Talking Apples with Warren Chant

With over 40 years’ experience, Warren Chant is considered an expert in the superannuation and investments industry. He is a director of Chant West, whose ‘Apples’ ratings compares a variety of multi-manager funds and the teams who construct them. Chant West also reviews the investments of over 150 super and 90 pension funds and is known and well respected for its integrity, impartiality and accuracy.

1. Why do you believe the ‘Apples’ ratings have been so necessary for our industry over such a long period?

Most workers in Australia can choose which fund will receive their employer's super contributions, but without help they have no reliable means of comparing one fund with another. That’s the ultimate purpose of our research.

By applying our knowledge and experience, we compare funds in a way that’s both fair and rigorous.  But then we have to summarise that information so that it’s meaningful to advisers and their clients.  That’s where the ‘Apples’ rating comes in.  It’s a sort of shorthand – a simple device that encapsulates our view visually.  We’ve found over the years that members understand it instinctively, so it’s a very useful device for funds and advisers to use with clients.

Of the six key criteria we look at – investments, member services, fees, insurance, administration and organisation – investments carries the most weight (35 per cent) because it has the greatest bearing on the member’s eventual nest egg. Our investment rating condenses our detailed research into an identifiable symbol. So, for example, the 5 Apples rating we’ve awarded to IOOF signifies firstly that we’re comparing apples with apples, and secondly that its overall ability to construct quality multi-manager products is of the highest order, because 5 Apples is the highest rating you can get.

2. What attributes are most important for a multi-manager product provider to achieve the highest ‘5 Apples’ investment capability rating?

When we’re rating a fund on investments we’re looking at its ability to construct multi-manager portfolios that represent industry best practice and have a high likelihood of achieving their stated risk/return objectives. We’re not too concerned about past performance. Rather, we’re assessing the quality of the fund’s investment governance, its in-house investment team and asset consultant, and the way it structures its investment portfolios. If it gets all of those right, it’s likely to have strong long-term performance.

Our four main criteria are: investment governance (which carries a 20 per cent weighting), capital markets and manager research (35 per cent), portfolio management (30 per cent) and past performance (15 per cent). We score funds on each of these criteria and then weight them to provide an overall rating.

Of increasing importance is the role of the in-house management team, how that team interacts with the fund’s asset consultant and the degree of decision-making autonomy it is granted. What we want to see is the right people making the important decisions in a timely and efficient manner, all within a strong governance framework. That’s something we’ve observed in recent times with IOOF, where Steve Merlicek has put together an experienced team that works very effectively with Russell, the fund’s asset consultant. This has translated into strong investment performance from the MultiMix funds which represent IOOF’s best investment ideas.

3. What are the biggest challenges when trying to compare different multi-manager product providers and their product offerings? Do you believe there is enough consistency and transparency to allow members and advisers to compare ‘apples with apples’?

Publicly available documents such as PDSs and Annual Reports can be confusing because funds differ so much in the information they disclose and the ways in which they disclose it. There have been improvements, but the industry is still far from transparent.  There are many inconsistencies in investment disclosure, for example, especially in relation to performance reporting, currency hedging and levels of active and passive management.

Someone looking to choose a fund or maybe switch funds has little chance of knowing if they’re comparing like with like. Even experienced advisers struggle if they’re relying on desk research alone. That’s where Chant West comes in. We meet the funds we rate at least once a year, we have access to their internal investment policies and reports and we quiz them in depth about their investment governance.

To level the playing field, we work behind the scenes and make adjustments to the information funds publish so it can be compared fairly with other funds. That way, advisers have access to research that is not only accurate but also truly comparable. The end result is that advisers have data they can trust, which in turn gives them confidence in the advice they provide to their clients.

IOOF is pleased to announce it has received the highest level ‘5 Apples’ Multi-Manager Rating from Chant West. This refers to our overall ability to construct quality multi-manager investment solutions, in particular, the IOOF MultiMix trusts. The ratings of individual trusts may differ from the overall rating due to their specific characteristics.

The scores used by Chant West to derive the ratings are subjective scores that have been awarded based on data (including historical financial performance information) supplied by third parties.  While such information is believed to be accurate, Chant West does not accept responsibility for any inaccuracy in such data.  Past performance is not a reliable indicator of future performance.  The Chant West rating does not constitute financial product advice.  However to the extent that the information may be considered to be general financial product advice then Chant West warns that: (a) Chant West has not considered any individual's objectives, financial situation or particular needs; (b) individuals need to consider whether the advice is appropriate in light of their goals, objectives and current situation; and (c) individuals should obtain a product disclosure statement from the relevant fund provider before making any decision about whether to acquire a financial product from that fund provider.  For further information about the methodology used by Chant West contact

The information contained in this newsletter is provided on behalf of the IOOF group of companies and is intended for financial adviser use only. It is given in good faith and has been prepared based on information that is believed to be accurate and reliable at the time of publication. Any examples are for illustration purposes only and are based on the continuance of present laws and our interpretation of them at the time.