PROSPECTUS Nordea Funds Ltd
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PROSPECTUS Nordea Funds Ltd
PROSPECTUS 17 February 2015 2 (24)
The prospectus is complemented by the rules of each Fund. Nordea Funds Ltd
According to the Finnish Act on Common Funds, in addition to the fund rules and key investor information document (KIID), a fund management company must publish a prospectus on the funds it manages.
Contents
Investment fund ....................................................................................................................................................... 3
Nordea Funds Ltd .................................................................................................................................................... 3
Basic information on Nordea Funds Ltd ....................................................................................................... 3
Auditors of Nordea Funds Ltd and the Nordea funds registered in Finland ............................................................. 3
Agents used by the Management Company ............................................................................................................ 3
Marketing the Fund in other countries ..................................................................................................................... 4
Custodian of the Nordea funds registered in Finland ............................................................................................... 4
Overall objective of the Nordea funds’ ownership policy.......................................................................................... 4
General risks relating to fund investment ................................................................................................................. 4
General risks relating to fund category .................................................................................................................... 4
Equity funds .................................................................................................................................................. 4
Fixed-income funds ...................................................................................................................................... 5
Balanced funds ............................................................................................................................................. 5
Credit ratings of funds' investments ......................................................................................................................... 6
Short-term ratings ......................................................................................................................................... 6
Long-term ratings ......................................................................................................................................... 6
Benchmark indices used by funds ........................................................................................................................... 6
Investment processes used by Nordea .................................................................................................................... 6
Socially responsible investment ............................................................................................................................... 7
Information about the special characteristics of certain funds ................................................................................. 7
Efficient portfolio management methods ...................................................................................................... 7
– About repurchase agreement transactions ................................................................................................ 7
– About the securities lending arrangements ............................................................................................... 7
Swing pricing method ................................................................................................................................... 7
Duration- and/or currency-hedged unit series .............................................................................................. 8
Actively managed, stock-exchange-listed UCITS ETFs (Exchange-Traded Funds, UCITS ETFs).............. 9
Shares in ETFs, listed on a stock exchange in Sweden ............................................................................. 10
Index-tracking funds ................................................................................................................................... 11
Feeder fund – Nordea India Fund............................................................................................................... 11
Master fund Nordea 1 – Indian Equity Fund ............................................................................................... 11
Feeder fund – Nordea China Fund ............................................................................................................. 12
Master fund Nordea 1 – Chinese Equity Fund ............................................................................................ 12
Nordea European Smaller Companies ....................................................................................................... 15
– Exceptional procedure in subscription for and redemption of fund units.................................................. 15
Nordea II Capital Guaranteed 100 .............................................................................................................. 15
– Important information for the investors – disclaimer ................................................................................ 15
Fees ....................................................................................................................................................................... 16
– Switching/transfer fee ......................................................................................................................................... 16
– Discount on fees ................................................................................................................................................. 16
The Nordea funds in Netbank ................................................................................................................................ 16
The Management Company applies two separate calculation systems for the NAV per unit ................................ 16
Investment funds Managed by Nordea Funds Ltd, registered in Finland ............................................................... 17
Fees and Total Expense Ratios (TERs) for the Nordea funds as well as minimum subscriptions ......................... 18
History of name changes, mergers, divisions and terminations – partly available in Finnish only ......................... 20
The Key investor information documents, official fund prospectus, rules, annual and semi-annual reports of the Nordea funds registered in Finland are available free of
charge at Nordea branches, on the Internet at www.nordea.fi/fund and at Nordea Funds Ltd
NORDEA FUNDS LTD
Keskuskatu 3 A, FI-00020 NORDEA
www.nordea.fi/rahasto, www.nordea.fi/funds
Tel +358 9 1651PROSPECTUS 17 February 2015 3 (24)
The prospectus is complemented by the rules of each Fund. Nordea Funds Ltd
According to the Finnish Act on Common Funds, in addition to the fund rules and key investor information document (KIID), a fund management company must publish a prospectus on the funds it manages.
Investment fund Mads Kaagaard,
”Investment fund” refers to an investment portfolio mainly consisting Head of Nordea Savings & Wealth Offerings
of securities. The owners of an investment fund are the persons,
organisations and foundations having invested assets in the fund. Cecilia Marlow*
The ownership in an investment fund is fractional. The investment Professional Board Member
fund is managed by a management company. Jukka Perttula
Executive Vice President,
Subscriptions and redemptions of fund units are executed at the net Head of Nordea Private Banking Finland
asset value (NAV) of the unit, which is calculated on every banking
day by deducting from the market value of the fund’s investments Ellen Pløger
the funds liabilities, if any, and dividing the resulting net value by the Head of Nordea Retail Simplification Programme
number of outstanding fund units. The cut-off time for fund assign- Snorre Storset
ments and the valuation times of funds are described in the rules. Head of Life & Pensions
Nordea Life Holding AB
Nordea Funds Ltd
Nordea Funds Ltd and its branches in Norway, Sweden and * Board member elected by the unitholders
Denmark are responsible for managing Nordea's funds registered in
Finland, Norway, Sweden and Denmark. The Management Company has a branch in Denmark:
Nordea Fund Management, Filial af Nordea
Nordea Funds Ltd (the 'Management Company') operates under a Funds Oy, Finland
licence granted by the Finnish Government. The Management Strandgade 3, 1401 København K
Company is engaged in investment fund operations and other
activities materially related to them. Eric Christian Pedersen is responsible for the operations of the
branch
The Finnish Financial Supervisory Authority has granted the Mana- Organisation number 3564 0851
gement Company a licence to act as an alternative investment fund
manager pursuant to the Finnish act on managers of alternative The Management Company has a branch in Norway:
investment funds on 17 March 2014. Nordea Funds, Norwegian branch
Essendrops gate 7, 0368 Oslo
The Management Company invests assets acquired from the public
on behalf of unitholders in accordance with the fund rules approved Petter Hermansen is responsible for the operations of the branch
by the Finnish, Danish, Norwegian and Swedish Financial Supervi- Organisation number 912 651 045
sory Authorities. The Management Company acts in its own name
on behalf of each fund and exercises the rights related to the assets The Management Company has a branch in Sverige:
in the fund. Nordea Funds Ab, Svensk filial
Regeringsgatan 59, 105 71 Stockholm
Basic information on Nordea Funds Ltd
Established 1 January 2002 Maria Rengefors is responsible for the operations of the branch
Organisation number 516408-8782
Nordea Funds Ltd 12.12.2013 -
Nordea Investment Fund Company Finland Ltd Auditors of Nordea Funds Ltd and the Nordea funds registered in
17.1.2003 - 11.12.2013 Finland
Nordea Fondbolag Finland Ab 28.6.2002 - 16.1.2003 Auditors:
Nordea FM Holding Ab 2.I.2002 - 27.6.2002 PricewaterhouseCoopers Oy, Firm of Authorised Public Accountants*
(principal auditor Juha Wahlroos, Authorised Public Accountant) Tiia
Company name Nordea Funds Ltd Kataja, Authorised Public Accountant**
(registered on 12.12.2013 in Finland)
Domicile Helsinki Deputy auditors: Jukka Paunonen, Authorised Public* Nina Johans-
Share capital EUR 3,350,000.00 son, Authorised Public Accountant***
Address Nordea Funds Ltd Auditor and Deputy Auditor elected by the Annual General Meeting of the Management
Keskuskatu 3 A Company.
