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Is your fund a risky business?THE graph on the left plots the risk-versusreturn ratio of the 24 general equity funds that have been in existence for at least three years.
Scatter-plot graphs, which show the return achieved by a fund relative to the risks taken by the fund manager, are internationally accepted as a simple guide for investors. The dotted lines, dividing the chart into four quadrants, are the funds' average risk and return - the risk defined as the volatility of a fund's return during the three years under review. A fund's position above or below the horizontal line shows whether it has rendered an above- or belowaverage return. Conservative investors are likely to feel more comfortable being invested in funds situated in the two quadrants to the left of the vertical average risk line. Ideally, a fund should be in the top left quadrant, rendering aboveaverage returns at below-average risk. Only two funds are positioned in this quadrant, compared with five at the end of the previous quarter, and seven at the same time last year! Funds in the bottom left quadrant produce below-average returns but are considered low risk. Ten funds are in this quadrant, compared with six in the previous quarter and six at the same time last year. The bottom right quadrant contains funds which render below-average returns while taking above-average risk. Five funds are here, compared with seven in the previous quarter and nine at this time last year. Funds in the top right quadrant are for the aggressive investor, who is willing to risk more for above-average returns. Seven funds are in this quadrant, compared with seven in the second quarter and four at the same time last year. Investors are advised to track their fund's movement within the graph over time. If you are invested in a fund which finds itself in the bottom right quadrant for three or four quarters in a row, you might want to consider switching to a more efficient fund.
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