MyFolio Background & Overview - Standard...
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MyFolio Background & Overview March 2012 For Investment Professionals only and should not be relied upon by any private investors
Transcript of MyFolio Background & Overview - Standard...
MyFolio Background & Overview March 2012
For Investment Professionals only and should not be relied upon by any private investors
01 What are My Folio Funds?
03 Company Structure
04 Personnel & Remuneration
10 Investment Philosophy
13 Fund Selection 16 Portfolio Construction 17
Fund Rebalancing
18
Risk Management & Control
20
Administration
21
Charges
Please note that the information provided herein is regarded as confidential by Standard Life Investments Limited. Accordingly, all such information
must be used only for the purpose(s) for which it was provided and must not be disclosed to any third party (other than your employees, agents, sub-
contractors and/or professional advisors on a need to know basis) without the prior written consent of Standard Life Investments Limited.
Contents
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What are MyFolio Funds?
The MyFolio Funds are a family of carefully constructed risk-based fund of fund portfolios, managed by Standard Life
Investments, which offer clients a choice of active and passive investment strategies across five risk levels.
They are designed to help clients achieve the right balance between risk and reward by offering sufficient choice to meet
different levels of risk appetite. Generally, higher risk equates to a greater potential return, whilst lower risk equates to a
lower potential return. The proportion of assets (for example equities or bonds) within each fund is not expected to
significantly change in the short term.
Choice of Risk Profiles
MyFolio I
Intended for clients who are conservative with their investments. These clients prefer taking a small amount of risk to achieve
modest or relatively stable returns. They accept there may be some short term periods of fluctuation in value.
MyFolio II
Intended for clients who are relatively cautious with their investments. These clients want to try to achieve a reasonable return,
and are prepared to accept some risk in doing so. Typically these portfolios will exhibit relatively modest yet frequent
fluctuations in value.
MyFolio III
Intended for clients who are balanced in their attitude towards risk. These clients don’t seek risky investments but don’t avoid
them either. They are prepared to accept fluctuations in the value of their investments to try and achieve better long term
returns. These portfolios will be subject to frequent and at times significant fluctuations in value.
MyFolio IV
Intended for clients who are relatively comfortable with investment risk. These clients aim for higher long term returns and
understand that this can also mean some sustained periods of poorer performance. They are prepared to accept significant
fluctuation in value to try and achieve better long term returns.
MyFolio V
Intended for clients who are very comfortable with investment risk. These clients aim for high long term investment returns and
do not overly worry about periods of poorer performance in the short to medium term. Ordinarily these portfolios can be
subject to the full extent and frequency of stock market fluctuations.
Choice of investment style For each risk level, there are three different investment styles available:
� Standard Life Investments MyFolio Market Funds – a lower cost option investing mainly in tracker funds
Designed to offer a lower-cost investment solution, the MyFolio Market Funds invest in a carefully-selected portfolio that is
mainly made up of tracker funds. The tracker funds are largely selected from a few high quality providers. There may be times
where a suitable tracker fund can not be found to meet the strict selection criteria. If this happens, then the affected part of the
portfolio will temporarily be allocated to the most suitable alternative asset classes or an actively managed fund.
The MyFolio Market Funds also strategically invests in a number of active direct real estate funds. Real estate is an excellent
diversifier and its inclusion in a multi-asset portfolio can help provide more efficient solutions i.e. reduced risk for the same
expected return. This gives clients exposure to a more diversified range of assets than they might achieve in a standard
portfolio of tracker funds.
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� Standard Life Investments MyFolio Managed Funds – an actively-managed and competitively priced option that
invests mainly in funds managed by Standard Life Investments
Standard Life MyFolio Managed Funds mainly uses Standard Life Investments funds, one of Europe’s leading investment
managers with a track record across the major asset classes and strategies, such as equities, real estate and fixed income.
Where they do not offer a suitable fund in a particular asset class, the fund manager may select an alternative from the rest of
the market.
The MyFolio Managed funds are available as a range of five growth orientated portfolios or alternatively as a range of five
income focussed portfolios. The intent is to keep the risk profiles of the two ranges closely correlated on a total return basis
with the latter having a greater focus on income generation and distribution for customers.
This MyFolio Managed Fund suite includes allocations to the award winning Standard Life Investments’ Global Absolute Return
Strategies (GARS) Fund which aims to perform well in both rising and falling markets by using a combination of investment
techniques. Absolute return funds provide an innovative source of diversification for mixed-asset investment portfolios. A
proportion of the traditional growth assets have been replaced with absolute return funds to take advantage of their expected
low volatility, whilst providing equity type returns over 3-5 year cycles.
� Standard Life Investments MyFolio Multi-Manager Funds – portfolios of carefully-selected funds from some of
the leading managers in the market
The MyFolio Multi-Manager funds invest in a range of funds from leading Fund managers across the industry and are also
available as a range of 5 growth orientated portfolios or alternatively as a range of 5 income focussed portfolios. As for the
Managed Funds the intent is to keep the risk profiles of the two ranges closely correlated on a total return basis with the latter
having a greater focus on income generation and distribution for customers.
For the same reasons as outlined above for the MyFolio Managed Funds the suite of Multi-Manager Funds includes allocations
to the award winning Standard Life Investment’ GARS Fund
Blending Styles for a Bespoke Arrangement
One of the benefits of offering consistent risk profiles over the three different investment styles is that an investor can mix and
match funds of the same risk level confident that the overall portfolio will remain within the selected risk profile. This gives
investors the freedom to invest in more than one style, without the requirement to continually monitor and rebalance.
