Information Memorandum

Transcription

1 Information Memorandum BT High Alpha Fixed Income Fund Issued 28 June 2016 About BT Investment Management BT Investment Management (Fund Services) Limited (BTIMFS) is the trustee for the BT High Alpha Fixed Income Fund. As trustee, BTIMFS is responsible for overseeing the operations of the Fund. BTIMFS has appointed BT Investment Management (Institutional) Limited (BTIMI) as the investment manager of the Fund. Under the terms of its appointment, BTIMI selects and manages the assets of the Fund and may appoint other managers to manage some or all of the Fund s assets. BTIMFS and BTIMI are wholly owned subsidiaries within the BT Investment Management group of companies. References to BTIM are to BTIMFS as trustee, including where other BT Investment Management group companies provide services to the Fund on behalf of the trustee. BTIM offers investors a range of investment choices including Australian shares and listed property, fixed income and cash, absolute return investments, international shares and property. To complement its in-house expertise, BTIM also partners with leading global and domestic investment managers. Investment return objective The Fund aims to provide a return (after fees and expenses) that exceeds the Bloomberg AusBond Bank Bill Index by 8-10% per annum (p.a.) over the medium term. Investment strategy The Fund is intended for institutional investors who want the potential for high returns across a range of market conditions, with a low correlation to equity and bond markets. The Fund aims to generate its returns by investing in fixed interest, credit and foreign exchange markets in Australia and globally. The Fund gains its investment exposure by investing into the BT Institutional Pure Alpha Fixed Income Trust (Trust). The investment strategy, investment process, asset classes and asset allocation ranges, and authorised investments and types of allowable investments described below relate to the indirect exposures obtained by investment in the Trust. Accordingly, the sections below headed Risk Management, Investment Limits and Risks of investing in the BT High Alpha Fixed Income Fund apply to the relevant class of units of the Trust on a look-through basis. The Fund aims to invest primarily in Australia and New Zealand but may also invest in other countries and currencies. The Fund predominantly uses derivatives including swaps, options, futures and forwards to achieve its investment exposures. BTIM s investment philosophy for the Fund aims to identify and exploit inefficiencies through an active investment approach. The Fund takes advantage of investment opportunities based on our assessment of major economic themes and/or financial markets which we consider to be mispriced. The Fund s portfolio is constructed using the following four step approach: 1. Generate investment views through quantitative models BTIM uses proprietary financial models which have been built and individually specified for the United States, Europe, United Kingdom, Japan and Australia to allow us to view the Australian and New Zealand markets in a global context. The models can be grouped into economic models, market models and technical models which aim to predict the future direction of fixed income, credit and foreign exchange markets in order to generate investment themes. Economic models uses publicly available economic data such as GDP, leading indicators, inflation, manufacturing surveys and others to generate a trading signal for the various markets that BTIM covers. btim.com.au

2 Market models use price, volume, volatility and other market-related data to generate a second set of trading signals for the various markets that BTIM covers. The economic and market models will generate trading signals for each of the above strategies on a daily basis and are used to filter the potential universe down into a much smaller subset of potential trades for further examination. The technical models further refine the universe of potential trades for further investigation. The technical models are also grouped by trading strategy and are based on price and are used to highlight technical factors that could be potential positive or negative trade ideas generated by the economic and market models. These types of signals include short-term momentum, Elliot-wave and Fibonacci sequences amongst others. The models can be further grouped into individual trading strategies: > Duration > Yield curve > Cross-market > Credit/Macro > FX > Relative value 2. Reaffirm investment view with qualitative research The investment themes generated by the models are more thoroughly researched to identify three to five investment themes that BTIM considers to have the highest probability of generating returns. In general, there will be between 3 5 key investment themes in the portfolio at any one time and these tend to be based on BTIM s assessment of the macroeconomic and political environment per country. Each theme will generally have a 3 6 month time horizon, which further reduces the number of potential trades. The Fund will then take up investment positions which aim to take advantage of each investment theme with a focus on building a diversified portfolio of lowly correlated positions. 3. Trade selection Once the investment themes are identified, BTIM assesses each potential trade based on its own individual merit but also on its impact on the portfolio. In general, there are 1 3 positions per theme and each trade has a potential 2 week to 3 month time horizon. Consequently, the portfolio should have between 10 and 15 relatively small positions at any one time. Trades are evaluated based on: > Individual risk/reward > Timeline for potential payoff > Current portfolio positioning at theme level > Correlation to existing portfolio > Marginal change in portfolio risk > Current P&L > Trade volatility 4. Active risk management The Fund s investment positions are constantly monitored and re-evaluated based on economic developments and market movements. BTIM then seeks to minimise the impact of investment themes which may adversely affect investment returns by reducing or closing out investment positions allocated to those themes. The Fund has the ability to exit and reduce its investment exposures quickly due to the use of highly liquid derivatives. The Fund is not permitted to borrow money to invest but will be leveraged through the use of derivatives. The Fund does not engage in any short selling of physical securities. The Fund s ability to meet its investment return objective is dependent on investment markets exhibiting a degree of volatility. In periods of low volatility it is generally more difficult to identify and take advantage of potential trading opportunities using the Fund s investment process. 2

