FWW Blog 24.01.2019

FWW FundStars – Separating the Wheat from the Chaff in the Fund Universe

With the number of investment funds steadily rising (the FWW investment fund database currently holds data of more than 26,500 funds in Germany alone), identifying profitable funds can be a daunting task for investors. This enormous number not only reflects a constantly growing investment landscape, but also the need for comparable criteria. As an independent seal of approval, then, the FWW FundStars categorise the fund data flood thoroughly and justly. Investors thus receive valuable support when separating the wheat from the chaff.

Requirements and How It Works

For the FWW FundStars, we rank available funds by dividing them into five levels of 20 percent each. The transparent rating system uses an easily comprehensible/easy-to-follow star symbol methodology: the top 20% of funds in a sector receive five stars, the last 20% of funds in a sector receive one star.

Each sector in the fund database consists of at least ten funds; FWW’s FundStars are assessed for each sector in which at least five funds have a performance of no less than three years. Moreover, the respective fund must be a mutual fund registered in Germany with a price history of at least three years. All funds are automatically calculated at the end of the month and on a Euro basis.

FWW FundStars - Methodology and seal                   FWW FundStars - Methodology and Seal

Risk-Adjusted Performance

In order to achieve greater comparability, the FWW FundStars draw on the FWW investment fund database, with transparent selection criteria available for all funds at all times. The analysis itself rests upon what we call risk-adjusted performance (RAP). This two-dimensional key figure is based on the 'performance' and the 'risk taken’ (volatility) parameters, taking into account the fund's price history of at least three years.

Additional correction values include data collected from the RAP indicators for one-year (short-term) and, if available, five-year (long-term) periods. 25% of these development data are included in the calculation of the three-year base period.

Calculation formula for the RAP ratio


Example calculation for the RAP ratio


Investor Benefits

With the RAP ratio, the performance of a fund will be calculated and normalised to the volatility of the relevant FWW sector peer group. This approach is based on the assumption that an investor only wishes to invest in one fund. The rating is published on fund portals as well as in newspapers. Thus, anyone can check whether a fund has been able to outperform other funds in a specific sector and in a risk-normalised manner – all free of charge. In addition, a fund’s management performance is assessed in hindsight only; the FWW FundStars rating does not engage in any forecasts on a fund’s future performance.

Conclusion

With the FWW FundStars, investors have an easily comprehensible help at hand to transparently assess the risk-standardized performance of a fund. Calculations are based on information from the FWW fund database, one of the most comprehensive databases on investment funds in the DACH region. Since the data is obtained directly from financial investment management companies (or Kapitalverwaltungsgesellschaften, KVGen), the rating is also independent of the fund companies themselves. The FWW FundStars are available in newspapers, on fondsweb.com/de and fondsweb.com/at, and free of charge for everyone.