DNR Capital Australian Equities Socially Responsible Portfolio 01 April 2019 About this Managed Portfolio Disclosure Document This Managed Portfolio Disclosure Document (Disclosure Document) has been prepared and issued by HUB24 Custodial Services Ltd (ABN 94 073 633 664, AFSL 239 122) ( 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has been included in the form and context in which it appears with the consent of the third party, which has not been withdrawn as at the date of this Disclosure Document.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 DNR Capital Australian Equities Socially Responsible 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 DNR Capital Australian Equities Socially Responsible 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
Managed portfolio DNR Capital Australian Equities Socially Responsible Portfolio Portfolio manager The portfolio manager is DNR AFSL Pty Ltd- (AFSL 301 658, ABN 39 118 946 400) ( DNR Capital ). 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. DNR003 Inception date 14/12/2009 Minimum initial investment amount Designed for No minimum The DNR Capital Australian Equities Socially Responsible Portfolio is designed for investors who want a competitive return but do not want their portfolio invested in companies that are judged to have a direct involvement in pornography, gaming, armaments and tobacco, or who want to ensure that their money is invested in companies that make a positive difference. Investment objective The investment objective is to outperform the S&P/ASX 200 (TR) Index by 4% p.a. (before fees) over a rolling three-year period. Investment strategy Investment universe Benchmark The portfolio has an investment style best described as style neutral, focusing on environmental, social and corporate governance issues. The security selection process has a strong bottom-up discipline and focuses on investing in quality companies at reasonable prices. Company research focuses on quality and valuation. DNR Capital uses a five point quality web in which five quality factors are reviewed. Refer to the Investment strategy and process section below for further details. Authorised investments of this portfolio are: - ASX listed securities with a focus on the S&P/ASX 200 Index; and - Cash. The portfolio does not invest in those companies that are judged to have direct involvement in pornography, gaming, armaments or tobacco. The portfolio does not invest in derivatives. S&P/ASX 200 (TR) Index Asset allocation ranges Minimum Maximum Australian shares 80% 100% Cash 0% 20% Portfolio income All income derived from this portfolio will be retained in the portfolio. Typical number of securities 15 to 30 stocks 2
Number of securities published to client All Turnover aim Turnover is generally expected to be in the range of 20%-40%. This is a guide only and not a strict rule that is applied by the portfolio manager. Minimum suggested timeframe 5 years Investment management fee Investment performance fee Other fees and costs 0.5638% p.a. (inclusive of GST and net of any RITC) of the balance in the 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. 15.375% (inclusive of GST and net of any RITC) of the out-performance of the S&P/ASX 200 (TR) Index. 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
About the portfolio manager DNR Capital DNR Capital is an Australian investment management company that delivers client-focused, quality, investment solutions to institutions, advisers and individual investors. Founded in 2001, DNR Capital specialises in the delivery of individually and separately managed accounts in the Australian market and aims to deliver investment out-performance to investors. DNR Capital is a signatory to the Principles for Responsible Investment (PRI). Investment strategy and process Investment philosophy DNR Capital believes a focus on quality will enhance returns when it is combined with a thorough valuation overlay. DNR Capital seeks to identify quality companies that are mispriced by overlaying a quality filter, referred to as the quality web, with a strong valuation discipline. DNR Capital seeks to be high conviction and to invest for the medium-to-long term. Investment strategy The managed portfolio has an investment style best described as style neutral, focusing on environmental, social and corporate governance issues. The security selection process has a strong bottom-up discipline and focuses on investing in quality companies at reasonable prices. Company research focuses on quality and valuation. DNR Capital uses a five point quality web in which five quality factors are reviewed. The key criteria are as follows: 1. Industry positioning to identify superior positioning, competitive advantage and ability to sustain returns. 2. Earnings strength as determined by quantitative data scores based on factors such as a security s return on equity (ROE). 3. Balance sheet strength as determined by quantitative data scores based on factors such as a security s net debt to equity ratio. 4. A management score which is a subjective measure based on experience and extensive company meetings with weight given to those management teams with a history of good allocation of capital. 5. An ESG score derived from the DNR Capital socially responsible assessment which utilises data from an external service provider as well as its own assessment. Key regard is made to tail risks that could impact valuation. The managed portfolio also incorporates a negative portfolio screen across: pornography gaming armaments tobacco. A positive ESG screen is used to identify those companies with enhanced ESG policies. Where the security passes this quality assessment then a range of valuation methodologies are used to identify value having regard for the industry and circumstances of the business. The portfolio construction process is influenced by a top-down economic appraisal and also considers the risk characteristics of the portfolio such as stock and sector correlations. How the portfolio manager manages risk? The portfolio manager is unable to eliminate all investment risk, but does analyse, manage and aim to reduce the impact of risks by actively monitoring investment markets, securities and portfolios, and through the use of carefully considered investment guidelines. Risks Before you consider investing in this portfolio, it s important you understand the risks that can affect your investments. Investment risks may vary significantly from those set out below and will depend on the actual investments used by the portfolio. A summary of 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 depend on 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 4
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 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 isgreater 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 payableand 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). 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. 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. Trade notifications 5
If the portfolio manager is planning to perform a rebalance or reallocation on your investment, HUB24 may send you an email 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 10.00 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 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 2001 Email: admin@hub24.com.au Phone: 1300 854 994 Fax: 1300 781 689 6
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