All types of investment carry a degree of risk and it is important that you understand and are comfortable with the level of risk to which your capital could be exposed. We recommend that you consult with a financial adviser if unsure in any way.
There is the potential for loss of your original investment. The amount of investment risk will depend on the fund’s risk profile. We would typically expect investments that are perceived as lower risk to offer less potential for loss but with potentially lower returns, whereas we would expect higher risk investments to generate higher returns albeit with the extra risk of potential loss over the long-term. However, there are no guarantees as to how an investment will perform in the future.
Inflation could erode the relative value of your investment.
There is a risk that financial markets will fall, affecting the value of your investment.
There is no guarantee that the investment objective of the fund will be achieved.
Past performance of a fund is not a guide to future returns. The price of shares and any income from them can go down as well as up and there is the possibility of a loss to your original investment.
The levels of taxation and of relief from taxation will depend upon individual circumstances.
There may be a variation in the performance between funds with similar objectives due to the different assets selected.
Performance of a fund will be affected by the fund manager’s investment decisions.
If you withdraw part of your investment to supplement the income paid out to you, there is an increased risk that the residual amount of your investment will be less than your original investment when you decide to sell.
Other investment risks
The fund may invest directly into, or be exposed to via its underlying investments, a variety of assets which carry specific risks which could impact the returns from your fund. The main risks are summarised here, with further detail available in the fund’s prospectus.
Alternative investments: Types of non-traditional investments such as commodities, private equity, specialist lending and hedge funds. These types of investment can help to diversify portfolios and are usually lowly correlated with traditional investments, such as bonds and equities, but can be more volatile in certain market conditions.
Collective investment schemes: This fund may be directly invested in, or have exposure to units in other collective investment schemes, such as commodity funds, hedge funds and property funds, which could expose the fund to increased levels of risk.
Counterparty credit: Where securities or financial derivative instruments require a specific entity, usually a bank, to honour its obligations.
Currency: Where investments are denominated in currencies other than sterling, changes in exchange rates may cause their sterling value to rise or fall.
Currency forward contracts: Typically used to help reduce the impact of currency movements, but could also expose the fund to volatile returns from time to time.
Derivative: A financial contract whose value is related to the value of an underlying asset or index. Whilst their use is not necessarily expected to increase risk within a fund, they can be highly sensitive to changes in the value of the asset on which they are based and can increase the size of losses and gains, resulting in larger fluctuations in the value of the fund.
Emerging market countries: Some markets in less developed countries carry higher risks than more developed countries.
Equities: As an asset class, equities can experience high levels of fluctuation in prices.
Fixed interest securities: This type of asset, which includes government and corporate bonds, is particularly affected by movements in interest rates. If interest rates rise, their price may fall, and vice versa.
Inflation: Higher inflation can negatively impact investment markets, in particular, fixed interest securities such as government bonds and corporate bonds.
Infrastructure: Investments in this sector can be significantly affected by changes in the supply of, demand for and the price of natural resources and commodities. They can also be significantly affected by government regulations, changes in economic regulation and broad macro-economic conditions.
Interest rate: Unexpected movements in interest rates will affect all types of assets, in particular, fixed interest securities such as government bonds and corporate bonds. If interest rates go up, the value of the bond may fall, and vice versa.
Issuer credit: Where the issuer of a security is unable to make income payments or repay its debt.
Legal/tax: Arising from a change in legal/tax regulations or the application of them.
Liquidity: During difficult market conditions, securities may become more difficult to sell and buy at a desired price.
Operational: Processes, systems and controls can fail. This is more likely to happen with more complex products or investments in overseas markets, such as emerging market countries, which may not have the same level of safekeeping, infrastructure or controls as more developed markets.
Property and Real Estate Investment Companies: Property as an asset class tends to experience cyclicality which can increase the volatility of returns.
Smaller companies: Investment in smaller companies is typically higher risk than investment in larger companies.
Structured investments: These investments have an embedded derivative and may, if certain criteria are met, experience a swift change in value.
Non-investment Grade Bonds: These have lower credit ratings than investment grade bonds and therefore carry a higher degree of issuer default risk.