How to Build a Fund Portfolio Presented by Kristian Camenzuli, CFA - - PowerPoint PPT Presentation

How to Build a Fund Portfolio

Presented by Kristian Camenzuli, CFA

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What is a fund?

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A fund is a collection of investments in one portfolio

What is a fund?

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What type of investments make up a fund?

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Investments typically include:

Equities Bonds Money Market Instruments

May Include

Derivatives

What type of investments make up a fund?

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Who manages these Funds?

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Funds are managed by a Fund Manager who is responsible for implementing a fund's investing strategy and managing its portfolio trading activities.

Who manages these funds?

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Who holds the assets of a fund?

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 The assets of the fund are held by the custodian and not by the investment manager  This means that if the investment manager had to go into liquidation, the assets of the fund are not at risk because they are held in safe custody

Who holds the assets of the fund?

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What does a fund structure look like?

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• 5. What does a Fund Structure look like?

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How regularly does a fund trade?

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 Daily  Bi-weekly  Weekly

• Bi-monthly
• Monthly

How regularly does a fund trade?

All the Funds on the CC Top Rated List trade Daily

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What is the profile of typical fund investor?

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Funds are typically used by Investors who..

• Want to add an additional element of diversification beyond

direct Equities & Bonds

• Want an actively managed portfolio and possibly do not have

the time / knowledge to do it themselves.

What is the profile of typical fund investor?

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Funds – Pros & Cons

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 Reduce the anxiety of investing  Professionally Managed, Track record  Instant Diversification  Wide variety to suit personal needs  Reinvestment of Income  Effective for smaller investment amounts  Get exposure to a sector you are not knowledgeable about  Tax on dividends are recouped on Accumulator classes

What are Advantages / Disadvantages of investing in a fund vs other investments?

• Management fees
• Higher initial fees than ETFs
• In some cases the stock index

might outperform funds

• Fund might not be traded

immediately (daily or weekly)

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Making an informed decision

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• Ask your Investment Advisor for advice
• Visit the Fund Managers website
• KIID Document, Fact Sheet and Performance Figures
• If you are a CC client subscribe to our Top Rated Fund Lists
• In-house and selected third-party research available on CCTrader™
• Trader Talk, a daily blog on CCTrader platform and www.cc.com.mt
• Daily articles on the www.timesofmalta.com

With so many funds available, how can I make an informed decision of which funds to invest in?

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Documents available for shareholders

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• Prospectus

Detailed information

• Offering Supplement

Summarised Information

 KIID – KEY Investor Information Document

The KIID is a two-page ‘fact-sheet’ style document which includes the critical information about a fund

 Fact Sheet

Documents available for shareholders

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KIID

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KIID Document - UBS Global Income Equity Fund Distributor

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KIID Document - UBS Global Income Equity Fund Distributor

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Fact Sheet

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Fact Sheet Example

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Fact Sheet Example

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Fact Sheet Example

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Fact Sheet Example

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Time Horizon

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Like any other investment, a 5 year period is ideal to generate good returns from a fund portfolio.

It is not ideal to buy a fund for trading purposes

What is a typical time horizon to invest in a fund?

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Funds as part of an Investment Portfolio

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For many investors, knowing that there is an investment management team continuously monitoring your investment portfolio and striving to

• btain a positive performance is very important in today’s complex

markets For investors who do not have sufficient capital to invest in a discretionary portfolio (which typically start at €300k+), Funds and Managed Fund Portfolios are the next best thing and can still provide very positive returns.

Why should investors should hold Funds as part of their investment portfolio?

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Different Types of funds

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UCITS Funds, Mutual Funds ETFs (Exchange Traded)

• Hedge funds

 Speciality Funds  Equity Funds  Bond Funds  Balanced Funds  Money market funds

• Fund-of-Funds

Types of Funds

• ETFs trade on the markets

like Equities

• ETFs are not actively

managed

• ETFs Typically track an index

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Difference between an ETF and a Fund

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ETFs vs Funds

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The advantage of investing in a UCITS fund

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What does UCITS mean?

• Undertakings for Collective Investment in Transferable Securities Directive

What are the objectives of UCITS funds?

• Managed within strict limits
• Same regulation in every EU Member State
• Passporting (to allow sale of funds in EU countries)

The advantage of investing in a UCITS fund

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Limits imposed by a UCITS fund

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 A 5% exposure limit to any individual security (5/10/40 rule)  20% exposure limit to any Bank  35% limit to any member state  Value at Risk Limits  Asset Eligibility tests

Limits imposed by a UCITS fund If a fund is not UCITS, the manager might be tempted to take on additional risk All Funds on CC Fund lists are UCITS

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Who makes sure the managers are trading in line with limits?

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 The Fund Manager runs risk monitors pre trade  The monitors are dual signed (by another manager) to double check that the info included in the monitor is correct  The Risk Manager carries out random checks on risk monitors post trade  The Fund Custodian sends out monthly reports on whether or not the fund is in line with limits imposed by the prospectus

Who makes sure the managers are trading in line with limits?

