Sigma Select Equities Portfolio

Transcription

1 Sigma Select Equities Portfolio 8 March 2017 About this Managed Portfolio Disclosure Document This Managed Portfolio Disclosure Document (Disclosure Document) has been prepared and issued by HUB24 Custodial Services Ltd (ABN , AFSL ) ( HUB24, the Operator, we, us or our ) as operator of the Investor Directed Portfolio Service (the Service ), about which you have expressed an interest or in relation to which you may be an existing investor. The information contained in this Disclosure Document should be read in conjunction to the Investor Directed Portfolio Service Guide for the Service ( IDPS Guide ). If you do not have a copy of the IDPS Guide, you can obtain a copy free of charge from your financial adviser or the Operator. This Disclosure Document is intended only for the purposes of providing an overview of the key features of the managed portfolio available through the Service. The information contained in this Disclosure Document is not intended to be a definitive statement nor an endorsement that this managed portfolio is appropriate for you and should not be relied upon in making a decision to invest. To understand all the fees payable when you select a particular investment option, you must refer to the IDPS Guide and the Product Disclosure Statement (or other disclosure document) for the investment option. Refer to the IDPS Guide for details. Any statement made by a third party or based on a statement made by a third party in this Disclosure Document has been included in the form and context in which it appears with the consent of the third party, which has not been withdrawn as at the date of this Disclosure Document. General Advice Warning The information in this Disclosure Document is general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before acting on this information, you should consider its appropriateness, having regard to your individual objectives, financial situation, needs and circumstances. Before making a decision about whether to acquire or continue to hold the Sigma Select Equities Portfolio, you should consider the IDPS Guide. The IDPS Guide is available free of charge by contacting your financial adviser or the Operator. When designing the portfolio, the portfolio manager does not take into account any potential investors investment objectives, financial situation or needs. You should also consider the Product Disclosure Document (or other disclosure document) for any underlying investment options acquired under this managed portfolio before making any investment decision. Upon request, your financial adviser or the Operator must give you (free of charge) a copy of this documentation. If you d like to request a free printed copy of this Disclosure Document or have any questions or would like any more information about the Sigma Select Equities Portfolio, please contact your financial adviser or the Operator. Eligibility You can only invest in the Service if you are advised by a financial adviser (adviser), unless otherwise approved by us, so you can receive financial advice for each investment you are considering, including investments held through the managed portfolio described in this Disclosure Document. 1

2 Managed portfolio Sigma Select Equities Portfolio Portfolio manager The portfolio manager is Sigma Funds Management Pty Ltd (ABN , AFSL ) ( Sigma ). The portfolio manager is responsible for designing and managing the composition of this managed portfolio to meet the investment objectives and investment strategy detailed below. Execution of investment strategy Code HUB24 is responsible for implementing the investment instructions of the portfolio manager, by buying and selling of investments, taking into consideration, timing, trading costs (such as brokerage and currency costs, if applicable) and the mandate of the portfolio. HUB24 has the right to vary the managed portfolio, as set out in the IDPS Guide. SFM003 Inception date 24/09/2010 Minimum initial investment amount Designed for Investment objective Investment strategy Investment universe Benchmark No minimum The Sigma Select Equities Portfolio is designed for investors with an investment horizon of five or more years who are seeking long term capital growth and income from an exposure to a diversified portfolio of both large and small capitalization stocks listed on the Australian Securities Exchange. The objective of the Sigma Select Equities Portfolio is to outperform the benchmark over periods of five years or longer while at the same time aiming to minimize the risk of investment capital loss. The portfolio invests across a broad range of undervalued businesses with a bias towards those with lower business risk. The investment approach is valuation driven with a clear focus on risk adjusted returns. By following this strategy, the portfolio manager aims to achieve their objective of delivering above average market returns with lower than average levels of market risk over the medium to longer term. Refer to the Investment strategy and process section below for further details. The portfolio can invest in: - ASX listed securities - Cash The portfolio does not invest in derivatives. S&P/ASX 300 (TR) Asset allocation ranges Minimum Maximum Australian shares 75% 100% Cash 0% 25% Portfolio income All income derived will be retained in the portfolio. Typical number of securities 20 to 40 stocks 2

