A Structured Framework Matters
Fund investing has become increasingly popular over the past decade. There are hundreds of thousands of funds in the market these days, ranging from Exchange Traded Funds (ETFs) and mutual funds to investment trusts. Having so many choices can be overwhelming. We're here to help you to filter out the noise and home in on a list of funds that match your criteria.
We break down fund research into three parts.
Imagine you're buying a home. The first step is to decide which type of house you want and where. When you're investing, you need to choose an Asset Class, Geography, Sector and/or Theme. For instance, you might want to spend more time looking into U.S Equities than Emerging Markets Fixed Income.
There's no right or wrong choice here so but there's plenty of information out there to help you make an informed decision. We collect commentary from the world's largest asset managers such as a BlackRock, Fidelity and Vanguard etc. to save you from having to search elsewhere for them. You can find these reports inside the Insights tab in the app.
The second step is to work your way through the list of suitable houses in the area that you've chosen. You'd need to consider type, location, condition etc. When choosing a fund you can use the tools in the Scorecard to filter your options based on Asset Type, Geographical Focus, Age etc. Keep diversification in mind too, by investigating a mix of funds that have a range of different characteristics.
The third step, having narrowed down your list of houses, is to go viewings and inspect them. This is when you really scrutinise whether a particular property is a good purchase or not. Our quantitative framework answer some of the fundamental questions that you'll want to ask yourself before you decide whether to buy or sell a fund.
The framework starts with the 3 basic areas: Returns, Risk and Fees. Commonly investors will want to buy funds that have a combination of consistent returns, at the volatility level they can accept and with fees that they would be willing to pay.
Specifically, Return measures the total performance (including dividends), of a fund.
Volatility is often a neglected metric but it's actually very important to consider. Make sure that you don't buy into something whose performance varies a lot day from day, unless you're willing to tolerate an emotional rollercoaster. The volatility gives you some important information about the underlying asset class that you're thinking about buying into. Some regions or asset classes are inherently more volatile than the others.
Finally, Fees are increasingly critical to long term investing, with the rise of passive funds that're charging a fraction of the fees that most active funds require.
If you're choosing between an active and a passive fund then this framework becomes particularly important. It answers the fundamental question: is it worth paying higher fees for an active fund whose risk adjusted return is greater than the passive peers'?
Besides the 3 key factors of Returns, Risk and Fees, we also include a few other important metrics for your research. They include: Year To Date Performance, Dividend Yield, Beat/Miss Benchmark History, if it's an active fund and some useful exposure breakdowns by Asset Class and Country. Below is the definition for the list of metrics we calculate.
Whenever you see a number followed by 'Y' e.g. 1D, the 'Y' stands for years.
We always begin by calculating the score of the sub-factors between 0 and 100. Then we take the average of those scores to work out the score of the main factor (returns, risk or fees). The funds are ranked based on that score from #1 (the highest) to the last (the lowest).
Total return, up until yesterday, (including dividend return) for the past 1Y, 3Y and 5Y.
Volatility (measured as standard deviation of the return), up until the end of last month, for the past 1Y, 3Y and 5Y.
Ongoing Charges Figure. If this isn't available, we use the Total Expense Ratio instead.
Funds with the same geographical focus and asset type.
Total Net Asset Change
Year to date change (%) of the total net assets, also known as assets under management. Changes are due to asset inflows / outflows and the funds' performance.
Year to Date Performance
Total return, year to date.
The current dividend yield of the fund.
Two More Things...
Firstly, as you may have seen, there are so many more choices of funds, compared to stocks. For example, inside the asset class of U.S Equities, there are thousands to choose from. This makes it super important to choose the right asset class. You may choose the best fund inside "Emerging Market" but it is more important to decide if "Emerging Market" is the right asset class in the first place. That's why we want to highlight our Insights and screening tools, which help you to identify the most suitable asset classes, together with our quantitative framework which helps you to pick and choose a specific fund.
Secondly (and this is a straightforward copy and paste from Stock Scorecard Framework) the Fund Scorecard is not a comprehensive list of characteristics that you need to consider, when choosing an investment. We will steadily add more factors and perhaps remove some along the way. What we will always do, is ensure that our underlying calculations are transparent for your scrutiny.