The criteria we used when selecting funds

In the last week or so there has been a lot of talk about Neil Woodford, but who is he and what criteria should we use when selecting funds?
Neil Woodford ran the Invesco Perpetual Income and High Income Fund.  He gained a reputation for being one of Britain’s best fund managers
during his 25 years at Invesco. This was achieved following his management of the funds during the 1990’s dot-com bubble and the 2008 financial crisis. In 2014 he left Invesco Perpetual (now known as Invesco) to set up Woodford Investment Management LLP. In recent weeks some large investors have withdrawn their money from his flagship fund, resulting in its temporary closure, and preventing any further withdrawals from the remaining investors.

So what criteria do we use when selecting funds?
My own personal preference (I may be wrong), is always try to select funds with a proven track record (ideally a 3/5 year track record). We also look at their Crown ratings.

What are Crown ratings?
Reviewed twice a year in January and July, the rating considers three key measurements to derive a fund’s performance: alpha, volatility and consistently strong performance.

The top 10% of funds will be awarded five FE Crowns, the next 15% receiving four Crowns and each of the remaining three
quartiles will be given three, two and one Crown(s) respectively.

When we are choosing and reviewing funds we would look closely at the funds with Crown ratings that had substantially changed and question whether to keep them in our portfolios.

The question you should be asking yourself is do you know the Crown rating of your current holdings?
So, I believe in the importance of reviewing holdings and ensuring that any investment is invested over a range of sectors and funds.  This means you will minimise your exposure to any one fund.

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action


Comments are closed.