Leaders, Laggards and Losers Criteria Explained

Crown Ratings

Crown
Ratings

Crown Ratings are just one of a number of measures used to rate past performance of funds within the market. They're provided by FE (formerly Financial Express), an independent rating agency, and are featured in Leaders Laggards and Losers as an added measure to assist you when researching funds.

There are literally thousands of funds on the market and to be honest, there is no way of predicting how any of these funds will perform in the future despite how well or poorly they've performed in the past. There are so many factors that could affect performance going forward and there are no guarantees as to what lies ahead.

Having said this, you can look at how a fund has performed in the past and compare that to the performance of other similar funds. Some fund managers have gained a reputation for outstanding long term out-performance, and this is one factor you might wish to take into account when assessing the likelihood of a fund's continued success.

Please remember that performance is only one piece of information and not the most important one. Always ensure that you read the key investor information documents and terms and conditions in full before making any investment decisions.

From time to time FE may review the criteria for allocating a rating to a particular fund which may lead to changes in the Crown Rating. For more details see the fund factsheets.

FE Crown Ratings

There are five Crown Ratings used to rank funds using a benchmark, including sector averages and indices to find a 'best fit' for each fund. The funds are then assessed and provided with a Crown rating (if eligible) with the definitions outlined below.

FE Crown Rating 5  crown-rating-5

These are the top 10% of funds in each grouping based on their total scores and by definition will have demonstrated a good, if not excellent record across three criteria.

FE Crown Rating 4  crown-rating-4

This rating goes to the next 15% of funds in their grouping.

FE Crown Rating 3  crown-rating-3

This rating goes to the next 25% of funds in their grouping.

FE Crown Rating 2  crown-rating-2

This rating goes to the next 25% of funds in their grouping.

FE Crown Rating 1  crown-rating-1

The bottom 25% of funds in their grouping sit here

FE Crown Rating N/A  crown-rating-null

Funds with this rating do not meet the criteria needed to enable a rating to be calculated e.g. do not possess a three-year track record

How the ratings are calculated

In September 2011, FE updated their Crown Rating system moving from 3 to 5 Crowns. This enhancement provides greater differentiation and distinction between the funds.

Crown Ratings are a consideration within the selection criteria for the funds that you can invest in through us either via Aegon, FundsNetwork or directly with the fund managers.

We explain more about Crown Ratings below.

FE Crown Ratings are designed to highlight funds that have had superior performance and consistency on a risk-adjusted basis, relative to their peer groups using a benchmarking process. The appropriateness of a fund's benchmark will be reviewed every two years.

Once the benchmark is assigned, FE then applies three tests to the total return history of the fund. Scores and apportionment of Crowns are then categorised into 10 sub-asset class groupings based on the investment method employed by the fund.

The ratings are based on quantitative historical performance measures with the final 'score' made up of three parts. Each fund will be placed into one of ten categories based on method of investment. Funds will be compared against each other within these groups on the basis of three factors - alpha (or growth), volatility (price movement) and consistency.

To be eligible for rating, a fund must:

  • Possess a three-year track record
  • Maintain an accurate and consistent history
  • Not belong to an unclassified sector or be an absolute return fund
  • Not fall into the Protected Funds and Structured Product category

FE performance criteria explained:

Alpha

A measure of the fund's returns against its benchmark and is adjusted for volatility. It is the loss or gain the fund has posted when the benchmark return is assumed to be zero. This measure is used to see if the fund can provide superior excess returns compared to the benchmark and is therefore important in evaluating whether the fund has outperformed. The history of a fund is now evenly weighted whereas on the previous 3 Crown system, recent history had been treated as more relevant than that of more remote past, and the model weighted accordingly.

Volatility

A measure of the degree to which the fund's periodic returns vary either side of its mean return. The larger the fluctuation, the more risky the fund is. This measure is used to see how much risk investors take when entering a fund, in order to make the ratings useful on a risk-adjusted basis and is compared with that of the chosen benchmark over the last three years.

Consistency

A measure that is based on the fund's total return history (with net income re-invested), taking three years' worth of quarterly performance and tracks the nature of a fund's overall return. On this basis, each fund is ranked relative to its benchmark and its percentile performance established. This measure is used to assess the extent to which a fund consistently manages to outperform its benchmark over successive quarterly periods over the last three years. The Crown Ratings combine the three measurements to produce the Crown value. The combined values are ranked and ratings are assigned according to where the fund falls within its category.

How can I use Crown Ratings?

Most importantly, you shouldn't use them as a guide to whether a fund will deliver good growth in the future.

You should only use them to assist you in your decision making process, alongside other information about the fund in the key investor information documents (KIIDs), taking into account your investment goals, your circumstances and your attitude to risk.

A rating can't tell you the reasons why the fund performed in the past. Changes in personnel and strategy could all impact performance in the future and while the ratings try to take these into account, you should understand what drove past performance and whether or not those are still in place. Don't use them as buy or sell recommendations.

Leaders, Laggards and Losers

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What makes a Leader, Laggard or Loser?

To find out more about what criteria a fund has to meet to make it into one of these catagories, click the button below.

Criteria