Adviser Guide to the Select Multi-Asset Portfolios - Select Defensive and Select Growth Portfolios

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1 Adviser Guide to the Select Multi-Asset Portfolios - Select Defensive and Select Growth Portfolios Leading the way in multi-asset portfolios since 2002 Contents Why consider multi-asset portfolios? What are multi-asset portfolios? What makes the Select Multi-Asset Portfolios different? How do advisers benefit from using the Select Multi-Asset Portfolios? Getting the most from the Select Multi-Asset Portfolios. Why partner with Select? multi-asset portfolios

2 Why consider multi-asset portfolios? A multi-asset approach ensures that investors have the necessary diversification across specialised investment managers and different asset classes which, when combined, can enable investors to achieve their performance objectives with acceptable levels of risk. One of the key benefits of a multi-asset approach is that investors can access investment opportunities and sophisticated portfolio management tools that are usually out of reach for most retail investors. In summary, a multi-asset portfolio should combine four essential services into one convenient investment management solution for investors: Determine the appropriate asset mix, Research, select and then monitor individual investments and allocations to underlying managers in a cost effective manner, Preserve capital through robust risk management, and Administration and reporting. Having these services combined into a convenient portfolio, can save investors time, money and stress, as these important tasks are undertaken by a dedicated team of experienced investment professionals. In the case of advisers, the precious time saved will allow advisers to spend more time communicating with clients and advising on their personal affairs. Page 2

3 What are multi-asset portfolios? A multi-asset portfolio is an investment approach that combines asset allocation advice, investment manager selection, risk management services, administration and reporting into one convenient portfolio. The multi-asset manager s role is to best position the asset mix of the portfolio to those sectors that offer the best risk reward tradeoffs and then allocate to a group of investment managers who are specialists within their asset class or sector (e.g. shares, property, fixed interest and alternatives). Importantly, the multi-asset manager also ensures that all components of the portfolio work in a coherent manner, so that investors are not exposed to risks that could be diversified away. Page 3

4 What makes the Select Defensive and Growth Portfolios different? At our core, Select believes that the key to long term wealth creation is to achieve regular compounding rates of return above cash, whilst limiting major losses of capital in difficult markets conditions. The key characteristics that differentiate our approach and the ongoing management of the Select Defensive Portfolio and the Select Growth Portfolio, together the Select Multi-Asset Portfolios (the Portfolios) are: Contrarian approach At Select, we manage our clients wealth within an absolute return framework and adopt a contrarian investment philosophy that focuses on preserving our clients wealth as well as providing attractive compounding returns above the cash rate over the medium to long term. We believe a contrarian approach is the key to investment success. This belief is based on the fact that most markets contain inefficiencies and that a disciplined approach to investing can uncover opportunities that other investors may ignore. True diversification The Portfolios reflect our core views on the way we expect markets to develop over the medium to long term, and to ensure appropriate diversification, they also take into account alternative scenarios which, though perhaps considered less likely, could otherwise result in significantly different risk and return outcomes. In short, a truly diversified portfolio should generate attractive regular compounding returns under the core scenario, and be robust enough to withstand the impacts of these alternative scenarios in order to limit any major drawdowns of capital. Flexible and dynamic approach to asset allocation In order to achieve greater diversification it is important to have the flexibility to tilt the Portfolios towards those areas which are more likely to achieve their long term return objectives and to avoid assets that have a high risk of delivering disappointing returns. These decisions generally reflect our view of value in various asset classes. When constructing our Portfolios, we operate within wide asset allocation ranges and are not constrained by strategic asset allocation benchmarks. As a result, allocations across various asset classes and strategies can vary markedly over time. Page 4

5 Long term view / cash plus benchmarks We recognise that investors often have relatively short term performance benchmarks. Select works with its clients and partners to manage this ongoing mismatch in order to minimise the extent to which it may compromise portfolio construction and interfere with making good investment decisions. The Portfolios are constructed to outperform the cash return by a margin over the medium to long term. Exposure to and deep knowledge of alternative investments We consider the full universe of investment assets and strategies including a willingness to make a much larger allocation to alternatives than traditional diversified funds as we believe it is important to consider the likelihood of flat and declining markets. Select has deep knowledge of some of the world s leading alternative and specialist investment managers. Access full spectrum of investment vehicles We access the full spectrum of investment vehicles and structures. In addition to wholesale managed funds we can also use ETFs and listed investment companies as vehicles to provide access to a particular asset class or theme. Select has a proven track record in the research and selection of managers and strategies, particularly in the alternatives space. Deanne Fuller, Senior Investment Analyst, Lonsec Fund Review Recommended December 2011¹ Page 5