3 Asset classes and asset allocation ranges Asset Class Asset Class ranges 1 Benchmark Cash* Fixed Interest Bank deposits Short term money market securities (including bank bills, negotiable certificates of deposit, promissory notes and asset back commercial paper) Australian government bonds/ semi-government bonds International government bonds Government guaranteed corporate bonds Government issued indexedlinked securities Credit securities denominated in Australian dollars Min % Max % 0 100** 0 100** Currency 0 100* Bloomberg Ausbond Bank Bill Index Bloomberg Finance L.P. and its affiliates (collectively, Bloomberg ) do not approve or endorse this material and disclaim all liability for any loss or damage of any kind arising of the use of all or any part of this material. *Cash exposure may be obtained through investment in the BT Liquidity Management Trust. The BT Liquidity Management Trust invests exclusively in cash and investments giving exposure to cash or cash equivalents. **Ranges relate to proportion that may be allocated to each asset class and are not indicative of exposure to each of the underlying asset classes. Derivatives will be used to gain exposure to these asset classes. Authorised investments Physical securities > Australian Commonwealth Government Bonds & Semi-Government Bonds > Foreign Sovereign Bonds (within the approved country list) > Government guaranteed corporate issuers (within the approved country list) > Government issued Indexed-linked securities (within the approved country list) > Credit fixed income securities denominated in A$ Derivatives instrument > Futures > Foreign-Exchange Forwards > Exchange Traded Options > Over-The-Counter Options > Interest Rate Swaps > Credit Default Swaps > Inflation Swaps Short term money market securities > Discount securities including Bank Bills, Negotiable Certificates of Deposit, Promissory Notes, Asset Backed Commercial Paper and cash deposits > Minimum short term S&P credit rating of A1 > Maturity of any security is not to exceed 366 days BTIM Unit Trusts > BT Institutional Liquidity Management Trust > BT Institutional Pure Alpha Fixed Income Trust 1_The reference to the Fund investing in an asset class includes all types of investments which give exposure to that asset, directly or indirectly, including through derivatives and investment in other related funds which invest primarily in that asset class, and through any type of investment which would ordinarily be understood in financial markets to be included in that asset class. It does not preclude investment in other types of assets where we consider it appropriate to do so in the interests of investors. 3

