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RBS keeps volatility in check

RBS has designed two funds for investors with cautious and balanced risk profiles that keep volatility within set parameters.

The RBS volatility controlled cautious managed and RBS volatility controlled balanced managed funds both aim for growth but have different volatility targets to reflect the different risk and reward profiles.

The volatility controlled cautious managed fund aims to never exceed 10 per cent annual volatility, while the volatility controlled balanced managed Fund aims to keep annual volatility between 10 and 15 per cent.

RBS feels that controlling volatility is important because some funds in the IMA cautious and IMA balanced sectors have had high levels of risk, as measured by volatility, and IFAs have been reluctant to invest in them because they are too risky for their clients.

Both RBS funds gain exposure to a mix of assets, including equities, bonds, property equities and commodities to provide growth and some protection against market volatility. They will gain this exposure through derivatives that provide exposure to various indices, rather than investing directly in the asset classes.

The funds are underpinned by volatility strategies where asset allocation moves towards cash and away from the indirect exposure to equities, bonds, property equities and commodities when the volatility in each portfolio looks like it will exceed the parameters set for each risk profile.

Asset allocation will be changed to keep volatility within the set parameters, moving towards cash and away from the indirect exposure to equities, bonds, property equities and commodities when it looks likely that the volatility targets will be exceeded.

RBS has built these funds to maintain consistent volatility across the different risk profiles, to be transparent and easy to understand, to deliver on performance and be competitive on charges.

However, some advisers may feel that the volatility strategy and use of derivatives may be too complex for some clients to understand.

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