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Bates calls on investors and IFAs to ignore risk ratings

Bates Investment Services is urging investors and IFAs to eschew the risk ratings that investment houses attach to funds as it says they fail to provide an accurate assessment of likely volatility.

Bates says investors and advisers have for too long bought and recommended funds according to fund manager risk measurements which are often based solely on relative benchmark targets and the number of stocks held within a portfolio.

To illustrate how this type of risk calculation can be misleading, head of research James Dalby points to the performance of JP Morgan Fleming&#39s UK premier equity growth fund compared with its UK dynamic fund.

Although seen as lower risk due to the higher number of stocks it holds, the equity growth fund is down by 29.3 per cent since October 2000 while the dynamic fund is down by just 13.7 per cent over the same period. As both funds have the same management team and the same processes, Dalby says the discrepancy shows how funds&#39 risk requirements can hinder performance.

He says: “No one should buy into the risk definitions of fund managers. They have their peer group focus while we have our clients&#39 focus. IFAs should classify funds themselves.”

Threadneedle communications director Richard Eats says: “It is a reasonable point. IFAs can be the bridge between fund managers&#39 risk concepts and the requirements of the man in the street.”


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