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Everything you needed to know about Citywire Fund Manager Ratings...
by Jonathan Miller on May 23, 2011 at 18:21
Learn what they mean, how they're calculated, and how you should use them.
Citywire launched its fund manager ratings more than 10 years ago and is the only firm to exclusively rate managers, not funds. We do this because we strongly believe that the track record of the fund manager is the most important consideration when selecting an actively managed fund because:
- Fund managers move about frequently. So a fund's performance may have been generated by someone who is no longer there. Our unique career database, which takes account of fund managers' career moves and sabbaticals, will tell you if their replacement is any good.
- Citywire Fund Manager Ratings measure performance across all the funds run by a given manager.
- The ratings provide a clear evaluation of a manager’s performance against their direct competitors. As less than 25% of all active fund managers achieve a Citywire rating, you can be sure that those adding value are being identified.
The manager’s track record is scrutinised with a methodology approved by an independent actuary, AKG. The ratings take account of a three-year performance record and is updated every month.
It is entirely quantitative and our analysis is based on the information ratio, a recognised measure of risk-adjusted performance. However, we call it the Citywire Manager Ratio as it takes into account career moves and all the funds a manager runs.
We cover the whole market meaning every manager is eligible for a rating and investors can have confidence in the objectivity of our ratings. Citywire currently tracks more than 9,000 fund managers in 35 countries across more than 175 investment sectors.
When calculating performance, all annual or ongoing fund charges are taken into account although we assume there is no initial fee on purchase.
In order to be rated, a fund manager will need to beat his or her benchmark over a three-year period. A benchmark is often the relevant stock market index.
Fewer than 25% of fund managers we track actually achieve this, and managers in this select group will either receive a Citywire+, A, AA, or the top AAA rating.
The four ratings bands are assigned in the following way:
- the top 10% of managers in this elite group will gain the highest AAA rating
- the next 20% will be awarded the AA rating
- the following 30% will get a single A rating
- and the remaining 40% will gain a Citywire + rating.
Each Citywire rated fund manager will have one universal rating, reflecting the performance on every fund he or she runs across the 35 countries in our database.
We judge fund managers running absolute return funds in a slightly different way. We group them into 15 peer groups, featuring those running bond and mixed asset funds, as well as Alternative Ucits strategies, which use shorting as part of their investment process.
We judge these fund managers on their ability to:
- Beat cash returns by 2% over three years;
- Control losses (maximum drawdown – their highest loss from peak to trough - can’t be 50% higher than peer group average);
- and generate strong risk adjusted performance over three years
Fund managers who meet these criteria will then be allocated one of four ratings, depending on their risk-adjusted performance.
- the top 10% of managers will gain the highest AAA rating;
- the next 20% of managers will be awarded the AA rating;
- the following 30% will get a single A rating;
- and the remaining 40% will gain a Citywire + rating
Managers may run funds that are assessed on this methodology but also run others that come under our traditional ratings system. In those cases, they will be assessed for separate ratings.
Citywire Fund Manager Rankings calculate the total percentage returns generated by individual fund managers in a sector and show which funds they are currently managing. Their performance versus their peers can be analysed over various time periods based on the following methodology:
- When one fund manager runs two or more funds, concurrently within the same unit trust sector, a monthly average is calculated across these funds.
- When a fund manager has a ‘career break’ there is no monthly return figure in the analysis. However, once that manager resumes managing a fund in the same sector, we substitute the average performance of all managers in that sector for the missing months. So the longer a fund manager is inactive, the more average he or she may look.
- A fund manager has to be currently active, as well as being active at the beginning, or before, the period under review.
- Joint managers are treated as being equally responsible for a fund’s performance.
The Citywire Fund Manager Ratings and Rankings are supported by a team of 14 people handling all aspects of data collection and investment research. In addition, our technology team has two quant analysts to help create bespoke performance reports.
A long-term view is clearly very important, but as fund managers move from one company to another or take on new funds, a focus on the individual is also important. Citywire’s online fund manager factsheets give you access to deeper performance analysis alongside a manager’s fund manager rating track record.
No, we are independent and are not paid to consider a fund manager in our ratings. As long as a manager’s fund is registered in a country we look at, and sits in one of the 175 sectors we cover, he or she will automatically be part of our analysis. If a manager achieves a rating, the relevant asset management group pays us a licensing fee to use the rating for marketing purposes.
As a company, Citywire is also regulated by the Financial Conduct Authority in the United Kingdom.