Financial advisers need to apply three stress tests to any funds management offering in order to ensure it is in the client’s best interests, according to Pengana Capital.
In a statement issued yesterday, Pengana head of distribution Damian Crowley said the first test advisers should apply is “correlations to the equities markets and to the other major asset classes including bonds and listed property”.
Second, advisers should separate returns from funds into ‘alpha’ and ‘beta’ segments to establish how much is skill-based or market-based.
Third, the fund manager advises asking whether the fund is truly ‘benchmark-aware’. “The benchmarks capture everything, so they’re reflecting current market capitalisation, not necessarily the best investment opportunities at that time or quality and value metrics,” Mr Crowley said.
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