Assessing risk rating on Investment Trusts

saver861saver861 Forumite
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Simple one for them that's experts in these matters.

I have some policies that have been drip fed for 20 years and the policy is made up of four Investment Trust funds. I am trying to work out the risk rating for each of these but I can't seem to get the info I'm looking for - or I'm misunderstanding they way these are risk rated.

They have done well in that time but I'm now thinking about a restructure towards income generating investment. I have gone onto Morning Star and got the various info but I'm not clear on how I assess their risk rating?

Funds are:

Foreign & Colonial - ISIN GB0003466074
Murray Income Trust - ISIN GB0006111123
Scottish Mortgage - ISIN GB00BLDYK618
City of London - ISIN GB0001990497

Thanks in advance if anyone can point me in the right direction on this.
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  • masonicmasonic Forumite
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    Plug the ISIN into http://www.trustnet.com and you should get a risk score (relative to FTSE100) under 'Ratios and Analysis'.
  • saver861saver861 Forumite
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    Gotcha - cheers bro.

    Three of four have an almost identical rating, i.e. 85, 86 and 88 with the other one at 149. I was speaking with an IFA who declared all these funds were high risk!

    He would be proposing different funds for income and lower risk.

    However, my reading is that these are not particularly high risk with those ratings. Am I missing something?

    Also, having looked at the historical graph for all of these, they all have a significant drop in risk rating around November/December 2014. I'm aware the risk rating will vary but they are all consistent with this drop around then - presumably many others also - so I'm curious what was it that triggered the drop?
  • ThrugelmirThrugelmir Forumite
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    saver861 wrote: »
    They have done well in that time but I'm now thinking about a restructure towards income generating investment.

    Foreign & Colonial has raised it's dividend every year for over 40 years.
    Real insurance claim quote : -

    "Going to work at 7am this morning I drove out of my drive straight into a bus. The bus was 5 minutes early.".
  • saver861saver861 Forumite
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    Thrugelmir wrote: »
    Foreign & Colonial has raised it's dividend every year for over 40 years.

    This is what I'm starting to look at now. I've had these drip fed for 20 years and dividends reinvested so I've not taken any particular notice.

    As the hair starts to grow shorter and the tooth longer I'm looking at lowering risk and getting income :D

    I don't have enough knowledge to make such decisions without an IFA - equally though I have some knowledge sufficient to query an IFA's suggestions so that I'm comfortable on the route forward.
  • edited 1 February 2015 at 7:29AM
    masonicmasonic Forumite
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    edited 1 February 2015 at 7:29AM
    saver861 wrote: »
    However, my reading is that these are not particularly high risk with those ratings. Am I missing something?
    They are high risk relative to bonds, but probably about average compared with the typical managed fund (with the exception of the higher risk one).
    Also, having looked at the historical graph for all of these, they all have a significant drop in risk rating around November/December 2014. I'm aware the risk rating will vary but they are all consistent with this drop around then - presumably many others also - so I'm curious what was it that triggered the drop?
    Not sure where you are seeing a plot of risk grade over time, but Trustnet calculates it over 18 months, so it's possible for it to fall when a particularly volatile period for the fund crosses outside that 18 month window. I don't see anything in the performance chart over that sort of timescale that would explain it. I also haven't seen the funds in my portfolio change risk grade recently and I do tend to keep track of that.

    Rather than looking at each fund in isolation, it is better to use their portfolio tool to look at your portfolio as a whole, then look at the effect of making changes. If your portfolio constituents are not highly correlated with one another, then your overall risk is likely to be less than the sum of its parts.
  • edited 1 February 2015 at 11:32AM
    RollinghomeRollinghome Forumite
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    edited 1 February 2015 at 11:32AM
    saver861 wrote: »
    Three of four have an almost identical rating, i.e. 85, 86 and 88 with the other one at 149. I was speaking with an IFA who declared all these funds were high risk!

    He would be proposing different funds for income and lower risk.

    However, my reading is that these are not particularly high risk with those ratings. Am I missing something?

    ....I don't have enough knowledge to make such decisions without an IFA - equally though I have some knowledge sufficient to query an IFA's suggestions so that I'm comfortable on the route forward.
    As always, it depends what you're comparing with. Did he mean compared to UTs?

    The significant difference between ITs and UT is that ITs will often use gearing and that the price you pay won't be directly determined by the net asset value. Both can increase risk compared with a similar UT but that doesn't have to be the case. You can choose ITs with little or no gearing and those with a history of a stable discount/premium, or you can opt for a fund that is fundamentally more conservative.

