Fund performance is measured using a number of risk adjusted parameters of which the most common are detailed below.

What is Alpha?

Alpha is a measure of the fund's returns against its benchmark, and is hence a measure of the value added by the fund manager.

It is the loss or gain the fund has posted when the benchmark return is assumed to be zero.  Alpha is measured relative to the sector over 3 years, but with a higher weighting given to the more recent rather than the more distant past. An alpha of >0.3 is deemed to be good, and indicates that the fund manager is adding value.

What is Beta?

Beta measures the sensitivity to market movements, similar to volatility below.

A beta of 1 means parity with the relevant index and beta ratings usually lie between 0.5 and 1.5. A fund would be perceived to be less risk if it had a beta of <1.0 (being less volatile than the market) and more risky if the rating were >1.0 (accentuating market movements).

What is Volatility?

Volatility measures the degree to which the fund's periodic returns vary either side of its mean return.

The larger the fluctuation, the more risky the fund is. Volatility is measured over 3 years, but with a higher weighting given to the more recent rather than the more distant past.

What is Consistency?

Consistency tracks the nature of a fund's overall return to see if this was achieved steadily over time, or if normally loss-making periods were offset by a large atypical gain.

Consistency is based on a fund's performance ranking within its sector in each quarter of the last 3 years. Each quarter is weighted equally.

Crown Rating Weighting

In most cases, each measurement constituent carries equal weight within the overall rating, except in the following cases:

• Cash and Gilts - here the volatility constituent is excluded altogether, since in these areas, volatility is extremely low, and with very little difference between funds.
• Other bonds - here volatility is given half the weight of the other 2 constituents.