Fund Review BetaShares Australian Dividend Harvester Fund

Transcription

1 Fund Review BetaShares Australian Dividend Harvester Fund P 1-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: ADRIAN HOE ISSUE DATE About this Review ASSET CLASS REVIEWED SECTOR REVIEWED SUB SECTOR REVIEWED AUSTRALIAN EQUITIES AUSTRALIAN LARGE CAP INCOME SPECIALISED TOTAL FUNDS RATED 13 About this Fund ASIC RG240 CLASSIFIED FUND REVIEWED BETASHARES AUSTRALIAN DIVIDEND HARVESTER FUND ASX CODE NO HVST PDS OBJECTIVE TO PROVIDE REGULAR INCOME, COMPRISING DIVIDENDS AND FRANKING CREDITS FROM AUSTRALIAN SHARES, THAT IS AT LEAST DOUBLE THE INCOME YIELD OF THE S&P/ASX 200 INDEX ON AN ANNUAL BASIS. STATED RISK OBJECTIVE DISTRIBUTION FREQUENCY FUND SIZE TO REDUCE THE VOLATILITY OF THE FUND S EQUITY INVESTMENT RETURNS AND CUSHION DOWNSIDE RISK. MONTHLY $381.02M FUND INCEPTION OCTOBER 2014 MANAGEMENT COSTS RESPONSIBLE ENTITY About the Fund Manager FUND MANAGER OWNERSHIP 0.9% P.A. (INCLUDING 0.25% P.A. EXPENSE RECOVERY FEE) BETASHARES CAPITAL LTD BETASHARES CAPITAL LTD HORIZONS ETFS 53%, BETASHARES MANAGEMENT TEAM 45%, PRIVATE INVESTORS 2% YEARS MANAGING THIS ASSET CLASS 8 Investment Team PORTFOLIO MANAGER LOUIS CROUS, THONG NGUYEN, DON HOANG, CHAMATH DE SILVA INVESTMENT TEAM SIZE 4 INVESTMENT TEAM TURNOVER Investment process STYLE BENCHMARK LOW RULES BASED, INCOME FOCUSED S&P/ASX 200 ACCUMULATION INDEX TYPICAL NUMBER OF SECURITIES 14 TYPICAL CAPITALISATION BIAS STOCK POSITION LIMITS Fund rating history SEPTEMBER 2017 SEPTEMBER 2016 NOVEMBER 2015 LARGE 12% (ABSOLUTE) INVESTMENT GRADE INVESTMENT GRADE INVESTMENT GRADE What this Rating means The Investment Grade Index rating indicates that Lonsec has conviction the financial product can generate risk adjusted returns in line with relevant objectives. However, if applicable, Lonsec believes the financial product has fewer competitive advantages than its peers. Strengths Straight-forward portfolio construction rules that seek to systematically capture the next large cap dividend paying stocks. The methodology is well suited to achieving the Fund s yield investment objective. Portfolio construction rules comply with the 45-day rule to ensure franking benefits are passed through to investors. Low key person risk. Weaknesses High stock concentration risk. Significant basis risk of the risk management overlay. Short live track record of the strategy. Poor performance outcomes to date. Fund Risk Characteristics BUSINESS SUSTAINABILITY RISK CAPITAL VOLATILITY SECURITY CONCENTRATION RISK SECURITY LIQUIDITY RISK LOW MODERATE HIGH Risk categories are based on Lonsec s qualitative opinion of the risks inherent in the financial product s asset class and the risks relative to other financial products in the relevant Lonsec sector universe. BIOmetrics Aggregated risks STD RISK MEASURE A Standard Risk Measure score of 6 equates to a Risk Label of High and an estimated number of negative annual returns over any 20 year period of 4 to less than 6. This is a measure of expected frequency (not magnitude) of capital losses, calculated in accordance with AFSA/FSC guidelines. RISK TO INCOME Features and benefits COMPLEXITY ESG AWARENESS LOW MODERATE HIGH LOW MODERATE HIGH We strongly recommend that potential investors read the product disclosure statement or investment statement. Lonsec Research Pty Ltd ABN AFSL. No This information must be read in conjunction with the warning, disclaimer and disclosure at the end of this document. This report supersedes all prior reports.

