Fund risk categories

We’ve given each of our funds a risk classification relative to the other funds in our Full Fund Range, based on a number of factors, including their objectives and how they’ve performed in the past. Our risk classifications are not relative to industry benchmarks. We regularly review these classifications, so they can change.

When new funds are added to, or existing funds removed from, our range, this could change the relative risk classification of your fund. This does not mean the absolute risk of the fund has changed, simply that its risk relative to other funds in the full range has changed.

Past performance is no guide to future performance. The value of an investment can fall as well as rise for a number of reasons, for example market and currency movements. You may get back less than originally invested.

Minimal risk: These funds have underlying investments that typically see little change in value from day to day. The fund price movements will generally be positive but could be negative, particularly in a low interest rate environment. They’re particularly suited to short-term investment where stability is the main aim. Over the long term, they’re unlikely to deliver high levels of return and their returns may not keep pace with inflation.

Low risk: These funds will typically experience small changes in day-to-day value, both positive and negative. They may keep risk down in a variety of ways, for example by holding a very broad range of investments or they may contain a narrower range of investments, but which have a short term to maturity. Over the long term they’re unlikely to deliver high levels of return and may not keep pace with inflation.

Below-average risk: These funds will generally see some change in day-to-day value, both positive and negative, and these will be larger in size than movements for a typical cash deposit. They may hold a broad range of investment types*, including equities (shares), but a significant proportion will be invested in investment types that aim to provide a reliable source of income and, with that, greater stability. They try to provide better long-term growth prospects than a cash deposit, but are lower risk than funds investing entirely in shares (equities).

Average risk: These funds invest in a broad range of investment types and will typically hold a significant proportion in equities. Their daily price movements will therefore vary from day to day, both up and down, although not usually as much as funds investing entirely in equities (shares). These movements can lead to lengthy periods of negative returns. However, over the longer term these funds would be expected to deliver significantly better growth prospects than a cash deposit.

Above-average risk: Most funds in this category invest in one investment type or geographical region, for example North American equities (shares) or global bonds. This means that investors are completely exposed to the performance of that single investment type or region. Where, for example, the North American stockmarket falls in value for whatever reason, it’s very likely that any fund invested in North American shares will also fall in value. These funds could experience lengthy periods of negative returns. By the same token, these funds can also rise in value quite significantly and have historically provided very good long term growth. Because of their narrow investment focus, they’re better suited to investors with at least five years to invest and being used in combination with other funds investing in different investment types and regions.

Higher risk: These funds invest in regions and investment types that typically see large day-to-day changes in value, both negative and positive. Again, they tend to invest in a single investment type or geographical region and these investment types (for example gold) and regions (for example emerging markets) have historically been more volatile (risky) than those in the ‘Above average risk’ category. These funds have historically provided periods of high returns but, because of their narrow investment focus, they’re better suited to long term investment and being used in combination with other funds investing in different investment types and regions.

*The main investment types, or asset classes as they’re commonly known, are equities (shares), fixed interest (government and corporate bonds), cash and property. For more information about each asset class or any of the terms used above see our glossary.