4 Leverage The Trust is not permitted to borrow money to invest but will be leveraged through the use of derivatives. The Trust s level of leverage will change regularly due to factors such as market conditions and applications into, and withdrawals from, the Fund. While BTIM does not set an allocation range to investments in derivatives or a maximum allowable level of gross leverage for the Trust, BTIM aims to ensure that any total unrealised net losses on derivative exposures are covered by cash and cash equivalents in the Trust. The Fund is not permitted to borrow money and will not be leveraged through the use of derivatives by the Fund. Risk management The primary tool of the Fund s risk management approach is a value at risk model which monitors the total allowable risk of the Fund and measures the likelihood of the Fund losing value over a specified time period. Where the value at risk model estimates with 95% likelihood that the potential loss to the Fund over any 5-day time period is 9% or greater of the Fund s value, we will generally reduce or close out derivative positions with the aim of reducing this risk. As the value at risk methodology is based on historical market data, there is a risk that it may not accurately predict or limit potential losses. As part of the Fund's risk management processes, if the Fund's underlying investments decline by 30% or more over any 3 month period, the underlying derivative positions will be closed and the underlying portfolio liquidated to cash. The portfolio will then be reviewed to determine whether any changes are appropriate for the Fund or for the investment strategy or process. BTIM will implement the course of action it considers appropriate following that review, and will notify investors of any material changes. Investment limits The Fund has three investment limits aimed at minimising risk in the portfolio: 1. Country limit. Investment exposure is limited to countries within the Barclays Global Aggregate Bond Index plus Brazil, India, Indonesia, Philippines and China; 2. Foreign exchange limit. Total net foreign exchange exposure to the Australian dollar is limited to a maximum of 60% of the value of the Fund. Investments in non-member OECD countries per currency are limited to a maximum of 30% of the Fund s value with a total exposure limit of 60% of the value of the Fund; 3. Credit exposure limit. Investment exposure to credit securities denominated in Australian dollars and credit default swap indices is limited to a maximum of one fifth of the total allowable risk of the Fund as measured by the value at risk model. Fund information summary Date of inception Minimum investment Buy-sell spread Distribution frequency June 2016 $500, % Yearly Structure of the Fund The Fund has been established as an unregistered Australian unit trust. The Fund will generally not be liable for income tax as the Fund s net income will be distributed at the end of each financial year. Risks of investing in the BT High Alpha Fixed Income Fund Investing in the Fund exposes investors to the following specific risks: Market risk The Fund s investment returns will be influenced by the performance of financial markets as a whole. The market price of the Fund s investments will, therefore, fluctuate as a result of factors such as economic conditions, government regulations, market sentiment, local and international political events and environmental and technological issues. 4

5 International investments risk The Fund may invest in securities or derivative instruments issued in foreign markets and may hold assets (such as foreign currency) in various countries. Risks inherent in this type of investment include differences between countries in relation to accounting, auditing, financial reporting, government regulation, securities exchanges and transactional procedures. Foreign markets may also have different levels of liquidity, pricing availability and settlement and clearance procedures. Currency risk The Fund s assets may be denominated in a variety of currencies. For unhedged investments in international assets, a rise in the Australian dollar relative to other currencies will negatively impact investment values and returns. Currency markets can be extremely volatile and are subject to a range of unpredictable forces. Where this risk is hedged, the hedge may not provide complete protection from adverse currency movements. Interest rate risk The risk that the investment value or future returns of an asset in the Fund may be adversely impacted by changes in interest rates. Interest rates may directly or indirectly affect the value of the Fund s fixed interest securities. Derivatives risk The risk that the Fund makes substantial losses or has volatile returns through the use of derivatives including options. The Fund will use derivatives to gain its investment exposures. Derivatives are instruments whose value is derived from the value of an underlying asset (such as a share or a market index) and can be highly volatile. A derivative s value can change in response to a range of unpredictable factors such as changes in interest rates, volatility of an underlying asset, foreign exchange rates, or credit rating. Derivatives also involve a higher level of risk than buying an asset directly. This is because derivatives require very little or no initial investment to gain exposure to markets. As a result, derivatives magnify both potential investment gains and losses. Losses from derivative transactions can be substantial and can exceed the original amount invested. Counterparty risk The risk of loss arising from the failure of another party to a contract (the counterparty) to meet its obligations. Counterparty risk arises primarily from investments in derivatives and foreign exchange transactions. Substantial losses can be incurred if a counterparty fails to deliver on its contractual obligations. Derivative transactions for the Fund can only be undertaken with licenced exchanges and with approved counterparties under approved agreements and within approved credit limits. Leverage risk Leverage generally involves the use of borrowed money or derivatives to increase the potential return from an investment. While the Fund is not permitted to borrow to invest, it will be leveraged through the use of derivatives. Leverage occurs where the level of exposure to investments exceeds the amount of cash invested. Leverage through the use of derivatives for example, involves a higher level of risk because derivatives require very little or no initial investment to gain exposure to markets. As a result, leverage magnifies both potential investment gains and losses. Losses from leveraged investments such as derivatives can be substantial and can exceed the original amount invested. Key person risk The risk that a fund s investment performance or ability to remain open to investors is adversely impacted due to the loss of key individuals who are integral to the fund s investment process, idea generation, security selection and portfolio construction. To reduce reliance on any particular individual, BTIM undertakes active succession planning and cross training of team members. Financial incentives are also offered to retain talent and reward staff performance. Strategy risk The strategies employed by the Fund may prove to be incorrect or ill-timed resulting in losses in the Fund. Specific factors that may cause strategy risk are low market volatility in bond and currency markets, a stable economic environment and short term market mispricing that does not re-price. Regulatory risk The risk that a change in laws and regulations governing a security, sector or financial markets could have an adverse impact on an investment. A change in laws or regulations can increase the costs of operating a business and/or change the competitive landscape. Regulators may also impose bans or other restrictions on the use of derivatives which could affect the Fund s ability to implement its investment strategy. 5

