To help advisers navigate the rising number of products used to grow or protect their capital using lower-risk strategies while protecting against the effects of inflation, the research company will measure both qualitative criteria and performance statistics.
Pension reform and record low interest rates are together responsible for the rise in popularity of absolute return funds, according to Defaqto, which recognises the more outcome-focused strategies that tend to seek positive returns, net of fees, over a fixed time horizon.
Forward-looking
The firm will take into consideration forward-looking qualitative factors such as the ongoing charge figure (OCF), experience and tenure of the fund managers as well as historical performance.
Performance criteria will also look at the fund’s ability to consistently maintain an absolute return and risk-adjusted measures that can emphasise tail risk.
Defaqto already rates the following categories using Diamond Ratings: risk targeted fund families; risk focused fund families; unitised DFM fund families; return focused funds; and index trackers.
Elsewhere its more established star ratings allow for comparison of life and protection and general insurance products.
Broader scope
Insight analyst (investments) Jason Baran added: “[Their] diversity has required a broader scope to consider all the various processes that help drive an absolute return fund’s performance, including risk control and research functions, and the number of fund managers responsible for the fund.
“We have taken account of traditional fundamental measures of a fund manager’s skill, as well as factors unique to absolute return such as batting average, drawdown risk and performance during turbulent markets.”
