CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND

Transcription

1 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND

2 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND

3 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND Canada Life/Setanta Income Opportunities Fund The Canada Life/Setanta Income Opportunities Fund (the Fund ) aims to deliver income and real returns by applying a dedicated value investment philosophy to multiple asset classes. The dominant asset class in the Fund is expected to be equities in the form of a portfolio of stocks anticipated to generate a high yield. The Fund has the ability to invest in other income-bearing asset classes such as bonds, property* and cash. When considering the range of income-bearing assets to invest in, the Fund will look at both the income yield 1 and the relative value in each asset class while aiming to reach the Fund s target income as well as deliver the long-term objective of a real return. Although the Fund objective is to produce income and real returns over the long-term, the Fund s total return may deviate significantly from its real return objective. *Property is limited to a maximum of 25% of the assets of the Fund. Note: This is a high risk Fund where the return of capital is not guaranteed. Objective The Fund s objective is to generate a targeted income and in doing so it aims to maintain the real value of the capital invested over the long-term. The return of capital invested is not guaranteed. Key features The Fund has a number of key features that may prove attractive to investors: The Fund aims to achieve a targeted level of income which will automatically be reinvested in the Fund. For information on whether you can access income through your Canada Life policy talk to your Financial Advisor. Any income generated will contribute towards meeting part of the Fund s objective of aiming to maintain the real value of the capital invested over the long-term. The Fund s total return may deviate significantly from its real return objective. A specialised options strategy is used in order to enhance income. See Equity options strategy - further information on page 8 for further details. For all asset classes, the sustainability of the income generated is assessed in conjunction with the financial strength of the underlying asset. 1 Income yield: This is a measure of the income received on an asset expressed as a percentage of the market value of the asset.

4 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND How will the Fund be managed? It is expected that the dominant asset class in the Fund will be equities in the form of a portfolio of high dividend-yielding 2 stocks. Should equities prove less attractive than other asset classes (based on an assessment of the valuation of the assets and their income yield) the Fund has the ability not to hold any equities. The equities held by the Fund will differ from the broader equity market due to: the Fund s preference for high dividend-yielding equities; and the application of the value investing philosophy. The Fund also has the ability to invest in income-bearing assets other than equities such as bonds, property and cash where a value investment case can be made. The Fund can hold all or none of its investments in any of the asset classes with the exception of property which is limited to a maximum weight of 25% of the Fund s value. The Fund is managed by Setanta Asset Management Limited ( Setanta ). Setanta is the primary asset manager for Canada Life in Ireland and other European countries. The fund manager will apply a value investing philosophy to the management of the fund. The objective is to enhance long-term performance by acquiring assets that are trading below the fund manager s assessment of their true value; this requires a long-term perspective as it can take time for assets to return to their higher true value as assessed by the fund manager. At times, value investing may lead to periods of short-term underperformance when measured against the Fund s objective. 2 Dividend-yield: The dividend-yield or the dividend-price ratio on a company stock is the company s annual dividend per share, divided by the price per share. It is often expressed as a percentage.

5 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND 5 Why is income important? The total return on income-bearing assets is made up of two main components: income; and capital growth. Income can be a significant element of total return to investors over time. Although price movements tend to make the headlines it is the steady payment of dividends, interest and rents, and the reinvestment of this income that can be one of the main components of total return. When we consider the words of Benjamin Graham, a pioneer of value investing, on the topic of when to buy equities and the importance of dividend returns, it is clear to see that he believed dividends to be a vital component of value investing: Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies. Source: The Intelligent Investor by Benjamin Graham (revised publication 1973). The Fund aims to deliver a targeted level of income and to grow capital over time through a value investing philosophy. The fund managers will set an income target at the start of each year. In setting this income target, the fund managers will consider the income yield potential of the various asset classes. For equities the likely income that can be generated from the equity option strategy will also be considered. The income targets set each year may not be achieved. The chart below shows an example of how the income from the Fund might be generated from the various assets in the Fund. This example is for illustrative purposes only and the components of the actual income may vary significantly from this example. Components of target income - example 3 Other assets include property which is limited to a maximum investment of 25% of the Fund.