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Corporate Structure Company Name - Standard Life Investments
Head Office Address - 1 George Street, Edinburgh, EH2 2LL
Telephone Number - 0131 225 2345
Website - www.standardlifeinvestments.co.uk
Asset Management Experience Standard Life was established in Edinburgh in 1825. Originally called the Life Assurance Company of Scotland, it changed its
name to Standard Life in 1832. Over the next three decades the company extended its activities to England, Ireland and
Canada. With the establishment in 1845 of a sister company, Colonial Life, life assurance was made available to residents in
every part of the world. Standard Life merged with Colonial Life in 1866 and between then and the end of the century offices
were opened in Europe, South America, India and the Far East.
During the 1920s and 1930s Standard Life pioneered the development of pension schemes and investment in equities. By the
1950s it was the biggest Scottish life office and one of the largest companies in the industry. Standard Life has been
managing Global Equity assets since the late 1950s.
Standard Life Investments was established in 1998 as a wholly owned subsidiary of The Standard Life Assurance Company in
order to create an independent and autonomous management team capable of leading one of Europe’s premier investment
houses. The launch of the company has helped strengthen our independent identity.
In April 2006, the Board of The Standard Life Assurance Company (our parent) recommended that it should demutualise and
float on the London Stock Exchange. This decision was approved by the Court of Session in Scotland in June and Standard Life
plc became a listed company on 10 July 2006.
Standard Life Investments is, and will continue to be, an integral part of the future of the Standard Life Group.
Standard Life Investments Limited is authorised and regulated in the UK by the Financial Services Authority (FSA). For a
complete list of our regulatory permissions please refer to the official FSA website: www.fsa.gov.uk (Firm Reference No.
188406).
Standard Life Investments managed a total of £154.9 billion of assets under management, as at 31 December 2011.
Five year historical numbers are provided below:
As at 31 December £ million
2011 154,876.8
2010 156,872.2
2009 138,651.0
2008 123,834.9
2007 143,395.4
Source: Standard Life Investments
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Personnel
We feel the best approach is to commit to a team approach, believing that teams will provide the best outcomes.
MyFolio Team
The portfolio manager of the MyFolio suite of funds is Bambos Hambi who has been managing Fund of Fund and Discretionary
Portfolios since 1978. Bambos' previous companies include Quilter & Co, Friends Ivory & Sime, Rothschild Asset Management
and Gartmore.
Bambos is supported by the Fund Solutions Team which is comprised of six highly experienced individuals including four
dedicated fund analysts. The sole purpose of the Fund Solutions Team is to act as a centre of excellence for fund selection over
the Standard Life Group and serve a number of internal customers which includes the MyFolio range of funds.
Fund Manager and Fund Analyst CVs
Bambos Hambi
Professional qualifications
1978 – Bsc (Hons) in Mathematics, Queen Elizabeth College, London University
Registered representative of the London Stock Exchange
Year Detail
2008 Multi-Manager Consultant & Independent Fund Expert
2003 Partner, Head of Multi-Manager & Fund Manager, Gartmore Investment Management
2003 Head of Multi-Manager & Fund Manager, Insight Investment Management
2001 Director, Head of Multi-Manager & Fund Manager, Rothschild Asset Management
1997 Fund Manager, Friends Ivory & Sime
1987 Head of Collective Investments, Quilter & Co Ltd
1978 Head of Investment Performance Measurement, Legal & General
Bambos Hambi
Head of Fund of Funds
James Beaumont
Senior Analyst
-High Yield Bonds
-Strategic Bonds-Absolute Return
Jason Day
Senior Analyst
-US Equities-GEM Equities
-Asian Equities
Matthew Webber
Senior Analyst
-UK Equities
-Property
Robbie Hall
Analyst
-European Equities
-Investment Grade Bonds
-Trackers & ETFs
Feryal BensalahQuant Analyst
Bambos Hambi
Head of Fund of Funds
James Beaumont
Senior Analyst
-High Yield Bonds
-Strategic Bonds-Absolute Return
Jason Day
Senior Analyst
-US Equities-GEM Equities
-Asian Equities
Matthew Webber
Senior Analyst
-UK Equities
-Property
Robbie Hall
Analyst
-European Equities
-Investment Grade Bonds
-Trackers & ETFs
Feryal BensalahQuant Analyst
Source: Standard Life Investments, 13 March 2012
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Jason Day
Professional Qualifications
MA (Hons) University of Dundee, Political Science
Investment Management Certificate; CISI Private Client Investment Advice & Management (FSA Level 6 approved paper RDR);
Financial Planning Certificate
Year Detail
2001 Fund Manager & Analyst, Allenbridge Group plc
2000 Private Client Investment Manager & Fund Clients Analyst, Deloitte & Touche Private Clients
1998 Private Client Investment Manager Analyst, Bolt-Burdon Solicitors Private & Fund Clients
1997 Graduate training program for financial planners Zurich Financial
Matthew Webber
Professional qualifications
BA (Hons) Financial Services
Chartered Member of the Securities and Investment Institute; Investment Management Certificate; Securities Representative
Year Detail
2011 Joined Standard Life Investments in August 2011 as a Senior Analyst within the Fund Solutions Team
2008 Fund Manager (Fund of Funds) – Co-operative Asset Management
Responsibility for discretionary asset allocation, fund research and portfolio construction for a range of unitised, risk
graduated, range of Pension portfolios.
2006 Investment Analyst – Mazars Financial Planning
Advisory, asset allocation, Fund Research and portfolio construction for a range of risk graduated range of private client
portfolios.
2003 Investment Analyst – Old Broad Street Research
Fund research, Fund panel services, bespoke consultancy work.
Daniels Holt Stockbrokers and Investment Managers Other
Merrill Lynch Private clients
James Beaumont
Professional qualifications
BA (Hons) Politics and Social Policy, Newcastle University
ICAEW ACA: Qualified Chartered accountant; FSA CF 30 registered; Chartered Member of the Securities and Investment Institute;
Investment Management Certificate
Year Detail
2010 James joined Standard Life Investments in October 2010. He has been in his current role as a Senior Analyst, within the
Fund Solutions Team since November 2011.
