There are numerous ways to quantify financial risk, including variance, Beta, and Value at Risk. However, Martin Conlon, Head of Australian Equities at Schroders, reduces the concept of risk to a simple maxim: "Risk is losing money"
Here he discusses how leverage is one of the key determinants of risk. He tells us: “There are times when financial leverage enhances your risk, and not your return. Companies that use financial leverage aggressively take risk for you. So we need to understand how much risk the company has taken on our behalf, and therefore how much we want to have in that business.”
Watch below for the full interview, where he expands on this point, and discusses the other most important determinant of a company’s risk.
The Schroder Equity Opportunity Fund is an index unconstrained, all cap strategy managed by the highly rated Schroders Australian Equity team.