Investing money always means taking some risk. Even if you leave cash under a mattress, the risk is that its value can be eroded over time by rising prices. However, the more risk you take with an investment, generally there is the greater the potential for a better reward. On the other hand, the greater the potential for a bigger loss.
Risk means different things to different people, but for many it means the risk of their original investment losing value. Fund values will move up and down with investment markets, but to varying degrees. That's why we have risk ratings: to give you a good idea of the risk you are taking when you invest in our funds.
We give each of our funds a risk rating, ranging from 1 (lowest volatility) to 7 (highest volatility). These ratings reflect the potential for a fund to go up and down in value over time. We calculate our risk ratings using historical performance data and information from each fund’s investment manager(s). We review our risk ratings each year, so they may change over time.
Risk and return are linked. This means funds with a rating of 1 are less likely to lose money, but your money might not grow very much. It's also important to bear in mind the impact of charges on a fund's performance. Funds with a rating of 7 have a much higher risk of losing money, but the potential for your money to grow over the long term is higher.
These investment risk ratings are based on our interpretation of investment risk and are only meant as a guide. These levels of investment risk are not guaranteed and may change in the future. Risk tends to be associated with potentially higher volatility. The higher the risk levels, the more likely the value of a fund may go up and down from day to day.
The fund centre is kept up to date with the latest risk rating. You can find the latest risk rating for our funds on the fund centre.
Funds typically investing in assets like corporate bonds or a mix of assets where the day-to-day prices go up or down less than shares. There is still a risk that the value of your investment could fall.
The way we describe our risk ratings was updated in March 2020 and may differ from your investment literature. This does not affect the level of risk we associate to each rating.
As well as the risk ratings there are specific risks associated with investing in some funds, or types of funds. We recommend you read through these before deciding which fund(s) to invest in.
Not all of these warnings apply to each fund and there is no direct relationship between the number of fund risk warnings and the investment risk rating for a fund.
Investment is not guaranteed: The value of an investment is not guaranteed and can go down as well as up. You could get back less than you have paid in.
Specialist funds: Some funds invest only in a specific or limited range of sectors and this will be set out in the fund’s aim. These funds may carry more risk than funds that can invest across a broader range or a variety of sectors.
Suspend trading: Fund managers often have the ability, in certain circumstances, to suspend trading in their funds for as long as necessary. When this occurs, we will need to delay the ‘cashing in’ or switching of units in the relevant fund. You may not be able to access your money during this period.
Derivatives: Derivatives are financial contracts whose value is based on the prices of other assets. Most funds can invest in derivatives for the purpose of managing the fund more efficiently or reducing risk.
Some funds also use derivatives to increase potential returns, known as ‘speculation’. For those funds we apply an additional risk warning (see Risk F).
Derivatives are financial contracts whose value is based on the prices of other assets.
The fund invests in derivatives as part of its investment strategy, over and above their use for managing the fund more efficiently. Under certain circumstances, derivatives can result in large movements in the value of the fund and increase the risk profile, compared to a fund that only invests in, for example, equities. The fund may also be exposed to the risk that the company issuing the derivative may not honour their obligations, which could lead to losses.
The fund invests substantially in property funds, property shares or direct property. You should bear in mind that
• Properties are not always readily saleable and this can lead to times in which clients are unable to ‘cash in’ or switch part or all of their holding and you may not be able to access your money during this time
• Property valuations are made by independent valuers, but are ultimately subjective and a matter of judgement
• Property transaction costs are high due to legal costs, valuations and stamp duty, which will affect the fund’s returns