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AZ Sestante Limited

Managed Account Statement of Advice (SOA) Language

APRIL 2020

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Andrew DaviesM + 61 418 617 [email protected]

Michael NeglineM + 61 410 586 [email protected]

Important information

This document has been prepared by AZ Sestante Limited ABN 94 106 888 662 AFSL 284 442 (‘AZ Sestante’). This presentation has been prepared for use by dealer group researchers and research houses only and is not for wider distribution. This document is not an offer of securities or financial products, nor is it financial product advice. As this document has been prepared without taking account of any investors’ particular objectives, financial situation or needs, you should consider its appropriateness having regard to your objectives, financial situation and needs before taking any action. Past performance is not a reliable indicator of future results. Although specific information has been prepared from sources believed to be reliable, we offer no guarantees as to its accuracy or completeness. The information stated, opinions expressed and estimates given constitute best judgement at the time of publication and are subject to change without notice. Consequently, although this document is provided in good faith, it is not intended to create any legal liability on the part of any other entity and does not vary the terms of a relevant disclosure statement. All dollars are Australian dollars unless otherwise specified.

mailto:[email protected]

mailto:[email protected]

About UsAZ Sestante Limited (AZ Sestante) is the AFS-licensed, wholly owned Australian subsidiary of AZ International, part of Azimut Holding S.p.A (Azimut), Italy’s leading independent asset manager.

Established in 2016, we specialise in designing and administering a focused range of multi-manager investment solutions and managed accounts for our clients. Our parent company Azimut, Italy’s largest independent asset manager, was established in 1989 and listed on the Italian stock exchange in 2004. Azimut manages in excess of AUD80bn in assets globally including over AUD$6bn in multi-manager solutions.

Our investment solutions are designed to cater to our clients’ specific risk and return objectives through our suite of flagship multi-manager capabilities. Underpinning our product design is the global multi-manager investment resources of Azimut. Azimut’s multi-manager approach is characterised by actively managed, outcome-oriented portfolios, leveraging best-in-class, specialist investment managers within a cost-efficient framework. Azimut’s global multi-manager team (the Investment Manager) and AZ Sestante’s Investment Committee (the Investment Committee) work closely with Ironbark Asset Management Funds Services (the Responsible Entity), to ensure appropriate levels of independent governance and oversight as well as ongoing risk management and compliance. Our goal is to consistently deliver favourable and cost-efficient investment outcomes for our clients within a well-defined risk management and governance framework.

What We OfferOur suite of flagship investment solutions are designed to cover a wide range of client risk and return objectives. Our Dynamic portfolios predominantly access active investment managers with passive investment managers/structures employed from time to time for risk and/or cost management. Our Index offerings are allocated to passive investment managers or structures only.

The following table highlights our current flagship offerings:

Multi-manager Solution Asset AllocationRBA Cash Rate Outperformance

Target p.a.Dynamic Index

Conservative 30% Growth70% Conservative

+ 2% +1.5%

Moderately Conservative 45% Growth55% Conservative

+ 2.5% +2.0%

Balanced 70% Growth30% Conservative

+ 3.5% +2.5%

Assertive 85% Growth15% Conservative

+ 4.5% +3.0%

Aggressive 97.5% Growth2.5% Conservative

+5.0% +3.5%

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Our Distinguishing Characteristics

“Best interest” structure tailored specifically to AZ NGA

Fee for service only; no direct financial or remuneration connection with AZNGA; transparent and competitive fees; no volume-based incentives; dedicated client service and unrivalled investment team access; assets managed by third party investment management firms, not AZ; we share a common parent only – zero vertical integration.

Product design, active asset allocation and risk management key sources of our value-add

We look to achieve 80% of our client investment returns from asset allocation and risk management within appropriate portfolio structures. Asset allocation is driven by Azimut’s global multi-manager investment team, using best-in-class investment managers in a product structure designed by AZ Sestante. All within a robust risk management and independent governance framework

Outcome focused portfolio design driven by collaboration with key stakeholders

We collaborate with adviser practices and their licensees to design and deliver outcome focused portfolio solutions tailored to their licensee framework and targeting specific risk and return objectives.

Actively managed & cost effective

Portfolios are actively managed at both the investment-manager-selection and asset allocation levels, with the blending of active and passive implementation plus the global scale of the Azimut Group ensuring cost efficient solutions.

