Before you make any investment in the Spectrum Live™ Portfolio Select® managed investment scheme ("the scheme"), you should identify exactly what you want your investment to achieve and what level of risk you are willing to take on the investment failing to perform in line with your expectations, or performing negatively over a period of time (i.e., your level of acceptance of risk).
Retail investors particularly should consider whether to obtain personal advice from a financial adviser or financial planner as to the investments you intend to make in the scheme and also whether the scheme is suitable for your personal financial situation, needs and investment objectives.
The following section describes the significant risks of investing in the scheme generally.
You must also read the PDS and all of the SPDSs, even those you do not intend to invest in, since they will describe specific risks for each Class corresponding with Strategy Portfolios that could affect any investment in any Class (see under the heading “Multi Class Risk” later in this Section 3).
The risks of investing and performance of your Units in each Class are highly dependent on the investments in the Strategy Portfolios that you select (by choosing the Class of Units).
Each Strategy Portfolio available via the scheme has its own specific risks. You should refer to the SPDS relating to the Strategy Portfolio for details about the specific risks before selecting your Strategy Portfolio.
Please also note the Responsible Entity has the discretion to change the Strategy Portfolios available and the mandate for the Strategy Portfolio from time to time.
Risk is inherent in every investment decision, therefore it is important to understand the relationship between risks and expected return prior to making such a decision.
In general the higher the risk associated with an investment the higher the expected return is on the investment. Investment returns may be volatile over time and the possibility therefore exists for a Member to lose money or be unable to recover their initial investment amount.
It is important for Members to know that the future performance of any investment made via the scheme is not guaranteed, including any return in the form of income. The underlying investments made for the Class which you choose will rise and fall in value. Depending on the Strategy Portfolio’s Mandate, there are various risks within particular asset classes, some of which are specific to the type of asset and some of which are general risks of any investment.
Also, inflation can erode the value of the income you receive from your investments, making it more difficult to achieve your expected investment returns relative to your financial needs (such as to maintain your standard of living or to fund your retirement plans). Inflation refers to a general increase in prices over time, reducing the purchasing or investment power of money.
There is always a risk that any investment may fall as well as rise in value through the movement of investment markets as a whole. Market forces will impact the price of investments, and at their worst, market values of some assets may become zero if adverse market conditions are encountered.
Timing risk refers to the risk of price falls in markets shortly after the purchase of an investment or conversely the risk of price rises in markets shortly after investments are sold. Timing risk is applicable in the context of you or your Authorised Person providing Investment Instructions to SLCM. For example, if you provide instructions to SLCM then, depending on the timing of applications, withdrawals or switching between Strategy Portfolios as applicable to each Strategy Portfolio and the execution of orders by the Investment Managers as soon as practicable; however, there will always be some delay while the moneys can be made available for trading by the Investment Manager and investing in countries with operating time zones will also involve delays.
There is a risk that investments could be adversely impacted by political factors. These could include changes to domestic and international political parties, legislative changes (such as the treatment of taxation) or change in government policy.
Liquidity risk is the risk that the Investment Manager will have difficulty in realising assets necessary to fund withdrawals in a timely manner. For example, illiquid securities that are rarely traded on an exchange or are restricted or suspended from trading may not be able to be sold quickly, if at all, or property trusts if the underlying property assets require a considerable amount of time to market, sell and settle.
Sector risks include but are not limited to demand for the type of product or service a company produces or provides, commodity prices, the economic cycle of industry, shifts in consumer demands, lifestyle changes or advances in technology.
You have the flexibility to choose your Strategy Portfolios as you see fit. The Strategy Portfolios may be exposed to investments that are highly correlated as among the Strategy Portfolios you choose.
Concentration risk means that, should a particular asset class be adversely impacted, other highly correlated asset classes run a greater risk that they will also be affected.
PORTFOLIO INVESTMENT RISK
The strategy for a particular Strategy Portfolio may include investing in speculative investments with increased levels of investment risk. The value of the scheme's investments may fall or fluctuate widely which will affect the portfolio. Changes in economic, political or market conditions or the regulatory environment may adversely impact the portfolio and its investments.
In addition, other factors may affect particular investments (i.e., interest rates or exchange rates) and consequently the value of the portfolio may fall. There are no assurances that the Investment Manager will anticipate these developments. None of the Responsible Entity, its related bodies corporate and the Investment Managers guarantees the performance of any of the investments made by the scheme or any investment in Units in other schemes. Refer to the Mandates within an SPDS in order to determine the investment risk applicable to the specific financial products being traded within that Strategy Portfolio.
INVESTMENT MANAGER RISK
Before investing in Units for a Class corresponding to a Strategy Portfolio, you need to consider the risks associated with the appointed Investment Manager, or the Responsible Entity when the Responsible Entity takes on this role, advising on and managing that particular Strategy Portfolio.
The investment strategy relating to a specific Strategy Portfolio may underperform its stated performance objectives, even if the general market performs well. None of the Responsible Entity, its related bodies corporate and the Investment Managers can assure performance of the investment strategy, so underperformance of a strategy or even of an Investment Manager is one of the key risks for the investor. Investment Managers are engaged by the Responsible Entity (or its agents) and the Responsible Entity has overall responsibility.
