Magnet Absolute. Introduction. Introducing Magnet Absolute. Magnet Absolute has two clear performance objectives

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1 Pensions Protection Investments Magnet Absolute Fund Snapshot Asset Holdings Regions Diversification Risk Rating* Absolute Return - Multi 5 Funds low Fund Multi Key features Multi manager 8 3 high 4 asset managers Introduction All investors should be aware of the concept of risk and return. If you invest in something which has very little risk you can t expect to make too much money from it. To achieve higher returns you must take on some risk and this usually involves investing in investment markets. Some markets are more risky than others but there is a general rule that investments in the same asset classes tend to go up and down at the same time. This can mean that if you are investing in, say company shares, your returns will not only be determined by the quality of shares you are invested in, but also whether equity markets in general are going up or down. Multi Strategy Market Neutral Target Return Risk Rated 5 complementary strategies Aims to avoid impact of market ups and downs Target return objective of cash + 3.5% a year (before charges) over 3 years Risk objective of maintaining an ESMA* 3 risk rating This can lead to a dilemma for investors. If you believe the individual stocks you choose are strong, but the markets are weak, should you stay invested or should you come out of the markets? If you stay your good investment could fall in value but if you exit you end up trying to time markets which is notoriously difficult. However, over the last number of years, strategies have been developed which are capable of providing a return regardless as to whether markets are trending up or down. These absolute return strategies can be useful elements of a diverse investment portfolio. Introducing Magnet Absolute Magnet Absolute is a fund which invests in a number of investment strategies, each of which is aiming to produce returns which are less dependent on market direction than traditional investments. Each underlying strategy is managed by investment experts who generally aim to make positive returns over a cycle of a few years. In doing so they use specialist techniques which allow them make a return in all market conditions. It should be noted, however, that it s not a one-way bet, they can also lose money in any market condition. Magnet Absolute has two clear performance objectives 3 Aim for annualised return of cash + 3.5% (before charges) over a 3 year period 3 Maintain an ESMA risk rating of 3 out of 7 Friends First selects the underlying strategies and investment managers used within Magnet Absolute. In doing so we select complementary strategies to aim to smooth out returns and reduce over-reliance on a single investment manager. * All of our funds are risk rated. These ratings are based on a scale between 1, being the lowest, and 7 being the highest. The ratings are based on a European standard scale derived by the European Securities and Markets Authority (ESMA). The ESMA rating system looks at an investment s volatility over the last 5 years and then categorises them according to volatility bands.

2 The Investment Strategy Mix We currently use five different investment strategies from four asset managers within Magnet Absolute. Although each is trying to achieve positive returns over the medium term, each does so in a different way. It is the combination of complementary strategies that we use which helps to smooth out the investment journey and aid Magnet Absolute to meet its twin risk and return objectives. Strategy Name Strategy Asset Class Multi Asset Equities Currencies Multi-Strategy Global Bond Fixed Income Equities Initial Weighting as at April % 10% 10% Concept Global Equity K Market Neutral Global Insight Equity Currency Market 6% Neutral Volatility Insight Multi Strategy Currency Global 6% Volatility Bond Multi European Strategy Absolute Global Bond Return Multi Strategy Global Bond Friends First monitors the performance of each underlying strategy and can change weightings, introduce new strategies or remove existing ones at its discretion with a view to meeting the objectives set for Magnet Absolute.

3 About Each Strategy Asset Class Multi-Asset is an investment fund which aims to produce long-term growth but with less of the volatility usually associated with stock market investing. The fund looks to produce a return for investors by investing across many different markets and assets. It is not just trying to beat other fund managers or market indices. The fund primarily invests across several asset classes - company shares, Government and company bonds, cash, gold and currencies in whatever proportions the fund managers consider appropriate depending on market conditions. The fund operates a bespoke risk control process to implement its objective of keeping any losses below 10% in any calendar year and volatility to less than 10% per year however, this is not guaranteed. The fund aims to capture most of market upside, but limit downside. is managed by a team of very experienced investment professionals led by Klaus Kaldemorgen, one of Germany s leading fund managers. Klaus has been managing money at Deustche Asset Management for over 30 years and this strategy has attracted 3.6 billion in assets. Asset Class Equity If you look at successful active equity fund managers over time you recognise that a lot of performance can be explained by their use of an investment style which favours stocks with certain attributes e.g. smaller companies. The strategy identifies five investment styles associated with strong performance. The BMO Strategy screens global shares and isolates those with particular attributes. It then ranks the companies which display most of these attributes and those with the least. The strategy invests in the top of stocks with each attribute and then also goes short on the bottom. Going Short means that the fund profits in the opposite way to the movement of the share price. So, if the share price goes down the strategy profits, if it goes up the strategy loses. The idea of the strategy is that over time, and in both rising and falling markets, the stocks which exhibit most of each style should outperform those that exhibit least. The strategy profits from the difference in performance between the top and bottom companies.

