Our Ratings Explained

Why Should You Trust Dynamic Fund Ratings? 
  • Too many fund rating systems are based on bias and incentives from fund managers

  • In contrast, our fund ratings are completely independent

  • We provide years of robust evidence as to how (and why) they work

  • We have a single focus: boosting your investment returns

Dynamic Fund Ratings

Within FundExpert you will see that each fund (Unit Trust) has a rating, from 1 Star to 5 Star. This “Dynamic Fund Rating” tells you if a fund should be bought. A 5 Star Dynamic Fund Rating should mean a high probability of extra growth*. This is based on a form of momentum investing, which means buying an investment (in this case a fund) which is already performing well on the likelihood that it will continue to perform well. We call this process “Dynamic Fund Selection”. 

In the Rate My Funds tool, any fund that is 4 Star or less we label as a “sell” with the option to “view alternatives”. This shows you the best funds in that same sector. We choose these alternatives by looking back over the last 6 months, analyzing all of the funds in the appropriate sector, and identifying the top performers as 5 Star.

 Not rated
No rating currently available
     
Poor – definitely better options
     
Below average, definitely better options
     
Fair, there are better options
     
Good, but might be better options
     
Excellent, hold

Remember, Dynamic Fund Selection means buying a fund which is already performing well, the idea being that it will continue to do well.

To see just how impressive Dynamic Fund Ratings can be, here is the evidence sector by sector.

Vintage Fund Ratings

Not everybody likes to take such an active approach to investing as outlined above. Some people prefer to buy a fund and hold it for a longer period without having to worry about continually checking up on it. With this in mind we created our Vintage Fund Ratings. 

These identify the funds that consistently outperform their peers over the long term. The selection of funds that manage to achieve this is small! 94% of funds aren't good enough to qualify as Vintage funds.

View our 2021 Vintage Funds Report here.

Hidden Value

These are funds that we have researched for an extended period and, in our view, have the potential to offer investors compelling value whatever their Dynamic or Vintage Fund Rating. A fund could be Hidden Value for a number of reasons. The fund may:

  1. Expose investors to long term positive trends e.g. urbanisation, favourable demographics, or emerging technology. This could be an Indian fund, which sits in the eclectic Specialist sector, or an alternative energy fund.

  2. Offer consistent performance while taking below average risk. This might apply in a theoretically lower risk sector, such as Absolute Return and also Property.

  3. Focus on what is cheap taking a longer view. This might be certain types of funds, such as Value-style funds in UK and emerging market equities in 2020.

  4. Focus on what is cheap without good reason in the shorter term. This might mean it is well positioned to exploit a bounce after sharp market falls, such as Spring 2020.

  5. Have a different approach to most peers in a way which adds something new to your portfolio. This is most likely to arise in lower risk sectors, such as bond funds.

We will identify these as they come along. Our suggestion is that these sorts of funds should not exceed 20-30% of a portfolio. They are a bit too “seat of pants” compared to the systematic and objective Dynamic and Vintage Fund Ratings.

*Growth not income

You may notice that our Dynamic and Vintage Ratings for growth funds don't tally with our income fund selections. Dynamic and Vintage Ratings indicate growth potential, and do not give any indication of a fund’s ability to provide income. The same goes for our Hidden Value selection.

Income investors should ignore the star ratings on FundExpert. They are solely an indicator of capital growth potential based on momentum investing. Do not be concerned if a fund you hold for income has a low star rating.