Sure, Morningstar acknowledges — and even excuses — investors who won't look twice at funds with Negative-rated parents. But hey, they're not always so bad, the mutual-fund rater writes.

Almost as if to temper a prior Fund Spy writeup extolling the virtues of good parents, Morningstar writes today that a Negative parent pillar shouldn't always be the deciding factor.

This is because a Negative Parent rating doesn't always stem from factors that affect funds in a company's lineup.

Morningstar poses Charles Schwab as an example, pointing out how recent fee cuts make its ETF index funds the cheapest around at only 4 basis points. Also note, Laura Lallos writes, that investors can open a brokerage account for only $1,000 and trade the firm's ETFs commission-free.

Should an investor shun Schwab because of its parent's shortcomings? Probably not, given that the firm's Negative rating results from an SEC complaint detailing misleading statements made about Schwab YieldPlus.

Visit Morningstar for more examples of less-than-stellar parents with golden children.  

Edited by: Irene Park


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