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How to assess the risk of a fund
An important characteristic of a fund is its risk. Here we explain how to use the dollarDEX website to gauge the risk of a fund. The example fund we are using is LionGlobal Thailand Fund.

Read the prospectus

The prospectus tells you qualitatively about the risks of your potential investment. For example, the section Investment Objective, Focus and Approach (page 11) lets you know that the fund is "investing in Thai equities and equity-related instruments". This immediately alerts you to the fact that you will be exposed to equity risk, which is generally higher than bond or cash risk. If not specified you can assume that potentially 100% of your investment could be in the asset class described (equities in this case). Some funds may set limits, for example a balanced fund may state that it will never hold more than 70% in equities.

Next read the section Risks starting on page 28. This reminds you that, among several risks, you will be exposed to Political Risks, Currency Risks and Liquidity Risks. For example, countries outside Singapore, especially those with emerging markets, may be subject to higher than usual risks of political changes, government regulations, social instability or diplomatic developments which could adversely affect the economies of the relevant countries and thus the value of investments in those countries.

Currency (foreign exchange) risk is the norm for Singapore-based investors, unless the investment is in the local market. So for LionGlobal Thailand Fund fluctuations of the Thai Baht exchange rate against the SGD will affect the value of the units in the fund.


If you view the fund summary page at dollarDEX (click here for an example), you will see several performance and risk measures that tell you valuable information about your potential risk exposure. These measures are all based on historical data and it is important to realise that (i) the fund may not have much data history and (ii) even if it does, markets may have been favourable during the lifetime of the fund, and therefore the statistics may not fully reflect all the risks.

View volatility

Volatility is the rate at which the price of the fund jumps up and down relative to its average value. Volatility is found by calculating the standard deviation of change in price. If the price of a fund moves up and down rapidly over short time periods, it has high volatility. If the price almost never changes relative to its average progress (up, hopefully), it has low volatility. Checking fund volatility is an important factor in an investment decision. dollarDEX measures volatility using the standard deviation of monthly returns over a given period, as shown below.

View beta

The various factors that influence the economy and financial markets in general, affect different investments to a different degree. Beta is the primary measure of this market risk of an investment. It measures the volatility of an investment in relation to the overall market, hence the overall market has a beta of 1. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile. As can be seen below, the beta can change over time but if your fund consistently has a high beta (say 1.5) then you can expect it to move up fast when the overall equity market is rising, and conversely drop fast when share markets are doing badly. In a sense it is the leverage to the general market. Roughly speaking a fund with a beta of 1.2 will rise 20% faster than the broad indexes such as the S&P500.

Note, we calculate betas for equity funds only.

View drawdown

Maximum drawdown is a measure of peak to trough drop -- an investment bought and sold at the worst possible times. This is a useful risk measure to see how funds performed on the downside historically, and is one way to answer the question: how much could I lose if I were really unlucky? For example, a maximum drawdown of 30% means if you bought at "just the wrong time" you would have seen a 30% paper loss before the fund turned up again. The maximum drawdown often starts at the all-time peak of the fund, but this is not necessarily true in all cases. The example for LionGlobal Thailand Fund gives a maximum drawdown of around 58% from 21-May-08 to 24-Nov-08.

View losses

To give you another sense of potential losses we calculate the worst losses experienced by the fund in any calendar month and in any calendar year.

Understand the benchmark

Knowing the fund benchmark (also found in the prospectus) also tells you how much risk the manager is taking. For LionGlobal Thailand Fund the benchmark is MSCI Thailand, a country-wide equity index. Obviously this tells you the fund is more risky than LionGlobal SGD Money Market Fund, which uses a benchmark of the 1-month SIBID (which stands for Singapore Interbank Bid Rate, and is like the fixed deposit rates for banks).

Also highlighted below is the risk level of the fund ("High" in this case) assigned by dollarDEX, based on the same monthly volatility number shown in the first image on this page. Basically we translate the raw numbers into something more digestible for users of our site.

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Page last updated 31 May 2012

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