Brompton Group

 

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Objectives
To provide unitholders with a stable stream of monthly distributions targeted at $0.08 per month ($0.96 per annum);
To mitigate the impact of significant interest rate increases on the net asset value of the portfolio;
To preserve the net asset value per unit; and
To enhance the total return per unit by actively managing the portfolio.

Portfolio
The Fund is invested in a diversified portfolio of investment grade preferred securities and corporate bonds. The majority of the portfolio is invested in fixed income securities from the banking, financial services, insurance and utilities sectors (industries which have regulatory oversight).

Actively managed between corporate debt and preferred securities to take advantage of pricing anomalies and market inefficiencies. Preferred securities are not highly correlated with other asset classes resulting in improved diversification and potentially lower risk within an investment portfolio.

Rating
Units of the Fund are rated P-2f by Standard & Poor's.

Safety Net Hedge
The Safety Net Hedge is designed to mitigate the impact of significant, rapid increases in long-term interest rates on the net asset value of the portfolio while permitting it to appreciate when interest rates decline. This strategy allows for potential increases in distributions if interest rates rise significantly while keeping income relatively resistant to falling interest rates. Recent market conditions have reduced the effectiveness of the strategy as the correlation between the Fund's portfolio and US Treasury bonds has declined substantially and an increase in market volatility has significantly increased the strategy's cost. Consequently, the safety net hedging strategy has been suspended.

Currency Hedge
The portfolio will be hedged back to Canadian dollars to protect against currency risk.

Investment Approach

  1. Thorough analysis of securities’ terms and structure, with a preference for issues offering attractive, sustainable income over high current yields;
  2. Actively repositioning the portfolio both horizontally between issuers as well as vertically among issuers’ preferred and debt securities; and
  3. Consistent use of hedging strategies to help manage the interest rate risk while avoiding strategies that require anticipating the direction of interest rates.

Leverage
The Fund may borrow up to 35% of the total assets of the Fund to purchase additional securities to enhance the total return of the portfolio. In addition, the Fund may borrow up to 2.5% of its total assets for working capital purposes.

DRIP
Investors may elect to automatically reinvest their distributions in additional units of the Fund and realize the benefits of compound growth. Any units acquired pursuant to the distribution reinvestment program qualify for the service fee. Currently, no commissions or brokerage fees are allocated to plan participants. DRIP Plan

Redemption

Annual
Annually on the second last business day of November, provided units are tendered 20 business days prior.  Units may be redeemed annually at the option of the unitholder by tendering units of the Fund at least twenty business days prior to the second last business day of November ("Redemption Valuation Date"). Redemption of tendered units will be settled based on the net asset value per unit on the Redemption Valuation Date, less associated costs of the redemption, including brokerage costs. Units tendered for redemption will be redeemed effective the Redemption Valuation Date and will be settled on or before the tenth business day in December, subject to the Manager's right to suspend redemptions in certain circumstances. For the purpose of calculating the net asset value per unit, the value of the securities comprising the portfolio will be equal to the latest available bid price for such securities on the Redemption Valuation Date.

Monthly
Units may be redeemed monthly on the second last Business Day of each month (the “Monthly Redemption Date”),, other than an Annual Redemption Date, at a redemption price per Unit equal to the lesser of: (i) 96% of the Market Price (the weighted average trading price of the Units for the 10 Business Days immediately preceding a Monthly Redemption Date) and (ii) 100% of the Closing Market Price of the Units on the applicable Monthly Redemption Date less, in each case, any costs and expenses associated with the redemption.  Units must be surrendered no later than 5pm (Toronto time) at least 10 Business Days prior to a Monthly Redemption Date. 

Symbol(s)

TSX : FFI.UN

CUSIP

33847Y103

Inception Date

Dec 15, 2004

Manager

Brompton Funds Limited

Portfolio Manager

Flaherty & Crumrine Incorporated

Management Fee

Management fee of 1.0% of net asset value per annum, which includes the fees payable to the Portfolio Manager. Management expense ratio of 1.55% (excluding interest expense) for the period ended June 30, 2017.

Issuer Bid/Market Purchases

The Fund may purchase up to 10% of the public float per annum at prices up to net asset value per unit.

Fair Investor Terms

Strong corporate governance
Commitment to low fees and overall cost containment
No entrenched management provisions and a prohibition against dilutive equity offerings.

Eligibility

Eligible for RRSPs, DPSPs, RRIFs, RESPs, and TFSAs.

Termination/Liquidity

The Fund has no termination date. Investors may redeem their units at net asset value less expenses annually.  For daily liquidity investors can sell their units on the TSX.


 
PLEASE READ AND ACCEPT THESE IMPORTANT DISCLOSURES

You will usually pay brokerage fees to your dealer if you purchase or sell units of the investment fund on the Toronto Stock Exchange or alternative Canadian trading platforms (an “exchange”). If the units are purchased or sold on an exchange, investors may pay more than the current net asset value when buying units of the investment fund and may receive less than the current net asset value when selling them.

There are ongoing fees and expenses associated with owning units of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in the public filings available at www.sedar.com. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account certain fees such as redemption costs or income taxes payable by any securityholder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

This communication is for information purposes only and does not constitute an offer to sell or a solicitation to buy the securities referred to herein. The opinions contained in this report are solely those of Goldman Sachs Asset Management L.P. (“GSAM”) and are subject to change without notice. GSAM makes every effort to ensure that the information has been derived from sources believed to reliable and accurate. However, GSAM assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. GSAM is under no obligation to update the information contained herein. The communication should not be regarded as a substitute for the exercise of your own judgment. Please read the fund’s offering documents before investing.

Certain statements contained in this document constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to matters disclosed in this document and to other matters identified in public filings relating to the Fund, to the future outlook of the Fund and anticipated events or results and may include statements regarding the future financial performance of the Fund. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Investors should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date December 15, 2015 and we assume no obligation to update or revise them to reflect new events or circumstances.

Fund holdings and allocations shown are unaudited, and may not be representative of current or future investments, should not be construed and research or investment advice, and are subject to risk.

Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. It should not be assumed that investment decisions made in the future will be profitable or will equal the performance of the securities discussed in this document.

Portfolio holdings may change by the time you view this. Portfolio holdings may not be representative of future investments. The securities discussed may not represent all of the portfolio's holdings and may not be deemed representative of the strategy’s future portfolio holdings. Future portfolio holdings may not be profitable.

The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

No part of this material may, without Brompton and GSAM’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an authorized recipient. This material is intended for Investment Advisor use only.

I confirm that I have read, understood, and accept the above disclosures.

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