Investment PhilosophyOur investment philosophy is predicated on achieving our clients’ investment objectives through an active, multi-manager investment approach based on the following principles:

Portfolios with an efficiently constructed long term Strategic Asset Allocation (SAA), combined with active medium-term Tactical Asset Allocation (TAA) can consistently add value over the longer term;

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Selecting best-in-class active investment managers, in a cost-efficient manner, can add value over and above the index in appropriate asset classes and their respective sub-sectors;

Allocating to passive investment managers and/or structures where applicable can improve flexibility, achieve cost efficiency and help control risk;

Identifying, understanding and managing the portfolio’s market risk through diversification and manager selection is critical to achieving investment objectives; and

Appropriate governance, portfolio oversight and independent risk management ensures robust and repeatable investment results.

4 Key Pillars of our Approach

Investment Team Supported by Global Breadth & Depth of the AZ Global Investment Platform

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Investment ProcessGeneral

Our multi-manager investment process was developed by Azimut and is implemented worldwide by our global multi-manager team. We aim to meet our clients’ risk and return objectives by combining active asset allocation and high-quality investment manager selection within a well-defined risk management and governance framework. Key tenets of our multi-manager investment process are:

Asset allocation is the key driver of investment returns: We expect 80% of our investment return to be driven by active asset allocation. We combine proprietary macroeconomic research with a sophisticated quantitative framework provided by the Black-Litterman model, to drive our strategic and tactical asset allocation decisions.

We seek to identify superior investment manager talent: Manager research and selection is an ongoing process of screening and reviewing of the available universe to identify superior investment manager talent within each asset class. We combine qualitative due diligence with proprietary screening tools to ensure managers are optimally blended within the asset allocation framework.

Outcome focused portfolios: We design and deliver outcome focused portfolios that are compliant with the adviser licensee framework targeting specific risk and return objectives.

Robust repeatable investment process: Our investment process is anchored to a well-established decision-making framework that considers all elements known to deliver incremental value. Asset allocation, fund manager selection and ultimate portfolio implementation are consistently applied across all our client portfolios.

Actively Managed & Cost Effective: We actively manage asset allocation and investment manager selection. A key consideration is generating high-quality portfolio solutions at a reasonable cost. Accordingly, we blend active and passive approaches to maximise flexibility, cost efficiency as well as controlling risk.

Investment Process in Detail

The investment process underpinning AZ Sestante’s multi-manager portfolios combines the strength and resources of Azimut’s global investment platform with the governance and local investment oversight of the Investment Committee and Responsible Entity. The Investment Manager is responsible for all aspects of the portfolio’s asset allocation, manager research and portfolio construction. The Investment Committee discusses and recommends the Investment Manager’s ultimate investment decisions to the Responsible Entity, as well as overseeing the underlying investments and asset exposures of each portfolio. The Responsible Entity ensures any proposed investment changes are within the investment guidelines and any newly proposed manager allocations have undergone appropriate due diligence.

Stages of the Investment Process

The investment process is summarised in 5 key stages:

1. Establishing portfolio objectives;2. Developing the strategic and tactical asset allocation;3. Manager research, selection and configuration;4. Portfolio implementation; and

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5. Ongoing monitoring and due diligence.

The schematic below illustrates the 5 key steps including authority and responsibility of key investment process stakeholders:

The investment process is described below in further detail:

1. Establishing Portfolio objectives

Broad portfolio objectives and ultimate product design are determined by the Investment Committee in order to address specific client needs. The Investment Manager then develops appropriate risk and return objectives to ensure client requirements are met. These risk and return objectives ultimately drive each portfolio’s SAA and TAA as well as appropriate manager selection (active or indexed) across asset classes.

The Responsible Entity monitors portfolio objectives to ensure continued compliance with established guidelines. The Investment Committee reviews portfolio objectives as required.

2. Developing Strategic and Tactical asset allocation (SAA/TAA)

SAA/TAA is developed by the Investment Manager within the adviser licensee’s asset allocation and risk profiling framework using the Black-Litterman Model (B-L Model). The B-L Model combines the Capital Asset Pricing model (CAPM) and Markowitz's mean-variance optimization theory to produce a set of expected returns within the mean-variance optimization framework and avoids the inherent problems in using the two models in isolation. The B-L Model captures not only historical information but can also incorporate strategic views based on the current market environment, short-term asset class correlations, as well as absolute and relative expected returns by asset class. The ultimate goal of using the B-L Model approach is to create stable, efficient portfolios that overcome problems associated with the cross-sensitivity of asset class returns.

