Vontobel’s qualitative analysis looks at a raft of wider issues: team stability, or if it’s a one-person strategy, the fund environment; current and past risk-taking measures; the experience of the fund manager and how they acted during stressful periods; and, if the strategy was continuous or evolving.
D’Ascenzio’s own analysis is “the defining factor” when choosing a fund, she says, adding that she uses quant to define 10 to 20 funds in an asset class and qualitative analysis to choose the top fund.
“When I was selecting an unconstrained bond fund I had four funds in my top list and it was very difficult to decide which one was the best. They were probably all very good but I came to my decision after conducting a conference call,” she says.
“When I speak with the asset managers I make sure they take care of portfolio diversification and minimise the downside of a fund. I ended up picking the fund I believed had the better investment strategy.”
Face-to-face
Zurich-based Arnold says meeting fund managers face-to-face is a very important part of their qualitative assessment.
“As a team of six, we meet more than 400 managers a year through events, expert forums and when they come to our office. We try to send two people to each meeting – one to lead the meeting and the other to create a summary and qualitative report of the meeting,” he said.
Romig and Hernando also like to meet managers but Hernando notes that his location in Andorra does not make it easy.
“I try to go to the main cities, like Madrid, and to events and conferences as they are good opportunities to talk to wealth managers.
“We try to keep in contact with managers we invest in and before we make an investment with them,” Hernando says.
“It’s important to meet them to know what they have in mind for the fund that may have been missed in third party or inhouse analysis.”
Hernando says that he looks for consistency and transparency in fund managers.
“I like funds that have a repeatable process that is clear, not very complicated and can be easily explained to clients. I do think that qualitative measures are more important in order to make decisions but quant is more accurate to reflect
past performance.”
Quantitative ratings
| Morningstar star ratings | • A risk-adjusted, cost-adjusted comparison of fund performance within fund categories.
• Rating accounts for periods of volatility and adjusts for fund expenses, including sales charges. • Funds are rated over three-year, five-year and 10-year periods. • Ratings: five stars – top 10%; four stars – next 22.5%; three stars – next 35%; two stars – next 22.5%; |
| FE Crown fund ratings |
• Rating takes into account alpha, volatility and consistently strong performance.
• Identifies funds that display superior performance in terms of stock picking, outperformance consistency against a credible benchmark and results at a relatively low risk. • Score is based on the fund’s performance over the past three years and scores are rebalanced twice a year. • Ratings: five FE crowns – top 10%; four FE crowns – next 15%; three FE crowns – next 25%; two FE crowns – next 25%; one FE crown – bottom 25% |
| Scope Mutual fund ratings
|
• Based on performance (70%) and risk indicators (30%).
• Performance indicators include relative performance, long-term earning power and performance stability. • Risk indicators include timing risk, loss risk, and behavioural risk. • Fund is assigned a score of one to 100 relative to its competitors in the same peer group. • Ratings: A – very good 100-78; B – good 77-60; C – average 59-41; D – below average 40-23; E – poor 22-1. |
| Thomson Reuters Lipper leader rating system | • Funds are ranked against their peers on four measures: total return, consistent return, preservation and expense.• The overall calculation is based on an equal-weighted average of percentile ranks for each measure over applicable three, five, and 10 years.• Each measure is ranked one to five.• Ratings: five – highest 20% of funds in each peer group; four – next 20%; three – next 20%; two – next 20%; one – bottom 20%. |
Qualitative ratings
| Morningstar qualitative ratings
|
• Based on the five pillars of people, parent, process, performance and price that are believed to be predictive of future performance.• Analyst evaluation comes from face-to-face interviews with the fund management team, Morningstar data and fund documents.• Ratings: gold – best-of-breed fund that distinguishes itself across all five pillars. Has highest level of conviction; silver – fund has notable advantages across several but not all of the five pillars. Has a high level of conviction; bronze – fund has advantages that outweigh disadvantages across the five pillars. Has a sufficient level of conviction; neutral – fund is not likely to deliver standout returns but is not likely to significantly underperform; negative – fund has at least one flaw likely to hamper future performance and is considered an inferior offering to its peers. |
| Sauren fund manager rating | • Focus on fund manager’s personal capabilities.
• Ratings based on 350 meetings with fund managers a year. • Based on plausibility of investment philosophy, consistency in implementing it, extent to which pragmatism plays a role, orientation towards market indices and investment idea generation process. Also, contribution of fund manager’s support team or information network, manager’s continuity in success. • The fund’s performance achieved in the context of the overall market conditions and inefficiencies in the investment universe. • Only the highest-rated funds are awarded with one, two or three gold medals. A single gold medal is considered a high distinction. • Ratings: one gold medal – high fund manager quality, strong fund manager impression, good chance of superior performance; two gold medals – very high fund manager quality, convincing impression of fund manager, very good chance of superior performance; three gold medals – exceptional fund manager quality, particularly convincing fund manager impression, high likelihood of superior performance. |