2009 Investment Consultant to Specialty Finance Limited.
Hire to construct an institutional, proprietary investment process.
2008 Portfolio Manager, Thames River Capital
Fund Research, portfolio construction & lead manager on a fund of hedge funds product specialising in zero correlation &
alternative investment strategies.
2004 Partner & Senior Investment Analyst, Eden Rock Capital Management
Fund research, portfolio construction, product specialist and second in charge of a 10 person research team responsible
for growing the business from $50m to $3b in allocated assets.
2000 CFO then Equity derivatives trader, Eden Rock Securities
Built accounting and Risk functions for start up trading business. Then profitable market maker on Swedish OMX exchange.
1997
Audit senior, Ernst & Young
Qualified ACA within Financial services division
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Robbie Hall
Professional qualifications
BSc (Hons) Mathematics, Bristol University
MSc Investment Management, Cass Business School
CFA Levels I & II - Enrolled in the Level III course (June 2012)
Year Detail
2010 Robbie joined Standard Life Investments in June 2010, where he was primarily responsible for fixed income fund research.
Seconded to Standard Life Investments to set up the centralised fund research function. Primarily responsible for fixed
income funds. Assisted in building the processes and systems available to the fund solutions team.
2008 Fixed Income fund analyst at Standard Life Wealth.
Responsible for fixed income fund selection across all portfolios. Responsible for building optimisation and cash flow
models on Excel. Assisted in portfolio construction of the white label funds.
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Euan Munro FIADirector of Multi -
Strategic Research
Idea Generation
Andrew Milligan
Dr Richard Batty
Jason Hepner CFA
Frances Hudson
Douglas Roberts
Risk Analysis
Dr Brian Fleming CFA PRM
Dr Anne Friel PRM
Gwilym Satchell PRM
Dr Robert de Roeck
Multi Asset Management
Guy Stern CFA
David Millar FIA
David Jubb FIA
Colette Conboy
Audrey Simpson
Harry Smith
Murray Forbes
Malin Nairn
Thad Quinn
David Kirkpatrick
Scott Smith
Julia Mikhniak
- Asset Investing and Fixed Income
Strategic Research
&
Idea Generation
Andrew Milligan
Dr Richard Batty
Jason Hepner CFA
Frances Hudson
Douglas Roberts
Risk Analysis
Dr Brian Fleming CFA PRM
Dr Anne Friel PRM
Dr Robert de Roeck
Multi Asset Management
Guy Stern CFA
David Millar FIA
David Jubb FIA
Colette Conboy
Audrey Simpson
Harry Smith
Murray Forbes
Malin Nairn
Thad Quinn
David Kirkpatrick
Scott Smith
Julia Mikhniak
Dr Jens Kroeske
Jennifer Catlow
Euan Munro FIA
Strategic Research
Idea Generation
Andrew Milligan
Dr Richard Batty
Jason Hepner CFA
Frances Hudson
Douglas Roberts
Risk Analysis
Dr Brian Fleming CFA PRM
Dr Anne Friel PRM
Gwilym Satchell PRM
Dr Robert de Roeck
Multi Asset Management
Guy Stern CFA
David Millar FIA
David Jubb FIA
Colette Conboy
Audrey Simpson
Harry Smith
Murray Forbes
Malin Nairn
Thad Quinn
David Kirkpatrick
Scott Smith
Julia Mikhniak
Director of Multi-Asset Investing
Strategic Research
&
Idea Generation
Andrew Milligan
Dr Richard Batty
Jason Hepner CFA
Frances Hudson
Douglas Roberts
Risk Analysis
Dr Brian Fleming CFA PRM
Dr Anne Friel PRM
Dr Robert de Roeck
Multi Asset Management
Guy Stern CFA
David Millar FIA
David Jubb FIA
Colette Conboy
Audrey Simpson
Harry Smith
Murray Forbes
Malin Nairn
Thad Quinn
David Kirkpatrick
Scott Smith
Julia Mikhniak
Dr Jens Kroeske
Jennifer Catlow
Euan Munro FIADirector of Multi -
Strategic Research
Idea Generation
Andrew Milligan
Dr Richard Batty
Jason Hepner CFA
Frances Hudson
Douglas Roberts
Risk Analysis
Dr Brian Fleming CFA PRM
Dr Anne Friel PRM
Gwilym Satchell PRM
Dr Robert de Roeck
Multi Asset Management
Guy Stern CFA
David Millar FIA
David Jubb FIA
Colette Conboy
Audrey Simpson
Harry Smith
Murray Forbes
Malin Nairn
Thad Quinn
David Kirkpatrick
Scott Smith
Julia Mikhniak
- Asset Investing and Fixed Income
Strategic Research
&
Idea Generation
Andrew Milligan
Dr Richard Batty
Jason Hepner CFA
Frances Hudson
Douglas Roberts
Risk Analysis
Dr Brian Fleming CFA PRM
Dr Anne Friel PRM
Dr Robert de Roeck
Multi Asset Management
Guy Stern CFA
David Millar FIA
David Jubb FIA
Colette Conboy
Audrey Simpson
Harry Smith
Murray Forbes
Malin Nairn
Thad Quinn
David Kirkpatrick
Scott Smith
Julia Mikhniak
Dr Jens Kroeske
Jennifer Catlow
Euan Munro FIA
Strategic Research
Idea Generation
Andrew Milligan
Dr Richard Batty
Jason Hepner CFA
Frances Hudson
Douglas Roberts
Risk Analysis
Dr Brian Fleming CFA PRM
Dr Anne Friel PRM
Gwilym Satchell PRM
Dr Robert de Roeck
Multi Asset Management
Guy Stern CFA
David Millar FIA
David Jubb FIA
Colette Conboy
Audrey Simpson
Harry Smith
Murray Forbes
Malin Nairn
Thad Quinn
David Kirkpatrick
Scott Smith
Julia Mikhniak
Director of Multi-Asset Investing
Strategic Research
&
Idea Generation
Andrew Milligan
Dr Richard Batty
Jason Hepner CFA
Frances Hudson
Douglas Roberts
Risk Analysis
Dr Brian Fleming CFA PRM
Dr Anne Friel PRM
Dr Robert de Roeck
Multi Asset Management
Guy Stern CFA
David Millar FIA
David Jubb FIA
Colette Conboy
Audrey Simpson
Harry Smith
Murray Forbes
Malin Nairn
Thad Quinn
David Kirkpatrick
Scott Smith
Julia Mikhniak
Dr Jens Kroeske
Jennifer Catlow
Multi Asset Investing Team
In addition to the Fund Solutions team the Tactical Asset Allocation within the funds is undertaken by the Standard Life
Investments’ Multi Asset Investment Team (MAIT).
