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F&C’s traffic lights driving IFA advice

F&C Investments says the traffic light analysis that forms the basis of its multi-manager funds is increasingly being used by IFAs to check whether funds they recommended for clients in the past are still appropriate.

The screening tool designed by Richard Philbin highlights consistency within funds across six criteria – correlation, performance, alpha, volatility, maximum loss and information ratio.

A universe of 20,000 funds is screened on a monthly basis, with funds being flagged red if they are to be avoided, amber if they should be watched or green if they are potential buys. This system enables F&C to focus only on funds that consistently score green flags in one or more of the criteria.

IFAs have access to the traffic light analysis through F&C’s website. F&C says this enables IFAs with client money invested in the multi-manager range to see the methodology behind the fund selection, making the process more transparent. It says IFAs are also using the system to keep an eye on their own fund recommendations.

Director, head of communications, Jason Hollands says: “IFAs may have back books of business where they have recommended funds and are worried whether they are still appropriate. Our high levels of transparency mean they can go and have a look at a fund’s consistency.

“Some funds will do well for one year because of luck or a style bias that will fall out of fashion the following year. It does not mean that they are not good funds but it does mean multi-managers then have to take a view on the way markets are going and that is very difficult to do. We prefer to look for outperformance on a regular basis that is repeatable.”

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