Morningstar only rates The Cost-of-Living Allowance Fund’s own portfolios, not the external portfolios. Furthermore, it is not possible for Morningstar to rate LD Discretionary, as this portfolio contains unlisted assets in addition to its listed investments.
In the links below, you will find further risk information from Morningstar relating to our own portfolios.
On morningstar.dk, you can find explanations under ‘Methodology’. Below, we provide explanations of some of the terms.
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It measures the risk-adjusted return and is typically calculated as the excess return relative to the risk-free rate, measured against the standard deviation of the excess return. In other words, the higher the Sharpe Ratio, the better the investment has performed.
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Morningstar uses the R-squared risk metric to measure the proportion of a fund’s volatility that can be explained by market volatility. R-squared ranges from 0 to 100 per cent, and 100 per cent means that the fund’s volatility can be fully explained by market volatility, whilst, for example, an R-squared of 35 per cent indicates that 35 per cent of the volatility is due to market volatility. The higher the R-squared value, the more reliable the alpha and beta indicators are.
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Beta is a method for determining a fund’s sensitivity to fluctuations in its market. Morningstar calculates the risk measure known as beta by comparing the portfolios’ performance over the past 36 months with that of a specified market index. A beta of 1.00 means that the portfolio moves in exactly the same way as the market. A beta of less than 1.00 means that the portfolio is less affected by market events than the market itself. If the beta is above 1.00, the portfolio’s value fluctuates more than the market, which means that if the market rises, the portfolio rises more, and if the market falls, the portfolio falls even more.
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Morningstar calculates alpha over the last 36 months. Alpha measures the portfolios’ actual performance relative to their expected performance, as indicated by beta. A positive alpha means that the portfolio has outperformed expectations given the level of risk measured by beta. A negative alpha means the opposite.