3 Number of securities published to client Top 5 Turnover aim The portfolio manager aims to have low turnover in the portfolio. Historically turnover has averaged 30% per annum. Minimum suggested timeframe 5 years Investment management fee Investment performance fee Other fees and costs 0.65% p.a.inclusive of GST of the balance in the managed portfolio. The investment management fee is calculated as a percentage of the managed portfolio calculated daily and deducted from your cash account monthly in arrears. The investment management fee is paid to HUB24 and used to remunerate the portfolio manager for its services in relation to the Service, and to meet the costs of the asset consulting and the investment management services associated with the portfolio % of the out-performance above the S&P/ASX 300 (TR). The investment performance fee is deducted from your cash account monthly in arrears. For more information refer to the Performance fees section in this document. For information about other fees and costs for trading within a managed portfolio, refer to the IDPS Guide (Part II) and the International Listed Securities Guide (if applicable). 3

4 About the portfolio manager Sigma Funds Management Pty Ltd Sigma Funds Management Pty Limited (ABN , AFSL ) ( Sigma ) is the portfolio manager in relation to the establishment and implementation of the Sigma Select Equities Portfolio. Sigma believes that fund management is a people business requiring the right environment and structure for investment professionals to implement the firm's investment philosophy and deliver a high standard of performance, service and consistency to investors. Through careful consideration of its business model and the wisdom of its collective experience, Sigma regards itself as well positioned to deliver investment excellence for our clients. Why invest with Sigma? The following five points highlight Sigma's key sources of competitive advantage. Proven performance Sigma has a demonstrated track record of outperformance across Large and Small Cap Australian Equity mandates. Importantly, the investment approach and process has been thoroughly tested through difficult financial and economic circumstances. Experienced team with continuity There is no substitute for experience. Sigma averages greater than 20 years investment experience per investment manager across the entire team of six. Sigma has a strongly resourced team, with substantial depth and diversity, and the discipline to implement a well thought out process. Importantly, the existing team has worked and performed together prior to establishing Sigma as a business. Valuation focused investment approach The approach to achieving the investment objective is clearly articulated with consistent valuation methodologies applied to each investment opportunity. Market inefficiencies, where Sigma s perceptions of risk and return are sufficiently different to the market are explicitly identified, tested and weighed. Our focus on attractive valuations and bias to companies with lower business risk, results in lower business volatility, allowing us to deliver performance across the full investment cycle. Partnership Sigma is structured and managed as an investment partnership, providing the right environment and structure for a team of professionals to deliver sustainable performance. Sustainability Sigma is well aware of capacity constraints and has no institutional imperative of gathering large sums of funds under management. Investment strategy and process Investment strategy Sigma s investment philosophy is simple: To invest in a broad range of undervalued businesses with a bias towards those with lower business risk. Sigma s investment approach is valuation driven with a clear focus on risk adjusted returns. Through experience, Sigma believe following such a strategy will achieve the objective of delivering above average market returns with lower than average levels of market risk over the medium to longer term. As investors Sigma are focused on business fundamentals first and foremost, and Sigma s task boils down to understanding the variant perception in the market place relative to the value of the business. In other words, Sigma is contrasting market psychology, or market expectations, against Sigma s understanding of business fundamentals or business value to determine the probability of achieving our return objective. Sigma s investment approach focuses on answering two key questions: Are the probabilities in our favour, or in other words, is the business undervalued? If so, how much capital do we allocate, or what is the weighting in the portfolio? The portfolio utilises the large cap concentrated portfolio as its foundation and then strategically uses small cap capacity and cash to add value. The stock candidates are sourced from two existing portfolios and then follow a three step investment process to achieve its investment objective. Step 1 Best Stock Ideas The stock universe is initially selected from high conviction positions in the concentrated 100 large cap portfolio (15-25 stocks) and the top 25 positions in the small cap portfolio leading to an investment universe of stocks. These stocks are then re-ranked under Sigma s investment process to sort the group initially by valuation and then risk-adjust the position size for business risk. The portfolio will target a holding of stocks. 4

