Lonsec has been in the ratings business for over 30 years, rating everything from equity funds to LIT/LICS, and in the last few years, branching out to private equity funds and those funds issued under an information memorandum.
We currently rate over 1,550 funds and despite the differences in these funds, the one thing that unites all our analysts is the end investor. We are aware of the trust placed in us by advisers and their clients and as such, end investors are top of mind when we evaluate and rate funds.
So, what is the Lonsec way of researching and rating funds?
Lonsec is uniquely positioned in Australia’s financial advice and investment industry and our over 35 analysts have a wide variety of backgrounds and experience – some have come from funds management, others from super funds or financial advice practices while others have built a career in research.
We have developed a tried-and-tested methodology to evaluate funds that looks at everything from the investment team to the sustainability of the business, fees, and performance to give a holistic, qualitative assessment of the fund. Our sector teams meet with fund managers, as well as interrogate data provided by them, and no one analyst is responsible for or able to unfairly influence the final rating.
One key component of the research process is our robust scoring models that have been developed over time and are reviewed on an ongoing basis by senior members of the Lonsec Research team. The scoring models are dependent upon both data collected as part of the review process and the expertise of the analyst team in assessing the information gathered. These models are not a replacement for the human intellectual capital of our researchers but ensure that we consistently apply the Lonsec “house views” to each and every fund that we rate.
The output from the ratings models is reviewed by a ratings committee made up of the sector manager and other senior members of the Lonsec Research team. The ratings committee provides a sense check on the output, confirms there are no anomalies, and ensures consistency within and across sectors. If any issue is identified, the analyst must revisit the scoring and assessment, ensuring they have adequately investigated and incorporated the feedback. Only when the ratings committee is in agreement, is a rating provided. There are checks and balances at every stage of this process, making it very difficult for any of the team to circumvent or unfairly influence it.
We are paid by fund managers to rate their products, but we have clearly defined regulatory requirements that set out what we can and can’t do and how we can interact with fund managers. Integrity is paramount for a research house and impartiality is an essential part of that. We come back to applying the lens of the end investor to everything that we do. As one of the team said, if I cannot recommend this to my parents, I cannot not give it an investable rating.
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Disclaimer:
This information is for personal, non-commercial purposes only and is not intended to be financial product advice. ©2023 Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. All rights reserved. You may not reproduce, transmit, disseminate, sell, or publish this information without the written consent of Lonsec Research Pty Ltd (Lonsec Research). This information may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. This information has been prepared in good faith and is believed to be reliable at the time it was prepared, however, no representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented, which is drawn from third parties information not verified by Lonsec Research and is subject to change without notice. Lonsec Research assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec Research, its directors, officers, representatives, and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.
