How does Endowus quantify a fund’s risk rating? (HK)

The Endowus Product Risk Rating (PRR) system classifies funds into 6 risk categories, from 1-6, in order of ascending risk where 1 denotes a fund of lowest risk and 6 of highest risk. This system is in place to help clients understand the risk levels of different funds available on the Endowus platform.

As each asset class carries its own set of risks, funds belonging to the same asset class category are expected to share similar risk characteristics. Thus, the primary starting point in determining a risk rating would be that of the asset class with an initial PRR assigned to a fund based on its asset class.

While the broad asset class categories are expected to be relatively comprehensive, the team at Endowus recognizes that there might be distinguishing features of an actively-managed fund that render its risk different to the risk of the asset class it belongs to. 

Thus, this initial PRR is then further deliberated with quantitative and qualitative inputs from other metrics like the fund’s:

1. Duration
2. Track Record
3. Concentration risk 
4. Historical risk metrics compared with the asset class benchmark
5. Derivatives usage and/or significance of its credit risk
6. Country and sector risk
7. Dividend distribution policy (i.e. whether dividends and fees are paid out from capital)
8. Significant exposure to regional and single country (EM) high yield
9. Exposure to contingent convertibles (CoCos)
10. Exposure to digital assets

With these considerations, the initial PRR may shift by one should there be sufficient justification and oversight. 

*Please note that the Endowus Product Risk Rating is meant to function as a helpful guide for clients to gauge risk and should not function as investment advice. The Product Risk Rating Asset Class Map is generic and for reference purpose only, for fund specific Product Risk Rating and its specific product risks, please refer to the Product Risk Rating that is indicated on the fund details page and the risk disclosures of the relevant fund as well as its offering documents.

**Should you want more personalised investment advice, please reach out to our client advisors here.