6 Investing in the BT High Alpha Fixed Income Fund How to apply Investors should complete the online application by clicking on Apply now at A copy of the Application Form is also available for download on the website or by calling Payment details and methods are available with the Application Form. You can add to your investment at any time by sending us your written instructions with your payment. How to withdraw You can redeem some or all of your investment by either mailing or faxing us a completed withdrawal form or providing a written notice of withdrawal. Withdrawals will generally be paid to your nominated Bank Account within 5 Business Days or within 14 Business Days if you choose to receive a cheque. Restrictions on withdrawals There may be circumstances where your ability to withdraw from the Fund is restricted and you may have to wait a period of time before you can redeem your investment. We may delay or suspend a withdrawal request where we are unable to realise sufficient assets due to circumstances outside our control (such as restricted or suspended trading in the market for an asset) or where the Fund becomes illiquid. The constitution of the Fund also contains specific provisions that provide us with powers in relation to withdrawals. Processing If we receive an application or withdrawal request by 3.30pm (Sydney time) on a Business Day, we will process the transaction using that day s unit price. Requests received on or after the cut-off time of 3.30pm (Sydney time) on a Business Day, or on a non-business Day, will generally be treated as having been received before the cut-off time on the next Business Day. If we receive an invalid or incomplete application or withdrawal request, the transaction request will be processed using the unit price applying on the day that we receive the correct documentation. The above rules about cut-off times apply. Distributions The Fund generally pays distributions on a yearly basis, with the final distribution paid at the end of June each year. In some circumstances, we may also pay distributions at other times where we consider it appropriate. Distributions you receive are generally assessable income and can be made up of both income and realised capital gains. Distributions are generally calculated based on the Fund s net income at the end of the distribution period divided by the number of units on issue. In certain circumstances, some income and/or net realised capital gains may be held back until the final distribution at the end of June to allow for market volatility. You can choose to have your distributions automatically reinvested into additional units in the Fund or paid directly into your nominated Bank Account. There is no buy-sell spread on distributions that are reinvested. Reinvestment of distributions will normally be effective the first day following the end of the distribution period. Distribution payments to your nominated Bank Account are generally made within 10 Business Days after the end of the distribution period. Management costs Management costs 2 The fee for managing the assets and overseeing the operations of the Fund. Amount Management costs consist of the following component: Issuer fee 2.10% pa Management costs are met from a single fee, being the issuer fee which is paid from the assets of the Fund and reflected in the unit price of your investment. The issuer fee is calculated on the net asset value of the Fund and generally accrued on a daily basis and deducted from the Fund monthly. 2_Management costs are quoted inclusive of GST and net of Reduced Input Tax Credits. 6

