FE launches risk-targeted, multi-asset universe
Fund analysis and ratings company FE has launched a universe for risk-targeted, multi-asset funds, enabling investors to compare the burgeoning ranks of funds with risk-targeted and multi-asset strategies and to assess their returns in relation to the risk taken.
The universe will be made available to FE Analytics users from 31 March 2014.
The universe will be divided into five risk bands with funds assigned a band according to their FE Risk Scores. These scores measure the historic volatility of an investment instrument against the FTSE 100.
The FTSE 100 maintains an FE Risk Score of 100; funds that are less volatile have a lower score and vice versa, with cash scoring zero. While a fund’s position within a band is not static, to avoid excessive churn between bands, funds must fall outside the risk parameters of their current band for more than 16 weeks before being reassigned.
The five risk bands will be named:
UK RMA [Risk-targeted Multi Asset] Risk Band 1 (FE risk <30)
UK RMA Risk Band 2 (FE risk 30-50)
UK RMA Risk Band 3 (FE risk 50-70)
UK RMA Risk Band 4 (FE risk 70-85)
UK RMA Risk Band 5 (FE risk 85+)
A sixth sector called “Insufficient Track Record” will include those funds that would otherwise qualify but do not have sufficient track record to merit an FE risk score – a minimum of 18 months.
FE consulted several leading asset management groups regarding the parameters and construction of the new universe, and has identified approximately 230 funds which meet the criteria for inclusion as follows:
· Explicit risk targeting and controls to achieve on-going risk suitability for investors;
· Investment solution funds: centralised investment propositions which offer investors a one-stop-shop, where asset allocation is determined within a single mandate;
· Truly unconstrained global multi-asset funds which target the efficient frontier (this rules out traditionally managed funds with static asset class constraints);
· Funds which operate within set risk parameters and form part of a family of risk-banded funds, managed with graduated risk levels.
The risk-targeted universe will contain funds registered for sale in the UK, drawn from both UK-based and offshore investment universes. As new funds come to market, they will be assessed against the above criteria for inclusion within this new universe. FE welcomes applications from fund providers where they feel a fund family will qualify for consideration.
Michael Holland, managing director of FE, says: “Until now, advisers considering risk-targeted funds have had little objective support when making like-for-like comparisons. These funds tend to be found in a variety of sectors with no consistent common ground in terms of the assets they invest in, or investment strategy. It seemed a logical step to review this broad family of vehicles and group them in such a way that advisers can make informed decisions when judging one fund against another. We hope that this universe will become an important reference point within the risk-targeted multi asset fund selection process.”
Richard Romer-Lee, managing director of Square Mile Investment Research, says: “The implementation of RDR has led to a growth in the number of advisers seeking to out-source investment decisions. This new universe from FE will better equip advisers to demonstrate best practice by providing a mechanism for like-for-like comparisons of risk as well as performance.”
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