Long Vacation–Life In Blogcn

There is a wide variety of mutual funds available for Hong Kong investors. According to SFC, there are over 2,000 funds in retail markets. Fund's investment universe moves beyond traditional asset classes like equity, fixed income to new ones such as Real Estate Investment Trust (REIT) and commodity derivatives etc.

Given the variety and number of funds, it takes much more time for investors to know about either the quality of fund management or investment objective of every fund. More often, they select funds based on past performance or fund ratings provided by rating agencies like Morningstar and Standard & Poors. Do funds with high ratings necessarily perform better?

Fund rating is a quick and easy tool for investors but the simplicity also comes with limitations. Investors should know how a fund is rated and what the difference between different rating systems is. Ex- S&P Fund Stars were assessed over a single time frame  36 months/3 years, whereas the Morningstar Rating methodology is applied over three time periods to reflect Morningstar's commitment to long-term investing: 3 years, 5 years and 10 years. Even though both ratings are quantitative measurement, the results could be different due to different evaluation period. In addition, the ex- S&P Fund stars used a 'Relative Risk Adjusted Ratio'(a fund's average monthly excess return divided by the volatility of these returns). The Morningstar Rating uses 'Morningstar Risk Adjusted Returns'(MRAR), which also emphasizes downward variation.

Secondly, MRAR also adjusts monthly returns for sales charges when measuring fund's performance. Since each individual share class of one fund has different fee structures, as although they share the same portfolio, their individual expense structures produce different returns. Unlike ex S&P fund stars are only assigned to one class of a fund, the Morningstar Rating assesses all share classes on individual basis and so provides investors to more comprehensive comparative analyses.

Thirdly, although both methodologies assess funds comparatively within a particular fund universe, the ex-S&P Fund Stars system assessed a fund within its registered for sale fund universe. However, the Morningstar Rating aggregates funds into a Pan European/Asian funds category universe for assessment. Under the ex-S&P Fund Stars methodology a fund registered for sale in multiple markets could demonstrate different star levels across the various markets. However, under Morningstar Ratings each fund's share class is assigned a single rating applicable to all markets into which it is distributed. This eliminates the possibility that the same fund with the same performance history will receive different ratings in different markets, thus ensuring a clear, consistent presentation to investors. In addition, a broader rating universe also eliminates the situation where the performance difference between a five-star fund and a one-star fund is insignificant for investors.

The Morningstar Rating methodology follows a classic bell shape distribution in the assignment of its rating and so the number of above average funds within one category is the same as the number of under average ones. However, under ex-S&P Fund Stars system, only 30 percent of funds outperform category average while 50 percent of funds underperform. This skewed negative distribution is lack of theoretical support.

Early this year, Morningstar acquired S&P global fund data business and Morningstar Rating based on Morningstar Pan European/Asian Categories replaced the ex-S&P Funds Stars from July. Having one set of Fund Star Rating system ensures investors have a consistent and comparable performance gauge.

As always, the Morningstar Rating is intended for use as the first step in the fund evaluation process. A high rating alone is not a sufficient basis for investment decisions. Instead, investors should look through the investment policy of one fund and choose the most suitable one based on their own risk tolerance level. Funds are evaluated relative to their category peers and a five star fund may not merit a place in your portfolio. Investors should note that the rating measures past performance and therefore does not immediately reflect fundamental changes such as fund management changes. In a nutshell, using the rating as a negative screenthat is, screening out funds you do not want to buy and narrowing down the selection field.

by JESSY YANG

标签:

返回顶部