Evaluating the Rating of Stiftung Warentest: How Good Are Mutual Fund Ratings and Can They Be Improved?


  • The authors appreciate helpful comments and suggestions from an anonymous referee, John Doukas (the editor), Jieyan Fang, Stephan Jank, Stefan Ruenzi, seminar participants at the University of Mannheim and the 17th annual meeting of the German Finance Association (DGF) in Hamburg. We also thank Stiftung Warentest for providing data on the ratings and fund classification, Morningstar for data on mutual fund portfolio holdings and total expense ratios, and Nico Hemker for excellent research assistance. Special thanks goes to Andrew Patton for providing the code for the monotonic relationship (MR) tests in Patton and Timmermann (2010) on his web-site. Financial support from the Deutsche Forschungsgemeinschaft and Boerse Hamburg and Hannover is gratefully acknowledged. Correspondence: Sebastian Müller.


We test the abilities of the Stiftung Warentest fund rating system to predict future fund performance among German registered funds for six equity categories: Germany, Euro-Zone, Europe, North America, Pacific and World. Stiftung Warentest is a consumer protection agency and a major provider of fund ratings in Germany. Our empirical analysis documents predictive abilities of the rating system. The reason is that measures of past performance are positively related to future performance in several of these markets, even after controlling for momentum. Measures of fund activity (e.g., Active Share) are also helpful to predict performance, in particular to identify likely future losers. Hence, they should be taken into consideration by consumers when selecting a fund and rating agencies when revising current rating methodologies.