Objective
The Colonial First State Wholesale Enhanced Yield Fund (‘the Fund’) aims to outperform the Reserve Bank of Australia (RBA) Cash Rate by 3% per annum (including franking) over three years with a low degree of volatility and minimal risk of capital loss.  The Fund invests across a broad range of cash, fixed interest and credit (domestic and global), domestic hybrids and domestic equity strategies.

The Fund principally seeks yield from these investments and adopts an investment strategy to maximise the benefits of franking credits where possible. Derivatives may be actively used for return enhancement or to manage the degree of downside risk exposure in the Fund.

Investment strategy
The Fund holds a core of investments in a diverse range of interest bearing securities, including cash, fixed interest and credit securities. These are intended to provide a foundation for the achievement of our investment objectives.  It also employs hybrids and equity strategies to provide additional yield enhancement, with an emphasis on investing in fully-franked securities to enhance overall grossed-up returns.

The active management of the equity and hybrid securities in the Fund is based on a bottom-up security selection process that seeks to identify mispriced investment opportunities (inefficiencies) that are both identifiable and exploitable. Colonial First State Global Asset Management looks to identify key drivers of the security price by employing company research, as well as thorough research at the thematic and industry level. Derivatives are used for risk management purposes, to construct the most effective equities structure that both captures the yield and franking benefit while seeking to protect the portfolio from downside movements in the share price. For hybrid securities, a comprehensive credit and market risk assessment process is used to assess if the significant return above the cash rate provided by the hybrid is in line with the risk of default.

Asset allocation
Asset allocation decisions within the Fund are made based on assessment of bottom-up investment opportunities available in the hybrid and equity strategy components.

The Fund invests across asset classes in the ratio given below:

Cash, fixed interest and hybrids 70 – 100%
Cash and fixed interest 50 – 100%
Hybrids 0 – 50%
Equity strategies 0 – 30%

The Fund will always be at least 50% invested in fixed interest assets – including cash, government bonds and corporate bonds, however when more attractive yield opportunities arise in either the hybrid or equity markets, the Fund will invest up to 50% in these types of investments.