Managed Funds Series

Transcription

1 Managed Funds Series

2 Namibia s Unit Trust Market Leader 2 - Managed Funds

3 Index 4 Introduction Fund Categories 5 Asset Classes 6 Portfolio Construction 7 Investment Approach 8 Investment Process 9 Our Managed Funds 10 Understanding Market Risk 13 Distributions & Taxation Fees & Charges Other benefits of investing in these funds 14 Typical Investor How do I invest? 15 Disclaimer and Risk Statement Managed Funds - 3

4 Introduction Many investors have the need not only for a well-diversified portfolio, but also to have it managed actively on their behalf by an investment manager. This involves a process where an investment manager takes advantage of changing market conditions on an ongoing basis for the benefit of the investor. The rationale behind an active management approach is primarily to maximise returns, while minimising volatility, in an effort to achieve capital protection over the longer term. This approach provides peace of mind to the investor, who is usually occupied with work or other responsibilities, knowing someone reputable is keeping an eye on his/her portfolio. The Bank Windhoek Managed Funds series has been developed to fulfil this very need. This document provides an overview of our managed funds series, including the investment approach and process that is followed, in order to provide you with sufficient information to be able to select the fund, suitable to your risk and return expectations. Fund Categories The Bank Windhoek Unit Trusts range of funds can be divided into two main categories. The first category is what we define as the Focused Funds Series and the second category is the Managed Funds Series. Focused Funds are portfolios that invest predominantly in one main asset class, e.g. money market, fixed interest, property or equities. These funds are designed for investment by clients who have a very specific view on an asset class and feel comfortable with the risk/return characteristics thereof. These funds are also used by clients who are assisted by an advisor or wealth manager who creates a tailor-made portfolio to fit the client s unique needs. (See our Focused Funds Brochure for more details about these funds.). Managed Funds are portfolios that have a diversified exposure to all asset classes and where the level of exposure to each asset class is actively managed by the portfolio manager, ensuring that the targeted risk/return characteristics of the fund are maintained. Focused Funds Series - Bank Windhoek Selekt Fund - Bank Windhoek Investment Fund - Bank Windhoek Corporate Fund - Bank Windhoek Term Fund - Bank Windhoek Commercial Income Fund - Bank Windhoek Enhanced Bond Fund - Bank Windhoek Property Fund - Bank Windhoek Equity Fund - Bank Windhoek International Fund Managed Funds Series - Bank Windhoek Premier Fund - Bank Windhoek Managed Fund Before we continue with the details of the Managed Funds Series we will explain the types of assets we include in our portfolios, how we construct these portfolios, the investment approach we follow in an effort to outperform the fund s benchmarks and lastly the investment process we follow to ensure effective implementation of our economic views and compliance with fund parameters. 4 - Managed Funds

5 Asset Classes Our Managed Funds invest in a combination of the following main asset classes: Money Market Investments in interest-bearing instruments with shorter-term maturity profiles, typically up to 1 year. It includes bank deposits, negotiable certificates of deposit, promissory notes and treasury bills. Fixed Interest Investments in interest-bearing instruments with longer-term maturity profiles than the money market. It includes corporate bonds, floating rate notes, inflation-linked bonds and government stocks. Property Investments in listed commercial property, excluding residential property. It includes investments in office buildings, industrial property and retail shopping centres. Equity Investments in ordinary shares listed on the JSE and NSX. It includes medium to large company shares in the resource, financial and industrial sectors. International Investments made in the above asset classes in foreign markets. These asset classes are joined together in a methodical portfolio construction process, described on the next page, in order to achieve an optimal balance between minimising portfolio volatility and maximising returns. Managed Funds - 5

