Like all investments, an investment in the Evans & Partners Global Flagship Fund carries risk which may result in the loss of income or principle invested. The Responsible Entity does not forecast or guarantee any rate of return in terms of income, capital or investment performance of the Fund. The value of the Units will reflect the performance of the investments made by the Fund and current market conditions. There can be no certainty that the Fund will generate returns or distributions to the satisfaction of Unitholders.
The Fund should not be seen as a predictable, low risk investment. The Fund’s investments are expected to be concentrated in listed securities, and the Fund is therefore considered to have a higher risk profile than cash assets. Investors can undertake several steps to help minimise the impact of risk. First, seek professional advice suited to your personal investment objectives, financial situation, and particular needs. Second, only make investments with a risk level and time frame recommended by your professional advisor.
It is not possible to identify every risk associated with investing in the Fund. Prospective investors should note that this is not an exhaustive list of the risks associated with the Fund.
RISKS SPECIFIC TO THE FUND
a) INVESTMENT MANDATE
The Fund’s objective is to provide investors with capital growth and attractive risk adjusted returns over the medium to long-term through exposure to a portfolio of global listed equities. None of the Fund, the Investment Manager nor any other person guarantees the performance of the securities selected for the portfolio, or the amount of income or performance of the Fund.
b) INVESTMENT SELECTION AND STRATEGY RISK
The Fund’s performance depends on the investment decisions made.
The Investment Manager may make investment decisions that result in low returns or loss of capital invested. This risk may be mitigated to some extent by the resources available to the Investment Manager.
The success and profitability of the Fund will largely depend on the Investment Manager’s ability to manage the portfolio in a manner that complies with the Fund’s objectives, strategies, policies, guidelines, and permitted investments. If the Investment Manager fails to do so, the Fund may not perform well. There are risks inherent in the investment strategy that the Investment Manager will employ for the Fund.
c) EQUITY RISK
The price of securities listed on securities exchanges can change considerably over time, and the market value of your investment is expected to increase and decrease with the value of the portfolio. Unitholders in the Fund are exposed to equity risk both through their holdings in the underlying investments in which the Fund will invest and through market fluctuations in the price of their Units. As with most investments, performance is not guaranteed. These risks may result in loss of income and principal invested.
The Fund may also invest at an unfavourable point of the investment cycle. The Investment Manager may invest funds at higher prices than those available soon after and may redeem investments at lower prices than those that were recently available or that may have been available soon thereafter.
In the future, the sale of large parcels of Units may cause a decline in the price at which the Units trade. This may mean that the Fund may not trade in line with the underlying value of the portfolio. No assurances can be made that the performance of the Units will not be adversely affected by any such market fluctuations or factors. None of the Fund, the Responsible Entity, the Investment Manager or any other person guarantees the performance of the Units.
d) FOREIGN ISSUER RISK
Investments in foreign companies may be exposed to a higher degree of sovereign, political, economic, market instability, taxation, and corporate governance risk than domestic investments. Such securities may be less liquid, more volatile and more difficult to value. Certain countries have legal, accounting, taxation and auditing regimes which may result in lower transparency, lower quality investor information, and relatively limited investor rights, for example when unconventional corporate structures are used by foreign issuers.
Future foreign government actions in the relevant countries or regions concerning the economy, dealing with foreign entities, repatriation of funds, corporate policies, taxation policies, environmental policies and change in political conditions could have a significant effect on the Fund.
Should sovereign risks arise, these could potentially have an adverse impact on the Fund’s performance.
e) CURRENCY RISK
The Fund’s investments will be primarily denominated in foreign currencies. The value of the Units will be affected by increases and decreases in the value of the Australian dollar against foreign currencies in which investments are held, except to the extent any hedging of the portfolio is implemented. Hedging is not currently intended.
f) COMPANY SPECIFIC RISK
Investments by the Fund in a company’s securities will be subject to many of the risks to which that particular company is itself exposed. These risks may impact the value of the securities of that company, and may include factors such as changes in management, actions of competitors and regulators, changes in technology and market trends.
g) CONCENTRATION RISK
Generally, the more diversified a portfolio, the lower the risk that an adverse event pertaining to one security or sector has a material impact on the overall portfolio. Focusing investments in a small number of securities issuers or industries increases the risk. Funds that invest in a relatively small number of securities issuers are more susceptible to risks associated with a single economic, political, or regulatory occurrence than more diversified funds might be.
h) KEY PERSONNEL RISK
There is a risk of departure of key staff with particular expertise in the sector, whether they are the staff or Directors of the Responsible Entity, the Investment Manager, members of the Investment Team or independent advisers or consultants. This may have an adverse impact on the value of the Fund.
i) GEARING AND INTEREST RATE RISK
While there is no current intention to do so, if the Fund is geared, the level of gearing, the costs of borrowing and the applicable interest rates will impact returns.
