Yes. Each
Compass Portfolio is a mutual fund that invests in a number of underlying
mutual funds, pooled funds, or exchange-traded securities. There
are a number of benefits to investors in purchasing one mutual fund
portfolio
compared
to purchasing a number of individual mutual funds:
Simplicity: Investors only need to make one purchase and receive
one prospectus, confirmation, statement and regular reporting,
rather than
multiple purchases, prospectuses, confirmations and reports from
individual mutual funds.
Greater Asset Allocation: The portfolios use much more sophisticated
asset allocation than is practical using individual mutual
funds.
Reduced Cost: The fund-on-fund structure allows ATB to obtain
much better pricing from underlying investment managers,
lowering overall
costs to
investors.
Increased Efficiency: Any necessary rebalancing to maintain
the proper asset allocation is done within each portfolio,
eliminating the need
for rebalancing to be done by the investor. This reduces
the number of transactions and related instructions, reporting,
and tax consequences
to the investor.
What does the Compass Portfolio Series invest in to achieve the strategic
asset allocation?
Unlike traditional mutual funds, which invest in individual
securities, the Compass Portfolio Series invests in a mix of third
party mutual funds,
institutional pooled funds, exchange traded securities, and other investments
from among the most respected investment management firms in the industry
to satisfy the strategic asset allocation. These funds are called the “underlying
funds” or “underlying investments”. The underlying
investments of the Compass Portfolio Series are selected to achieve and
add value to the asset allocation as a whole. Additional diversification
is realized beyond asset class through diversification by geography,
management style, market sector, market capitalization and investment
manager. Such thorough diversification serves to provide a superior risk
adjusted rate of return by minimizing volatility and maximizing long-term
performance results. The Compass Portfolio Series is monitored and re-balanced
regularly by the Manager, ensuring the Portfolio maintains its target
weighting of underlying investments. If, for any reason, a decision is
made to add or remove an underlying investment, the Manager will provide
investors written notice and take such other steps as required by securities
laws. Written notice is generally 60 days in advance and the Manager
will file a new or amended Simplified Prospectus.
What makes the Compass Portfolio Series Different?
Other similar investments share at least one or more of the
following characteristics:
Limited Asset Allocation: Overly simplistic, failing to use asset
classes such as high yield bonds, income trusts, small cap equities
and a proper
mix of Canadian, U.S. and international investments.
In-house Investment Management: Many
packagers of similar investments are active investment
managers. They only use
their own proprietary
mutual funds, which may or may not have solid performance and
volatility records.
This also results in only one style of investment management.
Active Management Only: Most
similar investments only use active investment management for all
asset classes, which increases
costs
and reduces diversification.
High Cost: The overall cost to the investor, reflected in the
fund's management expense ratio (MER) often approaches or
in some cases
even exceeds 3.00% per year. In addition, the investor may
pay a front load
commission or be subject to redemption fees.
High Minimum Investments: Some
similar investments or other 'wrap' products have high minimum
investments (eg. $25,000 or
$100,000), making
them accessible only to mid to high net worth investors.
Unlike Similar Investments:
The Compass Portfolio Series uses sophisticated asset allocation,
mixes active and passive investment management, does
not use any proprietary
product and uses quality external investment managers
for each asset class, providing unsurpassed portfolio design
to the
average investor.
ATB Investment Management approached asset allocation in the same
manner as large, sophisticated institutional investors such as pension
funds.
Mutual fund asset allocation tends to only focus
on a mix of Canadian bonds and equities, with some foreign allocations.
The Compass Portfolio
Series uses high yield bonds, income trusts, small
cap equities and a mix of Canadian, U.S. and international investments
for true diversification.
This reduces volatility through different market
cycles and enhances long-term returns. Institutional investors do
not take an all or nothing
approach on active versus passive management. They
make selections based on each asset class and overall portfolio characteristics.
The Compass
Portfolios take this approach. Passive investment
strategies are employed in efficient markets, where active management
provides little value over
longer periods, such as the Canadian Bond market
and the U.S. Large Cap market. This strategy lowers cost dramatically
which is passed on to
the investor in the form of reduced overall management
fees and higher returns. Actively managed funds are used for asset
classes in which active
management has outperformed or reduced volatility.
The universe of investments was examined to find proven superior
long-term performance, below average
volatility, consistent and definable investment management
processes, admired reputations, and low cost. The underlying investments
were objectively
chosen to align to the Portfolio as a whole. There
are few if any competing investment options available in the Canadian
market place, designed with
such sophistication, available to the average retail
client at such a reasonable cost.
