InvestorBee reveals a worrying 1-in-5 mismatch between risk labelling of some investment products and actual risk delivered to investors
(PRWEB UK) 29 June 2012
InvestorBee, an independent website, which provides data to help consumers decide where to invest money, reveals a worrying gap between the risk promised by multi-asset fund labels and the risk these funds are actually taking. InvestorBee’s analysis grades funds objectively, according to the actual risk they have taken with investors’ money, and finds that risk-based labelling is misleading for more than 20% of the funds observed.
The retail investment industry is often accused of not being transparent but this aura of complexity can largely be attributed to the fact that consumers simply do not understand the financial products offered to them. According to a survey conducted by InvestorBee with Ipsos MORI*, more than two-thirds of those who said that they manage their own investments admitted that they don’t even understand the basics of how to invest. There are a plethora of products available in the market but not much ‘readily available’ information based on which to evaluate their returns. And should the information be available, there are other pitfalls awaiting the unwitting consumer.
One such pitfall is ‘fund mislabelling’. Funds often categorise themselves into risk brackets based on disparate benchmarks as there is no common industry comparator. Research by InvestorBee found that one-in-five risk-labelled funds did not deliver the risk they advertised. For instance in the adjoining figure, 41% of funds which described themselves as ‘cautious’ or ‘defensive’ actually fell into the medium risk category (typically described as ‘balanced’) when returns are compared. Similarly, 23% of funds which call themselves ‘adventurous’ or ‘aggressive’ are found to deliver a level of actual risk commensurate with a medium or medium low-risk fund. This can mean that the unwary investor may find themselves exposed to more risk than they had bargained for, or taking a less aggressive approach to investment growth than they had hoped.
InvestorBee has developed risk-adjusted benchmarks, with the primary aim of addressing this issue. They have analysed and distributed 1 million+ real investors’ portfolios by actual risk volatility experienced, empirically defining five risk groups – low risk, medium-low risk, medium risk, medium-high risk and high risk. By observing the average return for each risk group, a fair net return for the actual risk taken is established: a ‘fair value’ benchmark for each risk group. Funds are then assigned to each group and their returns compared to the ‘fair value’ benchmark. This method therefore defines risk volatility objectively and determines whether risk experienced is being adequately rewarded.
InvestorBee has analysed over 700 multi asset funds using this method and categorised them into the 5 risk brackets based on the fair returns that they deliver. The website offers retail investors a simple, 3-step process to investing money wisely after deciding on the level of risk they want to take.
Graham Mannion, MD, InvestorBee, says: “Don’t rely on a fund’s own label to judge the level of risk. Investment should be based on a solid decision about how much risk to take, and the best starting point for investing decisions should stem from an understanding of how investments at different risk levels perform over time.”
*1,995 respondents to the survey, commissioned in July 2011 by InvestorBee and carried out by Ipsos Mori.
About InvestorBee:
InvestorBee, powered by DCisions and launched in December 2011, is a website that helps consumers make informed, fact-based decisions about their savings and investments. It analyses data from more than one million UK investors, over 30,000 financial products and over 1,000 sources of professional advice to track the results real investors are achieving. For more information on the site, visit http://www.investorbee.com.
DCisions harnesses enterprise data from leading financial institutions, monitoring the risk and return in more than one million real portfolios month-by-month, building on 5 years of history. DCisions is the leading provider of insight into consumer investing and drive the FTSE DCisions Index Series. The data and insight specialist is the recipient of the 2011 Innovation and 2009 Technology Provider Awards from European Pensions. For more information on DCisions, visit http://www.dcisions.com.
For further information please contact:
Kritika Ashok: 020 7297 2508, http://kritika.ashok (at) dcisions (dot) com [kritika.ashok@dcisions.com __title__ kritika.ashok@dcisions.com].
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