How EV's Risk Rating Methodology Can Benefit Your Investment Solutions
May 23, 2023 10:30:00 AM
Our previous blog talked about the advantages of risk rating your investment solutions. It's a great way to improve your clients' long-term investment outcomes and make your offerings stand out in a crowded market. This blog will investigate why the EV Risk Rating Methodology is the perfect choice to enhance your investment solutions.
The benefits of using the EV Risk Rating Methodology
EV's Risk Rating Methodology offers significant benefits for asset managers and discretionary fund managers (DFMs) risk-rating their investment solutions. By using this methodology, you can position your investment products appropriately, allowing advisers to select the most suitable funds for their clients' financial objectives.
So, let’s take a closer look at the benefits in more detail:
Consistent and Robust Approach
The EV Risk Rating Methodology provides a reliable and consistent way to assess the risk of multi-asset risk-targeted funds or fund ranges. It compares the fund's growth or income objective with standard benchmarks, more accurately evaluating its risk profile.
Comprehensive Fund Coverage
With the EV Risk Rating Methodology, you have the flexibility to choose any of your funds for risk assessment. FE fundinfo's extensive fund database covers all available UK funds, and you can even include in-house managed funds by specifying their assumed asset allocation. This ensures that you have comprehensive coverage and can accurately assess the risk exposure of your funds.
Customisable Risk Scales
The EV Growth Risk Ratings and EV Income Risk Ratings offer different risk scales to match specific objectives. You can choose from three preset risk scales for growth objectives or set your own target asset allocations based on your risk profiling approach. This customisation allows for a more tailored risk assessment that aligns with an adviser's clients' goals.
Time Horizon Consideration
Different asset classes carry varying risks over different time horizons. The EV Risk Rating Methodology recognises this and lets you conduct risk assessments over any desired period, considering the investment's time horizon. This flexibility ensures a more accurate evaluation of a fund's risk profile based on its duration.
Objective Risk Measures
The EV Risk Rating Methodology uses objective risk measures to assess the risk of a fund or portfolio. It employs the standard deviation of the natural logarithm of the cumulative return, a widely recognised risk measure. By using an objective and widely accepted risk measure, you can provide transparent and easily understandable information to your investors.
Clear Risk Rating Outputs
The methodology provides clear risk rating outputs presented on a pictorial scale. Decimal risk scores are calculated and rounded to the nearest whole risk category, making it easy for investors and advisers to understand and compare the level of risk associated with a particular investment solution.
Income Risk Ratings
In addition to growth risk ratings, the EV Risk Rating Methodology also offers income risk ratings. This allows advisers to match income risk profiles to funds suitable for retirement drawdown. By considering the potential drop in sustainable income and providing quantifiable measures of downside risk, the methodology helps advisers make informed decisions regarding income-focused investment solutions.
The EV Risk Rating Methodology goes beyond risk ratings and calculates a fund's efficiency in delivering income. This allows advisers to assess a fund's relative efficiency compared to others in the same risk band. Combining risk ratings with efficiency ratings provides valuable information for fund selection and helps advisers recommend funds that align with their clients' income objectives.
The EV Risk Rating Methodology offers asset managers and DFMs a comprehensive and customisable approach to risk-rating their investment solutions. Its benefits include consistent and robust assessment, extensive fund coverage, customisable risk scales, time horizon consideration, objective risk measures, clear risk rating outputs, income risk ratings, and efficiency ratings. By utilising this methodology, you can enhance your investment offerings, stand out in the market, and deliver better long-term investment outcomes for an adviser’s clients.
How can we help?
At EV, we provide the UK's fastest-growing risk rating service in the market, boosted by the UK's most used risk profiler by advisers with their clients.