2 P 2-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: ADRIAN HOE ISSUE DATE Fee profile FEES VS. UNIVERSE FEES VS. ASSET CLASS FEES VS. SUB-SECTOR LOW MODERATE HIGH Fee BIOmetrics are a function of expected total fee as a percentage of expected total return. What is this Fund? The BetaShares Australian Dividend Harvester Fund ( the Fund ) is a Fund trading on the ASX under the ticker HVST. The Fund is largely rules-based Australian equity income strategy, which seeks to maximise dividend income by investing in a portfolio of dividend paying Australian stocks, whilst varying the net equity market exposure to manage volatility and reduce downside risk to investors. The Fund s income returns could be expected to account for the majority, if not all, of the Fund s total returns. BetaShares ( the Manager ) will adopt a dividend harvest strategy from physical stock holdings of a relatively concentrated number of ASX-listed shares. Securities are filtered by expected gross yield (and franking) from the 50 largest stocks (by market capitalisation) on the ASX with the objective of providing at least double the income yield of the S&P/ASX 200 Index ( the Benchmark ). Expected dividends are based on declared dividends or analyst consensus estimates. Securities will be ranked from highest to lowest expected dividend yield, with expected higher-yielding securities generally receiving a higher weighting than expected loweryielding securities. The portfolio is rebalanced approximately every two months in order to obtain the next paying dividend large cap stocks and comply with the 45 day rule. As a result, turnover is expected to be very high (~600% p.a.). However, because capital gains is not expected to comprise a meaningful amount of total returns, high turnover is not expected to adversely impact any ability to claim discounted capital gains. The Fund will hold a minimum of 14 securities. If fewer than 14 securities qualify, the Fund is permitted to hold a broad market Australian equity ETF. A single stock cap of 12% is also applied to somewhat reduce stock concentration risk. At the time of Lonsec s review, the Fund held 14 stocks with sector exposure presently skewed to Real Estate (30.0%) and Financials (19.1%) securities. The effective net market exposure decision is managed by Milliman Inc, a global institutional risk manager. The risk management overlay uses SPI ASX 200 exchange traded futures as hedging instruments. This process is accomplished via a volatility target mechanism, which dynamically changes the net market exposure of the Fund in response to anticipated market volatility. The Fund is managed to a target volatility (as measured in standard deviation of returns) of 12% p.a. As a proportion of the Fund is allocated to the risk management overlay (futures exposure is expected to be in the range of between 10-50% of the Fund s net asset value), the Fund is likely to underperform a direct (and non-risk managed) investment in the portfolio of shares during strong bull markets. However, the risk management overlay means the Fund is likely to outperform during bear markets. Overall, the Fund is aimed at generating income, rather than capital gains, and is designed to produce better risk-adjusted returns over a full market cycle. The Fund s fee load comprises a Management Fee of 0.65% p.a. and Expense Recovery Fee estimated at 0.25% p.a. Lonsec therefore interprets Management Costs to be 0.90% p.a. Overall, the fee load of the Fund is similar to the average of Lonsec rated actively managed income-focused strategies. In having said that, Lonsec notes that the Fund s fees are meaningfully higher than other rules based, passively managed strategies. The Bid / Ask Spread of the Fund averaged 0.09% for the 12 months to July 2017 which is low compared to peers and in absolute terms. Investors should note that in periods of market instability, indirect costs such as the Bid / Ask spread may widen for this Fund. Using this Fund This is General Advice only and should be read in conjunction with the Disclaimer, Disclosure and Warning on the final page. Lonsec considers the Fund suitable for investors seeking income derived from equity markets, with a measure of volatility management and downside protection. Lonsec believes the Fund will generally sit within the growth component of a diversified investment portfolio. Given the Fund invests in equities, investors should be comfortable with the potential for the Fund to experience periods of negative returns. However, the risk management overlay means the Fund could be expected to have a lower volatility and reduced drawdown risk than a long-only Australian equities fund. The Fund s income returns could be expected to account for the majority, if not all, of the Fund s total returns. Lonsec notes that the Fund s underlying unit price (capital base) is therefore likely to decline over time. The Responsible Entity has established a Dividend Reinvestment