The funds are risk assessed and also allow asset allocations to be altered over time to mitigate risk for clients.
Defaqto says the guide, produced in conjunction with Prudential, will help advisers to understand how risk bound funds can be rated from both a quality and suitability point of view
The guide enables advisers to:
• Identify the different ways in which the multi-asset fund universe can be broken down
• Understand what risk bound multi-asset funds are, how they work, how they can be used and how their sub-set risk targeted market has grown over the last few years
• Understand how risk bound funds can be rated from both a quality and suitability point of view
The funds exist as ‘families’ – normally four or five funds run by the same fund management team - and following the same investment process but with expected return and risk for each fund increasing across the family.
Risk targeted funds aim to maintain a risk level, or match a specific profile, over time. Doing this successfully requires the fund to adapt to market movements by adjusting the asset allocation.
Even with the volatility of the market, the risk profile of a risk bound fund should remain fairly consistent, enabling advisers to align the risk attitude of their clients to the funds, says Defaqto.
Pan Andreas, head of insight for funds and DFM at Defaqto, said: “For the investor, the benefit of these types of funds is their simplicity, as it is possible for a client to invest in the same family of funds throughout their investment lifecycle.
“However, there can be significant differences in structure, process and other features across the various risk bound fund families in the market, so due diligence is still very important – such funds need to be monitored to ensure that they are meeting their client’s aims and objectives on an ongoing basis, as with any other fund.”
“We designed this guide to help advisers identify the factors to consider in their advice process and how to mitigate some of the issues and risks involved.”
The guide, available from Defaqto, is accredited by the CII/PFS and CISI for up to 60 minutes of structured CPD.