If utilised, gearing may amplify the Fund’s gains if the market value of the portfolio appreciates, however, it may also amplify losses if the market value of the portfolio declines. Any loans secured by the portfolio could result in the lender forcing the liquidation of investments at a loss or not at a time of the Investment Manager’s choosing.
The cost of borrowing may reduce the returns of the Fund.
Should the Fund obtain borrowings, changes in interest rates may have a positive or negative impact directly on the Fund’s income. Changes in interest rates may also affect the market more broadly, and positively or negatively affect the value of the Fund’s underlying assets.
j) LIQUIDITY RISK
The Units and the portfolio are each subject to liquidity risk:
Units: The Fund is to be listed on the ASX, however there can be no guarantee that there will be a liquid market for Units. Investors should be aware that this may limit their ability to realise a return or recover their capital.
Portfolio: The Fund is exposed to liquidity risk in relation to the underlying investments within its portfolio.
k) LONG TIME HORIZON
Investing in capital growth focused investments requires a longer-term commitment than to other asset classes, and this may mean that realisation of value through capital growth may be similarly timed. In addition, a longer time horizon increases the risk of exposure to market volatility.
l) SUBSTANTIAL UNCOMMITTED FUNDS
Subject to market conditions, the proceeds of the restructure may be retained in cash until appropriate investment opportunities arise or higher cash balances may be held than targeted from time to time. Given the low interest rate environment, the likely income to be generated by the Fund from cash investments may be significantly lower than that which might be received from investment in equities.
m) RELATED PARTY TRANSACTION RISK
The Responsible Entity will transact with related parties.
Conflicts of interest may arise in circumstances where there is a risk that the interests of one party or the Unitholders may diverge from the interests of the other party. The Responsible Entity has a conflict of interest and related party transaction policy for the Fund to assist in managing this risk.
n) DISTRIBUTION POLICY RISK
The Responsible Entity intends to target a cash distribution of 4% per annum based on the NAV at or around the beginning of the relevant distribution period, paid semi-annually. The nature of the Fund’s investments in equity securities means that it is unlikely that the actual income of the Fund will be exactly 4% per annum.
There may be circumstances where the Target Distribution is not paid, or is paid from capital of the Fund. Payments out of capital will reduce a Unitholder’s cost base.
There may also be circumstances where income is above the Target Distribution and a portion of a distribution in a particular period may be required to be reinvested as additional Units in the Fund. In such circumstances, there is a risk the distribution received by Unitholders in cash may be insufficient to cover a Unitholder’s tax payable on the total distribution.
o) DRP ISSUE PRICE RISK
Units issued under the DRP in respect of the Target Distribution may be issued at a discount to NAV. Because Units issued under the DRP are issued at the NAV per Unit or a discount to the NAV per Unit, there is a risk that the DRP issue price could be at a premium to the trading price of Units on ASX.
GENERAL INVESTMENT RISKS
a) MACROCECONOMIC RISKS
Investment returns are influenced by numerous economic factors. These factors include changes in economic conditions (e.g. changes in interest rates or economic growth), changes in the legislative and political environment, as well as changes in investor sentiment. In addition, exogenous shocks, natural disasters and acts of terrorism and financial market turmoil (such as the global financial crisis) can (and sometimes do) add to equity market volatility as well as impact directly on individual entities. As a result, no guarantee can be given in respect of the future earnings of the Fund or the earnings and capital appreciation of the Fund’s portfolio.
b) FUND RISK
This is the risk that the Fund could terminate, the fees and expenses of the Fund could change, the Responsible Entity could retire or be removed, or the Investment Manager may change.
There is also a risk that investing in funds may give different results from holding the underlying investments directly.
c) TAXATION RISK
Changes to taxation laws and policies in Australia and other countries to which the Fund has exposure indirectly to through the portfolio (including any changes in relation to how income of the Fund is taxed or in relation to the deductibility of expenses) might adversely impact the Fund and Unitholder returns. Changes in revenue law or policy and other legal or regulatory changes often cannot be foreseen. The Responsible Entity will attempt to respond to any such changes prudently.
d) GOVERNMENT POLICY
Changes in government, monetary policies, taxation, and other laws and actions (including such matters as compliance with environmental regulations) in the relevant countries or regions can have a significant influence on the outlook for underlying companies and, in turn, affect the Fund’s performance.
e) REGULATORY RISK
The Fund is exposed to the risk of changes to applicable laws, including but not limited to enforcement of its rights or the interpretation of applicable laws, which could have a negative effect on the Fund, its investments or returns to Unitholders.