Our Research Process

It's tough for investors to choose funds, with over 3,000 available. So, we do some of the hard work for you and whittle the universe down to c. 100 funds on our Selection list and circa 40 on the Core Selection. You can then use the Chelsea Research Tables as a guide, with the comfort of knowing that your dedicated research team has interviewed every manager and every fund has undergone a rigorous process to earn its place in our research tables or you can choose any of the funds available on the Chelsea FundStore. Over the years, the performance of our Core Selection has added considerable value. You can read more or watch our video.

We are very lucky at Chelsea, as our size and press presence means that we have access to virtually all managers on a one-to-one basis. Most fund selectors are not given the opportunity to cross-examine fund managers on their process and investments.

We aim to select the best funds for your consideration and try to provide you with as much information, without bogging you down with too much industry jargon. Here's a flavour of what we do in the research department.

Where do we start?

We perform regular quantitative screens, which help to identify funds for further analysis. It's not just strong performance that we look for, but consistency of performance is very important, along with volatility and various other metrics. We also attend various conferences, which might introduce us to a manager with which we're not familiar.

The research team meet on a regular basis to discuss funds which bear closer examination. Once a fund has been flagged by a team member, we organise a meeting with the manager. An initial fund manager meeting is usually attended by at least two of the team members (at least one of whom will have responsibility for that sector).

No fund is added to the Chelsea Selection without us first meeting the manager. However, a fund without a track record or with a poor track record may be considered where there is a new manager in place who does have a proven track record and we are comfortable that they will replicate their process with the new fund.

What do we look for in a fund?

When we meet a manager we grill them on their process and satisfy ourselves that they know what they're doing. We identify their investment philosophy and drill down into their portfolio to check that it is consistent with that philosophy. We look at the team they have behind them and whether they are constrained by a house view. What prompts them to sell a stock? What's the level of turnover of stocks in their portfolio? Are they quite unconstrained i.e. they don't mind their portfolio being very different from the index?

We believe that if investors are paying for active management, then that's what they should get. So, you won't find us adding closet index trackers to our Selection.

Following the meeting a discussion takes place within the research team, who collectively make a decision on whether to add the fund to the watchlist. A fund will not be added solely on strong past performance, we must be confident that the fund manager is a suitable candidate to manage our investors' money and that they have a repeatable and consistent process in place.

Which funds make it into the Selection?

When we review the Chelsea Selection, the research team meet to assess the funds currently on the panel against those on our watchlist. Generally, where we feel that a better option is available on the watchlist we will swap the new fund for the old. However, it should be noted that we prefer not to alter the panel without good reason, as wholesale changes can be confusing for investors. We take the view that long-term performance is important and excessive switching can have a negative impact on performance. Furthermore, in certain circumstances a new fund will be added without removing one e.g. if it covers a sector/region that is not currently incorporated within the Chelsea Selection.

Which funds go into the Core?

The Core, which contains approximately 40 funds, is a more concise version of the Selection, which lists around 100. We choose funds from the Selection which we think should be at the heart of investors' portfolios. We tend to operate a 'one in, one out' policy i.e. a fund can only be added if one if being removed.

Funds are removed where there has been a change of manager, if we have not met and approved the new manager. Also, a removal can be made where there has been persistent underperformance, a change in the mandate, with which we are not happy, or a better offering becomes available. Funds on the Chelsea Core will generally be replaced on a like-for-like basis in all sectors, apart from Miscellaneous.

In some circumstances where there is no clear choice, a fund may be removed from the Chelsea Core and not replaced until the next edition of Viewpoint, our tri-annual investor magazine. As we aim to retain funds within the Chelsea Core, we prefer not to add them unless we are entirely convinced that they are of sufficient quality to qualify. Furthermore, funds are selected, with an eye to retaining diversity within the Chelsea Core i.e. not having too many funds from one provider.

Which funds go into the EasyISAs?

There are five different portfolios, which cover various different options with regard to risk rating, income requirement etc. They consist of six funds with an equal split. We have chosen six funds as this gives a reasonable amount of diversification and splitting the ISA allowance across a greater number of funds would result in having too little invested in each fund.

Funds are chosen from the Selection list and Risk Ratings carefully scrutinised to make sure that they correspond with the overall risk of the portfolio e.g. lower-risk funds are chosen for the Cautious EasyISA. Funds are selected to give investors broad market/asset class coverage.

They are reviewed for each new edition of Viewpoint and as few alterations as possible are made. However, where it is felt that a fund needs replacing, a like-for-like fund will be chosen as a replacement from the Selection list.

Which funds are selected for the Junior EasyISA?

These three portfolios are split just three ways, due to the smaller amount of money being invested. Again funds are chosen from the Selection list which give broad market coverage and correspond to the relevant risk profile of the portfolio.

How often do we review our research tables?

We review our tables five times per year – three times/year when our Viewpoint magazine goes to print and twice/year when we produce Fund Review. However, funds may be removed and portfolios altered between these times if a fund manager departs or the process changes.

How often do we interview fund mangers?

Many of the managers on our Selection have been there for a number of years and we are quite familiar with their process. We keep up-to-date with the funds via teleconferences and fund updates. Then we generally have an annual meeting with the manager to chat through what's been happening in the portfolio and satisfy ourselves that the fund is still on track. Fund manager meetings give us a good opportunity to discuss their asset class or the region in which they invest and thereby helps us to build a picture of how professional investors view the market's prospects.

What happens if a fund underperforms?

We will meet with the manager to assess the reasons for its underperformance: is the investment style of the fund out of favour; is there a stock-specific issue; has the fund become too large etc. If we are convinced that the issue was temporary, the fund will remain on the panel. However, if we believe that the issues remain and look unlikely to be corrected, we will remove it from our research tables. We are not infallible - occasionally when we believe that a manager's performance will improve it doesn't and so our hard and fast rule is that it is automatically downgraded after three years of poor performance.

Why are there some poorly-performing funds on our buy lists?

We try to find the best funds in their sector, so that you can choose the funds you wish to invest in, once we have narrowed down the universe for you. However, it doesn't mean that we think that that sector will outperform. As we don't give advice, we take a generic view on which funds in a sector we prefer rather than taking a view that a certain sector will do well. Our investors make their own investment decisions and, so they will have differing views on where they wish to invest. For instance, gold funds have underperformed in recent years, but a couple remain on our buy list for those investors who are looking for a gold fund.