The WISE Mutual Fund Selection Process N

ature is ruthless in the application of its laws. It is completely indifferent as to which individual or species survives. To Nature there are no favourites. Every species must continuously improve itself so that it is better equipped to meet the competition in the fierce battle for survival. This competition can seem very cruel and unfair, but it is necessary for a healthy ecosystem. Survival of the fittest, the law of nature that says, Only the strongest survive, is a principle that WISE applies to qualifying our mutual fund candidates. Rather than considering the merits of each mutual fund in isolation, we start our analysis with over 1000 candidates, giving us the luxury of weeding out the weakest contenders and utilizing funds with the best performance. It is a case of relative strength the only way to achieve outstanding long-term investment returns is to consistently pick top performing mutual funds. Just as predators contribute to the health of their prey by attacking the weaker members of a herd, our rigorous screening criteria eliminates the poor performing funds thereby significantly enhancing your portfolios ability to thrive. But investment isnt only about generating a return. It is about generating reliable returns over time at a risk compatible with your own risk appetite. Our mutual fund selections must continuously prove their adaptability by consistently delivering market beating historical returns with minimal risk.

Survival of the Fittest Why Mutual Funds?

Investment Expertise
Mutual funds are managed

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by experienced investment professionals with the sound judgement and knowledge required to participate effectively in today's financial markets. These professionals constantly monitor the activity of these markets and are capable of effectively pursuing their fund's objectives.

Diversification

Mutual funds invest in a wide range of stocks, bonds or a combination of the two. This helps diversify your portfolio and, in turn, reduces the risks associated with any one stock that may cause a decline in the portfolio's value. Mutual funds invest in many different securities; they can provide a greater degree of protection against loss of principal than an investment in one specific issue. Within a well-diversified portfolio, the overall value of the portfolio should not be dramatically affected by any one stock.

Easy Access to Your Money

Mutual funds provide a greater degree of liquidity than most types of investments. In most cases, investors may redeem their shares on any business day at the current Net Asset Value (which can be more or less than the original purchase price).

Option for Automatic Reinvestment

Shareholders typically have the option to reinvest fund dividends and capital gains distributions allowing the fund to purchase additional shares without any sales charges.

Affordability

You can invest in mutual funds with a modest initial investment. A mutual fund portfolio costs a fraction of what it would cost to develop a diversified portfolio of stocks or bonds on your own.

utual funds, which pool the

money of many investors pursuing a common investment objective, can provide an affordable solution to pursuing a broad range of investment

goals. Professional investment management, diversification and convenience are the key reasons to invest in mutual funds.
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more volatile and less correlated with the other asset classes and can actually reduce the volatility in your overall portfolio.

International Stock Funds

Investing internationally can help reduce fluctuations in a portfolios value because of the differences in economic and market cycles between countries around the globe. Foreign investments allow access to high-potential sectors not well represented in the local stock market, such as technology and industrials. Holding assets denominated in US Dollars also reduces the currency risk of a portfolio. Foreign investments should cover established firms in industrialised countries and stocks of countries that would be considered emerging markets. Representation in North America, Europe and Japan for developed markets mutual funds is important, and investments in Latin America, Eastern Europe and the Pacific Rim are crucial when considering emerging stock mutual funds.

Fixed Income Funds

Bonds tend to be less volatile than stocks and can therefore stabilise the value of a portfolio, especially during periods of market volatility. Bond funds also have the potential to generate a steady stream of dividends to supplement other income sources. High yield bond funds typically pay the highest dividends because they carry greater risks. High yield bonds can play an important role in a portfolio, enhancing return potential while improving the diversification of a broad allocation to fixed income.

Balanced Funds

Balanced funds provide investors with a single mutual fund that combines growth and income objectives by investing in both stocks and bonds. Also known as asset allocation funds, they can

be an effective way of simplifying diversification in an investment portfolio. Since most investors should have a combination of stocks and bonds in their portfolio, investing in a balanced fund ensures that an appropriate mix is automatically achieved and sustained.

utual funds make it easy and less

costly for investors to meet their goals for capital growth, income and/or income preservation. These funds bring the benefits of diversification and money management to the individual investor by providing many different types of growth potential, furthering chances to diversify for different objectives. In order to be well-diversified, your mutual fund portfolio should be invested in domestic and foreign stock mutual funds and in fixed-income mutual funds or income fund equivalents.

