It’s hard to believe that it was only in 2014 when voluntary health star ratings were rolled out across products in New Zealand supermarkets. It now seems commonplace to have a star rating on the front of packaged food, allowing consumers to gauge how healthy a product is compared to the one next to it.

The rating is a simple quantitative score, weighing up the negatives of saturated fat, sugar and salt relative to the positives like fibre, protein, fruits and vegetables. Details of the ingredients can be found on the label, but the health star rating simplifies choice with an overall score on a scale of one to five: the more stars, the healthier the product. It seems intuitive – until it’s not.

In 2015, a cereal brand increased its rating from two stars to four stars with a new formula, but the product still contained over 25% sugar. And a chocolate powder drink initially calculated 4.5 stars based on an “as prepared” basis – with skim milk. They later removed the rating from the packaging. On its own the rating would have been 1.5 stars.

Maybe a simple rating system leaves some stones unturned? Maybe a healthy diet requires a more detailed analysis of the ingredients? 

Like the health star ratings, some investors in New Zealand rely on simple rating systems to rank and justify the inclusion of investment managers in portfolios. Often these ratings are purely quantitative scores weighing up the negative numbers of historical risk and cost relative to the positive numbers of historical returns. But just like the health star ratings, it begs the question: is this enough for a healthy investment experience? Looking at past performance and risk numbers could have led you straight into Bernie Madoff’s ponzi scheme or into the massive collapse of Long Term Capital Management.

So when we designed our manager research process, we committed ourselves to, in line with our investment belief, understand the ingredients. We have to investigate the qualitative aspects inside the investment manager to provide additional colour on what really goes on inside a product (click below to learn more).

We believe this is important in order to increase the likelihood of investment success. You can’t simply look at the product label (i.e., the fund marketing material) and past performance, you need to understand your manager inside out to have a healthy experience.

Best to avoid sugar highs that are short-lived. Focus on including the best ingredients in your investment portfolio.