FI-00020 NORDEA, Helsinki ** Auditor and Deputy Auditor elected by the unitholders up to14.4.2014. .
Business Identity Code 1737785-9
Agents used by the Management Company
Managing Director Jari Kivihuhta The Management Company is entitled to use external management
Deputy Managing Director Eric Christian Pedersen and advisory services, such as portfolio management, accounting, IT
and subscription and redemption services, in its investment fund op-
Board of Directors Nils Bolmstrand, Chairman erations.
Head of Products and Operations,
Nordea Investment Management; Nordea Investment Management AB (registered in Sweden) and/or its
Finnish or Danish branches can act as the portfolio manager.
Antti Kasi *, Deputy Chairman
Professional Board Member Subscription and redemption assignments are received in Finland on
every banking day at all branches of Nordea Bank Finland Plc provid-
Torolf Aadnesen* ing investment services and at Nordea Investment Management AB,
Chief Financial Officer Finnish branch, during their office hours. Assignments can also be
Det Norske Veritas given with Nordea’s Netbank access codes by calling Nordea Cus-
tomer Service and in Nordea’s Netbank on the Internet.
Lars Eskesen *,
Professional Board Member Outside the Nordea Group the agent is Eufex Oy, to which the Man-
agement Company has outsourced the distribution of the Fund. Eufex
maintains a unit register regarding those unitholders of the Fund who
have made a subscription through Eufex. In addition, the Manage-
NORDEA FUNDS LTD
Keskuskatu 3 A, FI-00020 NORDEA
www.nordea.fi/rahasto, www.nordea.fi/funds
Tel +358 9 1651PROSPECTUS 17 February 2015 4 (24)
The prospectus is complemented by the rules of each Fund. Nordea Funds Ltd
According to the Finnish Act on Common Funds, in addition to the fund rules and key investor information document (KIID), a fund management company must publish a prospectus on the funds it manages.
ment Company has concluded an agreement with SkandiaBanken General risks relating to fund investment
AB and MFEX Mutual Fund Exchange AB on the distribution on Investing always involves a risk, which means the uncertainty con-
sales of certain Nordea funds registered in Finland. cerning the return on the investment. In practice, the risk means that
the investor potentially receives a lower or higher return on the in-
The Management Company can temporarily suspend the redemp- vestment than expected and may potentially lose the invested assets
tion of units, if the market place which, according to its investment partially or fully. Fund investors should also take into account that the
policy, can be considered the fund’s main market place is closed for fund can be merged with another fund, be divided into several funds
an unpredictable reason, or if trading in this market place has been or be dissolved.
restricted, or if disturbances occur in normal data transfer. The de-
tails of how subscription and redemption assignments are executed It is a common feature for all funds that the net asset value (NAV) per
and any exceptions are laid down in the common fund rules. unit may rise or fall. A fund’s fluctuation in value is in general meas-
ured by volatility. The higher the fund’s annual volatility, the greater
The Management Company has outsourced the following functions the risk relating to fluctuation in value. When redeeming fund units,
to the Finnish branch of Nordea Investment Management AB or the investor may get back less than the original invested amount, and
Nordea Bank Finland Ltd: Fund Administration and Business Con- the Fund’s historical performance is not a guarantee of future results.
trol & Finance.
Funds reduce the risk relating to an individual investment by diver-
Marketing the Fund in other countries sifying investments into several instruments in accordance with the
In Sweden, Nordea Bank Sverige AB (publ) accepts subscriptions fund's investment policy. However, a fund always encompasses a
for fund units in Swedish kronas. Only the distributor with whom the market risk, which means the risk that the prices of the individual in-
units were originally subscribed for can receive redemption assign- vestments of the fund vary as a result of general market performance.
ments for fund units. In addition, subscription and redemption as-
signments are transmitted at locations approved by the Board of Di- A fund can also be subject to a liquidity risk, which means the risk that
rectors of the Management Company. the fund’s investments cannot be converted into cash within the
planned time frame or at the desired price. This may affect the per-
In Norway, subscription and redemption assignments are received formance of the NAV per unit, if the fund’s investments have to be re-
at a location approved by the Board of Directors of the Management alised at a disadvantageous time. A liquidity risk can occur in an ex-
Company. The fund's subscription currency is the Norwegian krone. ceptional market situation when, for example, certain securities are
not actively traded or their buy and sell quotations differ greatly or are
Custodian of the Nordea funds registered in Finland missing entirely. In such a case, redemption of fund units may last
The safekeeping of an investment fund's assets is entrusted to a longer than normally and redemptions can be suspended in certain
custodian which on the basis of its primary business area is a credit situations.
institution.
