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U.S.-based global fund data and analysis provider Lipper Inc., a Thomson Reuters company, provides awards to fund managers for the best one-, three-, five- and 10-year annualized returns with lower risk levels than their peers. Even the one-year winner must have at least a three-year track record.
The awards are given in all categories defined by the Canadian Investment Funds Standards Committee, whose members come from domestic mutual fund database and research firms. There must be 10 funds available in a category before they are considered for a Lipper award. Pooled funds and funds not domiciled in Canada are excluded from those eligible.
Lipper measures volatility, an indicator of risk, through a proprietary methodology it calls “effective return.” It was a measure first created for foreign exchange traders to understand the volatility in their markets and was developed into a model that works for mutual funds.
The risk-adjusted returns are calculated by taking into account performance over multiple rolling time periods within the one, three, five and 10 years. Downside performance is given more consideration in where a fund is ranked than the upside by a weighting of four to one, explained Tom Roseen, a senior analyst with Lipper.