VLS Risk Ratings

Aidanmc

The VLS 80% risk rating is classed as a 4......I would have thought as an aggressive allocation it would be more a 5 risk rating?

MK62

They use the Synthetic Risk Reward Indicator rating, which measures volatility on a scale of 1-7, with 7 being for the highest "risk" funds.
Third party observers, such as Moningstar or Trustnet might use a different scale or method of rating the risk........or may just place it in the "medium to high" bracket.

Alexland

I find these 1-7 indicators completely useless. For someone investing long term a 'risk' 5 fund may be less risk than someone investing short term in a 'risk' 4 fund. The fund you chose is just part of the consideration of the risk you are taking. I am more interested in understanding the profile of volatility including the range of likely outcomes over my expected investment period.

MK62

Many of the currently popular funds have a limited history....LS funds only have about 8 years for instance (though with a bit of effort you can create a pretty reasonable approximation of what the history would have been....far more difficult for some other funds).....but many consumers want an easy comparator between funds and I believe the regulator stipulates that fund houses have to classify the "risk" on their funds in an easy to understand manner.......but its often not that easy to fully explain something with a number.....still, its probably better than nothing.

I'd expect most on here will be likely to research potential funds more in depth than just looking at the risk number though....

Albermarle

Normally funds heavy in equities are classed as 5 ( out of 7) so the OP has a point .

dunstonh

Aidanmc wrote: »

The VLS 80% risk rating is classed as a 4......I would have thought as an aggressive allocation it would be more a 5 risk rating?

Forget the 1-7 KIID risk scores as they are flawed and no-one uses them.

VLS are actually fluid in their risk profile. As they are returns focused funds and not risk targetted, they actually move around the risk profiles over time. That may be fine if you are looking at the higher end of risk scale with VLS but if you are looking at the lower end, then VLS becomes less suitable.

poppy10_2

Alexland wrote: »

I find these 1-7 indicators completely useless.

Yeah, the ratings are pretty worthless. Until recently Woodford's Patient Capital Trust was rated as a 3 - lower than many bond-only funds, despite WPCT basically being a venture capital fund without the VCT tax breaks, stuffed full of with dodgy unquoted scam companies like Industrial Heat (trying to break the laws of physics with cold fusion).

Thrugelmir

poppy10 wrote: »

Yeah, the ratings are pretty worthless. Until recently Woodford's Patient Capital Trust was rated as a 3 - lower than many bond-only funds, despite WPCT basically being a venture capital fund without the VCT tax breaks, stuffed full of with dodgy unquoted scam companies like Industrial Heat (trying to break the laws of physics with cold fusion).

Amazon was a dodgy company once upon a time. Would never have of even come into existance if one of it's early stage funding rounds hadn't of just scraped over the line. Any Company could likewise suffer it's own version of Deepwater Horizon. Risk comes in many many forms.

poppy10_2

Thrugelmir wrote: »

Amazon was a dodgy company once upon a time. Would never have of even come into existance if one of it's early stage funding rounds hadn't of just scraped over the line. Any Company could likewise suffer it's own version of Deepwater Horizon. Risk comes in many many forms.

Amazon was indeed a dodgy company once upon a time. As was Pets.com, webvan, letsbuyit.com, mySpace, Geocities and any number of fellow companies have fallen by the wayside. Pointing out one success doesn't make the venture any less risky. That risk may be a price worth paying for some for the potential rewards if a bet pays off, but WPCT shouldn't be rated the same risk level as a bond-only fund

Thrugelmir

poppy10 wrote: »

shouldn't be rated the same risk level as a bond-only fund

What type of bonds? Bonds can be far from having a guaranteed value.