Portfolio returns have no direct impact on Standard & Poor's fund ratings under the agency's fully q...
Portfolio returns have no direct impact on Standard & Poor's fund ratings under the agency's fully qualitative judging system put in place from 1 August 2003.
The initial quantitative screen will remain to identify funds worthy of further analysis and manager interview, but performance numbers will no longer influence a fund's actual S&P rating.
S&P's qualitative analysis focuses on factors such as a fund's management, corporate status and investment process, all of which it believes can contribute to long-term outperformance.
S&P's head of fund ratings for Europe, James Tew, said the agency has gradually been reducing the quantitative element in fund ratings from 50% originally to 30% in recent years and he believes 100% qualitative analysis is a natural progression.
Tew said this system will ensure the agency's ratings are no longer driven to any extent by short-term performance and will prevent funds at the margin getting higher or lower grades solely on performance measures.
'For us, the key to using performance data is understanding how the fund has achieved that set of results and whether its returns are consistent with the investment profile,' he said. 'Our analysts will obviously still bear performance in mind but it will be part of their overall review rather than something to justify ratings.'
Tew said the industry has always struggled to see S&P as a qualitative ratings body and believes the changes will make the agency's role clearer and its proposition easier to sell into the marketplace, as the quantitative side will no longer confuse the picture.
He added the revised system is unlikely to have any significant impact on the number of funds rated as S&P has always pressed analysts for qualitative fund ratings, despite the small performance element.
If anything, he feels the 100% qualitative system will make S&P more cautious in its analysis, as the agency will be more suspicious of any performance out of line with expectations based on a portfolio's investment profile.
The first sector to be reviewed under the revised system is UK Growth, with results due out in October.
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
Senior Managers Regime
Interest rate outlook unchaged
FCA made demands last week