The money management industry is undergoing rapid and fundamental change. Simplistic concepts such as ‘active’ and ‘passive’ are increasingly meaningless in a world where it has become harder to dress up beta as an investment manager’s skill.
Amid rising demand for evidence-based solutions and greater transparency, industry publication Financial Standard asked Rainmaker Information to develop a new methodology for assessing managers who consistently deliver investment solutions that strike the right balance between good performance outcomes and an appropriate amount of risk.
The result is the Financial Standard Investment Leadership Awards, a recently launched channel- agnostic investment rating system which took in 120 investment managers and more than 900 strategies. From these, six finalists were chosen in each of 18 categories.
“A crucial feature of these awards is that they reflect the different way asset classes are now being packaged,” says John Dyall, head of investment research at Rainmaker.
“For instance, it used to be relatively simple to differentiate between indexed and active approaches in equities. But since the introduction of smart beta products that sit at the junction between those two, the landscape has changed.”
While Dyall stresses that there is no perfect risk measure in analysing asset classes and investment strategies, it was important to develop a system that both worked across a range of products and that was repeatable and understandable.
The methodology he developed equally weights performance factors (over a period of six years) with five different risk measures (measured over three years). Strategies were separated by both asset class and how much risk they take in pursuit of their goals. The risk measures comprised the Sharpe Ratio, Sortino Ratio, Omega Ratio (popular in assessing hedge funds), Standard Deviation and Semi-Standard Deviation.
Dimensional was the overall winner in the index/ enhanced section of the Australian equities category, beating out Colonial First State, BlackRock, Macquarie Investment Management, State Street Global Advisors and Vanguard. The same six managers also were finalists in the prestigious investment manager of the year award, taken out by BlackRock.
Dimensional was also a finalist in the categories of Smart Beta in Australian Equities, Capital Stable and Balanced in Multi-Asset Class, High Performance and Small Cap in International Equities, and Aggregate Bonds in Fixed Income.
“Investment management is going through a period of rapid innovation,” Dyall says, citing the rise of indexed strategies, smart beta, concentrated portfolios that are benchmark unaware and new distribution channels, such as exchange-traded products and model portfolios.
“These newer strategies are hastening changes in the relationship between investors, nancial advisers, platforms and product manufacturers,” he says.
“But one thing remains constant: investment strategies that deliver as promised within a solid risk framework remain the foundation of a dependable investment portfolio.”
Award recipients will also be featured in The Good Investment Guide - the Managed Funds edition, available in newsagents and bookstores in March 2018.