Risk and return ratings

You can read the risk ratings for Aviva and ex-Friends Life funds below.

Aviva

Please note, this is only for Aviva funds only. If your policy is ex-Friends Life please select the relevant tab.

We give each fund a risk/return rating, ranging from 1 (low) to 5 (high). Each rating is a measure of the approximate risk/investment return potential of that fund.

When it comes to investments, ‘risk’ refers to the possibility of losing money. ‘Return’, on the other hand, is any gain you make on top of what you originally invested.

High-risk investment funds tend to be capable of much greater returns than lower risk ones. But there’s more chance you’ll lose money with them. With low-risk funds, there’s less chance of losing money, but they tend to be capable of much lower returns than higher risk funds.

This chart shows the relationship between the two:

Fund centre risk return chart

Aviva’s risk and return ratings defined

We regularly review the ratings we give to each investment fund. So they might change from time to time. The fund centre is kept up to date with the latest risk rating.

Risk/return rating Typical fund characteristics
1 (Low) Funds with this rating usually aim to provide returns similar to those you’d get from deposit and savings accounts, although there’s still a risk the value of your investment could fall.
2 (Low to medium) Expected to provide better long-term returns than savings accounts. Typically invest in high quality corporate bonds or provide a form of guarantee or capital protection, although there is still a risk the value of your investment could fall.
3 (Medium) Typically don’t offer guarantees, but have the potential for better long-term returns than lower risk funds, although there’s a risk the value of your investment could fall. Generally invest in a diversified mix of assets or in fixed income bonds issued by higher risk companies.
4 (Medium to high) Funds that typically invest in shares of companies in the UK or other major stock markets. Fund prices may fluctuate significantly but offer the potential for good returns over the long term.
5 (High) Funds that invest in the higher risk sectors (typically emerging markets or specific themes), offering the greatest potential for long-term returns but the highest prices fluctuations and risk to your money.

Other things to consider

Risk factors

You will also need to consider the ‘risk factor’ of a fund, depending on what it invests in. For example, a fund investing in overseas assets will be affected by the exchange rate. The sections below explain what these are.

Emerging markets

The fund invests in emerging markets, which are generally less well regulated than the UK. There is an increased chance of political and economic instability and assets can be more difficult to buy and sell. A fund investing in overseas markets is also affected by currency exchange rates, which will affect the value of the fund. These factors all mean that an investment in an emerging market carries more risk.

Smaller companies

The fund invests in smaller companies. The shares of smaller companies can be more volatile and more difficult to buy and sell than larger company shares, so smaller companies funds can carry more risk.

High yield bonds

The fund invests in high yield (non investment grade) bonds. This means bonds that have a ‘Credit Quality’ rating of BB or less. High yield bonds carry a greater risk than investment grade bonds that the issuer may not be able to pay interest or return capital. In addition, economic conditions and interest rate movements will have a greater effect on their price.

There may be times when these bonds are not easy to buy or sell. In exceptional circumstances, we may need to delay the ‘cashing in’ or switching of units in the fund and you may not be able to access your money during this period.

Geared investments

The fund holds geared investments. This means that the underlying investments include a level of borrowing. It is possible that the fund may suffer sudden and large falls in value compared with a fund that has no geared investments.

Long Term Investments

You should always look at an investment as a long-term commitment. You shouldn’t invest money that you may need in the short term, but keep it in reserve.

Property funds

The fund invests substantially in property funds, property shares or direct property. You should bear in mind that:

  • properties are not always readily saleable and this can lead to times in which clients are unable to dispose of part or all of their holding.
  • property valuations are made by independent agents, but are ultimately subjective and a matter of judgement.
  • property transaction costs are high (typically around 7% due to legal costs, valuations and stamp duty), which will affect the fund’s returns.

Exchange rate

When funds invest in overseas assets, the value will go up and down in line with movements in exchange rates as well as the changes in value of the fund’s holdings.

Performance charges

This fund can charge a fee dependent upon the fund’s performance. Details of how the fee is calculated can be found on the relevant fund factsheet.

Derivative exposure

Derivatives are financial contracts whose value is based on the prices of other assets. Two examples of how a fund manager may use derivatives are:

  • they can be used to help reduce the risk of losing money due to changes in the value of the underlying assets
  • they can also be used to increase profit if the value of the underlying asset goes in the direction you expect. This is known as ‘speculation’.