6 When we launched the Select Defensive and Growth Portfolios in 2002, we endeavoured to create investment solutions that were less dependent on traditional equity and bond markets and with greater flexibility to focus on those assets and strategies showing the most attractive value and opportunity, across both traditional and alternative areas. Dominic McCormick, Chief Investment Officer, Select Page 6

7 How do advisers benefit from using the Select Multi-Asset Portfolios? Greater compliance oversight and accountability Using the Select Multi-Asset Portfolios provides advisers with a team of full time investment experts that continuously monitor the underlying investments of the Portfolios and manage the associated risks. Select is held accountable for its decisions, which we report on each month in an open and transparent manner. Access to specialist investment opportunities Using the Select Multi-Asset Portfolios provides advisers and their clients with access to specialist investment opportunities that are normally only available to sophisticated institutional investors such as large pension schemes or endowment managers. More time to spend with clients Using the Select Multi-Asset Portfolios means that once an allocation to the Portfolios has been made, advisers will no longer have to write to clients each time an investment is changed within the Portfolio, nor will they need to meet with the BDM s of various companies. The precious time saved will allow advisers to spend more time communicating with clients and advising on their personal affairs. Comprehensive transparency Partnering with an investment specialist like Select does not mean you lose control over your clients wealth. We provide high levels of portfolio transparency and regular reporting to ensure you fully understand what is happening within your clients investments. This enables you to confidently explain to your clients how their investments have performed. You will have access to monthly performance and holdings updates, detailed quarterly investment reports, regular teleconferences and manager spotlights. In addition, a Select representative is available to present at client seminars and at adviser education forums. This will allow you to control how the performance is communicated to your clients. Select takes care of the administration and tax reporting One of the most time consuming aspects of investment management is the administration and reporting requirements associated with each investment or trade. Select ensures that these issues are efficiently managed including the direct negotiation with managers in order to lower fees, which we pass on to investors in full. Further, at the end of each financial year, we provide investors with a consolidated tax statement. Page 7

8 Getting the most from the Select Multi-Asset Portfolios Portfolio overview The Portfolios provide investors with a convenient investment management solution that aims to manage the complex tasks of deciding where and when to invest and what to avoid. The Portfolios are multi-asset portfolios that invest across traditional and non-traditional asset classes and strategies, and are much more than just another balanced/diversified fund, as they offer far greater overall diversification. Some of the underlying investments, for example, are held primarily for their capital preservation or risk reducing characteristics. The objective of the Portfolios is to provide a cash plus style of return for investors over three to five years. We do not believe that managing investment portfolios against a peer related benchmark makes sense; we are yet to meet an investor who treats gains and losses equally and, as such, we believe that outperforming the prevailing cash rate after fees is what investors really want. Actively managed by Select, the Portfolios are exposed to local and international fixed interest, property, equities and alternative investments, as well as some cash. We use the skills of specialist investment managers to achieve the Portfolio s investment objectives, investing via both listed and unlisted vehicles. The Portfolios are diversified, generally being exposed to at least 50 underlying investments, many of which are themselves further diversified. What returns are we aiming for? Select Defensive Portfolio - For cautious Investors Over rolling three-year periods, we are aiming to achieve: An after fee return of 2% per annum above the cash rate #, and Volatility of 4% per annum (as measured by the annualised standard deviation*), which gives this portfolio a low to medium risk profile. Select Growth Portfolio - For assertive investors Over rolling five-year periods, we are aiming to achieve: An after fee return of 5% per annum above the cash rate #, and Volatility of 8% per annum (as measured by the annualised standard deviation*), which gives this portfolio a medium to high risk profile. #The cash rate is the UBS 180 day Australian Bank Bill Index. For recent performance information, including Portfolio performance against this benchmark, please visit our website at selectfunds.com.au, contact us or speak to your adviser. *A measure of the degree of variation of returns around the mean (average) return. Increasing levels of dispersion around the mean lead to higher standard deviations, indicating a higher degree of volatility and risk. Page 8