How were the asset allocations chosen for each portfolio?
The Portfolios are designed to satisfy investor needs, so we began by
identifying common investor profiles. Six distinct investor profiles,
ranging from Conservative to Maximum Growth, were chosen. Once
the characteristics of the investor were defined we sought to create an asset
allocation
model and investments (portfolio) that would match their profile.
Professional money managers and investment consultants know that
the weighting of different asset classes such as Canadian equities,
global
equities, or fixed-income investments is crucial to constructing
a successful investment portfolio. In fact, asset allocation can
account for over
90% of portfolio performance. Portfolios that achieve maximum returns
with minimum volatility, through a proper asset allocation, are
said to lie on the Efficient Frontier.
Next we studied how the different asset classes performed over
a variety of economic conditions and cycles. The next course of
action was to identify
the prevailing conditions and to try to gaze forward in an effort
to identify any obvious trends. We made conservative assumptions
and shared
them with acknowledged industry 'experts' who confirmed those assumptions.
From there we set about developing the asset allocation. That is,
we made decisions about how the portfolios were going to be allocated
across
the various investment alternatives/classes. Once established we
used Ibbottson software to ensure that each portfolio fell on the
efficient
frontier. The process and ultimately each portfolio was independently
verified by William M. Mercer Ltd., which is one of Canada's leading
investment-consulting firms with more than 35 offices around the
globe. Their investment consulting staff has been hired to evaluate
investment
managers, worldwide economic and capital market trends, and manage
a variety of proprietary computer systems and databases that facilitate
informed decision-making.
What common investing mistakes do the Portfolios address?
Under diversification - heavily weighted in
an asset class, market, sector, style, and manager. The portfolios are thoroughly diversified by asset class, market,
sector, style and manager, consistent to return and volatility
requirements.
Market timing - believing that
one can move in and out of an asset class, market or sector at
the bottom or top of a cycle The portfolios are strategic asset allocation models, which maintain
their defined asset allocation through consistent re-balancing
of the underlying investments. Always buying low and selling
high.
Overestimating active management -
believing that fund managers are capable of consistently adding
value over their benchmarks. In very few cases are
active managers adding value in the Canadian Bond or U.S. Large
Cap markets over any 5-year periods. In
shorter terms there
can be situations where value is added, but has been shown
not to be sustainable.
Geographical bias - over weighting
in home markets.
A natural tendency to over weight in surroundings most comfortable.
Even though for example the Canadian Market is only 2 - 3%
of the global market
opportunity.
Who are our investment management partners and why were they chosen?
Barclays Global Investors Canada Ltd.
Is the largest indexer in the world. For three decades, Barclays
Global Investors (BGI) has been quietly transforming the investment
world. From
the introduction of the worlds first index strategy in 1971, to iUnits,
and exchange traded funds, they've pioneered change and led investment
innovation. Today they manage over CDN$1 trillion in assets for institutional
and individual investors across the globe. No one else has the range
of product and cost structure.
Mawer Investment Management
Mawer Investment Management is an independent, privately owned
investment-counseling firm headquartered in Calgary, Alberta.
They provide discretionary
investment management for Canadian institutions and individuals.
Products and services
include segregated and pooled fund management across all asset
classes, including Canadian, U.S. and International equities,
and fixed income.
They have outstanding performers among their fund group.
Franklin Templeton Investments
Franklin Templeton Investments is the Canadian subsidiary of
Franklin Templeton Investments worldwide and currently manage
in excess
of CDN$33 billion in assets. They service more than 2 million
unitholder accounts
and more than 110 pension funds, foundations and other institutional
investors with products managed by the Franklin, Templeton, Bissett
and Mutual Series investment teams. In Canada, Franklin Templeton
Investments employs approximately 700 dedicated professionals
whose mission is
to
provide superior investment results and high quality service.
They have a broad offering of excellent performing funds and
great pricing.
AIM Funds/Trimark Investments
AIM Funds Management Inc. (AIM) is one of Canada's largest mutual
fund companies with over $35 billion in assets under management.
A subsidiary
of U.K.-based AMVESCAP PLC, one of the world's largest independent
investment managers, AIM employs more than 900 people in its
Calgary, Montreal,
Toronto, and Vancouver offices. Performance in the specialized
mandates of international equities and high yield bonds.
