Understanding investment risks

Risk hides in different places… in politics, economics and elsewhere. On our website, you can find numerous references to currency risk, smaller companies risk, emerging markets risk, credit risk, derivatives risk… The list goes on.

Many different characteristics and external forces can affect the ability of an investable asset (such as a company share or a bond) to provide a positive result for investors.

The ups and downs of investing

Most people understand, however, that accepting a higher level of risk can increase the potential for higher rewards, or returns, from an investment.

This is where volatility comes in – the upward and downward movements in the price of an asset, such as a company share or a bond. In general, if these movements are more pronounced, with a greater distance between peak and trough, the volatility is higher.

Investors look at different measures of volatility to evaluate levels of risk. You may even hear a fund manager talking about ‘risks to the upside’. Surely it should not be called a risk if it causes something to go up in value? It all points back to the idea of a greater potential return if an investor is prepared to tolerate a higher level of risk.

Monitoring your investments

Investors can use a Key Investor Information Document (KIID), which investors are required to read before making an investment, to help assess whether a product remains appropriate for the risk they wish to take. KIIDs for Artemis’ funds can be found in the literature library.

Additionally, our website contains other types of information to help investors monitor our funds, including performance data and investment commentaries from the managers.

If you are not sure whether a particular fund is suitable for you, you may wish to seek financial advice. An adviser can also help assess how much risk might be required to achieve your financial goals based on your circumstances. You can find an adviser by visiting unbiased.co.uk.

SRRIs

European Commission regulations require fund managers to publish what are called ‘Synthetic Risk and Reward Indicator’ (SRRI) numbers for their funds.

An SRRI is used to indicate the level of risk of a fund by providing a number from 1 to 7, with 1 representing low risk and 7 representing high risk. It is based on a calculation of the volatility of returns of a fund over the previous five years. (Actually, each unit or share class of a fund is assigned its own SRRI, but to go into that now would just complicate things). From this calculation, funds are then assigned SRRI numbers on a scale of 1 to 7. Those which have demonstrated the lowest volatility have a score of 1.

Like most measures of a fund’s behaviour, the SRRI only looks backwards. But in doing so, it is trying to give investors an idea of the approximate level of risk and return they might see in the future.

The SRRI is a prominent component of a KIID, which investors are required to read before making an investment.

Here’s an example of an SRRI you might see on a KIID:

SRRIs change from time to time...

Because it is based on historical data, an SRRI cannot reflect all risks a fund might encounter. For example, the fallout from Coronavirus contributed to higher levels of volatility in the prices of the assets (shares and bonds) that our funds invest in.

In another example, the SRRI for a number of Artemis’ funds increased in the middle of 2020. This was largely a reflection of higher volatility in stockmarkets generally and not necessarily caused by changes to the way the funds are managed.

In line with regulations, we continually monitor the volatility of our funds and we update their KIIDs when the SRRI numbers change.

Current SRRIs

You can find the current SRRIs for each fund and unit/share class:

• On the fund page for each of our funds; visit our fund explorer and select the fund you are interested in
• On the individual Key Investor Information Documents (KIIDs); visit our literature library then choose the fund you are interested in
• On the factsheets for each of our funds; also available in our literature library

This information is intended to provide you with help and guidance about investing generally and about investing with Artemis. It is not a marketing communication and should not be used to make investment decisions. You should always refer to the relevant fund prospectus and KIID/KID before making any final investment decisions.

Artemis does not provide investment advice on the advantages or suitability of its products and no information provided should be viewed in this way. Should you be unsure about the suitability of an investment, you should consult a suitably qualified professional adviser.