Optimum Growth Feeder Ballot
REQUEST FOR CONSENT: PROPOSED CHANGES TO THE CORONATION OPTIMUM GROWTH FUND
Investors in the Coronation Optimum Growth Fund (the ZAR Fund) are requested to consider and vote on the proposed changes set out below. Our intention is to convert the ZAR Fund to a feeder fund that invests solely in its equivalent offshore fund, the Coronation Global Optimum Growth Fund (the USD Fund), which is part of our Ireland-domiciled foreign collective investment scheme (‘FCIS’), the Coronation Global Opportunities Fund. If investors accept the change, the ZAR Fund will be renamed to reflect that it is now a feeder fund. All other aspects of the ZAR Fund’s investment management approach and underlying holdings will remain unchanged.
If this ballot is successful, the feeder fund conversion will be implemented with effect from 15 September 2021.
Please note that, regardless of the success of the ballot, the composite index used as the benchmark of the ZAR Fund will change to better reflect the Fund’s current positioning. This will have an impact on future outperformance fees and underperformance discounts. This will take effect during September 2021.
Your rights as an investor
We have carefully considered the proposed amendments that we believe are in your best interests as an investor. In terms of Section 98 of the Collective Investment Schemes Control Act 45 of 2002 and clause 67 of the deed of the Coronation Unit Trust Scheme, you have the right to vote for or against the proposed changes. The feeder fund conversion will only be implemented if our auditors receive completed ballot forms from investors representing at least 25% of the ZAR Fund’s units, with a simple majority of the votes received being in favour of the changes. The proposed changes will automatically apply to all investors in the ZAR Fund from the effective date if the ballot is successful. Should the ballot be in favour of the change, and you do not support this outcome, you may switch to another fund or withdraw your investment without incurring switching or exit fees. However, please note that exiting the fund may give rise to a capital gains tax event.
The information provided is of a general nature and does not consider the specific investment objectives, financial situation, or needs of individual investors. We therefore advise you to obtain appropriate legal, tax, investment or other professional advice, should you deem it appropriate to do so.
The actions we are requesting from you:
- Please read and consider the further information listed below
- Then, complete the ballot form and return directly to our auditors by no later than midnight on 16 July 2021. You can submit your ballot by email to email@example.com or, by post to: KPMG, Coronation Ballot, PO Box 4609, Cape Town, 8000.
- Do not include any other instructions regarding your investment with your completed ballot form. Your ballot form will go directly to our auditors. If you want to withdraw, switch or change other aspects of your investment with us, please contact our client service team.
- Should you have disposed of your investment on or before 1 June 2021, no action is required.
If you have any queries, require assistance or additional information, including if you require assistance with completing the ballot process due to mobility and communication constraints imposed by the current covid-19 crisis, please contact your financial adviser or our client service team on 0800 22 11 77 or firstname.lastname@example.org.
THE PROPOSED CHANGES TO THE ZAR FUND AND THEIR IMPACT ON YOUR INVESTMENT
The proposal is to change the ZAR Fund’s structure but to leave its investment philosophy, objectives and underlying portfolio holdings the same.
The Coronation Optimum Growth Fund (the ZAR Fund) is a South African-domiciled unit trust fund that invests directly in equities, bonds, cash, derivatives and units in other funds selected from worldwide financial markets. The ZAR Fund has a long-term orientation and a flexible mandate, allowing the manager to vary the exposure to different asset classes and geographies, as allowed by the statutory limits. The Coronation Global Optimum Growth fund (the USD Fund) is an Irish UCITS fund, with a similar investment policy and is managed by the same portfolio managers as the ZAR Fund.
However, while both funds are managed in the same way, by the same portfolio managers and under a similar mandate, they currently operate as completely separate portfolios. This gives rise to inefficiencies through duplication that may result in variations of investment performance and give rise to additional costs.
We therefore propose a conversion of the ZAR Fund into a feeder fund as set out below.
|ZAR FUND (name changed as per point 2 below)||to feed into||USD FUND|
|Coronation Global Optimum Growth [ZAR] Feeder Fund||Coronation Global Optimum Growth (USD) Fund|
The amendment to change the ZAR Fund into a feeder fund will not materially change its investment philosophy, return objectives, risk budget or underlying economic exposure. After the conversion, the ZAR Fund will only be allowed to invest in the USD Fund, where it will be combined with the other assets of that Fund, assets in liquid form and exchange rate derivatives. Kindly refer to Annexure B of this letter to assess the differences in the investment policies and other material conditions resulting from the proposed amendments.
If the proposed conversion is accepted by investors, the name of the Coronation Optimum Growth Fund will change to the Coronation Global Optimum Growth [ZAR] Feeder Fund.
Total portfolio charges will not increase due to the feeder fund conversion.
The management fee methodology and fee ranges applicable to the various classes of the ZAR Fund will not change as a result of the proposed conversion. The only change is that, after the conversion, a portion of the annual management fee will be collected in the USD Fund and a portion will be collected in the ZAR Fund. Collecting the fee in this manner will not give rise to an increase in the total annual management fee payable. Under present tax law, only management fees charged in the ZAR Fund are subject to value added tax.
Due primarily to anticipated scale benefits and eliminating operational inefficiencies, we expect that the total expense ratio (TER) and total investment charge (TIC) of the ZAR Fund will not increase due to the proposed change in structure.
Coronation Management Company will carry all costs related to the conversion process.
The ZAR Fund’s benchmark will remain a composite index made up of 70% equities and 30% bonds. However, the underlying indices used in the composite will change to align with the USD Fund.
