Invested principal is not guaranteed and may incur losses when the value of your investment principal may fall below the principal amount as the result of a decline in market price or NAV. All gains and losses from the management of the fund belong to the investor (beneficiary). This fund also differs from bank deposits.
As the fund is mainly invested in bonds and rights to stock index futures contracts, it may experience losses from falls in NAV caused by adverse impacts from bond price drops, fluctuations in the price of rights to stock index futures contracts or adverse changes in a bond issuer’s financial situation or results. Losses may also occur from exchange rate fluctuations if assets denominated in foreign currencies are included.
The major risks of the fund are as follows:
Price Fluctuation Risk
- Corporate and government bonds generally have a price fluctuation risk arising from changes in interest rates. Generally, the prices go down when interest rates rise, causing the fund NAV to fall. However, the range of price fluctuation varies by bond depending on duration, issuance conditions such as coupon rate and others.
- The price of rights for stock index futures contracts fluctuates under the influence of the underlying company’s stock price on which the stock index is calculated, and the price movements of the stock market that makes up the stock index. In addition, the price may fluctuate in tandem with the price movements of other stock price indices in Japan and overseas. In the event of unexpected fluctuations in the prices of stocks related to the stock index or the stock markets that make up the stock index, the price of rights to stock index futures contracts may also fluctuate unexpectedly, and there is a risk of significant losses.
Liquidity Risk
- There is a risk that the fund will incur unexpected losses when the market size or trading volumes is small. The purchase and sale prices of securities and stock index futures contract are influenced by the trading volume, resulting in the risks that they cannot be traded at prices expected to be realized in light of the prevailing market trend, cannot be sold at the estimated prices, or that the trading volume is limited regardless of the level of prices.
Credit Risk
- If a default has occurred or is expected to occur, for issues of public and corporate bonds or short-term financial assets, the prices of such public and corporate bonds or short-term financial assets decline (the value could even fall to zero). This results in a decline of the Fund's NAV. Also, if default in fact occurs, there is a high possibility of being unable to collect investment funds.
Currency Fluctuation Risk
- The Fund, in general, seeks to reduce the currency fluctuations risk through currency hedging. But it does not completely eliminate this risk. When hedging against foreign currency fluctuation risk, if JPY interest is lower than that of the underlying currency, the hedging cost equivalent to this difference will be incurred. Depending on foreign exchange and interest rate trends, currency hedging costs may be higher than expected.
Derivatives Risk
- Financial derivatives based finance contracts may be used, therefore the value of derivatives will fluctuate depending on the value of underlying assets. The price of derivatives will fluctuate more than the underlying assets depending of the type of derivative.
Leverage Risk
- The ''S&P 500 Futures 2X Leveraged Daily Index Excess Return'' that the Fund targets to be linked to is an index whose daily return is calculated to be twice the return of the S&P 500 Futures Index Excess Return and the fund makes daily adjustments so that the total market value of long U.S. stock index futures position is about twice the net asset value. Therefore, the fund will be greatly impacted by the conditions of the stock market. If the S&P 500 Futures Index Excess Return declines, the fund may incurs larger loss than the S&P 500 Futures Index Excess Return.
Risk - Not Able to Invest as Planned
There might be cases when the Fund may not be able to be invested as planned or the target return on investment are not achieved due to the following factors:
- When the S&P 500 index fluctuates immensely and the stock price index futures trading reach the daily trading limit (max or min).
- When all or part of the required trade volume cannot be executed due to a drop in the liquidity of stock price index futures market, etc.
- When significant fluctuation of investment funds occurs due to additional subscription and redemption.
＜Discrepancy between the S&P 500 Futures 2X Leveraged Daily Index Excess Return and NAV＞
The Fund seeks to match the volatility of the NAV with that of the S&P 500 Futures 2X Leveraged Daily Index Excess Return. However, the Fund cannot guarantee the movement consistent with the index due to the following factors.
- The total market value of long U.S. stock index futures position is not necessarily equal twice the net asset value.
- Differences between the execution price and the valuation(closing price) of stock index futures contracts corresponding to daily additional subscription and redemption
- The delivery month of the futures contract used in the S&P 500 Futures 2X Leveraged Daily Index Excess Return and those held by the fund do not perfectly match due to the timing of the rollover.
- Interest from bonds and cash deposits, and hedging costs from currency hedging.
- The fund must pay trust fees, brokerage commissions, audit fees, and other expenses.
- The impact from the minimum trading unit for stock index futures contract.
Discrepancy between market price on the Tokyo Stock Exchange and NAV
Although the Fund is listed and publicly traded on the Tokyo Stock Exchange, the market price of the Fund depends primarily on the demand for the Fund, the Fund's performance and investors' assessment of the Fund's attractiveness compared with other investments. Therefore, it is not possible to predict whether the market price of the Fund will trade below or above its NAV.
※A note on the properties inherent in the S&P 500 Futures 2X Leveraged Daily Index Excess Return
- The S&P 500 Futures 2X Leveraged Daily Index Excess Return is calculated so that the rate of return for the business day in comparison to the previous business day is twice that of the S&P 500 Futures Index Excess Return for the same period. However, the rate of return of the S&P 500 Futures 2X Leveraged Daily Index Excess Return for periods more than two business days apart will generally not be twice the rate of the S&P 500 Futures Index Excess Return due to compounding effects and other factors, and there will be a difference in calculation.
- The difference between the rate of return of the S&P 500 Futures 2X Leveraged Daily Index Excess Return and twice that of the S&P 500 Futures Index Excess Return over a period of two or more business days apart will vary depending on the movement of the S&P 500 Futures Index Excess Return during the period and can be in either a positive or negative direction. However, in general, if the movement of the S&P 500 Futures Index Excess Return repeatedly rises and falls within a certain range, the difference will likely be in a negative direction and the index value of the S&P 500 Futures 2X Leveraged Daily Index Excess Return will likely be diminishing gradually. In general, the longer the time period, the greater the difference will tend to be.
※Factors that may cause fluctuations in NAV are not limited to those listed above.
Additional Considerations
- This document is meant as promotional material whose purpose is for Amova Asset Management to provide information about its ''Listed Index Fund S&P500 Futures Leveraged Two Times'' and for investors to gain further understanding about the fund.
- The provisions stipulated in Article 37-6 of the Financial Instruments and Exchange Act (the “cooling-off period”) are not applicable to Fund transactions.
- This Fund differs from deposits or insurance policies in that it is not protected by the Deposit Insurance Corporation of Japan or the Policyholders Protection Corporation of Japan. Nor are investment trusts protected by investor protection funds when purchased at banks or other registered financial institutions.
- When the Fund faces big redemption causing short term cash requirement or sudden change in the main trading market condition, there can be temporal decline in the liquidity of holding assets, resulting in the risks that Fund unable to trade securities at the expected market prices or appraised prices, or encounters limitation in trading volume. This may result in the negative influence on NAV, suspension of redemption applications, or delay in making payment of redemption.
- The rate of increase or decrease in the Fund's NAV for a period of two or more business days is usually not two times of the S&P 500 Futures Index Excess Return for the same period. Therefore, there is a risk that expected investment results may not be achieved if held for a long term. For the above reasons, the Fund is a financial instrument that is generally not suitable for long term investment, but rather for capturing market conditions over a relatively short term.
- When applying to invest in the Fund, please make the decision to invest carefully after taking the time to read the delivered pre-agreement document and other relevant materials in detail.
