The Model Portfolio Service is designed for clients who require a pre constructed investment portfolio that is managed on a discretionary basis by Odin Investment Management Limited (“Odin”).

The portfolios are managed in line with their pre-set strategies and corresponding risk profiles. We shall have full authority to manage the composition of the portfolio and to enter into any kind of transaction or arrangement on your behalf in respect of investments, subject always to this Agreement, at our discretion and without prior reference to you.

You agree to your portfolio being managed in this way.

It is crucial that you fully understand the model portfolio you select and the associated level of risk. Different portfolios carry different levels of risk, and selecting the right one is key to ensuring that it matches your financial objectives and comfort with potential market fluctuations.

We do not provide investment ‘advisory services’ and, as such, whilst we have regard to your investment objectives, risk profile and other relevant information as notified to us in writing from time to time, the nature of the service means that we do not seek your approval before making or disposing of particular investments on your behalf. If you are in any doubt as to whether or not a ‘model portfolio management service’ meets your particular requirements, please make us aware of this, so that we can discuss the position with you further.

Risk

Your attitude to risk

We are required to ensure that you invest in a portfolio that aligns with your specific risk tolerance. After reading the following information, please make sure you fully understand the different levels of risk.

Risk

Seeking an investment return higher than that available from cash involves taking risk, (‘higher risk can equate to higher potential reward’). Whilst taking on more risk increases the possibility of a higher reward, increased risk also increases the possibility that you might lose a greater amount of money, and you should never take-on more risk than you are comfortable with.

Affordability (capacity for loss)

In order to assist you with your decision taking and selection of preferred portfolio a ‘capacity for investment loss’ illustration is set out below:

0 to -10% loss of portfolio value: Very low ability to bear investment risk
-10% to -20% loss of portfolio value: Low ability to bear investment risk
-20% to -30% loss of portfolio value: Moderate ability to bear investment risk
-30% to -40% loss of portfolio value: High ability to bear investment risk

It is important when selecting the level of risk that you are willing to accept that you consider your ‘capacity’ for loss. By this we mean that if your portfolio declined in value, what fall would have a detrimental effect on your standard of living?

Your portfolio may represent ‘spare funds’ from which you do not require income or capital gains to maintain your lifestyle, in which case you may feel it appropriate to accept a higher level of risk. Conversely, if your portfolio represents a high proportion of your assets, and you require a regular income stream from the assets, then the level of risk you are prepared to take may be low, and the asset classes appropriate to meet your requirements may be limited.

Risk profile

Your Risk Profile can be described as ‘the investment risk that you are prepared to accept’, and will determine the type of portfolio that is suitable.

Our different managed portfolios offer differing levels of risk and will typically consist of a variety of different asset classes as detailed below, (in ascending order of historic risk):

Asset classes

Cash – the least volatile investment giving guaranteed value, and a return linked to the prevailing rate of interest. The return may be zero.

Bonds – generally pay a set rate of interest over a given period, then return the investors’ principal. Historically, have been less volatile than equities. The value of bonds fluctuates mainly due to current, (and anticipated), interest and inflation rates. Bond investments may include Government Securities and Eurobonds.

Equities – equities have historically out-performed other investments over long periods but can be more volatile in the short-term.

Alternatives – often requiring long-term commitment either due to low liquidity, need to obtain tax advantages, or high volatility. These investments may include convertibles, hedge funds, venture capital, property and private equity investments. Returns can be high.

Derivatives – financial instruments whose value is derived from the performance of an underlying asset, index, or rate. The most common types of derivatives include options, futures, forwards, and swaps. These instruments can be based on a variety of underlying assets, such as stocks, bonds, commodities, currencies, interest rates, and market indexes. Derivatives are considered higher risk due to the amplification of gains and losses due to the use of leverage.

The amount invested in each asset class will change depending strategy and risk profile of the model portfolio you select. For instance, the higher the risk rating of a portfolio, the greater percentage of high-risk investments that will be included. Higher weightings are likely to be held in some of the following, (this list is not exhaustive):

• A high exposure to equities
• More exposure to assets with historically higher volatility (e.g. technology, biotechnology)
• More investments that are exposed to emerging markets
• The possibility of investments that may not be able to be sold immediately

Historically, the more invested in a higher risk asset, the more the potential return, but this is also combined with a higher level of volatility, (by which we mean larger rises and falls over a set period).

Odin will discuss with you your personal circumstances, (investment objectives, timescale, financial position, age etc.), to enable you to decide which level of risk is most appropriate for you.

Diversification

Diversification can be defined as an asset manager purchasing different types of asset to reduce the risk of investing, (purchasing a ‘spread’ of investments), thus reducing exposure to any particular asset class.

The asset classes mentioned above have different characteristics and react differently to changing economic conditions. Portfolios are most commonly diversified by:

• holding different asset classes – a portfolio that owns different types of assets is less likely to be affected by price declines applicable to any particular asset class
• geography – investing in businesses or assets in different parts of the world may reduce exposure to currency risk and to regional economic differences
• industry – some businesses react differently to economic changes – for instance rising interest rates are generally considered a negative for high yielding utility companies.

Time horizon

Your investment time horizon is the period of time over which you intend to own your portfolio and should reflect your circumstances and be consistent with your Investment Objectives and Risk Profile.

In general, holding your investments over a longer period of time reduces the overall volatility of your portfolio as investments that have declined in value may recover some or all their loss.

Having said this, it should be noted that even if investing over a long time period, there is no guarantee that you will always achieve your Investment Objectives.

In deciding over what period to invest, you must give consideration to your personal financial circumstances.

Odin’s Investment Committee is responsible for establishing the firm’s overall asset allocation strategy within the restrictions imposed by each of the portfolio’s risk profile and strategy.

Model Portfolio Risk Profile

We are required to ensure that the model portfolios suit your specific circumstances. Please ensure that you fully understand the different levels of risk associated with the Models detailed below:

Income (Low Risk)

This service is designed for the investor who would like their investment to return regular income from low risk, high investment grade investments. Being defensive in nature may limit any real increases in capital value. Portfolios will predominantly invest in Government and corporate bonds within ‘trustee status’, and cash.

Balanced growth (Low/Medium Risk)

This service offers investors’ portfolios that will have a significant exposure to fixed interest securities and cash, with some exposure to equities. Commodity and natural resource funds may be included to add diversification. The investment managers will at all times seek to maintain both a steady level of growth, and reduced volatility in the value of the portfolio.

Growth (Medium/High Risk)

This service provides investors with portfolios that have the potential to be largely invested in the equity funds, Commodity and natural resource funds may be included. Both fixed interest securities and cash may be held at times of higher equity risk. As such, a degree of volatility in the value of the portfolio is to be expected. The service aims to achieve long-term growth.

Before you make your choice you will discuss the different Model Portfolio’s and their Investment Strategies with an Investment Manager of Odin and then we will ask you to select the Model Portfolio that most closely meets your investment needs.