The Standard Risk Measure (SRM) aims to help customers decide on a superannuation fund by making clear what the level of risk is.
It is based on guidance from the Australian Prudential and Regulation Authority (APRA) to allow investors to compare investment options that are expected to deliver a similar number of negative annual returns over any 20-year period. AMP has introduced the SRM in accordance with the recommendations from the Financial Services Council (FSC) and Association of Superannuation Funds of Australia (ASFA).
Methodology
The methodology used for calculating the SRM follows the FSC/ASFA recommendations and is in line with market adopted practices. For each investment option, the process determines a set of forward looking capital market assumptions by forecasting expected yield and growth outcomes for each asset class.
The assumed return outcomes are gross of Administration fees, net of Investment management fees and gross of tax. Generally, alpha (outperformance) has been assumed to offset Investment management fees, however for some asset classes (where appropriate) a small amount of alpha in excess of Investment management fees is assumed.
For multi sector (or diversified) investment options, a correlation matrix between the asset classes has also been determined using long-term historic data. Both the assumptions and correlations are then used to determine a multi sector investment option's expected risk and return by combining them with its long-term strategic asset allocation.
For each investment option, the SRM is calculated by determining the probability of a negative return based on an expected normal distribution of returns multiplied by 20.