The B-L Model framework is supplemented with expected returns implied from strategic views and other proprietary input from Azimut’s Global Investment Committee and the broader Azimut Group, as well as external research providers. The addition of our strategic views and other qualitative input

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allows for a higher degree of oversight and flexibility, particularly in times of market volatility, as opposed to the inflexibility of applying a quantitative model only.

The final SAA/TAA is built in 3 stages:

1. Determine the 10-year correlation matrix between the asset classes in our defined investment universe. Based on this historical information and assuming equal risk contribution from each asset class, we construct a starting portfolio which represents the most diversified market portfolio utilising these asset classes.

2. We then apply reverse optimisation to calculate the implied expected returns for each asset class in the starting portfolio. These quantitatively-derived expected returns are then blended with other sources of information such as short -term implied returns provided by Azimut Global Investment Committee and information from external providers. Some of the strategic views considered and included in the modelling include information from the following resources:

a. Research Affiliates / Morningstar (expected returns by asset class);b. CAPE expected returns; andc. Market Cap/GDP returns.

3. Finally, we perform constrained portfolio optimisation based on pre-defined risk tolerances to calculate the appropriate SAA/TAA portfolio exposures.

Whilst overall SAA investment policy anchors the Investment Committee’s decision making, the investment process allows additional flexibility to implement wide ranging tactical asset class tilts. The Investment Committee applies generally conservative and prudent asset class tilts when it considers them appropriate. The aim is to implement higher conviction, medium term positions where valuation signals are more obvious and there is potential to significantly add to the absolute return of the portfolio. The key goals of the TAA are three-fold: using disciplined active management to create additional value over time; reducing portfolio volatility through diversification; and providing the flexibility to systematically exploit shorter-term market opportunities. TAA recommendations are presented to the Investment Committee by the Investment Manager at quarterly intervals. The recommendations are actioned only if they are greater than 1.5% - 2% of the NAV of the portfolio. These recommendations are based on short-term asset class correlations and additional research provided by Azimut’s macroeconomic analytics team. Some of the relationships and signals observed include but are not limited to:

Momentum analysis of various asset classes; Covariance Autocorrelation; Market dislocation models; and Market crash models.

The Investment Committee facilitates idea generation and debate by incorporating the views of Azimut and all Investment Committee members in debating the recommendations.

3. Manager Research, Selection and Configuration

Manager research and selection is an ongoing process of screening and reviewing of the available investment fund universe to identify superior investment manager talent within each asset class.

The process utilises quantitative and qualitative assessments of the available investment fund universe. Azimut uses a proprietary model to perform the initial screening of the universe. The proprietary manager screening tool utilises all available pricing and dividend data from Bloomberg to

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calculate the relevant metrics and statistics for all eligible funds. The model screens on predetermined quantitative and qualitative factors and produces a short list of preferred managers by asset class which are presented to the Investment Committee which discusses and debates the model output.

Once approved by the Investment Committee, the preferred list of managers is blended in an optimal way within the SAA/TAA framework of the portfolio. The Investment Manager applies optimisation techniques within each asset class to determine final manager allocations, which must be ratified by the Investment Committee before implementation via majority vote.

Below is schematic representation of the Manager Research, Selection and Configuration process:

Stage Detail Responsibility1. Investment Manager Universe

Australian Registered and Unregistered Managed Investment Schemes and other offshore investments

Investment Manager

2. Quantitative Analysis Proprietary ranking model applied by Investment Manager

Screening based on different factors (information ratio, Sharpe ratio, excess return, tracking error, longest over/under performance period, etc.) to assess and rank managers in the short term (momentum) and long term (overall rating) relative to the broader dynamics in the market as a whole.

Investment Manager

3. Qualitative Analysis Qualitative factors formulate an automated ranking system by the Investment Team to generate a short list for a formalised due diligence process.

Investment ManagerInvestment Committee

4. Review of Manager Short List and Investment Committee Approval

Manager presentations and holdings based analysis Research House reports Recent ratings changes and other material changes Fee budget, impact on transaction costs, turnover,

liquidity Investment Committee approval based on manager

appropriateness from a client requirement perspective, investment style and SAA/TAA exposures of the overall portfolio.