6 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND Why does the Fund seek to preserve the real value of capital? Inflation can act to diminish investor purchasing power in an unpredictable way. Part of the objective of the Fund is to produce a return that exceeds inflation. This objective can help protect the investment from being eroded by the effects of inflation. The graph below shows how prices have increased since 1976 in Ireland as indicated by the Consumer Price Index (an inflationary indicator that measures the annual change in the cost of a basket of products and services). The graph shows that if ß100 was used to purchase this basket of products and services in 1976 then the equivalent products and services would cost ß562 in While this graph is showing how prices have increased in Ireland, the objective of this Fund is linked to European inflation. The above illustration is based on the annual percentage change in the Consumer Price Index. Source: Statistics from the Irish Central Statistics Office, 20 January Note: Prior to 1 January 2002, the currency was the Irish punt rather than the euro. The exchange rate for the Irish punt to euro is assumed to be approximately 1.27 for the purpose of converting Irish punts to euros for all time periods in the above illustration. Warning: These figures are based on past performance and are not a reliable guide to future performance. The value of your investment may go down as well as up.

7 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND 7 Fund close-up how the fund managers identify income opportunities The Fund has the ability to invest in a range of income-bearing assets with a view to generating an income: the following section details strategies which the fund managers use to generate income. Global high dividend-yielding stocks Stocks with a high dividend-yield are an important element of the strategy, offering the potential for a strong source of both income and total return. The fund manager will apply a value investing philosophy with a focus on stocks anticipated to have an above average and sustainable dividend-yield. The fund manager will search for companies with both capacity and commitment to pay dividends, hence a strong balance sheet and robust cash flow will be particularly important. Equity options strategy The Fund uses a specialised options strategy to enhance income in the Fund. This strategy is known as a covered call option strategy (see Equity options strategy - further information on page 8 for an explanation of how this strategy works). Other income opportunities The fund managers will also consider other income-bearing world-wide assets such as government bonds, corporate bonds, property and cash instruments where an investment case can be made on both the income potential and the value of the underlying asset. Consistent with the approach for equities, the fund manager will attempt to invest in income-bearing assets they believe are trading below the fund manager s assessment of their value.

8 8 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND Equity options strategy further information Covered call options will be sold on equity investments currently owned by the Fund at the discretion of the fund manager with a view to generating additional income. A call option gives one party the right to purchase a stock at a certain price (strike price) on or before a certain date in the future. A covered call option is where the seller owns the underlying security at the time of the sale and until the expiration date of the option (i.e. it is covered). The seller receives a sum of money (known as the premium) from the buyer of the call. If the buyer chooses to exercise the call option, the seller must deliver the underlying security or its cash equivalent. Regardless of whether the option is exercised, the seller gets to keep the money from the sale of the call. The natural bias of the Fund is to be a seller of call options. The call options sold on the Fund will always be covered. In moderately rising, flat or declining markets, covered call strategies can enhance the return of an equity investment. While there is certainly the potential to miss out on sharp price rises, the fund managers seek to gather income at points at which market volatility is high and consequently, income potential increases. In addition, the Fund may use other types of options to generate income or to manage the overall risk in the Fund. The fund manager has been running global options strategies since To be clear, the strategy does not increase risk in the equity portion of the Fund, nor does it involve any borrowing. It is important to note that the options strategy does not provide capital security. The table below shows four theoretical scenarios that outline how the call options strategy could perform in various environments. Stock declines Stock is flat Stock rises moderately Stock rises aggressively What happens to value of the equity? Declines, remaining below strike price Remains the same and does not reach the strike price Increases, but does not reach the strike price Surpasses strike price Is the option exercised? No No No, in most cases Yes What else happens? Overall return may be negative, but will outperform the stock by the amount of premium income received Will outperform the stock through the receipt of premium income Should outperform the stock through stock return and receipt of premium income Stock participates in much of the rising price, but may lose out on aggressive price rises due to option being exercised Position under-performs Likely outcome Position outperforms Position outperforms Position outperforms Source: Setanta Asset Management, September 2011

