by Jake Moeller.
Sometimes a classification scheme isn’t a classification scheme. Typically, investors want to compare apples with apples. Most classification schemes are designed to allow investors to make meaningful comparisons of investments with similar characteristics and within a relevant body of peers. When examining unclassified funds, Lipper Leaders metrics really come into their own.
The IA Unclassified sector is a mixed bag. It is a repository of funds which do not wish to be constrained by a classification or benchmark restrictions or funds which have breached other sector limits or rules.
This is not to say that funds in this classification are undesirable investments only that it is impossible to draw any conclusions about their characteristics from their classification alone. Here we see pure equity funds mixed in with bond funds and multi-asset funds – indeed, the IA Unclassified sector consists of funds from 40 of the more granular Lipper Global Classifications.
Exhibit One. Top performing IA Unclassified Funds ranked over 3-years (with 5-year history – to September 2019)
And that is how we can begin to bring order to our analysis. Lipper does not have an unclassified classification. We ensure that where possible every fund in our database is placed into a relevant peer group based on objective, literature and current asset allocation. Lipper Leaders scores are then calculated after this has occurred.
BlackRock Growth & Recovery A Acc fund for example, is classified in the Lipper Equity UK classification and its Lipper Leader metrics compare it to other funds in that category. Trojan Ethical Income is compared to other funds within the Lipper Equity UK Income classification.
As the IA Unclassified sector does not have a homogeneous character, investors will need to decide which Lipper Leader metric is most appropriate for their analysis. Some assumptions can be made on each metric. A strong Consistent Return or Total Return score without a strong Preservation score intimates potentially higher equities content.
Investors and advisers should always use several tools and inputs to assess the suitability of an investment. More so for the IA Unclassified sector than perhaps any other.
Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is no indicator of future performance.
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