We were recently reviewing a client’s 7IM – AAP Balanced D fund held upon the Cofunds platform using our in-house version of Financial Express Analytics.
Before issuing our review, I decided to run the portfolio X-Ray via Cofunds website. Cofunds use an alternative well known data supplier – namely Morningstar.
The resulting asset allocation breakdown (for exactly the same fund) could not be more different!
Hence, we obtained from 7IM their own portfolio breakdown as at 31 August 2015. The table below highlights the differences to the underlying fund asset allocation asset split as at 31/08/2015:-
The asset allocation Morningstar suggest is miles out from the asset allocation stated by FE and 7IM as at 31/08/2015. This means that any X-ray provided by Cofunds (using Morningstar) gives an ‘incorrect’ asset allocation.
We queried this anomaly with fund managers 7IM whom advise:
“We are aware of this issue with Morningstar, which stems from our use of futures within our Funds. As you can see on the snapshot of the 7IM AAP Balanced Fund we use a number of futures across the various Equity asset classes that we have in our asset allocations, and we use cash and short-term bonds as collateral to back these positions.
Morningstar are currently interpreting these assets as cash and bonds, rather than the equities to which we are economically exposed, so we are in dialogue with them at the moment to try and find a way for our asset allocations to be correctly reflected in Morningstar and all of the platforms who source their fund data from Morningstar.
We do not have this issue with Financial Express (FE) as every month they simply take the 7IM asset allocations from our snapshots, hence why you see an exact match between our snapshot and the breakdown on FE.
I appreciate that this is far from ideal and understand the advice and compliance implications that this has for you; please rest assured that we have emphasised to Morningstar the need to find a solution to this, and we shall let you know as soon as we have an update.”
Advisers have come to rely upon data from investment research firms like Morningstar and FE. The danger is you believe everything you read. There are potential risk matching and hence compliance implications for the unwary.
In the case above, an adviser might think from the Cofunds Morningstar fund X-ray that the 7IM fund invests 72.26% in bonds, cash and money market instruments. In reality, only 37.4% is invested thus. The numbers are well out.
Begs the question – what data can you actually rely upon? Financial Express offer up much greater accuracy then Morningstar on this occasion.
Good data is extremely valuable. Poor data could become extremely costly where it used to inadvertently mismatch funds to a clients’ needs, attitude to risk and capacity for loss.