Plan ( DRP ) for the Fund which includes full or partial reinvestment. Investors wanting to maintain their capital base will likely require a portion of their income to be reinvested, which can be achieved via participation in a partial DRP. As the Fund s composition of shares may change significantly from each two monthly rebalance, turnover is expected to be very high when compared to other equity income funds. As capital gains are not expected to constitute a significant percentage of total returns, the high turnover is not expected to adversely impact any ability to claim discounted capital gains. Given the Fund s emphasis on securing franked income, it is expected to have higher levels of franking credits relative to the broader market. It is important to note however, that the Fund s distributions can fluctuate, as listed companies are not obligated to pay out a certain level of dividends. This is unlike what is normally associated with

3 P 3-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: ADRIAN HOE ISSUE DATE traditional income producing assets (i.e. fixed interest). Advisors should consult the Lonsec Risk Profile Review and / or the Lonsec Risk Profile Definitions document(s) for guidance on appropriate asset allocations to Australian equities within a diversified portfolio. Lonsec recommends that equity investments are suitable for investors with an investment-time horizon of at least five years. Suggested Lonsec risk profile suitability SECURE DEFENSIVE CONSERVATIVE BALANCED GROWTH HIGH GROWTH For guidance on appropriate asset allocations and risk profiles, refer to the latest Lonsec Strategic Asset Allocation Review and Risk Profile Definitions on our website. Changes Since Previous Lonsec Review There have been no significant changes to the investment process since Lonsec s previous review. Lonsec Opinion of this Fund People and resources The Manager takes advice from Milliman Pty Ltd when implementing the risk management overlay. Milliman has an impressive and long history in providing actuarial and overlay services. Milliman has investment teams in Chicago, London and Sydney. The Sydney office totals 15 staff and includes two portfolio managers, three analysts and three traders. Lonsec considers Milliman to have the skill set necessary to manage the risk management overlay of the Fund. Research and portfolio construction The dividend harvesting strategy underpinning the Fund draws upon internal proprietary research conducted by BetaShares. Lonsec believes the strategy has sufficient investment merit, whereby the Fund rotates (approximately every two months) into the next highest paying dividend stocks in order to provide the highest gross yield outcomes. That said, Lonsec notes that the strategy is based on back test historical performance and should not be taken as an indicator of future performance. At each portfolio rebalance, the Manager will identify the largest 50 stocks, by market capitalisation, listed on the ASX that are expected to give the holder an entitlement to a dividend and which exceeds a minimum gross yield threshold. Stocks are then ranked from highest to lowest based on expected gross yield, which is based on declared dividends or Bloomberg analyst consensus. Whilst believing this to be a pragmatic means for capturing large, high yielding companies, Lonsec cautions that this methodology remains susceptible to investing in dividend traps. The Fund will then invest in, at least, the top 14 ranked stocks, with individual security weights capped at 12% of the Fund s NAV at time of rebalance. Given the low stock holdings, there is a heightened security and sector concentration risk present in the portfolio. Lonsec notes that this feature is partially mitigated by the use of the Miliman risk management overlay and the potential investment into broad market Australian Equity ETFs. The Fund may invest in one or more broad market ETFs if fewer than 14 stocks meet its minimum yield and market capitalisation screens. Lonsec considers this practice to be a pragmatic approach to obtaining equity market exposure during periods in the year where there are fewer dividend paying opportunities in the Fund s investment universe. While the investment process is largely rules-based, there is some scope for the Manager to exclude securities by exception. Lonsec believes the checklist approach used to determine these exceptions is simple, but logical. The rules and methodology dictating the construction of the Fund are available on the Manager s website along with the holdings updated on a daily basis. Accordingly, Lonsec believes the transparency of the Fund and the investment process to be excellent. Risk management The Fund is managed within a clearly defined set of rules, which is monitored daily by the investment team. Lonsec believes the Fund s risk constraints, as well as the monitoring systems in place to be simplistic but adequate for the given strategy. The risk management