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ii rated investments methodology

ii Rated Investments methodology

Overview

This document confirms how we choose our ii Rated Investments, who is involved in their selection, our own bespoke asset groupings, the analysis and selection process and finally, the monitoring process.

Unlike most rated lists, which include only actively managed funds, our list includes both Active and Passive options, and also looks at the whole spectrum of collective investments including; Funds, Investment Trusts and ETFs.

ii Rated Investments are designed to be suitable for all investors, irrespective of experience. The 17 categories can act as a shortlist of potential investment options for investors who are interested in a particular sector.

Alternatively, the entire list can be filtered by performance over multiple time periods, or by yield for those looking for income. The list is designed to be a comprehensive look at all collective market options for investors and our objective is to provide good examples of available investments in each sector.

Investments are only included if they are the best option in our opinion, and we do not make exceptions; no one can pay to be on the list. This ensures that customers can have full faith in our recommendations and be confident that there are no commercial or other hidden motives behind our lists. The selection process is underpinned by the key principles of Transparency, Choice and Fairness.

Asset Groups
 

We have created specific asset-class groups by which member funds can be categorised and which private investors can more easily understand.

The ii Rated Investments groups we adopt include: UK growth, UK equity income, UK smaller companies, global emerging market equities, global equity, global equity income, global bonds, sterling bonds, property, commodities. For specific regional exposure to equities we have grouped our ii Rated Investments into Asia, Europe, Japan and the US. There is also a specialist group, which captures strategies as diverse as biotechnology, clean energy and financials. We also have sectors that offer a mix of asset classes; Mixed asset 0-40% Equity, Mixed asset 41-60% Equity and Mixed asset 61-100% Equity.
 

Initial screening
 

We look at all available tradeable options in our approach to selecting investments for our rated list. Using various filtering criteria, listed below, we generate a shortlist for full review and discussion.

Investment Filters

  • Must be tradeable on our platform
  • Typically avoid investments where there is an initial charge
  • Ongoing Charges Figure (OCF) must be reasonable for the category
  • Cheapest share class available chosen where more than one class exists
  • Must be liquid
  • GBP version chosen where possible and suitable
  • Minimum track record of one year - preferably three, unless new share class or currency option available which makes track record viable
  • Choose the best return / smallest tracking error
     

Selecting from the Shortlist
 

All suitable funds are then allocated into one of our 17 different rated groups. We compare them using performance and risk filters, as well as tracking errors for passive options. We additionally use analysis from our data providers Financial Express (Trustnet) and Morningstar. This allows us to consider external reviews and ratings of the data.

We quantitatively analyse performance and risk profile using information including Sharpe ratios, information ratios, volatility and gearing where applicable.

Both short- and longer-term periods are analysed. Other factors taken into consideration include manager track record and yields, where relevant, plus dealing spreads and share price discount or premium to underlying asset value for Investment Trusts. Funds and Invetsment Trusts may also be picked for ii Rated Investments status if they are relevant for current markets.

Final constituents are typically selected because they have delivered consistently superior returns compared with their relevant peer group. However, the list may include a few 'contrarian' choices where the investment style pursued by the manager has not been in favour, but where we believe past performance and/or the current investing environment suggest a change in fortunes is due.
 

The Selection Committee
 

The selection committee is made up of internal experts from interactive investor, Money Observer and Moneywise. The committee also engages with other investment experts as required.

The process, selection and management of the rated investment list is monitored and ratified by the Investment Committee.
 

Monitoring the ii Rated Investment List
 

We monitor the ii Rated Investment list consistently for major changes. Examples of such changes include, but are not limited to, fund manager moves, soft-closures, a significant divergence in tracking errors for passive funds, a persistently high share price premium to net asset value (NAV) on investment trusts, or a major re-rating from external or internal sources. Funds which have experienced a major change are likely to be suspended initially, pending formal review.

The selection committee meets monthly to review the list and monitor performance, based on quartile rankings. All active investments are included in this assessment. Inevitably, investments have periods of out and under performance, but this approach allows us to highlight investments that are struggling over an extended period, or funds which are failing to meet their stated strategy which may warrant an in-depth review. Passive options have their tracking error and performance reviewed to ensure they are still meeting their index objective.

On a quarterly basis, the selection committee undertakes a full review to discuss all investments on the list and decide whether any changes should be made. We also look at potential alternatives and market events that might make changes appropriate. Any recommendation for change is then discussed, agreed and ratified by the Investment Committee.

Any changes that are made will be listed on the ii website, along with a rationale for the change. A quarterly update of the rated lists will be part of our regular editorial features, which will also include a list of all changes made during the quarter. 

Annually, we undertake a full review of our universe. This ensures that we consider any new investments, significant market events, and keep our list fresh. By doing a full review of the universe, we can ensure the list remains relevant and ensures we don't miss any good new opportunities.
 

Are these personal recommendations?
 

No, as an execution-only provider we do not provide advice involving personal recommendations. Our objective is to develop a trustworthy short-list of rated investments for our customers.

Investors tend to have product type(s) they prefer, be that ETFs, funds or investment trusts, or be primarily active or passive investors. Where possible, we try to include relevant attractive options in each category.

Factsheets for each of the funds and trusts are updated regularly. They contain current performance and valuation metrics, as well as key statistics to help investors make their own judgements.

The rated fund list is for information and discussion purposes only and does not form a personal recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in the rated investment list may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.