5. Manager Configuration

Optimisation driven by holdings and performance based analysis to respectively manage correlation between managers and alpha and tracking error volatility.

Highly regarded underlying managers that have complementary investment styles are blended together.

An efficient investment strategy or asset class is one where we expect a small delta in returns between the best and worst performing fund manager and would generally result in greater use of passive strategies.

Investment Manager

6. Manager Monitoring and Review

Formal quarterly reviews covering: Views of existing managers Tactical asset allocation views Current market conditions update and outlook for


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the selected managers Recommendations of manager changes Material changes to managers

Quantitative Analysis: Quantitative analysis of investment managers is largely focused on understanding how past performance has been generated and how performance is distributed over time with a view to identifying above average investment management capabilities and consistency in performance generation. This research is largely carried out internally with proprietary tools developed by the Investment Manager.

The Investment Manager employs three distinct scoring systems based on different factors (information ratio, Sharpe ratio, excess return, tracking error, longest over/under performance period, etc.) to assess and rank managers in the short term (momentum) and long term (overall rating) relative to the broader dynamics in the market as a whole.

Once the portfolio is constructed, the team monitors the success rate of the manager selection on an ongoing basis through a series of ex-post quantitative checks including:

The percentage of managers in the portfolio who have over/underperformed the average return of their peer group since the beginning of the current year/quarter; and

The percentage of managers who were highly ranked in the proprietary ranking model and who have over/underperformed the average return generated by the relevant peer group since the beginning of the year/quarter.

The analysis is conducted for each peer group to detect potential anomalies/distortions in the overall dispersion not captured by the above checks. These procedures form part of the quantitative analysis which feeds into the qualitative assessment below.

Qualitative Analysis: Some of the qualitative factors considered in the AZIMUT’s model per asset class are:

Investment style; Geographic/sector/market cap bias; Diversification/concentration; Active share; Turnover; Asset class/investment strategy capacity constraints; Asset under management and its evolution; Portfolio liquidity; and Client base.

An automated ranking system is then used with scores developed by the Investment Manager.

The Investment Manager conducts asset class and sector reviews of the underlying managers, tracks changes to manager ratings and monitors sector and economic trends, which may result in additional manager recommendations/changes.

Investment Committee members contribute their strategic views regarding the initial research and model output performed by the Investment Manager. In certain circumstances, Investment Committee members may provide additional manager research and their own recommendations to be considered by the Investment Manager and discussed at Investment committee meetings. Once a

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shorter preferred list has been agreed upon by the Investment Committee, independent rounds of due diligence meetings are held with both the asset management company and the portfolio manager to consider:

Asset management company structure (ownership structure, client base structure, geographical presence, technology structure);

Portfolio manager track record (performance, volatility, style drifts); Conflicts of interest; Investment process (top-down, bottom-up, quant, macro, consistency); Research capability; Compensation; Team stability; and Fee structure.

Review of Manager Short List and Investment Committee Approval: The Investment Committee ratifies the short list of preferred managers suitable for each portfolio based on the following criteria:

Appropriateness of the recommendation; Portfolio turnover considerations; Pricing and fees; Liquidity; and Product structures.

On a quarterly basis, the Investment Manager provides their views to the Investment Committee regarding the following:

Views of existing managers; Tactical asset allocation views; Current market conditions update and outlook; Recommendations of manager changes; and Material changes to managers within the portfolios.

The recommendations from the Investment Manager are debated and discussed by the Investment Committee. The primary consideration at this stage is the appropriateness of the recommendation for the portfolio, the impact on portfolio turnover, as well as opposing views on the outlook for sector or manager. Where the Investment Committee does not agree on a recommendation, the Investment Manager is asked to conduct further research to support the recommendation or provide alternative recommendations. Where there are events, market movements or changes to an underlying manager which have a material impact on the portfolio, the Investment Manager will provide a recommendation to the Investment committee, which can be voted on at any time either at a scheduled investment committee meeting or via circular resolution. The same voting rules apply.

Manager Configuration: The manager configuration process is conducted by the Investment Manager and incorporates optimisation techniques specific to each asset class. The optimisation process relies on holdings-based and returns-based data, which can be overlaid with strategic views by the Investment Committee. Holding-based analysis provides insight into the correlations between managers and usually results in an optimally diversified portfolio, while returns-based analysis optimises the alpha and tracking error volatility between the managers.

