van Eyk Research has tightened the definitions around its ratings system and split its former ‘B’ rating into two – ‘B’ and ‘BB’ – to help advisers in their manager selection.

The first class of managers to have the new ratings applied is a group of 12 hedge funds of funds (FoF), of which six made it through to be rated – one ‘AA’ and two ‘A’s. As part of the changes, van Eyk has also replaced its former ‘not rated’ category with ‘screened’ and ‘information only’ categories. For instance, with the hedge FoF report, 27 managers were identified but 15 of these were excluded for various reasons, such as not having an ‘appropriate’ product or having insufficient distribution. Of the remaining 12, six were ‘screened’ and the other six rated. It is understood the ‘AA’ manager is Hedge Funds of Australia. Following its last review of Australian equities managers, in May, there were no ‘AA’ managers, 14 ‘A’ managers and 17 ‘B’ managers. Having an extra category should make it easier for advisers to discern between some of the managers. The changes follow the introduction of a new screening process early this year, whereby managers need to compete with each other to be reviewed. Suzanne Tavill, head of research and ratings, said that introduction of the process meant that reviewed managers tended to be of a high calibre and there was a greater need to differentiate between them. The differentiation between managers is based on the researchers’ level of confidence in their ability to outperform over a three-year period. For a manager to be given an ‘AA’ rating, van Eyk would need a high level of confidence it will outperform its benchmark in comparison with other rated managers. An ‘A’ rating signifies “confidence” in its outperforming, a ‘BB’ rating signifies “less confidence” and ‘B’ rating “little confidence”. The “hold” rating continues to be applied to managers undergoing significant change, as does “fundwatch” for those which are deemed to have an unfavourable risk/return trade-off.

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