CFRA ups its game on ETF research
New analysis uses machine learning for a closer look at underlying holdings
Investment research firm CFRA is stepping up its coverage of exchange-traded funds by providing deeper research and a new rating system for the fastest growing segment of the asset management industry.
The increased ETF analysis at the underlying holdings level leverages the resources of First Bridge Data, which CFRA acquired in August.
In addition to converting from a three-tiered ETF rating system to a five-star rating system, the analysis will be driven by machine learning, which means it will factor in CFRA’s other quantitative metrics.
For example, when the quantitative analysis favors a risk-on investing environment, funds with increased risk exposure will get higher ratings, and vice versa.
“When the model believes sentiment has shifted, the rating will adjust accordingly,” said Todd Rosenbluth, CFRA’s director of mutual fund and ETF research.
“We’re incorporating the data we acquired from Frist Bridge, which allows for more flexibility and peer group comparisons,” he added.
The decision to shift from a system of underweight, neutral and overweight to a five-star rating system will bring CFRA’s ETF ratings in line with its ratings for mutual funds and individual securities.
“Rating stocks and mutual funds on a scale of one to five stars is something our clients have gotten very used to, so it only made sense to take this opportunity to bring that same five-tiered approach to ETFs,” Mr. Rosenbluth said. “Coupled with our proprietary ETF data, this approach allows us to bring more nuance to the recommendations we make and for clients to better distinguish among those funds that appear best positioned for future outperformance.”
The changes will be completed this spring, according to a CFRA statement.
“We have been rating ETFs for more than a decade, and our focus has always been that the best-performing ETFs don’t necessarily repeat as the best performers,” Mr. Rosenbluth said. “Advisers need to look deeper, including at the cost structures. What’s changing is how we’re doing that analysis, and we have prioritized enhancing our ETF methodology because that’s where the assets are going.”
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