Introduction to risk-rated investment strategies

Transcription

1 Introduction to risk-rated investment strategies July 27

2 [] INVESTMENT STRATEGIES INVESTOR TYPES Investment Strategies with Risk Profiling Investment Range What kind of investor are you? At Greystone we seek to guide you with your investments by assessing and continually checking the levels of investment risk clients are willing and able to take, thus ensuring suitable investments are made on their behalf. The aim should be to find a balance between the level of risk clients are prepared to accept and the level of return that may be expected from a portfolio of investments. Attitudes to risk change? A client's attitude towards, or appetite for, risk depends on their current circumstances and views with regards to investing. Having an inclination to take on more risk for the potential of greater returns exponentially increases the appetite for risk. Investment strategies Each investment portfolio is risk rated and will offer different characteristics in terms of the level of risk taken and potential returns. Assuming greater levels of risk increases the returns potential, however, requires an increased capacity for loss. Hypothetical Increased potential returns Balanced Growth Adventurous If a client s attitude towards risk changes, this should be reflected in the makeup of their investment portfolio. Attitude towards risk shall be influenced by capacity for loss, this being broadly defined as an ability to absorb falls in the value of an investment. As more risk is taken, an individual s capacity for loss will need to increase proportionately. We may define risk as the possibility of losing money and return being the gain on top of the original amount invested. Cautious Conservative Greater capacity for loss Defensive Level of Risk Hypothetical Risk Taken Hypothetical Capacity for Loss Defensive Conservative Cautious Balanced Growth Adventurous Source: Thomson Reuters Lipper for Investment Management &. Data correct as at

3 Monthly No. of 2 month periods < -4-4 to -4-4 to -3-3 to -3-3 to -2-2 to -2-2 to - - to - - to - - to to to to to 2 2 to 2 2 to 3 3 to 3 3 to 4 4 to 4 > 4 [2] INVESTMENT STRATEGIES DEFENSIVE STRATEGY Defensive Strategy This is the least risky profile as it refers to investors who are unwilling or unable to accept any risk of loss of capital and are best suited to placing their money in a range of cash deposits. This will limit the potential returns of the portfolio and the value may be eroded in real terms by the effects of inflation. A typical investor in this band would have a zero capacity for loss with no ability to absorb falls in the value of their investment. Return Oscillations Data correct as at Year annualised returns Target (% to 3%) Defensive Characteristics Data correct as at Volatility Oscillations Data correct as at Very low Typical risk score (out of 2) - 2 Zero capacity Less than year Low Volatility Target (annualised) % to % Target (annualised) % to 3% 2 2 month volatility Target (% to %) Hypothetical Asset Allocation Data correct as at Historical Growth of, Data correct as at % 4k 3k holdings 2k k Defensive Strategy Historical Statistics (Past 2 Yrs) Data correct as at Annualised Compound Returns 2.2% Volatility.3% VaR Value at Risk (9% confidence) -.% (daily)/ -.9% (mthly) Worst / Best ( Year ).2% / 22.78% -.8% (-.% 2yr average) Period (months) 8 Maximum Loss (in a single month) -.2% Recovery Periods (months) 4 Data correct as at Defensive Strategy 2 Yr Average Value at Risk (9% confidence interval) Data correct as at monthly observations over the previous 2 years. 7/24 returns below -.9% VaR Returns Distribution (2 months) Data correct as at Volatility Targets and Targets may change over time to reflect market conditions. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated.

