Investment Rating Definitions

Our investment rating reflects a forward-looking opinion aimed to help investors identify funds or investment opportunities that are among “best in class”. The analysis seeks to form a view on the consistency of the fund’s performance within the peer/style groups and also seeks to form a holistic view on the ability of the fund manager to produce superior performance amongst its peers in the near term. The rating of the fund is intended to give an investor a guide as to the appropriateness of an investment in a fund within the context of a diversified portfolio and with due regard to the medium term consensus view of the asset class to which the product is benchmarked.

Investment Rating Scale – Managed Funds, ETFs, SMAs, Insurance Bonds.

A five-point scale is used to differentiate our opinion on how well we believe a fund will perform against a range of risks.

Investment Rating Scale – Investment Bonds and Superannuation Funds

A five-point scale is used to differentiate our opinion on how well we believe a product will perform against a range of risks.

A “Hold” designation may be applied to a fund rating in circumstances where a material change has occurred at the manager and a review is being undertaken to determine if the rating assigned needs to be altered.

A “Sell” designation may be applied if after a review the rating committee considers factors significant enough that an investor should evaluate the suitability maintaining an investment in the fund as part of their diversified portfolio.

While fund ratings assigned by Australia Ratings are not intended to be predictive of future performance, they are designed to provide context and perspective for making knowledgeable fund investment decisions.

Foresight Complexity Indicator (FCI)

A Foresight Complexity Indicator (FCI) highlights the complexity of an investment by its terms and conditions’ structure and transparency that may affect the investor’s return.

Foresight Complexity Indicator – Simple

Foresight Complexity Indicator – Detailed

Methodology

Seven key areas will be evaluated and factored into a Foresight Analytics rating of a managed fund. These are:

1. Corporate and Fund Structure – the way investors can assess the fund or investment and the discharge of fiduciary duties by the responsible entity or sponsor are considered important aspects of the analysis.

    

2. Business Management – a key factor in the rating is the experience of the business management team as well and the business and investor reporting systems.

    

3. Operational Capability – operational aspects reviewed include the competency of the service providers to the fund, information technology used by the manager, procedures for handling cash and personal trading policies.

    

4. Investment Process – the process applied by the manager to construct the portfolio, manage portfolio risk, maintain custody of the securities, and use leverage are evaluated. The experience of the investment team to manage the strategy, their interaction and professionalism are factors also considered in the analysis.

    

5. Risk Management – an assessment is conducted of the framework to manage investment risks in a controlled and independent manner.

    

6. Performance Track Record – recent performance of the fund is evaluated to provide insight into the ability of the manager to achieve stated investment objectives and relative performance to peers.

    

7. Economic Cycle and Fund Style – in forming a forward looking view of the fund, the style of fund and its investment objectives are considered in the context of the economic cycle and outlook. For example, a small-cap equity fund may underperform in a period of increasing interest rates.

Investment Ratings Process

Foresight Analytics’ investment rating process is structured and consistent across different investment styles.

Following a meeting between two Foresight Analytics analysts and the fund manager, our experienced primary analyst evaluates the fund based on quantitative and qualitative factors – reflecting performance against the fund’s benchmark and peers.

To maintain objectivity and consistency of the rating process, a rating committee decides and assigns the investment rating upon review of the rating analyst’s recommendation. And once an investment rating has been assigned, we ensure that our point-in-time report is relevant and reliable through ongoing surveillance.

Monthly performance monitoring and ongoing communication with fund manager is maintained and any significant changes to the fund and its managers will be communicated to the public. A fund rating is reviewed, at the very least, least once a year.