The Importance of Fund Selection
Fund Selection Criteria
Because there are so many statistical variables to take into account, we have elected to base our selections on the following criteria:
Relative Sharpe Ratio
The Sharpe Ratio is a way of checking whether an investment is giving "value for risk". It’s provides an accurate form of risk-adjusted performance. The Ratio represents the proportion of return received in accordance with the level of risk, over the return that would be achieved for taking no risk at all – for example, in a Building Society. The higher the number, the better. The Relative Sharpe Ratio simply compares one fund's Ratio with that of its benchmark, to identify the added value created by the fund manager.
Citywire Rating
A Citywire Rating measures the risk-adjusted returns, generated by an individual fund manager, rather than a specific fund. A particular fund's performance may, to a greater degree, have come from a manager who is no longer running that fund. However, past performance statistics stay attached to the fund even if the manager leaves. It is therefore necessary to pay equal attention to the track-record of the current manager rather than simply the fund. A Citywire Rating enables the skill of a manager to be assessed by looking at their track-record. Full details of the service can be found at http://www.citywire.co.uk/.
Forsyth’s Old Broad Street Research (Forsyth-OBSR) Fund Rating
Forsyth-OBSR Fund Ratings are determined on the basis that the fund selection process should, whilst taking past performance into consideration give greater weight to identifying the factors, which will affect future performance.
There are several key factors that lead to the final Forsyth-OBSR Rating determination. These are:
- Strength of investment process and length of time it has been in place
- Continuity of investment managers
- An investment style that has been proven over time
- Clearly defined investment objectives
- Strong and consistent past performance record
A Forsyth-OBSR Fund Rating of AAA is the highest rating awarded. Ratings are formally reviewed on a quarterly basis but may be changed within the quarter should Forsyth-OBSR alter their judgment about the future prospects for a fund. The Forsyth-OBSR Fund Ratings Service aims to identify funds that will achieve their objectives. The award of a Forsyth-OBSR Rating does not imply, however, that a fund will achieve positive returns, nor is the award an indication of the prospective returns from any particular asset class or asset allocation strategy.
