12/02/2018. Industry Evolution Insights SMSF Investments. Investing towards Where are we today? Anton Tagliaferro

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1 Industry Evolution Insights SMSF Investments Investing towards 2021 Anton Tagliaferro Investment Director, Investors Mutual Where are we today? Global economies growing steadily Record low interest rates Global debt at all time highs Signs of exuberance appearing 1

2 Dec-12 Jan-13 Feb-13 Mar-13 May-13 Jun-13 Jul-13 Sep-13 Oct-13 Nov-13 Jan-14 Feb-14 Mar-14 May-14 Jun-14 Jul-14 Sep-14 Oct-14 Nov-14 Dec-14 Feb-15 Mar-15 Apr-15 Jun-15 Jul-15 Aug-15 Oct-15 Nov-15 Dec-15 Feb-16 Mar-16 Apr-16 Jun-16 Jul-16 Aug-16 Oct-16 Nov-16 Dec-16 Jan-17 Mar-17 Apr-17 May-17 Jul-17 Aug-17 Sep-17 Nov-17 Dec-17 Jan-18 Closing price 12/02/2018 Nasdaq last 20yrs Source: FactSet; as at 8 February 2018 Bitcoin the urge to speculate never disappears Month Source: Coindesk, as at February 2018 Australia s Population Growth Source: FactSet February

3 Number of departures (millions) 12/02/2018 Apartment building boom Source: Bloomberg Australian Housing debt Source: Factset as at 8 February 2018 Chinese Outbound Tourism Source: UNWTO, UNESCAP

4 Capacity (mtpa) Production, Mt Revenue, US$B 12/02/2018 Australia Iron ore production & revenue Revenue, US$B, (RHS) Production, Mt, (LHS) Source: UBS, Australian Government Dept of Industry, Innovation & Science Australia s LNG production profile Sanctioned Producing Source: IML 31 st December 2013 Retail investor needs: Capital preservation Reasonable capital growth Income focused 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. Sectors undergoing change Telcos Supermarket sector Wagering Discretionary Retail Traditional media Stock selection remains key Company specific initiatives Cost-outs Acquisitions Contracted growth Market share gains Restructuring Clydesdale Bank Pact Shopping Centres Australia Ansell Caltex 5

6 Industrial stocks pay in the long term Disclaimer 17 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 21 September 2017, 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 Recognising the value of absolute return strategies Tim Carleton Principal & Portfolio Manager Auscap Asset Management 6

7 Disclaimer This presentation is not a Product Disclosure Statement under the Corporations Act 2001 (Cth). The fundraising disclosure requirements of the Corporations Act 2001 (Cth) do not apply to an offer of units in the Auscap Long Short Australian Equities Fund (Fund). Information in this presentation is general information only and does not take into account a particular client s individual objectives, financial situation, needs or circumstances, nor does this presentation purport to contain all the information that a prospective investor may require in evaluating a possible investment in the Fund. A prospective investor should conduct their own independent investigation and assessment of the Fund before making any investment, including obtaining investment, legal, tax and accounting advice appropriate to their circumstances. Auscap Asset Management Limited (Auscap), its related bodies corporate and associates, directors, officers and employees do not guarantee or make any representation or warranty (whether express or implied) as to the success of the Fund, the repayment of capital invested in the Fund or any particular rate of return on investment in the Fund. Past performance of the Fund is not indicative of future performance and should not be relied upon by investors to form expectations about the future performance of the Fund. No investment in the Fund should be made without fully reviewing the information, the disclosures and the disclaimers contained in all relevant Fund documents, including in particular the Product Disclosure Statement, a copy of which is available at Prospective and existing investors should consider the Product Disclosure Statement in deciding whether to acquire, or to continue to hold, an investment in the Fund. Contents 1. Who are we? 2. What are absolute and relative return strategies? 3. The differences between absolute and relative return strategies 4. The benefits of absolute return strategies 5. Conclusions Who are we? Auscap Asset Management is a value based long short Australian equities investment manager established in Auscap Asset Management is the Responsible Entity and Investment Manager for the Auscap Long Short Australian Equities Fund. Auscap Fund Value based long short Australian equities fund The Auscap Fund is a registered managed investment scheme Funds under management ~$570m Accessible to retail investors and available on a number of platforms 7

8 Who are we? Long position characteristics Target attractive low-risk total return (income + growth) opportunities Cash producing businesses with strong return on invested capital trading at attractive prices Transparent business models, with products/services that we are familiar with High ROA, stable balance sheets and quality management Short position characteristics Low quality earnings, poor or negative cash generation Complex business model and multiple assumptions required to meet growth targets Low ROIC, stressed balance sheets and inexperienced or promotional management Earnings in a downgrade cycle What are absolute and relative return strategies? Relative return funds Most funds are relative return focused they aim to generate higher returns that the market. Absolute return funds Absolute return funds are generally market agnostic they aim to generate positive returns irrespective of market conditions. How is an absolute return strategy different? Differences Focused on absolute returns and absolute risks Do not have to be fully invested, can hold cash Index unaware Can invest long or short Positions are sized by conviction Can invest in alternative instruments 8

