The key considerations for risk bound funds

23 October 2019

In recent years, with the market volatility we have seen, there has been a shift in investors’ primary focus from being on return, to being on risk. It is therefore increasingly important to remain informed of the key considerations surrounding risk bound funds.

An adviser making decisions about which investment proposition is suitable for their client’s needs will have undergone a lengthy process of discovery with regard to their client. Specifically, they will look at the client’s objectives and their attitude to risk.

An important tool in managing clients’ risk appetites

With this in mind, Defaqto has produced a CPD-accredited guide, which provides an overview of key considerations surrounding risk bound funds, including the impact of pertinent regulatory developments, and a breakdown of the multi-asset fund universe.

Risk bound funds remain an important tool in managing clients’ risk appetites (and you can read more about the basics of risk bound fund families in one of our previous articles) – structured most often as a family of four or five funds and therefore allowing investors to move up and down the risk scale according to life stage or personal circumstances.

Our quality rating of these funds is based on our Diamond Rating system, underpinned by substantive data-numeric analysis (DNA). The Diamond Rating system includes the “risk shape” of various funds, consisting of three different proprietary measures of how the funds in the family relate to one another: the spread of risk across the range, consistency in risk changes when moving up or down the range and conformity of the funds in the range to the expected positive correlation between risk and return.

Simplicity and flexibility

“Advisers know that the key to ensuring good outcomes for their clients is thorough research and due diligence – both in assessing the risk appetite of the client and the suitability of products for that appetite. We believe that offering the clear, concise and impartial analysis contained in this guide is key in ensuring the best possible outcome in this process. Risk bound funds offer simplicity and flexibility that may be a good fit for investors, allowing clients to invest in the same family of funds throughout their investment lifecycle” says Pan Andreas, Head of Insight (Funds and DFM).

“However, there can be significant differences in structure, process and other features across the various risk bound fund families in the market – further underlining the importance of due diligence and research. Our guide is designed to make that process as simple as possible for advisers, ensuring they’re best placed to offer the insight their clients need” he adds.

Want to read more?

For more details, and to compare the schemes for yourself, download CPD accredited The benefits to advisers and their clients of using risk bound fund families document for free here.

You might be also interested in reading our article Risk Bound Fund Families – a forensic examination.

For other Insight articles go here.

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