7 We are also entitled to be reimbursed for expenses we incur in the proper performance of our duties and in connection with the day-to-day operations of the Fund. At the date of this IM, we do not deduct these recoverable expenses out of the Fund. However, in the future if we decide to deduct these expenses, we will give investors 30 days written notice. Buy-sell spread The buy-sell spread is generally incurred whenever you invest in the Fund. The buy-sell spread is retained by the Fund (it is not paid to us) and represents a contribution to the transaction costs incurred by the Fund such as brokerage and stamp duty, when the Fund is purchasing and selling assets. There is no buy-sell spread on distributions that are reinvested. At the time of this Information Memorandum, the buy-sell spread is 0.20%. We may vary the buy-sell spread from time to time and prior notice will not ordinarily be provided. Updated information on the buy-sell spread will be posted on our website Taxation information The following is a brief summary of some of the Australian income tax consequences of investing in the Fund. BTIM does not provide tax advice and the information contained in this section is of a general nature only Potential investors should not rely on this summary and should seek their own taxation advice in relation to the tax consequences of investing in the Fund prior to making any investment decision. The tax consequences may differ, depending on your own particular circumstances. Australian investors Tax on distributions As investors in the Fund should be presently entitled to the distributable income of the Fund for each financial year, the Fund should not be liable to Australian income tax under present income tax legislation. An investor s share of the net income of the Fund becomes part of that investor s assessable income for that income year. This is the case regardless of whether the income is paid to the investor or reinvested, or if the income is received by the investor in the next income year. Some distributions may not need to be included in an investor s tax return but will generally reduce the cost base of their investments for capital gains tax purposes. Tax on withdrawals Partial or full withdrawals from the Fund will be treated as disposal of investments for tax purposes and investors may be subject to Capital Gains Tax (CGT). Individual investors that hold their investment on capital account, and have held the investments for more than 12 months, may be entitled to a CGT concession that can reduce their CGT liability by 50%. Other taxpayers (for example, complying superannuation funds) may be entitled to a 33.33% CGT concession provided the investments are held for more than 12 months. Taxation of Financial Arrangements (TOFA) Broadly, the TOFA rules may affect the time at which gains and losses from financial arrangements are recognised for income tax purposes, including whether the gains and losses are recognised on an accruals rather than realisation basis or whether the gains and losses are on revenue account. The Fund should be subject to the TOFA rules and depending on the types of financial arrangements it holds, it may be required to recognise gains and losses from these financial arrangements on an accruals basis. Individuals should not be directly subject to TOFA in respect of their investment, unless they have elected for the TOFA rules to apply. Other investors may be directly subject to the TOFA rules in respect of their investment. Prospective investors should seek their own advice in relation to the potential applicability of TOFA in respect of their particular circumstances. Tax reporting After the end of the tax year, we will send tax statements and CGT statements (if applicable) to investors. 7

