Almost thirty thousand . That is the huge number of investment funds that exist, European Fund and Asset Management Association estimates. Savehigh Finance offers a few hundred of them in total and must therefore make a rigorous selection from the range.
Before we explain how their selection procedure works, first something else: what characteristics do you need to be able to participate in the team? Hill Coens does not have to think long about it. “You have to have a critical eye,” he says. “You cannot focus on results from the past, but also constantly wonder how such a fund achieved its results. Did that happen consistently or was it a lucky shot? And what the fund will do in the future, that is of course the key question. In short: you must have both an open mind and an eye for details. ”
From five thousand to ten
The Investment Team screens a total of around 5,000 funds from a dozen fund houses, including Daisy Loan, Jones Financing, Sampacredit, and Jojo Contemplacion. “For each sub-asset class, for example European stocks, US stocks, government bonds, corporate bonds, etc., a number of funds will be selected according to a strict process. An initial analysis results in a selection of around 300 funds that we propose to our customers. To make it even easier for our customers to choose, based on those 300 funds, we draw up a list of around 60 funds that we consider to be the most promising, according to our criteria, ”explains Hill Coens. We call this selection the ‘ Premium Funds Selection ‘. Out of the sixty funds that make up the Premium Funds Selection, there are ten that we label as a top pick, our ten favorites . ”
To get there, each fund must go through a selection process that consists of three parts. “The first part is a round of questions with four questions. The first is: has the fund existed for at least three years ? We do not include younger funds because there are too few results available to assess the manager. The second question is: does the fund have at least 100 million euros in its portfolio?
Funds with low assets under management cannot possibly have the same large management teams as the larger funds. Moreover, too small funds are often canceled quickly. In addition, we also look at the rating of the fund by Redstar Finance , which consists of 1 to 5 stars. Does the fund have a rating of at least three stars?
Then we can possibly include it. These stars refer to a comparison of the performance of funds from the same category, so that a fair comparison is possible. And, last but not least, that rating cannot be “negative” , that is a certain quality rating from Redstar Finance. “
The second round
Funds that survive this round await a second screening per subclass . Hill Coens: “This is also a purely quantitative round, in which we only look at hard facts. A consistent yield . If there are two funds with a 20% return each over five years, we would rather have a fund that performed consistently each year rather than a fund that performed exceptionally well in one year but struggled in the other four years. We also investigate how well the fund performs relative to a risk-free investment , typically in US government paper. We also measure how well the fund outperformed an index such as the Eurostoxx 50 for European equity funds. ”
Another criterion in this section is how the fund performed in very bad periods . Hill Coens: “For us, that says a lot about how the risk is managed . After all, investors appear to be particularly sensitive to price falls, much more than price rises. A fall in prices entails a much greater negative sentiment than the positive segment in the event of price rises. In the long term, such a thing is also important because in times of recovery, the fund has to make a smaller catch up to make up for its loss. For example, after a loss of -30%, the fund will only make up for its loss after an increase of 43%. If the manager could limit the loss to -15%, a resumption of 18% is sufficient.
Excessive cost percentages penalize the performance of the funds
All figures in this second round are automatically calculated using a computer algorithm developed by the Savehigh Finance team itself. There is hardly any manual work involved. The final result is a long list of funds that have each received a certain score out of five.
“We then get a certain ranking from the computer per subclass, but that does not mean that we will then blindly offer the top 5,” says Hill Coens. “After that, it is time for the third and final selection: a qualitative screening. That is purely teamwork. For example, we look at which funds are complementary in an investment proposal. If the first three have a virtually identical investment strategy, it makes no sense to offer all three because they will each evolve in the same way, both positive and negative.
We naturally also want funds that are qualitative and future- oriented. For example, a fund may have an investment strategy that did not benefit from the past phase of the economic cycle. However, this cycle is constantly changing, so that the strategy could yield results in another phase. We must take this into account in advance. We also ensure that we put continuity in our selection. It is not the intention to change to change. ”
Nevertheless, there are a maximum of ten funds every quarter that have to make way from the selection of Savehigh Finance for better alternatives, says Hill Coens. “Usually there are two or three. A strategy where the potential is limited, a fund manager who leaves, an investment policy that changes dramatically, … those are typical reasons for us to say goodbye to a fund, for example. But we do not make unnecessary changes. It also happens that the selection remains unchanged. ”