Would the application of the risk ratings have been a limiting factor in the portfolio or would they be used as part of the rationale behind the fund selection and articulated as a value adder on the fund research and due diligence side?
So what do we conclude from this? The answer is pretty obvious, namely that risk ratings can be a constituent element of an investment research process but they can only add value when all the other risk factors have been taken on board and evaluated when considering a fund. All investment advisers have their own particular views on how to approach fund selection and asset allocation for their client portfolios, this is for many people the differentiator that marks them out from their competitors and may form the USP for their own business.
More questions raised than answers given but very thought-provoking and should galvanise the thinking of advisers who are trying to evaluate the relative pros and cons of risk scoring and rating of funds in the multi-manager and fund of fund area, a sector now becoming perhaps more correctly referred to as flexible investment sector?
Nick McBreen is an IFA at Worldwide Financial Planning
Key Points
Most multi-manager funds are risk rated currently and on the face of it seem to offer the answer to many an adviser’s prayers
There are numerous factors that create risk for investment; interest rates, inflation, political uncertainty, currency/exchange rates
Risk ratings can be a constituent element of an investment research process but they can only add value when all the other risk factors have been taken on board
