The Great Muddle Through. Wayne McGauley Head of Retail, IML March 2014

Transcription

1 The Great Muddle Through Wayne McGauley Head of Retail, IML March

2 Agenda Intro to IML The Great Muddle Through Investment strategy Portfolio focus for clients Summary 2

3 Agenda Intro to IML The Great Muddle Through Investment strategy Portfolio focus for clients Summary 3

4 About IML Boutique manager established in 1998 Circa $5bln FUM retail and institutional clients Disciplined and consistent true to label value style Owned by IML investment staff and Treasury Group (TRG) Large investment team with experienced leadership Market leading performance over 15 years 4

5 Investment Philosophy: focus on quality We seek to buy and own: Companies with a competitive advantage, with recurring earnings, run by capable management, that can grow,...at a reasonable price. 5

6 Retail Investor Needs Capital preservation Reasonable capital growth Income focused 6

7 IML - Meeting the expectations of a Value Manager Feature Reasonable Capital growth over time Resilience in falling markets Low volatility Consistent income Tax effective IML 7 This is what differentiates IML

8 The IML experience capture the ups, avoid the downs 6.00% Total Return 1yr to Jan % Benchmark % 2.00% IML % 0.00% -2.00% -4.00% -6.00% Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Portfolio Benchmark 8 IML Australian Share Fund monthly returns v benchmark, As at 31 January 2014

9 Annualized Return IML 15 year history - looking to smooth volatility 12 Risk/Return Since IM L Inception 07/1998 to 01/2014 Investors Mutual WS Australian Share Fund Value Investing S&P/ASX Total Return Annualized Standard Deviation Source: Factset as at 31st January 2014

10 Agenda Intro to IML The Great Muddle Through Investment strategy Portfolio focus for clients Summary 10

11 Australian household debt deleveraging ongoing 11 Source: Factset as at 31 Dec 2013

12 Australian mortgage equity withdrawal. 12

13 Deleveraging ongoing 13

14 QE = monetary madness 14

15 Australian 10 year bond yields...driving equities 12.0% Australia 10Y Treasury Yield 12.0% 11.0% 11.0% 10.0% 10.0% 9.0% 9.0% 8.0% 8.0% 7.0% 7.0% 6.0% 6.0% 5.0% 5.0% 4.0% % 3.0% 3.0% 2.0% '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 2.0% 15 Source: RBC, January 2014

16 Looking Back Over History S&P/ASX Return Composition Calendar Year Dividend Return % 4% 4% 4% 4% 4% 4% 5% 5% 4% 5% 5% 4% EPS change 6% 2% 4% 19% 22% 14% 9% -15% -12% 18% 4% -10% 6% PE change 0% -14% 5% 3% -4% 4% 3% -31% 49% -17% -18% 27% 9% Total Return 10% -9% 15% 28% 23% 24% 16% -38% 37% 2% -11% 20% 20% Source: Factset 16

17 PE s expanded. Source: Factset 17

18 EPS revisions 18

19 The Great Muddle Through US: slow and patchy recovery Europe: ongoing sovereign debt issues China: slowing to more sustainable levels Record low interest rates and large quantitative easing Lacklustre global economic outlook set to continue, supported by Central Bank liquidity measures 19

20 Global GDP. Source: OECD, CBA 20

21 OECD Composite Leading Indicators Source: OECD, CBA 21

22 Australian Economy Economy patchy Consumer and business confidence volatile Employment and wage growth soft Interest rates set to stay low Federal Government fiscal consoliation 22

23 Misery Index 23 Source: CBA as at 31 May 2013

24 Employment - participation rate falling 24

25 Real savings rate relatively low 25

26 Unit Labor Cost in Manufacturing 26

27 Mining Investment 8% Mining investment, % of GDP 7% 6% 5% 4% 3% 2% 1% 0% Sources: ABS; Butlin (1964, 1985); RBA; Withers, Endres and Perry (1985). As at 30 June

28 Australia s demographics working age of population declining 28

29 Australia s demographics number of retirees growing 29

30 Overall Outlook Economic growth to a muddle through Volatility remains a risk Earnings growth for most companies will be much harder to achieve Bonds markets driving equity markets Very selective environment! 30

31 Agenda Intro to IML The Great Muddle Through Investment strategy Portfolio focus for clients Summary 31

32 The dilemma of the Australian Market Sector distribution- ASX 300 Index 44% 39% Financials Materials Other 17% Source :IML as at 30 December,

33 IML Australian Share Fund Sector positioning 39% Investors Mutual Australian Share Fund Sector Weights As at 31st January % 29% 24% 19% 14% 9% 4% -1% IMAS Sector Weights % ASX300 Sector Weights % 33

34 Banks PEs historic v today 17 Major bank forward PEs Oct-98 Oct-99 Oct-00 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 CBA NAB WBC ANZ 34 Source: Factset as at 30 September 2013

35 Banks - Credit Growth 35 Source : Shaw

36 Banks - interest payments to disposable income 36 Source: RBA & company data as at 30 September 2013

37 Basis Points Banks - bad debts 400 Bad Debt Charges ANZ CBA NAB WBC 37 Source: RBA & company data as at 30 September 2013

38 Resources - focus on quality only Supply side not supportive stockpiles and pipelines Demand side lackluster Competitive suppliers Cost pressures 38

39 Resources - China s fixed asset investment declining YTD fixed asset investment 39

40 Resources - Chinese house prices Source: Factset as at 31 st December

41 41 Resources - the supply side

42 The case against cyclicals Earnings expectations too high downgrades appearing De-leveraging ongoing Inflation in essential household items Fiscal consolidation Employment and wage growth not evident First home buyers not active 42