6 Portfolio Construction Each asset class is unique in terms of its ability to beat inflation over time. Some asset classes provide much more short-term stability albeit at a much reduced ability to beat inflation, while others provide a much higher probability of beating inflation over the longer term albeit at a much higher volatility over the short term. Some asset classes fall in both of these categories but also serve to provide diversification away from local investment markets to reduce portfolio risk. Portfolio Construction or asset allocation basically entails the process where each asset class is allocated a certain weighting and joined together to form a single investment portfolio. In the Portfolio Construction process we follow an iterative process where we endeavour to arrive at what we believe to be the optimal balance between portfolio stability, higher returns and international diversification. By balancing these main aspects we determine the optimal long-term (strategic) asset allocation of a portfolio. In addition, minimum and maximum exposure limits per asset class are set to ensure that portfolio risk and return expectations remain in line with the specific investment mandate of the fund. The actual level of investment in each asset class in the shorter term will be actively managed and will deviate from the long-term strategic asset allocation, but cannot be less or more than the lower and upper limits set for the specific fund per asset class. This actual shorter-term allocation per asset class is referred to as the fund s tactical asset allocation, which is explained in more detail in our investment approach next. 6 - Managed Funds

7 Tactical vs Strategic Asset Allocation with portfolio min/max range Strategic Allocation (Long Term) Tactical Allocation (Short Term) 80% 70% 60% 50% 40% 30% 20% 10% 0% Money Market & Fixed Interest Property Equities International Investment Approach We follow a multi-asset class approach where we implement our investment views on two levels: Firstly we determine a broad view per main asset class which we express as a view ranging from a negative view through neutral to positive for the specific main asset class. The strength of our conviction on the outlook is then further refined into a tactical positioning per asset class, ranging from underweight to overweight relative to the fund s long-term strategic asset allocation per asset class. Secondly we seek to add value within the major asset classes by means of security selection and duration positioning. By following this investment approach we endeavour to enhance investment returns within the confines of the risk mandate of each fund. In order to ensure that the abovementioned elements are effectively implemented, managed and controlled, we follow a clearly defined investment process. Managed Funds - 7

8 Investment Process Our investment process is a result of a combination of more than a decade of practical investment experience and best practice in corporate governance. The process ensures maximum portfolio manager freedom to act, while ensuring portfolio compliance and management of overall portfolio risk. The main steps in the investment process are as follows: House View The Economic Committee meets twice a month to form and align the house view. The house view comprises a view of local and international money, bond, property and equity markets, currency valuations and expected interest rates. The final view is then defined in terms of a view per major asset class. Implementation The house view is implemented by the portfolio management team as soon as possible on all unit trust portfolios. Each portfolio s minimum and maximum exposure limits per asset class and per security are considered as well as the market liquidity and specific price levels of securities. Credit and Compliance The Credit Committee pre-approves all counterparty limits and assesses compliance with set fund limits. Performance and Attribution The Integrated Portfolio Committee monitors the successful implementation of the house view and assesses any contributors or detractors to performance as measured against fund benchmarks. In the event of significant events occurring in the market place the frequency of meetings may be increased accordingly. 8 - Managed Funds

9 Our Managed Funds Our managed fund series consists of the Bank Windhoek Premier Fund and the Bank Windhoek Managed Fund. Bank Windhoek Premier fund The Bank Windhoek Premier Fund is a diversified portfolio with a low to medium risk profile. The target return of the fund is to provide growth of inflation plus 4% or more over the medium term. The fund complies with Regulation 28 of the Pension Fund Act. Bank Windhoek Managed fund The Bank Windhoek Managed fund is a diversified portfolio with a medium to high risk profile. The target return of the fund is to provide growth of inflation plus 6% or more over the longer term. The fund may experience a high level of short-term volatility. The fund complies with Regulation 28 of the Pension Fund Act. The table below highlights the distinguishing factors between these two funds: Bank Windhoek Premier Fund Bank Windhoek Managed Fund Investment mandate Conservative Moderate Portfolio limits Strategic Asset Allocation Minimum Allocation Maximum Allocation Strategic Asset Allocation Minimum Allocation Maximum Allocation Cash & Fixed Interest 52.5% 20.0% 70.0% 25.0% % Property 10.0% % 10.0% % Equity 30.0% 20.0% 40.0% 50.0% 30.0% 65.0% International 7.5% % 15.0% 5.0% 30.0% Target Return Inflation + 4% (over any 3 year rolling period) Inflation + 6% (over any 5 year rolling period) Ideal Investment Time Horizon 3 Years and longer 5 Years and longer Please note that due to changes in long term trends and expected future outcomes, the above portfolio limits are subject to change at the sole discretion of the fund manager. Managed Funds - 9

