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Welcome to South Africa’s own unique unit trust rating system!

Making sense of statistics

Collective investment management companies use different performance measures to illustrate how well their funds have performed, and investors, financial advisors/planners, portfolio managers and financial reporters are inundated with a continual barrage of these statistics. Furthermore, even renowned statisticians favour different quantitative measures.

Plexus has recognised the need for a system whereby the different quantitative measures used in calculating relative performances are all encompassed in one simple number. Plexus has therefore introduced the Plexus Crown ratings (“PlexCrown ratings”) for unit trusts in South Africa.

The easy-to-use PlexCrown rating system enables investors to know at a glance how a fund has fared over time compared to the other funds in its sub-category on a risk-adjusted return basis incorporating the fund manager’s skill.

According to Professor Eon Smit who audited the PlexCrown research methodology: “The PlexCrown rating system is probably the most comprehensive in existence incorporating not only returns and standard risk measures, but also measures of downside risk and managerial skill. A novelty is the possibility to adjust for heavy-tailed return distributions where standard risk measures lose meaningfulness”.

As mandates of funds vary substantially between asset classes and sub-categories, the ratings are done within sub-categories and not the entire unit trust universe. We accept that mandates of funds within a sub-category may differ slightly from each other but believe that they are comparable due to the high correlation with their sub-category.

Funds with materially diverse mandates within sub-categories, i.e. varied specialist funds, are not rated due to comparison-incompatible mandates.

Index funds or index tracker funds within sub-categories are not rated as no manager’s skill is required insofar as share selection is concerned in the management of the funds. Index funds are also excluded in the calculation of sub-categories’ average returns and index calculations. Where applicable, however, the relevant index is included in the ratings as an indication of how the index would have been rated had it been included as a fund in the sub-category but excluded from the sub-category’s calculations.

Money-market funds are not rated. The extremely restrictive mandates of the money-market funds lead to a marginal variability of the funds’ returns. Separate credit and quality ratings should be applied. In order for a fund to be rated, the sub-category must consist of at least five funds with a performance history of at least three years’, while the fund itself must also have a three-year performance record.

The ratings are unbiased and completely objective as they are based on quantitative measures. We believe that a portfolio manager’s reputation, experience, the fund management company’s investment processes, strategies and risks, whether market or specific, undertaken by the fund management company are all encompassed in the returns per unit risk. No subjectivity is brought into the equation.

PlexCrown ratings therefore assist an investor in determining whether a portfolio manager is adding value or not to investor funds given the amount of risk he is taking and his mandate.

The PlexCrown rating system is a measure of consistency as ratings are done over a range of periods up to five years and weighted accordingly.

Updated monthly, the PlexCrown ratings offer investors, financial advisors/planners, portfolio managers and financial reporters up-to-date information on how funds are performing.

While we believe that investors are more concerned about potential poor performances than surprising excellent returns, the choice of asset class and its sub-categories is, however, a function of the investor’s choice given his risk appetite and risk profile. We do not, however, discard investors’ concern about potential poor performances altogether, as fifty per cent of the rating calculation consists of downside risk-adjusted return measures within a particular sub-category.

As the ratings are based on historical data, they are not necessarily indications of future performances. The ratings are intended for use as a first step in the evaluation process for investors, financial advisors, fund managers and other interested parties.

Other important PlexCrown Rating rules:

·         PlexCrown ignores portfolio management changes or amalgamation of collective investment
        management companies.

·         A change of name of a fund does not affect the fund’s PlexCrown Rating.

·         From end-2004: When a fund is merged with another fund the fund has effectively closed. If the to-be-merged-into fund remains in the same sub-category, the fund retains its performance history and PlexCrown Rating.

·         From end-2004: When a fund changes sub-category the mandate changes. The fund has effectively closed and started anew in its new sub-category despite being allowed by the ACI to retain its performance history. The fund therefore loses its PlexCrown Rating.

·         In the event of an ACI decision to do away with a sub-category and to move the funds to another sub-category but the mandates of the funds to be moved differ materially from those of their new sub-category, those funds are excluded from the sub-category for sub-category calculations and therefore PlexCrown Ratings. 

Rating the collective investment management companies

The individual collective investment management companies are also awarded PlexCrown ratings, as the ratings of the various funds in a fund manager’s fold give an excellent indication of the quality of the investment team, investment processes, strategies and the risks assumed. PlexCrown ratings therefore assist investors, fund managers and financial advisors in determining the investment competence of a management company in the various asset classes.

According to Hendrik du Toit, head of Investec Asset Management: “Point-to-point returns receive far too much attention in the South African media; what is really of importance to long-term investors is consistent good, risk-adjusted returns. PlexCrown now makes it easy for individual investors to evaluate asset managers on the basis of their long-term risk-adjusted returns.”

PlexCrown is independent and the ratings are not an invitation to invest or switch funds. PlexCrown remains independent of the funds and the companies that offer them. PlexCrown endeavours to give an independent view based purely on historical performances published by Profile Media, and the recognised quantitative measures used in calculating relative performances.

The allocation of the investor’s assets is, however, entirely dependent on his preferences or as agreed upon with his financial advisor.

While every effort has been made to ensure the accuracy of the information used in this publication, PlexCrown cannot guarantee such accuracy and PlexCrown does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this publication.

Why subscribe? 

The PlexCrown rating service offers you unique up-to-date ratings of South African unit trusts and management companies. 

The following services are currently included:

 

·        PlexCrown ratings per fund:

 

Ø      per sub-category

Ø      per collective investment management company (manco)

 

·        Ratings per manco on the following:

 

Ø   overall

Ø   total domestic

Ø   total foreign

Ø   domestic equity

Ø   domestic fixed interest

Ø   domestic asset allocation

Ø   domestic real estate

Ø   foreign equity

Ø   foreign fixed interest

Ø   foreign and worldwide flexible

 

·        Comparison of investment competence of collective investment management companies in:

 

Ø   total (domestic and foreign)

Ø   total domestic (equity and fixed interest)

Ø   total foreign (equity and fixed interest)

Ø   total equity (domestic and foreign)

Ø   total fixed interest (domestic and foreign)

Ø   total asset allocation (domestic and foreign)

 

·        Individual fund profiles consisting of total relative return indices.

 

·        Total Relative Performance Indices (RPIs) of individual collective investment management companies.