overlay employed in this Fund uses SPI ASX 200 futures contracts to manage the volatility of the Fund and to reduce the downside exposure of the portfolio. Lonsec believes futures contracts offer a liquid and relatively transparent way to implement this overlay. While the Milliman risk management overlay has been implemented on other portfolios by Milliman for over a decade, Lonsec is cognisant that it is largely untested on this particular fund. In particular, this overlay should not be considered a perfect hedge as it uses a broad market derivative to hedge against a 14 stock portfolio (otherwise known as basis risk ). In this respect, an investor cannot determine with certainty the amount of profit / loss that will accrue from the risk management overlay following any fall / rise in the Fund. Liquidity The Fund s underlying constituents comprise large cap Australian companies listed on the Australian Stock Exchange. Lonsec considers the liquidity in the Fund s underlying constituents to be very high. The Fund currently has a larger amount of funds under management compared to many ASX-listed ETFs. All else being equal, ETFs with higher levels of FUM are generally more liquid than ETFs with lower levels of FUM. The Fund also traded on each of the the last 250 trading days to July This level of trading was high compared to many ETFs. Lonsec considers the Fund to have reached sufficient scale where liquidity is not a material concern in the secondary market. The Manager has also employed reputable market makers and authorised participants that will act to ensure investors can buy and sell units of the Fund at a reasonably accurate price (i.e. consistent with the net asset value of the underlying securities) in most normal market conditions.

4 P 4-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: ADRIAN HOE ISSUE DATE Performance The Fund met its investment target over the one year to 31 August 2017 (all figures net of fees) by delivering an income return, comprising dividends and franking credits from Australian shares of 9.2% which was more than double the income yield (by approximately 4.4%) of the S&P/ASX 200 Index. On a gross distribution basis, the Fund s yield was approximately 3% higher, which also compared favourably to the Index s +1.5%, reflecting the additional franking credits the Fund generates relative to the Benchmark. However, from a total returns basis, the Fund has fared disappointingly over the last 12 months. A capital return of -15.4% has resulted in a total return of -6.2%, -16.0% under the performance of the S&P/ ASX 200 Index. Whilst the capital return of the Fund is expected to be persistently negative, the magnitude of the underperformance has strengthened Lonsec s concerns regarding stock and sector concentration risk and weakened the conviction in the relevance of the risk management overlay for this portfolio of equities. In particular, the rules based portfolio rotation of the Fund suffered from being overweight A-REITs and underweight banks and large cap resources in June Also in August 2016, HVST had no exposure to BHP (which was up 12.79%), underweight banks which outperformed, and held insurers which underperformed the Benchmark. In a rising equity market, the risk management overlay has also acted as a drag on performance. Additionally, the Fund has been prone to yield traps and poor stock selection as illustrated by the holding of Telstra at the recent dividend cut announcement. The Fund s 12-month volatility, as measured by the standard deviation of returns, was 8.7% and was higher than the Lonsec peer group median of 6.3% and the S&P/ASX 200 TR Index s volatility of 7.5%. Lonsec notes that whilst the Fund s volatility was low in absolute terms, it represents a failure of the Fund to achieve its risk objective and a poor risk hedging outcome. Overall Lonsec has maintained the Fund s Investment Grade rating. The Fund adopts a predominantly rules-based dividend harvesting investment strategy, suitably designed to achieve the yield performance objective. Having said that, Lonsec is mindful of the Fund s limited track record, noting that total return performance outcomes to date have not met expectations. Lonsec has increasing concerns regarding the high stock concentration of the equity portfolio and the basis risk of the risk management strategy. For further information, please consult the Manager Review document. People and Resources Corporate overview BetaShares Holdings was established in 2009 as a specialist provider of exchange traded products. It is 53% owned by Horizons, 45% owned by BetaShares s management team and the remainder owned by private investors. Horizons is a fully controlled subsidiary of the Mirae Asset Global Investments Group. Mirae is a Korean based asset management entity with over $100bn of FUM. Mirae is particularly active in emerging market equities and is currently expanding its ETF platform globally. The Horizons family