Settlement risk can be defined as the risk that the counterparty to a
The Custodian of the Funds registered in Finland and managed by securities trade does not act in compliance with the agreed terms
Nordea Funds Ltd is J.P. Morgan Europe Limited, Helsinki Branch, even though the other party has fulfilled its own contractual obliga-
whose domicile is Helsinki. tions. The settlement risk is higher in securities and foreign exchange
transactions between different continents because the settlement of
The assets of an investment fund are kept separate from the assets the trades can take place in different time zones. The settlement risk
of other investment funds, the management company and the cus- is usually higher in emerging securities markets than in developed
todian. The finances of the management company are fully sepa- markets.
rated from the assets of the fund and the fund’s assets cannot be
used to cover the debts of the management company or the custo- Investing in funds can involve operational risks arising, for example,
dian. A fund cannot go bankrupt, but depending on the market situ- from external factors and technology or the deficient actions of the
ation, the value of a fund unit can increase or decrease. personnel or inadequate operations of the organisation or internal
processes. Operational risks also include potential changes in the
Overall objective of the Nordea funds’ ownership policy personnel and organisation.
The Nordea funds have issued their corporate governance guide-
lines in 2001. The guidelines specify what the Management Com- Force majeure risks comprise factors for which the contracting parties
pany expects from the companies in which the assets of the funds are not liable and which cause unpredictable and insurmountable
managed by the Management Company are invested in. Nordea consequences that are independent of agreements and cause a risk
Funds Ltd is convinced that companies’ focus on corporate govern- of the discontinuation of operations. For instance, severe natural ca-
ance issues will have a positive impact on their share price perfor- tastrophes, uprisings, strikes and states of war can be considered
mance and provide added value both to the company shareholders force majeure risks. The realisation of force majeure risks may have a
and the unitholders of the funds. In their corporate governance significant effect, for example, on the prices of the securities in the
guidelines the Nordea funds emphasise that communication be- fund's portfolio or on the fund's possibility to engage in securities
tween a company and its shareholders should be transparent. The trade. Consequently, the realisation of force majeure risks may impact
principles of openness and clarity also apply to the composition of the execution schedule of fund redemptions.
the Board of Directors.
General risks relating to fund category
An important element in the Funds’ ownership responsibility is to Based on the selection of their investment instruments, funds are di-
promote good corporate governance in the companies the Funds vided into equity funds, fixed-income funds, balanced funds and other
invest in and to see to the joint interests of the unitholders. The aim funds. Different funds involve risks that are typical of their asset class.
is to improve the return on the fund investment and to contribute to The more the investments are centralised in certain asset classes,
the functionality and reliability of capital markets. such as equities or fixed income, the higher the asset class risk relat-
ing to the fund. In funds that invest in individual asset classes, the
Read more about the Nordea funds’ corporate governance guide- changed outlook for a single asset class may have a considerable
lines in the Funds Now service on the Internet at impact on the fund’s value.
www.nordea.fi/rahasto.
Equity funds
A fund investing in equities always involves an equity market risk, ie a
risk of fluctuations in the market value of the investment as a result of
NORDEA FUNDS LTD
Keskuskatu 3 A, FI-00020 NORDEA
www.nordea.fi/rahasto, www.nordea.fi/funds
Tel +358 9 1651PROSPECTUS 17 February 2015 5 (24)
The prospectus is complemented by the rules of each Fund. Nordea Funds Ltd
According to the Finnish Act on Common Funds, in addition to the fund rules and key investor information document (KIID), a fund management company must publish a prospectus on the funds it manages.
general market performance. The NAV per fund unit can vary great- will rise by approximately 5% if the general interest-rate level falls by
ly in the short term. The effect of an individual equity market on the one percentage point.
overall market risk can be reduced by diversifying the investments
geographically, for example. A long investment period increases the The modified duration for a certain security is calculated using the
probability of a positive return and decreases the probability of a formula: Macaulay duration/(1+y). The Macaulay duration is the
negative return. weighted average term to maturity of cash flows (interest and capital)
received from a fixed-income investment, weighted on the basis of the
International investments may involve risks typical of the markets in present values of such cash flows. In the formula ‘y’ is the presently
the country in question. Especially in the emerging markets trans- expected return of the security if it is kept until maturity. As regards
parency, efficiency, liquidity, the market infrastructure, reliability of floating-rate fixed-income instruments, the Macaulay duration and the
the judicial system and legislation are often insufficient compared to expected return (y in the formula) are calculated up to the following in-
the developed markets and powerful market movements arising terest fixing date with the assumption that the entire capital is repaid
from these factors are possible. The investments of a fund concen- on that date. The modified duration of a fund is calculated as a
trating on certain markets include a risk arising from the develop- weighted average of the modified durations of the securities in the
ment stage of the market. portfolio.
The investments of a fund focusing on a specific geographical area A fund investing in fixed-income instruments also involves a credit
involve a geographical risk. This means that changes in the outlook risk, which means the uncertainty caused by changes in the ability of
for a certain geographical area can have a considerable impact on the issuer of the security to repay. An issuer’s ability to repay is as-
the value of the fund’s investments, and the trend in the value of in- sessed with a credit-risk premium which is the excess return required
vestments made in the area in question may differ greatly from the by the market on the issuer’s bonds in relation to debt instruments of
trend in the equity markets in general. similar maturity, issued by solvent governments.
The shares of large companies in terms of market capitalisation are Credit risk can be reflected in the price of a fixed-income investment
generally considered to pose a lower risk than those of smaller when the issuer’s credit rating changes or the general credit-risk pre-
companies. Furthermore, their yield has not fluctuated as much his- miums change. If, for example, the issuer’s credit rating is lowered,
torically. A fund investing in the equity markets involves a risk relat- the issuer’s credit-risk premium can increase, which results in falling
ing to the size of investments, which is mainly caused by the fund's market price for the bonds in circulation. If the general credit-risk
target market area and investment style. premiums increase, the market prices of bonds on the market decline.