4 Asset Class Currencies The strategy aims to profit from movements and trends between different currencies. It does not depend on market direction as it takes positions on currency pairs. It can take a position on the strength of the Pound Sterling against the Euro or if the trend is in the other direction, the Euro against the Pound Sterling. The fund is managed by Alder Capital, a specialist currency manager who have been running a currency fund for Friends First since They have $350 million assets under management with an established and successful track record. We are using the strategy within Magnet Absolute. This strategy follows exactly the same investment approach as the existing currency fund except that it does so with a target volatility of 6%, which is about half that of the existing fund. Reducing volatility will in turn reduce return potential but this is more appropriate to the objectives of Magnet Absolute. Multi Strategy Global Bond Multi Strategy Global Bond Asset Class Fixed Interest This is a Bond Fund that employs several strategies in its aim to provide a return of cash + 3% (gross of fees) at a low level of volatility. It also aims to avoid losses over rolling 3 year periods. As well as investing in bonds directly, the Multi Strategy Global Bond fund uses techniques to potentially earn positive returns regardless as to whether bond markets are rising or falling. The use of these instruments requires the support of a robust risk management process which is integral to the disciplined approach employed by the fund manager, Deutsche Asset Management. The strategy was launched in late 2011 and since then it has raised over 1 billion in assets. Asset Class Equities Fixed Interest This is a strategy which aims to beat the return on cash by primarily investing in shares of companies who are either based in continental Europe or derive the majority of their revenue from business activities in the region. It can take long positions whereby the fund profits when a company s share price increases, or short positions whereby the fund profits when a company s share price falls in value. The strategy is managed by John Bennett who has a 28 year track record in managing European Equities. He is responsible for managing 12 billion in European equity assets and his European Absolute Return strategy has attracted assets of over 1.8 billion.

5 Access to Magnet Absolute The Magnet Absolute fund is available across Friends First Pension, Investment, Savings and Approved Retirement Fund / Approved Minimum Retirement Fund products. It is a daily priced fund which means that investors can buy, sell or switch units in the fund each working day, subject to policy conditions. The fund has a management charge of 0.95% a year; in addition, some of the underlying strategies have a performance fee. Performance fees are deducted by the relevant strategy manager and based on the current strategy mix (at April 2016), are approximately 10% of growth in excess of a cash benchmark such as the EONIA*. This approximate performance fee may change if the strategy mix changes. Additional product charges may apply. This document gives an overview of the fund and should be read in conjunction with the specific product brochure you are interested in. * EONIA refers to the European OverNight Index Average which is a measure of the interest rate charge by banks when lending money to each other for one day. Who might this fund be suitable for? This fund may be suitable if you are seeking a fund which is: Diversified across a number of asset managers and investment strategies. Less influenced by market direction than traditional investments. Categorised with a risk rating of 3 out of 7 on the ESMA risk scale.

6 Please Note Use of Derivatives All of the underlying strategies used in Magnet Absolute use derivatives. These are financial instruments which derive their value from an underlying asset and are a useful way for managers to get into and out of markets quickly and efficiently or to hedge potential risks. Using derivatives comes with additional counterparty risk if the derivative provider becomes insolvent or in some other way is not in a position to meet its commitments. Returns All of the strategies used within Magnet Absolute are capable of making a positive return in both rising and falling markets. However, it should be noted that they are also capable of making losses in both rising and falling markets. Similarly, while Magnet Absolute has a performance objective of cash + 3.5% a year (before charges), this is not a guarantee and its unit values can fall as well as rise. To find out more contact your Financial Broker or visit Warning: Past performance is not a reliable guide to future performance. Warning: The value of your investment may go down as well as up. Warning: Funds may be affected by changes in currency exchange rates. Warning: If you invest in this product you may lose some or all of the money you invest. Friends First Life Assurance Company Limited is regulated by the Central Bank of Ireland. SA377, Apr. 16