How ratings agencies work

At M&G, we use a range of independent ratings agencies to give our investors an insight into the relative performance of different funds and fund managers.

Consider the risk

Understand your risks in order to manage and minimise them.

Consider the risk

Several ratings agencies are recognised within the financial industry for the provision of independent ratings for funds and fund managers. These ratings are designed to help potential investors to see which funds and fund managers are performing well.

Fund ratings and grading’s

In our documentation, we mainly refer to Morningstar, Citywire and FundCalibre ratings.

 

Morningstar Analyst Rating™

Morningstar Analyst Rating

A Morningstar Analyst Rating™ for funds is the summary expression of Morningstar’s forward-looking analysis of a fund. A Morningstar Analyst Rating of Gold, Silver or Bronze indicates that Morningstar’s analysts think highly of the fund and have an expectation that it will beat the relevant performance benchmark and/or peer group within the context of the level of risk taken over the long term (defined as a full market cycle or at least five years).

Morningstar Analyst Ratings™ are assessed against 'five pillars', with Morningstar looking for funds that have:

  • a seasoned, talented and successful manager or management team
  • a sound, thoughtful process that has been executed skilfully and consistently
  • a portfolio that’s in harmony with the stated process and that’s capable of delivering a reward that compensates investors for the risks it takes
  • reasonable expenses
  • a strong parent organisation that is focused on responsible stewardship of investor assets

All funds that can be rated will, on a monthly basis, be awarded a rating as follows:

  • Gold - awarded to funds which are Morningstar’s highest convictions and in their opinion represent ‘best of breed’ for their investment mandates
  • Silver - awarded to funds that are high-conviction recommendations. They have notable advantages across several, but perhaps not all, of the five pillars
  • Bronze - given to funds which have advantages that clearly outweigh any disadvantages across the pillars, giving Morningstar the conviction to award them a positive rating

Source: Morningstar, August 2015.


FundCalibre Elite Fund Ratings

FundCalibre is an independent online research centre and fund ratings agency, which is freely available to all investors. The FundCalibre investment research team analyses funds which are widely available to UK retail investors and identifies those which they believe have the most skilful managers. These funds are awarded a proprietary Elite Fund Rating.

  • FundCalibre start with AlphaQuest, their unique filtering tool. Only funds which, according to this analysis, have a greater than 60% chance of delivering outperformance, attributable to the skill of the fund manager, make it to the next stage of their process.
  • Those fund managers who pass the AlphaQuest test are then subjected to further detailed qualitative analysis. FundCalibre's experienced research team will interview the fund manager face-to-face, to better understand and assess how their investment process and style gives them an edge over other managers.
  • When FundCalibre meet a manager they identify their investment philosophy and drill down into their portfolio to check that it is consistent with that philosophy. They look at the team they have behind them and whether they have any constraints.
  • Once this analysis has been completed, the research will be subject to peer group review, within the FundCalibre team, and only then will those funds, whose managers they believe to be the most skillful, be awarded an Elite Fund Rating.

Source: FundCalibre, August 2016.

Citywire Fund Manager ratings

Citywire Fund Manager ratings identify the individual managers who have the best risk adjusted personal performance record over three years. All managers who run actively managed retail funds that are registered for sale in the UK and have a Sterling Share Class qualify to be rated.

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 stockmarket index. Fewer than 25% of fund managers tracked 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
  • the remaining 40% will gain a Citywire+ rating

Source: Citywire, September 2014.

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