Statement of Advice product information

When making recommendations on ASX listed investments, financial advisers need to inform their clients of the features and risks associated with those products. ASX produces a number of publications that may assist in this regard. The page below aims to consolidate this information for ease of reference for financial advisers. This information may be a useful reference in the construction of a Statement of Advice although advisers need to be aware the material is general information only and will need amending to suit the particular circumstances. It does not itself constitute financial product advice.

Listed Investment Companies

Listed Property Trusts

Exchange Traded Funds

Infrastructure Funds

Absolute Return Funds

Pooled Development Funds

Bonds and Hybrids

Listed Investment Companies

LICs provide investors with exposure to a professionally managed and diversified portfolio of assets held by the company. These assets may include Australian shares, international shares, fixed income securities, property, and unlisted private companies. LICs' investment approach can range from a long-term value focus to more active trading strategies. Shares in LICs trade on ASX in the same manner as any other company.

Investment Companies and trusts may be appropriate for investors seeking:

  • A diversified portfolio through a single investment 

  • Returns from both capital appreciation and income 

  • A tax managed investment with relative consistency in return

  • Concentrated exposure to a specific investment sector

Risks Involved
Listed Investment Companies carry risks. These may include (non-exhaustive list):

  • Market Risk –the value of LICs can fall as other assets become more attractive or the value of their underlying portfolio falls;

  • On market prices may reflect a discount or premium to the LICs' NTA;

  • Distribution Risk –future distributions are not guaranteed by the LIC or ASX;

  • Security Risk –LICs may perform differently due to the operations of their underlying assets or their structure;

  • Diversification Risk –a lack of diversification within a LIC can tie an investor's performance to a narrow section of the market;

  • Liquidity Risk –there are two levels of liquidity risk. The first is the ability of the LIC to buy and sell assets. The second is the investor's ability to buy or sell the LIC.

Listed Property Trusts

LPTs allow investors to buy an interest in a professionally managed portfolio of real estate. Investors in Listed Property Trusts gain exposure to both the value of the real estate the trust owns, and the regular rental income generated from the properties. The LPT sector's investments include the following types of real estate:

  • Office buildings and parks

  •  Industrial estates

  •  Retail and shopping centres

  •  Hotel & tourism properties

  • Public use facilities

  • Specialised real estate

  • Warehouses & car parks

  • International

  • Multi sector (diversified) 

Property trusts may be appropriate for investors seeking:

  • Regular income with exposure to real estate assets

  • Diversification into one or more types of commercial property 

  • Returns from income and capital appreciation 

  • An income stream with a tax deferred component

  • Capital stability with relatively low volatility 

Risks Involved
Although property trusts are less volatile than many other investments, LPTs carry risks. These may include (non-exhaustive list):

  • Interest Rates –changes in interest rates can affect the value of LPTs;

  • Market Risk –the value of LPTs can fall as other assets become more attractive or the value of their underlying portfolio falls; 

  • Distribution Risk –future distributions are not guaranteed by the LPT or ASX;

  • Security Risk –LPTs may perform differently due to the operations of their underlying assets or their structure;

  • Diversification Risk –a lack of diversification within a LPT can tie an investor's performance to a narrow section of the market;

  • Liquidity Risk –there are two levels of liquidity risk. The first is the ability of the manager to buy and sell properties. The second is the investor's ability to buy or sell the LPT.

Exchange Traded Funds

ETFs provide investors the opportunity to purchase a portfolio of securities, which may include Australian shares, international shares, listed property trusts, fixed interest securities or a combination of asset classes. 

ETFs may be classified as either classical or Hybrid. 

  • Classical ETFs are based on an index or a range of indices, and hold the components of those indices in order to achieve a high correlation and replicate its performance. They also incorporate an 'in specie' unit creation and redemption mechanism to assist institutional investors in buying and selling the fund. 

  • Hybrid ETFs can either be an indexed or 'actively managed' by the fund manager selecting the securities that they favour. 

ETFs may be appropriate for investors seeking:

  • Diversification in a single investment 

  • Exposure to additional asset classes 

  • Surety of pricing relating to the value of the assets held in the fund 

  • A cost and tax effective investment 

  • Investment in the components of an index or an actively managed portfolio 

Risks Involved
Like all market-related investments, ETFs carry risks. These may include (non-exhaustive list):

  • Market Risk –the value an ETFs is based on the value of its individual assets and will decline if the value of those assets falls; 

  • Distribution Risk –future distributions are not guaranteed by the ETF or ASX;

  • Security Risk –ETFs may perform differently due to the operations of their underlying assets or their structure, including the value of their assets and currency fluctuations;

  • Diversification Risk –a lack of diversification within an ETF can tie an investor's performance to a narrow section of the market.

Infrastructure Funds

Infrastructure funds enable investors to own part of a professionally managed portfolio of infrastructure assets, such as:

  • Toll roads

  • Airports

  • Communications assets such as broadcasting towers

  • Materials handling facilities such as docks

  • Rail facilities and other transport assets

  • Utility facilities such as electricity power lines and gas pipelines

Infrastructure funds may be appropriate for investors seeking: 

  • A investment with low correlation to price fluctuations in other asset classes

  • Diversification into infrastructure assets 

  • An income stream with a tax deferral component 

  • Capital stability of earnings from essential goods and services 

Risks Involved
Although Infrastructure Funds invest in assets that are typically less volatile than the general share market, they do carry risks. These may include (non-exhaustive list):

  • Market Risk –the value of Infrastructure Funds can fall as other assets become more attractive or the value of the underlying assets in the portfolio decline;

  • Distribution Risk –future distributions are not guaranteed by the Infrastructure Funds or ASX;

  • Security Risk –Infrastructure Funds may perform differently due to the operations of their underlying assets or their structure;

  • Diversification Risk –a lack of diversification within an Infrastructure Fund can tie an investor's performance to a narrow section of the market;

  • Liquidity Risk –there are two levels of liquidity risk. The first is the ability of the manager to buy and sell infrastructure assets. The second is the investor's ability to buy or sell the Infrastructure Fund.

