Here we outline the criteria used for calculating the Standard & Poor's European fund awards. ...
Here we outline the criteria used for calculating the Standard & Poor's European fund awards. The most prestigious award is the Overall Best Investment Manager Trophy. Groups are initially assessed within a larger or specialised group category defined by the number of funds, number of sectors, and skill in certain core sector/markets. These awards look at the fund management skill of the group as a whole, whereas the sector awards are fund specific rewarding particular areas of expertise.
The universe is constructed of funds registered for sale in at least three of the six following countries: Luxembourg, France, Italy, the United Kingdom, Germany, and Spain.
The universe of funds is built from the following Standard & Poor's Workstation databases; French Sicavs, French FCPs, French Auslands, Spanish registered funds, German registered funds, Italian registered funds, Luxembourg, and UK Unit Trust/Oeics. Additional funds included are those registered for sale in the UK and Luxembourg.
The domicile of the fund must be within Europe. Funds qualifying this year are domiciled in: France, the United Kingdom, Luxembourg, Spain, Italy, The Netherlands, Germany, Ireland, Austria, Belgium, Denmark, and Switzerland.
Where the primary share class varies between countries S&P use the primary share class in the funds domicile.
Money market, closed-end, click and guaranteed, SICAFI, future, hedge, and pension funds are excluded from the competition.
For statistical reasons, sectors that hold fewer than 10 funds over the time period being assessed have been excluded from the group awards calculation.
Funds must have minimum assets under management of E4m, as at end of June 2002. Funds that do not evaluate at least weekly are excluded from one-year calculations
Performances are assessed on a bid to bid, gross income re-invested, Euro2 basis. Awards calculated for one, three and five years on a relative risk adjusted basis.
S&P makes a distinction between groups with a large range of funds and groups with a specialised range.
Larger group category is defined by
• One year defined as 20 or more participating funds in at least 10 different sectors
• Three year defined as 20 or more participating funds in at least 10 different sectors
• Five year defined as 15 or more participating funds in at least 10 different sectors
Specialist group category is defined by
• One year defined as 4 to 19 participating funds in at least 3 different sectors
• Three year defined as 4 to 19 participating funds in at least 3 different sectors
• Five year defined as 4 to 14 participating funds in at least 3 different sectors
Overall Best Investment Manager Trophy
A group must have passed the filter criteria over each time period to qualify for assessment for the Overall Best European Investment Manager award.
Each group must have at least 1 fund in both of the following groups of core sectors over the time period:
• Equity Global, or Equity Global Emerging Markets
• Equity Europe, or Equity Euroland, or Equity Europe Emerging Markets, or Equity Europe ex UK, or Smaller Companies Europe
The Standard & Poor's (RRA) Relative Risk Adjusted Ratio rewards not only superior performance but also the consistency of that out-performance relative to the benchmark of the fund's peers. Funds that tend to do well under this method are those that behave similarly to their sector (they rise and fall together) but steadily pull ahead of their peers over time.
The RRA ratio divides the fund's average monthly relative return by the volatility of those monthly relative returns. The higher the average monthly relative return the better the fund has done relative to its benchmark. The lower the volatility of the monthly relative returns the more consistent the fund is relative to its benchmark. By dividing one by the other we arrive at a ratio that adjusts relative performance for the consistency of that performance relative to the benchmark.
Group calculations identifying the management group with a range of funds that has overall delivered the most consistent relative performance of all the funds in the competition.
To assess the overall performance of a management group we need to take a more sophisticated approach than simply aggregating total returns: Which would only benefit those managers who happen to have funds in sectors that were currently in favour, or took larger bets on performance where those bets happen to have paid off. Therefore, Standard & Poor's uses the following approach to assess group performance.
The first step is to calculate the Standard & Poor's RRA ratios for each fund in each category as described in sector calculations above.
The funds are then ranked within their sectors using a percentile ranking. The percentile ranking makes it possible to compare sectors containing different numbers of funds and with varying performance ranges. For example, a 200-fund sector will have two funds ranked first, two ranked second and so on. By contrast, a 10-fund sector the first fund will rank 5th, the second 15th and so on.
One final problem remains to be resolved: how to allow for the fact that some management groups have 10 funds and others 50? If nothing were done, the groups with few funds would always appear at the top and bottom of the rankings while management groups with a large number of funds would be concentrated around the average. Further standardization is carried out based on the number of the group's funds. An estimate is made of the probability of being first if a group has 7,8,9 or more funds up to 100 and adjusts each group's score accordingly.
• Funds need to register with the local trade associations e.g. FSA in the UK and to provide documentation to S&P of that fact.
• Euro (previously Ecu)' is used for time periods starting before the introduction of the Euro.
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