The fund invests in derivatives as part of its investment strategy, over and above their use for efficient portfolio management. Under certain circumstances, derivatives can increase the volatility and risk profile of a fund compared to a fund that only invests in, for example, equities. The fund may also be exposed to the risk that the company issuing the derivative may not honour their obligations, which could lead to losses.

Ex-Friends Life

How does Friends Life categorise risk?

As you know, Friends Life is now part of the Aviva Group. This means that from October 2017 all Friends Life funds will be shown as ex-Friends Life in this Fund Centre. The management of your funds will not change as a result of the takeover. You can find out more about what being part of the Aviva Group means for you as a former Friends Life customer here.

Ex-Friends Life funds categorise risk levels by taking account of the volatility of the types of asset in which they invest. Volatility means the ups and downs in an investment’s value over a period of time.

Ex-Friends Life funds are graded on a risk scale of 1 to 7, with 1 being the very lowest risk and 7 being the highest risk.

Please remember that whatever their risk categories the value of our investment funds is not guaranteed and can go up and down. You could get back less than you have paid in. Some funds have particular risks associated with investing in them.

The risk ratings for ex-Friends Life funds are explained in more detail below:

The risk rating assigned to each fund will match one of the defined ratings, or investment approaches, below:

Risk Rating Code Risk Rating Key Risk Rating description
1 1 - Lowest volatility The historical performance of funds with this risk rating have typically experienced the lowest volatility of all the funds Friends Life has rated. This means that these funds have the lowest potential for substantial changes in value compared with other Friends Life funds.
2 2 - Low volatility The historical performance of funds with this risk rating have typically experienced low volatility compared with other funds Friends Life has rated. This means that these funds have a low potential for substantial changes in value compared with other Friends Life funds.
3 3 - Low to medium volatility The historical performance of funds with this risk rating have typically experienced low to medium volatility compared with other funds Friends Life has rated. This means that these funds have a low to medium potential for substantial changes in value compared with other Friends Life funds.
4 4 - Medium volatility The historical performance of funds with this risk rating have typically experienced medium volatility compared with other funds Friends Life has rated. This means that these funds have a medium potential for substantial changes in value compared with other Friends Life funds.
5 5 - Medium to high volatility The historical performance of funds with this risk rating have typically experienced medium to high volatility compared with other funds Friends Life has rated. This means that these funds have a medium to high potential for substantial changes in value compared with other Friends Life funds.
6 6 - High volatility The historical performance of funds with this risk rating have typically experienced high volatility compared with other funds Friends Life has rated. This means that these funds have a high potential for substantial changes in value compared with other Friends Life funds.
7 7 - Highest volatility The historical performance of funds with this risk rating have typically experienced the highest volatility of all the funds Friends Life has rated. This means that these funds have the highest potential for substantial changes in value compared with other Friends Life funds.

Please note

These investment risk ratings are based on our interpretation of investment risk and are only meant as a guide. These levels of investment risk are not guaranteed and may change in the future.

Fund risk warnings

As well as the general risk ratings described above there are specific risks associated with investing in some funds, or types of funds, and we recommend you read through these before making your fund choice.

These risk warnings are explained below. Please note that not all of these warnings apply to each fund and there is no direct relationship between the number of fund risk warnings and the investment risk rating for a fund.

Risk Warning Code Risk Warning Description
A

Investment is not guaranteed: The value of an investment is not guaranteed and can go down as well as up. You could get back less than you have paid in.

Price: At times, a fund may need to change the way its price is calculated to ensure that those moving into and out of the fund and existing unitholders/shareholders are treated fairly and are not disadvantaged by any large cashflows.

Suspend trading: Fund managers have the ability, in certain circumstances, to suspend trading in their funds for as long as necessary. When this occurs we will need to delay the ‘cashing in’ or switching of units in the relevant fund. You may not be able to access your money during this period. The circumstances in which we may delay a switch, withdrawal or transfer can include but are not limited to the following:

  • if a large number of customers want to take money out of the same fund at the same time;
  • if there are practical problems selling the assets in which a fund is invested;
  • if the fund (or part of it) is managed by an external company, they may insist on a delay.

Stock Lending: Where a fund is involved in the temporary transfer of securities, there is a risk that the borrower may not be able to return the security to its owner. This may have a negative effect on the performance of the fund.

