolios you must consider risk as well as return. All funds and portfolios will list their performance, but not all will reveal the risk that was taken to achieve that performance.

 

To address this problem, several companies publish as single number or rating for many portfolios and funds. Each rating combines risk and return. For example, Morningstar will rate a portfolio with "5 stars" if the portfolio consistently beats its peers on a risk-adjusted basis.

 

 

List of Ratings providers

 

Morningstar creates a 1-star to 5-star rating for most ETFs and mutual funds. The ratings are based on peer-group performance, so a poor performing fund can receive a 4-star rating as long as it appears in the top 32% of its peer group. 

 

Lipper, a Reuters company, publishes the Lipper Leaders rating system which analyzes funds and assigns a score of 1 (worst) to 5 (best). Lipper assigns scores for five areas: Total Return, Consistent Return, Preservation, Tax Efficiency, and Expense.

 

VizMetrics, an independent publisher of asset allocation portfolio recipes, calculates a V-score for over 800 portfolios, including strategic allocation, tactical allocation, and asset class ETFs and funds. A V-score of 100 is best and zero is worst. A score of 100 means that over a given time period, the portfolio has performed better than the best possible portfolio formed from a basket of global asset classes.

 

Refer to the Risk vs. Return page for specific examples of risk measures.