The Fundata FundGrade ratings are a popular and useful way for investors and advisors to identify high-quality investment funds in the Canadian fund universe that have achieved superior risk-adjusted performance relative to their peers. But sometimes funds appear on search lists as “not rated” and may not show quartile ranking either. This doesn’t mean the fund is unworthy of rating. There are a number of reasons why a fund would not get a FundGrade rating.
The FundGrade rating system is an objective and completely quantitative measure that assign grades ranging from an “A” to an “E”. For a fund to score a FundGrade “A” rating, the fund must substantially outperform its peers by finishing in the top 10% within its category in a given month.
An objective FundGrade measure is important for two reasons. First, the Canadian mutual fund industry is highly competitive and funds that have been able to consistently outperform their peers deserve to be recognized for that accomplishment. Second, an “A” Grade rating allows investors to easily identify top performing funds based solely on quantitative measures thus assisting in the investment decision making process.
The FundGrade rating system uses risk-adjusted performance figures to rank and grade Canadian investment funds. The FundGrade calculation is a completely quantitative measure based on a minimum of two and up to 10 years of performance history. Qualitative fund characteristics and analyst opinion are not considered and have no bearing on the grading system. You can get more detail about how the FundGrade rating system works, including a brochure in either French of English, at the Fundata website.
Given the transparent and purely quantitative nature of the FundGrade, along with the long history and size of the Fundata database, the FundGrade Ratings have become a reliable and widely-used measure to help advisors and investors to quickly screen fund choices for further research.
Reid Baker, Fundata’s Director of Analytics, says there are a few scenarios where a fund will not get a FundGrade rating or quartile rankings:
1.The fund is less than two years old (this applies only to FundGrade). If a fund is less than a year old, it will not get a quartile ranking.
2.The fund belongs to a Canadian Investment Funds Standards Committee (CIFSC) category that does not get ranked, for example, Geographic Equity, Sector Equity, or any of the Specialty categories.
3.The fund company has requested that the fund does not get a ranking. Such funds are still included in the data universe when ranking other funds but will not themselves be given a FundGrade or quartile ranking. The flip side, of course, is that the company’s funds will also be excluded from all FundGrade ratings, including “A” and “B” ratings, and thus will not appear in FundGrade-specific screens or searches.
To find out why your fund has opted out of FundGrade rankings, call the fund company’s investors services department directly for more information.
Courtesy Fundata Canada Inc. © 2015. Robyn Thompson, CFP, CIM, FCSI, is president of Castlemark Wealth Management. This article is not intended as personalized advice.
