The basis of Winterflood’s risk model is the concept that the FTSE All Share represents average risk for a UK based investor. They then classify funds in one of six categories depending on their risk characteristics relative to the All Share index. The key quantitative measure that they use to assess risk is volatility of returns, using historic NAV performance over 1 and 3 years. The starting point for classifying funds is a comparison of volatility against the All Share using a series of bands, illustrated in the table below:
Value of Investments
The value of investments and the income from them may go down as well as up and you may not get back your original investment.
Past performance is not a guide to future performance.
Inflation may affect the future buying power of your money.
The investment trust will be subject to the risk of a counterparty being able to perform its obligations with respect to transactions, whether due to insolvency, bankruptcy or other causes. The investment manager assesses the credit worthiness of the counterparties as a part of the risk management process.
Investment trusts can borrow money to make additional investments on top of the money invested by shareholders. If the value of these investments falls, borrowing will magnify the negative impact on share performance.
Tax assumptions and reliefs depend on an investor's circumstances and may change if those circumstances or the law change.
The discount or premium at which a Trust shares trade may expand or contract as a result of relative performance and market sentiment.
Accounting, Legal and Regulatory
A breach of Section 1158 of the Corporation Tax Act 2010 could lead to a loss of investment trust status resulting in capital gains realised within the portfolio being subject to corporation tax. A breach of the UKLA Listing Rules could result in suspension of a trust's shares, while a breach of the Companies Act 2006 could lead to criminal proceedings or financial or reputational damage.
Disruption to, or failure of the managers accounting, dealing or payment systems or the custodians records could prevent accurate reporting and monitoring of the trust's financial position. Suppliers may not provide the required level of service.
Derivatives may be used for the purposes of efficient portfolio management. It is not expected that use of derivatives will lead to a higher risk profile. Certain Trusts may use derivatives for investment purposes.