DWS Strategic Value Fund - Colonial First State

Risks of investingUnderstanding investment riskAll investments are subject tovarying levels of investment risk,and can generally go down, as wellas up in value. This means that youcan experience investment losses orinvestment gains.‘Volatility’ can be used as a measureof investment risk. In general, thehigher the volatility of returns froman investment, the higher the riskand potential return.Different types of investmentsperform differently at different timesand have varying risk characteristicsand volatility.The value of a managed fundinvestment will rise or fall dependingon the value of its underlying assets.Changes in the value of aninvestment can be significant andcan happen quickly.Managing riskBy diversifying your investmentacross a range of asset classes, youmay reduce the overall volatility ofyour portfolio. This is because, ifone asset class moves up, generallyanother asset class moves down,resulting in a less volatile investmentportfolio and smoothing out ofreturns.It is important that you plan yourinvestment strategy beforeinvesting. You should discuss thiswith your financial adviser and takeinto consideration aspects such as:■■■■■■■■your investment timeframe (howlong you intend to invest);the level of volatility you arewilling to tolerate;the level of diversification of yourinvestment portfolio across theasset classes; andthe level of return you expectfrom the Fund (growth andincome return).The risks associated with investingin a managed fund may be generalor specific to a particular asset classor fund.We aim to manage the impact ofthe investment risks of this Fundby using prudent investmentguidelines. We cannot eliminate allrisks and cannot promise that theway we manage them will alwaysbe successful. It is possible thatinvestment returns from the Fundmay be lower than expected, orthere may be none at all, and thevalue of your investment could fall.General risks■ ■ Investment objective risk:This is the risk that the investor’sobjectives will not be met by theirchoice of investments.■ ■ Inflation risk: This is the risk thatthe prices of goods and serviceswill rise faster than the value ofthe investments.■ ■ Regulatory risk: This is the riskthat a fund may be adverselyaffected by future changes inapplicable laws, including tax laws.Risks specific to this Fund■ ■ Liquidity risk: The Fund haslimited liquidity due to the highlyilliquid nature of its underlyingassets. This means that theunderlying assets of the Fundmaybe difficult to purchase or sell.We manage this risk by placingrestrictions on how and whenwithdrawals can be made fromthe Fund. There is no secondarymarket for units in the Fund, andnone is expected to develop.■ ■Fund of hedge fund risk:The Fund is a fund of hedge fundsand is subject to certain risksassociated with an investmentin hedge funds. These risks mayinclude (but are not limited to)the use of derivative instrumentsand leverage, reliance on keypersonnel, the unregulated natureof hedge funds, broad investmentstrategies, investments inemerging markets and lack ofliquidity and volatility in theunderlying investments of thehedge funds.■ ■ Currency risks: The Fundis denominated in Australiandollars, although the Fund’sassets are held in US dollars andother currencies. The assets aregenerally fully hedged betweenthe US dollar and Australiandollar on a passive basis with theintention to minimise fluctuationsin the Fund’s returns causedby currency movements. Shortterm movements in cash flowsor fluctuations in market valuesmay draw the Fund away from afully hedged position. A significantportion of the trades executedin the underlying funds maytake place on foreign markets,securities and currencies.■ ■ Single manager risk: This isthe risk that the investmentstrategy of any single underlyinginvestment manager may notbe successful. K2 Advisorsaddresses this risk by diversifyingthe DB Strategic Value Fund LLC’sinvestment across approximately15–35 underlying funds globally,which K2 Advisors monitor on aregular basis through their duediligence process.■ ■ Market risk: Economic,technological, political, tax,regulatory or legal conditions,and even market sentiment, can(and do) change, and changesin the value of investmentmarkets can affect the value ofthe investments in the Fund.K2 Advisors uses research andanalysis to form a view on thesematters, as best they can, andthen rebalance the indirectinvestment mix of the Fund toreduce the impact.7