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Fund risk value

The fund risk value is a standard risk indicator from 1 (lowest) to 7 (highest) set according to the fund’s historical price fluctuation (volatility). The risk value is mandated by CMB regulation so investors can quickly compare risk levels across funds.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Frequently asked questions

Key points

  • It appears in the fund’s key information document and is computed from the annualised standard deviation of weekly returns.
  • Higher risk value funds carry a larger loss risk along with higher return potential.
  • the risk value is based on past data; real risk in a crisis can be higher.

Formula / calculation

1 = annual volatility 0–0.5%; 2 = 0.5–2%; 3 = 2–5%; 4 = 5–10%; 5 = 10–15%; 6 = 15–25%; 7 = above 25%. Money market funds sit at 1–2, bond funds at 2–4 and equity funds usually at 5–7.

Interpretation

Higher risk value funds carry a larger loss risk along with higher return potential. Investors should match the risk value to their own risk profile and think of the portfolio’s overall risk value as a weighted average.

Pitfalls

the risk value is based on past data; real risk in a crisis can be higher. It does not fully reflect credit, liquidity and FX risk. Funds with the same risk value can hold very different assets.

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Frequently asked questions

The fund risk value is a standard risk indicator from 1 (lowest) to 7 (highest) set according to the fund’s historical price fluctuation (volatility).

1 = annual volatility 0–0.5%; 2 = 0.5–2%; 3 = 2–5%; 4 = 5–10%; 5 = 10–15%; 6 = 15–25%; 7 = above 25%. Money market funds sit at 1–2, bond funds at 2–4 and equity funds usually at 5–7.

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