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What are the characteristics of funds?

What do the terms "level of risk" and "volatility" mean? The level of risk or volatility is a measure of by how much the current earnings of the fund differs from its average over a long period of time. The greater the difference, the more the fund can fluctuate and therefore the greater the risk involved. Keytrade uses this "average disparity" to calculate the level of risk. To simplify things, we could say that in the case of a volatility of 7 and an average return of 8%, the expected return will vary between 1% and 15% (i.e., 8% - 7% = 1% as a minimum and 8% + 7% = 15% as a maximum). Ultimately, the following empirical rule is applied:

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Volatility
Level of risk
0 - 6
Low
6 - 15
Below average
15 - 23
Average
23 - 30
Above average
>30
High

What is the return of a fund, and how is it calculated? A fund's return is the increase (or decrease) of a fund's value as a percentage, perhaps corrected by paid dividends. The return can be calculated over various periods (from 1 day to 7 years). For periods over one year, the return is annualised. You can find the returns of each fund in its factsheet.

What is the diamond rating? The diamond indicates how a fund performed over the past 5 years. The performance is calculated by comparison of the funds with funds of an identical peer group. This calculation is done on the basis of end-of-month data. Only funds that belong to a clearly defined category are taken into account for this type of rating. Moreover the fund must exist for a minimum of 5 years. This means that not all funds can obtain 1 diamond or more. The rating is based on 5 criteria, which each have an equal weight:

  • Consistency : 20%
  • Performance: 20%
  • Volatility: 20%
  • Alpha: 20%
  • Capital Preservation: 20%

The weighted average of the five percentages results in the final percentage. This percentage is the basis for the assignment of the crowns. 5 diamonds for the 10% best performing funds within the category 4 diamonds for the next 22.55% best performing funds within the category 3 diamonds for the next 35% best performing funds within the category 2 diamonds for the next 22.55% best performing funds within the category 1 diamond for the 10% worst performing funds within the category

This article does not contain any investment advice or recommendation, nor a financial analysis. Nothing in this article may be construed as information with a contractual value of any sort whatsoever. This article is intended for information only and does not constitute in any way a commercialization of financial products. Keytrade Bank cannot be held liable for any decision made based on the information contained in this article, nor for its use by third parties. Every investment entails risks such as a possible loss of capital. Before investing in financial instruments, please inform yourself properly and read carefully the document "Overview of the principal characteristics and risks of financial instruments" that you can find in the Document centre.