9 Who should allocate to these Portfolios? The Select Defensive Portfolio has a higher weighting towards defensive asset classes, suitable for cautious investors, whilst the Select Growth Portfolio has a higher weighting towards growth assets, which is more suitable for assertive investors. Exposure to these Portfolios tends to suit investors who wish to structure their portfolio utilising a core multi-manager exposure. This may be complemented with satellite investments funds and direct shares or may represent an all-in-one wealth management solution. Property 17% (Range 5%-25%) Equities 39% (Range 10%-50%) Property 17% (Range 5%-25%) Equities 61% (Range 40%-80%) Alternatives 17% (Range 10%-35%) Alternatives 15% (Range 10%-35%) Cash & Fixed Interest 26% (Range 25%-75%) Cash & Fixed Interest 6% (Range 5%-50%) Figure 1 - Asset allocation as at 31 March The total exposure may not sum to 100% due to any direct derivatives investments (such as options and futures). Source - Select Asset Management. Page 9

10 Why partner with Select? Original thinking New insights and original thinking are key factors which typically drive outperformance. Since our founding in 2002, Select has earned a reputation as an original thinker: one of Australia s most innovative providers of multi-asset portfolios and alternative investment solutions. We have demonstrated this through the launch of our range of innovative portfolios and funds, which are well regarded by independent research groups. Boutique culture Our employees are owners of the business and being smaller than many of our competitors, means we are nimble enough to make and act on decisions within the Portfolios without the bureaucracy that can impede large investment management businesses. This is particularly important as markets can be volatile. Investor first ethos Being majority owned by our directors and employees provides investors and advisers with the assurance that we only choose what we consider to be the best investment managers in their respective asset classes to manage our investors wealth. This means that we are not required to use in-house investments, though this can be a common situation for larger financial institutions and can be detrimental to returns. Aligned with investors In keeping with our investor first ethos, our directors and employees have substantial investments in the same portfolios as our investors. Because our employees have their own wealth in the same portfolios as our investors, we are not concerned with short term market movements, but instead, we focus on longer term wealth creation and preservation opportunities. Page 10

11 Cohesive and experienced investment team One of our greatest strengths is the quality and stability of our investment and risk management team. Our management and investment team members have amongst them more than a century of deep investment market experience. We have deliberately designed a cohesive, yet challenging, team environment to ensure that the management of our investors wealth is enhanced over time. Experience in managing complex investment portfolios We know how to blend underlying investments to achieve the appropriate portfolio outcomes and we have access to some of the world s premier global traditional and alternatives managers that are often out of reach to retail investors. Importantly, this experience helps us to avoid those investments that are designed to enrich the providers rather than the investors, and, to support that, Strong infrastructure, risk management and compliance framework Our professionally managed risk and compliance framework is designed to enable us to monitor our portfolios accurately and regularly, and adjust allocations so they remain within risk and mandate limits. We recently sought tenders from several of the top asset consultants in Australia to provide our firm with a range of asset management research and support services. Select stood out from the pack in two key areas: deep capabilities and credentials in absolute returns investing, and an ability to provide a onestop shop for all the external investment services we require. Their best of breed approach and greater scale mean we benefit from competitively-priced offerings from the best providers in Australia (in areas such as custody, administration, legal, trading and so on) - but we only need to deal with one relationship to access these. Fewer moving parts has meant fewer hassles and greater speed to market for our firm. Sarah Abood, Chief Executive Officer, Profile Financial Services Page 11

12 Contact Select to find out more information on the Select Multi-Asset Portfolios Select Asset Management Limited ABN Level 10, 2 Bulletin Place, Sydney NSW 2000 P: F: E: info@selectfunds.com.au Australian Financial Services Licence No selectfunds.com.au Disclaimer This adviser guide does not take into account any particular person s objectives, financial situation or needs. Investors should seek professional advice before making investment decisions. We are the issuer of interests in the Select Defensive Portfolio and the Select Growth Portfolio. A product disclosure statement (PDS) for the offer is available free of charge from our website or by contacting us. The PDS should be considered before deciding to acquire, or continue to hold an investment in the Select Defensive Portfolio or the Select Growth Portfolio. Applications can only be made on the basis of an application form attached to the current PDS. Neither past performance nor volatility is a reliable indicator of what may happen in the future. Neither capital nor returns are guaranteed. ¹ The Lonsec Limited ( Lonsec ) ABN rating (assigned December 2011) presented in this document is limited to General Advice and based solely on consideration of the investment merits of the financial product(s). It is not a recommendation to purchase, sell or hold the relevant product(s), and you should seek independent financial advice before investing in this product(s). The rating is subject to change without notice and Lonsec assumes no obligation to update this document following publication. Lonsec receives a fee from the Fund Manager for rating the product(s) using comprehensive and objective criteria. Select Asset Management Limited 2012.