FAQ |
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Does it tell me how a fund will perform in the future?
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These ratings are designed to offer a pointer towards funds that are worthy of further investigation. The ratings are
based on past performance and offer a good guide into the future so long as the environment in which the fund
operates, along with the fund manager, stay in tact. On this basis the ratings should offer useful insight into what
future performance may be.
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Nevertheless past performance is not a guide to the future. The value of investments and the income from them may go
down as well as up and are not guaranteed. Economic environments and fund managers change, and so investors may not
get back the amount originally invested.
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What does the Dragon Rating measure? What does it use as a benchmark for comparison?
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The ratings measure fund performance based on 3 main metrics - alpha, volatility, and consistency. Explanation of
these measures, and the reasons for their inclusion, are further explained in the concept and rating methodology
sections of this guide.
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The benchmark used is the sector average, which is used for the alpha calculation.
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Does the measurement differ for unit trusts, investment trusts, pensions etc?
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The measurement is applied consistently across fund sectors as defined by the IMA and the ABI. Each sector will group
funds, on the basis of these 3 factors, and thus produce a segregation consisting 3 different pools of funds within
each sector. The funds are then given a rating, with the best performers possessing a 3 dragon rating, and the worst
a 1 dragon rating.
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The ratings are applicable only to Unit trusts and OEICs, as these universes offer more eligible funds within their
sectors. The characteristics required for eligibility of funds can be seen in the rating methodology section of this
guide.
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How accurate has the Dragon Rating compared to other fund rating systems e.g. S&P, morning star?
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The Dragon Rating has differing inputs than the S&P and Morningstar Ratings, but nevertheless consistency can be
seen between the different rating providers. It is not uncommon to see a fund with a 3 Dragons Rating also possessing
an AAA S&P Rating.
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Discrepancies can however be seen, when funds have experienced a sudden jump in returns in certain months, that may
cancel out losses in other months, as Dragon Ratings consider consistency, and are therefore more beneficial if one
was to address fund performance that has increased at a steady rate than those that have spiked at certain periods,
in which S&P and Morningstar ratings are more flexible.
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How widely accepted is the Dragon Rating?
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The Dragon Ratings are relatively new, and have been formally in existence since 2005, with data points tracking
back to 2002, in order to maintain a 3 year history at launch. Their acceptance is growing in concurrence with its
existence.
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The ratings are growing in popularity and are used as a benchmark platform for Asset Management companies, such as
Skandia and Standard life.
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The ratings have also been developed to create a spin-off product, the Dragon Ratings, which are calculated in the
same way, and are applied to funds domiciled in Hong Kong.
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