How to Build a Fund Portfolio Presented by Kristian Camenzuli, CFA
What is a fund? WWW.CC.COM.MT | PAGE 2
What is a fund? A fund is a collection of investments in one portfolio WWW.CC.COM.MT | PAGE 3
What type of investments make up a fund? WWW.CC.COM.MT | PAGE 4
What type of investments make up a fund? Investments typically include: Equities Bonds Money Market Instruments May Include Derivatives WWW.CC.COM.MT | PAGE 5
Who manages these Funds? WWW.CC.COM.MT | PAGE 6
Who manages these funds? Funds are managed by a Fund Manager who is responsible for implementing a fund's investing strategy and managing its portfolio trading activities. WWW.CC.COM.MT | PAGE 7
Who holds the assets of a fund? WWW.CC.COM.MT | PAGE 8
Who holds the assets of the fund? 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 WWW.CC.COM.MT | PAGE 9
What does a fund structure look like? WWW.CC.COM.MT | PAGE 10
5. What does a Fund Structure look like? WWW.CC.COM.MT | PAGE 11
How regularly does a fund trade? WWW.CC.COM.MT | PAGE 12
How regularly does a fund trade? Daily Bi-weekly Weekly Bi-monthly Monthly All the Funds on the CC Top Rated List trade Daily WWW.CC.COM.MT | PAGE 13
What is the profile of typical fund investor? WWW.CC.COM.MT | PAGE 14
What is the profile of typical fund investor? 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. WWW.CC.COM.MT | PAGE 15
Funds – Pros & Cons WWW.CC.COM.MT | PAGE 16
What are Advantages / Disadvantages of investing in a fund vs other investments? o Management fees Reduce the anxiety of investing o Higher initial fees than ETFs Professionally Managed, Track record o In some cases the stock index Instant Diversification might outperform funds Wide variety to suit personal needs o Fund might not be traded Reinvestment of Income immediately (daily or weekly) Effective for smaller investment amounts Get exposure to a sector you are not knowledgeable about Tax on dividends are recouped on Accumulator classes WWW.CC.COM.MT | PAGE 17
Making an informed decision WWW.CC.COM.MT | PAGE 18
With so many funds available, how can I make an informed decision of which funds to invest in? 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 WWW.CC.COM.MT | PAGE 19
Documents available for shareholders WWW.CC.COM.MT | PAGE 20
Documents available for shareholders 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 WWW.CC.COM.MT | PAGE 21
KIID WWW.CC.COM.MT | PAGE 22
KIID Document - UBS Global Income Equity Fund Distributor WWW.CC.COM.MT | PAGE 23
KIID Document - UBS Global Income Equity Fund Distributor WWW.CC.COM.MT | PAGE 24
Fact Sheet WWW.CC.COM.MT | PAGE 25
Fact Sheet Example WWW.CC.COM.MT | PAGE 26
Fact Sheet Example WWW.CC.COM.MT | PAGE 27
Fact Sheet Example WWW.CC.COM.MT | PAGE 28
Fact Sheet Example WWW.CC.COM.MT | PAGE 29
Time Horizon WWW.CC.COM.MT | PAGE 30
What is a typical time horizon to invest in a fund? 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 WWW.CC.COM.MT | PAGE 31
Funds as part of an Investment Portfolio WWW.CC.COM.MT | PAGE 32
Why should investors should hold Funds as part of their investment portfolio? For many investors, knowing that there is an investment management team continuously monitoring your investment portfolio and striving to obtain 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. WWW.CC.COM.MT | PAGE 33
Different Types of funds WWW.CC.COM.MT | PAGE 34
Types of Funds UCITS Funds, Mutual Funds ETFs (Exchange Traded) Equity Funds ETFs trade on the markets like Equities Bond Funds Balanced Funds ETFs are not actively Money market funds managed Speciality Funds ETFs Typically track an index Fund-of-Funds Hedge funds WWW.CC.COM.MT | PAGE 35
Difference between an ETF and a Fund WWW.CC.COM.MT | PAGE 36
ETFs vs Funds WWW.CC.COM.MT | PAGE 37
The advantage of investing in a UCITS fund WWW.CC.COM.MT | PAGE 38
The advantage of investing in a UCITS fund 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) WWW.CC.COM.MT | PAGE 39
Limits imposed by a UCITS fund WWW.CC.COM.MT | PAGE 40
Limits imposed by a UCITS fund 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 If a fund is not UCITS, the manager might be tempted to take on additional risk All Funds on CC Fund lists are UCITS WWW.CC.COM.MT | PAGE 41
Who makes sure the managers are trading in line with limits? WWW.CC.COM.MT | PAGE 42
Who makes sure the managers are trading in line with limits? 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 WWW.CC.COM.MT | PAGE 43
The NAV WWW.CC.COM.MT | PAGE 44
What is the NAV of a fund? 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 WWW.CC.COM.MT | PAGE 45
What does the NAV (price) tell me? 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) WWW.CC.COM.MT | PAGE 46
Do all funds pay out regular interest / dividends to shareholders? WWW.CC.COM.MT | PAGE 47
Do all funds pay out interest/dividends to shareholders? 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 WWW.CC.COM.MT | PAGE 48
Accumulator Class Price Fall for Distributor share class due to payment WWW.CC.COM.MT | PAGE 49
What to look out for when investing in a fund WWW.CC.COM.MT | PAGE 50
What to look out for when investing in a fund 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 WWW.CC.COM.MT | PAGE 51
What % return to expect? WWW.CC.COM.MT | PAGE 52
What % return can an investor expect? 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 WWW.CC.COM.MT | PAGE 53
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