The MAIT has built an excellent reputation through the development and success in both institutional and retail markets for the
Global Absolute Return Strategies (GARS) product. The 24-strong team are currently responsible for over £80 billion of multi
asset investments within Standard Life Investments.
This large and experienced team consists of three critical skill sets:
Area Team Head Size of Team Average Industry
Experience
Average Tenure at
Standard Life Investments
Portfolio Management Guy Stern CFA 13 18 11
Risk Dr Brian Fleming 5 7 4
Strategic Research Andrew Milligan 6 20 12
Source: Standard Life Investments, as at 31 December 2011
The structure of our Team is shown in the chart below:
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Remuneration
Please explain how the Fund Manager(s) and his/her team are remunerated. Are salaries linked to the performance of
this fund?
Standard Life Investments’ compensation program is composed of market related base pay and a performance based incentive
plan. We participate in regular surveys and take market soundings to keep up to date with competitive compensation packages
needed to attract and retain top quality Portfolio Managers and Analysts. The base salary is determined with reference to
industry surveys and is therefore always competitive in the marketplace. Annual bonuses are determined by judgment relating
to the individual’s contribution to their specific role, the Team and their contribution to the firm and group performance.
Senior management controls this robust process and has discretion to deliver significant levels of reward to those driving the
success of the business. This performance related element of remuneration can be significant and in some cases up to 100%
of base salary. In addition, key individuals participate in the long term incentive plan which is a three year rolling plan designed
to provide selected individuals with an opportunity to share in the long term success of Standard Life Investments, by
rewarding them for contributing to the future growth in value of the Company. Rewards are based on the delivery of actual
Standard Life Investments earnings growth.
Long-Term Incentive Plan (LTIP)
The purpose of the Standard Life Investments LTIP is to provide selected individuals with an opportunity to share in the long-
term success of Standard Life Investments, by rewarding them for contributing to the future growth in value of the company.
The Performance Period under the LTIP is three financial years (to December 31st) beginning with that in which the awards are
made.
On what criteria are any bonus payments calculated?
There are two elements to the annual bonus within Standard Life Investments:
Personal Bonus
This element of the bonus is linked to individual performance only. It rewards achievement of personal performance outcomes
and measures. Maximum personal bonus levels are set, based on market information for each role. The percentage of salary
awarded as Personal Bonus is based on an individual’s basic salary as at 31 December. Personal bonus is subject to a
maximum for each role and the actual personal bonus awarded to each individual is based on their contribution to the
business in line with agreed outcomes each performance year.
Company Bonus
This element of the bonus rewards Company Contribution, which reflects an individual’s sustained level of contribution to the
business and value within the market.
Do you believe that the team’s interests are aligned with the Fund’s investors?
Yes. Our investment professionals have high conviction in the funds and strategies that we offer and do invest their own
personal wealth in the products they manage. We cannot disclose individual personal finance arrangements, but suffice to say
that Portfolio Managers interests are 100% aligned with the interests of the funds they manage as their remuneration package
is closely linked to its performance.
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Are any of the key team members part of a long term incentive plan, or do they have any other form of ‘golden
handcuffs’ to encourage them to remain at the company?
As mentioned previously, Standard Life Investment’ Long Term Incentive Plan (LTIP) provides selected individuals with an
opportunity to share in the long-term success of Standard Life Investments, by rewarding them for contributing to the future
growth in value of the Company. The Performance Period under the LTIP is three financial years (to December 31st) beginning
with that in which the awards are made. Awards will be provided over shares at the scheme’s inception with a final entitlement
declared at the end of the 3 year vesting period. The final entitlement would be subject to the achievement of cumulative
earnings, targets and aggregate fund performance over the three year performance period.
What are the total assets managed by the lead manager?
Total assets held within the MyFolio product are valued at approximately £1bn as at February 2012.
What are the total assets managed by the lead manager using this strategy?
The Fund Managers sole focus is on running the MyFolio range of funds whose total assets are valued at approximately £1bn
as at February 2012.
Does the lead manager run a hedge fund or any other fund with a different approach to this Fund?
No.
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Investment Philosophy & Style Strategic Asset Allocation
The Strategic Asset Allocation (SAA) for the funds is determined by Standard Life Investments in consultation with Barrie &
Hibbert (B&H), a world leader in financial risk modelling.
The SAA is reviewed on a quarterly basis on completion of the B&H analysis.
B&H undertake a risk/return optimisation process using the appropriate strategic asset classes as agreed with Standard Life
Investments and make recommendations to Standard Life Investments as to the optimum strategic mix of those assets. The
mix of assets is constrained to ensure a suitability diversified portfolio is achieved. The B&H process begins with a detailed
understanding of how selected each asset class is expected to behave, how it is expected to perform over the longer term, its
volatility and how its performance correlates with other asset classes. Investing in asset classes that behave differently is
essential for maximising the benefits of diversification.