8 TFN/ABN Withholding Investors are not obliged to provide us with their Tax File Number or Australian Business Number (if applicable), but if an investor does not provide either, and does not claim a valid exemption, we are required to deduct tax from that investor s distributions at the highest marginal tax rate, plus the Medicare levy and other applicable levies, to meet Australian Taxation Office requirements. Australian companies and other entities that invest in the course or furtherance of their registered business can supply their ABN instead of their TFN to us. Goods and Services Tax (GST) GST will not be imposed on the application for, or withdrawal of, units in the Fund. However, it will be charged on: > the price of most purchases made by the Fund in carrying out its investment activities; and > fees payable to us, and reimbursable expenses (if applicable). The Fund may be entitled to claim a refund (Reduced Input Tax Credit) for part of the GST included in the price of most purchases. Non-residents of Australia For non-resident investors wishing to invest in Australia, we recommend that they seek independent professional tax advice. Tax at the prescribed rates will be withheld from distributions to non-residents to the extent that the distributions comprise Australian sourced income or certain capital gains. Foreign Account Tax Compliance Act We are required to identify certain US persons in order to meet account information reporting requirements under local and international laws. If you or (where you are an entity) any office bearer 3 of the entity and/or any individual who holds an interest in the entity of more than 25% (a Controlling Person) are a US citizen or US tax resident, you must telephone (or if you are calling from overseas) at the time of accepting the terms and conditions in this IM. When you contact us you will be asked to provide additional information about your US tax status and/ or the US tax status of any Controlling Person which will constitute certification of US tax status for the purposes of the application to which the terms and conditions in this IM relate. Unless you notify us that you and/or any Controlling Person are a US citizen or US tax resident as specified above, accepting these terms and conditions constitutes certification that you and/or any Controlling Person are not a US citizen or US tax resident. If at any time after account opening, information in our possession suggests that you and/or any Controlling Person may be a US citizen or US tax resident, you may be contacted to provide further information on your US tax status and/or the US tax status of any Controlling Person. Failure to respond may lead to certain reporting requirements applying to the account. Other important information Related party transactions and conflicts of interest The Fund may directly invest only in the other funds of which we, or a related entity, are trustee, responsible entity or manager and which are identified by name in this Information Memorandum (related funds). We may appoint any of our related entities to provide services or perform functions in relation to the Fund, including acting as our delegate. We may also enter into financial or other transactions with related entities in relation to the assets of the Fund and may sell assets or purchase assets from, a related entity. A related entity is entitled to earn fees, commissions or other benefits in relation to any such appointment or transaction and to retain them for its own account. Such arrangements will be based on arm s length commercial terms. In the course of managing the Fund, we may face conflicts in respect of our duties in relation to the Fund, related funds and our own interests. We have policies and procedures in place to manage these appropriately We will resolve such conflict fairly and reasonably and in accordance with the law, ASIC policy and our policies. Types of allowable investments The reference to the Fund investing in an asset class includes all types of investments which give exposure to that asset, directly or indirectly, including through derivatives, and through any type of investment which would ordinarily be understood in financial markets to be included in that asset class. 3_Director of a company, partner in a partnership, trustee of a trust, chairman, secretary or treasurer of an association or co-operative. 8

9 Terms used in this IM In this IM: Bank Account means an account with an Australian Authorised Approved Deposit Taking Institution (which includes a building society and credit union). Business Day means a day (other than a Saturday, Sunday or public holiday) on which banks are open for general banking business in Sydney. Fund means the BT High Alpha Fixed Income Fund. IM means this Information Memorandum dated 28 June 'Trustee' means BT Investment Management (Fund Services) Limited ABN , AFSL we, our, us or BTIM means the trustee of the Fund. Asset values of the Fund for the purposes described in this IM are determined in accordance with the Fund s constitution. 9

10 Our contact details You can contact BTIM in any of the following ways: > Client Service enquiries: Phone (BT Customer Relations) Monday to Friday 8.00am to 5.30pm (Sydney time) Fax > Mailing address: BT Investment Management (Fund Services) Ltd GPO Box 2675 Sydney NSW 2001 > btim.com.au This Information Memorandum (IM) has been prepared by BT Investment Management (Fund Services) Limited ABN , AFSL (BTIMFS). BTIMFS is the trustee and issuer of units in the BT High Alpha Fixed Income Fund (Fund). The information in this IM is general information only and is not intended to constitute professional advice. It does not take into account any recipient s particular investment objectives or financial situation. This information is given in good faith and has been derived from sources believed to be accurate. The information is general information only and should not be considered as comprehensive statement on any matter and should not be relied upon as such. Neither BTIMFS nor any company in the BT Investment Management Group accepts any responsibility for the accuracy or completeness of this information or otherwise endorses or accepts any responsibility for this information. Except where contrary to law, BTIMFS intends by this notice to exclude all liability for this material. If market movements, cash flows or changes in the nature of an investment (eg a change in credit rating) cause the Fund to exceed any of the investment ranges or limits set out in this IM, this will be rectified by BTIMFS as soon as reasonably practicable after becoming aware of it. If BTIM does so, it will have no other obligations in relation to these circumstances. The procedures, investment ranges, benchmarks and limits specified in this IM are accurate as at the date of its issue, and BTIMFS reserves the right to vary these from time to time. If an investor is classed as a wholesale investor under the Corporations Act, fees may be individually negotiated. BT is a registered trade mark of BT Financial Group Pty Ltd and is used under licence.