Fintech Startup SharingAlpha Dubbed "Morningstar Meets TripAdvisor;" Co-Founder Explains How It Works

Loves FinTech like Benzinga does? Well, you’ll probably like SharingAlpha then.

This new web tool will provide investors with a new way of selecting funds. “SharingAlpha ranks funds based on the average rating provided by Fund Selectors worldwide that formulate their rating using qualitative parameters,” a PR explained.

In a recent paper, Morningstar analysts explained why traditional rankings, which come from rating agencies, and are largely focused on historical performance, fail to identify the best-performing funds. Even the agencies admit it’s not working,” said Oren Kaplan, CEO and Co-Founder of SharingAlpha.

Conversely, ratings based on qualitative analysis, which takes into account several elements including fees, manager motivation, capacity, etc., work 70 percent of the time, the PR assured.

In addition to rating funds themselves, the platform will allow for individual raters to be ranked for their fund-picking skills. The free-to-use site currently covers 90,000 funds listed in 73 different countries.

“It’s about time that funds are ranked on the basis of parameters that have been proven to work and Fund Selectors will be judged according to their ability to add value to investors,” Mr. Kaplan added.

How SharingAlpha Works

Benzinga spoke with Oren Kaplan, who shared some details on the site’s ranking methodology.

For funds, ratings (average of the ratings issued by the Fund Selectors) will be published on a monthly basis. In the future, the best selectors will have an extra weighting.

For Fund Selectors’ ratings, SharingAlpha will compare the actual returns of the funds with the returns of the funds’ benchmarks monthly. “SharingAlpha rates the Fund Selectors using the average 'hit ratio' the Fund Selector achieved from ranking different funds,” Mr. Kaplan expounded. “For example, if the Fund Selector ranked a fund as 1 star and it ended up in the 3rd group of funds, the Fund Selector 'hit ratio' will be lower than a Fund Selector that ranked a fund as a 3 star fund that ended up in the 4th group of funds in terms of its actual performance.”

“Comparing the 'hit ratios' of the different Fund Selectors allows SharingAlpha to rate the Fund Selectors in terms of their talent in predicting fund performance.”

Fund Selectors can end up in one of 3 groups:

• Triple Alpha - Fund Selectors with top decile 'hit ratios'.
• Double Alpha - Fund Selectors with top quartile 'hit ratios'.
• Single Alpha - Fund Selectors with above average 'hit ratios'.

The identity of Fund Selectors is kept private by default, unless they decide to share their track records.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.