Analyse and assess
What can advisers do to more accurately measure risk and expected volatility in a fund before assessing whether it is right for clients?
Mr Patel suggests: “Advisers can use statistical measures of risk and volatility such as Alpha, Beta, Sharpe ratio and standard deviation.
“Multi-asset funds vary in comparison to one another – for example, passive and active multi-asset fund versions.
“The importance of the statistical measures are to ensure suitability against client-agreed risk profiles and capacity for loss.”
Mr Coop acknowledges: “Advisers should look out for managers who favour assets that offer better value, focus on fundamental research to identify risks of a fall in cash flows, and hold assets which have different drivers of risk and return.”
For Ben Seager-Scott, chief investment strategist at Tilney Group: “Most multi-asset funds should be able to provide some level of analysis comparing risk and return over different time periods, and this can be used to assess risk-adjusted return – I’d suggest both volatility and drawdown are useful metrics for risk.”
He notes: “A qualitative assessment of a portfolio can also be informative to see which types of assets are included and how their correlations might change over time – for example, the correlation between equities and core sovereign bonds can fluctuate with the market cycle.”
eleanor.duncan@ft.com