The optimisation process uses a 10 year time horizon to construct the strategic asset allocation benchmarks that are expected
to generate the highest returns for each level of risk over the period. Each selected asset combination will represent one of the
five risk levels offered through the MyFolio Funds.
The resulting asset allocations are used to populate the asset mix “pots” for the MyFolio Market Funds.
SAA for MyFolio Managed and Multi-Manager Funds
For the two suites of active MyFolio Funds there is an additional step.
Standard Life Investments believe that absolute return strategies offer a further valuable source of diversification for multi-asset
portfolios. As such, we have included our Global Absolute Return Strategies Fund (GARS) as a strategic holding in the MyFolio
Managed, MyFolio Managed Income, MyFolio Multi-Manager and MyFolio Multi-Manager Income Funds.
It should be noted that due to the asset management strategies adopted in absolute return funds traditional “long only”
modelling techniques are less relevant for strategic asset allocation purposes.
As a result, the proportion of absolute return investments included is a matter of judgement – if one believes strongly in
absolute return investing there is nothing to limit the allocation. To maintain the diversification of the active Standard Life
Investments MyFolio Funds to different sources of potential return we have elected to replace 20% of the growth assets with an
absolute return component.
Expected Volatility Ranges
The MyFolio funds are risk based funds managed to a 10 year time horizon. The modelled volatility expectations are reviewed
quarterly and the following table details the volatility range expectations as at December 2011.
MyFolio Fund Forecast Volatility Range
MyFolio Market I 3.0% - 5.5%
MyFolio Market II 5.5% - 8.5%
MyFolio Market III 8.5% - 12.0%
MyFolio Market IV 12.0% - 15.5%
MyFolio Market V 15.5% - 18.5%
It should be noted that the modelled volatility expectations are based on the MyFolio Market versions. As mentioned above the
MyFolio Managed and MyFolio Multi-Manager ranges include exposures to Absolute Return assets which we would expect to
dampen the relative volatility of these funds.
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Tactical Asset Allocation (TAA)
Tactical asset allocation (TAA) positions for each fund will be decided by the Multi Asset Investing Team within Standard Life
Investments. The Multi Asset Investing Team will apply their tactical investment views to fine tune the strategic asset allocation
and take advantage of shorter term opportunities. In effect this will tilt the strategic asset allocation benchmarks in the
direction of favoured asset classes over the shorter term. The TAA positions implemented across the multi-asset portfolios are
reviewed on a regular basis with any changes being driven by a change in recommendation from the GIG (or MAI-GIG) or by a
change in the benchmark weighing in a specific asset class.
The Global Investment Group is the team that collates our House View, and after in-depth analysis, the GIG forms a broad view
of asset allocation based on current market drivers and economic forecasts. Across our Funds we describe our positions within
markets, sectors and stocks as being Very Heavy, Heavy, Neutral, Light and Very Light relative to the Fund's benchmark. While
the House View covers asset classes at a broad level (Equities, Credit, Government Bonds, Property and Cash), there is a group
within the MAI team (MAI-GIG) who take the GIG's recommendations and then drill down to a more granular level (UK Equities,
US Treasuries, European Property etc) and formulate views on these more detailed asset classes. While it is very important to
have views on these more detailed assets classes, a number of these are unavailable for mainstream multi-asset portfolios
such as the Cautious Managed Fund, and therefore there is another sub-group within the MAI -GIG who interpret the more
granular recommendations from the perspective of these multi-asset portfolios, and rank the available assets accordingly.
The nature of the five risk based funds requires disciplined strategic risk controls consistently applied across the suite of funds ,
therefore the maximum TAA positions permissible within each asset class is + /- 5%. An additional risk control is also applied
at defensive and growth assets level (defensive assets are defined as cash, gilts and corporate bonds). This higher level
constraint is at the same level of +/- 5%.
Standard Life Investments MyFolio suite differentiates between ‘strategic’ asset classes which may be included in a fund’s
strategic asset allocation (and are therefore included in the optimisation process) and additional ‘tactical’ asset classes.
Tactical asset classes provide the flexibility to allocate additional asset classes e.g global REITs and commodities, if the MAIT
team identify shorter term opportunities in these areas.
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The table below details the ranges in which all MyFolio Funds will rebalance, ensuring each risk/return characteristic is
maintained across all the funds in all the distinct styles.
High Level Intermediate Level Low Level
Cash/ Money Markets +/- 5%
UK gilts +/- 5%
UK index-linked gilts +/- 5%
£ corporate bonds
+/- 5%
(defensive
assets)
n.a.
+/- 5%
UK equities +/- 5%
US equities +/- 5%
European equities +/- 5%
Japanese equities +/- 5%
Asia-Pacific equities
+/- 5%
(developed market
equities)
+/- 5%
UK commercial property +/- 5%
Emerging Market equities +/- 5%
Emerging Market debt +/- 5%
£ hedged global high yield bonds
+/- 5%
(higher growth
assets) +/- 5%
(alternatives)
+/- 5%
Absolute return strategies n.a. n.a. +/- 1%
(*) Not all funds invest in all the strategic asset classes.
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Fund Selection
MyFolio Market Funds
Fund selection for the Market Funds is largely centred around finding suitable tracker funds to replicate the performance of the
strategic asset class benchmarks.
The key criteria for selection is confidence in the underlying fund managers to deliver a low tracking error fund at a competitive
price.
The selection of the active property funds follows the same process as for other active external managers with the aim of
creating a well-diversified basket of properties that can act as a proxy for the commercial property market.
MyFolio Managed Funds
The funds selected for the Managed Funds are primarily selected from the range of Standard Life Investments retail Mutual
Funds. Standard Life Investments offers a wide range of quality funds across the majority of the asset classes.