Currently, the ZAR Fund’s benchmark consists of 35% MSCI All Country World Daily Total Return Net Index, 35% FTSE/JSE Capped All Share Index, 15% Bloomberg Barclays Global Aggregate Bond Total Return Index Unhedged USD and 15% FTSE/JSE All Bond Index. The composite index applicable to the USD Fund consists of 35% MSCI World Daily Total Net Return Index, 35% MSCI Global Emerging Markets Daily Total Net Return Index and 30% Barclays Global Aggregate Bond Total Return Index Unhedged USD.
The change in benchmark will not lead to a change in portfolio composition or the current investment strategy of the ZAR Fund and is consistent with historical asset allocation in the ZAR Fund. Over the past 10 years the ZAR Fund had an average equity exposure of 77%, of which 43% was in developed markets, 23% in emerging markets excluding South Africa, and 11% in South African shares.
The change in the composite index used as the benchmark for the ZAR Fund will be implemented on 15 September 2021, regardless of whether the ballot is successful or not. Performance reporting from this date will be based on a splice of the historic and new composite index.
Fee implications of the benchmark change
The performance fee benchmark used in calculating outperformance fees and underperformance discounts will change to the new composite index from the effective date. For the first 12 months after the effective date, the lower option of the fees calculated using the old and new benchmark will be accrued in the ZAR Fund.
AMENDMENT OF SUPPLEMENTAL DEED (INVESTMENT POLICY) – COMPARISON
Summary comparison of investment limits as per old & new Investment Policy
|INVESTMENT LIMITS - OLD:||INVESTMENT LIMITS - NEW:|
Exposure to asset classes and types:
Exposure to asset classes and types:
CORONATION OPTIMUM GROWTH FUND
Investment Policy in Supplemental Deed:
CORONATION GLOBAL OPTIMUM GROWTH [ZAR] FEEDER FUND
Investment Policy in Supplemental Deed:
3.1. The Coronation Optimum Growth Fund is a specialist fund and in selecting securities, the manager will follow an investment policy which will provide investors with an optimum and overall yield comprising both capital growth and income.
In order to achieve these objectives, the exposure to equity securities, interest-bearing securities and assets in liquid form in the Coronation Optimum Growth Fund will be managed to reflect changing economic and market conditions. The portfolio may be fully invested in either of these securities or in any combination thereof, subject to the statutory investment limitations. This portfolio seeks to optimise its performance with the benefit of full flexibility in terms of asset allocation and will be able to adapt its investment strategy according to prevailing conditions in the financial markets both locally and abroad.
The manager may include listed and unlisted financial instruments subject only to statutory limitations.
Old clause 3.1 replaced with below 3.1 to 3.4
Amendment to identify the fund as a feeder fund:
3.1. The Coronation Global Optimum Growth [ZAR] Feeder Fund is a rand-denominated feeder fund portfolio.
Objective unchanged except for amended wording in bold*
3.2. The investment objective of this portfolio is to provide investors with an optimum total long-term real return comprising both capital growth and income
More compact expression of the same investment philosophy as previously applied:
...by investing in an actively managed, globally diversified portfolio with exposure to both developed and emerging markets across multiple asset classes.
Change from investing directly in underlying securities to investing indirectly via the USD fund:
3.3. To achieve this objective, the securities to be included in the portfolio, except for assets in liquid form, will consist solely of participatory interests or any other form of participation in the Coronation Global Optimum Growth Fund, a sub-fund of the Coronation Global Opportunities Fund, which reflects the investment objectives of the portfolio and which is operated in a territory with a regulatory environment that is to the satisfaction of the manager and trustee of a sufficient standard to provide investor protection at least equivalent to that in South Africa.
Clause providing for use of derivatives amended to apply specifically to use in a feeder fund *:
3.4 The manager may include listed and unlisted financial instruments subject only to regulatory limitations applicable to feeder funds.
3.2. The portfolio may also include participatory interests or any other form of participatory interest in collective investment schemes or other similar schemes. Where the aforementioned schemes are operated in territories other than South Africa, participatory interests or any other form of participation in these schemes will be included in the portfolio only where the scheme’s initial registration is in a territory where the regulatory environment is to the satisfaction of the manager and trustee of a sufficient standard to provide investor protection at least equivalent to that in South Africa.
3.3. Nothing in this supplemental deed shall preclude the manager from varying the ratios of securities, preference shares, stock, assets in liquid form, or any other securities from retaining cash or placing cash on deposit in terms of the deed, depending on changing economic factors and market conditions, provided that the manager shall ensure that the portfolio includes assets in liquid form of the aggregate value required from time to time by the Act.
|Old clauses 3.2 and 3.3 fall away.|
|3.4. The manager will be permitted to invest on behalf of the Coronation Optimum Growth Fund in offshore investments as legislation permits.||
Offshore investment provisions remain unchanged: (renumbered 3.5)
3.5. The manager will be permitted to invest on behalf of the portfolio in offshore investments as legislation permits.
3.5. For the purposes of the Coronation Optimum Growth Fund the manager shall reserve the right to close the Fund to new investors. This will be done in order to be able to manage the Fund in accordance with its mandate. This critical size shall be determined from time to time by the manager.
3.6. The trustee shall ensure that the investment policy set out in this supplemental deed is carried out.
Original clauses 3.5 and 3.6 remain unchanged: (renumbered 3.6 and 3.7)
3.6. For the purposes of the Coronation Global Optimum Growth [ZAR] Feeder Fund, the manager shall reserve the right to close the portfolio to new investors. This will be done in order to be able to manage the portfolio in accordance with its mandate. This critical size shall be determined from time to time by the manager.
3.7. The trustee shall ensure that the investment policy set out in this supplemental deed is carried out.