Use of FE Risk Scores

pip895

Hi I wonder if anyone on here uses the FE risk scores to manage risk in there portfolios? I am managing the risk in a SIPP (now in Drawdown). Plugging the data into the Trustnet site gives me an overall risk score of under 45 - simply using weighted averaging on a spread sheet gave me a score of around 75.

I know the normal method to manage my risk by having a well balanced portfolio including bonds & gilts - unfortunately in current conditions I have lost faith in bonds/gilts & gold for that matter. Absolute funds, as an alternative are a mixed bag to say the least!!

I'm trying to get some reassurance that I'm not taking unreasonable risk - I have a mixed portfolio with around 20 funds. I have analysed it and appear to have no more than 0.5% in any one company so pretty diversified that way. Performance has also been good comfortably beating the FTSE 100 index over the last couple of years.


Any thoughts?

Debt_Free_Chick

The FE risk score is only measuring volatility risk compared with the FTSE 100. You have other risks too, if you're in drawdown - you need a certain return in order to keep your income at a steady rate (unless you can accept flucutating income) and, in addition, inflation risk as you're real income will decrease, unless it rises at least in line with inflation.

As is always the case with these considerations, there are usually a number of interlinked, complex risks. Beating the increase in the FTSE100 in the future - even if that were more than likely - will not necessarily keep your income at the rate you want/need it to be.

See what others say ....

bigadaj

The fe risk score is also a single view on risk, as dfc says, against a specific index.

You might be better listing or giving general details about the funds you are invested in, a score of 45 is pretty low and I think only my property fund is in this area currently.

Many people are wary of gilts currently, either through the potential for capital loss or low returns or both. To me international diversification is a big element, my emerging markets have takena. Thumping recently but balanced by us funds.

pip895

The score is very low - thinking about it, it incudes the funds in my ISA as well as the SIPP -similar range of risk - overlapping funds. That low figure only comes in combination - not sure how Trustnet come up with it. The funds I have, range from 35 to about 125 and the average is 73. I have sold out of most of my bonds and all the gilts I also recently sold my US funds (concerns about value) and I also have a bit of cash.

Hear are the funds I have:- Aviva Inv High Yield Bond, Baillie Gifford Japanese, Cazenove Absolute UK Dynamic, Cazenove UK Smaller Companies, CF Miton UK Multi Cap Income, CF Miton UK Smaller Companies, CF Odey Continental European, CFIC Octopus UK Micro Cap, First State Global Listed infrastructure, Henderson European Absolute return, IM Argonaut European Absolute, IP European High Income, Legg Mason Global Equity Income, Matthews Asia Small Companies, MFM Techinvest Technology Acc., Premier ConBrio Sanford DeLand UK buffettology, Premier Pan European property, Unicorn Free spirit, Unicorn Mastertrust, Unicorn UK Income, + cash (similar amounts in all funds + cash)

bigadaj

I think the portfolio score is lowered by the range of funds and the lack of overlap, I've noticed this on my portfolio but it's not as dramatic as I have a.relative uk and larger companies bias which means that some footsie stocks make up 1% or more of my investments.

Some might criticise a perceive lack of investment focus, though to me diversification is very useful and valuable, I'd be more concerned about costs looking at the funds detaild.

pip895

Currently only one fund has a £1/month platform charge and all but one were free to buy without spread. The annual charges range from 1 to 1.5% but if they don't earn there keep they will be out so I'm not to concerned about those.
All this might change of course - still waiting for HL to announce their charges.


I always check the performance graphs of new purchase against the others I already have - and look for a clear distinction. It is surprising how often I have rejected funds apparently from completely different sectors because they move in unison sometimes over several years and different market corrections.

grizzly1911

pip895 wrote: »

The score is very low - thinking about it, it incudes the funds in my ISA as well as the SIPP -similar range of risk - overlapping funds. That low figure only comes in combination - not sure how Trustnet come up with it. The funds I have, range from 35 to about 125 and the average is 73. I have sold out of most of my bonds and all the gilts I also recently sold my US funds (concerns about value) and I also have a bit of cash.

Hear are the funds I have:- Aviva Inv High Yield Bond, Baillie Gifford Japanese, Cazenove Absolute UK Dynamic, Cazenove UK Smaller Companies, CF Miton UK Multi Cap Income, CF Miton UK Smaller Companies, CF Odey Continental European, CFIC Octopus UK Micro Cap, First State Global Listed infrastructure, Henderson European Absolute return, IM Argonaut European Absolute, IP European High Income, Legg Mason Global Equity Income, Matthews Asia Small Companies, MFM Techinvest Technology Acc., Premier ConBrio Sanford DeLand UK buffettology, Premier Pan European property, Unicorn Free spirit, Unicorn Mastertrust, Unicorn UK Income, + cash (similar amounts in all funds + cash)

I have a similarly diverse array.

Mine scored originally around 59 but having just increased a couple and added a couple of new ones (at around the 70 mark) it is now not giving me a score. Maybe I have overloaded it. The adjustments I have just made are low impact in terms of weighted average.

Doing a weighted average against the individual scores comes in around 73. It is roughly 75/25 in favour of equites and with a high of 100 and a low of 25.

pip895

grizzly1911 wrote: »

Mine scored originally around 59 but having just increased a couple and added a couple of new ones (at around the 70 mark) it is now not giving me a score.

Have you looked at the "Key ratios & performance" Tab or just the "Analyse risk exposure" Tab - I get a score in the former but nothing in the latter. Like you I calculate a simple weighted average and I use that to manage volatility risk.

grizzly1911

pip895 wrote: »

Have you looked at the "Key ratios & performance" Tab or just the "Analyse risk exposure" Tab - I get a score in the former but nothing in the latter. Like you I calculate a simple weighted average and I use that to manage volatility risk.

I was looking at ARE yesterday. Thank you for reminding me about KRP...doh.

The Trustnet "average" is 56.

Interestingly the figures used by comparison sites vary for returns. Citywide was showing Kames High Yield Bond at around 30%/3years and Fidelity Money builder Income at around 20%. Trustnet suggests the other way round......