Where Standard Life Investments do not offer a suitable fund the Fund Manager will seek to invest in funds from the rest of the
market identified through the external fund manager research process detailed below.
MyFolio Multi-Manager Funds
We consistently apply a tried and tested manager selection process to capitalise on opportunities through the fund of funds
structure. By undertaking a combination of both quantitative and qualitative due diligence we aim to filter a large universe of
funds into a select group of funds which represent ‘best of breed’ solutions,
Quantitative Analysis
The quantitative analysis approach is a first step to reduce the fund universe. The key objective being to identify funds
consistently generating a superior level of risk adjusted returns that should be considered for further detailed analysis.
All funds included for analysis are categorised into peer groups defined by Standard Life Investments. This ensures meaningful
quantitative comparisons are made and the funds are compared on a like for like basis.
The quantitative analysis is aiming to identify funds with a consistently superior risk-adjusted track record over the previous 5
years. However we do not restrict fund selection to funds with a 5 year track record. Funds which do not have the appropriate
track record or for other reasons do not pass the quantitative analysis stage, but which have a justifiable rational for inclusion
may also be included for full qualitative analysis.
This additional flexibility in the fund selection allows funds which do not meet the quantitative analysis criteria, but which may
add value to the portfolios, to be considered for inclusion.
Qualitative Analysis
The Fund Solutions team are responsible for undertaking full face to face qualitative due diligence on any funds that will be
included in the MyFolio Funds. A fund cannot be added without a Fund Analyst meeting with the Manager, assessing their
suitability and making a recommendation for inclusion.
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Fund manager research and selection is based upon a robust framework we refer to as the Five 'P's; Philosophy, Process,
People, Performance and Price. The Five 'P's permeate all areas of our fund research, forming the basis of our pre-meeting
questionnaires (sent to all managers), the agenda for the manager interview process, the subsequent debate amongst the team
and the research reports produced on the fund. The monitoring of all the funds held, along with those populating the reserve
list of potential investments, is also based upon the Five 'P's.
Philosophy
This is where we determine what each fund is trying to achieve and why. It formulates the basis upon which our research is
conducted.
Process
It is to this area that we devote the majority of our research time. Here, we determine how a fund is run, the management style
adopted and the key aspects of the investment process. In addition, we seek to identify and evaluate the strengths and
weaknesses of the methodology employed and establish how a fund will be impacted by changing market conditions. Areas of
scrutiny include buy and sell disciplines, valuation analysis and the self-imposed risk controls under which the fund is
managed.
People
An investment process is only as strong as the people who implement it and we feel there is absolutely no substitute for
meeting the key performance generators face to face, be it the lead manager or members of a broader team. Although we do
not explicitly favour either a team or star manager approach, it is imperative for us to understand the resource dedicated to a
fund as well as any additional responsibilities of the individuals involved.
Performance
Although we recognise that past performance is not a reliable guide to future returns, it can provide a good indication of the
quality of a manager or team. It is, however, vital to put any figures into context and understand how they have been achieved,
the levels of consistency and volatility inherent and the fund's sensitivity to differing market conditions. We recognise that
cumulative numbers can often hide periods of pronounced volatility and we therefore place most emphasis on discrete, risk-
adjusted returns. Essentially we are evidence-testing whether the combination of the fund's philosophy, process and people
has resulted in an appropriate risk adjusted return to investors (given the market environment).
Price
Price is the final consideration in our fund selection process. Because of our scale, we are able to negotiate significant
management fee discounts. However, our objective is to have the strongest performing multi-manager fund range, not the
cheapest. We will therefore always buy a fund regardless of price if our analysis concludes that it is the strongest, most
appropriate fund for inclusion in the portfolio. That said, if we rate multiple funds equally, we will always select the best value
option. All negotiated discounts are credited directly back into the fund for the benefit of our investors.
We select from an investable universe of approximately 5000 funds, which encapsulates a wide range of investment styles
(growth, value, GARP, passive, momentum) and market capitalisations (mega, large, mid and small). We select and blend, in
our opinion, the best managers for each style type, to ensure our portfolios remain suitably diversified.
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Fund Selection Governance Committee
The Standard Life Fund Selection Governance Committee meets on a quarterly basis to review the fund research and selection
process. The committee includes senior investment professionals from Standard Life and two independent experts from
outside the Standard Life Group to provide an independent view. This provides independent challenge to our fund research
and selection process, although the ultimate decision on which funds to buy within the MyFolio portfolio rests with the Fund
Manager.
The two independent representatives have no involvement with any other Standard Life group activity. Professor Andrew Clare
from the Cass Institute and a representative of Russell Investments are the two independent members. Both Professor Andrew
Clare and Russell Investments have excellent reputations and experience in this particular market. Committee meeting minutes
are available via the Standard Life Adviserzone website.
Andrew Clare, Professor of Asset Management
Andrew Clare is Professor of Asset Management at the Sir John Cass Business School in London. He was a Senior Research
Manager in the Monetary Analysis wing of the Bank of England which supported the work of the Monetary Policy Committee. He
has published extensively in both academic and practitioner journals on a wide range of economic and financial market issues.
In a recent survey Andrew was ranked as the world's ninth most prolific finance author of the past fifty years. Andrew is an
advisor to a number of UK pension schemes. He also serves on the investment committee of the GEC Marconi pension plan
and has recently been appointed as a trustee to the Magnox Electric Group Pension scheme.
Russell Investments
Founded in 1936, Russell Investments is a global financial services firm that serves institutional investors, financial advisers
and individuals in more than 40 countries. Russell began its strategic pension fund consulting business in 1969 and today is
trusted by many well-known worldwide institutions for investment advice. The firm has £94 billion in assets under
management (as at 30 June 2010) and is well recognised for its depth of research and quality of manager selection.