4 Monthly No. of 2 month periods < -4-4 to -4-4 to -3-3 to -3-3 to -2-2 to -2-2 to - - to - - to - - to to to to to 2 2 to 2 2 to 3 3 to 3 3 to 4 4 to 4 > 4 [3] INVESTMENT STRATEGIES CONSERVATIVE STRATEGY Conservative Strategy This profile is suitable for investors who are willing to take a little risk in order to grow the real value of a portfolio. It is appropriate for investors seeking a greater return than simply holding cash, who are prepared to accept an element of volatility in order to enhance the portfolio s longterm income or growth potential. A small amount of risk must be taken to achieve modest or relatively stable returns. The typical range of returns experienced over the last 2 years has seen a maximum annual fall in value in a single year of around 9% and a maximum annual gain in value in a single year of around %. Return Oscillations Data correct as at Year annualised returns Target (4% to %) Conservative Characteristics Data correct as at Volatility Oscillations Data correct as at Low Typical risk score (out of 2) 2-9 Low More than 3 years Below average Volatility Target 2 (annualised) 2% to % Target 2 (annualised) 4% to % 8 2 month volatility Target (2% to %) Hypothetical Asset Allocation Data correct as at Historical Growth of, Data correct as at % 2% % % Fixed Interest UK Equities International Equities Alternatives 4k 3k 2k k Conservative Strategy Historical Statistics (Past 2 Yrs) Data correct as at Annualised Compound Returns.% Volatility 3.88% VaR Value at Risk (9% confidence) -.38% (daily)/ -2.39% (mthly) Worst / Best ( Year ) 7.% /.77% -.7% (-3.94% 2yr average) Period (months) Maximum Loss (in a single month) -.8% Recovery Periods (months) Data correct as at Conservative Strategy 2 Yr Average Value at Risk (9% confidence interval) Data correct as at monthly observations over the previous 2 years. 4/24 returns below -2.39% VaR Returns Distribution (2 months) Data correct as at Typical refers to those movements in value experienced by 9% of investors; %, or in 2 investors, experienced losses or gains greater than those stated. 2 Volatility Targets and Targets may change over time to reflect market conditions. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated.

5 Monthly No. of 2 month periods < -4-4 to -4-4 to -3-3 to -3-3 to -2-2 to -2-2 to - - to - - to - - to to to to to 2 2 to 2 2 to 3 3 to 3 3 to 4 4 to 4 > 4 [4] INVESTMENT STRATEGIES CAUTIOUS STRATEGY Cautious Strategy A cautious investor is willing to take low levels of risk to grow the real value of a portfolio and is prepared to accept a higher degree of volatility in order to enhance long-term income or growth potential. Cautious portfolios generally exhibit relatively modest yet frequent fluctuations in value. The typical range of returns experienced over the last 2 years has seen a maximum annual fall in value in a single year of around 3% and a maximum annual gain in value in a single year of around 9%. Return Oscillations Data correct as at Year annualised returns Target (4% to 7%) Cautious Characteristics Data correct as at Volatility Oscillations Data correct as at Below average Typical risk score (out of 2) - Below average More than years Average Volatility Target 2 (annualised) 4% to 8% Target 2 (annualised) 4% to 7% 2 month volatility Target (4% to 8%) Hypothetical Asset Allocation Data correct as at Historical Growth of, Data correct as at % 3% % 4% Fixed Interest UK Equities International Equities Alternatives 4k 3k 2k k Cautious Strategy Historical Statistics (Past 2 Yrs) Data correct as at Annualised Compound Returns.98% Volatility.7% VaR Value at Risk (9% confidence) -.7% (daily)/ -3.4% (mthly) Worst / Best ( Year ) -.4% / 79.42% % (-.28% 2yr average) Period (months) Maximum Loss (in a single month) -9.9% Recovery Periods (months) 3 Data correct as at Cautious Strategy 2 Yr Average Value at Risk (9% confidence interval) Data correct as at monthly observations over the previous 2 years. /24 returns below -3.4% VaR Returns Distribution (2 months) Data correct as at Typical refers to those movements in value experienced by 9% of investors; %, or in 2 investors, experienced losses or gains greater than those stated. 2 Volatility Targets and Targets may change over time to reflect market conditions. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated.

