The Credo FP Mapping Model reveals strengths and weaknesses in a your product line. It also reveals strengths and weaknesses in your sales and marketing efforts. It is used to develop strategies and it is used to assess the results of tactical initiatives. It is also used as competitive intelligence, to help you identify holes in the offerings of other companies.

Credos FairShare for Performance (FP) Mapping Analyses compare:

  • The financial performance of a set of mutual funds with;
  • Whether or not the mapped funds are gaining or losing market share within their respective asset categories.

Credos FP Maps generally present either a single companys portfolio of funds or the funds within a single asset category. Each Credo brief therefore revolves around a single map.

The horizontal axis of a Credo FP Map (i.e., left to right in the map) represents gains or losses in market share within the funds specific asset category. Funds that reside to the left of the origin lost market share within the asset category over the period being considered; funds to the right of the origin gained market share within their asset category over the period being considered.

The vertical axis represents financial returns. Funds above the origin delivered better than average returns within their asset category over the period being considered. Funds that fall below the origin delivered lower than average returns within their asset category, again, over the period being considered.

All else being equal, if a fund has above average returns over time, it should gain market share. Conversely, if it has below average returns, it should lose market share. If this postulate is true, then mutual funds mapped in Credos FP Maps should align along the diagonal that runs from the bottom left of this map – where poor performance is met with losses in market share – to the top right of the map – where above average performance is met with gains in market share. Credo has found that this is seldom the case. There is a weaker relationship between performance and market share changes than one might expect.

It is important to note, therefore, that funds that fall above the diagonal are being undersold for the performance that they are delivering while funds below the diagonal are being oversold for the performance that they are delivering. The Credo FP Map reveals that few mutual funds sit where one might expect them to be, i.e., along the diagonal.

Credo briefs discuss funds that fall:
Far enough from the mean performance within their asset class (either above or below this mean); or,

Far enough away from the mean with respect to market share gains or losses to warrant their classification as exceptional funds.

These exceptional funds are categorized as:

FUNDS THAT MET EXPECTATIONS: These are funds that “fall on the map’s diagonal”.

UNDERSOLD FUNDS: These are funds that have been undersold for the level of performance that they deliver.

OVERSOLD FUNDS: These are funds that have garnered more in sales than our performance correction model indicates the fund should have had.

For information about Credos more comprehensive FairShare for Performance analysis, contact Credo Consulting Inc., tel. 905.919.1926.

Key Findings In this Bulletin:

  • Credo’s statistical modeling shows that Scotia’s brand and strong distribution system are driving tremendous value for the company.
  • Scotia’s market share gains are not justified by the performance that its products are delivering. Credo attributes these gains to effective brand management, sales and marketing as well as a strong distribution system.

FairShare for Performance Analysis Assessing the Value of Branding, Marketing and Sales Efforts

Credo’s FairShare for Performance (FP) Mapping Analysis compares the financial performance of a set of mutual funds with whether or not the mapped funds are gaining or losing market share within their respective asset categories. These maps generally present either a single company’s portfolio of funds or the funds within a single asset category. One such map is presented in Figure 1 below.

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The horizontal axis (i.e., left to right in the map) represents gains or losses in market share within the fund’s specific asset category. Funds that fall to the left of the origin are have been losing market share within the asset category over the last three months; funds to the right of the origin have been gaining market share within their asset category over the last three months.

The vertical axis represents financial returns. Funds that are above the origin delivered better than average returns within their asset category over the last three years. Funds that fall below the origin delivered lower than average 3‐year returns, again, within their asset category.

All else being equal, if a fund has above average returns over time, it should gain market share. Conversely, if it has below average returns, it should lose market share. If this postulate is true, then mutual funds mapped in Credo’s FP Maps should align along the diagonal that runs from the bottom left of this map – where poor performance is met with losses in market share – to the top right of the map – where above average performance is met with gains in market share. Credo has found that this is seldom the case. There is a weaker relationship between performance and market share changes than one might expect.

It is important to note, therefore, that funds that fall above the diagonal are being undersold for the perform‐ ance that they are delivering while funds below the diagonal are being oversold for the performance that they are delivering. The Credo FP Map reveals that few of this company’s funds are where one might “expect” them to be, i.e., along the diagonal.

The map shows that many of Scotia’s funds are gaining market share despite having returns that would be characterized as mediocre at best. Some of these funds, however, are being undersold while others are being oversold for the performance that they deliver.

Figure 1 shows Scotia’s portfolio of approximately 35 mutual funds within Credo’s FP Map framework. It shows that 7 of the company’s funds fall:

(1) Far enough from the mean performance within their asset class (either above or below this mean); or,

(2) Far enough away from the mean with respect to market share gains or losses to warrant their classification as exceptional funds.

These exceptional funds are the subject of this brief.

FUNDS THAT MET EXPECTATIONS: None of Scotia’s exceptional funds met our model’s expectations. This is to say that none of Scotia’s exceptional funds “fell on the map’s diagonal.”

UNDERSOLD FUNDS: Based on Credo’s modeling, Scotia had no exceptional funds that were undersold for the level of performance that they delivered.