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Portfolio Construction
From a rigorously researched position, we construct efficient, well-diversified, active portfolios with a risk/reward profile
appropriate to the fund's stated mandate. In doing so, we will seek to generate superior risk-adjusted returns in a consistent
manner throughout the stock-market cycle.
A function we believe to be as important as utilising the best managers, is identifying the best combination of funds.
A software package provided by Style Research is used to provide a risk based analysis of the management of a fund. This has
been shown to be very good at identifying many of the investment risks that a manager is taking, and putting them in the
context of the returns that are generated.
As we are able to make significant investments into externally managed funds, we are able to access generally undisclosed
portfolio information. Thus, we have agreements in place to receive full portfolio breakdowns on a monthly basis allowing full
portfolio aggregate analysis to be undertaken.
The portfolio aggregate analysis is on a “look through” basis allowing us to measure our overall risk exposures relative to the
funds objective whilst also seeing the contribution of each underlying fund to that total position.
The reports are helpful in both the fund selection and portfolio construction processes and in the ongoing monitoring of the
funds. Not only will the software measure the style risks implicit in each portfolio, but it also provides us with detailed
performance attribution. The performance of each portfolio is broken down into its component parts, highlighting the stocks
held that have had the lowest/highest marginal contribution to annualised risk. The software is also able to determine the
marginal contribution to annualised risk of stocks that the fund manager has chosen not to own, providing further information
with which to question the manager in the face to face interview.
It should be noted that all of the above functions are applied to each of our aggregate portfolios. We can therefore ensure we
have an efficient correlation of holdings, and that our balance of funds is the most appropriate given the funds mandate.
Once we invest in a fund, it is continuously monitored in order to identify any changes that could impact future returns. We
recognise the importance of having a strong sell discipline and therefore consider our monitoring process as important as the
initial selection. Monitoring our risk exposures also allows us to highlight any unintended risks that may emerge in our
portfolios, so that we can remove them before they begin to impact returns.
The Fund Manager has ultimate responsibility for ensuring that any fund selected is an appropriate selection for the asset class
the fund has been chosen to represent. Should there be no satisfactory fund (for operational, investment or technical reason)
available the fund manager will, based on their judgement, substitute an appropriate alternative.
In each of the individual ranges, as much consistency as possible is desirable in respect of fund selection within each asset
class. This however, is not mandatory and the Fund Manager will consider a number of factors including; materiality of position,
efficiency of dealing and cash flow.
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Fund Rebalancing
Standard Life Investments aim to always keep trading costs to a minimum whilst ensuring funds remain within their agreed risk
parameters.
Fund holdings are reviewed daily to determine what, if any, re-balancing is required as a result of market movements and cash
flow. Daily re-balancing back to an exact pre-determined TAA position without any tolerance levels would, we believe, be
counter productive from a cost perspective.
As such we consider three key areas on a daily basis, asset allocation tolerance, portfolio tracking error and deal size to
determine our dealing strategy for the fund.
� Asset allocation tolerance - we aim to keep the daily positions of each asset class within +/-1.25% of the TAA position.
� Portfolio Tracking Error - we aim to have a low daily tracking error relative to the default portfolio position.
� Deal size - deal sizes are considered to ensure dealing costs are not disproportionately high relative to the cash allocation.
Before any deals are struck we go through an iterative process that determines the most cost effective dealing strategy taking
into account the above factors.
We believe we add value through this process by keeping dealing costs low whilst ensuring the funds remain within their
defined risk parameters.
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Risk Management & Control
Is gearing employed?
Gearing is not undertaken within the MyFolio Fund of Funds. Gearing may be employed by underlying funds, such as, absolute
return funds.
Is currency hedging undertaken?
Currency hedging is not undertaken at MyFolio fund level. There may be hedging employed at the underlying fund level.
How is portfolio risk managed and monitored?
Performance of the underlying funds is monitored using Morningstar by the Standard Life Fund Solutions Team. Quarterly
performance attribution reports are produced using Factset by Standard Life Investments Performance Measurement team,
which are reviewed by a senior management team, which includes the Head of Investments and Head of Risk. Risk / return
reports are also produced on a quarterly basis from Morningstar and these are overseen by the Governance Committee and
senior management.
Bloomberg is also used to monitor the performance of underlying stocks and for reasons why, particularly when they are a large
holding in managers' portfolios.
On top of backward looking risk measures such as information ratios, monthly underlying holdings are received from fund
groups to understand forward looking risk indicators. For all funds we own (and before purchase of a new fund), we insist on
monthly portfolio holdings data by the 15th day of every month. For all investment groups that we deal with, we have arranged
Non-Disclosure Agreements which are signed-off by both parties’ legal teams to ensure confidentiality.
This data is run through a risk analytical system called Style Research. This enables us to analyse stock overlaps, tracking errors,
betas, momentum, exposure to numerous growth and value factors, market cap biases together with a number of other factors
such as overseas earnings and balance sheet strength. When combining managers together we therefore know the risk
characteristics that we have in our portfolios from the underlying holdings and also model these risks before introducing a new
manager.
Are derivatives used within the Fund (Please provide details)?
Derivatives are not used within the MyFolio Fund of Funds. Derivatives may be utilised by underlying funds, such as, absolute
return funds.
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Who is responsible for monitoring and controlling compliance of the funds in which the portfolio manager invests?
Standard Life Investments’ Investment Restrictions Control Teams’ sole responsibility is to monitor positions within funds on a
daily basis, and ensure compliance with regulatory and client-driven investment restrictions and guidelines. This team is
managed independently from our asset management teams and reports to the Director of Investment Governance.
