Managed Risk Funds | Risk Management | BetaShares

Managed risk for your investment portfolio

All investors face the fundamental investment challenge of balancing risk and return.If you invest too conservatively, by allocating heavily to defensive asset classes like cash and bonds, you can risk generating insufficient returns to fund future financial needs.

However, if you invest too aggressively, for example via heavy allocations to growth assets like shares, you risk exposure to significant losses during sharemarket declines.

What is risk management?

The principles of risk management when it comes to investing largely centre around assessing potential losses and taking action in an attempt to mitigate them.

For example, an investor seeking to reduce risk in their investment portfolio may decide to invest more in cash or bonds instead of shares, as cash or bonds generally have a lower risk profile.

In a low interest rate environment, the potential capital growth and income benefits of investing in shares are particularly apparent. However, some investors may remain concerned about the effects of volatility and the potential for significant losses when markets experience sustained falls.

Investors seeking diversified equity exposure but concerned about uncertain financial markets may wish to consider the BetaShares Managed Risk Funds.

The Funds provide exposure to either Australian or global shares, while seeking to mitigate the impact of market volatility and the risk of large drawdowns during declining markets.

How do the Funds’ risk management strategies work?

The risk management strategy used by the Managed Risk Series aims, over market cycles, to provide exposure to upside potential in rising markets while avoiding most of the downside in periods of decline.

To achieve this, the Funds combine:

  1. Exposure to shares – providing investors with the potential for capital growth and dividend income, and
  2. An active risk management strategy, that seeks to reduce volatility and defend against losses in declining markets.

The risk management strategy involves actively selling equity index futures. Selling futures can generally be expected to generate a positive return when the sharemarket declines, and a negative return when the sharemarket rises.

As part of the strategy, sharemarket volatility is monitored daily, and when volatility rises, which is often characteristic of a falling market, a ‘handbrake’ is applied to reduce the impact of major market declines. The handbrake is implemented by selling equity index futures contracts, which reduces investors’ exposure to shares in falling markets, while still allowing a level of participation in rising markets.

As a result, in falling markets, the Funds have an opportunity to outperform the underlying share market, as the risk management strategy seeks to reduce the impact of market falls on the value of the portfolio.

In rising markets, the Funds have an opportunity to rise in value, however not by the same amount as the rise in the underlying sharemarket due to the implementation of the risk management strategy, which means the Funds will not be fully invested in the sharemarket.

Who might the Managed Risk Funds be suitable for?

The BetaShares Managed Risk Funds could be considered by pre-retiree, retiree or self-managed super fund investors.

By using the Managed Risk Funds, investors have the potential to:

  • Benefit from sharemarket returns with the potential for reduced downside in declining markets
  • Obtain exposure to an income stream from the dividends of the Australian or global sharemarkets
  • Benefit from reduced volatility and a smoother investor experience despite changing market conditions
  • Gain cost-effective exposure to a diversified portfolio of shares in a single trade on the ASX

Considerations for BetaShares Managed Risk Funds

It’s important to be note that the application of the risk management strategy will generally mean that HVST, AUST or WRLD are not fully invested in the sharemarket during rising markets, and so the upside potential may be less than a comparable fund that does not employ a risk management strategy.

BetaShares Managed Risk Funds

ASX Code Description Factsheet
HVST BetaShares Australian Dividend Harvester Fund (managed fund) - Aims to provide exposure to large capitalisation Australian shares, along with regular franked dividend income (paid monthly), that is at least 1.5x the yield of the Australian broad sharemarket on an annual basis. In addition, the Fund employs a risk management strategy which actively seeks to reduce volatility and defend against losses in declining markets. Download
WRLD BetaShares Managed Risk Global Share Fund (managed fund) - Aims to provide exposure to a diversified portfolio of global shares (generally consisting of at least 1,500 of the largest companies listed on stock exchanges of the world’s major developed economies weighted by market capitalisation), with a risk management strategy which actively seeks to reduce volatility and defend against losses in declining markets. Download
AUST BetaShares Managed Risk Australian Share Fund (managed fund) - Aims to provide exposure to a broadly diversified portfolio of Australian shares (consisting of 200 of the largest shares on the ASX by market capitalisation), with a risk management strategy which actively seeks to reduce volatility and defend against losses during declining markets. Download

There are risks associated with an investment in each Fund, including market risk. The risk management strategy may not be effective and selling futures in rising markets can be expected to limit each Fund’s capital growth. For more information on risks and other features of the Funds please see the applicable Product Disclosure Statement, available at www.betashares.com.au