FundCalibre and Square Mile Gear Up To Rate Passives

Two new consultancy shops are looking into awarding ratings to passive funds to allow investors to make more informed decisions

Editor, Europe
Reviewed by: Rachael Revesz
Edited by: Rachael Revesz

Two new consultancy shops are gearing up to rate passive funds, following an industry trend as appetite for exchange traded funds (ETFs) and index trackers grow amongst retail investors and financial planners, it was revealed today.

FundCalibre and Square Mile, which both launched in early 2014, plan to award ratings to passive funds in the near future.

Tony Yousefian, consultant at FundCalibre and ex-fund manager, told the audience at an industry event at the Lipper Fund Selectors Forum that he will provide ratings as well as model portfolios which include passive funds. Victoria Hasler, head of research at Square Mile, said: “We don’t rate them [passives] at the moment but we are in the process of doing that […] it will be very soon.”

This development follows in the footsteps of FE Trustnet and TrackInsight which have both launched a similar service this year to allow investors to make more informed decisions.

When it comes to selecting passive funds, both consultancy groups at the event today advocated a seemingly more simple strategy than they would apply to active fund selection.

“Use a passive fund if your starting point is to match the market minus the costs – so with the exception of looking at how that is achieved, whether it is a full replication, swap-based, etc. – having done that due diligence you don’t really need to see a manager. If you want to track the UK All Stocks Gilt Index, using an ETF, you don’t need to see the manager to do that," said Yousefian.

Yousefian only recommended passive funds for a short-term, tactical approach for market exposure, while active funds are “the way forward” for long-term, strategic investing.

Victoria Hasler said her company does meet the team, rather than the manager, behind a passive fund to assess factors like index replication method, and visits the trading desk to see how they deal with inflows, outflows, index changes and other technical aspects.

“We don’t meet them as often as an active manager, as once you have done your due diligence, we meet them once a year to make sure they are following the same process,” she said.

Hasler added that Square Mile will focus on the index and its construction when awarding passive ratings, rather than the product, as that is the “most important thing” for investors.

“Which index you pick makes a big difference to performance, and some indexes are more suitable for certain clients than others. We will also comment on the index construction, as for example in fixed income you are essentially rewarding the most highly indebted companies [via market capitalisation],” she said.



Rachael Revesz joined in August 2013 as staff writer. Previously an investment reporter at Citywire, she has a background in writing content for retail financial advisors and has covered a wide range of subjects in finance. Revesz studied journalism at PMA Media, which has since merged with the Press Association. She also holds a B.A. in modern languages from Durham University, as well as CF1 and CF2 financial planning certificates from the CII.