The longer the remaining term to maturity of the bond, the higher the
A fund investing in a certain sector or industry involves a sector or credit risk. This means that the prices of floating-rate notes are sensi-
industry risk. This means that changes in the outlook for a certain tive to changes in credit-risk premiums although their sensitivity to in-
sector or industry can have a considerable impact on the value of terest-rate movements is usually low.
the fund’s investments, and the trend in the value of investments
made in the sector or industry in question may differ greatly from The investments of a fund focusing on a single asset class, a certain
the trend in the equity markets in general. geographical area or industry pose a risk of concentrating invest-
ments; in other words, a risk that the issuers of the fund's investments
A fund involves a direct currency risk if it invests in non-euro securi- are similar and that the values of the securities issued by them fluctu-
ties. The more a fund has non-euro investments, the higher is the ate heavily at the same time.
direct currency risk because depreciation of the currency of the in-
vestments has a negative impact on the NAV per unit, whereas ap- A fund involves a direct currency risk, if it invests in non-euro secu-
preciation affects it positively. rities. The more a fund has non-euro investments, the higher is the di-
rect currency risk because depreciation of the currency of the invest-
The risk resulting from active portfolio management is called active ments has a negative impact on the NAV per unit, whereas apprecia-
risk. Active portfolio management usually refers to an active ap- tion affects it positively.
proach to and vision of the positive or negative performance of the
portfolio investments with the aim of outperforming the benchmark The risk resulting from active portfolio management is called active
index. As a result of the active risk, the performance of the NAV per risk. Active portfolio management usually refers to an active approach
unit can differ from the performance of the benchmark index. Pas- to and vision of the positive or negative performance of the invest-
sive portfolio management refers to keeping the investments as ment instruments with the aim of outperforming the benchmark index.
close to the benchmark index as possible with the aim of achieving As a result of the active risk, the performance of the NAV per unit can
return comparable to the benchmark index return. differ from the performance of the benchmark index.
Fixed-income funds Balanced funds
Funds investing in fixed-income instruments involve an interest-rate The investments of a balanced fund can be roughly divided into equity
risk, which illustrates the sensitivity of the price of the fixed-income investments and fixed-income investments. The general risk profile of
investment to changes in the interest-rate level. Movements in the a balanced fund depends on the fund's basic weights between equi-
interest-rate level have a reverse impact on the price of a fixed- ties and fixed income, which is referred to as the allocation risk. The
income investment; in other words, when interest rates rise, the allocation risk is the higher the bigger the equity weight is in the bal-
price of a fixed-income investment falls, and vice versa. The further anced fund's neutral allocation. The strategic neutral allocation of a
ahead in the future a security has cash flows and the bigger they balanced fund between equity investments and fixed-income invest-
are, the more sensitive the price of the security is to changes in the ments determines the fund’s risk profile and long-term expected re-
interest-rate level. In the case of floating-rate fixed-income instru- turn to a great extent.
ments the interest-rate risk is measured up to the following interest
fixing date with the assumption that the entire capital is repaid on The risk resulting from active portfolio management is called active
that date. risk. The active risk of a balanced fund reflects how actively the fund’s
portfolio management realises a tactical short-term investment view,
The interest-rate risk is generally measured by modified duration. meaning deviation from the strategic neutral allocation based on the
Modified duration reflects how many per cent the price of a fixed- investment view at any given time. If a balanced fund mostly invests
income investment is expected to rise or fall if the general interest- in other investment funds, the active risk of these investments is also
rate level rises or falls by one percentage point. For example, if the reflected in the balanced fund’s active risk.
modified duration of an investment is 5, the price of the investment
NORDEA FUNDS LTD
Keskuskatu 3 A, FI-00020 NORDEA
www.nordea.fi/rahasto, www.nordea.fi/funds
Tel +358 9 1651PROSPECTUS 17 February 2015 6 (24)
The prospectus is complemented by the rules of each Fund. Nordea Funds Ltd
According to the Finnish Act on Common Funds, in addition to the fund rules and key investor information document (KIID), a fund management company must publish a prospectus on the funds it manages.
The fixed-income investments of balanced funds involve an inter- The credit rating A means that the ability to pay interest and repay the
est-rate risk and a credit risk. capital is good. However, the bond is somewhat more sensitive to the
deterioration of circumstances and the financial situation than bonds
The equity investments of balanced funds involve an equity market with a higher rating.
risk.
BBB Baa BBB
Credit ratings of funds' investments
The credit rating BBB or Baa means that the ability to pay interest and
Short-term ratings repay the capital is considered sufficient. However, in this category
deterioration of the financial situation or changes in circumstances are
Investment Grade more likely to weaken the ability to pay interest and repay the capital
than in the higher rating categories.
S&P Moody's Fitch
A-1 P-1 F1 High Yield
This is the highest credit rating of short-term bonds. The ability to BB Ba BB
pay interest and repay the capital is good. A plus sign (+) related to B B C
some bonds in this category indicates that the ability of the borrow- CCC Caa CC
er to fulfil its financial commitments relating to these bonds is very CC Ca
good. C
A-2 P-2 F2 All in all, bonds in these categories are considered very uncertain.
The least uncertainties are related to the ratings BB and Ba and the
Bonds in this category are somewhat more sensitive to the negative most uncertainties to the ratings CC and Ca. These bonds probably
effects caused by changes in circumstances and the financial situa- also include qualitative and protective features, but uncertainties or
tion than bonds with a higher rating. The ability to pay interest and risks related to the deterioration of circumstances are more signifi-
repay the capital is satisfactory. cant.
A-3 P-3 F3 D C DDD
DD
The ability of the issuers of the bonds in this category to pay inter- D
est and repay the capital is estimated sufficient. However, deteriora- The credit rating D or C means that the interest and/or capital is/are
tion of the financial situation or changes in circumstances are more unpaid.
likely to weaken the repayment ability than in the higher rating cate-
gories. Benchmark indices used by funds
The benchmark index is an index to which the return of an investment
High Yield fund is compared. The objective of the fund is usually to outperform
the benchmark index. The chosen benchmark index should reflect the
B Not prime B fund's investment universe and investment restrictions as well as
The credit rating B or "Not prime" of a short-term bond means that possible. The index should include both the performance of the in-
there are significant uncertainties relating to the bond. vestments and their dividends or coupon yields. The activity of the
fund's investment operations determines how much the return of the
C Not prime C fund differs from the return of the benchmark index.
