RSMR rates the Verbatim fund range

17 March 2017

Our Approach to Fund Ranges

With the continuing evolution of fund ranges it is important to consider the numerous solutions in different ways.  Whilst a ‘traditional’ managed fund can perhaps be adequately compared to its sector and a multimanager fund its peers, the new ‘ranges’ of funds can operate without reference to these groups and therefore need to be considered differently.

The term ‘fund ranges’ can simply mean a collection of funds that have been put together for marketing purposes, they may have nothing in common in terms of investment process or manager, but have been put together to meet a range of customer needs.

Our Fund Range Criteria & Definition

Our criteria for determining whether or not a set of funds can be classed as a range are based on our understanding and experience in the marketplace and also our discussions with fund groups.

We define a fund range as follows:

• Funds which have been developed by a fund group to work together to form an integrated solution and marketed as a cohesive family of funds
• The objective and aims of the individual funds are likely to have an identifiable link between them, for example through risk targeting, risk mapping or through the investment process
• It is likely that the range will be run by the same manager or team
• The range will have a single overarching strategy and process that is used for all of the funds
• The funds within the range should be differentiated by asset allocation and risk and should be managed to maintain this differential as part of the process
• Whilst the holdings and weightings are likely to differ across different risk profiles we would expect to see some continuity in the underlying constituents to indicate they are linked
• The range should include a minimum of three funds
• Where a provider has a number of different ranges within the same strategy, such as active / passive / hybrid options or fettered / unfettered options we will consider each range separately

By using these criteria we are able to consider the fund range in its entirety, knowing that the funds work together in some way and will have commonality of investment strategy and fund process.  This means that such fund ranges can be integrated into the investment process in the knowledge that the funds in each range work together in a cohesive manner.  The next stage is to consider whether or not these ranges warrant our rating.

Our Rated Fund Range methodology

Having identified that a set of funds meets our definition of a fund range, we then apply our methodology to determine whether or not it is suitable to be rated.

Our approach to all our ratings places far greater emphasis on qualitative measures than quantitative, and our approach to fund ranges reflects this.  We do consider quantitative measures but the qualitative measures can outweigh this as we focus on those factors which maintain the integrity of the range rather than judging primarily on performance.

The methodology used to consider fund ranges is largely based on our rated fund methodology, but we do include the ability to vary this where we feel that qualitative aspects of the ranges warrant it.

Below is a summary of our approach:

Fund Range Philosophy - The first part of the process is to gain a full understanding of the fund range and its philosophy. 
Fund Management Team - We need to ensure that the fund management team has sufficient expertise in the area in which it is operating. 
Process - This involves gaining a full understanding of how the funds  are managed, what would trigger the manager to buy or sell a particular stock, what they are looking for in the stocks that they hold etc. 
Risk Controls - The risk controls that are in place are also considered.
Resources – What research capabilities there are within the fund management team (clearly important in finding new investment opportunities) and also at whether or not any research is bought in (this can be positive as it can provide an alternative view, however in some cases it can indicate a lack of resource within the team). 
Monitoring Process - Selecting the holdings for the funds within the range is of course only part of the process – the ongoing monitoring and the procedure for making changes is equally important in determining potential returns. 
Performance - We also consider a number of quantitative measures.  These allow us to understand how the funds have operated in recent markets, and also provides context for the rest of our research. 
Risk - We will also consider a variety of risk measures, again considering the each fund’s risk numbers in relation to their position in the range, their benchmark and the parameters within which they operate.  We will then focus on how the performance and risk data interlinks. 
Fund Manager Interviews – These are used to supplement this information and to keep up to date with current issues and trends.  These are conducted on a regular basis, with the content being tailored to the fund and manager in question.

We are delighted the Verabtim funds have passed through our process and we hope this additional background will help advisers in their selection process.