Chelsea Risk Ratings

The Chelsea Risk Rating is our proprietary rating to give investors some guidance on the relative risk of funds. When we research a fund we analyse its risk profile and assign it a risk rating.

Our research team assesses the overall risk of a fund by analysing a number of factors including: the fund's volatility within its sector; the level of risk involved in the region/sector in which the fund invests; the size of the companies within the fund; the number of stocks held; the risk controls imposed by the manager; the use of derivatives and currency issues. Once we have appraised a fund, we then assign it a Chelsea Risk Rating, with 1 as the lowest risk and 10 the highest. However, even funds rated 1 are subject to risk. For further information on types of risk, see below. 

Types of risk

Market risk

Market risk stems from the variability of returns in equity markets. As the old adage goes, “investments can go down as well as up”. This type of risk affects some investments or asset classes more than others. For instance, cash has very low volatility, as the main moving variable is interest rates and they don’t tend to move too much, too quickly, although banks do go bust from time to time.

Investments in gold mining shares on the other hand are very volatile, which historically have produced large gains and, of course, large losses.

Shortfall risk

Risk can also be interpreted in another way – that of not reaching your financial goal, or shortfall risk as it's known. For instance, if you are in your 20s and saving for retirement, there is the risk of not having enough money to retire on. This could come about by not saving enough, or investing in the wrong asset mix. In this instance, investing in cash, rather than equities, would increase your shortfall risk.

Longevity risk

This represents the possibility of outliving one's financial assets due to a severe drop in the value of the portfolio or living longer than expected. Lifetime-payout annuities are a way to potentially insure against this type of risk.

Political risk

This risk refers to the chance that new or changed governments pursue different fiscal and monetary policy that may impact economic output. Governments may also pursue protectionist or isolationist policies that can also negatively impact financial markets or certain industries.

The Chelsea Risk Thermometer

This is a simple illustration of where various sectors sit on the Chelsea Risk Rating scale. It depicts the relative risk of those sectors. Please note that even those sectors at the lower end of the scale are subject to volatility. It is based on long-term historic volatility, so does not take into account current relative valuations of different sectors.


ViewPoint March 2016 Risk Rating


Where can I find the Chelsea Risk Rating for funds?

You can log in to your FundStore account to view our Fund Review and you can see the full list of over 400 funds which we risk rate.

Our Selection and Core Selection tables also show the Chelsea Risk Rating for the funds listed there.
Finally, if you use our new Research Funds tool, you will see that you can search by Chelsea Risk Rating.

Please note:

  • Risk profiling is also subject to your own circumstances and, if you need advice, please speak to a financial adviser. 

  • To some extent risk is subjective, for instance a cautious investor, who is uncomfortable with volatility, might consider a fund that is risk-rated 5 to be at the top end of their risk spectrum. So the Chelsea Risk Rating is simply a generic guide to the relative risk of all funds within the market.