The credit rating C means that the bond is in danger of defaulting For example, the benchmark index of the Finland Fund is the capped
and that the borrower's ability to fulfil its financial commitments de- OMX Helsinki CAP GTR Index describing the average share price
pends on positive developments in its business, economy and the performance on the Finnish equity market including dividends.
general economic cycle.
Investment processes used by Nordea
D Not prime D
Global Diversified Equities
The credit rating D means that the interest and/or capital is/are un-
paid. The Global Diversified Equities investment process aims at good rela-
tive yield in all market situations irrespective of which type of shares –
Long-term ratings eg value or growth shares, or small or large companies – are current-
ly favoured by the markets. The process combines different sources
Investment Grade of excess return from the equity markets: the equities in the core port-
folio are selected based on companies’ economic fundamentals as
S&P Moody's Fitch Description well as the share valuation level and low risk. The final structure of
AAA Aaa AAA AAA or the portfolio is also influenced by an active view of the market situa-
tion and allocation weights.
Aaa is the best possible credit rating. The ability to pay interest and
repay the capital is good. Fundamental Equities
AA Aa AA The Fundamental Equities investment process is based on disciplined
qualitative and quantitative research on a sector and company level.
The credit rating AA or Aa means that the ability to pay interest and The aim is to fully understand the sectors’ and companies’ drivers and
repay the capital is very good. possibilities for adding value, and identify companies that are best
positioned for growth. Furthermore, understanding the market dynam-
A A A ics is a key element of the investment process, hence the investment
process draws on behavioral finance to a large extent.
NORDEA FUNDS LTD
Keskuskatu 3 A, FI-00020 NORDEA
www.nordea.fi/rahasto, www.nordea.fi/funds
Tel +358 9 1651PROSPECTUS 17 February 2015 7 (24)
The prospectus is complemented by the rules of each Fund. Nordea Funds Ltd
According to the Finnish Act on Common Funds, in addition to the fund rules and key investor information document (KIID), a fund management company must publish a prospectus on the funds it manages.
International Focus Equities the proceeds from the sale and accrued interest of the security are
less than the resale price, including interest, provided in the repur-
International Focus Equities is an investment process which focus- chase agreement. Moreover, should counterparty declare bankruptcy
es on in-depth analysis of company fundamentals when selecting or become insolvent, a fund may incur delays and costs in selling the
an investment target. The process seeks to identify companies with underlying security, or it may suffer a loss of principal and interest.
strong fundamentals and equities with attractive valuation levels.
The process focuses on equities which, in the portfolio manager's Nordea seeks to mitigate the risks related to repurchase transactions
view, are undervalued in relation to the company´s ability to gener- by following rules:
ate cash flow over the long term. (1) The fund may not buy or sell securities using a repurchase
agreement transaction unless the counterparty in such transactions
The differences between the relatively concentrated investment is a first class financial institution specialising in this type of transac-
portfolio, constructed by the fund manager, and the comparison in- tion.
dex can be mainly explained by stock-specific criteria rather than by (2) During the life of a repurchase agreement contract, the fund
issues related to sector or country breakdown. cannot sell the securities which are the object of the contract, either
before the right to repurchase these securities has been exercised
Stable Equities by the counterparty, or the repurchase term has expired.
(3) The fund must take care to ensure that the level of its exposure
The Stable Equities investment process favours the shares of com- to repurchase agreement transactions is such that it is able, at all
panies with a stable return and price development and a moderate times, to meet its redemption obligations.
valuation. The process typically focuses on companies with a stable
development in earnings, dividends and cash flow. – About the securities lending arrangements
Value Some of the funds included in this prospectus can enter into securi-
ties lending arrangements with JPMorgan*.
Value investment process focuses on value equities/companies.
The process seeks to identify and invest in undervalued equi- *J.P.Morgan Chase Bank, National Association,
ties/companies that trade at discounts to both their book value (eq- London branch, England (JPM).
uity per share) and earning power and that have a healthy financial
status and good prospects. Securities lending is a globally accepted practice and an investment
vehicle (alpha generator) for the purpose of promoting efficient portfo-
Socially responsible investment lio management in investment funds.
Nordea pays attention to social, governance and environmental is-
sues in many of its products and services, including investment JPMorgan will act as an agent, meaning that JPM will serve as an in-
funds. Nordea's funds have applied the principles of Responsible termediary between the funds and the borrowers of the funds’ securi-
Investment (RI) in all Nordic countries since November 2007. ties. When a fund lends out securities, it will in return receive a
monthly fee from the borrower. With securities lending, the fund aims
The fund companies in the Nordea Group have signed the United to improve the performance of the fund.
Nations Principles for Responsible Investment (UNPRI). Issues re-
lated to environmental and social responsibility and corporate gov- Risks
ernance have thus been integrated in the funds' investment opera- The borrower delivers high-rated government bonds as collateral. The
tions. quality of the collateral should be deemed sufficient to cover the re-
purchase costs in case of a borrower default. JPM gives full indemnity
Nordea is one of the first large Nordic banks to engage itself in the in case borrower defaults.
process of dealing with the ethical issues related to the companies'
business practices. All Nordea funds apply the principles of Re- To avoid potential conflicts of interests, JPM can only act as an agent
sponsible Investment in accordance with the norms laid down by and cannot enter into any securities lending agreement with the fund.
the UN in social and environmental responsibility and good govern-
ance issues. The investments of our funds are reviewed twice a Disclosure
year using the norm-based screening method. Certain funds have The funds will get the revenue generated from securities lending ar-
established another level of Responsible Investment in the fund’s rangements deducted by the costs for running the lending program.
portfolio management, meaning the sector-based screening criteria The costs consist of the external securities lending agent fee and the
which have been adopted in the investment selection process. internal Nordea costs. Detailed information on the fund-specific costs
and the related entities can be found in the annual and semi-annual
Information about the special characteristics of certain funds reports of the fund.