Domestic Stock Funds

Domestic equity funds invest primarily in stocks of local and regional companies based throughout the Caribbean. By pooling money from many investors, domestic equity funds give small investors access to a well-diversified portfolio of stocks. Domestic stocks offer appealing potential growth opportunity and are a good source of asset diversification. They are inherently

Building an Investment Portfolio with

Mutual Funds W
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ISE has developed a disciplined

selection strategy to identify its Select List of recommended mutual funds in each asset category. In the case of international assets, we apply the WISE selection criteria to the mutual fund universe of thousands of international funds. The list of available securities is restricted to mutual funds registered outside of the U.S. since the majority of domestic funds are only permitted for distribution to citizens or residents of the United States. Offshore mutual funds offer eligible investors significant tax benefits not

available with U.S. registered funds, including the immunity to Withholding and Estate Tax. Offshore funds cannot 1) Fund priced in U.S. Dollars makes buying foreign currency for your international investments easier and eradicates the currency risk of your assets to the U.S. Dollar. 2) Age of fund greater than or equal to 5 years only considers funds with a track record of at least five years. 3) Minimum Initial Investment less than or equal to US$5,000 ensures that the fund is accessible to a broad spectrum of clients. 4) 3-year annualised standard deviation of returns is less than or equal to category average isolates funds with average or below average risk based on all funds within the same investment category. 5) 3-year and 5-year annualised returns greater than or equal to benchmark index isolates funds with consistently superior historical returns.

WISE Screening Criteria for

International Mutual Funds

be sold or distributed within the United States or to any citizen of the United States. The international mutual fund selection criteria consist of a number of screening factors including age, risk and return. Those funds that best fit WISEs criteria become part of our recommended list of securities.
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WISE Screening Criteria for

Domestic Mutual Funds W

ith the industry still in its infancy, a lack of reporting and disclosure standards for domestic mutual funds make it difficult to unify criteria and effectively compare fund performance.

In the interest of consistency, WISE has applied international classification standards to the universe of domestic mutual funds to identify its Select List of recommended funds in each asset category.

Domestic Equity

According to international standards, an equity fund typically wont invest in any bonds or notes and usually has a minimum weight in equities of 80-90%. Given this definition, there is currently no truly domestic equity mutual fund available since they may all hold significant fixed-income positions. Investors can gain domestic equity exposure by purchasing units in a domestic balanced fund or by direct investment in the local stock market.

Domestic Balanced

Our selection process for domestic balanced funds consists of a number of screening factors including age, return, management credibility and disclosure/reporting. Those funds that best fit WISEs criteria become part of our recommended list of securities. 1) Fund priced in TT Dollars 2) Age of fund greater than or equal to 5 years 3) Fund managed by a team of highly skilled professionals with extensive experience 4) Minimum initial investment less than or equal to TT$10,000 5) 3-year and 5-year annualised returns greater than traditional deposits and inflation

Domestic Fixed Income

In the absence of a pure domestic fixed income fund with a track record of at least five years, this category will be represented by our recommended emerging market fixed income funds.
Disclaimer The criteria and screening process for the Select List funds was developed by West Indies Stockbrokers Limited. The availability of the Select List funds should not be construed as personalized investment advice. Investment decisions should be based on an individuals unique situation, tolerance for risk, time horizon, investment objectives, and other factors. An investment in a Select List fund does not assure a profit or protect against losses. There is no assurance the Select List funds will outperform other funds that did not meet

the criteria selected by West Indies Stockbrokers Limited. Investing in mutual funds involves risk, including the possible loss of principal.
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Mutual Fund Basics

For someone new to mutual funds, trying to find the right one to invest in can seem overwhelming. There are thousands of mutual funds. Actually, the process of selecting mutual funds is one of the most straightforward for investors. That's because there are excellent screening tools available for free on the Internet. Plus, all mutual funds must publish a prospectus annually that discloses most of the basic information an investor needs. If you are interested in mutual funds as an investment you'll need a general knowledge of the structure and types of mutual funds and a clear idea of what your investment goals are before you start your selection process. A mutual fund is a large pool of capital formed by the contributions of many investors. The money is used to create a portfolio of securities chosen by a professional fund manager in accordance with the goals of the fund. Growth funds invest mainly in stocks and seek to increase the equity of your investment. Income funds typically invest in bonds or stocks that pay high dividends with the objective of producing income with low risk. Not all mutual funds fit neatly into these two categories. Some "aggressive" funds attempt to generate high rates of return by selecting fairly risky stocks. At the other extreme are very conservative bond funds that produce modest income with extremely low risk by focusing on "blue chip" corporate bonds, CDs and government securities.