6 Monthly No. of 2 month periods < -4-4 to -4-4 to -3-3 to -3-3 to -2-2 to -2-2 to - - to - - to - - to to to to to 2 2 to 2 2 to 3 3 to 3 3 to 4 4 to 4 > 4 [] INVESTMENT STRATEGIES BALANCED STRATEGY Balanced Strategy A balanced investor will be willing and able to take a medium level of risk to grow the real value of a portfolio. They must be willing to accept a greater level of volatility to enhance the long-term income and growth potential whilst the portfolio will be subject to frequent and, at times, significant fluctuations in value. The typical range of returns experienced over the last 2 years has seen a maximum annual fall in value in a single year of around 8% and a maximum annual gain in value in a single year of around 24%. Return Oscillations Data correct as at Year annualised returns Target (% to 8%) Balanced Characteristics Data correct as at Volatility Oscillations Data correct as at Medium Typical risk score (out of 2) - 4 Medium More than 7 years Above average Volatility Target 2 (annualised) % to 3% Target 2 (annualised) % to 8% 2 2 month volatility Target (% to 3%) Hypothetical Asset Allocation Data correct as at Historical Growth of, Data correct as at % 2% 4k 3% 3% Fixed Interest UK Equities International Equities Alternatives 3k 2k k Balanced Strategy Historical Statistics (Past 2 Yrs) Data correct as at Annualised Compound Returns.32% Volatility 9.9% VaR Value at Risk (9% confidence) -.% (daily)/ -4.7% (mthly) Worst / Best ( Year ) -9.3% / 94.37% % (-9.7% 2yr average) Period (months) 29 Maximum Loss (in a single month) -.99% Recovery Periods (months) 3 Data correct as at Balanced Strategy 2 Yr Average Value at Risk (9% confidence interval) Data correct as at monthly observations over the previous 2 years. /24 returns below -4.7% VaR Returns Distribution (2 months) Data correct as at Typical refers to those movements in value experienced by 9% of investors; %, or in 2 investors, experienced losses or gains greater than those stated. 2 Volatility Targets and Targets may change over time to reflect market conditions. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated.

7 Monthly No. of 2 month periods < -4-4 to -4-4 to -3-3 to -3-3 to -2-2 to -2-2 to - - to - - to - - to to to to to 2 2 to 2 2 to 3 3 to 3 3 to 4 4 to 4 > 4 [] INVESTMENT STRATEGIES GROWTH STRATEGY Growth Strategy A growth investor will be willing and able to take high to very high levels of risk in order to achieve higher returns. It must be accepted that increased volatility may lead to a significant swing in portfolio valuations and the risk of substantial loss rises. The typical range of returns experienced over the last 2 years has seen a maximum annual fall in value in a single year of around 23% and a maximum annual gain in value in a single year of around 3%. Return Oscillations Data correct as at Year annualised returns Target (% to 9%) Growth Characteristics Data correct as at Volatility Oscillations Data correct as at High Typical risk score (out of 2) 4-74 Significant More than years Good Volatility Target 2 (annualised) 9% to 7% Target 2 (annualised) % to 9% 3 2 month volatility Target (9% to 7%) Hypothetical Asset Allocation Data correct as at Historical Growth of, Data correct as at % % % Fixed Interest UK Equities International Equities Alternatives 8% 4k 3k 2k k Growth Strategy Historical Statistics (Past 2 Yrs) Data correct as at Annualised Compound Returns.73% Volatility 3.8% VaR Value at Risk (9% confidence) -.38% (daily)/ -.38% (mthly) Worst / Best ( Year ) -23.3% /.3% % (-4.9% 2yr average) Period (months) 29 Maximum Loss (in a single month) -2.9% Recovery Periods (months) 2 Data correct as at Growth Strategy 2 Yr Average Value at Risk (9% confidence interval) Data correct as at monthly observations over the previous 2 years. /24 returns below -.38% VaR Returns Distribution (2 months) Data correct as at Typical refers to those movements in value experienced by 9% of investors; %, or in 2 investors, experienced losses or gains greater than those stated. 2 Volatility Targets and Targets may change over time to reflect market conditions. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated.

8 Monthly No. of 2 month periods < -4-4 to -4-4 to -3-3 to -3-3 to -2-2 to -2-2 to - - to - - to - - to to to to to 2 2 to 2 2 to 3 3 to 3 3 to 4 4 to 4 > 4 [7] INVESTMENT STRATEGIES ADVENTUROUS STRATEGY Adventurous Strategy Considered as being the most risky profile, this type of investment will require you to be willing and able to take very high to speculative levels of risk in order to achieve higher returns. As an investor you must be able to take on significant levels of volatility that may lead to substantial swings in portfolio valuations and over time there is the risk that the portfolio may fall to a zero value. The typical range of returns experienced over the last 2 years has seen a maximum annual fall in value in a single year of around 3% and a maximum annual gain in value in a single year of around 47%. Return Oscillations Data correct as at Year annualised returns Target (% to %) Adventurous Characteristics Data correct as at Volatility Oscillations Data correct as at Very high Typical risk score (out of 2) 7-2 Possibility of total loss More than years Very good Volatility Target 2 (annualised) % to 22% Target 2 (annualised) % to % 4 2 month volatility Target (% to 22%) Hypothetical Asset Allocation Data correct as at Historical Growth of, Data correct as at k % 3k International Equities 2k k k Adventurous Strategy Historical Statistics (Past 2 Yrs) Data correct as at Annualised Compound Returns.77% Volatility 7.2% VaR Value at Risk (9% confidence) -.78% (daily)/ -9.48% (mthly) Worst / Best ( Year ) % / 2.% -.4% (-.38% 2yr average) Period (months) 3 Maximum Loss (in a single month) -22.3% Recovery Periods (months) 78 Data correct as at Adventurous Strategy 2 Yr Average Value at Risk (9% confidence interval) Data correct as at monthly observations over the previous 2 years. /24 returns below -9.48% VaR Returns Distribution (2 months) Data correct as at Typical refers to those movements in value experienced by 9% of investors; %, or in 2 investors, experienced losses or gains greater than those stated. 2 Volatility Targets and Targets may change over time to reflect market conditions. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated.