Efficient portfolio management methods Swing pricing method
Subscriptions for (inflows) and redemptions of fund units (outflows)
– About repurchase agreement transactions entail trading costs since the portfolio manager has to buy new securi-
The fund may on an ancillary basis enter into repurchase agree- ties for the fund in order to invest the assets gathered from subscrip-
ment transactions which consist of the purchase and sale of securi- tions, or to sell securities in order to get liquid assets to pay for re-
ties with a clause reserving the seller the right or the obligation to demptions. The costs resulting from buying or selling securities are
repurchase from the acquirer the securities sold at a price and term shared by all the fund's unitholders.
specified by the two parties in their contractual arrangement. The
fund can act either as purchaser or seller in repurchase agreement Using the swing pricing method, the above-mentioned costs can be
transactions or a series of continuing repurchase transactions. allocated to the unitholders making the subscriptions or redemptions,
in other words those unitholders who cause the need to trade in secu-
Risks related to repurchase transactions rities. Thus the aim of the method is to promote the equal treatment of
There is no assurance that a fund will achieve the objective for all unitholders.
which it entered into a transaction. Repurchase transactions might
expose a fund to risks similar to those associated with derivatives. If Principles of the swing pricing method
a counterparty of the repurchase transaction defaults, a loss may Under the swing pricing method, the net asset value (NAV) per unit is
be realized on the sale of the underlying security to the extent that adjusted using a swing factor.
NORDEA FUNDS LTD
Keskuskatu 3 A, FI-00020 NORDEA
www.nordea.fi/rahasto, www.nordea.fi/funds
Tel +358 9 1651PROSPECTUS 17 February 2015 8 (24)
The prospectus is complemented by the rules of each Fund. Nordea Funds Ltd
According to the Finnish Act on Common Funds, in addition to the fund rules and key investor information document (KIID), a fund management company must publish a prospectus on the funds it manages.
Net outflows: The volume of redemptions made in a fund during one
• If the fund experiences net inflows, the NAV is adjusted up- NAV calculation day is greater than the volume of subscriptions.
wards using the swing factor, which means that the NAV per
unit increases. Swing factor: A pre-determined percentage used to adjust the NAV
• If the fund experiences net outflows, the NAV is adjusted per unit.
downwards using the swing factor, which means that the NAV
per unit decreases. Threshold: A pre-determined threshold (percentage of the NAV of
the fund) that must be exceeded before the NAV per unit is adjusted
The benefit from the adjustment of the NAV per unit using the swing using the swing factor.
factor always goes to the fund, and thus its existing unitholders. Full swing pricing: The NAV per unit is adjusted on every NAV cal-
culation date on which there are net inflows or net outflows in the
Use of swing pricing in equity funds fund.
In equity funds, the NAV per unit is adjusted on every NAV calcula-
tion date on which the fund experiences net inflows or net outflows. Partial swing pricing: the NAV per unit is adjusted if a fund's net in-
This is referred to as the full swing pricing method. flows exceed a pre-determined threshold.
• If the fund experiences net inflows, the NAV per unit is adjusted Full swing pricingis is in use in the following Funds
upwards using the swing factor, which means that the NAV per Nordea European Index Fund Nordea Global Index Fund
unit increases. Nordea Finnish Index Fund
• If the fund experiences net outflows, the NAV per unit is adjust-
Partial swing pricing is in use in the following Funds
ed downwards using the swing factor, which means that the Nordea Corporate Bond Fund Nordea European High Yield
NAV per unit decreases. Nordea Emerging Market Bond Fund Nordea Yield Fund
Nordea Private Banking Focus Fixed Inc Nordea Global High Yield Fund
Duration- and/or currency-hedged unit series
The Board of Directors of Nordea Funds decides on opening duration-
hedged and/or currency-hedged unit series in a Nordea fund. The list
of funds having hedged unit series is available in the official prospec-
tus.
Duration hedging
Duration-hedged unit series are available for selected funds managed
by Nordea Funds Ltd. Currently we offer duration-hedged unit series
in the funds listed below. Duration-hedged unit series is denoted with
"IDH” which refers to the duration-hedged I unit series designed for
Use of swing pricing in fixed-income funds institutional investors.
In fixed-income funds, the NAV per unit is adjusted on the valua-
tions dates on which the fund's net inflows exceed a pre-determined The following unit series are duration hedged (DH)
threshold. This is referred to as the partial swing pricing method. In Nordea Corporate Bond IDH as of 15.9.2014
such a case, the NAV per unit is adjusted upwards using the swing
factor. In a duration-hedged unit series, as in the Nordea Corporate Bond
IDH, the target for the modified duration is 0.9-1.1, with an average of
1. In practice, a modified duration of 1 means that if interest-rate level
suddenly rises by one percentage point, the value of the unit series
decreases by 1 percent, and vice versa.
A unit series using duration hedging aims at maintaining the duration
at the target level. The duration hedging is performed and monitored
daily. If the modified duration of the unit series deviates from the 0.9-
1.1 range, it will be adjusted. This adjustment can be done on a daily
basis. The hedge construction and day-to-day adjustments are per-
formed by trading in fixed-income derivatives.
In duration hedging, the interest-rate sensitivity of the different seg-
ments in the portfolio of the duration-hedged unit series is reviewed
on the basis of one or more maturity/ time spans, meaning for in-
stance 2, 5 and 10 years. These maturity positions will be hedged,
that is, the interest-rate sensitivity will be restricted by selling fixed-
Use of swing pricing in fixed-income funds income derivatives.
In fixed-income funds, the NAV per unit is adjusted on the valua-
tions dates on which the fund's net inflows exceed a pre-determined The implementation of hedging is dependent on where the best liquid-
threshold. This is referred to as the partial swing pricing method. In ity is to be found in the derivatives market while at the same time tak-
such a case, the NAV per unit is adjusted upwards using the swing ing into consideration risk limits.
factor.
Terminology related to the swing pricing method:
Net inflows: The volume of subscriptions made in a fund during
one NAV calculation day is greater than the volume of redemptions.
NORDEA FUNDS LTD
Keskuskatu 3 A, FI-00020 NORDEA
www.nordea.fi/rahasto, www.nordea.fi/funds
Tel +358 9 1651PROSPECTUS 17 February 2015 9 (24)
The prospectus is complemented by the rules of each Fund. Nordea Funds Ltd
According to the Finnish Act on Common Funds, in addition to the fund rules and key investor information document (KIID), a fund management company must publish a prospectus on the funds it manages.
