The Rivers approved investment list is comprised of funds that meet our own stringent internal rating methodology with 80% being recognised as outstanding by third-party research. The only active managers we invest in are ones we have met face to face and who we believe will justify their fees.
All investments are selected from the ‘Rivers Approved Investment List’. Management of this list is the responsibility of the Rivers team but it relies on a combination of internal industry expertise and proven third party fund selection expertise. Using third party research we filter core funds for all asset classes. We reserve up to 20% of the portfolio allocation to be made up of funds selected specifically according to internal evaluation and which do not necessarily have top ratings. This allows the inclusion of, for example, emerging managers and managers with outstanding long term records who may have dropped down in ratings due to their sector being unpopular or as a result of a relatively short term period of under-performance.
Defaqto Diamond Rating
Risk Rated Funds uniquely map fund family members to Defaqto’s 10 risk levels. A Risk Rating of 1 indicates the lowest risk; a Risk Rating of 10 indicates the highest level of risk. Currently, no funds are mapped to level 1.
Defaqto Diamond Ratings:
• Provide Rivers with a reliable, independent research source over mainstream and well researched fund solutions.
• Cover a wide range of asset classes and provide detailed insight and oversight beyond the resources of Rivers.
• Combine a quantitative assessment of both performance and numerous other data points, including manager tenure, assets under management, costs and distribution.
• Are backed by Defaqto’s established and independent brand.
These bands have been created in partnership with Moody’s Analytics, and we have a robust process that reviews funds and the risk levels that they map to on a quarterly basis.
Rivers is not tied to the recommendations of Defaqto but we believe their service, combined with the independent resources available from Financial Express and Morningstar ensure the large and well researched fund universe is well covered. This enables the Rivers team to identify and research overlooked funds or ones which have shorter records or are smaller which can in our experience add the greatest value to investment portfolios.
Internal Manager Selection Criteria
For investments outside the spectrum of Defaqto Fund analysis to be considered, they are subject to a comprehensive evaluation process which includes:
• Fund and firm’s organisation
• Investment process
• Implementation strategy
• Risk management methodology and tools
• Fund manager historical background
• Research team credentials
• Organisational structure
For inclusion on to the approved investment list a due diligence process needs to be completed and presented to the committee for approval. This is the case for funds supported by third party research as well as those sourced internally.
a: Investment Universe
We are independent and unrestricted with regard to the universe of managers and funds although regulatory and platform availability need to be considered.
• Funds need to be registered for sale in the UK
• Funds need to have share classes available for ISA investment
• Funds need to be on the platform holding our model portfolios
• Funds preferably with daily liquidity
• Funds which charge no initial investment fees
• Funds need to have no ongoing redemption penalties
• Across platforms (Rivers do not require availability on ALL platforms) the passive and active universe exceeds 10,000.
b: Quantitative Screening
To reduce the universe of available managers we use quantitative filters to reduce the managers we consider for further analysis:
• Consistent returns – performance during differing periods of the business cycle
• Extended Track record – longevity is important but not essential
• Fee Structure – Performance fees need to be strongly justified and fully transparent
• Absolute Volatility – measured and accessed in the risk/return context
• Tracking Error – active managers need to justify higher fees through alpha generation
• Tracking Error - passive funds with low tracking errors to relevant benchmarks
• Fund Manager location and availability to meet
• Holding concentration – and turnover
• Cash allocation – our preference is with fully invested managers
• Fund size – we are not restricted to a minimum fund size provided our clients are not penalised through expenses and illiquidity