Investing in securities involves risk of loss that clients should be prepared to bear. No investment process is free of risk; no strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There is no guarantee that our investment processes will be profitable. Past performance is not a guide to future performance. The value of investments, as well any investment income, is not guaranteed and can fluctuate based on market conditions. Diversification does not assure a profit or protect against loss.
Our discretionary investment management styles include equity, fixed income, and balanced (a mix of fixed income and equity) options which may be subject to some or all of the following risks.
Equity Securities Risk – Equity securities include common stocks, preferred stocks, convertible securities and mutual funds that invest in these securities. Equity markets can be volatile. Stock prices rise and fall based on changes in an individual company’s financial condition and overall market conditions. Stock prices can decline significantly in response to adverse market conditions, company-specific events, and other domestic and international political and economic developments.
Risk Related to Company Size –Investing in mid, small and micro capitalization companies generally involves greater risks than investing in larger companies. The market may value companies according to size or market capitalization rather than financial performance. As a result, if mid-cap, small cap or micro-cap investing is out of favor, these holdings may decline in price even though their fundamentals are sound. They may be more difficult to buy and sell, subject to greater business risks, and more sensitive to market changes, than larger capitalization securities.
We seek to reduce these risks by buying stocks of companies that have established operating histories, strong or improving balance sheets, and growth potential. In addition, we seek to diversify each client’s equity investments in a variety of stocks and industry sectors.
Fixed Income Securities Risk – Fixed income securities include corporate bonds, municipal bonds, other debt instruments and mutual funds that invest in these securities. Issuers generally pay a fixed, variable, or floating interest rate, and must repay the amount borrowed at maturity. Some debt instruments, such as zero-coupon bonds, do not pay current interest, but are sold at a discount from their face value. Prices of fixed income securities generally decline when interest rates rise, and rise when interest rates fall. Longer-term debt and zero-coupon bonds are more sensitive to interest rate changes than debt instruments with shorter maturities.
Fixed income securities are also subject to credit risk, which is the chance that an issuer will fail to pay interest or principal on time. Changes in the credit strength of an issuer may reduce the credit rating of its debt investments and may affect their value. High-quality debt instruments are rated at least AA or its equivalent by any NRSRO or are unrated debt instruments of equivalent quality. Issuers of high-grade debt instruments are considered to have a very strong capacity to pay principal and interest. Investment grade debt instruments are rated at least Baa or its equivalent by any NRSRO or are unrated debt instruments of equivalent quality. Baa rated securities are considered to have adequate capacity to pay principal and interest, although they also have speculative characteristics. Lower rated debt securities are more likely to be adversely affected by changes in economic conditions than higher rated debt securities.
Foreign Securities Risk – Investments in foreign securities involve certain risks that differ from the risks of investing in domestic securities. Adverse political, economic, social or other conditions in a foreign country may make the stocks of that country difficult or impossible to sell. It is more difficult to obtain reliable information about some foreign securities. The costs of investing in some foreign markets may be higher than investing in domestic markets. Investments in foreign securities also are subject to currency fluctuations.
We seek to reduce these risks by investing in foreign securities typically through ADRs. ADRs are certificates deposited with a U.S. bank that represent the right to own a foreign security. Since ADRs are traded in U.S. markets and the issuers are subject to the same auditing, accounting and financial reporting standards as domestic securities, owning ADRs has advantages over owning other foreign securities.
Investment Company Risk – Investment companies include open-end and closed-end investment companies. Shares in investment companies represent interests in professionally managed portfolios. These investments involve substantially the same risks as investing directly in the underlying instruments; in addition, the return from such an investment will be reduced by the operating expenses and fees of the investment company, including applicable advisory fees. Certain types of investment companies, such as closed-end funds, issue a fixed number of shares that trade on a stock exchange or over-the-counter at a premium or discount to their net asset value (“NAV”) per share. This premium or discount may change from time to time. Other investment companies are continuously offered at NAV, but are also traded in the secondary market.
Exchange-Traded Fund Risk – ETFs are open-end investment companies, unit investment trusts or depository receipts that hold portfolios of stocks, commodities and/or currencies that commonly are designed, before expenses, to closely track the performance and dividend yield of (i) a specific index, (ii) a basket of securities, commodities or currencies, or (iii) a particular commodity or currency. Recently, the SEC has authorized the creation of actively managed ETFs. Currently, the types of indices sought to be replicated by ETFs most often include domestic equity indices, fixed income indices, sector indices and foreign or international indices. ETF shares are traded on exchanges and are traded and priced throughout the trading day. ETFs permit an investor to purchase a selling interest in a portfolio of stocks throughout the trading day. Because ETFs trade on an exchange, they may not trade at NAV. Sometimes, the prices of ETFs may vary significantly from the NAVs of the ETFs’ underlying securities. Additionally, if an investor decides to redeem ETF shares rather than selling them on a secondary market, the investor may receive the underlying securities which must be sold in order to obtain cash.