Example of duration hedging • The interest-rate risk reduction strategies are employed in
this unit series. It should be noted however that the expo-
3,5 sure to movements in interest rates will not be completely
eliminated. While the fund aims to hedge interest-rate risk
3 in the unit series, there is no guarantee that it will succeed
in doing so.
2,5
• The unit series aims at the targeted duration level. There
10Y
can be circumstances, for example in periods of large out-
Duration
2 5Y flows or high volatility, where the duration may therefore
1,5 2Y exceed the target level temporarily.
1 If the market environment or demand for a duration-hedged unit se-
ries changes, or if the assets in the duration-hedged unit series fall so
0,5 low that the duration hedging can no longer be performed efficiently,
the Board of Directors of Nordea Funds may decide that the duration-
0
hedged unit series is converted into an unhedged unit series in the
Underlying Portfolio Hedge Net Exposure
same fund. In this case, unitholders will be informed in advance.
Underlying portfolio refers to the assets of the duration-hedged unit series. Currency hedging
The hedge bar illustrates how the interest-rate sensitivity will be reduced, i.e.
restricted by the use of hedge. The net exposure bar shows the targeted du- Currently, there are no currency-hedged unit series in the funds man-
ration level. aged by Nordea Funds Ltd.
In order for the hedging to be efficient, the assets in the unit series Actively managed, stock-exchange-listed UCITS ETFs
have to exceed a minimum amount (estimated at EUR 10 millions). (Exchange-Traded Funds, UCITS ETFs)
The derivatives trading lot size also has an impact how efficiently
the hedge will be performed. Nordea Global Emerging Markets Equities UCITS ETF
The fund is actively managed by a Global Diversified Equities invest-
If the assets are above this minimum amount, it is possible to allo- ment process using stock selection and asset allocation across indus-
cate the hedge to the three maturity segments, for instance. This tries.
makes the hedge more efficient even when the shifts in the yield
curve are not parallel, i.e. when the curve steepens or flattens. The fund invests globally in the equities and equity-related securities,
such as depositary receipts, of companies domiciled in the emerging
If assets are below this minimum amount, duration hedging can be markets. Focus areas are Asia, Africa, Eastern Europe, Latin America
implemented using the average interest-rate risk in the portfolio. In and the Middle East. In addition, the fund may invest up to 10% of its
this case the hedge is less efficient especially when responding to assets globally in the equities and equity-related securities of compa-
the steepening or flattening of the yield curve. If assets fall below a nies domiciled in the developed markets.
certain amount (estimated at EUR 2 millions), then the hedge is
rendered inefficient. The fund's benchmark index is MSCI Emerging Markets free NTR.
The performance of the net asset value per unit can differ significantly
The advantages of a duration-hedged unit series from the performance of the benchmark index due to active portfolio
• Since the duration hedging is mainly done with fixed- management.
income derivatives, it is inexpensive. Thus the expens-
es/fees and the expected ongoing charges of the dura- Nordea Stable Equities UCITS ETF
tion-hedged unit series are mainly of the same as in the The fund is actively managed by using a Stable Equities investment
non-hedged unit series. process which seeks to identify companies with a stable return and a
• The benefits of the duration-hedged unit series are that moderate stock price valuation. The process focuses on companies
the unitholder gets a cost-efficient investment vehicle to with stable development in earnings, dividend and cash flow, among
hedge against the risk of rising interest rates. other things. The investment process includes currency-risk hedging.
• At the same time, the unitholder gets a full exposure to The fund invests globally in equities and equity-related securities,
the credit risk, since it is not restricted. such as depositary receipts.
The risks and potential drawbacks of the duration hedging The fund may use derivatives to generate an excess return and pro-
mote efficient risk management.
• The investor does not benefit from potential gains from
declining interest rates.
The fund is an actively managed, exchange-traded fund and has no
• As the interest-rate curve is normally upward sloping, the
benchmark.
investor gets compensation for taking interest-rate risk,
even if the interest-rate curve does not change. In the en-
Description of trading
vironment of unchanged interest rates, the expected re-
The units of the funds are publicly traded on the NASDAQ OMX Hel-
turn of a duration-hedged unit series is thus lower than
sinki and Stockholm exchanges, where they can be bought and sold
that of the unit series with higher interest-rate duration.
like shares. The market makers of the fund are Nordea Bank Finland
• Since credit spreads and interest rates often move in op- Plc (Markets), Nordea Bank AB (publ) and Nordea Bank Danmark
posite directions, the volatility of the duration-hedged unit
A/S.
series is not necessarily lower than in a non-hedged unit
series. This is especially relevant in funds investing in The fund units are in book-entry form. Euroclear Finland Oy maintains
high yield bonds where the majority of the expected risk
the lists of unitholders of the funds. In order to be able to trade, inves-
comes from credit risk and not from interest-rate risk. tors must open a book-entry account.
• In the duration hedging, the portfolio of the hedged unit
series is hedged whereas the assets of the other unit se- Fund units can be bought and sold through securities brokers, such
ries are not hedged. Thus the investor does not benefit as banks and investment firms. When submitting an order to a securi-
from the duration bets taken by the portfolio manager in ties broker, the investor must specify the name of the fund whose
all the other unit series which are not hedged.
NORDEA FUNDS LTD
Keskuskatu 3 A, FI-00020 NORDEA
www.nordea.fi/rahasto, www.nordea.fi/funds
Tel +358 9 1651PROSPECTUS 17 February 2015 10 (24)
The prospectus is complemented by the rules of each Fund. Nordea Funds Ltd
According to the Finnish Act on Common Funds, in addition to the fund rules and key investor information document (KIID), a fund management company must publish a prospectus on the funds it manages.
units are to be bought or sold, the number of units and the price. unitholders' interests for a special reason so require, the unitholder is
Orders can be given at the spot price or at a specified limit price. If entitled to redeem his or her fund units if necessary directly at the of-
an order has been given at the spot price, the trade will be executed ficial NAV per unit calculated later on the same day.
