An IOOF Multi Manager funds update for AWM planners

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1 An IOOF Multi Manager funds update for AWM planners Presented by: Charles Kneale, Senior Relationship Manager Investments Stephen Merlicek, Chief Investment Officer Stanley Yeo Asset Allocation and /Implementation Date: 21 st February 2011 IOOF MULTIMIX

2 Disclaimer This information was prepared by United Funds Management Limited ABN , AFSL (United Funds Management). United Funds Management is the Investment Manager of the United funds mentioned in this document. It is also part of the IOOF group consisting of IOOF Holdings Limited ABN and its subsidiaries including Australian Executor Trustees Limited ABN , AFSL , the Responsible Entity of the United funds mentioned in this document. The information of a general nature only and is not intended to represent or be a substitute for specific financial or investment advice. It does not take into account any individual s investment objectives, circumstances and needs for investment. Investors should consider consulting a financial adviser before making an investment decision. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Neither United Funds Management nor any company in the IOOF group guarantees the performance of any fund or the return of an investor s capital. The offer to invest in these funds is made in a copy of the current disclosure document for the relevant fund. Anyone wishing to invest in the funds mentioned in this document will need to complete the application form in the current disclosure document for the relevant fund. Past performance is not indicative of future performance. Lonsec disclaimer The Lonsec Limited ( Lonsec ) ABN rating (assigned December 2011) presented in this document is limited to General Advice and based solely on consideration of the investment merits of the financial product(s). It is not a recommendation to purchase, sell or hold the relevant product(s), and you should seek independent financial advice before investing in this product(s). The rating is subject to change without notice and Lonsec assumes no obligation to update this document following publication. Lonsec receives a fee from the fund manager for rating the product(s) using comprehensive and objective criteria.

3 Agenda Introduction Corporate overview Funds management structure United s investment funds Philosophy and enhancements to the investment process United s multi-manager funds Single-sector multi-manager funds (Australian equities, international equities, property) Benefits for clients of investing with IOOF Appendices

4 The past twelve months Appointment of new CIO Stephen Merlicek (October 09) Consolidation of MultiMix and United investment teams (Dec 09) Merging of United and MultiMix Investment Committees (Dec 09) Appointment of asset consultant Russell Investments (Jan 10) Adoption of sector specialists approach (Jan 10) Recruitment of portfolio managers Dan Farmer Australian Equities (Feb 10) David Kilmer International Equities (July 10) Stanley Yeo - Asset Allocation/implementation (Aug 10) 4

5 The past twelve months Merging of United and MultiMix wholesale funds/ new Manager line-up (May Sept 10) Rationalised to one custodian BNP (Aug 10) Outsourcing of admin functions Ongoing Lonsec review and ratings upgrade (Nov 10) Bridges research review (Nov 10) Chant West ratings review (in progress) Russell SAA review (Jan 11) 5

6 Our investment philosophy To maximise returns for a given level of risk To take a fully diversified approach through multiple sources of beta. To identify and select best of breed, high quality investment managers To have multiple sources of value add : asset allocation currency manager selection To maintain a high level of transparency and liquidity To minimise investment costs

7 Enhancements to the way we manage clients money Use of an external asset consultant Russell Investments Research Strategic tilting service Strategic Asset Allocation Review Greater sources of value add/alpha Manager selection Asset allocation Currency

8 Enhancements to the way we manage clients money Increased economies of scale = more manager specialisation Small Cap manager appointment Buy Write manager More dynamic asset allocation Added source of value add Greater internal risk control Greater innovation Potential to research and invest in new sub-asset classes such as emerging markets

9 Diversified funds Investment consultant: Russell Investments Strategic asset allocation Stage 1: Decide broad asset class exposures (core assets only) Stage 2: Consider performance enhancing exposures (sub-sectors, illiquid assets, listed and unlisted assets) Strategic tilting Occasional deviations from SAA Only when markets are at extremes With a view to capturing mean reversion Stage 1: Asset class at an unsustainable extreme Stage 2: Conditions in place for a return to normal Australian equities International equities Australian property International property Fixed interest Cash Alternatives 9

10 Strategic tilting in practice Currency/overseas assets A$ at a 30 year high to the USD. Also extreme against Sterling and Euro. RBA/Fed interest rate differential at extreme. Cautious on commodity prices. Asset allocation committee decided to put more money offshore (AEQ to OEQ) for the UFM Capital Growth, Diversified Aggressive and High Growth funds (Nov 10). Involved advice from Russell IOOF asset consultants. Valuation on overseas shares was attractive especially in the US. The natural hedge if markets fall A$ fall GFC example. Competitors follow suit with this strategic tilt. Tilt has outperformed by 1.4% as at 14 February