Strategy

Before you begin your search for the right fund, identify your investment goals. If you are young and wish to increase your wealth, you'll probably choose a growth fund. If you're retired it's likely you need a fund that produces income with little risk. You'll hear a lot of advice about "load" versus "no-load" funds. A load fund deducts a sales commission from the money you invest in addition to other fees, while a noload fund does not. Proponents of load funds argue that you get better long-term results. However, Craig Israelsen, writing in "Financial Planning" (May 2003) reported on a study that found no-load funds performed better, a view shared by most financial analysts (see "The Lowdown on No-Load Funds," in References).

Find the Right Fund

Mutual fund screening tools are readily available online and are the best way to start your selection process. Some of these tools are quite simple. T. Rowe Price's Mutual Fund Compare allows you to input the symbols for up to five funds and get back a "snapshot" report on the funds' performance and fees (see Resources). The Morningstar Mutual Fund Comparison Tool is an example of a sophisticated software package you can use to create your own listings based on the criteria that are important to you (see Resources). Screening tools are invaluable for narrowing your choices to a manageable number, and they provide current information, but they are not a substitute for in-depth research. For that, you should order or download copies of mutual fund prospectuses. The prospectus includes a detailed history of the fund's performance for the past 10 years, a disclosure of all fees and the terms and conditions of the fund. A prospectus also includes information about the fund's management and investment strategy. Check different funds during the same time period. Almost any fund looks great during good economic times. Often the real test is how well a fund performs when market conditions are negative. As a final step, read independent analysis reports in publications like "Forbes" (see Resources

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Monday, June 25, 2012

Our Investment Process A Sophisticated Process Drives Results The key to the success of Fidelity Insight's portfolios is an intensive and disciplined research process. We begin at the macro level, evaluating the economic and market environment looking out 6-18 months. We continue the process down to the micro level, evaluating the qualities and skills of individual mutual fund managers. Though the actual process is quite involved, it can be summarized as three steps. Step 1: Determining the Right Asset Mix for the Current Market Our investment process begins with a fundamental investment analysis of the

economy and the investment markets in the United States and in foreign countries. Major factors include:

Economic factors such as inflation, employment and interest rates The outlook for corporate earnings Current stock valuations (price to earnings, price to book, etc.) Supply and demand for various asset classes

Given our view of the overall investment environment, we determine for each of our Fidelity portfolios the percentage that should be invested in U.S. stocks, foreign stocks, U.S. bonds, and money markets or other cash equivalents. While all of our portfolios are actively managed, we don't normally shift significant amounts of a portfolio from equity funds to money market funds over a short-term period. However, we may invest in money markets or short-term debt instruments as a defensive measure even in our more aggressive portfolios. Step 2: Choosing the Best Mix of Investment Styles Once our asset allocation decisions are made, the next step in the process is to determine the percentage allocated to each of the following seven global equity styles:

U.S. Growth - Large Capitalization U.S. Growth - Mid/Small Capitalization U.S. Value - Large Capitalization U.S. Value - Mid/Small Capitalization Diversified International Equity Specialized International Equity Alternative Investments (such as commodities and real estate)

We first review the broad-based economic factors that will influence the earnings prospects for each style. The resulting earnings outlook for each style is compared to its current valuation, both relative to historical norms and to other styles, to determine its overall attractiveness. Step 3: Selecting the Best Mutual Funds for Each Style The last step in our process is to select the Fidelity funds that we believe offer the highest risk-adjusted return potential for their investment style. We use an internally developed screening process which includes a risk-adjusted performance analysis as well as an evaluation of each fund relative to its peers. But this screening process is just a preliminary refinement before a more in depth quantitative and qualitative evaluation takes place. Key factors we examine include each Fidelity fund's:

Asset Allocation Individual Holdings Sector Weightings Risk Characteristics

Another vitally important factor in fund selection is the fund managers themselves. In our face-to-face meetings, we look for Fidelity managers who display what we consider are five critical characteristics of success:

A passion for investing A well-defined investment discipline Superior knowledge of their holdings Strong conviction of their investment ideas A substantial amount of their own money invested in the fund A Demonstrated Record of Success

This combination of sophisticated quantitative research and in-depth one-on-one manager interviews gives us a unique advantage in building and continuously managing Fidelity Insight's portfolios. And it shows in our results.

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