at the prevailing price. If a limit price has been set for a buy transac-
tion, the trade can be executed at the limit price or at a lower price. Redemption assignments registered at the Management Company on
Conversely, in the case of a sell order, the trade can be executed at the assignment date before 17.00 Finnish time are executed at the of-
the set limit price or a higher price. ficial NAV per unit calculated later on the same day. Redemption as-
signments registered at the Management Company on the assign-
Fund units listed on NASDAQ OMX Helsinki can be traded on trad- ment date at or after 17.00 Finnish time are executed at the official
ing days in Finland between 10.30 and 18.25 Finnish time. Fund NAV per unit calculated on the following trading day.
units listed on NASDAQ OMX Stockholm can be traded between
9.30 and 17.25 Swedish time on days that are trading days in both Execution of redemptions in exceptional circumstances does not differ
Finland and Sweden regardless of if the fund's main marketplaces from normal sell orders. Investors can submit orders at the spot price
are functioning normally or if they are closed because of a banking to securities brokers approved by the stock exchange. The transac-
holiday. tion will, however, be executed exceptionally at the official NAV per
unit calculated at a later time. Expenses arising from the redemption
Trading in fund units is interrupted on trading days on which the will be the same as with normal sell orders, excluding the market
NAV per unit cannot be determined due to exceptionally unstable maker’s spread, which is not charged.
and unpredictable market conditions or otherwise abnormal circum-
stances or another weighty reason. The Management Company announces any exceptional circumstanc-
es on its website at www.nordea.fi/funds and the stock exchange on
Even though title to the fund units is transferred at the time of each its web pages.
transaction, the information shown in the list of unitholders will not
be updated until the clearing procedure. Transaction clearing nor- Exchange-traded funds’ investments
mally takes three banking days. Book-entries corresponding to the The Management Company publishes information on the investments
fund units will not be transferred automatically from one book-entry of the exchange-traded funds in the Funds Now service at
account to another at the time of the transaction, but instead will be www.nordea.fi/funds and in Sweden at www.nordea.se/fonder. The
cleared at the central securities depository. information is published with a delay of one month, at the minimum.
Determination of the fund unit’s value in stock-exchange Shares in ETFs, listed on a stock exchange in Sweden
trading Shares i.e. units in ETFs listed for trading on a Stock Exchange in
The Management Company calculates an indicative NAV for the Sweden will be shown in the Register of the Company*, being held by
funds at least three times during a trading day at around 10.30, the Swedish central securities depository which will be Euroclear
14.00 and 18.15 Finnish time. In addition, an indicative NAV for the Sweden AB or any successor acceptable to the Company (the "CSD"
funds units can also be calculated at other times during the stock or "Euroclear Sweden"). Euroclear Sweden will hold all interests in the
exchange’s business hours, depending on market conditions. The ETF fund units for the sole purpose of enabling clearing and settle-
latest indicative NAV is published on the Management Company’s ment of such interests in an uncertified and dematerialised book-entry
website at www.nordea.fi/funds and in Sweden in Swedish at form in the records maintained by Euroclear Sweden in accordance
www.nordea.se/fonder. for the benefit of the ultimate beneficial owners.
* Nordea Funds Ltd
The indicative NAV per unit is calculated by valuing the fund’s as- Euroclear Sweden is a subsidiary to the Euroclear Group of compa-
sets at their market value at the time the indicative NAV is calculat- nies and is authorised and regulated by the Swedish Financial Super-
ed. In the indicative NAV per unit, the fund’s investments are valued visory Authority (Finansinspektionen) as a central securities deposito-
in accordance with clause 11 of the fund’s rules, excluding the pro- ry within the meaning of the Swedish Financial Instruments Accounts
vision for the valuation point. An exception is made on days on Act (1998:1497) and as a clearing organisation within the meaning of
which the market place used by the fund is closed. On such days the Swedish Securities Markets Act (2007:528).
the indicative NAV per unit will track changes in the closed market
place by using futures or other market instruments. The official NAV Beneficial interests in the ETF fund units will be held in uncertified
per unit and the indicative NAV per unit can therefore diverge signif- and dematerialised book-entry form and all transactions relating to the
icantly on such days. beneficial interests in the ETF fund units (such as issuance, sale and
transfer, pledge arrangements and other dispositions and redemp-
Further information on foreign banking holidays is available on the tions) are executed as computerised book-entry registrations in ac-
Internet at www.nordea.fi/funds. The indicative NAV per unit also cordance with the Swedish Financial Instruments Accounts Act and
does not take into account any fees paid from the fund’s assets in all such Swedish laws, regulations and operating procedures applica-
accordance with clause 5 in the fund rules. ble to and/or issued by Euroclear Sweden (the "CSD Rules"). Conse-
quently, in order to make such transactions, beneficial owners must
The NAV per unit on the stock exchange is composed of the indica- establish a book-entry account through a credit institution or a securi-
tive NAV per unit and a spread (spread = the difference between ties firm acting as an account operator with Euroclear Sweden.
the sell and bid price).
Beneficial interests in the ETF fund units shown in the records of Eu-
Redemption of fund units in exceptional circumstances roclear Sweden are treated as negotiable instruments and not subject
The fund is an exchange-traded fund the units of which bought in to any restrictions on free negotiability under Swedish Law. No global
the secondary market cannot normally be sold back directly to the or other physical security will be issued in respect of any fund units
fund. Investors must buy and sell fund units in the secondary mar- shown in the records of Euroclear Sweden.
ket via a broker, which may result in fees. Investors may also be li-
able to pay in excess of the official NAV per unit quoted at the time Each person who is for the time being shown in the records of Euro-
when buying fund units, or receive a lower price than the official clear Sweden or any successor thereto acceptable to the Company
NAV per unit quoted at the time when selling fund units. as the holder of a particular security is treated by the Company and
the Agents as the holder of such security for all purposes.
If no subscription or redemption assignment concerning a fund unit
has been submitted on a trading day in Finland or Sweden before The Company shall be entitled to obtain information from the CSD in
16.00 Finnish time (in Sweden before 15.00 Swedish time) or if the relation to the ETF fund units.
NORDEA FUNDS LTD
Keskuskatu 3 A, FI-00020 NORDEA
www.nordea.fi/rahasto, www.nordea.fi/funds
Tel +358 9 1651You can also read
