Every year since 2011, Fundata Canada Inc. has awarded its FundGrade A+ Award to the
top-performing investment funds in each category for the year. The 2018
Awards will be presented at Fundata’s Annual Evening of Excellence in
Toronto on Thursday, Jan. 24. The FundGrade A+ rating is a purely
objective, quantitative rating that recognizes the funds with the best,
most consistent risk-adjusted performance through the year. The rating was
developed by Fundata’s Analytics Department, and uses the monthly FundGrade
rating system as its foundation. Here’s a look at how it works.
The objective of FundGrade is to identify high-quality investment funds in
the Canadian fund universe that have achieved superior risk-adjusted
performance relative to their peers in a given month. This is important for
two reasons. First, the Canadian fund industry is highly competitive, and
funds that have been able to consistently outperform their peers deserve to
be recognized for that accomplishment. Second, an A Grade rating allows
investors to easily identify top-performing funds based solely on
quantitative measures, thus assisting in the investment decision making
Why it works
The FundGrade rating system incorporates up to 10 years of history and uses
three risk-adjusted performance metrics that are well-known and widely
accepted in the investment industry.
– a measure of a fund’s excess return relative to total risk. It is
calculated by subtracting the risk-free rate from the fund’s return and
dividing by the standard deviation.
– a measure of a fund’s excess return relative to downside risk. It is
calculated by subtracting the minimum acceptable return from the fund’s
return and dividing by the downside deviation.
– a measure of a fund’s active return relative to its tracking error. It is
calculated by subtracting the benchmark return from the fund’s return and
dividing by the standard deviation of the difference between the return of
the fund and the return of the benchmark.
FundGrade is a completely quantitative measure. Qualitative factors and
analyst opinion are not considered and have no bearing on the grading
To make the grades relevant, funds are only measured against similar
investment products with comparable investment mandates. This is
accomplished in three ways.
First, FundGrade uses the fund classification standards that have been
defined by the Canadian Investment Funds Standards Committee (CIFSC). Funds
are ranked and graded within CIFSC categories. Specialty categories that
are not homogenous and that are deemed unranked by the CIFSC are not
Second, FundGrade ratings are calculated separately for three distinct
groups of funds:
* Mutual Funds and ETFs
* Segregated Funds
* Pooled Funds
Third, fee-based and institutional series are excluded from the
Funds are given a Grade from “A” to “E,” as shown in the graph below:
How it works
Each month, FundGrade ratings are calculated and assigned using the
* Calculate Sharpe, Sortino, and Information ratios for each time period
from 2 to 10 years for all eligible funds.
* Calculate one ratio for each fund family for each year by taking an
average of all eligible series.
* Rank each ratio for each year within each CIFSC category.
* Equally weight each year to calculate an average rank for each of the
ratios. This results in a Sharpe score, a Sortino score, and an Information
score for each fund.
* Equally weight the scores for each ratio and take the average to get a
final score for each fund.
* Rank all final scores within each CIFSC category.
* Assign grades from A to E according to the 10-20-40-20-10 distribution
and cascade to all series.
FundGrade A+ Methodology
FundGrade A+ was designed to identify not only the best-performing funds,
but also the most consistent. It is a yearly award that recognizes the
‘best of the best’ among Canadian investment funds that have maintained a
high FundGrade rating throughout a calendar year.
How it works
FundGrade A+ is a supplemental calculation to the FundGrade ratings and is
performed at the end of each calendar year. Eligible funds must have
received a FundGrade rating for each month in the previous calendar year.
FundGrade A+® uses a ‘GPA-style’ calculation with the following
1. A score is assigned to each of the FundGrade ratings, as follows:
A Grade = 4
B Grade = 3
C Grade = 2
D Grade = 1
E Grade = 0
2. For each fund, a ‘GPA’ is calculated by adding up the scores for all 12
months and dividing by 12.
3. Any fund with a GPA of 3.5 or higher receives a FundGrade A+.
FundGrade A+ Responsible Investing Methodology
The RI FundGrade A+ was designed to recognize the top performing
Responsible Investing (RI) funds not just based solely on returns, but
using the same risk-adjusted performance measures that make the FundGrade
First, the universe consists only of funds that are identified as RI funds
by the Responsible Investing Association (RIA).
Second, the funds are split into three categories: 1) Equity; 2) Balanced;
and 3) Fixed Income. These categories are based on the high-level CIFSC
groupings whereby all the equity categories are combined, all the balanced
categories are combined, and all the fixed-income categories are combined.
This provides a sufficient number of funds in each of the three categories
to allow for meaningful comparisons.
Only mutual funds and exchange traded funds are eligible for the RI
FundGrade A+ Award.
How it works
The RI FundGrade A+ calculation is exactly the same as the monthly
FundGrade calculation above, wherein funds are ranked based on Sharpe,
Information, and Sortino ratios using up to 10 years of history. The funds
with the top overall rankings in each of the Equity, Balanced, and Fixed
Income categories at the end of the year are awarded the RI FundGrade A+.
© 2019 by Fund Library. All rights reserved. Reproduction in whole or in
part by any means without prior written permission is prohibited.
The foregoing is for general information purposes only. No guarantee of
investment performance is made or implied. It is not intended to provide
specific personalized advice including, without limitation, investment,
financial, legal, accounting or tax advice.