Globefund 5-Star Ratings
globefund.com in conjunction withLogin/Register | | Algorithmics Inc. is pleased to introduce the Globefund 5-Star Ratings service, a simple rating for most mutual funds in Canada. Globefund 5-Star Ratings will help you understand how well each fund has been doing relative to similar funds. The ratings are available on the new 5-Star Rating Fund Report, on the Annual and Long-Term Fund Reports and on theLogin/Register | | Fund Profile. You can also use theLogin/Register | | Fund Filter to screen funds based on their Globefund 5-Star Rating.
Funds are ranked from one to five stars, with the top ranked funds getting five stars and the lowest ranked funds getting one star. While past performance does not guarantee future performance, our historical testing of this rating system has shown that on average, top-rated funds have tended to outperform their peers over a six-month to two-year horizon.Login/Register | | How it works.
Our rating system provides a useful gauge of the funds we follow. However, we do not suggest you use it as the single decision point for the suitability of a fund for your needs. Be sure to study all of the information you can gather on any fund before you invest.
How It Works
We have divided mutual funds into six broad fund categories that closely match the asset allocation categories used by financial planners, as follows:
- Growth (primarily mid size and large cap Canadian equity funds)
- Growth and Income (primarily balanced, dividend, and asset allocation funds)
- International Growth (foreign equity funds)
- Aggressive Growth (primarily small cap, geographic, and specialty funds)
- Income (fixed income and mortgage funds)
- Capital Preservation (Canadian and foreign money market funds)
The only qualification for including a fund in the rating system is that it must have at least two years of history. Currently, that means we compute a rating for approximately 80% of the 6,000 Canadian mutual funds that we track.
Once classified into one of these broad categories, all the funds within that category compete with each other in terms of the best score, and hence the best rating. A fund's score is a combination of return and regret and is determined as follows. On a monthly basis, for each fund, we compute month-by-month returns and subtract from these the return of the 90-day Canadian T-Bill to get what is known as the risk-free return for each month. If this result is positive for any one month, it contributes to the fund's return. If it is negative, it contributes to the fund's regret. We then use an averaging method across each of these returns and regrets (with increasing weight on the most recent data) to derive a final measure for return and for regret for each fund. The final score for a fund is then computed as the return score minus an adjusted regret score, where the adjustment factor for the regret component is unique for each broad asset category. Using the final scores for each of the funds in a category, we rank them and then allocate a star rating for each. The top 10% of funds receive a five-star rating, the next 22.5% a four-star rating, the middle 35% a three-star rating, the next 22.5% a two-star rating and the bottom 10% of funds a one-star rating.
The Globefund 5-Star Ratings use many of the elements of the Mark-to-Future methodology pioneered by Algorithmics: www.mark-to-future.com. Algorithmics, www.algorithmics.com, was founded in 1989 in response to the complex issues surrounding financial risk management for the enterprise. Today, as the leading provider with the largest and most experienced team in the industry, Algorithmics continues to focus its efforts on creating and implementing enterprise risk management software that meets the evolving needs of its customers. Continuing its tradition of leading the way in risk measurement and management tools and processes, Algorithmics recently introduced Mark-To-Future(TM) (MtF), an open and comprehensive framework for measuring risk and reward. Headquartered in Toronto, with 14 offices around the world, Algorithmics serves more than 90 global financial institutions with 140 installations worldwide.
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