What are mutual fund volatility rankings ?

First lets start with defining what volatility is. Volatility is the speed at which the price of an investment changes over time. Independent agencies and third parties often publish bond mutual fund volatility ratings. The purpose of these ratings is to provide information to investors about the sensitivity of the net asset value of a bond mutual fund to a change in interest rates and economic conditions. The volatility rating will be based on a review of the debt instruments owned by the mutual fund. A review of the credit quality, the fund’s performance and risk will also be used to evaluate the portfolio. Specific risks such as interest rate, prepayment and currency risks will all be taken into consideration. When registered persons or the member distribute bond mutual fund ratings as part of its retail communication the following must be disclosed:

• The name of the entity providing rating
• A statement that the rating does not identify or describe volatility as a risk rating
• The most current rating
• Information that at a minimum is current to the most recent quarter’s end
• A link to a website or toll free number providing rating information, methodologies and criteria
• A narrative description containing a statement that there is no standard method for assigning ratings
• The type of risks measured by the rating and time frame i.e. short or long term
• A statement regarding any compensation received for issuing the rating
• A statement that there is no guarantee that the fund will continue to have same rating or performance

If the above disclosures and requirements are not satisfied, the member may not distribute retail communications containing bond volatility ratings.