9 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 12/02/2018 What are the benefits/risks of absolute return strategies? Difference Focused on absolute returns and absolute risks Benefit Can deliver better risk adjusted returns Risk Can underperform in a rising market Year Fund A Fund B Fund C Year 1 Return +18% +20% +10% Year 2 Return 10% 30% 7% Year 3 Return +10% +28% +6% Simple Average Return +6% +6% +3% Compound Returns for Funds A, B & C 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Year Fund A Return Fund B Return Fund C Return Fund B Fund A Fund C Simple Average Annual Return +6.0% +6.0% +3.0% Average Compound Annual Return +5.3% +2.4% +2.7% What are the benefits/risks of absolute return strategies? Difference Auscap performance* and cash holding 250% Do not have to be fully invested, can hold cash 200% 150% Benefit 100% 50% Can preserve capital and gives optionality 0% -50% -100% Risk Can underperform in a rising market Auscap Cash holding * Performance figures are calculated for the lead series net of all fees and expenses and assuming the reinvestment of all distributions. Actual performance may differ for investments made in different classes or series. Past performance is not a reliable indicator of future performance. What are the benefits/risks of absolute return strategies? Difference Index unaware Benefit No passive positions Risk Can underperform in a market where sectors that aren t held do well for the broader market Source: IRESS, Auscap 9

10 Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials IT Materials Real Estate Telecoms Utilities 12/02/2018 What are the benefits/risks of absolute return strategies? Difference Can invest long or short Benefit Broadens opportunity to generate returns and protect capital Auscap All Ords Average annual returns 24.8% 10.9% Annualised standard deviation 11.3% 11.2% Average positive months 2.8% 2.8% Average negative months 0.2% -2.7% Number of positive months Number of negative months Risk Asymmetry of risk on short positions What are the benefits/risks of absolute return strategies? Difference Positions are sized by conviction Sector Exposure December 2017 Auscap vs ASX200 40% 35% 30% 25% Benefit Highest portfolio weightings in best ideas 20% 15% 10% 5% 0% -5% Risk Some concentration risk ASX200 Auscap Source: IRESS, Auscap What are the benefits/risks of absolute return strategies? Difference Can invest in alternative instruments Benefit Additional ways to add to returns Risk Increased risk from liquidity, leverage and participation in alternative asset classes Alternative Instruments Equity/Index futures and options Commodities Unlisted securities Foreign exchange Interest rate derivatives Pre-IPO companies Exotic/OTC derivatives Fixed Income securities Hybrids/Convertibles 10

11 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 12/02/2018 How is an absolute return strategy different? Differences Benefits Risks Focused on absolute returns and absolute risks Can deliver better risk adjusted returns Can underperform in a rising market Do not have to be fully invested, can Can preserve capital and gives hold cash optionality Index unaware No passive positions every investment considered on its merits Can underperform in a rising market Can underperform in a market where sectors that aren t held do well for a broader market Can invest long or short Broadens opportunity to generate Asymmetry of risk on short returns and protect capital positions Positions are sized by conviction Highest portfolio weightings in best ideas Some concentration risk Can invest in alternative instruments Additional ways to add to returns Increased risk from liquidity, leverage and participation in alternative asset classes Conclusions: a better way to manage capital Auscap Long Short Australian Equities Fund* vs All Ordinaries Accumulation Index 250% 200% 150% 100% 50% 0% Auscap Fund All Ordinaries Accumulation Index JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN FYTD 1.4% 0.7% 1.2% 1.5% 9.8% -4.0% 8.3% 19.7% FY13 FY14 4.7% 4.3% 5.8% 5.5% 2.9% 2.6% 1.3% 5.3% 0.7% 0.3% 3.8% 1.5% 46.0% FY15 3.0% 5.2% -2.1% 2.2% -0.4% 0.4% 3.7% 4.9% 4.0% -1.4% 4.4% -7.5% 16.8% FY16 3.5% 1.6% 4.8% 4.6% 4.7% 4.6% -3.0% -3.5% 3.2% -1.2% 1.0% -1.2% 20.1% FY17 8.5% 2.1% -2.4% -2.7% -1.8% 4.0% -1.2% 0.4% 2.5% -0.8% -1.5% 1.2% 8.0% FY18-0.8% 2.8% 2.5% 7.0% 2.6% 1.6% 16.5% * Performance figures are calculated for the lead series net of all fees and expenses and assuming the reinvestment of all distributions. Actual performance may differ for investments made in different classes or series. Past performance is not a reliable indicator of future performance. Fund details Investment Vehicle Fund Holdings Fund Administrator Custodian & Prime Broker Tax & Audit Australian domiciled registered managed investment scheme positions Link Fund Solutions Citigroup Global Markets Limited Ernst & Young Maximum Gross/Net Exposure 200% / 150% Minimum Investment $100,000 Commenced Date 3 rd December 2012 Management Fee 1.5% of FUM [1] pa Performance Fee 15% of outperformance over RBA Cash Rate [2] Withdrawal Rights Monthly, with 1 month notice Bid/Ask Spread 0.2% / 0.2% Distribution Annually, following financial year end [1] Management fee payable monthly. [2] Performance Fee is calculated as 15% of the total gross return less expenses and management fees in excess of the RBA Cash Rate over the performance period, payable semiannually for the series class and monthly for the platform class. The performance fee is subject to a high water mark with respect to previous performance. 11

