Tracker assesses fund volatility

HIGHLY specialised funds investing in one small market or industry sector can give investors a bumpy ride.

This shows up clearly in a new analysis by Micropal, the performance-tracking organisation. This measures how far a fund's price has deviated from its median over three years. The higher the score, the more volatile the fund.

'It is not a figure that in itself tells you everything about the fund. But used in concert with performance return, it provides a more complete picture of the fund,' said Paul Barnes of Micropal.

The widest variations in score are seen in the investment sectors that tend to be inherently volatile. For example, unit trusts investing in Far Eastern markets (excluding Japan) have an average volatility rating of 8.04, compared with 5.41 for UK equity growth funds and 2.42 for UK gilt and fixed-interest funds. Providence Capitol's Thailand fund, invested in one small and volatile market that has been affected by political unrest, has the highest rating of 13.19.

Among investment trusts, capital shares of split-level trusts have an average score of 10.54, the highest score going to the capital shares of Scottish National and the lowest to M&G Dual. Scottish National is constructed so its assets must grow fast to meet pre-set commitments. Capital shares rank last for returns from the underlying portfolio on wind- up. M&G Dual is an older trust, with shareholders almost guaranteed to get a return at the end of the trust's life.