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The optimisation process applied within each asset class and final manager configuration are determined as follows:

Australian Equities: a holdings-based analysis is performed to determine the optimally diversified allocations. The allocations are presented to the Investment Committee and may be overlaid with qualitative factors determined during manager interviews. If these factors are deemed suitable for the current market cycle, the weights may be adjusted to reflect the Investment Committee views.

International Equities: as the TAA weight for this asset class is further broken down by region including US, Europe, Emerging Markets and Rest of the World, these are considered when blending the underlying international strategies. Using a holdings-based analysis or knowing the regional exposure of the underlying strategies, the managers are combined in such a way that the desired regional TAA weights are achieved.

Infrastructure and Property: as these asset classes offer limited dispersion of managers and form part of the portfolio due to their yield and diversification characteristics, the manager selection process naturally selects one or two best managers in each of these asset classes. Therefore, no optimisation is required.

Domestic and International Fixed Interest: the fixed income strategies are decomposed into sub-indexes including but not limited to Investment Grade, High Yield, US and Europe Rate exposures, Emerging Market local and hard currency. A covariance matrix between managers is produced and historical alpha is used to initially optimise the Fixed Income manager allocations. These initial weights are further refined by inputting strategic views agreed at Investment Committee meetings. These views include expected interest rate moves and central bank policy dispersions, manager style and active share, which should refine the final allocations and result in desired duration, quality and regional exposures for the portfolio in this sector.

Alternatives: a zero correlation is assumed between the Alternatives managers. The optimiser initially takes into consideration the historical alpha and volatility and this historical information can be overlaid with specific strategic views agreed upon by the Investment committee, to further refine the final allocations.

In constructing the portfolio, highly regarded underlying managers that have complementary investment styles are blended together. The Investment Committee aims to add value by using an optimal number of underlying managers and strategies. An efficient investment strategy or asset class is one where we expect a small delta in returns between the best and worst performing investment manager.

Portfolio implementation

Implementing the investment decisions recommended by the Investment Committee is the duty of the Responsible Entity.

As part of their internal governance policy, all investment decisions related to the Responsible Entity’s operated Managed Investment Schemes must be approved by the Responsible Entity’s own internal investment committee. Accordingly, before implementing any Investment Committee recommendations, the Responsible Entity’s own internal investment committee will meet to:

review the recommendations to ensure that the proposed investment changes are within the investment guidelines for the Fund; and

ensure that any new proposed manager allocations have had the appropriate due diligence undertaken before investment.

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Ongoing monitoring and due diligence

Ongoing monitoring and due diligence of underlying managers is critical to the investment process. The Investment Committee has built a robust and structured approach to monitoring and ongoing due diligence of the underlying managers. The Investment Committee relies on the Investment Manager and Responsible Entity to conduct ongoing due diligence and monitoring of the underlying managers.

Regular performance reporting is presented to the Investment Committee at each meeting by the Responsible Entity and any material change to an underlying manager’s business or ratings is highlighted. Below is a brief summary of the key areas of ongoing monitoring that occur as part of the investment process:

Investment Committee

Regular meetings with managers Review of material changes to underlying manager business models

Investment Manager

Holdings based analysis Monthly commentary supplied by managers Extensive quantitative modelling and ongoing manager assessment Relative performance of managers versus benchmarks & assessment of

risk adjusted returns Changes to an underlying managers business model or key personnel Update meetings with managers Manager performance versus benchmarks Due diligence, performance monitoring and ongoing liaison with

underlying managers Assessment of manager performance versus economic and financial

market risk factors Ongoing suitability of managers given the economic environment and

drivers of alternative marketsResponsible Entity

Review of managers’ PDS documentation Review of manager due diligence undertaken by AZ Sestante Investment

Committee and any additional due diligence as required Portfolio management versus guidelines Overall fund liquidity review based on underlying manager fund

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investments

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Appendix – Managed Account Inserts & “Why Managed Account” Language

AZ Sestante offers four Dynamic and four Indexed managed portfolios – Dynamic is actively managed at all levels whilst Index portfolios have actively managed asset allocation but passive underlying managers. Based on your “[insert]” risk profile, we have recommended that you invest in the ‘AZ Sestante Assertive Portfolio through the [insert] platform. Information on the recommended managed portfolio is provided below.

