Risk Disclosure

Risk Disclosure

Investing in securities involves risk of loss that clients should be prepared to bear.  No investment process is free of risk; no strategy or risk management technique can guarantee returns or eliminate risk in any market environment.  There is no guarantee that our investment processes will be profitable.  Past performance is not a guide to future performance.

The value of investments, as well any investment income, is not guaranteed and can fluctuate based on market conditions.  Diversification does not assure a profit or protect against loss. 

Our discretionary investment management styles include equity, fixed income, and balanced (a mix of fixed income and equity) options which may be subject to some or all of the following risks.

Equity Securities Risk – Equity securities include common stocks, preferred stocks, convertible securities and mutual funds that invest in these securities.  Equity markets can be volatile.  Stock prices rise and fall based on changes in an individual company’s financial condition and overall market conditions. Stock prices can decline significantly in response to adverse market conditions, company-specific events, and other domestic and international political and economic developments.

Risk Related to Company Size –Investing in mid, small and micro capitalization companies generally involves greater risks than investing in larger companies. The market may value companies according to size or market capitalization rather than financial performance.  As a result, if mid-cap, small cap or micro-cap investing is out of favor, these holdings may decline in price even though their fundamentals are sound.  They may be more difficult to buy and sell, subject to greater business risks, and more sensitive to market changes, than larger capitalization securities.

We seek to reduce these risks by buying stocks of companies that have established operating histories, strong or improving balance sheets, and growth potential.  In addition, we seek to diversify each client’s equity investments in a variety of stocks and industry sectors.

Fixed Income Securities Risk – Fixed income securities include corporate bonds, municipal bonds, other debt instruments and mutual funds that invest in these securities.  Issuers generally pay a fixed, variable, or floating interest rate, and must repay the amount borrowed at maturity.  Some debt instruments, such as zero-coupon bonds, do not pay current interest, but are sold at a discount from their face value.  Prices of fixed income securities generally decline when interest rates rise, and rise when interest rates fall.  Longer-term debt and zero-coupon bonds are more sensitive to interest rate changes than debt instruments with shorter maturities.

Fixed income securities are also subject to credit risk, which is the chance that an issuer will fail to pay interest or principal on time. Many fixed income securities receive credit ratings from Nationally Recognized Statistical Rating Organizations (NRSROs).  These NRSROs assign ratings to securities by assessing the likelihood of issuer default.  Changes in the credit strength of an issuer may reduce the credit rating of its debt investments and may affect their value.  High-quality debt instruments are rated at least AA or its equivalent by any NRSRO or are unrated debt instruments of equivalent quality.  Issuers of high-grade debt instruments are considered to have a very strong capacity to pay principal and interest.  Investment grade debt instruments are rated at least Baa or its equivalent by any NRSRO or are unrated debt instruments of equivalent quality.  Baa rated securities are considered to have adequate capacity to pay principal and interest, although they also have speculative characteristics.  Lower rated debt securities are more likely to be adversely affected by changes in economic conditions than higher rated debt securities.

U.S. Government securities include securities issued or guaranteed by the U.S. Treasury; issued by a U.S. Government agency; or issued by a Government-Sponsored Enterprise (GSE).  U.S. Treasury securities include direct obligations of the U.S. Treasury, (i.e., Treasury bills, notes and bonds).  U.S. Government agency bonds are backed by the full faith and credit of the U.S. Government or guaranteed by the U.S. Treasury (such as securities of the Government National Mortgage Association (GNMA or Ginnie Mae)).  GSE bonds are issued by certain federally-chartered but privately-owned corporations, but are neither direct obligations of, nor backed by the full faith and credit of, the U.S. Government. GSE bonds include: bonds issued by Federal Home Loan Banks (FHLB), Federal Farm Credit Banks (FCS), Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) and the Federal National Mortgage Association (FNMA or Fannie Mae).

Foreign Securities Risk – Investments in foreign securities involve certain risks that differ from the risks of investing in domestic securities.  Adverse political, economic, social or other conditions in a foreign country may make the stocks of that country difficult or impossible to sell. It is more difficult to obtain reliable information about some foreign securities.  The costs of investing in some foreign markets may be higher than investing in domestic markets.  Investments in foreign securities also are subject to currency fluctuations. 

We seek to reduce these risks by investing in foreign securities typically through ADRs. ADRs are certificates deposited with a U.S. bank that represent the right to own a foreign security. Since ADRs are traded in U.S. markets and the issuers are subject to the same auditing, accounting and financial reporting standards as domestic securities, owning ADRs has advantages over owning other foreign securities.

 

Investment Company Risk – Investment companies include open-end and closed-end investment companies.  Shares in investment companies represent interests in professionally managed portfolios.  These investments involve substantially the same risks as investing directly in the underlying instruments; in addition, the return from such an investment will be reduced by the operating expenses and fees of the investment company, including applicable advisory fees.  Certain types of investment companies, such as closed-end funds, issue a fixed number of shares that trade on a stock exchange or over-the-counter at a premium or discount to their net asset value (“NAV”) per share.  This premium or discount may change from time to time.  Other investment companies are continuously offered at NAV, but are also traded in the secondary market.   

 

Exchange-Traded Fund Risk – ETFs are open-end investment companies, unit investment trusts or depository receipts that hold portfolios of stocks, commodities and/or currencies that commonly are designed, before expenses, to closely track the performance and dividend yield of (i) a specific index, (ii) a basket of securities, commodities or currencies, or (iii) a particular commodity or currency.  Recently, the SEC has authorized the creation of actively managed ETFs.  Currently, the types of indices sought to be replicated by ETFs most often include domestic equity indices, fixed income indices, sector indices and foreign or international indices.  ETF shares are traded on exchanges and are traded and priced throughout the trading day.  ETFs permit an investor to purchase a selling interest in a portfolio of stocks throughout the trading day.  Because ETFs trade on an exchange, they may not trade at NAV. Sometimes, the prices of ETFs may vary significantly from the NAVs of the ETFs’ underlying securities.  Additionally, if an investor decides to redeem ETF shares rather than selling them on a secondary market, the investor may receive the underlying securities which must be sold in order to obtain cash.

