Informed and effective risk management

For many investors, the word risk can sound disconcerting. When it comes to investing, you need to take a degree of risk to aim to achieve your goals.

The potential for higher returns usually involves taking more risk. Taking more risk means you are also exposed to the potential for higher losses as there can be no guarantee of higher returns. If you are unsure of the appropriate amount of risk that you should be taking we recommend you seek financial advice.

Designed to suit different client risk profiles

Our multi-asset fund (MAF) range is designed to suit the differing attitudes to risk of a diverse range of investors, starting with the lowest risk fund in the range, MAF I, and ending with the highest risk fund in the range, MAF V.

Each fund aims to deliver the highest return for the level of risk taken. The management of risk is an important part of how we invest your money. We aim to take a level of risk in line with the funds' objectives.

We build our portfolios by:

  • Analysing different scenarios and stress-testing every idea and assumption
  • Applying our extensive experience of investing as well as applying common sense before making any decisions

This helps us to try to deliver consistent outcomes where you may be rewarded for taking additional risk rather than simply placing your money in a cash savings account.

Important information

It is important to remember that unlike cash accounts, your capital is at risk. You may not get back the original amount invested. Cash savings accounts pay interest on money deposited and access to your money may be easier.

How do we manage risk?

For each fund in the range, we target a level of volatility that is proportional to the volatility of global equity markets, with that proportion varying according to the risk profile of the fund. We call this the relative volatility target of each fund.

Further information about our typical investor profiles can be found in the Prospectus.

Table showing MAF volatility ranges
The actual volatility figures of the funds will move up and down relative to market conditions. If market volatility increases, the volatility of the funds will rise accordingly. Please note: The volatility of the funds and Global equity volatility is calculated over a rolling three-year period and based on monthly sampled data. The first three-year period began on 30 November 2017 and will run to 30 November 2020.

Upper and lower bands

As an additional risk control we have also set upper and lower bands around these relative volatility targets. These bands give us the flexibility to achieve the funds’ investment objectives, whilst ensuring the funds remain aligned to their risk profiles.

Differing market environments

On occasion, market conditions may cause the funds to operate outside their upper and lower risk bands. If this happens we will exercise professional judgment in determining how quickly to reduce or increase the level of risk being taken in order to bring the funds back within their respective risk bands.

In some market conditions we may want to increase the level of risk to take advantage of investment opportunities in the market. Conversely, sometimes we may want to reduce risk to protect your portfolio when markets are more challenging.

Jargon buster

Volatility of global equity markets: The measure of movement of share prices worldwide. The index we use to represent global equities is the MSCI® All Country World Index GBP.

Relative volatility: Volatility can be measured in relative terms. This means it is relative to the volatility of something else.

Volatility: The extent to which a fund’s share price fluctuates over time.

Benchmark information

The Funds aim to remain within a defined risk range consistent with their individual risk profile – measured against the volatility of Global Equities. Volatility measures how much the returns of the Fund fluctuate, and it is an indicator of the level of risk taken by the Investment Manager.

MAF Fund I is expected to operate within a range of 12% to 28% of the volatility of Global Equities, with an average volatility of 20%. There may be times when it operates outside of this range.

MAF Fund II is expected to operate within a range of 37% to 53% of the volatility of Global Equities, with an average volatility of 45%. There may be times when it operates outside of this range.

MAF Fund III is expected to operate within a range of 52% to 68% of the volatility of Global Equities, with an average volatility of 60%. There may be times when it operates outside of this range.

MAF Fund IV is expected to operate within a range of 67% to 83% of the volatility of Global Equities, with an average volatility of 75%. There may be times when it operates outside of this range.

MAF Fund V is expected to operate within a range of 92% to 108% of the volatility of Global Equities, with an average volatility of 100%. There may be times when it operates outside of this range.

The index we use to represent Global Equities is the MSCI® All Country World Index GBP (the “Index”)*. The Fund’s volatility is compared against the Index’s monthly volatility, annualised, over 3-year rolling periods.

*The MSCI® All Country World Index comprises large and medium sized companies, as determined by their market capitalisation (total market value of a company's outstanding shares), from both developed and emerging markets, and the Index is designed to provide a broad measure of global equity market performance.

The Index has been selected as a benchmark due to the broad range of companies that it represents, and it is therefore an appropriate measure of the volatility of Global Equities.

Disclaimer

MSCI All Country World Index GBP 

MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein.

The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products.

This web page is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

28658 – 31/12/2020