9 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND 9 What are the risks of investing in the Fund? This is a high-risk investment where return depends on the performance of the underlying assets. Please speak to your Financial Advisor to determine your suitability for investing in this Fund. The return of capital invested is not guaranteed. Warning: The value of your investment may go down as well as up. You may get back less than you put in. How to invest in the Fund? The Fund is available across the Canada Life range of products from lump sum and pension products to regular savings plans. The Fund is available on the following products: Canada Life Gateway Portfolio Canada Life Access Savings Plan Canada Life Advantage Plan Canada Life Advantage Plus Plan Canada Life Advantage 100 Plan Canada Life Personal Retirement Bond Canada Life Approved Retirement Fund/Approved Minimum Retirement Fund Please see the appropriate product factsheet for product details and charges.

10 10 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND Setanta Asset Management Setanta is the primary asset manager for Canada Life in Ireland and other European countries. Setanta was established in Dublin in 1998 and has grown steadily since then. Setanta manages 5.1bn (June 2011) in assets for Great-West Lifeco Inc. and its companies with clients in Ireland, Germany and Canada as well as other third party institutions. Setanta is a wholly-owned subsidiary of the Canada Life group of companies in Ireland, which in turn is part of Great-West Lifeco Inc. Setanta is a dedicated value investor and invests in stocks on a fundamental basis. Setanta has an experienced investment team, which chooses stocks within a global sector framework. The team has a strong track record in its core global equity style, and in other regional, country and specialist styles. Setanta offers investment on a segregated and on a pooled basis. It is the investment manager for a range of unit-linked funds, in which Canada Life policyholders in Ireland and Europe may invest. In addition, Setanta has a number of specialist funds available for professional investors, offering a global equity, high-yield, covered call strategy, and a similar strategy which invests in companies which meet certain ethical restrictions. Setanta has been managing global high dividend-yield funds since The strategy behind the Fund combines Setanta s experience in this style of Fund, with its skills of utilising options to generate income. Setanta is also the investment manager for bond portfolios, balanced portfolios, which combine different asset classes, and regional equity portfolios. Setanta Asset Management Limited is regulated by the Central Bank of Ireland.

11 CANADA LIFE/SETANTA INCOME OPPORTUNITIES FUND 11 Why choose Canada Life? The strongest life assurance group in Ireland We are part of Great-West Life, one of the world s leading life assurance companies, from a country ranked the most financially sound in the world *. With a reputation for financial strength, stability and consistently high financial ratings from the independent rating agencies, Great-West Life has a AA rating ** from Standard & Poor s. As part of Great-West Life Assurance Company, Canada Life has access to a large pool of experience and expertise on a global scale, allowing us to continuously enhance our product and service offering. Great-West Life is a leading Canadian insurer, with interests in the life and health insurance, investment, savings and retirement income and reinsurance businesses, primarily in Canada and Europe. Great-West Life is a subsidiary of Great-West Lifeco Inc., a member of the Power Financial Corporation group of companies. * Source: World Economic Forum ** The financial rating shown for The Canada Life Assurance Company is provided by Standard & Poor s. Standard & Poor s is a rating agency which provides ratings on the financial strength of companies. This information is correct at the time of going to print.

12 Important Information For full details of your product please refer to the policy conditions. In the event of a discrepancy between this brochure and the policy conditions, the policy conditions will prevail. This document does not form part of any contract. The information contained in this document is based on current legislation and is, therefore, subject to change. The contents are intended as a guideline only and should not be construed as an interpretation of the law. You should always seek the advice of an appropriately qualified professional. CANMU /11 Canada Life House, Temple Road, Blackrock, Co. Dublin Tel: customerservices@canadalife.ie Web: Canada Life Assurance (Ireland) Limited is regulated by the Central Bank of Ireland.