Understanding Risk
New Ireland’s Risk Ratings
To help you understand the risk involved in investing in our funds we have devised a seven point rating scale varying from (1) very low risk to (7) very high risk. The fund characteristics in each of the 7 categories are set out below. As you move from 1 to 7, the potential for better returns increases but so too does the risk of losing your money.
Investing & Risk
How do we determine which risk category applies to our funds?
We assess each fund at the outset and we review the fund from time to time to ensure it remains within the relevant risk category. While it does not often arise, it is possible that the risk category of a fund could change over time.
To determine the appropriate risk category, we take various factors into account which include:
Past performance
We start by looking at the past performance of a fund and how the fund prices have varied over time (typically over a 5 year period). This measures the fund’s volatility.
Where prices have not varied to a great extent over the period the fund has low volatility. Highly volatile funds experience lots of price changes, both up and down, over time.
If past performance was the only factor taken into account, the lower the volatility, the lower the fund would be on the 7 point scale.
Future looking
While past performance is our starting point, if we believe the past may not be reflective of the future, we adjust the volatility to take into account what we expect to happen in the future.
Key Risks
We also consider what are the key risks associated with investing in the fund which depends on its investment strategy. Examples of such risks include currency risk (e.g. if other than euro assets are held), single manager risk (e.g. if we rely on one investment manager to make the investment choices), single asset class risk (e.g. if only one asset class is held), concentration risk (e.g. if only a few assets are held) and geographic risk (e.g. if the fund focuses on a particular geographic region). For further information on these risks, please see our Investing & Risk document.
Investing & Risk
If key risks are identified they will also be taken into account in determining the appropriate risk category.
European Risk Ratings
European Union (EU) law also requires us to indicate a level of risk for each fund using a prescribed approach, which also involves a risk rating scale of 1-7. This is to help investors compare and contrast similar products and funds offered by different providers.
The prescribed approach looks at performance in the previous 5 years (market risk) and takes into account the ability of the product provider to pay investors (credit risk).
These two factors are combined to produce a measure of volatility which then determines the risk category the fund falls into
EU risk indicators may differ from the New Ireland risk categories – why?
As can be seen above, New Ireland’s approach to determining the level of risk and the EU approach differ in certain respects. In determining volatility and the appropriate risk rating, different factors are taken into account. The EU volatility ranges are also wider than New Ireland’s ranges. As a result of these differences, a fund could be deemed to have a different rating on each scale.
EU indicators are included in Key Information Documents (KIDs) and fund information sheets which can be found on our website at http://fundcentre.newireland.ie/#KIDS. A KID is available for all products and a fund information sheet for each fund. The relevant KIDs and fund information sheets will be provided to you prior to investing.
What is a Key Information Document (KID)?
A Key Information Document (KID) is a short document which will provide you with key features, risks and costs associated with the relevant product.
A KID is prepared for New Ireland’s Smart Funds and FutureSave products and a fund information sheet with similar information is available for each fund available within each product. The fund information sheet includes information on the investment objectives; the type of investor the fund is suitable for, costs and the EU risk indicator.
