Decoding Active Management
Risk and reward
Market risk
The risk of investments declining in value because of economic developments or other events that effect the entire market.
Equity risk
This applies to investment in shares. The market price of shares varies all the time depending on supply and demand. Equity risk is the risk of loss because of a drop in the market price of shares.
Interest rate risk
Changes in interest rates are likely to affect the Fund’s value. In general, as interest rates rise, the price of a fixed rate bond will fall, and vice versa.
Currency risk
Where investments are in assets that are denominated in multiple currencies, or currencies other than your own, changes in exchange rates may affect the value of the investments.
Liquidity risk
Some funds hold assets which could prove difficult to sell. The fund may have to lower the selling price, sell other investments or forego more appealing investment opportunities.
Credit risk
This relates to debt investments such as bonds. It’s the risk that the government entity or company that issued the bond will run into financial difficulties and won’t be able to pay the interest or repay the money invested back at maturity.
