Whole of Market Fund Selection

Understanding Whole of Market Fund Selection

Whole of market fund selection involves choosing investment funds from the entire spectrum of available options, rather than being limited to a specific set of funds from a single provider. This approach allows for a more diversified and potentially optimised investment portfolio. Financial advisers often use this strategy to tailor investment recommendations to meet the specific needs and risk profiles of their clients, ensuring access to the best-performing funds across all sectors and markets. This method is particularly useful in achieving balanced and diversified investment strategies.

Conflicts of Interest and Independence

One of the primary advantages of the whole of market approach is the mitigation of conflicts of interest. By not being tied to a specific set of funds from a single provider, advisers can maintain independence in their recommendations. This ensures that the clients' best interests are at the forefront, with fund selections based on merit and suitability rather than provider incentives.

PortfolioMetrix's Screening Process

PortfolioMetrix's screening process is a structured approach aimed at ensuring that only the most suitable funds are selected. This process involves five essential stages - as illustrated in the image below - each critical in maintaining the high standards PortfolioMetrix is known for.

PortfolioMetrix's Screening Process for Fund Selection

The top-level screen can result in anything from hundreds to thousands of funds, aiming to include all possible investment opportunities in our analysis. 

Here's a step-by-step breakdown of our comprehensive screening process:

1. Universe Population:
   • This initial step occurs after defining the portfolio's asset allocation and implementation preferences. 
   • It acts as a 'Pre-Filtering' mechanism, determining the specific universe of funds that require screening. 
   • The goal is to narrow down the selection to instruments that align with a particular asset class or sub-asset class.
2. Quantitative Screening
   • This stage further refines the fund universe using PortfolioMetrix's proprietary screening tools.
   • It is crucial to use reliable data sources while employing these tools, as they are designed to analyse large sets of data.
   • The process is Excel-based and involves comparing funds relative to a representative benchmark, whether that means analysing thousands, hundreds, or just a handful of funds at a time.
3. Qualitative Screening (Due Diligence)
   • This stage focuses on identifying the most suitable Active and Passive solutions.
   • The quantitative process mentioned earlier helps in pinpointing promising Active managers and also plays a key role in determining whether a passive solution might be the best fit. 
   • For Passive Funds, the criteria include:
     
     • The index it tracks
     • How closely it tracks the index
     • Cost
     • Operational capabilities of the asset manager running the fund
   • For Active Funds, the criteria include:
     • The Investment Managers philosophy, assessing its appropriateness for the future.
     • Assessing whether the investment process is robust and aligned with that philosophy
     • The fund's track record is examined for consistency with its stated approach and to gauge the manager's ability to add value. 
     • The qualifications and experience of the investment management team 
     • The Fund managers openness to engagement with PortfolioMetrix.
4. Due Diligence Questionnaire
   • After engaging with fund managers and confirming that they meet our criteria, we request them to complete our comprehensive Due Diligence Questionnaire (DDQ).
5. Investment Committee
   • This stage provides an opportunity for the investment team members to discuss the fund, share their opinions, and, where necessary, challenge each other's perspectives. Based on these discussions, the committee makes a final decision to either 'buy,' 'hold,' or place the fund on the 'watchlist'.

It is important to note that this rigorous fund selection, combines with our propriety Strategic Asset Allocation (SAA). Many academic studies confirm that SAA is the primary driver of risk and returns. As a result it is vital to understand fund selection in this context. That being said, our fund selection process is intended to maximise returns in any given asset class.

Contact our team today to learn how we can help you achieve your financial goals.