of ETFs has $16bn-plus in assets in ETFs listed across six countries. BetaShares has over $4.7bn of FUM across 40 ETF products as at September BetaShares has appointed Milliman Pty Ltd (Milliman) to advise on the use of exchange traded futures for the purposes of hedging against the market risk to which the Fund is exposed. Milliman is a provider of actuarial and related products and services. The firm has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman Inc is an independent firm with offices in major cities around the globe. Milliman Inc currently provides advisory services on over US$600 billion in account value for over 6 million individual accounts. Risk management overlays to the value of US$80 billion are also managed on a global basis. Size and experience NAME LOUIS CROUS POSITION SENIOR PORTFOLIO MANAGER & CIO EXPERIENCE INDUSTRY / FIRM 17 / 7 THONG NGUYEN PORTFOLIO MANAGER 15 / 6 DON HOANG CHAMATH DE SILVA ASSISTANT PORTFOLIO MANAGER ASSISTANT PORTFOLIO MANAGER 8 / 3 8 / 1 The BetaShares business currently employs 31 dedicated financial service professionals. More broadly, BetaShares benefits from access to the broader distribution, research, infrastructure and risk management systems and resources of its strategic partners, Horizons and Mirae. Research Approach Overview BetaShares The Manager employs a largely rules based investment process to selecting stocks. The Manager does not engage in active research of the underlying stocks. The research underpinning the high dividend filtering strategy used by the Fund was completed internally by BetaShares and has a very limited live track record. Milliman The Milliman risk strategy is driven by a mathematical rules-based process. As such, on-going research is

5 P 5-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: ADRIAN HOE ISSUE DATE focused on refining the strategy, including volatility modelling. Further, given the strategy is implemented using exchange traded futures, research is also conducted into evolving trading programs and keeping up to date with hedging and trading techniques. Portfolio Construction Overview FUND BENCHMARK RETURN OBJECTIVE S&P/ASX 200 INDEX REGULAR INCOME THAT IS AT LEAST DOUBLE THE INCOME YIELD OF THE S&P/ASX 200 INDEX RISK OBJECTIVE AN OVERALL VOLATILITY LESS THAN THE S&P/ASX 200 INDEX INVESTMENT STYLE RULES BASED, INCOME FOCUSED TYPICAL NUMBER OF HOLDINGS 14 EXPECTED PORTFOLIO TURNOVER 600% P.A. % OF PORTFOLIO IN TOP 10 HOLDINGS 80.3% (31 AUGUST 2017) Equities Portfolio The Fund employs a mostly rules based strategy in order to select the underlying stocks. This process targets the stocks expected to provide the highest gross yield over the next two-month rebalance period and therefore portfolio turnover is expected to be very high. In order to determine the Fund s universe, the ASX/ S&P 50 Index is subjected to a filter which screens for minimum levels of yield (using declared dividends or Bloomberg analyst consensus), market cap and liquidity. Stocks which pass this screen are then ranked from highest to lowest expected gross dividend yield. A minimum of 14 securities are selected and a 12% individual stock cap is applied. Generally the portfolio will comprise 14 stocks with the top five stocks assigned a 9% weight, the next five largest stocks assigned a 7% weight, and the bottom four stocks a 5% weight. If fewer than 14 securities meet the yield threshold then the Fund may purchase broad market Australian Equity exchange traded funds. While this process is largely rules based, the Manager has discretion to override this process and exclude securities. Risk management overlay The Manager relies on advice from Investment Advisor, Milliman Pty Ltd (Milliman), to manage the Fund s downside risk by employing a proprietary volatility management strategy that dynamically adjusts the equity exposure of the Fund by using exchange traded futures. The risk management strategy is designed to capture most of the capital growth in the Fund s equity portfolio in rising markets and minimise losses during major market declines. Any buying or selling of futures contracts is determined on a daily basis by Milliman who communicates these instructions to BetaShares. The Milliman Managed Risk Strategy (MMRS) is comprised of two individual strategies: Volatility Management which aims to normalise equity market returns around a target volatility. Capital Protection, which will replicate the effect of a put option by hedging the market risk associated with the equities exposure. Both strategies are implemented through ASX SPI 200 exchange traded futures to manage the overall net exposure to the market by: Increasing the amount of short futures positions when equity markets are falling and / or volatility levels are increasing to offset losses from the underlying securities; Decreasing the amount of short futures positions when equity markets are rising and / or volatility levels are normal or low to enable investors to