Defaqto has launched a new ratings service to show advisers where return-focused and risk-targeted managed funds sit in the market.
The Diamond Ratings service uses a scoring method known as Data Numerical Analysis to assign managed funds a rating from one to five, with five being the highest.
Diamond Ratings use both quantitative and qualitative approaches to examine funds across the whole market and analyse factors such as performance consistency, risk-adjusted returns, cost, scale, manager longevity, distribution and ease of access.
The ratings look at multi-manager and directly invested funds in the three IMA mixed investment and IMA Flexible Investment sectors. They also examine two ‘synthetic’ sectors looking at risk-targeted funds and unitised discretionary fund management.
Risk-targeted funds are rated as a family to show if the range’s intended gradations of risk and return have been achieved.
Defaqto head of insight David Cartwright says: “Many advisers have continually fed back to us that it has been a real challenge to make fair and relevant comparisons in this market.
“We have therefore introduced our Diamond Ratings as a mechanism for independently assessing managed funds, to help advisers see where they sit in the market and to compare funds.”
Hargreaves Lansdown senior investment analyst Adrian Lowcock says: “This could be a useful tool as advisers want to be able to tick a box and say they are looking at the risk and volatility factors behind a multi-asset or multi-manager fund.”