The Fund Library :: Columns :: The role of research and data in your investments

FINANCIAL LITERACY REPORT

By Sandra MacGregor, Mediaplanet

When it comes to investing, sometimes the best thing to invest in is knowledge. While there are no sure things in financial markets, one thing is certain: the more you know, the better your chance of making your hard-earned money grow. But reading isn’t always enough, as it can be hard to know where to turn for accurate and trustworthy advice.

Brian Bridger 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 risk-adjusted outperformance.

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 permission. ca.editorial@mediaplanet.com

Notes and Disclaimer

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.