participate in the gains from the underlying securities. The amount of futures bought or sold at any particular time is determined by a mathematical based trading system, and managed with human oversight. However, a trading threshold of 5% is imposed to limit execution costs and market noise. Any gain or loss from the futures positions is cash settled on a daily basis. The Fund is managed to a target volatility (as measured by the Standard Deviation of returns) of 12% p.a. However, in times of low market volatility, the Fund will not be geared up to meet the 12% p.a. target. A minimum 10% of the Fund s net asset value will be invested in constituents of the S&P/ASX 200 Index, whilst a maximum of 100% market exposure is permitted. Risk Management Risk limits SEPARATE RISK MONITORING TEAM STOCK LIMIT SECTOR LIMIT DERIVATIVES NO 12% (ABSOLUTE) NOT APPLIED EXCHANGE TRADED FUTURES TO MANAGE DOWNSIDE RISK Risk monitoring The Fund is managed to a clearly defined set of rules, which is managed and monitored by the investment team. Milliman Pty Ltd actively manages the Fund s downside risk by employing a proprietary volatility management strategy that dynamically adjusts the equity exposure of the Fund by using exchange traded futures. Any buying or selling of futures contracts is determined on a daily basis by the Investment Advisor, Milliman Pty Ltd, who communicates these instructions to BetaShares. Risks An investment in the Fund carries a number of standard investment risks associated with domestic and international investment markets. These include economic, political, legal, tax and regulatory risks. These and other risks are outlined in the Fund Prospectus and should be read in full and understood by investors. Lonsec considers the major risks to be: Equity market risk Investments in equity markets are subject to numerous factors which may have an impact on the performance of an investment (both positive and negative). Unexpected changes in economic, technological, structural, regulatory or political conditions can have an impact on the returns of all investments within a particular market. Performance risk The value of, and returns (if any) from an investment in the Fund will depend upon the performance of the

6 P 6-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: ADRIAN HOE ISSUE DATE underlying investments. There is no guarantee the value of an investment in any underlying investment will increase. Derivatives risk The Fund utilises a risk management strategy to manage the downside risk of the Fund s stocks. There is the possibility that these derivatives fail to move in line with the underlying stocks or the derivatives become difficult to manage or costly to reverse. Lonsec notes that the derivatives used by the Fund are exchange traded futures. Risk management risk The risk management overlay seeks to profit from the historical relationship that bear markets are usually characterised by higher volatility and bull markets by lower volatility. To the extent that this relationship does not hold, the risk management overlay could be expected to be less effective. Basis risk The SPI futures contracts used to hedge the Fund holdings is based on the S&P/ASX 200 Index, whereas the Fund assets are a small subset of this universe. Therefore, the hedge should not be considered a perfect hedge.

7 P 7-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: ADRIAN HOE ISSUE DATE Quantitative Performance Analysis - annualised after-fee % returns (at ) Performance metrics 1 YR 2 YR 3 YR 5 YR FUND PEER MEDIAN FUND PEER MEDIAN FUND PEER MEDIAN FUND PEER MEDIAN PERFORMANCE (% PA) STANDARD DEVIATION (% PA) EXCESS RETURN (% PA) OUTPERFORMANCE RATIO (% PA) WORST DRAWDOWN (%) TIME TO RECOVERY (MTHS) NR NR NR SHARPE RATIO INFORMATION RATIO TRACKING ERROR (% PA) FUND: BETASHARES AUSTRALIAN DIVIDEND HARVESTER FUND LONSEC PEER GROUP: AUSTRALIAN EQUITIES - AUSTRALIAN LARGE CAP - INCOME SPECIALISED BENCHMARK USED: S&P/ASX 200 TR INDEX AUD CASH BENCHMARK: BLOOMBERG AUSBOND BANK BILL INDEX AUD TIME TO RECOVERY: NR - NOT RECOVERED, DASH - NO DRAWDOWN DURING PERIOD Growth of $10,000 over two years Snail trail Risk-return chart over two years Outperformance consistency

8 P 8-8 ANALYST: BENJAMIN O'SHEA APPROVED BY: ADRIAN HOE ISSUE DATE Glossary Total return Top line actual return, after fees Excess return Return in excess of the benchmark return Standard deviation Volatility of monthly Absolute Returns Tracking error Volatility of monthly Excess Returns against the benchmark (the Standard Deviation of monthly Excess Returns) Sharpe ratio Absolute reward for absolute risk taken (outperformance of the risk free return (Bank Bills) / Standard Deviation) Information ratio Relative reward for relative risk taken (Excess Returns / Tracking Error) Worst drawdown The worst cumulative loss ( peak to trough ) experienced over the period assessed Time to recovery The number of months taken to recover the Worst Drawdown Snail Trail