Derivatives: Most funds can invest in derivatives for the purpose of efficient portfolio management or risk reduction. For funds that also use derivatives for investment purposes we apply an additional risk warning due to the possible increase in the risk and volatility of the fund.

B Currency Risk: Where a fund invests in share classes or securities priced in currencies other than the fund’s base currency, changes in exchange rates can contribute to the value of the investment going up or down.
C Emerging Markets: Where a fund invests in emerging markets, it is likely to be more volatile than one that invests in developed markets. These markets may not be as strictly regulated and securities may be harder to buy and sell than those in more developed markets. These markets may also be politically unstable which can result in the fund carrying more risk.
D Smaller Companies: Where a fund invests in the shares of smaller companies, these shares can be more volatile and may be harder to buy and sell than larger company shares which can result in the fund carrying more risk.
E Fixed Interest: Where a fund invests in fixed interest securities, such as corporate or government bonds, changes in interest rates can contribute to the value of the investment going up or down. If interest rates rise, the value is likely to fall. Bonds with a lower credit rating are known as sub-investment grade or junk bonds. These carry an increased risk that the issuer of the bond will be unable to continue the interest payments or return the capital at maturity.
F Specialist: Where a fund invests only in a specific or limited range of industry sectors, it may carry more risk than funds that invest across a broader range or variety of sectors. These funds can be more volatile and carry higher risk due to their lack of diversification.
G Derivatives: Where a fund uses derivatives for investment purposes, there may be an increase in the risk and volatility of the fund. Some derivative investments also expose investors to counterparty or default risk where another party is unable to meet its obligations and pay what is due, which could result in the loss of the value of the derivative itself.
H Cash/Money Market Funds: These are not cash deposit accounts but invest in money market instruments and short-term bonds and can fall in value. In a low interest rate environment the charges applied to a cash fund may be greater than its return, so you could get back less than you have paid in.
I Physical Property: Where a fund invests in physical property, these properties are not easy to buy or sell. In exceptional circumstances, we may need to delay the ‘cashing in’ or switching of units in the fund and you may not be able to access your money during this period. The value of properties held is generally a matter of the valuer’s opinion rather than fact.
J Index-Linked: Where a fund invests in index-linked bonds, changes in inflation rates can contribute to the value of the investment going up or down. If inflation falls, the value is likely to fall.
K High Cash Levels: Due to the way some funds are managed there may be periods when they have large cash holdings. This can be a deliberate asset allocation decision or while suitable investment opportunities are researched and selected. A fund’s growth potential may be less during this period.
L Reinsured Funds: Where a fund invests in an underlying fund operated by another insurance company through a reinsurance agreement, if the other insurance company were to become insolvent, you could lose some or all of the value of your investment in this fund.
M Ethical: Where a fund invests only in sectors and securities that meet its agreed ethical criteria, it may carry more risk than funds which are free from these restrictions. The ethical companies invested in can be involved in new and innovative technologies or new markets and can therefore have a higher risk profile than organisations involved in more mainstream activities.
N Alternative Investments: Where a fund invests in alternatives, it may carry more risk as these instruments are generally priced less regularly and may be harder to buy and sell than investments in more conventional asset classes. Alternatives include commodities, hedge funds, private equity, real estate investment trusts (REITS), venture capital and currencies.
O Convertible Bonds: Where a fund invests in convertible bonds, it will experience the risks associated with holding bonds until conversion at which point it will experience the risks associated with holding equities. To compensate for having additional value through the option to convert from a bond to an equity, a convertible bond typically has a coupon rate lower than that of a similar, non-convertible bond.
P High Yield Bonds: The fund invests in high yield (non-investment grade) bonds. This means bonds that have a 'Credit Quality' rating of BB or less. High yield bonds carry a greater risk than investment grade bonds that the issuer may not be able to pay interest or return capital. In addition, economic conditions and interest rate movements will have a greater effect on their price. There may be times when these bonds are not easy to buy or sell. In exceptional circumstances, we may need to delay the 'cashing in' or switching of units in the fund and you may not be able to access your money during this period.

Need some advice?

If you’d like a hand deciding where to invest your money, a financial adviser could help.

If you don’t have a financial adviser and would like more information about getting financial advice, visit our financial advice page.

More about risk

Find out more about understanding risk with our five simple steps.

Understanding risk

Back to top