OVERSOLD FUNDS: The Credo FP Map shows clearly that all of Scotia’s 10 exceptional funds were oversold for the performance that they delivered. Each fund falls below and to the right of the diagonal. Credo’s performance correction model suggests that these funds each garnered more of their asset classes’ share of wallet in the three months that ended December 2009 than their 3‐ year performance warranted.

Fund #1, the Scotia Money Market Fund from the Canadian Money Market class sits to the extreme right within the Credo’s FP Map. This shows that it gained substantial market share within its asset class during the last three months of 2009. It generated $1,142.37mn in gross sales in the three months ending December 2009. Sitting only at the horizon, however, tells that this fund produced only mediocre 1yr returns. It was Scotia’s strongest contributor to market share growth that Scotia has been experiencing. Credo’s model suggested that it should have generated only $464.33mn in gross sales over this period. Credo infers that the $678.04mn in surplus of gross sales resulted from superior distribution and brand‐related factors such as sales, marketing and reputational dimensions. The same is the case for funds numbered 4, 5, 6 and 8. Each of these funds saw mediocre returns within its respective asset category and yet each garnered more than its FairShare of gross sales within its asset category.

Funds #2 and 3 are interesting cases, too. The Scotia Vision Aggressive 2030 Portfolio and the Scotia Vision Conservative 2030 Portfolio from the 2020+ Target Date Portfolio asset class both fell well below the average within this asset class with respect to 3yr performance. Never‐the‐less, the funds generated $0.39mn and $0.52mn in gross sales respectively while Credo’s performance correction model suggested that they should have had gross sales of ($4.01)mn and ($4.01)mn. Credo believes that the surpluses of $4.40mn and $2.53mn in gross sales resulted from Scotia’s distribution and brand advantages.

The 10 exceptional Scotia funds in the Credo FP Map are identified in Table 1 above, the map’s legend.

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Credo’s statistical analysis shows that, considering these 10 funds alone, Scotia garnered $900.62mn more in gross sales during the three months ending December 2009 than Credo’s FP modeling suggests it should have based on performance alone. These 10 funds alone achieved $1,407.25mn in gross sales. But, considering their performance over the preceding year, Credo’s performance‐ correction model tells that this set of funds should have achieved gross sales of only $506.63mn. Furthermore, it shows that more than 3/4 of the performance‐adjusted gross sales surplus was attributable to the Scotia Money Market Fund.

Solid contributors to Scotia’s market share gains in the last few months of 2009 included #8, the Scotia Innova Balanced Growth Portfolio which generated $34.36mn more in gross sales than Credo’s model says it should have, #6, the Scotia Diversified Monthly Income Fund with $51.69mn more in sales than its performance warranted and the Scotia Bond Fund, #9, which generated $94.03mn more than it should have.

The fund companies whose lunches are being eaten by these three Scotia funds are:

  • Mackenzie Cundill Canadian Balanced Fund which lost market share despite being an above average performer;
  • NexGen Canadian Balanced Growth Registered Fund which neither gained nor lost share despite its superior performance; and
  • Phillips Hager andamp; North Bond Fund which offered superior performance and yet lost market share during the three months ended December 2009.

CONCLUSION:

From this, Credo infers that Scotia’s distribution and branding — sales, marketing and reputation management — are driving a substantial portion of the company’s fund sales. As a Canadian bank with a reputation for strength and stability, Scotia garnered considerably more in terms of gross sales than was justified by the investment returns alone.

History shows that maintaining above average performance is essentially impossible. This is why companies must develop strong brands and a supportive distribution system. With 25 of the company’s 35 funds having below average 1yr returns within their respective asset categories, Credo believes that Scotia must make every effort to sustain its strong brand and support within its distribution system until the company’s performance rebounds.

Research for Wealth Management Firms

Credo Consulting is committed to working with clients in the wealth management industry. Our clients include the asset managers in the industry; mutual fund companies, banks and insurance companies. We also work with a small number of brokers and dealers.

We help our clients by providing independent, objective research consulting services. Most of Credo’s research focuses on three things: (1) brand measurement, (2) prod‐ uct development, and (3) econometrics. These help our clients with aspects of marketing management. We regularly conduct customized research projects to help our clients gain perspective on their circumstances. Some of our research is syndicated work; much of our work is customized research.

Credo’s objective guidance will help you understand how your company is performing and how it is perceived within the market. Furthermore, our work will help you establish a process for managing perceptions over time.

We provide Insights Based on Measurement for Management.

Credo’s Econometrics

Frank Hracs is Credo’s Chief Economist. He is the principal analyst and author of Credo’s monthly CMFA reporting as well as our periodic bulletins.

Before developing CMFA reporting, Frank was the Director of Currency and Credit Markets Research and Strategy for TD Securities 1998‐2001. He was Chief Economist for RBC Dominion Securities from 1988 through 1996 where he was also a member of the investment strategy committee. Before that, he was the Manager of Economic Forecasting with Coopers and Lybrand Consulting Group from 1984 through 1986 and a Senior Economist with McLeod Young Weir (now Scotia Capital Markets) from 1980 through 1984. There he was extensively involved with the development and mainte‐ nance of the company’s bond indices. From 1978‐1980, Frank was a Senior Economist with Scotiabank.

Frank Hracs has traveled to every important world financial center to update clients on Canadian economic and financial market developments. Over the years, he has been quoted frequently in the Canadian and international media.