ETF Strategy Fund Grade™ – An Overview

Purpose and Scope

The ETF Strategy Fund Grade is a proprietary fund grading framework designed to help professional wealth allocators and fund selectors compare similar ETFs as part of fund due diligence and preliminary screening. It provides a practical, fund-level assessment within a defined classification group, helping allocators identify ETFs that score well on key operational, structural, and recent performance-related characteristics relevant to fund selection.

For professional wealth allocators and fund selectors, the grade offers a practical shorthand for identifying ETFs that demonstrate robust structural characteristics, competitive positioning, and operating durability within their relevant peer group.

The grade is not intended to assess whether an ETF’s underlying asset class, market exposure, or investment strategy is attractive, nor does it evaluate investor suitability or an ETF’s prospective risk profile. It should not be used to compare funds across unrelated classifications.

Scoring Methodology

Each ETF receives an overall score from 0 to 5, based on four component scores: fees, fund size, risk-adjusted performance, and track record. Fees are assessed relative to ETFs in the same classification group, with lower-cost funds scoring higher. Fund size is scored using predefined AUM bands that reflect common professional due-diligence thresholds, recognising the importance of scale, liquidity, capacity, and commercial sustainability. Risk-adjusted performance is measured using a one-year return-to-volatility ratio and compared with peer ETFs in the same classification group, providing a recent implementation outcome indicator. Track record is scored using age-based milestones, rewarding funds with longer operating histories and greater evidence of durability.

The overall score gives equal weight to fees, fund size, and track record, while risk-adjusted performance receives a smaller weighting. This reflects the methodology’s emphasis on structural quality and stability, while still allowing historical execution to influence the final outcome in a controlled way.

Grade Assignment

These scores are translated into intuitive fund grades. ETFs are ranked within their asset class, with AAA, AA, and A grades determined using percentile-based thresholds. The raw thresholds correspond to the 80th percentile, or top quintile, for AAA; the 66.67th percentile, or top third, for AA; and the 60th percentile, or top 40%, for A. These raw thresholds are then adjusted using a Universe Quality Baseline, which acts as a minimum quality check across the core asset classes. AAA is assigned to funds meeting or exceeding the adjusted top-quintile threshold. AA is assigned to funds below the AAA threshold but meeting or exceeding the adjusted top-third threshold. A is assigned to funds below the AA threshold but meeting or exceeding the adjusted top-40% threshold. As a result, a high grade indicates that an ETF compares strongly with relevant peers while also meeting a broader minimum standard of fund quality.

Fund Grade Profiles

AAA

A class-leading fund ranked in the top tier of its classification group. Wealth allocators and fund selectors can typically expect a compelling overall combination of highly competitive fees, institutional scale, a deeply seasoned track record, and favourable recent risk-adjusted performance relative to comparable ETFs.

AA

A high-quality fund that scores well across core due-diligence criteria. Wealth allocators and fund selectors can typically expect solid fund scale, reasonable fees, a mature operating history, and competitive recent risk-adjusted performance relative to comparable ETFs.

A

An upper-tier fund that meets an elevated quality threshold within its classification group. Wealth allocators and fund selectors can typically expect credible strength across key selection criteria, though the fund may be less consistently advantaged and may exhibit minor structural or performance trade-offs compared with AAA- or AA-graded peers.

(Each grade profile describes the fund characteristics and peer-relative positioning that, at the time of assessment, professional wealth allocators and fund selectors can expect to be reflected in funds assigned that grade.)

Use of ETF Strategy Fund Grades by ETF Issuers

The ETF Strategy Fund Grade provides a credible, independently calculated preliminary fund due diligence assessment for ETF issuers seeking to demonstrate the strength of their funds to professional wealth allocators and fund selectors. By applying a consistent, transparent, and peer-relative methodology across measurable fund-level criteria — including fees, scale, track record, and recent risk-adjusted performance — the grade distils multiple due diligence inputs into a clear and comparable assessment.

ETF issuers may license a fund grade to use an independently calculated assessment in their own marketing materials, reporting literature, and investor communications. For issuers, a licensed grade offers an independent perspective on a fund’s structural quality and an additional reference point to help explain how a fund compares with relevant peers on measurable due diligence characteristics.

Licensing may be useful where issuers wish to reference a grade in communications with professional selectors, platforms, research teams, investment committees, wealth managers, or other due diligence-focused audiences. These users often value concise, comparable, methodology-based information, and a licensed grade provides a clear shorthand for structural fund-level characteristics that would otherwise require several separate data points to explain.

Licensing also allows issuers to refer to grades in a controlled and compliant manner. It helps ensure that any use of the grades is accurate, current, properly attributed, and presented with the necessary context, including the methodology, peer-group basis, and limitations of the assessment.

ETF Strategy Fund Grades are produced independently, are freely and publicly accessible, and are not contingent on issuer participation, commercial relationships, or licensing arrangements. All eligible ETFs are assessed using the same methodology, whether or not an issuer licenses the resulting grade. Licensing has no influence on the calculation, assignment, or maintenance of any grade.