At Accument we believe that ETF’s are an excellent way to build investment portfolios that are flexible, low cost and globally diversified. To assist in deciding which ETF
to choose for your portfolios we have developed a scoring system. The Accument Score is the overall rating made up of 3 sub scores: Simplicity Score, Issuer Score, Cost Score.
In addition we have an Environmental, Social and Governance (ESG) score.
This article will tell you how these scores are produced and how you can use them to create your portfolio.
The Simplicity Score
The Simplicity score is based on the premise that the closer the ETF is to simply holding the underlying assets, the better. ETF's that replicate the indices they track score higher than ETF's that use indirect or synthetic exposure or use derivatives to gain exposure or leverage the assets of the fund.
The score looks at the following elements:
i. The extent to which the fund is able to use derivatives and the types of derivatives allowed.
ii. The use of stock lending.
iii. The extent (and purpose) to which the fund uses borrowing.
iv. The investment structure, synthetic, indirect or direct exposure.
v. The domicile of the fund.
vi. The inception of the fund, we like to see a history of trading and therefore new ETF's are marked down.
vii. The presence of a performance fee.
All these elements are built into a score out of ten for each ETF.
The Cost Score
There are several types of cost that you bear when you invest in an ETF:
i. The fund’s management expenses - the higher the expenses the lower the score,
ii. The indirect and operational costs borne by the fund. These are estimated by the issuers.
iii. The buy sell spread - we measure the average (over a rolling 6 months) buy/sell spread for each fund. This is a cost to you so the higher the spread the lower the score.
These elements are built into a score out of ten.
The Issuer Score
An ETF is generally managed by the issuer so we like to see experience and expertise. The elements we take into account are:
1. The total Funds Under Management (FUM) of the issuer, the FUM doesn't necessarily need to be huge but if it is too small we will mark the score down,
2. The number of funds the issuer has listed in Australia - again it doesn’t have to be huge but if there is only one fund listed we may be worried about the experience and expertise available,
3. The average spread of all the issuers funds, the lower the average spread the higher the score,
4. The time in business, we look at the length of experience of the issuer and give a higher score to those with more experience,
5. The average fees of the issuer, we like to see ETF’s as a low cost product so we give a higher score to those issuers with low fees.
These elements are built into a score out of ten.
The Accument Rating
The Accument Rating is a combination of the scores above weighted according to how important we believe each score is. The score with the highest weighting is the Cost Score. We believe that keeping your costs down is very important.
The ESG Score
Some ETF's provide comprehensive screening for ESG elements and many do not take ESG considerations into account at all in their decision process. In the middle there are a number of funds that take ESG into account in a limited way. This score seeks to give you an idea of the extent to which ESG considerations influence the investment process of each fund. We also give some weight to statements by the issuer in respect of proxy voting.
How and when to use the scores
Our scores are a comparative tool. They are best used when comparing like ETF’s such as ETF’s investing in the same category. When you are using our data tables you will be able to sort by any of our scores. Choose the score that is important to you or use the Accument Rating.
This information does not consider your specific investment objectives, financial situation or needs. Accordingly, before acting on the information, please consider its appropriateness for you. If you are seeking to acquire a specific financial product, you should obtain a copy of and consider a Product Disclosure Statement ("PDS") for that product before making any decision.
This information is provided by Accument Pty Ltd, ABN 90613345556). Accument Pty Ltd is an Authorised Representative of IWM Advisors Australia Pty Ltd, AFSL 343582.