Brandes Mutual Funds: Investment Policy Statement


The State of Investment Policy intends to explore constraints, purpose as well as policies of Brandes mutual funds.Brandes mutual fund is based in Canada. Its major objective remains to make adequate returns for its clients. It is also focused towards attaining global excellence. In addition, the Statement Investment Policy will further narrow down and look into issues regarding investments of its Clients.


Brandes mutual funds intend to manage client’s investment to ensure that their objectives are timely met. However, the management is as well determined to make profit from various funds invested by diverse investors. The Management, which consists of Board of trustees, investment committee, investment managers, custodians and outsourcing providers, is charged with the responsibility of managing a mutual fund that is expected to earn returns above the market average rate of return. The management actively manages its portfolio by investing in both equity and bond markets. Through active management, investment managers invest in stocks listed in various stock markets in line with expansive research done by the investment committee. Equity shares that are perceived undervalued by stock markets are regularly purchased by investment managers hoping correction of the market would lead to improvement of their stock values (Cutler, & Zacher, 1992). Nevertheless, the company tries as much as possible to avoid irregularities in the security market, such as participation in naked short selling. For stocks that are perceived overpriced, the management chooses to dispose them at the market. Such securities have a tendency of experiencing sudden drop in market values. The management invests in various market securities, with an intention of minimizing risks and increasing its returns. The administration is focused on making investments in private equities, public equities, fixed-income market securities, including inflation-indexed bonds, among others. In respect to market conditions, the administration realizes that security market is not efficient and therefore the management is always keen to pin point those securities that are not correctly priced and make major decisions that would cause its mutual fund gain significantly. In most cases, the management will benchmark its portfolio with that of market indexes such as S&P/ TSX Composite Index, PC Bond of Canada, and (DBRS) Dominion Bond Rating Service, among other agents concerned with security ratings (Klyuev, 2008).

Brandes mutual funds have put various thresholds against which the performance of portfolio is measured. Performance of assets that will fall below the set standard will be disposed at the market price. Investment committee has the power of instructing investment managers to sell any underperforming market securities. Brandes mutual funds will as well allocate its finances based on already agreed proportions. Public entities will be allocated 10%, Inflation-Indexed Bonds will be allocated 20% while private equities will be assigned 30% of the total allocation. Real estate and emerging market bonds will be allocated 20% each.

Public equities market value is expected to increase by 20% while dividends earnings are estimated to increase by 10% in the next one year. Mutual Funds Company is also expecting interest rates for emerging markets bonds to rise by 20% in the next 2 years. Brandes mutual funds will terminate holding emerging markets bonds if their interest rates fail to rise by 15% in the next 4 years. Holding of private equities will be terminated if their market value fails to rise beyond 10% in the next one and half years. A threshold of 16% is put on real estate related securities. However, Brandes mutual funds hope that real estate securities will definitely do well in the market given its current strong demand (Holloway, 2006).


Board of Trustees

Mutual fund policies established that 70% of those funds making mutual fund should be independent. Independence of the board of trustees is intended to ensure that the management do not pursue polices and interests that are likely to benefit the mutual funds owners, as opposed to investors. The director of the mutual fund is chosen by the board of trustees. The board of trustees is also empowered to fire any manager that proves to be incompetent, although it needs support from investment committee.

Investment committee

Investment committee is charged with responsibilities of overseeing activities undertaken by investment mangers. The committee also advises the investment committee on the best assets to invest funds. However, the committee normally consults the investment managers to evaluate the significance of such investments.

Investment managers

Investment managers undertake investment activities in accordance to the established policies and procedures. They keenly evaluate market performance and thereafter invest in diverse market assets with a view of increasing returns for its clients.

Investment consultant

Investment consultant is charged with pertinent responsibility of ensuring that a client gets the best out of his investments. It advises on the best investments available in the market and how one can spread his or her risks among plenty securities available at securities market.


The main role of the custodian is to ensure that assets of investors are safe and kept in the right proportion. The custodian will always keep records of investments for a range of customers, as well as ensuring their returns are distributed as per the regulations. All investments and reinvestments made by clients are kept by the custodian.

Outsourced provider

An outsourced provider is an outsider trading partner but involved in transaction of securities managed by investment managers. They also offer technical advice as regard to portfolios that are intended to be invested in assets offered by the market (Schmitt, & Lane, 2009). In particular, they are paid a fee by the management for managing part of mutual funds portfolio. The outsourced provider is paid fewer amounts as compared to what the mutual fund is paid by its clients.

