How to use FE Risk scores

A growing number of investors are managing their own money following the revolutionary changes in the financial advisory industry that resulted from the Retail Distribution Review (RDR).

These reforms have left many investors reliant on their own resources, although there are others who simply prefer to run their money themselves.

To help you make better decisions, FE has developed a series of ratings that are independently derived through quantitative measures – meaning they are not based on opinion, but on cold, hard numbers.

Here we look at some key features of these ratings and how to use them when building a portfolio.

What are FE Risk Scores?

The FE Risk Scores measure how risky a fund is relative to the FTSE 100 index of leading UK stocks.

The scores take into consideration the volatility of the portfolio and the FTSE 100 over the past three years, but more weight is given to recent performance.

Funds will be given a score if they have a track record of 18 months or longer.

The FTSE 100 always has a score of 100 and cash a score of 0. Funds will typically score between 1 and 150 and equities higher than 100, sometimes much higher.

The scores are updated weekly, but are unlikely to fluctuate week by week thanks to the use of performance data going back for up to three years.


How should I use them?

It is important to recognise that the FE Risk Scores are recalculated weekly, meaning that they can change. These changes, which reflect the fund becoming more or less risky relative to the FTSE 100, can be significant.

You should review the trend of any change in the FE Risk Score relative to that of similar funds and the asset class to consider whether any action should be taken.

Clicking on the appropriate icon on a fund factsheet will pull up a small graph showing how the FE Risk Score has changed over time.

Our factsheets also include the one-year and three-year volatility scores, which are used by investors and advisers and can supplement what you can learn from the risk scores.