According to the company, the ratings have been designed to give advisers a good framework around which they can both position and recommend managed funds.
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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 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
The company added that 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.
David Cartwright, head of Insight at Defaqto, said: "Our research indicates that managed funds have evolved into two distinct groups: return focused and risk targeted. However, many advisers have continually fed back to us that it has been a real challenge to make fair and relevant comparisons in this market."
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By GlobalData"We have therefore introduced our Diamond Ratings as a mechanism for independently assessing managed funds, to help advisers see where they sit in the market and to compare funds on a clear and consistent basis," he added.
