Based on industry information, the standard risk measure (SRM) helps you compare investment options within and across funds.
For each investment option, the SRM forecasts the expected number of negative annual returns over any 20-year period. But keep in mind that it can’t give a full understanding of all forms of investment risk. For example, it doesn't show the potential size of a negative return, or when a positive return may be less than you need for your investment objectives. It also doesn’t take into account the impact of administration fees and tax.
We review our SRMs annually, or more often if we think there’s been a material change to the underlying risk and return characteristics of a specific investment.
How SRM is calculated
For each of our investment options, we calculate our SRMs based on the following:
- Capital market assumptions, established for factors such as the return and volatility of each asset class within our investment options.
- Projections, used to forecast likely future returns. We specifically determine the likelihood of a negative return over one year, then multiply this result by 20 to calculate the likely number of negative returns over 20 years.
- SRMs are determined after investment management fees are deducted, and before administration fees are applied (keep in mind that higher fees will increase the likelihood of a negative return).
- SRMs are calculated before tax and without franking credits.
- The asset allocation used for each of the Ready Made options assumes a constant set of underlying economic conditions (such as Gross Domestic Product, inflation, and interest rates), often described as an 'equilibrium position'.