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Fund Report: 5-Star Ratings Report 5-star ratings report

The Globefund 5-Star Ratings, based on a system developed by Algorithmics Inc., provide investors with a simple rating for most mutual funds in Canada. Funds are ranked from one to five stars, with the top ranked funds getting five stars and the lowest ranked funds getting one star. While past performance does not guarantee future performance, our historical testing of this rating system has shown that on average, top-rated funds have tended to outperform their peers over a six-month to two-year horizon.

Our rating system provides a useful gauge of the funds we follow. However, we do not suggest you use it as the single decision point for the suitability of a fund for your needs. Be sure to study all of the information you can gather on any fund before you invest.

You can sort the data in a column by clicking on the column heading. Click once to sort in ascending order; click again to sort in descending order.

Statistics show the return of the fund for the given time period and do not reflect the effects of sales charges or taxes. Management Expense Ratio (MER) is deducted from the prices that fund companies report to GLOBEfund, provided that the fund, or fund company, is a member of the Investment Funds Institute of Canada (IFIC). For these funds, MER has been accounted for in the returns shown in reports and charts.

Below is a description of some of the data shown in this report:

5-Star Rating - We have divided mutual funds into six broad fund categories that closely match the asset allocation categories used by financial planners, as follows:

  • Growth (primarily mid size and large cap Canadian equity funds)
  • Growth and Income (primarily balanced, dividend, and asset allocation funds)
  • International Growth (foreign equity funds)
  • Aggressive Growth (primarily small cap, geographic, and specialty funds)
  • Income (fixed income and mortgage funds)
  • Capital Preservation (Canadian and foreign money market funds)

The only qualification for including a fund in the rating system is that it must have at least two years of history. Currently, that means we compute a rating for approximately 60% of the over 5,000 Canadian mutual funds that we track.

How It Works

Once classified into one of these broad categories, all the funds within that category compete with each other in terms of the best score, and hence the best rating. A fund's score is a combination of return and regret and is determined as follows. On a monthly basis, for each fund, we compute month-by-month returns and subtract from these the return of the 90-day Canadian T-Bill to get what is known as the risk-free return for each month. If this result is positive for any one month, it contributes to the fund's return. If it is negative, it contributes to the fund's regret. We then use an averaging method across each of these returns and regrets (with increasing weight on the most recent data) to derive a final measure for return and for regret for each fund. The final score for a fund is then computed as the return score minus an adjusted regret score, where the adjustment factor for the regret component is unique for each broad asset category. Using the final scores for each of the funds in a category, we rank them and then allocate a star rating for each. The top 10% of funds receive a five-star rating, the next 22.5% a four-star rating, the middle 35% a three-star rating, the next 22.5% a two-star rating and the bottom 10% of funds a one-star rating.

The Globefund 5-Star Ratings use many of the elements of the Mark-to-Future methodology pioneered by Algorithmics. Algorithmics, headquartered in Toronto, is the leading provider of enterprise risk management solutions to global financial institutions.

Rating 3 Months Ago - The fund's Globefund 5-Star Rating three months ago.

3-Month Return % - The fund's three month return.

Over/under Group Avg 3 Mo Rtrn % - The difference between the average three-month return of the fund's category and the fund's three-month return.

Rating 1 Year Ago - The fund's Globefund 5-Star Rating one year ago.

1 Yr Return % - The fund's one year return.

Over/under Group Avg 1 Yr Rtrn % - The difference between the average one year return of the fund's category and the fund's one year return.

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