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.
In a recent study by Morningstar it has confirmed that using only quantitative tools, that are based on past performance, isn't the right strategy.
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.
There are plenty of traditional Fund rating firms: Morningstar, Lipper, Citywire (ranks managers) and many more. They all base their ranking mainly on past performance. Since they 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.
In recent years the idea of using crowd sourcing in order to improve service and product ratings has become main stream. Companies like TripAdvisor, Yelp, IMDB and Zagat have become extremely popular.
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.
What all these Fintech startups have in common is the idea of using crowds and their knowledge in order to offer improved financial ratings and market predictions.
So, on the one hand we have a problem with how funds are currently rated and, on the other hand, we know that wisdom of the many is advantageous in any selection process it has been applied to.
This is where SharingAlpha comes in.
Our idea is to improve mutual fund ratings by leveraging on the knowledge and experience of thousands of Investment Advisors and Fund Selectors worldwide.
SharingAlpha will enable the investment community the possibility of sharing with each other their knowledge on fund managers that have a better chance at creating alpha.
Please join our followers by clicking on the button bellow and find out what else SharingAlpha is planning.