11 Strategic tilting in practice Fixed Interest / Cash In August 2010, 20% allocated to cash funded from global bonds within the Diversified Fixed Interest Fund. At the time, US 10-year bond yields reached 2.5%. Low of 2.4% in October From its low, the US 10-year Treasury yield increased to 3.3% by the end of January. Since tilt implemented, global bonds significantly underperformed cash. Tilt has contributed over 1% to added value to the Diversified Fixed Interest Fund. Capital losses avoided from rising yields as a result of cash allocation. 11

12 Underlying United Sector Funds

13 United funds available on the bridges/ wealth managers and aligned planners APL Investment Strategies United Fund APIR Code Net MER (%(I) DPR(ii) RIS(iii) ML (iv) SAP+IAP(v) Growth Funds United Sector Leaders Capital High Growth Fund AUX0008AU 0.96* * * * * Growth Funds United Sector Leaders Capital Growth Fund SMF0102AU 1.00* * * * * Balanced Funds United Sector Leaders Capital Balanced Fund UFM0051AU 1.12* * * * * Capital Stable Funds United Sector Leaders Capital Stable Fund SMF0103AU 0.79* * * * * Australian Share Funds United Sector Leaders Australian Equities Fund SMF0101AU 0.77* * * * * International Share Funds United Sector Leaders International Equities Fund SMF0106AU 1.28* * * * * Property Funds United Sector Leaders Australian Property Fund SMF0107AU 0.92* * * * * High Yielding Funds United Income Fund PIM0003AU 0.70* * * * * Fixed Interest Funds United Sector Leaders Fixed Interest Fund SMF0105AU 0.71* * * * * Cash Funds United Cash Management Fund (Class B) UFM0060AU 0.33* * * * * (i) Management Expense Ratio as at 30 June (ii) Dividend Reinvestment Plan. This is only applicable to investments in the Superannuation Plan and the Personal Investment Plan. (iii) Regular Investment Sweep. This is only available in the Superannuation Plan, the Super Essentials Plan and the Investment Accumulation Plan. (iv) Margin Lending. This only applies to investment sin the Personal Investment Plan.. * A performance fee applies.

14 United Sector Leaders Australian Equities Fund Previous structure Dec 2010 Integrity 26.9% Integrity 16.86% Bernstein Value 17.14% Solaris 26.6% Alleron 27.5% Solaris 19.13% Cash 1.05% Perennial 17.39% SGH % Legg Mason 5.68% Merlon 7.81% Blackrock Fundamental 14.95% Returns for periods ending 31 December Months 6 Months 1 Year 3 Years 5 Years United Sector Leaders Australian Equities Fund 4.6% 12.9% 0.3% -7.8% 2.9% Chant West Median 4.4% 12.9% 0.7% -3.6% 5.3% Excess Return 0.2% 0.0% -0.4% -4.2% -2.4% Source: IOOF/ Chant West Returns are before management costs and tax. Past performance is not an indication of future performance.

15 United Sector Leaders International Equities Fund Previous Structure Dec 2010 LSV Asset Management 25.2% Wellington 9.86% Pareto 1.30% Cash 0.01% Axiom 16.65% Axiom 25.3% Perpetual 24.8% LSV Asset Management 17.73% Boston 24.8% State Street Global Advisers 50.28% Perennial 4.17% Returns for periods ending 31 December Months 6 Months 1 Year 3 Years 5 Years United Sector Leaders International Equities Fund 3.4% 3.0% -1.2% -12.7% -5.6% Chant West Median 3.1% 3.0% -0.8% -10.2% -4.3% Excess Return 0.3% 0.0% -0.4% -2.5% -1.3% Source: IOOF/Chant West. Returns are before management costs and tax. Past performance is not an indication of future performance.

