is an expert at helping investors select the best options for their
portfolios. As Vice President, Analytics & Data at Fundata Canada Inc.,
a multinational investment data and analytics company, he has spent years
analyzing the market. Reading his answers below will help you learn how to
use data to increase your investing acumen.
1. Why is it important to research funds and stocks – does knowledge
make investing less of a gamble?
There are so many choices out there for individuals. People need to develop
a system when going through the data and decide what works for them. All
the funds have different strategies, different asset mixes, and different
risk levels. Investors must understand what they’re buying and make sure
those choices align with their investment objectives and their tolerance
for risk. Risk ratings are a great place to start. Fundata collects risk
ratings on every Canadian mutual fund, and we calculate risk ratings for
ETFs on behalf of the Canadian ETF Association.
2. How do you evaluate a fund?
There are numerous ways, but two of the most important evaluation metrics
are fees and performance. In terms of performance, it’s essential to look
at risk-adjusted performance — it’s vital to know not just how much a fund
has made in a year, but also how much risk the fund has taken on.
Fundata’s FundGrade ratings
are purely based on risk-adjusted metrics. We assign monthly grades from A
to E based on up to 10 years of performance history, with A’s representing
the top 10 percent of funds in each CIFSC category.
3. Speaking of risk, how can investors mitigate risk?
It’s about knowing what the fund is and how risky it is. From the basic
risk measures such as standard deviation to the more advanced measures such
as up/down capture, Fundata has all the different metrics that can
essentially paint a picture for an investor about how a fund is expected to
perform. We also have correlation data, so if investors are looking to add
a fund to their portfolio our correlation data will show how that fund
might interact with their portfolio and ultimately help mitigate risk.
4. How do potential investors know whether the information they’re
getting is reliable?
Well, I think a lot of times it comes down to reputation. At Fundata, we’ve
been doing this for 30 years now, so we’ve built up a level of trust with
investors and advisors who have been relying on our information to make
their decisions. When people call us, they’re talking to me, they’re
talking to one of my colleagues. That’s one of the important things about
Fundata. We’re very open and accessible.
Furthermore, all our information is quantitatively driven, so it’s all
based on data. We’re not using any subjective measures in our calculations
or ratings. Everything that we do is data driven.
5. How do you give credit to funds that consistently perform well?
Fundata FundGrade A+ Awards
are annual awards based on the grade point average of the monthly FundGrade
ratings throughout a calendar year. If a fund finishes the year with a GPA
over the threshold, then they are awarded an A+ for that year. What you end
up with are the best of the best funds that have demonstrated consistent
Sandra MacGregor is a reporter for
Mediaplanet. This article first appeared in Mediaplanet’s Financial Literacy
website, © 2017 by Mediaplanet. All rights reserved. Used with
Notes and Disclaimer
© 2017 by The Fund Library. All rights reserved.
The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned carry risk of loss, and no guarantee of
performance is made or implied. This information is not intended to provide
specific personalized advice including, without limitation, investment,
financial, legal, accounting, or tax advice. Always seek advice from your
own financial advisor before making investment decisions.