12 Contact details Lee Hopperton Jennifer Herbert Head of Distribution Senior Distribution Manager Phone: Phone: lee.hopperton@auscapam.com jennifer.herbert@auscapam.com Lauren Murphy Distribution Manager Phone: lauren.murphy@auscapam.com Plugging Into Technological Change Kris Walesby Head of ETF Securities Australia 12

13 Tech earnings have outpaced the wider market MSCI World IT EPS MSCI World EPS Source: Bloomberg, ETF Securities as of close 14 September Global Tech trading nearly 20 yr lows versus Market 12m Fwd relative PE St Dev St Dev Source: MSCI, Bloomberg, ETF Securities as of close 31 July

14 #Robotics ENTERPRISE CONSUMER MEDICAL /02/

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16 ROBO Global video 16

17 Disclaimer Thank you Enhancing the SMSF client experience in an age of disruption Martin Morris Head of Distribution, Praemium 17

18 Evolution or revolution? Advice models have evolved significantly over the last two decades as a result of financial and regulatory changes Technological advances have also changed the way in which financial planning practices do business We are seeing a noticeable shift in consumer behavior as a result of technological developments Client engagement is becoming increasingly important as a result of changing consumer behaviour Technological change million users billion users 17 million out of 24 million 76% of silver surfers use Facebook 3/4 prefer to solve own customer service issue 40% prefer self service over human contact Trustee profile and behaviours 59 Average age of a trustee in Three-Quarters of the Global Workforce will be Millennials 47 Average age of new trustees in % of HNW are using online services for portfolio management 50% believing their financial adviser should have a digital offering Advisers at risk of losing control further to a more sophisticated and self-driven client base 18

19 Growth of Fintech SMSF and RoboAdvice No such thing as disruption Digitally Focused Ability to answer investment trends quickly Self-invested Model Low Cost Risk or Disturb? SMSF and SMA 19

20 SMSF and SMA Opportunity Increased demand for advice 52 per cent of trustees likely to turn to a financial planner for advice, and 48 per cent more likely to use an accountant. Providing specialist diversification 70% of SMSF money in the three main asset classes. AEQ / Cash & TD / Direct Property The demand for ETFs increasing 20 per cent trustees planning to use them in their SMSF in the next 12 months--up from 18 per cent in the 2016 study. International SMA SMSF trustees under represented in global assets. Access to low cost transparent direct equity or ETF specialist diversified portfolios SMA Tech solving trustee problems Delivering superior digital experience Significant Portfolio Management cost savings Bespoke advice through portfolio customisation Evolution or revolution? Single administration platform For custodial and non-custodial assets The power of connectivity 20

21 This presentation has been prepared by Praemium Australia Limited ACN ( Praemium ) and is for general information only. Praemium does not provide financial or product advice and nothing in the presentation whether visual or oral should be construed as advice. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs. It does not contain and is not to be taken as containing any advice or recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional tax advice. Praemium do not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as liability under any statute cannot be excluded, Praemium and their directors, employees and consultants do not accept any liability for any error or omission in this presentation or for any resulting loss or damage suffered by the recipient or any other person. This document was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author. SMSF Investments Chris Andrews Chief Investment Officer, La Trobe Financial La Trobe Financial 21

22 Investors & the search for control The hunt continues Declining interest rates 22

23 Make equities more attractive SMSF Asset Allocations - Select Listed Australian shares 29.4% Cash and Term Deposits 22.53% Non-residential property 11.3% Residential property 4.8% LRBAs 4.4% Source: ATO Sept 2017 The risks of complacency 23

24 Normalised deviance in investing Fixed interest focused on capital preservation The future: customisation 24

25 The material in this presentation is general background information about La Trobe Financial s activities as at the date of this presentation. The information is given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or borrowers or potential investors or borrowers and does not take into account the investment objectives, financial situation or needs of any particular investor or borrower. These should be considered, with or without professional advice, when deciding if an investment or a loan is appropriate. La Trobe Financial Asset Management Limited ACN Australian Financial Services Licence Australian Credit Licence is the issuer and manager of the La Trobe Australian Credit Fund ARSN It is important for you to consider the Product Disclosure Statement for the Credit Fund in deciding whether to invest, or to continue to invest, in the Credit Fund. You can read the PDS on our website, or ask for a copy by phoning us on