![]() One limitation of standard deviation is that it can’t accurately project potential future losses, and may in fact underestimate risk. As the Horizons prospectus warns, they’re speculative and may be suitable only for active traders able to assume the risk of losing their entire investment.Įxcluding BetaPro, the highest three-year standard deviations were 56% for the Blockchain Technologies ETF, sponsored by Oakville, Ont.-based Harvest Portfolios Group Inc., and 52% for the Horizons Marijuana Life Sciences Index ETF. employ leverage and inverse leverage, and dominate the lists of the most volatile ETFs. ![]() The BetaPro products sponsored by Toronto-based Horizons ETFs Management (Canada) Inc. By comparison, the standard deviation of a broad-market Canadian equity ETF is more than eight times lower. The ETF’s three-year standard deviation of returns was a whopping 144%. So it is for the BetaPro Marijuana Companies 2x Daily Bull ETF. For example, “you can compare the volatility of an equity fund against a bond fund, and get a sense of the risk of each one.”Īs Fundata’s calculations show, investing in a narrow market segment - and leveraging on top of that - is a recipe for off-the-charts volatility. Standard deviation is useful for comparing across asset categories, Bridger said. A broadly diversified Canadian equity ETF, for example, can be classified as “medium” risk. They’re required to be published in the ETF Facts and Fund Facts disclosure documents. The five-tier risk ratings range from low to high. Newer funds use a combined history that also includes a proxy such as a market benchmark or an older series of the same or similar fund. The ratings are based on the most recent 10 years of performance history. Standard deviation - which measures how much a fund or ETF’s returns deviate from its mean returns - has received the blessing of securities regulators as the core methodology for calculating risk ratings. (Risk data can also be calculated for other time periods, Bridger noted.) To illustrate how ETFs have fared during the recent tumultuous years, Fundata provided risk-measurement data to Investment Executive for the three years ended July 31. “Each of these metrics has their pros and cons.” The more types of metrics that the firm can provide, he added, the more complete the picture of a fund’s risk. “Risk has been a hot topic for a long time now in the fund industry,” said Brian Bridger, senior vice-president, analytics and data, with Toronto-based Fundata.
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