SharingAlpha, the company and online service set up by brothers Oren and Yuval Kaplan, has launched with the promise of a method for delivering a quantitatively based assessment of the skills of fund selectors.
Available through SharingAlpha.com, the service also uses the data generated from the ranking process involving fund selectors to provide rankings of funds.
Oren Kaplan, CEO, said that the decision to develop SharingAlpha came about because of perceived problems with existing databases for funds, which rely on backward looking data, and which are poor at providing predictive values.
And given the sheer volume of funds that fund selectors are expected to keep an eye on today, there is a significant challenge even for teams of selectors to maintain enough oversight of the market to make continuously good choices.
From the end client perspective, there has also been no way to properly judge on a quantitative method whether the selector they rely on is better at their role than another – in other words, are they better at selecting sources of alpha.
“Historically a fund selector doesn’t build a track record for themselves. They can tell a story, but nobody knows how to quantify success versus other fund selectors,” Kaplan (pictured right, with brother Yuval far right) said.
In the current environment this status quo cannot last, Kaplan suggests. There is pressure on selectors and advisers in areas such as fees, and a growing need to be able to differentiate themselves and how they add value to the end investor.
Thus the idea of SharingAlpha, which can act as a platform to both build a proven track record in selection, but also act to help selectors improve what they are doing, and see what they are doing right and wrong.
Oren Kaplan explains that the methodology for ranking fund selectors relies on their participation with the platform, to indicate their selections from the database available.
- On a monthly basis, the actual return of the funds are compared with the returns of the fund’s benchmark.
- The funds will be ranked by their over or under performance verses their benchmark.
- The funds that achieved the highest over performance will be part of the first group and so on.
- SharingAlpha is now ready to compare the Fund Selectors ranking with the actual performance of the funds.
- SharingAlpha rates the Fund Selectors using the average ‘hit ratio’ the Fund Selector achieved from ranking different funds.
- For example, if the Fund Selector ranked a fund as 1 star and it ended up in the 3rd group of funds, the Fund Selector ‘hit ratio’ will be lower than a Fund Selector that ranked a fund as a 3 star fund that ended up in the 4th group of funds in terms of its actual performance.
- Comparing the ‘hit ratios’ of the different Fund Selectors allows SharingAlpha to rate the Fund Selectors in terms of their talent in predicting fund performance.
Fund Selectors can end up in one of three groups, Kaplan says:
- Triple Alpha– Fund Selectors with top decile ‘hit ratios’.
- Double Alpha– Fund Selectors with top quartile ‘hit ratios’.
- Single Alpha– Fund Selectors with above average ‘hit ratios’.
“We strongly believe that the above ranking methodology expresses the collective view of fund selectors worldwide in terms of the funds future chance of beating its benchmark.”
“It also offers the raters a strong incentive to rate funds and build their own track record by doing so.”
Access to the platform and the engagement with the process by which fund selections are registered is free to use for fund selectors. Additionally, users identities are kept secret by default: any decision to share the generated track record is up to the selectors themselves.
However, by tracking the performance development, Kaplan argues that the selectors can start to learn from relative successes and failure. Over time, he believes that investors will come to SharingAlpha to find fund selectors and investment advisers who will then be in a position to illustrate their long term track records.
Through the methodology it is also possible to rate funds on a monthly basis, Kaplan ads.
“The fund rating is simply an equal average of the rankings provided by fund selectors. In the future we will give an extra weighting to ratings provided by fund selectors with a high ‘Alpha Ranking’.”
Funds are rated 1to 5 stars based on the average user rating.
Adds Kaplan: “We see time is ripe for changes and implementation of fintech such as this. The industry is looking for evidence of value added for investors.”