Size no guarantee of quality

FE Crown Ratings FE FE Analytics Crown Ratings funds management

7 September 2018
| By Hannah Wootton |
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Some of the biggest names in funds management are amongst those to receive the most one Crown ratings, suggesting that size doesn’t necessarily translate to strong or sound investments.

Colonial First State (CFS) and OnePath Funds Management had the most one crown funds of any manager, with 14 each. AMP Capital came a close second with 13, while chart one shows the other managers to hit double figures.

When questioned on OnePath’s poorly-rated funds, an ANZ spokesperson said that there were many factors to consider when assessing the performance of these funds. He pointed to domestic versus international exposure, allocation to growth assets relative to peers, and stock selection specifically, but did not address how these impacted OnePath’s ratings.

The same spokesperson said, however, that the firm had recently made changes for some of its one Crown funds that would shift their performance, including a change to the underlying manager.

AMP Capital similarly pointed to the metrics used to calculate the Crown ratings when asked for comment on its poor ratings by Money Management.

“Each AMP Capital fund is measured against a set of specific client and investment objectives. In many cases, these may not align with the metrics used to calculate the Crown Ratings,” an AMP spokesperson said, also suggesting that the classification of some of its funds against particular benchmarks has been “inappropriate”.

“We consider the most important arbiter of success for our funds to be our clients and whether the funds help them to meet their goals.”

Of course, many of the criterion upon which the Crown ratings are based, such as performance, consistency, and risk, would be considered by many investors to be crucial to the achievement of their goals.

It’s worth noting of course, that as large managers, these firms are amongst the biggest in the industry, meaning that they have the most funds to rate. It’s unsurprising then, that some of these would fall in the bottom Crown category.

Twenty-five per cent of all funds receive one Crown, so OnePath’s high number of one crown rated funds put it above this figure overall, with 35 per cent of its rated funds in total earning the bottom rating.

With CFS’s 14 one-Crown rated funds representing 18.4 per cent of the total number of its funds rated (76), it actually falls below the overall average. AMP Capital was similarly below the average with 16.3 per cent of its funds receiving the bottom rating.

That does not mean to say, however, that having poorly performing funds is a necessary consequence of having many funds. Many of the managers with high numbers of four and five Crown funds did not have similarly large amounts of one and two-rated funds.

CFS pointed to the strong performances of some of its other funds when asked for comment on its one-Crown funds.

“While more than half of the Colonial First State funds included in the Crown ratings achieved a score of 3 or better based on performance over the past three years, it is not unusual to see some variation across performance of some funds in the short-term,” a CFS spokesperson said.

“CFS offers a wide range of funds to our investors with a broad mix of investment strategies and processes, which means there will be variation in performance as market conditions change.”

Morningstar Investment Management suffered the largest net fall with its overall number of Crowns across all funds dropping by nine. Platinum Asset Management saw the next highest drop with six, and SG Hiscock & Company and Russell Investment Management both lost five Crowns across the board.

Despite its high number of one-Crown funds, CFS also saw strong improvement in its overall ratings. It had picked up six crowns since the February calculations.

Table 1: Management groups with ten or more one Crown funds

Source: FE Analytics

Funds management group

No of 1 Crown funds

Colonial First State

14

OnePath Funds Management

14

AMP Capital

13

AXA Investment Management

12

BT Financial Group

11

ClearView

10

IPAC Asset Management

10

Zurich Financial Services

10

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