5 Step 2 Portfolio Construction Maximising the probability of achieving the Return Objective The weightings between Large Cap versus Small Caps versus Cash are considered as follows: Large Cap versus Small Cap Weighting Process: Stocks under consideration must rank at an attractive position on a re-ranked bottom-up basis. The overall small cap weighting (range 0-25%) is determined by a top-down scoring process relying on 3 factors: - Relative Small Cap PE versus Large Cap PE; - Valuation upside of stocks in Small Cap portfolio; - Stage of economic cycle. Cash Weighting Process (range of 0-25%): Five top-down factors are scored; then summed to a total score: - Market PE; - Equity Risk Premium; - Bottom-Up Expected Portfolio Return; - Stage of Economic Cycle; and - Monetary Policy Stance. Cash is only raised when the total score is negative. The top-down processes are required to corroborate the bottom-up stock assessment. This results in the appropriate relative weightings between stocks to maximize the probability of achieving the Return Objective. The large cap and small cap portfolio management teams vote and agree on inclusion and relative weighting. Step 3 Portfolio Risk Control The portfolio is then refined to ensure that there are no unintended biases and there is sufficient diversification from a risk control perspective. The key to the investment process is discipline and simplicity. Simple models and tools are used reflecting a conscious decision to walk a middle path that combines the best of academic theory (to provide a sound framework) with the practicalities of human endowments in thinking and decision making. Discipline is paramount, with inputs into the process carefully monitored and the outputs carefully assessed, with an unrelenting focus on process. Experience has taught Sigma that better than average performance can be achieved over the medium to longer term if you remain disciplined in your process. How the portfolio manager manages risk? The Portfolio Manager manages the fundamental business risk of investing in equities by only buying those businesses in the market where there is an appropriate risk return trade off. The risk of paying too much for companies and not achieving a satisfactory return in the long run is managed by the strict application of their disciplined valuation-based risk adjusted approach to owning equities. Whilst it is not possible to identify all risks, through careful analysis and research, the Portfolio Manager seeks to identify as many risks as possible and apply risk mitigation where practicable before investing. Risks Before you consider investing in this portfolio, it s important you understand the risks that can affect your investments. A summary of key risks is in the IDPS Guide. See the Risks section in the IDPS Guide and please note this is not an exhaustive list of all the risks. The risks relevant to this portfolio reflect the underlying investments. For information about risks with regard to your personal situation speak to your adviser. Performance fees Investment performance fee Some portfolio managers may charge an investment performance fee in addition to the investment management fee. Investment performance fees relate to the outperformance of the managed portfolio in relation to the benchmark and will be paid to the portfolio manager by the Operator. Please read below for more information about the way the investment performance fee is calculated and deducted from your account. Benchmark Each portfolio manager sets a benchmark for the managed portfolio so that performance can be measured in relation to this benchmark. For example, the S&P/ASX 200 may be a benchmark for an Australian shares portfolio. HUB24 obtains data on these indices from Standard and Poor s including performance data, and HUB24 uses this to determine the managed portfolio benchmark return percentage each day. HUB24 calculates the managed portfolio performance by measuring the daily returns on a notional portfolio invested in accordance with the portfolio manager s instructions (i.e. in the securities that make up the 5

