What is the Elite Rating?

We want the Elite Rating to be a badge you can trust. Our independent agency is a partnership between Chelsea Financial Services and Albermarle Street Partners, leveraging the former’s extensive in-house research expertise and the latter’s data modelling capabilities.

We typically award our Elite Rating to no more than 10% of any sector. Unlike some agencies, we don’t run a tiered system. Our philosophy is pure: a fund is either good enough or it’s not.

A lot of work goes into reaching this simple conclusion, however.

AlphaQuest – the foundation of the Elite Rating

Our process begins with our proprietary quantitative screening tool, AlphaQuest. A fund must pass this screen before we will proceed any further with our research. We start by measuring risk-adjusted performance and we always look at the figures after charges. Managers must have a track record of at least three years to be considered.

While many screens exist that analyse past performance, AlphaQuest is unique because it focuses on future performance. It estimates how likely a manager is to continue to deliver superior returns. It does this by stripping out the impact of market movements to identify the returns attributable to manager skill.

Alpha generation is often lumpy, reflecting style bias and market conditions. So, AlphaQuest analyses the consistency of the alpha as well as its absolute level. It uses weekly data over 10 years (or the life of the fund or tenure of a manager if shorter) to calculate both the average annualised alpha and the annualised volatility of the alpha. It uses this data to generate an expected alpha range and predict the probability of positive future alpha in a statistically robust way.

Our four step process

  1. We start with AlphaQuest, as outlined above. Only funds that pass this screen and whose managers show a high probability of continuing to deliver alpha over the next 12 months will proceed to the next step of our process.
  2. Those fund managers who pass the AlphaQuest test are then subjected to further detailed qualitative analysis. Our experienced research team will interview the fund manager face-to-face to better understand and assess how their investment process and style gives them an edge over other managers.
  3. When we meet a manager, we grill them on their process and satisfy ourselves that they know what they’re doing. We identify their investment philosophy and drill down into their portfolio to check that it is consistent with that philosophy. We look at the team they have behind them and whether they have any constraints.
  4. Once this analysis has been completed, the research will be subject to peer group review within our team. Only then will those funds, whose managers we believe to be the most skilful, be awarded an Elite Rating.

Funds gaining or losing an Elite Rating

We’ll always notify investors via our Elite Funds news if a fund gains or loses an Elite Rating. We also keep a record of any Elite Funds that have gained or lost Elite Ratings over the years.

Hear more from our director, Clive