Defaqto launches Diamond Ratings tool
Defaqto has launched today Diamond Ratings, a tool to help advisers identify where managed funds sit in the market.
“With an increasing number of advisers looking to outsource some or all of their investment proposition, we identified a need in the market for comprehensive and whole of market research into managed funds incorporating both an assessment of performance and other key attributes,” the firm said.
The ratings have been designed to give advisers a framework around which they can both position and recommend managed funds.
Defaqto has created two high level peer groups to help advisers identify funds that are either return focused or the newer breed that are risk targeted.
Diamond Ratings give each fund (and share class where relevant) an independent rating of 1 to 5 based on:
Fund performance, through its proprietary QuantRater and Sharpe Ratio, for return focused funds; fund performance attributes for risk targeted fund families and unitised DFMs; competitiveness in other key areas such as cost, scale, access and manager longevity
Initially, Diamond Ratings will assess the following types of managed funds:
• Multi Manager funds across four IMA sectors – Mixed Investment 0-35% Shares; Mixed Investment 20-60% Shares; Mixed Investment 40-85% Shares; and Flexible Investment
• Directly invested managed funds across four IMA sectors – Mixed Investment 0-35% Shares; Mixed Investment 20-60% Shares; Mixed Investment 40-85% Shares; and Flexible Investment
• Risk targeted fund families
• Unitised DFM funds
Overall fund ratings are calculated using a scoring method called Data Numerical Analysis (DNA). Each fund element is scored from 1 to 5, with a score of 5 denoting that the fund has the highest characteristics in the market for that element; a score of 1 indicates it has the lowest.
Totalling the individual DNA scores across the chosen performance measures and range of attributes gives an overall DNA score, which Defaqto uses to rank funds. Defaqto identifies and calculates an appropriate DNA threshold for the 5, 4, 3, 2 and 1 rating levels within each fund area, and attributes each fund a rating depending on its total DNA score.
David Cartwright, head of insight at Defaqto, said: “In recent years it has become clear that many advisory businesses don’t have the time or resource to run investment propositions for their clients, so many now look to outsource much of this. In an increasingly complex area, outsourcing can take several different guises including discretionary fund management. The other main form of outsourcing investments is through managed funds, either directly invested or multi-manager.”