6 managed portfolio using the weights as advised by the portfolio manager). This identifies the value added (defined below) by the portfolio manager compared to its benchmark, without being distorted by the timing of contributions and withdrawals, and the timing and settlement of trades, all of which can vary for each investor. In this manner the same value added percentage (defined below) is charged to each investor in a particular managed portfolio. The percentage return each day is termed the managed portfolio return percentage. Note: If the portfolio manager elects to either reinvest dividends or distribute income it has no effect on the investment performance fee calculation. The managed portfolio weights can move from the original set of weights due to price movements, the addition or removal of investments and (possibly) other corporate actions this is referred to as a floating managed portfolio. Calculation method The investment performance fee is calculated as a set percentage applied to the value added by the portfolio manager, so the higher the value added the higher the investment performance fee as the portfolio manager shares the outperformance with the investor. The fee calculated monthly in arrears and is deducted from the Operator from your cash account at the end of each month (or on prior to full withdrawal from the managed portfolio), and paid to the portfolio manager. The term value added is a dollar amount and is defined as value added percentage multiplied by your managed portfolio value, where the value added percentage equals managed portfolio return percentage less the managed portfolio benchmark return percentage for that day. Performance is calculated for the managed portfolio and the benchmark in exactly the same way to identify the value added percentage. The value added dollar amount is accumulated daily so that at the end of a given month, if the cumulative value added is greater than $0 then an investment performance fee is payable on the cumulative value added amount multiplied by the manager s performance fee percentage, at which time the cumulative value added is set to $0. If the cumulative value added is less than $0 then an investment performance fee is not payable and the cumulative underperformance amount carries forward to the next month and must be made up before any outperformance fee can be charged. Example If at the end of the previous month the cumulative outperformance was negative or -$1,000 (i.e. a cumulative underperformance) and this month s outperformance is $1,500 then the cumulative outperformance is $500. If the portfolio manager charged an investment performance fee percent of 25% then $125 would be the investment performance fee for that month (i.e. 25% x $500 = $125). Say at the end of the previous month the cumulative outperformance was positive $1,000 and a performance fee was charged (of 25% x $1,000 = $250), then the cumulative outperformance is reset to $0. If this month s outperformance is $1,500 then the cumulative outperformance is $0 + $1,500 and another investment performance fee is due of $375 (i.e. 25% x $1,500 = $375). The performance of the portfolio manager s managed portfolio will usually differ to your actual managed portfolio for many reasons including: - cashflows the timing of capital contributions into and out of your managed portfolio the portfolio manager s managed portfolio makes no allowance for capital contributions or withdrawals - your managed portfolio will not be identical to the portfolio manager s managed portfolio, and - (minor) rounding adjustments and minimum trade sizes the notional amount invested in the portfolio manager s managed portfolio is assumed to start at $10,000,000. Note: The examples above are illustrative only and are based on the factors stated in the relevant example. They should not be taken to provide a guarantee or estimate of the investment performance fee that may be applicable to you. Trade notifications If the portfolio manager is planning to perform a rebalance or reallocation on your investment, HUB24 may send you an notifying you of a set of pending investment instructions. This is called a trade notification. The specific details of the investment instructions will be set out on InvestorHUB. You have a minimum of 24 hours from the time and date of the trade notification to cancel these pending investment instructions. If you don t respond or take any action in relation to the pending investment instructions, the portfolio manager will submit the investment instructions on or around am the next business day. If you opt out (i.e. do not consent) to the portfolio manager s proposed rebalancing or reallocation your investment 6

7 in the managed portfolio will be withdrawn and be deposited into your cash account. If you can t contact your adviser to cancel the pending investment instructions, you can give HUB24 verbal and or written instructions directly, as long as the verbal and or written instructions are received by HUB24 within the time frame mentioned above. The rebalance and reallocation of managed portfolios may occur regularly and you may receive a trade notification from HUB24 each time a rebalance or reallocation occurs. Note: The trade notification feature has been developed to provide transparency and the right to veto any pending investment instructions within the agreed timeframe with your adviser or HUB24. Universe of investments A managed portfolio can only be made up of asset classes and underlying assets and securities from the approved list of investments in the Service. The portfolio manager will select from this list to construct this managed portfolio. Where available, the actual list of assets and securities acquired in all of the above asset categories will be set out in your Statement of Advice. Contact details Operator: HUB24 Custodial Services Ltd Mail: GPO Box 529, Sydney NSW admin@hub24.com.au Phone: Fax: SG