10 Understanding Market Risk Market Risk is the risk that the value of an investment will decrease due to the change in market prices of the underlying investments of the portfolios. History has proven that while this risk is very pertinent over the short term, it dissipates and becomes almost irrelevant over the longer term. To substantiate this statement, consider the chart below showing an arbitrary historic performance over 5 years. It is clear that over the 5 years the portfolio provided excellent growth, but if one looks at selected shorter-term performance periods it shows periods of exceptional growth, zero growth and exceptionally high negative growth. In the 60-month chart there are 48 one-year cycles. These one-year cycles provide the investor with an insight of what can occur over a short one-year cycle while investing in such a portfolio. To illustrate this we have highlighted some one-year cycles marked A to F. The one-year cycles A, B and C are only 1 month apart, but show very different returns of 19.07%, 36.55% and 27.65%. D shows the worst one-year cycle that resulted in a negative 26.06% change in value while F shows a remarkably positive one-year return of 56.38%. These different time periods do not show the actual return the client would have received. It only shows short-term changes in value as measured over a one-year period or rather short-term volatility in the value of a portfolio. The actual return the client would have received over this 5-year period was growth from N$ to N$261.31, which equates to a historic return of 10.04% per annum. The above graph highlights the fact that although short-term volatility may be high it is not realised until an investment is actually sold. It thus illustrates the difference between a realised loss and an unrealised loss. It is, however, important to understand the relationship between shorter-term volatility and longer-term performance Managed Funds

11 For that reason we provide the following three charts which show a range of 1-year, 3-year and 5-year return cycles calculated from actual data based on the Bank Windhoek Premier Fund and Bank Windhoek Managed Fund Composite indexes. The charts show all the 1-year, 3-year and 5-year actual returns that would have been achieved over numerous cycles since 1 January 1999 as measured from the first of every month of every year. The short-term volatility over one-year periods can be seen in the first chart. However, as the investment period becomes longer in the 3-year cycle chart it is clear that never since 1 January 1999 has any 3-year investment period resulted in negative returns, while the 5-year chart shows the excellent growth that has been achieved over any 5-year period since The on th next provide returns above) Th he diagrams di the ne xtt page provid ide a summary off tthe he aactual ctual t l ret turns ((as as seen ab bove)) and d show h the longer-term annualised returns that would have been achieved over the longer-term 3- and 5-year cycles. To provide a relevant comparison the performance targets of each fund, Inflation Plus 4% for the Bank Windhoek Premier Fund and Inflation Plus 6% for the Bank Windhoek Managed Fund are provided, based on actual inflation in the past over the different time periods. Managed Funds - 11

12 From the summary it is clear that both funds would, in the past, have been able to outperform its inflation plus targets. Although the Bank Windhoek Managed Fund would on average have outperformed the Bank Windhoek Premier Fund, the worst performance risk for the Bank Windhoek Managed fund is much higher than that of the Bank Windhoek Premier Fund. This is especially true for the 3-year period, but improves drastically over the 5-year and longer investment periods. It is very important to note that the worst 3-year cycle for the Bank Windhoek Premier Fund was a positive annualised growth of 5.5% and that the worst 5-year cycle for the Bank Windhoek Managed Fund was a positive annualised growth of 6.3% Managed Funds