Hub Code: AZS 011

Sestante Dynamic Conservative Portfolio

Objective To deliver outperformance of the RBA cash rate +2.0% p.a. (after fees) over a rolling 3 year period.

Suitable for Designed for investors who seek stable, regular income from low volatility assets but with some exposure to the share market and are focussed on capital preservation and are prepared to forego the potential of higher returns for lower volatility and the preservation of capital.

Investment style and

approach

Active - The portfolio aims to utilise AZ Sestante’s portfolio construction capabilities and invest in high quality asset investments with 70% exposure to defensive assets (such as cash and fixed interest) and 30% exposure to growth assets (such as shares, property, infrastructure and alternative assets). This approach aims to provide enhanced diversification and improve risk adjusted returns.

Suggested min timeframe A minimum investment horizon of 3 years.

Standard risk measure 4 - Medium risk of short-term loss

Asset Allocation Minimum Maximum

Australian shares 0 17.5

International Shares 0 17.58

Real Assets 0 30.0

Australian Fixed Income 12.5 32.5

International Fixed Income 12.5 32.5

Alternatives 0 12

Cash 8 48

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Hub code: AZS012

Sestante Dynamic Moderately Conservative Portfolio


Suitable for Designed for investors who seek relatively stable, regular income from low volatility assets but with some exposure to the share market and are focussed on capital preservation and are prepared to forego the potential of higher returns for lower volatility and the preservation of capital.


approach





Australian shares 5 25

International Shares 5 25

Real Assets 0 31



Alternatives 0 16.5

Cash 2 40

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Hub code: AZS013

Sestante Dynamic Balanced Portfolio


Suitable for Designed for investors who seek a diversified portfolio with exposure to growth and defensive assets, seeking moderate growth over the investment timeframe with a moderate level of income, and accept a moderate degree of volatility with a relatively higher exposure to growth assets.


approach



Standard risk measure 6 - High risk of short term loss


Australian shares 12.5 32.5

International Shares 12.5 32.5

Real Assets 0 32.5



Alternatives 0 16.5

Cash 2 25

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Hub code: AZS014

Sestante Dynamic Assertive Portfolio

AZ Sestante offers four Dynamic managed portfolios – each of which have been custom built for different investor profiles. Based on your “Assertive” risk profile, we have recommended that you invest in the ‘AZ Sestante Assertive Portfolio through the [insert] platform. Information on the recommended managed portfolio is provided below.

Objective To deliver outperformance of the RBA cash rate +4.5% p.a. (after fees) over a rolling 7-year period.

Suitable for Designed for investors who seek a relatively high level of capital growth on their investment, a modest level of income, and are willing to accept a high level of short to medium term capital volatility.


approach







Real Assets 0 33

Australian Fixed Income 0 15

International Fixed Income 0 15

Alternatives 0 20.5

Cash 2 22.5

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Hub code: AZS015

Sestante Conservative Index Portfolio


Suitable for Designed for investors who seek stable, regular income from low volatility assets but with some exposure to the share market and are focussed on capital preservation and are prepared to forego the potential of higher returns for lower volatility and the preservation of capital.


approach





Australian shares 0 17.5

International Shares 0 17.58

Real Assets 0 30.0



Alternatives 0 12

Cash 8 48

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Hub code: AZS016

Sestante Moderately Conservative Index Portfolio


Suitable for Designed for investors who seek relatively stable, regular income from low volatility assets but with some exposure to the share market and are focussed on capital preservation and are prepared to forego the potential of higher returns for lower volatility and the preservation of capital.


approach







Real Assets 0 31



Alternatives 0 16.5

Cash 2 40

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Hub code: AZS017

Sestante Balanced Index Portfolio


Suitable for Designed for investors who seek a diversified portfolio with exposure to growth and defensive assets, seeking moderate growth over the investment timeframe with a moderate level of income, and accept a moderate degree of volatility with a relatively higher exposure to growth assets.


approach



Standard risk measure 6 - High risk of short term loss


Australian shares 12.5 32.5

International Shares 12.5 32.5

Real Assets 0 32.5



Alternatives 0 16.5

Cash 2 25

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Hub code: AZS018

Sestante Assertive Index Portfolio

Objective To deliver outperformance of the RBA cash rate +3.0% p.a. (after fees) over a rolling 7-year period.

