Summary:

The FE crown ratings are a quant-based ratings system designed to highlight funds that have had superior consistent performance in relation to risk, relative to their peer groups. Peer groups are deemed to be the sectors as defined by the IMA and ABI.

The Crowns:

All rated funds get a crown rating, one crown being the lowest rating, and three crowns being the highest. No crowns means the fund has not been rated.

Non rated funds:

Funds are not rated for the following reasons -
a) the fund is less than 3 years old
b) the sector is not meaningful for comparison purposes - e.g. the Specialist or Personal Pensions sectors
c) the sector has had too few members over 3 years to be significant

The constituents of the rating:

The rating is made up of three constituents -
a) Alpha relative to the sector, measured over 3 years but with a higher weighting given to the more recent rather than the more distant past
b) Volatility, measured over 3 years but with a higher weighting given to the more recent rather than the more distant past
c) Consistency, based on a fund's performance ranking within its sector in each quarter of the last 3 years. Each quarter is weighted equally.

5. Weighting the constituents

In most cases, each constituent carries equal weight within the overall rating, except in the following cases -
a) Cash and Gilts - here the volatility constituent is excluded altogether, since in these areas, volatility is extremely low, and with very little difference between funds
b) Other bonds - here volatility is given half the weight of the other 2 constituents

6. Combining the constituents

For each sector, the best and worst raw scoring fund for each constituent is assigned a value of 100 and 0 respectively, and all intervening raw scores for that constituent are proportionately rescaled into this range. The rescaled scores for each fund's 3 constituents are then added to form an overall score (subject to the weighting constraints in section 5 above)

Allocating the crowns:

Within each sector, the top 20% of funds (in terms of overall score) are awarded 3 crowns. The next 30% are awarded 2 crowns, with the bottom 50% getting 1 crown.