Chatfeild-Roberts warns of bubble risk for ‘low risk’ funds

Jupiter’s chief investment officer and top multi-manager John Chatfeild-Roberts has urged investors to be wary of funds with low numbered risk ratings, warning they may be exposed to a bubble in government bonds.

Mr Chatfeild-Roberts said that to achieve a low risk rating under the EU’s new Ucits IV rules, funds may have to hold a very large proportion of their assets in fixed income.

However, he cautioned that developed world government bonds and other so-called ‘safe haven’ fixed income instruments may be in a bubble - turning usual perceptions of risk on their head.

He said he was afraid of low risk ratings shoehorning advisers and their clients into funds that turn out not to be low risk at all – particularly amid the current boom in fixed income investing.

“People are getting shovelled,” he said.

Mr Chatfeild-Roberts runs Jupiter’s multi-billion pound Merlin fund range, one of advisers’ favoured suites of multi-manager products.

The funds are gradated in terms of the risks that they take, but not according to a numbered risk rating system.

The manager confirmed Jupiter had been in discussions with prominent provider Distribution Technology to see whether it could provide suitable numbered risk ratings for the Merlin range that might help consumers – who have become increasingly used to seeing numbered risk ratings on funds’ prospectuses and literature.

However, Mr Chatfeild-Roberts stressed the funds would not alter their assets to target a risk rating or shoehorn their asset allocation to conform to Distribution Technology’s – or the EU’s – ratings of a fund’s risks.

The risk ratings would be assigned to reflect a fund’s current holdings, he said, and not the other way round.

The manager said the Merlin funds do not contain any exposure to the developed world government bonds under contention, except for some Australian debt.