Two star rating systems for managed funds in New Zealand are too many, according to the board of Investment Savings and Insurance Association (ISI).
Associate member FPG Research complained to the association about competitor IPAC Securities after it too launched a star rating system for managed funds.
FPG launched its rating system late last year, while IPAC has recently unveiled its star rating system.
Both systems are very different. FPG’s is based on a mix of quantitative and qualitative factors and tries to pick the winners, while IPAC’s is a straight quantitative system that is a ready reckoner of past performance on a risk/return basis.
FPG has publicly campaigned that having two star rating systems is confusing to the market place, and it has threatened its rival with legal action.
ISI chairman Ross McEwen says the board agrees that having two different systems which both use stars as their unit of measure is confusing for the investing public.
The board is not opposed to star rating systems, per se. Nor does it support one system over the other.
McEwen says having two rating systems is OK, however one should use something other than stars. For instance a fund could be AAA rated instead of being a five star fund.
However, using letters also poses a problem for the star raters as Rob Walker's firm Investment Management Consultants is already rating funds on such a basis.
McEwen says, of the star systems, "we would like it sorted out. We don’t think there needs to be that confusion in the market place."
McEwen says while people in the industry know the difference between the two systems, it is unlikely the investing public will understand the differences.
ISI chief executive Roger Gill is to approach the two research houses and ask them to sort the problem out.
"We would prefer they sorted it out themselves," McEwen says.
Two star rating systems for managed funds in New Zealand are too many, according to the board of Investment Savings and Insurance Association (ISI).