9 [8] INVESTMENT STRATEGIES APPENDIX Appendix of terms how to interpret investment strategies Providing information on the type of client each portfolio may be suitable for. It will indicate the level of fluctuations in portfolio value and describe the typical range of returns that have been experienced over the past 2 years. When we use the term typical, this refers to those movements in value experienced by 9% of investors; %, or in 2 investors, experienced losses or gains greater than those stated. Return Oscillations Illustrating annualised returns for each portfolio over the past 2 years. This is combined with performance target levels. The target levels are for a given percentage bandwidth of performance on an annualised basis. Observations are monthly and over a period specified in portfolio characteristics as typical time horizon. Strategy Characteristics Looks at what broad level of risk can be expected from each portfolio type and where it lies on the risk scale for the Greystone Risk Assessment Questionnaire. It states the typical (minimum) time horizon for investing in each portfolio and, during that period, what the performance and volatility targets are likely to be on an annual basis. Volatility Oscillations Based on rolling 2 month daily annualised standard deviations (volatility) over the past 2 years. This combines rolling 2 month volatility figures with volatility targets as specified in the portfolio characteristics. It will highlight periods where rolling 2 month volatility falls outside of the target levels. Hypothetical Asset Allocation Typically what each type of portfolio might look like in terms of the asset classes across which it invests. Historical Growth of, Portfolio performance over the past 2 years for an investment of,. The chart includes cash (except for the Defensive Strategy which is defined as % cash). Historical Statistics Providing key statistical risk analysis for each portfolio type. Annualised compound returns are stated. Typically, as the annualised compound returns increase for each portfolio type up the risk scale, the risk side statistics will also increase. Defined as the maximum loss from a peak to a trough for each type of portfolio, before a new peak is achieved. The more risky a portfolio is, typically, the larger a maximum drawdown is expected to be. Value at Risk Value at Risk is defined as the theoretical maximum value a portfolio could lose in any given month. We overlay this Value at Risk figure with monthly returns for each portfolio type over the past 2 years. Returns Distribution The distribution of portfolio 2 month returns over the past 2 years. Notice that by moving up the risk scale for each portfolio type, the distribution of returns become stretched towards the extremities of the chart. On the bar charts provided, all monthly returns are highlighted in grey. Those monthly returns which are negative and greater than the Value at Risk figure are highlighted in red. These red highlighted bars are those months where the portfolio lost more than the historic Value at Risk.

10 IMPORTANT INFORMATION This document is for professional investors, advisors and retail clients. It does not constitute a form of financial advice and should not be relied upon. This is provided for information only. At Greystone we seek to guide you with your investment strategies by assessing and continually checking the levels of investment risk you are willing and able to take, thus ensuring suitable investments are made on your behalf. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Investment markets and conditions can change rapidly and as such any views expressed herein should not be relied upon when making investment decisions. Neither the payment of dividends or return of capital is implied or guaranteed. There is a risk of loss of capital. Rates of exchange may cause the value of investments to go up or down. The information and any opinions expressed herein may change at any time and therefore this document does not constitute investment, tax, legal or other advice or recommendation or an offer to sell or an invitation to apply for any product or service. Investors should consider carefully whether an investment in this fund or portfolio is suitable in light of circumstances and resources. is a trading name of Foundation Investment Management Limited who are authorised and regulated by the Financial Conduct Authority. Financial Services Register Number Jul