A joint venture between Albemarle Street Partners and direct platform Chelsea Financial Services, FundCalibre was launched in August 2014.At the time, direct-to-consumer platforms did not offer many tools to help investors select funds, and FundCalibre’s research portal aimed to address this.
However, as our recent report, The Influence of Research Agencies, revealed, third-party ratings are not a top priority for do-it-yourself investors when choosing funds. Instead, they are generally more concerned with performance and charges.
These findings are in line with the consumer research conducted by the FCA for its asset management market study, which found ratings from third-party agencies come 15th out of the 20 most influential factors presented to those surveyed.
That said, the proportion of assets under advice influenced by the use of fund research agencies by advisers increased from 57 per cent in 2014 to 69 per cent in 2016, according to our data. With this in mind, FundCalibre’s more recent move towards being a proposition that serves advisers as well as self-directed investors is interesting. Indeed, in the context of the growing influence of third-party research over advisers’ fund selection and due diligence processes, the decision to expand its target audience makes perfect sense.
With 10 per cent to 20 per cent of its website traffic now coming from advisers, FundCalibre is due to launch extra content specifically designed for this community later in the year. Its content is currently free to use and this will be the same for any new additions. Revenue-wise, the firm relies wholly on marketing licence fees that fund groups pay to use the ratings.
FundCalibre’s Elite Ratings use a proprietary data screen called AlphaQuest. This strips out the impact of market movements to leave the value added by the fund manager, then back-tests the data to calculate the probability of
that manager repeating this skillin the future.
A three-year track record of consistent above-benchmark performance and a 60 per cent or higher probability of repeating this skill over the next 12 months is required to make the final cut. The team then undertakes interview-led research before awarding the accolades.
Despite being an important factor to many, our research suggests
some advisers are sceptical about relying too much on ratings that only look at three-year performance. With this in mind, FundCalibre’s approach to mitigating market impact is compelling.
The agency looks to rate no more than 10 per cent of the UK open-ended retail fund universe and does not see value in providing a range of ratings, meaning a fund is either Elite rated or not rated at all.
It has recently expanded its coverage into the investment trust space, joining just four other agencies in researching the products. This comes despite the fact uptake of investment trusts by advisers remains low. Our research with advisers reveals that lack of liquidity and constraints over their use in model portfolios are the main barriers here.
That said, we also hear there is a lack of research providing in-depth analysis of the sector, particularly with regards to the underlying investments of the trust, and that these ratings would help.
In contrast to most other agencies, passives do not fall within the scope of FundCalibre’s research due to the fact the AlphaQuest screening involves removing the beta.
Around half of FundCalibre’s visitors are brand new, acquired through digital advertising and search engine optimisation. Unsurprisingly, the Chelsea Financial Services platform features the Elite Ratings on its two recommended funds lists: the Chelsea Selection and the Chelsea Core Selection. This gives the ratings exposure to around 50,000 customers with assets worth £1.2bn.
Seven of the 14 “select” lists currently presented to consumers by direct platforms include third-party ratings but the presence of the Elite Ratings on Chelsea’s may limit the potential interest from other direct players to feature them. All in all, the adviser push seems a sensible move.
Rodolfo Crespo is senior analyst at Platforum