Al­lan Gray pub­lishes in­de­pen­dent agency’s rat­ings of funds on its Lisps

Weekend Argus (Saturday Edition) - - PERSONALFINANCE - LAURA DU PREEZ

Al­lan Gray is pub­lish­ing in­de­pen­dent rat­ings of the lo­cal and off­shore funds that it of­fers on its linked-in­vest­ment ser­vices provider (Lisp) plat­forms.

Jeanette Marais, di­rec­tor of dis­tri­bu­tion and client ser­vice at Al­lan Gray, says fund rat­ings are read­ily avail­able in­ter­na­tion­ally, and some coun­tries, such as Aus­tralia, do not al­low funds to list on an in­vest­ment plat­form for re­tail in­vestors un­less they have an in­de­pen­dent rat­ing.

Most in­vestors do not have the time or the re­sources to re­search ev­ery fund or fund man­ager thor­oughly, and rat­ings by an in­de­pen­dent agency help to over­come this prob­lem, she says.

Al­lan Gray chose Fund­house to pro­vide it with fund rat­ings, be­cause it is an in­de­pen­dent agency staffed by for­mer in­vest­ment pro­fes­sion­als and be­cause its rat­ings are based on an in-depth due dili­gence that re­lies to a very lim­ited ex­tent on his­tor­i­cal per­for­mance, which is a poor in­di­ca­tor of fu­ture out­comes, Marais says.

Fund­house’s lim­ited re­liance on per­for­mance data ap­peals to Al­lan Gray be­cause the as­set man­ager uses Fund­house’s rat­ings to in­form its choice of funds for the Lisp plat­forms, and Al­lan Gray does not want to have to change its of­fer­ing fre­quently to ac­com­mo­date changes in per­for­mance data, she says.

Fund­house is based in the United King­dom and South Africa.

Fund­house says its rat­ings are de­signed to be for­ward-look­ing, rather than to re­flect past per­for­mance, which does not tell you, for ex­am­ple, if the team that man­aged a fund has changed re­cently.

Another rea­son Al­lan Gray choose Fund­house is that Fund­house be­lieves that suc­cess­ful fund man­agers must adopt a longterm ap­proach to busi­ness and in­vest­ment, Marais says.

Fi­nan­cial ad­vis­ers who use Al­lan Gray’s plat­forms can vote for the funds they want in­cluded on the plat­forms from a list of funds of­fered by lo­cal as­set man­agers and off­shore man­agers reg­is­tered with the Fi­nan­cial Ser­vices Board (FSB), ex­clud­ing funds in the spe­cial­ist eq­uity sec­tors, very small funds and funds that have not built up a track record, she says.

Al­lan Gray tries to keep the num­ber of funds on its lo­cal plat­form to less than 50.

Marais says Fund­house is help­ing Al­lan Gray to find what it re­gards as good off­shore funds that can be per­suaded to reg­is­ter with the FSB, which would make them suit­able for lo­cal in­vestors and el­i­gi­ble to be in­cluded on Al­lan Gray’s off­shore Lisp.

Al­lan Gray hopes that the Fund­house rat­ings will add a layer of as­sur­ance to in­vestors’ de­ci­sion­mak­ing, and that it will help in­vestors and their ad­vis­ers to make the right long-term choices.

The com­pany also hopes that in­clud­ing the rat­ings on its Lisp for off­shore funds (funds de­nom­i­nated in for­eign cur­ren­cies and domi­ciled out­side of South Africa) will help in­vestors and ad­vis­ers to con­sider lesser-known, but of­ten bet­terqual­ity, global man­agers.

The list of funds on Al­lan Gray’s lo­cal and off­shore Lisps, as well as their rat­ings, can be ac­cessed on Al­lan Gray’s web­site (­ > “Our unit trust funds” > “Other in­vest­ment op­tions” > “Al­lan Gray’s in­vest­ment plat­form” > “In­vest­ment plat­form fund list” or “Off­shore in­vest­ment plat­form fund list”).

Fund­house has rated most of the funds on Al­lan Gray’s Lisps. The ex­cep­tions may be where a fund man­ager has de­cided not to par­tic­i­pate in the rat­ing process, or where the fund is a money mar­ket fund or a fund of funds.

Fund­house plans, within the next 12 to 18 months, to pub­lish rat­ings for the rest of the South African funds that fi­nan­cial ad­vis­ers favour for their clients, Rory Maguire, a di­rec­tor at Fund­house, says.

Fund­house makes its rat­ings and the rea­sons for its rat­ings avail­able to fi­nan­cial ad­vis­ers for a sub­scrip­tion fee.

Ac­cord­ing to Fund­house’s brochure, funds are ranked as tier one, two or three.

Fund­house awards a tier-one rat­ing to funds that, ac­cord­ing to its as­sess­ment, are man­aged con­sis­tently by the same team within the same busi­ness struc­ture, and are likely to con­tinue to be man­aged in this way. Mem­bers of Fund­house’s team in­vest their own cap­i­tal in tier-one-rated funds.

Fund­house ac­cords a tier-three rat­ing to funds about which it has a num­ber of con­cerns.

Fund­house con­sid­ers four fac­tors when rat­ing a fund:

◆ The qual­ity of the in­vest­ment team;

◆ The par­ent com­pany that of­fers the fund; ◆ The in­vest­ment process; and ◆ Past in­vest­ment de­ci­sions or ma­jor in­vest­ment calls.

When it eval­u­ates an in­vest­ment team, Fund­house con­sid­ers whether it is ex­pe­ri­enced in the right ar­eas, the level of staff turnover, whether past in­vest­ment de­ci­sions can be at­trib­uted to the cur­rent team, and whether the team’s de­ci­sion-mak­ing is char­ac­terised by gen­uine de­bate.

In eval­u­at­ing a com­pany, Fund­house looks at how pa­tient it has been with un­der-per­for­mance, be­cause it takes time for a fund to beat the mar­ket.

Fund­house looks at whether the com­pany has a range of prod­ucts within the ar­eas in which it is com­pe­tent and whether it of­fers in­vestors value for their money.

It also con­sid­ers whether port­fo­lio man­agers in­vest in the funds they of­fer to their in­vestors and whether their in­cen­tives are aligned with the long-term re­turns that in­vestors re­ceive.

Fund­house anal­y­ses a man­ager’s in­vest­ment process to de­ter­mine if it is well de­fined, clearly un­der­stood by the in­vest­ment team and in­vestors, and closely fol­lowed.

When con­sid­er­ing past in­vest­ment de­ci­sions or ma­jor in­vest­ment calls, Fund­house looks for ev­i­dence that the man­ager dis­plays “con­vic­tion” (the man­ager take a rea­son­able stake in a sin­gle se­cu­rity). It anal­y­ses whether the in­vest­ment de­ci­sions were in line with a fund’s stated in­vest­ment process and phi­los­o­phy.

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