A Better Way to Identify Winning Funds

Oren Kaplan CEO & Co-Founder SharingAlpha

It has been proven time and again that using the “wisdom of the crowds” works.

My favorite example is the results collected from the game show ‘Who wants to be a millionaire?’. During the game participants are offered to ask a friend (who they consider to be an expert) or ask the crowd of audience in the studio. The data shows that asking the expert results in 65% success rates while the crowd is right 91% of the time.

The idea of using crowd sourcing in order to improve service and product ratings has become main stream. Companies like TripAdvisor and Yelp have become extremely popular.

More recently this idea has entered the financial world with companies like eToro and Estimize.

What these Fintech companies have in common is the idea of using crowds and their knowledge in order to offer improved financial ratings and market predictions.

The logical question to ask is whether this approach can help in identifying winning funds?

Before we answer this question let’s review the current status of fund selection.

In a study by Morningstar it has confirmed that using only quantitative tools, that are based on past performance, isn’t the right strategy. So, by using conventional and quite popular mutual fund rating tools might help you justify your choice (in case you are managing other people’s money) but it isn’t a winning strategy to say the least.

The same study showed that ratings that were based on qualitative analysis worked 70% of the time. However, doing qualitative analysis demands more man power to complete.

Since the traditional rating agencies employ a relatively small number of analysts they find it impossible to review, on a continuous basis critical factors such as the incentives and motivation of the management team, capacity and limitation on size, active share, etc.

It’s time for a fund rating platform

Due to the difficulty of addressing these types of factors on an ongoing basis, both the wealth management and asset management industries could benefit from a platform that could use the collective knowledge of Investment Advisors to create better fund ratings.

Such a platform, called SharingAlpha has been launched and has become the world’s largest fund rating agency in terms of the number of fund analysts contributing to its ratings.

SharingAlpha rates funds based on the average rating provided by professional fund buyers worldwide.

Apart from being able to create a better fund rating, SharingAlpha is also able to rank the individual raters in terms of their talent in selecting funds.

Their fund selection track record enables the raters to test their analysis, and if they choose the raters are able to present their proven track record to existing and potential clients.

Hence, SharingAlpha supports the active asset management industry players by offering a more robust methodology of rating funds and selecting investment advisors.

The greatest advantage that a user generated fund rating platform brings to the market is the possibility to grow to scale more rapidly and effectively. This is done by moving from the current rating model where fund selectors work in silos to a more centralized approach in which their views are shared on a dedicated platform.

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