Absolute Return Funds 

Absolute return or hedge Funds are actively managed investments that aim to produce returns in both rising and falling markets through the use of a broad range of securities and investment techniques. 

The investment techniques adopted by absolute return funds may be different to methods employed by traditional fund managers as the funds have greater scope to use derivatives, short positions, and exotic securities.

Depending on the investment strategy employed by the fund manger investors may receive returns in the form of income, capital appreciation, or a combination of both. 

Absolute Return Funds may be appropriate for investors seeking: 

  • Potential returns in rising and falling markets

  • Diversification into non-traditional financial instruments and management techniques

  • An investment with low correlation to Shares, Property, or Fixed Income 

  • Returns from both income and capital appreciation 

Risks Involved
Absolute Return Funds can range from low to high risk. The general risks may include (non-exhaustive list):

  • Market Risk –the value of Absolute Return Funds can fall as other assets become more attractive or the value of the underlying assets in the portfolio fall; 

  • Manager Risk - Absolute Return Funds are generally run by small groups of people using their own investment strategies. These may not be successful;

  • Distribution Risk –future distributions are not guaranteed by the Absolute Return Funds or ASX;

  • Security Risk –Absolute Return Funds may perform differently due to the operations of their underlying assets or their structure;

  • Diversification Risk –a lack of diversification within an Absolute Return Fund can tie an investor's performance to a narrow section of the market;

  •  Liquidity Risk –there are two levels of liquidity risk. The first is the ability of the manager to buy and sell securities. The second is the investor's ability to buy or sell the Absolute Return Funds. This risk is lessened by funds being listed on ASX. 

Pooled Development Funds

Pooled Development Funds (PDFs) invest in shares of small to medium Australian companies. Although most of the investments PDF make are in unlisted companies, some PDFs also hold shares in listed companies.

PDFs were established through the Pooled Development Act (1992) to encourage investment in small and medium-sized Australian companies. 

Pooled Development Funds may be appropriate for investors seeking: 

  • Diversification into small Australian companies 

  • A tax effective long term investment 

  • Exposure to companies at a formative stage of development 

  • Potential high returns with high volatility 

  • Concentrated exposure to one industry 

Risks Involved
PDFs are higher risk investments. These risks may include (non-exhaustive list):

  • Market Risk –due to their nature, the value of PDFs can be volatile in the short term, with no guarantee of share price gains in the long term. 

  • Security Risk –PDFs may perform differently due to the operations of their underlying assets. The performance of PDF's share prices depends on the performance of underlying companies or technologies. 

  • Diversification Risk –a lack of diversification within a PDF can tie an investor's performance to a narrow section of the market.

  • Liquidity Risk –there are two levels of liquidity risk. The first is the ability of the manager to buy and sell assets. The second is the investor's ability to buy or sell the PDF.

Bonds and Hybrids

An interest rate security is a debt security (sometimes called a bond). When you buy or subscribe for an interest rate security, you are lending money to a government, corporation or other entity, known as the issuer. In return for the loan, the issuer usually promises to pay you a specified rate of interest (a coupon) during the life of the interest rate security and to repay the face value of the interest rate security (the principal) when it falls due or "matures".
Interest Rate Securities may be appropriate for investors seeking 

  • Reliable income

  • Franked dividends

  • Fixed interest exposure

  • Floating interest exposure

  • Capital security

Risks Involved

  • Interest Rate Risk –Fixed rate securities can be adversely affected in rising interest rate environments.

  • Inflationary Risk - Expectations about inflation are a powerful influence on interest rates. Expectations of higher inflation pull interest rates higher, expectations of lower inflation allow interest rates to fall.

  • Default Risk –Issuer default is an important consideration. The best measure of that risk is the credit quality of the issuer. The higher the credit quality of the issuer, the lower the perceived risk of issuer default. 

  • Ranking –The rate of return will be determined by whether or not a security is backed by a charge over an asset of the issuer.

There are four types of Interest Rate Securities listed on ASX.

Corporate Bonds: Bonds issued by companies that can be either secured or unsecured. They have a fixed maturity and coupon rate meaning that cash flows are known throughout the life of the bond and the face value is repaid at a fixed date in the future.

Floating Rate Notes ("FRNs"): Bonds that can be either secured or unsecured. FRNs pay a variable coupon amount, generally quarterly or semi-annually, which is referenced to a short-term benchmark rate such as the 90-day bank bill rate. Many FRNs are perpetual and therefore you have to sell them to recoup your investment.

Convertible Notes: Pay a fixed coupon rate and can be converted into ordinary shares at a particular date or period of time in the future.

Hybrid Debt Securities: The term Hybrid security is given to a class of securities that have the characteristics of both an interest bearing security and equity i.e. both bonds and shares. This classification covers securities such as convertible notes and convertible preference shares. These securities pay either a fixed or floating rate of return. They also have an option to convert into equity (i.e. shares) of the issuing company. Many Hybrid securities offer franked dividend payments.