Financial Express Crown Fund Ratings are supplied to Trustnet by its sister company,
the data experts Financial Express.
They will be of interest to advisers who have conducted a preliminary asset allocation
exercise with their clients, and who now wish to identify the more promising funds
within their chosen sectors.
The ratings cover UK authorised unit trusts and open-ended investment companies
(OEICs). They are based on quantitive historical performance measures, and funds
are ranked within their own sectors. The lowest rated funds in a sector carry a
single Crown, and the highest are awarded three Crowns.
What do the ratings tell us?
Financial Express Crown Ratings are compiled using three key measurements of a fund's
performance: alpha, volatility, and consistency.
Alpha is a measure of the fund's returns against its benchmark. It is the loss or
gain the fund has posted when the benchmark return is assumed to be zero.
Volatility measures the degree to which the fund's periodic returns vary either
side of its mean return. The larger the fluctuation, the more risky the fund is.
Consistency tracks the nature of a fund's overall return. Was this achieved steadily
over time, or were normally loss-making periods offset by a large atypical gain?
Financial Express Crown Rating 3
These represent the top 20% of funds in their sector. By definition they will have
demonstrated a good, if not excellent, record across the three performance criteria.
Link to 3 Crown Funds»
Financial Express Crown Rating 2
This rating goes to the next 30% of funds in the sector. Here we are looking at
performance that tends more towards the average for the sector. This could arise
from a consistently average showing across the three criteria, or from elements
of good performance which have been mitigated by a lower score in one of the other
criteria.
Link to 2 Crown Funds»
Financial Express Crown Rating 1
This rating comprises the remainder of the funds in the sector. It does not necessarily
indicate that there is nothing to recommend these funds, although this could be
the case. Equally, a meritable component of the rating could have been outweighed
by negative criteria that would be tolerable within some clients' risk/reward profiles.
These ratings are, of course, intended to offer a pointer towards funds that are
worthy of further investigation. Past performance is not a guide to the future.
The value of investments and the income from them may go down as well as up and
are not guaranteed. You may not get back the amount originally invested.
Link to 1 Crown Funds»
Non-rated funds
To be eligible for rating, a fund must possess the following characteristics:
- it has 3 years track record
- its history is accurate and consistent
- it is in a sector of 10 or more funds
- it does not belong to specialist or unclassified sector
Alpha
Recent history has been treated as more relevant than that of more remote past,
and the model is weighted accordingly. The fund's alpha measurements are taken over
36 months, 35 months, 34, and so on through to 12 months. This collection of alpha
measurements is then averaged to produce an overall alpha. In this way, the 12-month
measure features in every alpha calculation, while the 36-month figure is only included
once, and so the weighting is achieved.
The alpha for each fund is then re-scaled and ranked, so that the lowest becomes
zero, and the highest scaled as 100. The resulting value between 0-100 for each
fund is the alpha component of the rating.
Volatility
The volatility measurements are treated in the same way as alpha to produce this
component of the Financial Express Crown Ratings. This applies generally, but exceptions
are made for sectors which inherently carry lower volatility. For most bond funds,
volatility is only given half weight - scaled from 0-50 - and cash funds dispense
with a volatility component altogether.
Consistency
This is based on the fund's total return history (with net income re-invested),
taking 3 years-worth of quarterly performance. On this basis, each fund is ranked
within its sector and its percentile performance established. The percentiles are
then averaged to produce an overall consistency measurement.
As before, the resulting body of figures is re-scaled from 0-100 to form the consistency
element of the rating.
In Combination - the Crown Rating
This is a matter of simply adding the three measurements to arrive at the Crown
value. The combined values are ranked, and ratings are assigned according to where
the fund falls within its sector.
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