A trailing 12-month relative performance and relative risk measurement over the benchmark. The trail is generated using a 12-month rolling window over the specified period About Lonsec Lonsec Research Pty Ltd (Lonsec) is an investment research house with specialist areas of expertise, that was originally established in 1994 and the current entity was registered on 23 June From 1 July 2011, Lonsec became a fully owned subsidiary of Lonsec Fiscal Holdings Pty Ltd, a privately owned entity with a multibrand strategy of providing leading financial services research and investment execution. Lonsec believes that professional financial advisers need informed opinions on the best investment strategies and financial products to provide real value for their clients. To meet this need, Lonsec has in place an experienced research team, which draws on a robust research process to undertake in-depth assessment of managed fund products. Analyst Disclosure and Certification Analyst remuneration is not linked to the research or rating outcome. Where financial products are mentioned, the Analyst(s) may hold the financial product(s) referred to in this document, but Lonsec considers such holdings not to be sufficiently material to compromise the rating or advice. Analyst holdings may change during the life of this document. The Analyst(s) certify that the views expressed in this document accurately reflect their personal, professional opinion about the matters and financial product(s) to which this document refers. LONSEC STRONGLY RECOMMENDS THIS DOCUMENT BE READ IN CONJUNCTION WITH THE RELEVANT PRODUCT DISCLOSURE STATEMENT OR INFORMATION STATEMENT IMPORTANT NOTICE: This document is published by Lonsec Research Pty Ltd ABN , AFSL No (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this document. Disclosure at the date of publication: Lonsec receives a fee from the fund manager or product issuer(s) for researching the financial product(s) set out in this document, using objective criteria. Lonsec may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec services. Lonsec s fee is not linked to the rating(s) outcome. Lonsec does not hold the product(s) referred to in this document. Lonsec s representatives and/or their associates may hold the product(s) referred to in this document, but details of these holdings are not known to the Analyst(s). Disclosure of Investment Consulting services Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other financial advice and may receive fees from this fund manager or product issuer for providing investment consulting services. The investment consulting services are carried out under separate arrangements and processes to the research process adopted for the review of this financial product. For an explanation of the process by which Lonsec manages conflicts of interest please refer to the Conflicts of Interest Policy which is found at: Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to General Advice (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs ( financial circumstances ) of any particular person. It does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s). Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Lonsec s research process relies upon the participation of the fund manager or product issuer(s). Should the fund manager or product issuer(s) no longer be an active participant in Lonsec s research process, Lonsec reserves the right to withdraw the document at any time and discontinue future coverage of the financial product(s). The rating in this publication relates to the fund outlined in the publication which may have related funds or be associated with other funds and platforms. The rating may only be applied to the fund outlined in this publication at first instance and whether it applies to related or associated funds and platforms should be investigated by your financial adviser before you make an investment decision in relation to the related or associated funds and platforms. You should be aware that the mandate, fees, underlying investments, the issuers of the related and associated funds and platforms may be different from the fund specified in this publication. You should satisfy yourself that the related and associated funds and platforms meet your financial circumstances, needs and objectives before making an investment decision. Disclaimer: This document is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by Lonsec. Financial conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. Copyright 2017 Lonsec Research Pty Ltd (ABN , AFSL No ) (Lonsec). This report is subject to copyright of Lonsec. Except for the temporary copy held in a computer's cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth), no part of this report may, in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of Lonsec. This report may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to Lonsec copyrighted material, applies to such third party content.