Suitable for Designed for investors who seek a relatively high level of capital growth on their investment, a modest level of income, and are willing to accept a high level of short to medium term capital volatility.


approach







Real Assets 0 33

Australian Fixed Income 0 15

International Fixed Income 0 15

Alternatives 0 20.5

Cash 2 22.5

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Why Managed Accounts?

Investing via a Managed Account

Managed Accounts provide investors with exposure to a professionally managed portfolio of stocks – but unlike a pooled managed fund structure, beneficial ownership of the underlying investments within the account rests with the investor. This is one of the key attractions of the Managed Account structure.

Reasons

A Managed Account is appropriate for you as it allows us to efficiently implement our recommended “dynamic asset allocation” strategy – a strategy designed to achieve solid returns with less volatility irrespective of market or benchmark allocations.

A Managed Account provides access to professionally run investment portfolios managed by a professional investment manager – AZ Sestante, also known as the “Model Manager”. AZ Sestante will continually review the assets held in your Model and, if the actual holdings in your managed account do not align with the reference allocation for your account, your portfolio will be rebalanced. The asset allocation will ‘float’ based on daily market valuations and be rebalanced where AZ Sestante feels adjustments are required in response to investment markets or the economic outlook.

There are some key advantages that a “Managed Account” offers over a more traditional “Managed Fund “structure of investing:

1. Greater Control: There are a variety of underlying Managed Portfolios available through the recommended Managed Account. This gives you the opportunity to select a particular investment strategy that is appropriate for your needs. By nominating investment preferences, you can also customise your investment portfolio by placing certain restrictions on certain assets to be held in your account.

2. Greater transparency: The underlying assets of the Managed Account you choose are held in your account. You can see exactly where your money is invested, how each asset contributes to your investment performance and what investment decisions have been implemented on your behalf. This is different from a managed fund where visibility over the underlying assets is more obscured.

3. Cost effectiveness and portability: You can move compatible assets into your Managed Account, which may reduce the need to trade assets. You can also move assets out of your Managed Account without having to sell them. This can help reduce trading costs, stamp duty and tax.If you decide to change between Managed Portfolios, only those assets that are different or have different weightings between the two models will need to be traded. This can reduce trading costs and tax when you switch between models.

4. Tax effectiveness: Since there is no embedded tax liability within a Managed Account structure, the investor does not face any tax consequences as other investors enter or exit the Managed Account. This is not the case with a traditional managed fund investment where, at times, you can have significant unrealised capital gains embedded in the unit price of the fund - which a new investor then inherits, even though they didn’t participate in those gains. In the case of a Managed Account investor, for better or worse, your capital gains tax liability is your own and

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the tax impact is not affected by other investors. The tax you pay on the investments will be a direct result of the income and capital gains from your investments only.

5. Flexibility: You retain the beneficial ownership of the underlying assets – which is different from investing via a traditional managed fund. With a Managed Account, you hold the underlying assets in your account, rather than as units in a managed fund. This provides greater flexibility and control over your investments. It also provides the ability to customise your portfolio to meet your individual preferences than a traditional managed fund.

Implications

A Managed Account investment is an investment portfolio which is actively managed by investment professionals. There are fees associated with active management which can be higher than a passively managed or “static” portfolio. In addition to the underlying investment costs of the assets you are invested in, there is an “Investment Management Fee” which is charged by BT Panorama and AZ Sestante (the administrator of the product) for the work they do in managing your investment.

The investments in a Managed Account are based on the decisions of the Model Manager. Investment management decisions can be subjective and while Model Managers are required to exercise reasonable care and diligence, there is a risk that their investment decisions will result in the model not achieving its objectives.

“Model mismatching”: the actual asset holdings in your underlying portfolio are unlikely to perfectly match the holdings of your chosen model. This can be caused by the implementation of the minimum trade sizes and minimum holding sizes, the required allocation to cash, differences in timing and prices achieved for trades and any personal investment preferences you apply. As a result, the actual investment performance of your Managed Account may differ from the reported outcomes of the models.

Trading costs: the amount of trading associated with portfolio rebalances will impact your trading costs and investment performance. Trading may be caused by investment decisions of your Model Manager as well as by changes you make to your Managed Account such as additions, withdrawals and model allocations. The application of minimum trade sizes, minimum holding sizes and your investment preferences may also cause more frequent trading to occur as part of the rebalance, particularly on smaller account balances.

For a complete explanation of the risks associated with Managed Accounts, please refer to the relevant Product Disclosure Statement (PDS).

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