43 IML s focus - very stock specific environment: Acquisitions Restructuring New products Contracted growth Market share gains 43

44 Agenda Intro to IML The Great Muddle Through Investment strategy Portfolio focus for clients Summary 44

45 Portfolio focus for clients Active management large and uneven dispersion of EPS High Quality portfolio (low beta) Recurring income and growing overtime Portfolio that is resilient 45

46 Annualized Return IML 15 year history - looking to smooth volatility 12 Risk/Return Since IM L Inception 07/1998 to 01/2014 Investors Mutual WS Australian Share Fund Value Investing S&P/ASX Total Return Annualized Standard Deviation Source: Factset as at 31st January 2014

47 Risk - there is a meaningful difference 47 Source: Morningstar as at 31st

48 Australia... highest yielding stock market Country Dividend Yield (Next 12m) Australia 4.7% United States 2.2% United Kingdom 4.0% Germany 3.0% Japan 1.7% China 1.4% 48 Source: Factset as at Feb 2014

49 Income - the least volatile component of investment returns 70% S&P/ASX years to Sep 2013 Return Composition 100% Risk Composition 94% 60% 58% 80% 50% 40% 42% 60% 30% 20% 40% 10% 20% 6% 0% Capital Return Income Return 0% Capital Standard Deviation Income Standard Deviation 49 Source: IRESS

50 Income - important & consistent component to returns IML Australian Share Fund Income Growth Total Return 1 year +4.34% +8.60% % 3 years p.a % +7.57% % 5 years p.a % +9.46% % Since Inception p.a. (June 1998) +5.00% +6.62% % As at 31 January %+ of income is underpinned by franked dividend yield ^% Performance per annum. *Fund returns are calculated net of management fees, and assuming all distributions are re-invested. Investors should be aware that past performance is not indicative of future performance. Returns can be volatile, reflecting rises and falls in the value of underlying investments. **The benchmark for this Fund is the S&P/ASX 300 Accumulation Index. 50

51 Why income/yield is so important Income/Yield - Key Attributes Downside protection a sustainable yield provides a floor to share prices Lower levels of volatility high yielding stocks are inherently less volatile Immune to investor sentiment income is the reliable component of the total return Reliable Cashflow predictable and growing in nature 51

52 First Rule of Investing % +11% % +43% % +100% 50 52

53 Outperforming in Down Markets - IML Reliable and Repeatable 100% 90% 87% 80% 70% 70% 60% 50% 54% 55% 47% 52% 40% 30% 20% 10% 0% IML Australian Share Value A Value B Value C Value D Style Neutral 53 Source: Morningstar Monthly returns since inception as at 31st December 2013

54 Downside protection critical for clients 54 Source: Morningstar Direct as at 31st December 2013

55 Downside protection - this is why it is critical 55

56 Agenda Intro to IML The Great Muddle Through Investment strategy Portfolio focus for cleints Summary 56

57 Conclusion Low return, volatile environment Invest in quality companies that are not heavily reliant on the economic cycle Many cyclical stocks remain unattractive Value present in many quality industrial stocks that pay consistent dividends 57

58 IML Australia Share Fund: Performance ASX300 IML Outperformance 6 months +5.01% +5.60% +0.59% 1 year % % +2.36% 3 years p.a % % +5.38% 5 years p.a % % +1.89% Since Inception p.a. (circa 15 years - June 1998) +8.85% % +2.77% As at 31 January

59 IML - Meeting the expectations of a Value Manager Feature Reasonable Capital growth over time Resilience in falling markets Low volatility Consistent income Tax effective IML 59 This is what differentiates IML

60 While the information contained in this presentation has been prepared with all reasonable care, Investors Mutual Limited accepts no responsibility or liability for any errors or omissions or misstatements however caused. This is general financial product advice only and is not intended to constitute a securities recommendation. This information does not account for your investment objectives, particular needs or financial situation. Statements of opinion are those of IML unless otherwise attributed. Except where specifically attributed to another source, all figures are based on IML research and analysis. Investors should be aware that past performance is not indicative of future performance. Returns can be volatile, reflecting rises and falls in the value of underlying investments. Potential investors should seek independent advice as to the suitability of the Fund to their investment needs. The fact that shares in a particular company may have been mentioned should not be interpreted as a recommendation to either buy, sell or hold that stock. Any commentary about specific securities is within the context of the investment strategy for the given portfolio. Investors Mutual Limited is the issuer of the Investors Mutual Australian Share Fund, Investors Mutual Industrial Share Fund, Investors Mutual Future Leaders Fund, Investors Mutual Australian Smaller Companies Fund, Investors Mutual Small Cap Fund and Investors Mutual Equity Income Fund. Applications can only be made on the form in the current Product Disclosure Statements dated 2nd September 2013 or through IDPS products that include these Funds. The Product Disclosure Statements can be obtained by contacting Investors Mutual or at Potential investors should consider the Product Disclosure Statements before deciding whether to invest, or continue to invest in the Funds. The prospective P/E ratios and earnings forecasts referred to in this presentation constitute estimates which have been calculated by IML's investment team based on IML's investment processes and research Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. To the extent that any of this information constitutes advice, it is general advice and has been prepared by Morningstar Australasia Pty Ltd ABN: , AFSL: and/or Morningstar Research Limited (subsidiaries of Morningstar, Inc.) without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant Product Disclosure Statement (in respect of Australian products) or Investment Statement (in respect of New Zealand products) before making any decision to invest. Neither Morningstar, nor Morningstar s subsidiaries, nor Morningstar s employees can provide you with personalised financial advice. To obtain advice tailored to your particular circumstances, please contact a professional financial adviser. Please refer to our Financial Services Guide (FSG) for more information 60