Changes to the Fund’s management costs and investment strategy

31 October 2017


Pendal Balanced Equity Income Fund (APIR: BTA0428AU, ARSN: 159 947 270) – Important information


Reduction in management costs from 1 November 2017

With effect from 1 November 2017, the Fund’s management costs will reduce. 

The management costs are currently made up of an issuer fee of 1.39% pa and an expense recovery of 0.15% pa. The issuer fee will reduce to 0.88% pa and the Fund will no longer charge expense recoveries. 


Changes to the Fund’s investment strategy from 1 December 2017

Following a recent review, we will be changing the Fund’s investment strategy with the aim of enhancing the Fund’s ability to perform in a range of different market conditions. 

The Fund invests primarily in an actively managed portfolio of shares in the S&P/ASX 200 Index and uses options and other derivatives to generate income and reduce market risk. The Fund’s portfolio is constructed using four key steps.

From 1 December 2017, the Fund’s portfolio construction process will comprise the following steps:

1. Investing in a selection of shares in the S&P/ASX 200 to generate income from dividends. The portfolio will generally include 20-60 companies, with a bias towards high dividend yielding stocks with franking credits based on our positive, fundamental company analysis. Pendal’s fundamental company analysis focuses on four key factors: valuation, franchise, management quality and risk factors (both financial and non-financial risk);

2. Selling call options over some or all of the shares in the portfolio and/or the S&P/ASX200 Index to generate certain income from option premiums in exchange for forgoing a significant component of the potential gains on the share portfolio. Any share call options sold will be fully backed by holding the shares in the portfolio;

3. Buying put options over the S&P/ASX 200 Index and specific shares held in the portfolio with the aim of significantly reducing the Fund’s downside market exposure; and 

4. A hedging strategy may also be applied to reduce the adverse impact of extreme market movements caused by significant global events that are expected to occur infrequently. The strategy uses derivatives over international share indices and volatility indices that generate profit when share markets experience large negative movements. This is based on our fundamental view that movements in share markets globally are closely correlated when significant global events occur.


How is this different to the current portfolio construction process?

The new portfolio construction process enables the portfolio to generate income from option premiums, by selling call options over some or all of the shares in the portfolio as well as the S&P/ASX 200 Index, instead of selling call options over all the shares held in the portfolio. This change allows the portfolio greater flexibility to tailor exposure to where BTIM believes the best risk/reward benefits lie. For example, where BTIM’s analysis indicates the medium to long term outlook of the share outweighs the premium that would be received from selling the call option, the portfolio would have the ability not to sell the call option over the share.

The portfolio construction process will now also include buying put options over specific shares held in the portfolio, in addition to the current portfolio construction process of buying put options over the S&P/ASX 200 Index. The current process of buying put options over the S&P/ASX 200 Index protects the Fund against broad downside market exposure, but not all sectors and stocks perform in line with the index. The ability to buy put options over specific shares is expected to better protect the portfolio from sector and stock specific downside exposure.  

The Fund will continue to invest in a selection of shares in the S&P/ASX 200 Index and generally hold 20-60 companies with a bias towards high dividend yielding stocks with franking credits. As the Fund can now sell options over the shares in the portfolio and/or S&P/ASX 200 Index, this reduces any potential bias in the portfolio towards shares whose options are more liquid. 

The overall exposure limits of the strategy are not affected and we do not expect any material change to the Fund’s risk return profile. Furthermore, there is no change to the Fund’s investment return objective.

This article has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and the information contained within is current as at October 31, 2017. It is not to be published, or otherwise made available to any person other than the party to whom it is provided.

PFSL is the responsible entity and issuer of units in the BT Balanced Equity Income Fund (Fund) ARSN: 159 947 270. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1800 813 886 or visiting You should obtain and consider the PDS before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.

This article is for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation.

The information in this article may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information in this article is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information.

Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance.

Any projections contained in this article are predictive and should not be relied upon when making an investment decision or recommendation. While we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.