13 Distributions and Taxation Both the Bank Windhoek Premier Fund and Bank Windhoek Managed Fund make semi-annual income distributions at the end of March and September. All distributions made to Namibian private individuals are tax-free dividends or interest net of withholding tax. Capital growth is tax-free under current Namibian tax legislation. Fees and Charges No initial fees are charged on any new investments or any subsequent investments. Annual fund management fees are charged as follows: Bank Windhoek Premier Fund: 1.00% per annum Bank Windhoek Managed Fund: 1.25% per annum Namfisa levies are 0.04% per annum Audit fees are less than 0.02% per annum. Please note that should you make use of a financial advisor to invest in these funds, the financial advisor s fees may be added to your aggregate fees subject to your express approval. Other benefits of investing in these funds The corporate governance framework and internal controls of the Capricorn group of companies provide peace of mind while investors have the benefit of a local team in close contact with local legislative amendments and requirements. As registered unit trusts the funds are regulated by Namfisa. All investments are held in trust and in safe custody. The investment is highly liquid and may be sold at any time. No initial fees are charged on any deposits. Funds are available via third party platforms to be included in pension and retirement portfolios. Funds can be used for security purposes as follows (subject to final approval and change): Bank Windhoek Premier Fund currently 90% of fund value Bank Windhoek Managed Fund currently 70% of fund value. Managed Funds - 13

14 Typical Investor The typical investor in our Managed Funds Series is a medium- to longer-term investor who seeks a cost-effective and convenient way to obtain exposure to a well-diversified, actively managed investment portfolio geared towards beating inflation over the medium to longer term. In choosing between the two managed funds within the Bank Windhoek unit trust series, the following may also provide some assistance: Bank Windhoek Premier Fund Bank Windhoek Managed Fund Market volatility Expected return The investor is willing to be exposed to a medium level of market volatility. Client hopes to achieve a return of inflation plus 4% over the medium to longer term. The investor is willing to be exposed to a medium to high level of market volatility. Client hopes to achieve a return of inflation plus 6% or more over the longer term. Investment time horizon Client has a typical investment time horizon of 3 years and longer. Client has a typical investment time horizon on 5 years and longer. The table above has been compiled based on a combination of actual past performance and the fund manager s future expectations. Please note that actual future market volatility and returns may deviate significantly from these expectations. How do I Invest Contact us at Tel: +264 (61) Fax: +264 (61) investorservices@cih.com.na All funds are managed by: or visit any Bank Windhoek branch and ask for either the Bank Windhoek Premier Fund or the Bank Windhoek Managed Fund; or ask your financial advisor to include these portfolios as part of your investments or pension fund investments. Application forms and the latest fund fact sheets can also be obtained from our website at Managed Funds

15 Disclaimer and Risk Statement The Bank Windhoek Premier Fund and Bank Windhoek Managed Fund ( the Funds ) are Unit Trusts formed in terms of the Unit Trust Control Act, with Capricorn Unit Trust Management Company Ltd ( the Company ) appointed as the management company in accordance with the provisions of the Unit Trust Control Act. Standard Bank Namibia Ltd acts as trustee and custodian of the underlying investments, while Capricorn Asset Management (Pty) Ltd provides investment management and administration services. Unit Trusts are generally medium- to long-term investments. The value of the participatory interests (units) may go down as well as up and past performance is not necessarily a guide to future performance. Forward pricing is used and unit prices are calculated on a net asset value basis. The Company strove to ensure that all information in this document is true and correct, however, the Company does not make any representation as to the accuracy, timeliness, suitability, completeness or relevance of any information in this document and as such takes no responsibility for it. Investors should not base any investment decision solely on the information provided in this document. The information and content contained in this document cannot be construed or relied upon by any investor as investment, tax, legal or any other form of advice, and clients are strongly advised to obtain independent advice from qualified experts before making any investment decision. Managed Funds - 15

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