2 Responses to “March 20, 2014”

1. dwl says:

   March 23, 2014 at 4:30 pm

   Hello

   This is not on topic, however I have have just read a NP article ” Are you about to become a High Risk Investor”. What is your opinion? More media nonsense or ?

2. jiHymas says:

   March 24, 2014 at 4:26 pm

   The article Are you about to become a high-risk investor discusses the CSA paper CSA Notice 81-324 and Request for Comment : Proposed CSA Mutual Fund Risk Classification Methodology for Use in Fund Facts:

   Although standard deviation{2} is used by both IFIC and CESR methodologies and seems to remain the most common risk indicator used by Canadian investment fund managers, we examined other risk indicators currently in use and those that could potentially be used to determine and measure risk. In total, 15 risk indicators were studied. They can typically be grouped into one of five categories: overall volatility risk measures, tail-related risk measures, relative volatility measures, risk adjusted return measures, and relative risk adjusted return measures. Following a thorough analysis of all these risk indicators, we have chosen standard deviation as the most suitable risk indicator for the Proposed Methodology.

   Our reasons for choosing standard deviation are as follows:

   • • The risk scale in the Fund Facts is intended to measure Volatility Risk, and standard deviation is the most widely accepted measure of volatility;
   • • Its calculation methodology is well known and established;
   • • The calculation is simple and does not require sophisticated skills or software;
   • • It provides a consistent risk evaluation for a broad range of investment funds;
   • • It provides a relatively stable but still meaningful evaluation of risk when coupled with an appropriate historical period;
   • • It is already broadly used in the industry, and serves as the basis for the IFIC and CESR methodologies;
   • • It is available from third party data providers, thereby providing a simple and effective source of data for oversight purposes both by regulators and by market participants (including investors); and
   • • The implementation costs are expected to be minimal.

   … so right away I lost interest. While the CSA is very sensibly restricting their definition of “risk” to the sole component “volatility risk”, volatility – or any other metric – is completely useless without the context of portfolio goals.

   If you are seeking to ensure that you can get cash at any time in the next three months, T-Bills are less risky than anything else. If you are seeking to immunize yourself against a mortgage balloon payment ten years from now, T-Bills are very risky.

   This is just useless regulatory gibberish designed to allow some box-tickers at the commissions to pat each other on the back and congratulate themselves on making a new rule.

   The IFIC comment letter spouts the same nonsense with different numbers.