The Chelsea Risk Rating is our proprietary rating to give investors some guidance on the relative risk of funds. When we research a fund we analyse its risk profile and assign it a risk rating.
Our research team assesses the overall risk of a fund by analysing a number of factors including: the fund's volatility within its sector; the level of risk involved in the region/sector in which the fund invests; the size of the companies within the fund; the number of stocks held; the risk controls imposed by the manager; the use of derivatives and currency issues. Once we have appraised a fund, we then assign it a Chelsea Risk Rating, with 1 as the lowest risk and 10 the highest. However, even funds rated 1 are subject to risk.
For further information on types of risk, volatility and assessing your own attitude to risk, read our "Risk" article, which appeared in Viewpoint issue 44.
This is a simple illustration of where various sectors sit on the Chelsea Risk Rating scale. It depicts the relative risk of those sectors. Please note that even those sectors at the lower end of the scale are subject to volatility. It is based on long-term historic volatility, so does not take into account current relative valuations of different sectors.
You can log in to your FundStore account to view our Fund Review and you can see the full list of over 400 funds which we risk rate.
Our Selection and Core Selection tables also show the Chelsea Risk Rating for the funds listed there.
Finally, if you use our new Research Funds tool, you will see that you can search by Chelsea Risk Rating.
Risk profiling is also subject to your own circumstances and, if you need advice, please speak to a financial adviser.
To some extent risk is subjective, for instance a cautious investor, who is uncomfortable with volatility, might consider a fund that is risk-rated 5 to be at the top end of their risk spectrum. So the Chelsea Risk Rating is simply a generic guide to the relative risk of all funds within the market.