Michael Elsworth, Research Manager, commented, “This change is based on Lonsec’s belief that index funds now have a critical mass in most asset classes.”

“We believe that different criteria are needed to ensure ratings fully capture the characteristics of index funds.”

Although using different criteria, Lonsec will continue to focus primarily on qualitative factors, which is the key focus of its research across all asset classes.

“There will continue to be a split of 80% qualitative and 20% quantitative factors, which is consistent with the research approach for active funds,” said Elsworth.

“The rating scale used for actively managed funds will be adopted for rating index funds – Highly Recommended, Recommended, Investment Grade and so on. The addition of superscript Index alerts advisers to the fact that different criteria have been applied to determine the rating.”

“Once an index fund has passed Lonsec’s initial research screens, funds will be assessed by conducting a peer relative assessment of people and resources, investment process, liquidity and performance,” continued Elsworth.

4 June 2012

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