How reliable are Aviva's "Risk Levels"?

ScreamingLordCrutch

The succinct question is - Aviva has risk levels on their Pension Funds of 1 to 7 out of 7 - just how reliable are their ratings?

Some background. I have a £300,000 DC pension in various funds and looking to retire in 5 years. 70% of the total is spread in 6/7 rated funds, the rest in 3/7 bonds.

I chose some decent funds as the 6/7 ones have gone up nicely - for example the biggest one (35%) is in Blackrock US Equity tracker which is up 27% this year, and very solid over the last 3/5/10 years too. The perceived wisdom is to move to a less risky portfolio as I get towards R-Day, although as I will probably go into drawdown I will stay invested. I was thinking of moving to 3/4/5 out of 7 funds instead, but, as this is actually a measurable variable, has anyone ever measured how Aviva's risk ratings stack up?

Some further info - I will probably change the funds for future payments only and leave the current pot where it is.

[Deleted User]

Their risk rating is explained here: https://www.aviva.co.uk/retirement/fund-centre/investment-funds/risk-ratings/

Its “reliable” in a sense that the numbers on the left mean what it says in the right.  I don’t see any meaningful  difference between 5 and 6 but otherwise its clear. 

The term “risk” is misleading because funds in category 1 are very “risky” in a sense that you are guaranteed to lose purchasing power. “Volatility” is more appropriate for their scale. 

Typically, young investors should be 100% in stocks (5, 6, 7). As you get close to retirement, you should get some bonds while keeping stocks.  So, don’t move out from 6 and 7 but decide what percentage you need in bonds.  60/40 is a standard “balanced” portfolio meaning 60% in 5 to 7 and 40% in 1 to 3.  Personally I like my bonds to be of high quality or, preferably, government. That would rule out 3. 

ScreamingLordCrutch

Thanks for that.

I did read their descriptions but that's more of an opinion of the fund manager or Aviva's investment manager.

I'm wondering if anyone has ever done a quantitative analysis on Aviva (or anyone else) on how their ratings match real world results. For example I'd expect their 7/7 funds to have been very volatile over the last 10/20 years and their 1 to have crept up at a very small percentage but never negative gains. 

I'm naturally cynical about ratings ever since S&P and Micropal rated Equitable Life as their top AAA+ level and I started my first pension on that basis...

cfw1994

Nope, never done deep analysis….

….but after abut 20yrs monitoring them reasonably closely, I’m comfortable with the ‘higher risk’ (ie, higher volatility) of the 6s & 7s….they fell more steeply but climbed back more rapidly last year & far exceeded the ‘lower risk’ gilts and pre-retirement fixed interest I had.
Did spend time reading fact the early days to pick some, & have done some since.  

Of course, that mostly looks at past performance, & we all know the future is uncertain….but since nobody invented the crystal ball yet…..
From a ~50:50 split, I now have 80% in the higher ones, & don’t plan to lower that.  I *hope* to have 30+ years without a monthly salary ahead, so need some growth over that term

Caveat: I do have 2 small DB schemes kicking in in 3 & 8 years, & fully funded SPs here….& enough cash (PBs, ISAs) to allow me to stop drawing down if we entered a lengthy downturn….

[Deleted User]

This is different from rating bonds or debt. Aviva ratings simply state what each fund contains. Easy to check.  A package which says “milk” might have radioactive waste inside but I would trust the supermarket.  

If you want empirical volatility measurements, go to Trustnet. Look under “ratio information”. This fund has Aviva risk category 6 (just based on the title). https://www.trustnet.com/factsheets/n/cu12/aviva-international-equity-cu

dunstonh

Every single risk profile out there is based on assumptions and calculations and has quirks to some degree.   

If you took two 1-10 scales from two different risk measurement companies you would find funds in different risk levels.  Also, one company could have 1 = cash whereas the other could have 1= lowest risk unit linked fund.    And 10 could be highest overall risk rating (including regulated investments and niche) where the other could have 10 as the higher risk regulated unit linked fund.

Aviva's consumer option is simplified and covers basic options.  There isn't much scope for them to get it wrong.