The Risk and Compliance Team undertake the following activities:
Development of Risk and Control Framework – This function works with the business functions to design and implement an appropriate framework to ensure that the company operates processes and procedures that are both efficient
and well controlled. This includes the development of appropriate policies, committee structures, governance processes and
reporting. The functions described below ensure that the frameworks and structures developed are implemented appropriately.
Assurance – This function provides senior management with assurance that the company’s processes and the controls
within them are operating as planned and are adequate to deliver the control environment required by the company. The tools
used to provide this assurance include control self assessment, end to end process reviews, regular key control checks and risk
based monitoring reviews. The results of all assurance work are reported to senior management through the monthly Controls
and Compliance Committee meetings.
Consultancy – This function provides the Company with advice on the regulations in all markets in which it operates. This
advice ensures that all implications of any regulatory change are addressed appropriately and that any business change is
done within all required regulations and in line with the risk and control framework within the business. The advice given will
address both regulatory and operational risk issues within the business.
Regulatory and Control Administration – This function ensures that all regulatory and internal control administration
is undertaken. This includes maintenance of personal dealing records, ‘ring fence’ records, regulatory filings, dealing authorities,
general business authorities, training and competence records, approved person records and systems access.
Reporting – This function collects and reports on all relevant risk and control data within the Company. This includes the
collection of risk event data and key indicator data. The reporting produced from the data collected is made to the various
control committees within the Company and the Board of Directors ensuring that all are aware of issues to the relevant level of
detail.
Is there a separate dedicated compliance team?
Yes. Standard Life Investments has a dedicated Risk and Compliance Team which operates independently from all business
lines.
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Administration
Dealing Procedures
Describe dealing procedures
� Daily dealing, 9am – 5pm on working days.
� Funds are forward priced. Investors will receive the unit price struck at 7.30am the day after the deal is submitted
Who is your chosen custodian?
Standard Life Investments’ preferred custodian for mutual funds is the Bank of New York Mellon (BNY Mellon).
What is the domicile of the Fund?
All the MyFolio funds are domiciled in the UK.
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Charges
Name Launch Date
Income
Share
Class
Acc
Share
Class
Initial
Charge AMC
AMC
Charged to
Income or
capital
TER @
30/09/11
MyFolio Market
I 09/09/2010 No Yes 4% 1.15% Income 1.44%
II 09/09/2010 No Yes 4% 1.15% Income 1.47%
III 09/09/2010 No Yes 4% 1.15% Income 1.49%
IV 09/09/2010 No Yes 4% 1.15% Income 1.51%
V 09/09/2010 No Yes 4% 1.15% Income 1.45%
MyFolio Managed
I 22/09/2010 No Yes 4% 1.15% Income 1.63%
II 22/09/2010 No Yes 4% 1.15% Income 1.74%
III 22/09/2010 No Yes 4% 1.15% Income 1.83%
IV 22/09/2010 No Yes 4% 1.15% Income 1.89%
V 22/09/2010 No Yes 4% 1.15% Income 1.92%
MyFolio Managed Income
I 14/12/2011 Yes Yes 4% 1.15% Both (*) 1.61% (**)
II 14/12/2011 Yes Yes 4% 1.15% Both (*) 1.78% (**)
III 14/12/2011 Yes Yes 4% 1.15% Both (*) 1.86% (**)
IV 14/12/2011 Yes Yes 4% 1.15% Both (*) 1.94% (**)
V 14/12/2011 Yes Yes 4% 1.15% Both (*) 1.97% (**)
MyFolio Multi Manager
I 20/09/2010 No Yes 4% 1.40% Income 2.02%
II 20/09/2010 No Yes 4% 1.40% Income 2.07%
III 20/09/2010 No Yes 4% 1.40% Income 2.15%
IV 20/09/2010 No Yes 4% 1.40% Income 2.20%
V 20/09/2010 No Yes 4% 1.40% Income 2.26%
MyFolio Multi Manager Income
I 16/12/2011 Yes Yes 4% 1.40% Both (*) 1.98% (**)
II 16/12/2011 Yes Yes 4% 1.40% Both (*) 2.17% (**)
III 16/12/2011 Yes Yes 4% 1.40% Both (*) 2.22% (**)
IV 16/12/2011 Yes Yes 4% 1.40% Both (*) 2.26% (**)
V 16/12/2011 Yes Yes 4% 1.40% Both (*) 2.25% (**)
(*) AMC charged to Income for Accumulation Share Class and to Capital for Income Share Class
(**) Projected TER at launch
The above charges include 0.5% Trail commission and are for investment directly into the retail accumulation share class of the
Mutual Funds. In addition there is an institutional accumulation share class, available for investments greater than £5 million.
The MyFolio Funds are available to use with Standard Life’s Wrap, FundZone Mutual Fund Platform, International Bond,
Individual and Group Pensions including SIPP, Group SIPP, active money SIPP and active money Personal Pension, Tailored and
Capital Onshore Bonds (Level and Stepped). These funds are not available on our Stakeholder Pension.
For further, more comprehensive, details of the pricing structure of different wrappers, please refer to the following website:
https://www.adviserzone.com/adviser/public/adviserzone/investmentscentre/individualinvestments/myfolio/overview
The funds are also available on selected third party platforms.
22
Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the “Owner”) and is
licensed for use by Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be
accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third
party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past
performance is no guarantee of future results. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which
Third Party Data relates.
**Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings
and associated companies (whether direct or indirect) from time to time.
Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL.
The Standard Life Investments group includes Standard Life Investments (Mutual Funds) Limited, SLTM Limited, Standard Life Investments (Corporate
Funds) Limited, SL Capital Partners LLP and Aida Capital Limited.
Standard Life Investments Limited is authorised and regulated by the Financial Services Authority.
Calls may be monitored and/or recorded to protect both you and us and help with our training.
www.standardlifeinvestments.com
© 2012 Standard Life, images reproduced under licence.
