Risk management
Investment Risk
The investment risk of each stock will be compared against the returns generated to determine whether the risk contribution by stock in the fund is acceptable against our internal limits. Depending on the level of risk, we will reduce or liquidate our position in a particular stock.
ECT Fund approaches investment risk management by first identifying both absolute and relative risk.
- Absolute Risk is the volatility of a fund's returns and is measured using standard deviation. An asset or portfolio with a high standard deviation is more likely to produce an extreme return (high or low) than one with a low standard deviation.
- Relative Risk is the volatility of a fund's returns relative to the benchmark. Relative risk is measured using tracking error, which is the most commonly used portfolio risk measure.
Operational Risk
Through a review of internal controls within the business and external audits we aim to reduce the amount of operational risk borne by the Fund.
The operational risk is managed through the establishment of strict internal procedures that are regularly reviewed, evaluated and updated. The audit and control of these rules implementation is fulfilled by ECT Fund Supervisory Board.