2024 Regional Summits | The Scorecard

Janette Oh, the Senior Investment Coordinator here at RPAG, is extremely in tune with how our RPAG Scorecard works and the strategies that go along with it. In this session, Janette explains what the scorecard is for, the different categories of funds, and how we score each one. She then goes on to show our attendees what resources they can use in addition to the scorecard to conduct fund research.

To begin, what is the scorecard designed to do? It was created as a way for us to evaluate funds looking at a multitude of criteria with the end result being a straightforward 10-point numerical scoring system that can be used to monitor funds as well as mangers.

The scorecard has three main objectives. First is to identify skillful managers. This can be difficult to fund truly exceptional managers especially when you are looking to add or possibly replace a current one within our lineup. We look at many metrics that not only observe a manager's performance over the short term but over an entire market cycle. The scorecard also enhances your due diligence process by allowing plan sponsors to analyze different asset classes by looking at metrics that are more complex and in-depth than just the fund's return stream or their expenses. The last objective is to minimize your exposure to fiduciary liability. 

Benefits of using the scorecard system include a single and easy to understand number, it drives action when applicable (meaning it is integrated directly into the IPS), and it is easy to identify areas of concern. We categorize funds into three main buckets: Active, Passive, and Asset Allocation. To begin, analytics are customized to a fund's goals. All of these scores are built with pass/fail analytics on a 0 to 10 scale (wit 10 being the best). Eighty percent of the score is quantitative (portfolio statistics, peer group rankings, quadratic optimization analysis, etc.) and 20 percent is qualitative (manager tenure, expense ratio, fund's strength of statistics, etc.).

For active funds, we want managers that will outperform both in the short and long-term periods whether that's relative or absolute to its benchmark. An idea manager provides style purity, outperformance, strong peer group ranking, and a long track record. We create custom peer groups that omit passive funds to really create that apples-to-apples comparison and create a more competitive peer group environment for that analysis.

For passive funds, an idea manager has very consistent style purity, tight benchmark tracking, and is low cost. We don't need to pay such a high premium as we do for active managers because we are not looking for outperformance. In this custom peer group, we remove active funds, so we are comparing passive to passive. The passive scorecard looks a little different from the active scorecard. We have increased the weighting in style & tracking factors to 40% and we have also increased our peer group ranking weighting to 40%, still keeping the weight for qualitative factors at 20%.

In Asset Allocation Funds, we really mean your target date funds, risk-based series, balance funds, multi-sector bonds, or any other multi-asset strategies. There are some similarities to active funds in the way we score these. We use 5 years of history, look for outperformance, a long track record, and a high peer group ranking using our custom peer groups. The difference would be that we use style analytics to measure diversification by the manager and use RPAG custom style benchmarks for each individual fund.

After explaining the ways that we score our funds, Janette showed our attendees some of the great fund research tools that are available to our members in the RPAG portal. This walkthrough included the fund lookup tool, asset class review, strategy equivalents, the stable value analyzer, and the target date fund analyzer.

You can view Janette's presentation slides here.

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