Product and Security Research
Once we have identified what weight is to be applied to each asset class in a client’s portfolio, the next step is to look closely at what product or security strategies are available to meet the risk profile, investment and return objectives of the client.
FOX undertakes proprietary research across several listed and unlisted products, some of which are utilised within each asset class, to meet the underlying needs the various Model Portfolios that form the basis of a client’s portfolio, depending on their individual risk profile.
An example of how a listed Fund Manager product, such as an ETF, would be researched and assessed includes:
| Factors | Weight | Category | Score | Weighted Score |
| Qualitative | 55.0% | 20 | 45.0% | |
| 10.0% | Business Management | 4 | 8.0% | |
| 15.0% | Investment Team | 5 | 15.0% | |
| 15.0% | Investment Process | 4 | 12.0% | |
| 10.0% | Risk & Compliance | 3 | 6.0% | |
| 5.0% | Administration & Systems | 4 | 4.0% | |
| Quantitative | 25.0% | 8 | 20.0% | |
| 15.0% | Performance | 4 | 12.0% | |
| 10.0% | Key Statistics | 4 | 8.0% | |
| Other | 20.0% | 9 | 18.0% | |
| 10.0% | Product Attributes | 4 | 8.0% | |
| 10.0% | Peer Review | 5 | 10.0% | |
| Total | 100.0% | 37 | 83.0% |
From the weighted score achieved in the assessment, following the ranking of the underlying categories, the product is assigned a rating based on the aggregate final score achieved. Scores for each sub-category are based on 1 to 5 with 1 being poor and 5 being outstanding. In the above example, the Fund would have a “Well Regarded” rating and being above Investment Grade, would be suitable for inclusion in an Approved Product List (APL) from which Model Portfolio products are typically chosen for each asset class. The higher the rating the stronger the conviction behind the choice.
Rating the Scores
The rating score card is the basis for determining the Product rating. The product above scored a weighted score of 83% which falls between 75% and 84% therefore the product rating would be “Well Regarded”. The scores are assessed as follows:
| Score Card | Ranking | Rating |
| 85% | 100% | Highly Regarded |
| 75% | 84% | Well Regarded |
| 60% | 74% | Investment Grade |
| 50% | 59% | Watch |
| 40% | 49% | Others Preferred |
Not all Fund Managers are researched directly therefore, external Research Houses (such as Lonsec) are utilised to gain a third-party review of the Fund Manager capabilities. Fund Managers and associated products still must be highly rated to be included in the selection process for the APL.
Listed Securities (Shares & Hybrids)
For listed securities, such as company shares or debt, external research is utilised from a panel of Stockbrokers. In most cases, the Broker Rating would need to be at least “hold” for existing positions in a client’s portfolio and “buy” for any new positions to be added. Hybrids would need to be rated at least Investment Grade (AA- depending on the short and/or long-term rating of the parent company) before being considered. In Australia, Brokers and associated Research Houses do not rate the Security, only the parent company. Each hybrid offer can vary so care needs to be taken when considering such securities for inclusion in any portfolio.