    You need to use the tools at Trustnet mentioned by Masonic to look back at least 10 years, particularly around 2007/8 to see how they handled the crunch. You can bring up the funds, sectors and indices that interest you to compare. Of those you mention you'll see the very different risk and return patterns between Scottish Mortgage and F&C.

    I'm not sure how useful historical risk rating numbers are especially if the period used is fairly short. The methodology for FE ratings is given here.

    The Hargreaves Lansdown site has good charting to show the history of discount/premiums. There's more data on the AIC site and you should always read the latest company reports before making substantial investments.

    You'll need to decide whether now is the time keep the pedal to the floor or opt for lower risk. Jeremy Tigue the manager of F&C for 33 years recently retired and will be interesting to see the effect of that.

    If you want help from an IFA you'll need to find one with some knowledge of ITs. Most don't, as traditionally they were interested only in retail products that paid sales commission such as UT and insurance bonds and ITs were normally bought through stockbrokers. With RDR and the ending of commission that may gradually change.
  • atushatush Forumite
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    Thrugelmir wrote: »
    Foreign & Colonial has raised it's dividend every year for over 40 years.

    I think City of London has a very long/good record too?
  • saver861saver861 Forumite
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    masonic wrote: »
    They are high risk relative to bonds, but probably about average compared with the typical managed fund (with the exception of the higher risk one).

    Yes in terms of comparing against such low risk options. However, the IFA was comparing against Unit Trusts.
    masonic wrote: »
    Not sure where you are seeing a plot of risk grade over time, but Trustnet calculates it over 18 months,

    I will put the links in and if you scroll down to the Ratios and Analysis and go to Risk Score. Clicking on the score for 'This Fund' gives a historical FE Risk Score graph. They have all got a cliff edge fall around December time. There might be a simple explanation but such cliff edge things get me curious and I like to know whats behind it.

    http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=ITFRCL&univ=T

    http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=ITMUT&univ=T

    http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=ITSMT&univ=T

    http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=ITCTY&univ=T
    masonic wrote: »
    Rather than looking at each fund in isolation, it is better to use their portfolio tool to look at your portfolio as a whole, then look at the effect of making changes. If your portfolio constituents are not highly correlated with one another, then your overall risk is likely to be less than the sum of its parts.

    I set up a portfolio on there yesterday after following your link through. Now that gives me a risk rating of 87 for the whole portfolio!!! I'm not sure how its getting that given the individual scores are 85,86,88,150. I know its not an average of these but even just looking at the average it would be somewhat more than 87. So I'm a bit unclear about how its coming to some of its risk rating conclusions.
  • gadgetmindgadgetmind Forumite
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    saver861 wrote: »
    I was speaking with an IFA who declared all these funds were high risk!

    I wonder how many levels of risk the IFA recognises above "high"?

    I make a few speculative investments myself, and know people who think nothing of buying £60k worth of heavily discounted bonds in the 5th largest bank in Kazakhstan. The IFA might not survive a glance at these portfolios if they think those IT as high risk!
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • edited 1 February 2015 at 4:33PM
    masonicmasonic Forumite
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    edited 1 February 2015 at 4:33PM
    saver861 wrote: »
    Yes in terms of comparing against such low risk options. However, the IFA was comparing against Unit Trusts.
    It's all relative I suppose. Half the funds I am invested in have risk scores between 105-184, which I would say are in the high risk category. I wonder how the IFA would describe those. ;)
    I will put the links in and if you scroll down to the Ratios and Analysis and go to Risk Score. Clicking on the score for 'This Fund' gives a historical FE Risk Score graph. They have all got a cliff edge fall around December time. There might be a simple explanation but such cliff edge things get me curious and I like to know whats behind it.
    Thanks, I wasn't aware you could do that. I see a similar trend, including in my bond funds. Some seem to spike in October and fall again in January. On closer inspection, it looks like this is because the risk scores are relative to the FTSE100, which went through two big sell-offs, in mid-October and mid-December (swiftly recovering after each), that would have increased its short term volatility. Those funds that did not go through the same wild swings (which is most of them) will have scored lower in absolute terms in the recent calculations as a result. This wouldn't cause any issues when comparing the current risk scores of these funds against each other.
    I set up a portfolio on there yesterday after following your link through. Now that gives me a risk rating of 87 for the whole portfolio!!! I'm not sure how its getting that given the individual scores are 85,86,88,150. I know its not an average of these but even just looking at the average it would be somewhat more than 87. So I'm a bit unclear about how its coming to some of its risk rating conclusions.
    This is to be expected - it's the effect of diversification. When you put together a several holdings that rise and fall independently of one another, then under some market conditions a few will rise and a few will fall. There will be some cancelling out of these ups and downs, making for a smoother ride than you might expect by looking at each holding in isolation.
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