S&P launches new fund management rating system

S&P Capital IQ has launched a new fund grading system and methodology to meet the changing needs of investors.

The old system of assigning a number of ‘A’s has been replaced with a system of four bands – Platinum, Gold, Silver and Bronze. Previously, these bands were AAA, AA, A and TR.

The decision to replace a well-established symbology was taken in response to what S&P Capital IQ sees is “an unprecedented transformation of the fund management industry”.

But the new symbology is also a conscious move away from the ratings system used for sovereign bonds and structured products, whose reputation has suffered through the global debt crisis.

Under the new grading system, only 90 of the 1,026 graded funds receive the top level of Platinum. Almost three quarters of this elite group (72%) are made up of equity funds. UK Mid/Small Cap Growth equity funds were proportionally the best performers with 33% given the top grade.

In the Fixed Income sector, nearly one in ten (9%) are rated Platinum, with a similar regional story as two fifths of this figure consist of those with a UK focus. Only 13% of European and 7% of US fixed income funds can claim similar Platinum grading.

Of the 28 fund sectors, five fail to achieve any Platinum ratings namely Pacific Equities, North America Small Cap Equities, Emerging Market MENA Equities, Money Market and Absolute Return.

The new symbology is underwritten by a faith in the future of fund ratings. S&P Capital IQ believes that “the radical changes taking place in the investment world means there will be a dramatic increase in demand for fund grading services.” S&P Capital IQ research has found that of the more than 1,000 funds it currently rates, 32 funds have seen their primary managers change over the past 12 months, compared to 10 in the previous 12 months.

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