Asset allocation framework

Brandes mutual fund has a number of strategies as regard to allocating its portfolio amongst market assets. Tactical allocation method is the most common approach used in allocating investors funds in various market instruments. This approach is almost similar to that of an active management. In many cases, Brandes mutual funds investment committee attempts to match rewards and risks of various securities. Brandes mutual funds recognize that market instruments are not correlated and therefore they should be matched in a way that occurrences of drastic losses are significantly reduced (Safarian, 1985). Investment committee will keep on benchmarking the performance of its investments in relation to those rated in the stock markets and other rating agencies, such as S&P 500 Index. Investment committee concluded that investment managers should not invest more than 10% on public equities. However, it should invest more than 20% on less risky fixed-income securities, such as government bonds, as well sovereign bonds. Fixed-income securities should have a higher rating of the DEX Universe. It should as well invest 30% of its funds in private equities. The management also agreed that it should not invest its funds in assets that have a rating below BBB, as indicated by Dominion Bond Rating Service. Brandes mutual fund believes that market securities that have a rating of below BBB are risky and indicates high chances of default on the part of issuers of those instruments (Britton, 1996). In addition, investment mangers are required to invest about 20% of funds in the real estate. The management shall not invest less than 20% on foreign bonds, such as those issued by emerging markets.

Brandes mutual funds Portfolio 2012

Asset class Actual
Public equities 10%
Inflation-Indexed Bond 20%
Private equities 30%
Real estate 20%
Emerging markets Bonds 20%
Total 100%

Brandes mutual funds Client position

Lorraine is a client who intends to invest $1,000,000 in an investment that would assure her a return of $30,000 every year after her retirement. She will retire in10 years from now. The client in particular mentions $30,000 as returns convenient to sustain her after retirement since she is expecting a pension from the government of Canada. She expects an annual return on a period of 30 years. In addition, this client expects to remain with a balance of $500,000 at the end of investment period. On average, the client is anticipating a net return of 5% for the first 10 years before retirement. The 5% return is an adjustment of nominal return in relation to net inflation rate. In contrast to risk seeking investors, Lorraine is more conservative since she prefers to earn low returns with less risk as from year 10 after her retirement.

However, she seems less conservative for the first 10 years before her retirement and is more willing to maintain a steady growth. After retirement, her strategy will entirely change and will tend to become more conservative by seeking an annual return of $30,000 for 30 years and end balance of $500,000.

Lorraine position in the portfolio will depict the following trend:

Lorraine position in the Brandes mutual funds portfolio 2012:

Asset class Percentage allocation Actual allocation
Public equities 10% $100,000
Inflation-indexed bond 20 $200,000
Private equities 30 $300,000
Real estate 20 $200,000
Emerging markets bonds 20 $200,000
Total 100% $1000,000

Monitoring, Review and Reporting

Monitoring, reviewing and reporting of portfolio performance will be done on a quarterly basis to ensure that performance of assets in the mutual funds portfolio do not deviate from the set standards. The management has various appraisals to measure the performance of market securities. Public entities are anticipated to gain from capital gains within a year by attaining an increase of 20% in relation to its present value. Its dividends are also expected to increase by 10%. Considering that Brandes mutual funds will invest mostly in oil companies equities, it is expected that such oil companies will grow rapidly in the next 5 years, given that oil prices is rising and its demand will continue mounting. Inflation-Indexed Bonds are expected to receive minimal monitoring since their changes will mimic that of inflation rate. However, Brandes mutual fund is very optimistic that emerging markets bonds will hike in value for the next two years. Its increase in interest rates is expected to reach 20% by the end of the second year. Private equities of mining companies are expected to rise by 15% by the end of third year. As a result, Brandes mutual fund is hopeful to benefit from equities capital gains. In addition, its dividends will increase by 30%. Real estate demand is increasing and most mortgage markets will tend to be attractive in the next 5 years. Mortgages interest rates are expected to increase by 50% by the end of the 5th year. Any deviation from the projected measurements will compel Brandes mutual funds to withdraw its portfolio from underperforming market securities and invest in other appealing market assets. Investment managers and the committee will benchmark its portfolio performance with that of stock market indexes.


Britton, N. (1996). Canada and the global economy: the geography of structural and technological change. Montreal: McGill-Queen’s Press.

Cutler, C., & Zacher, M. (1992).Canadian foreign policy and international economic regimes. Vancouver: UBC Press.

Holloway, S. (2006). Canadian foreign policy: defining the national interest. Toronto: University of Toronto Press.

Safarian, E. (1985). Foreign direct investment: a survey of Canadian research. Montreal: IRPP.

Schmitt, J., & Lane, N. (2009). An International Comparison of Small Business Employment. Web.

Klyuev, V. (2008). Show Me the Money: Access to Finance for Small Borrowers in Canada. New York: International Monetary Fund.

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