Liquidity Risk – Trading opportunities are more limited for fixed income securities that have not received any credit ratings, have received ratings below investment grade, or for fixed income and equity securities that are not widely held. Liquidity risk also refers to the possibility a security cannot be sold at an ideal time. If this happens, a client account may be required to continue to hold the security and losses could be incurred.
Investment Management Style Risk – We take an active management approach to investing. There is no guarantee that our strategies will produce their intended results. There is a risk that a particular type of investment on which an account focuses (such as small cap value stocks) may underperform other asset classes or the overall market. Individual market segments tend to go through cycles of performing better or worse than other types of securities. These periods may last as long as several years. Additionally, a particular market segment could fall out of favor with investors, causing a strategy that focuses on that market segment to underperform those that favor other types of securities.
Value Investing Risk – A value-oriented investment approach involves the risk that value stocks may remain undervalued, or may not appreciate in value as anticipated. Value stocks can perform differently from the market as a whole or from other types of stocks and may be out of favor with investors for varying periods of time.
Over The Counter Derivative Trading Risk (Hereinafter, OTC, ETIM, OTC, CFD OR ETIM)
Trading is very speculative and risky. OTC, ETIM and OTC, Products are complex financial products, most of which have no set maturity date. Therefore, an OTC, CFD OR ETIM position matures on the date you choose to close an existing open position. OTC, CFD OR ETIMs, which are leveraged products, incur a high level of risk and can result in the loss of all of your invested capital. Trading in OTC, CFD OR ETIMs is highly speculative and therefore is suitable only for those Clients who (a) understand and are willing to assume the economic, legal and other risks involved, (b) are financially able to assume the risk of losses up to their invested capital and (c) understand and are knowledgeable about OTC, CFD OR ETIMs and the underlying assets. The Client represents, warrants and agrees that he/she understands these risks, is willing and able, financially and otherwise, to assume the risks of trading in OTC, CFD OR ETIMs. Before deciding to trade, a client should ensure that he understands the risks involved and take into account his level of experience, and if necessary seek independent advice. Risks Associated with Transactions in OTC, CFD OR ETIMs When trading in OTC, CFD OR ETIMs you need to take into account the following main risks:
• OTC, CFD OR ETIMs are leveraged products; therefore, they carry a higher level of risk to your capital compared to other financial products and may result in the loss of all of your invested capital. However, it should be noted that the Company operates on a ‘negative balance protection’ basis; this means that you cannot lose more than your initial investment.
• The value of OTC, CFD OR ETIMs may increase or decrease depending on market conditions, and the potential for profit should be balanced alongside the significant losses that may be generated over a very short period of time when trading OTC, CFD OR ETIMs.
• OTC, CFD OR ETIM trading, unlike traditional trading, enables you to trade the markets by paying only a small fraction of the total trade value. However, this entails that a relatively small market movement may lead to a proportionately much larger movement in the value of your position. The Company offers flexible leverage starting from 1:5 to 1:300.
• The Client needs to make sure that he has sufficient margin in his trading account, at all times, in order to maintain an open position. In addition, the Client needs to continuously monitor any open positions in order to avoid positions being closed due to the unavailability of funds; it should be noted that the Company is not responsible for notifying you for any such instances.
Focused Investing Risk – With a focused portfolio there is the risk that a material event, which negatively impacts one or more of the securities, could have a meaningful negative impact on portfolio performance.
Risk Associated with the Investment Activities of Other Client Accounts – Investment decisions for client accounts are made independently from those of other client accounts we manage. Although we will allocate investment opportunities in a manner which we believe to be fair and equitable over time, there can be no assurance that a particular opportunity which comes to our attention will be allocated in any particular manner. The accounts we manage have different investment objectives, policies, and/or considerations; therefore, investment decisions are made independently for each account in accordance with the investment objectives and policies for the account. It is possible that investment-related actions taken by one account could adversely impact the performance for other accounts with respect to, for example, the value of client account holdings, the ability to purchase or sell securities for the client accounts and/or prices paid or received for securities.