How confident can you be that an investment solution is performing well? Good past performance may be due to good luck or good judgement, or the investment manager (“DFM”) might have achieved high returns by taking more risk. Equally returns may be higher than expected because the market itself is booming. By using statistical techniques we go beyond standard performance tables based purely on return, by adding four extra ingredients into the calculation of a medal, namely: return; risk, style and trend.
| Medal | Explanation |
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Investment Solutions receiving a Platinum Medal have achieved a level of consistency and risk-adjusted out-performance relative to their MPS peer group that makes them the star performers. |
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Gold Medals are allocated to those Investment Solutions that have delivered out-performance of their MPS peer group in a manner and to an extent which suggests the investment process being employed had added systematic value for investors. |
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Investment Solutions awarded Silver Medals have out-performed their MPS peer group on a time weighted, risk-adjusted basis. |
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Bronze Medals are awarded to Investment Solutions which have under-performed their peer group on a risk-adjusted basis but can reasonably be expected to recover that under-performance in the future. |
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The time weighted, risk-adjusted performance of the investment solution was below that required to be awarded an Medal. |
| Unrated | Unrated solutions do not have a history of at least three years. |
Return
The traditional return-based ranking system takes no account of the expected returns of a particular investment solution. By comparing each investment solution to the relevant ARC MPS Index, performance is assessed relative to a relevant yardstick. This approach allows a more accurate assessment as to whether a DFM is truly adding value over time.
Risk
Higher risk implies higher returns. The Medal Rating adjusts for risk to ensure that all models are measured on a consistent basis. This approach allows the efficiency of an investment manager to be assessed. It provides information on whether an investor is being adequately rewarded for the risks being taken within the model.
Style
Investment style dictates how close the relationship is between the stated benchmark and the model. This degree of closeness is measured by correlation. For example, an investment house that adopts a value-oriented investment strategy is likely to have a lower correlation with the benchmark than an investment house that emphasises the "top-down" approach. The Medal Rating considers the investment style when assessing the quality of performance.
Trend
The Medal Rating gives more weight to recent performance figures than to older ones. That means exceptionally good or bad returns over a single period slowly decline in importance over the review period. This technique allows performance trends to become apparent faster than would normally be the case.