Managed Fund Volatility Ratings are an opinion as to the relative sensitivity of the total return, including price, on a fund's shares to a broad array of assumed changes in interest rates, mortgage prepayment speeds, liquidity of the portfolio, spreads, currency exchange rates, and other market conditions.
Volatility ratings are expressed on a scale of 'V-1+' (least volatile) through 'V-10' (most volatile). The 'V-1+' rating is assigned only to money market funds or local government investment pools that should not experience loss of principal value to shareholders or participants even in severely adverse interest rate environments. Volatility ratings, however, do not predict the direction or magnitude of changes in such market conditions and, therefore, do not predict whether, or the extent to which, any particular bond fund will perform favorably or adversely in the future.
Also, the total returns of bond funds with the same volatility ratings but dissimilar portfolio securities may move in different directions and magnitudes under the same market conditions. For example, while both a high-yield bond fund, which is sensitive primarily to changes in credit risk, and an international bond fund, which is sensitive primarily to changes in currency exchange rates, might have 'V-6' ratings, they are likely to perform differently under the same market conditions. The price of one can increase while that of the other can decrease, or each might increase or decrease in different magnitudes. Nevertheless, a fund with a lower risk volatility rating is likely to exhibit less total return sensitivity than a fund with a higher risk volatility rating across a broad and varied range of market conditions.
Lowest Market Risk (Stable Value)
Funds rated 'V-1+' are considered to have the lowest market risk. The rating is assigned only to money market funds or local government investment pools that should not experience loss of principal value to shareholders or participants even in severely adverse interest rate environments.
Low Market Risk
Funds rated 'V-1' and 'V-2' are considered to have low market risk. Total returns exhibit relative stability, performing consistently across a broad range of interest rate scenarios. These funds offer low risk exposure to interest rates and changing market conditions.
Moderate Market Risk
Funds rated 'V-3' and 'V-4' are considered to have moderate market risk. Total returns perform consistently over intermediate- to long-term holding periods, but will exhibit some variability over shorter periods due to greater exposure to interest rates and changing market conditions.
Moderate to High Market Risk
Funds rated 'V-5', 'V-6', and 'V-7' are considered to have moderate to high market risk. Total returns experience significant variability across a broad range of interest rate scenarios. These funds typically exhibit significant exposure to interest rates and changing market conditions, and may face additional risks from mortgage prepayments, derivatives, leverage, illiquid markets, and/or foreign currencies.
Speculative Market Risk
Funds rated 'V-8', 'V-9', and 'V-10' are considered to have speculative market risk. Total returns may experience extreme variability across a broad range of interest rate scenarios. These funds typically exhibit substantial exposure to interest rates and changing market conditions, as well as mortgage prepayments, derivatives, leverage, illiquid markets, and/or foreign currencies.
National Managed Fund Volatility ratings are an opinion of the relative sensitivity of the total return, including market price, on a fund's shares to a broad array of assumed interest rates, rate of mortgage prepayment, liquidity of the portfolio, spreads, currency exchange rates, and other market conditions.
Unlike International Volatility Ratings, these national ratings are solely an opinion of the relative risk of such factors endogenous to the sovereign state in which the fund operates. National volatility ratings are expressed in terms of the same scale and description as international volatility ratings.
The ratings in question are not internationally comparable since each country has a national rating of 'AAA' assigned to the "best" credit available in that country and other credits are rated only relative to this "best" credit. Like national credit ratings, national volatility ratings are denoted by the addition of the ISO country identifier suffix, represented for example, as 'AAA(mex)' in the case of Mexico.
