Based on macro-economic factor analysis, the new quantitative analytical model is designed to help advisers and wealth managers create a clear, easily comparable assessment of a fund’s likely expected return over the next 12 months against its peer group based on its relationship to the wider macro-economic and business cycles.
According to the group, the model anticipates an investment product’s behaviour to a range of macro-economic factors, and thus provides insight into “how different funds are likely to react as the economic cycle progresses.”
PureGroup director, Patrick Murphy said: “For advisers these days, suitability is no longer just about past performance. Increasingly, it is about how you, as an adviser, demonstrate ongoing suitability.”
“We looked at the funds industry and one of the areas we wanted to focus on was the regulatory shift in tone that analysis should be forward looking rather than backwards when assessing investment products,” he added.
According to the firm, the model takes account of data such as interest rates and dividend yields to build up a view of how a fund manager’s skills and behaviour interact with macroeconomic cycles. And, as a result, should allow advisers to analyse not only how an investment has performed through different parts of the business cycle and how it reacts to specific data points, but also, how it is likely to perform in the future.
While Murphy points out that many of the tools are not new – factor analysis is being used in all sorts of industries – within the financial services space, they have tended to be the preserve of the institutional market.
“It is about bringing these institutional tools into the retail space and applying them to asset selection,” he said, adding “this set of tools is more than just a manager selection tool, it is about choosing the most appropriate manager at the right time for a particular client outcome.”
The toolset allows advisers to compare and contrast a universe of over 4,000 products the firm said, a ‘whole of market approach’ that addresses one of the challenges facing advisers, the ability to conduct “both fair comparison and suitability across the market.
“In the future we plan to introduce further services using our technology and analytics to improve the levels of understanding and engagement which advisers and their customers have with investment products,” Murphy added.
