Synthetic Risk Reward Indicators (SRRI) calculations are required for UCITS KIIDs.
Calculations need to be performed consistent with CESR/ESMA 10-673: Guidelines – Methodology for the calculation of the synthetic risk and reward indicator in the Key Investor Information Document.
The SRRI Risk Number is a volatility number. It does not indicate the level of leverage.
The determination of the SRRI is based on the standard deviation of annualized monthly historical return volatility of the past five years of the fund, where available and appropriate.
The SRRI then translates the volatility of the returns into an SRRI classification. Depending on the result of the volatility calculations, the fund is allocated into one of the seven SRRI risk classes between 1 (low) and 7 (high).
More details on the General Methodology is set out below.
Monitoring of the SRRI and revision of the KIID
The SRRI of a fund should be revised if it risk category has changed on each monthly data reference point over the preceding 4 months. This requirement applies also to those circumstances where the change of the risk and reward profile of the fund is linked to inadvertent changes in the overall market conditions in the segments that are relevant for the investment policies and/or strategies adopted by the UCITS.
Therefore, the SRRI of the fund should be monitored and controlled on an ongoing basis and, if any material change has occurred, the new risk grading of the fund should be reflected in the updated version of the KID.
In addition to the above, the SRRI should always be revised when changes to the risk and reward section of the KID are the result of a decision by the management company regarding the investment policy or strategy of the fund.
General Methodology – More detail
The following detail is provided at Box 1 of CESR 10-673.
The assignment of the SRRI category is on the basis of the below table.
|1||0% – 0.5%|
|2||0.5% – 2%|
|3||2% – 5%|
|4||5% – 10%|
|5||10% – 15%|
|6||15% – 25%|
There are Specific rules on application to absolute return funds, total return funds, life cycle funds and structured funds. See CESR/09-1026 Annex.
The risk classification of UCITS, as well as any of its subsequent revisions, should be adequately documented and subject to a record keeping requirement of five years. This extends to five years after maturity (expiration of the proposed holding period) for the case of structured funds.