Fund selection - current market evolvement

Fund selection and performance review are, as of today, dominantly performed using qualitative methods and manual processes. At the same time, new issues of financial regulation, such as IDD and MiFIDII, has resulted in increased costs and transparency requirements for financial product distributors. In order to ensure an efficient work-flow and a neutral cost structure, financial firms have to introduce efficient solutions to adapt to the business challenges of today within investment selection and wealth management.

Unsupervised fund categorisation

TruEval utilises an unsupervised quantitative clustering algorithm operating on historical data to categorise mutual funds and ETFs into homogenous groups. This provides several advantages over an approach where product categorisation is based on qualitative measures, such as:

  • an automated and unbiased product categorisation solely based on historical behaviour,
  • to understand which funds offer similar risk and return characteristics,
  • identification of funds deviating from their stated investment strategy, enabling identification of previously unknown risks,
  • clarification of existing group structure and fund universe diversification.

Fund performance review - high-quality decision support

TruEval is not only a fund categorisation service –but it is also capable of reviewing and evaluating them! Each fund in every identified category is benchmarked against every other fund within the same category, which allows for:

  • intragroup fund ranking and visualisation of what investment products offer high, medium or low customer value,
  • detection of systematically underperforming funds due to excessive fees, poor asset management or fraudulent behaviour.

TruEval can also be used to evaluate and motivate actions such as adding or removing one or several funds to or from a fund universe and to monitor provided investment advice from a customer value add perspective. As a result, an auditable track record is also provided which will facilitate reviews and audit of past decisions. TruEval is SaaS and delivered as a web service. Past reviews are persisted for the end user which facilitates full audit capability.

TruEval requires very few inputs, typically:

  • product ID (ISIN),
  • fee structure.

Once again, don't forget to check the linked case study for a more detailed description of how TruEval performs in the setting of the funds from the Swedish State Pension Fund Platform!