Helping Professional Fund Investors Build A Proven Track Record
This publication recently interviewed SharingAlpha, a business that takes the ranking of funds and assessment of their track records to a new level, and thereby helps buyers of funds to get a clearer idea of their own purchasing skills over time.
One of the big challenges for wealth managers seeking funds for clients is knowing whether the fund managers’ own appraisals of how well they do match objective measures of performance. Funds’ managers want to know that the information that wealth managers have about them is accurate. And crucially, they want to know that their assessments of funds hold up over time. The “beauty parade” process through which funds vie for buyers’ attention can all too often favour the largest brands with the savviest marketing teams. Firms with strong investment track records and interesting stories to tell can slip through the cracks.
One firm that aims to rise to this challenge is SharingAlpha. The business, whose founders are based in Israel, went live five years ago. WealthBriefing recently interviewed Oren Kaplan, co-founder and CEO. (The other co-founder is Yuval Kaplan.)
Please explain in the broadest sense what the problem is
that SharingAlpha is designed to solve?
SharingAlpha is a user-generated fund ratings platform. Hence, SharingAlpha rates funds based on the average rating provided by professional fund buyers from all around the globe. Currently, no single research team can cover the wide range of funds available, thus typically focusing their efforts on a very limited number of funds, those with an excellent track record that have become blockbuster or “mega funds.”
Consequently, over 95 per cent of the funds lack independent qualitative analysis and don't receive significant flows. Using the power of the internet we are able to scale and offer forward-looking ratings on funds from our community of professional fund investors, to share insight, to share alpha.
We offer professional fund investors and analysts the opportunity of building a proven track record of their fund selection capabilities.
Until now, only fund managers of listed funds had the possibility of generating a public track record. Now, for the first time, those fund specialists that select fund managers also have an opportunity of standing out among their peers. This, in turn, will enable them to be rewarded according to their proven track record. In addition, we offer two further ranking mechanisms. One is based on the performance of virtual fund of funds created on the platform by our members. The other ranking mechanism is based on the value of members’ commentary, as voted by their fellow community members.
These additional rankings, together, with specific country rankings, offer our members excellent opportunities to exhibit their talent and receive recognition. Obviously, the longer the track record, the more significant it becomes, hence, professional fund investors are incentivised to start building their track record without delay.
Finally, SharingAlpha’s model isn't based on charging fund managers for appearing on our platform. We offer the same chances to all fund managers be they large international firms or small local boutiques.
Furthermore, we empower buyers to take control of the distribution process by deciding which fund managers they want to hear from; this produces better targeted leads through a process that is entirely independent from our fund rating methodology.
When was Sharing Alpha formed, and where is it
principally located? How many people work in it? Can you give me
an idea of the number and type of clients
SharingAlpha went live just over five years ago and both of the co-founders are based in Israel, together with many other fintech companies. We are a small team since all we do is digital based. However, if you look at our company profile on LinkedIn you'll see that we actually have a large number of employees since some of the fund analysts that are contributing to our platform have added that to their CVs. We currently have more than 13,000 professional fund buyers, which makes us the world's large community for this rather niche but important profession.
Please go into a bit more detail about the idea of how
people can use the firm to evaluate how well or not fund
allocators actually do their job
User’s fund selection ranking is determined by their ability to assess the future performance of the funds relative to the comparable ETF of the fund.
In case the rater expects the fund to outperform the ETF then the overall rating that they should assign to the fund will be over 3. It will be closer to 5 in the case where they have a strong conviction. Hence, a rating of between 1 and 3 is given to funds that are expected to generate negative alpha and a rating of between 3 and 5 is given to funds that are expected to generate positive alpha.
We regularly compare the ratings with the actual performance of the fund versus the ETF. The closer the prediction is with the actual reality the higher the score they get for this rating. We call this the Hit Score. We compare the overall average Hit Score of all the funds rated by the user and compare it with the other users on SharingAlpha and then split this into four ranking groups:
Alpha Ranking Percentile
Triple Alpha Top decile
Double Alpha 10% - 25%
Single Alpha 25% - 50%
No Alpha Below 50%