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The NAV

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• NAV stands for Net Asset Value (it is the price of a fund)
• It reflects the value of the funds assets

(less expenses accrued plus any prepayments)

• It is issued by the Fund Administrator (eg Daily, Weekly)
• The fund manager is not involved in the issuance of the NAV, the NAV is issued by

the fund administrator and approved by the fund manager

• The costs of the Administrator are borne by the fund and included in the NAV

What is the NAV of a fund?

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Prices on funds should always be monitored, however focus should be on expected return for the fund strategy. Focus on potential future returns

Does bond fund pricing work in the same way as a bond?

Bond Fund prices have nothing to do with PAR, 100.00, so if a bond fund is trading at 120 or 80 it does not mean anything. Look at the historical performance and the stability of the price (if it is a distributor for example)

What does the NAV (price) tell me?

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Do all funds pay out regular interest / dividends to shareholders?

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• Not all funds pay out a dividend
• The same fund can have two share classes. One which pays out a dividend

and another one which does not

• The fund that pay out have a “Distributor” class
• “Accumulator” share classes do not pay out dividends
• Just like an Equity in a portfolio. Performance wise, it should not make a

difference if the fund is a Distributor or an Accumulator. Once the cash is paid out to shareholders, the NAV of the distributor class will fall by the value of the distribution

Do all funds pay out interest/dividends to shareholders?

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Price Fall for Distributor share class due to payment Accumulator Class

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What to look out for when investing in a fund

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 Past performance of fund  That the fund is a UCITS fund  What the fund is investing in  Risks involved (SRRI)  Fund manager’s track record  The fees of the fund are reasonable

What to look out for when investing in a fund

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What % return to expect?

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Investment return depends on the various factors including:  Selected fund strategy (e.g. Is it an Equity Fund or a Bond Fund?)  The past performance of a fund (available on Fact Sheet)  The skill of the Investment Manager  The higher the SRRI, the higher the expected return (but higher risk)  The Market environment

What % return can an investor expect?

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BUILDING A MODEL PORTFOLIO

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 Ask yourself what return you want out of your portfolio and the risks you are willing to take  Take note of the time period in which you expect to keep your investments before you will be needing the cash  Ask yourself whether you will be needing income distribution from your portfolio  Do not fall into the trap of looking at what other people are doing. Every portfolio is unique catering for the needs of different individuals with different goals and risk tolerances

Step 1 - Come up with an Investment Policy Statement

20 Year Old 80% Equities 20% Bonds 80 Year Old 20% Equities 80% Bonds

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Which fund is right for you? - Rule of Thumb

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Step 2 - Decide of the asset allocation in your portfolio

Strategy Examples Bonds Equity Income 75% 25% Balanced 50% 50% Dynamic 75% 25%

• Your portfolio might need to be “rebalanced” from time to time

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Implement your strategy

Income Strategy: 25% Equity, 75% Bonds Portfolio Size: €100,000 Performance Report: June 2012 to June 2017

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Balanced Strategy: 50% Equity, 50% Bonds Portfolio Size: €100,000 Performance Report: June 2012 to June 2017

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Dynamic Strategy: 75% Equity, 25% Bonds Portfolio Size: €100,000 Performance Report: June 2012 to June 2017

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Step 4 – Review Performance

Time Period Income Balanced Dynamic 5 Year 44.78% 48.39% 60.22%

• Below is a comparison of how the model portfolios performed over 5 years
• The funds selected for the strategies are available on our “top fund lists”

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How we select our funds

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Fund List

Categories

• Investment Grade
• High Yield
• Emerging Markets
• Asset Allocators
• Equity

Performance (Annualised – Average each year) 1YR % 3YR % 5YR %

Fund Lists - Jargon explained

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Managed Fund Portfolios

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Managed Fund Portfolio (MFP)

Made up of a basket of UCITS Funds, the Investment Manager manages the funds according to the strategy

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CC Savings Plan

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 Invest small amounts in UCITS funds, regularly for your future goals  Tax efficient (amounts reinvested gross)  Minimum investment - €40 per month  Pause, Modify Amount, Withdraw, no penalty fees.  Fee - 1.5% and therefore on 40 Euros, the fee would be 60c  Strategies:

• 25% Equity, 75% Bond – Conservative
• 50% Equity, 50% Bond – Balanced
• 75% Equity, 25% Bond – Dynamic

Advantages of the CC Savings plan

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Discretionary Portfolio Management

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 Personalised service  Tailor made portfolio  Higher fees than a fund due to the personalised service  Half yearly reporting through a one-to-one meeting  Client will be notified of all trades made by the manager but would not be able to do any trades himself  4 strategies to choose from

Discretionary Portfolio Management

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Q&A

T: +356 25 688 688 E: info@cc.com.mt

THANK YOU!

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