This includes temporary suspension of the Investment Manager (during which time the Responsible Entity performs the same functions as were required of the suspended Investment Manager and could also retain the fees for doing that) and ultimately replacement of the Investment Manager.
The Responsible Entity (including its agent) may do this in its discretion (subject to the terms of agreements with Investment Managers) because the range of circumstances that might justify this in the interests of investors is too broad to be specifically mandated in any contract. Circumstances include, but are not limited to, the Investment Manager losing key people responsible for the Strategy Portfolio's investment strategy, the Investment Manager having its licence suspended or withdrawn or the Investment Manager becoming unable to perform its services to the Responsible Entity.
Please note that while a SPDS may specifically refer to an Investment Manager, the Responsible Entity (including its agent) may undertake any of these supervisory actions without notifying you and without issuing a further supplementary or replacement SPDS. This is because the Responsible Entity must be able to maintain continuity of the Strategy Portfolio with least disruption to your investments.
FUND OF FUND RISK
Any Strategy Portfolio which may include in its investment Mandate investments in listed or unlisted funds has the risk that the investment performance of Units in the Class for that Strategy Portfolio will be affected by the risks and performance of the underlying funds.
The SPDS for the Strategy Portfolio will not individually specify the risks of each of the underlying funds (because they will not generally be known at the time and they may later change).
There is no assurance that the performance of the underlying funds will be achieved, which in turn affects the risk and performance of investments for that Class in that Strategy Portfolio. Refer to the Mandates within an SPDS in order to determine if the fund of fund risk is applicable to that Strategy Portfolio.
This risk is that a counterparty to a given agreement made with the Responsible Entity may not meet its contractual obligations. Obviously, this risk can be managed by choosing to deal with counterparties with superior risk profiles but neither the Responsible Entity nor its agents can independently verify the risk of dealing with those counterparties nor will they guarantee their performance.
MULTI CLASS RISK
Risks may arise due to the scheme being managed on the basis that each Class corresponds with a Strategy Portfolio. It is possible that not all of the specific risks may be identified in this PDS or any SPDS due to the open-ended nature of the scheme, since investments in each Strategy Portfolio might affect investments made for other Strategy Portfolios, due to tax and legislative or other risks that cannot be fully controlled by the Responsible Entity or known in advance and disclosed in this PDS or an SPDS.
While it is intended that the scheme operates as far as possible on the basis that the Responsible Entity allocates assets, liabilities, expenses and income to each Class according to investments made for a Strategy Portfolio, this separate allocation cannot be assured at all times in the future. The Responsible Entity will try to make the allocations based on information provided to it but will not independently verify data given to it.
The Australian taxation laws have been amended to clarify some aspects of a trustee’s capacity to allocate franked distributions and capital gains to different beneficiaries and have that recognised for taxation purposes, but that law has not been generally tested and in any case does not cover all of the potential kinds of assets that the scheme might invest in or income that it might receive. The full taxation treatment for Members of receiving distributions in respect of the scheme may therefore be affected by assets held in relation to Classes of Units a Member does not invest in and, as a result of that, the tax outcome may differ from that tax expected if the investor were to in invest in the underlying assets directly, or in a fund with only a single class of units. This leaves a Member with a potential risk of uncertain tax treatment arising from their investments, including arising from the scheme's investments other than referable to the Member’s Personal Portfolio and that cannot be further described or quantified in this PDS or a SPDS. You should read section 7 of this PDS for the statement on the taxation aspects of investing in the scheme.
It is possible that shortfalls in investments for a particular Strategy Portfolio may result in that shortfall having to be made good by the Responsible Entity drawing on assets acquired for another Strategy Portfolio. This could come about for various reasons including, but not limited to, the use of derivatives including options and this PDS or an SPDS cannot reasonably try to anticipate all of those reasons. Although it is intended that the investment guidelines and strategies for each Strategy Portfolio and implementation of them, would avoid that occurring, none of the Responsible Entity, its related bodies corporate and the Investment Managers can give any assurance that the value of Units in any Class will always strictly follow only investments made for the corresponding Strategy Portfolio.
Therefore if for any reason the Responsible Entity is not able to make allocations including but not limited to assets, liabilities, income and expenses strictly in accordance with the Strategy Portfolios, then any investor’s Units’ investment performance may be adversely affected by the investments for any other Strategy Portfolio. For this reasons your full understanding of the risks of investing in any Units should take into account all of the Strategy Portfolios and actual size of investments in them, not just the Strategy Portfolios which you choose. Therefore you should read all of the SPDS relating to all the Strategy Portfolios within the scheme before making any initial investment.
DEFAULT CLASS RISK
If the scheme uses a default Class this gives a risk to you that the risk and performance of the default Class does not meet your financial needs and objectives. You can manage this risk by carefully reading the SPDS for the default Class. The default Class will be tagged as such on the list of available Strategy Portfolios which is available on the website www.slcm.com.au. If you have any doubt about which is the default Class at any time, please contact SLCM.
There are risks particular to investing in the scheme including that the scheme could be terminated, fees and charges could change, the Responsible Entity could be changed, Investment Managers of Strategy Portfolios offered by the scheme may be changed and those Strategy Portfolios could be closed or changed. There are risks in the proper monitoring of Investment Managers (to ensure portfolio directions are consistent with the Strategy Portfolios investment objectives) and in executing transactions and holding the schemes assets.