 

Liquidity Risk – Trading opportunities are more limited for fixed income securities that have not received any credit ratings, have received ratings below investment grade, or for fixed income and equity securities that are not widely held.  Liquidity risk also refers to the possibility a security cannot be sold at an ideal time.  If this happens, a client account may be required to continue to hold the security and losses could be incurred.

 

Investment Management Style Risk – We take an active management approach to investing.  There is no guarantee that our strategies will produce their intended results.  There is a risk that a particular type of investment on which an account focuses (such as small cap value stocks) may underperform other asset classes or the overall market.  Individual market segments tend to go through cycles of performing better or worse than other types of securities.  These periods may last as long as several years.  Additionally, a particular market segment could fall out of favor with investors, causing a strategy that focuses on that market segment to underperform those that favor other types of securities.

 

Value Investing Risk – A value-oriented investment approach involves the risk that value stocks may remain undervalued, or may not appreciate in value as anticipated. Value stocks can perform differently from the market as a whole or from other types of stocks and may be out of favor with investors for varying periods of time.

 

Focused Investing Risk – With a focused portfolio there is the risk that a material event, which negatively impacts one or more of the securities, could have a meaningful negative impact on portfolio performance.

 

Risk Associated with the Investment Activities of Other Client Accounts – Investment decisions for client accounts are made independently from those of other client accounts we manage.  Although we will allocate investment opportunities in a manner which we believe to be fair and equitable over time, there can be no assurance that a particular opportunity which comes to our attention will be allocated in any particular manner.  The accounts we manage have different investment objectives, policies, and/or considerations; therefore, investment decisions are made independently for each account in accordance with the investment objectives and policies for the account.  It is possible that investment-related actions taken by one account could adversely impact the performance for other accounts with respect to, for example, the value of client account holdings, the ability to purchase or sell securities for the client accounts and/or prices paid or received for securities.

Conflicts of Interest

 Conflicts of interest register

 Subject 

 Personal securities trading 

 This document sets forth possible cases where conflicts of interest may arise at ASW

 Circumstances in which a conflict of interest could arise 

 Risk mitigants 

Personal trades executed by ASW employees, with the inherent risk that they give precedence to their own transactions or improperly use confidential or insider information 

Internal rules and personal trades carried out by staff monitored. 

 Personal securities trading 

Best execution policy 

In cases where ASW acts as broker, trades executed in violation of the principles laid down in the best execution policy for orders, leading to preference being given to ASWs interests over those of the Client

Two-tier controls applied to the main brokerage desks of the ASW. 

 Error management 

Poor diligence in error management with a view to avoiding financial losses within ASW or at entities of ASW. 

ASW records each incident in a database, using which it can take all necessary measures depending on the risks represented by each incident as far as both ASW and Clients are concerned.

 Error management 

Poor diligence in error management with a view to avoiding financial losses within ASW or at entities of the ASW. 

ASW records each incident in a database, using which it can take all necessary measures depending on the risks represented by each incident as far as both the Bank and Clients are concerned.

 Extra custodian services 

Asset management/Product selection 

Front-office incentives 

Churning 

Front running 

Insider information 

Acceptance/payment of benefits by the Bank 

Acceptance of benefits or gifts by staff 

Central Administration services within the ASW 

Clients offered services that are not needed or do not provide an obvious financial benefit, as a way of earning extra commission. 

ASW reviews new relationships and ensures that the services offered are in keeping with Clients’ expectations and ASWs own capabilities.

 

Services provided to Clients are furthermore subject to clearly defined contract terms. 

In cases where ASW also provides portfolio management or investment advisory services, or other products: the risk of giving preference to the ASW products over those of third parties that could be more beneficial. 

ASW reviews new relationships and ensures that the services offered are in keeping with Clients’ expectations and ASWs own capabilities.

Services provided to Clients are furthermore subject to clearly defined contract terms. 

Bonuses paid to the sales staff of the ASW, which might be heavily influenced by the sale of specific products, thus leading to transactions that are not necessarily in the  Client’s interest. 

The remuneration policy regarding these employees is based on several objective criteria. As such, employees have full freedom to offer those products best suited to the Client’s needs. Monitoring of asset breakdowns, especially in terms of portfolio concentration. 

Commissions generated by the excessive buying and selling of financial instruments (i.e. churning) against the interests of Clients. 

Portfolio rotation monitored to detect possible cases of churning. 

“Front running” trades conducted by ASW employees. 

Directive on personal securities trading by staff, with half-yearly audit of at-risk transactions. 

Use of insider information by ASW or its employees. 

An internal directive lays down specific risk-avoidance measures. ASW  has no investment banking business. 

Acceptance by ASW, or payment to business partners, of shared commission. 

Client receives written information in cases where this is applicable; strict compliance with MiFID rules. The Investment Committee takes no account of commission-sharing amounts in its analyses, and advisory services cannot be influenced by commission sharing nor by the level thereof. 

Acceptance by ASWs employees of gifts that may sway their impartiality. 

Internal rules limiting scope for accepting gifts. 

Poor diligence or lack of independence in the monitoring of investment management / central administration activities within ASW, resulting in the interests of ASW’s entities being favoured over those of Clients. 

Internal rules and Code of Conduct in place for safeguarding independence, monitoring outsourced operations and ensuring separation in terms of roles, reporting line and contractual relationship within the ASW.