S&P re-classifies asset allocation peer groups

S&P Capital IQ, a provider of multi-asset class data, research and analytics, is re-classifying its asset allocation peer groups.

S&P Capital IQ, a provider of multi-asset class data, research and analytics, is re-classifying its asset allocation peer groups. The move has been prompted by concerns about the clarity and consistency of definitions for asset allocation peer groups and the need for greater global comparability of funds.

The review of the peer groups conducted by S&P Capital IQ’s fund research team follows a decision last month by the UK’s Investment Management Association to re-name its Cautious Managed sector as Mixed Investment 20-60% and its Balanced Managed as Mixed Investment 40-85%. IMA’s Active Managed became Flexible Investment.

“Where other peer group authorities define sub sectors primarily by their exposure to equities, S&P Capital IQ has taken the view that this is far too simplistic a method,” S&P Capital IQ said in a note.

S&P Capital IQ has used a two-stage re-classification procedure. Stage one classifies funds on their exposure to the single highest weighted risk asset, either equities, sub-investment grade fixed income, non-gold commodities or property. Stage two classifies them according to their exposure to the aggregate of risk assets.

In addition, S&P Capital IQ will also take into account a fund’s volatility, downside deviation and maximum drawdown statistics. A combination of the above mentioned analytical processes will result in a final classification for a fund.

As a result of this re-classification, a big difference has been found at the cautious/defensive end of the range which has led to the division of the asset allocation sterling Cautious sector into two groups, Defensive and Neutral.

Randal Goldsmith, director at S&P Capital IQ, said: “Comparison of funds within peer groups is central to our fund research process, and key to this is comparing like with like. We have reviewed our asset allocation peer groups with this in mind, and have identified some important issues.

“Other peer group authorities define sub-sectors primarily by their exposure to equities. However, there are other assets that are comparably risky, for example sub-investment grade fixed income, property – for liquidity reasons – and commodities, and this is not being adequately taken into account.”

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