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Lipper provides first analysis of SRRIs

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Lipper has released a report providing the first analysis of Synthetic Risk and Reward Indicators (SRRIs) across the European funds industry. The report looks at the proportion of European funds in the different risk bandings overall and by sector, as well as a closer look at funds in the UK.

As part of the new Key Investor Information Document (KIID), all UCITS investors will be provided with an SRRI to indicate the overall risk/reward profile of a fund (with 1 representing the lowest level of volatility and 7, the highest).  
 
Across Europe, the vast majority of funds within the two main asset types sit within just two SRRI bandings each. Some 94.5% of equity funds fall within SRRI bandings 6 or 7 (58.8% and 35.7% respectively).  For bond funds, 74.4% sit in bandings 3 or 4. 
 
Using Lipper Global Classifications to drill down further, within equity funds, there is a distinct contrast between UK equities (93.1% in band 6) and Emerging Market or Asia Pacific equities (73.2% and 66.5% respectively in band 7).
 
Emerging market bond funds fall mainly in SRRI bands 4 (29.7%) and 5 (66.9%) – unlike any other classifications featured in the report. If anything, these funds exhibit an aggregate risk profile more akin to Mixed Balanced funds.
 
In the UK, equity funds are more commonly to be found in band 6 than for the wider European industry, with seven IMA equity sectors having between 86.0% and 97.9% of their funds in this band.
 
A greater proportion of funds in the IMA’s Europe ex-UK sector are ranked 7 (38.5%) than most other of the other major equity sectors, most likely reflecting market volatility in recent years. This example does raise the question of what is the most appropriate way to measure risk for retail investors.
 
Ed Moisson (pictured), Lipper’s Head of UK and Cross-Border Research, says: “Beyond giving retail investors clarification that bond funds typically behave differently from equity funds, in SRRI terms, it remains helpful for prospective investors to know whether a fund they are considering fits within these norms.”
 
Over 21,400 funds/share classes are covered by the current report, with calculations based on the five year period ending 31 March 2012. The universe of funds analysed includes all open-ended mutual funds and ETFs in 18 European domiciles.  Funds do not have to be UCITS to be included in the current analysis.

 

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