16 United Sector Leaders Australian Property Fund Dec 2010 Challenger) 79.89% CFS 18.51% Cash 1.60% Returns for periods ending 31 December Months 6 Months 1 Year 3 Years 5 Years United Sector Leaders Australian Property Fund Chant West Median 0.5% -1.0% 4.5% 2.7% -0.3% 0.0% -20.4% -20.3% Excess Return 1.5% 1.8% -0.3% -0.1% -18.7% Source: IOOF/Chant West Returns are before management costs and tax. Past performance is not an indication of future performance. -9.7%- 9.0%

17 United Sector Leaders Fixed Interest Fund Diversified Previous structure Dec 2010 PIMCO Aust Bond 10.0% PIMCO Int Bond 25.4% PIMCO GC 0.95% Pimco -ABF 7.94% Newton 25.4% United High Yield 25.85% Pimco GBF 20.11% Perennial 4.08% United High Yield Perennial - Fixed Interest 28.7% PIMCO TR 20.11% Loomis Sayles 8.22% Returns for periods ending 31 December Months 6 Months 1 Year 3 Years 5 Years United Sector Leaders Fixed Interest Fund 0.5% 3.7% 10.6% 9.1% 7.2% Chant West Median 0.5% 3.3% 9.2% 8.5% 7.1% Excess Return 0.0% 0.4% 1.4% 0.6% 0.1% Source: IOOF/Chant West Returns are before management costs and tax. Past performance is not an indication of future performance.

18 United Income Fund December 2010 Perennial 100.0% Returns for periods ending 31 December Month 3 Months 1 Year 3 Years 5 Years United Sector Leaders Income Fund 0.91% 2.82% 9.64% 4.99% 6.22% UBSA Bank bill Accum Index 0.42% 1.24% 4.66% 5.23% 5.69% Excess Return 0.49% 1.58% 4.98% -0.24% 0.53% Source IOOF Returns are before management costs and tax. Past performance is not an indication of future performance.

19 Cash Management Trust FUM: $1.58b Weighted average duration: 66 days Term deposits: 55% Maximum exposure: CBA 30% A1+ exposure: 88% A1 exposure: 5% A2 exposure: 7% Periods to 31 Jan mth (%) 3 mths (%) 1 yr (%.) 3 yrs (%.) 5 yrs (%.) United Cash Management Fund UBSA Bank Bill Index Excess Gross of fees Bridges Review 19

20 United s Diversified Funds

21 United Capital Stable Fund Sept 2010 Dec 2010 International equities 8.7% Fixed Interest 41.5% Australian equities 13.7% Cash 25.5% Alternatives 4.7% Property 5.9% International equities 9.0% Fixed Interest 41.7% Australian equities 14.3% Cash 24.0% Alternatives 4.9% Property 6.0% Returns for periods ending 31 December Months 6 Months 1 Year 3 Years 5 Years United Sector Leaders Capital Stable Fund Chant West Median 1.9% 1.8% 5.7% 5.4% 6.9% 6.4% 2.3% 2.9% 4.6% 5.0% Excess Return 0.1% 0.3% 0.5% -0.6% -0.4% Source :IOOF and Chant West Returns are expressed gross of all fees and tax. Past performance is not an indication of future performance.

22 United Capital Growth Fund Sept 2010 Dec 2010 International equities 26.3% Fixed Interest 20.2% International equities 28.6% Fixed Interest 17.7% Australian equities 27.5% Property 10.5% Alternatives 10.0% Australian equities 30.7% Alternatives 9.2% Property 9.6% Cash 5.5% Cash 4.2% Returns for periods ending 31 December Months 6 Months 1 Year 3 Years 5 Years United Sector Leaders Capital Growth Fund Chant West median 3.1% 3.4% 8.1% 8.7% 4.0% 5.7% -4.5% -1.9% 1.7% 3.4% Excess Return -0.3% -0.6% -1.7% -2.6% -1.7% Source IOOF/ Chant West Returns are expressed gross of all fees and tax. Past performance is not an indication of future performance.

23 United Capital Balanced Fund Sept 2010 Dec 2010 International equities 17.1% Fixed Interest 29.7% International equities 17.3% Fixed Interest 29.6% Australian equities 26.1% Cash 14.4% Alternatives 5.9% Australian equities 26.8% Cash 13.6% Alternatives 6.0% Property 6.8% Property 6.8% Returns for periods ending 31 December Months 6 Months 1 Year 3 Years 5 Years United Sector Leaders Capital Balanced Fund Chant West Median 2.7% 2.5% 7.0% 7.0% 5.3% 6.0% --1.3% 0.7% 3.1% 4.1% Excess Return 0.2% 0.0% -0.7% -2.0% -1.0% Source: IOOF/ Chant West Returns are expressed gross of all fees and tax. Past performance is not an indication of future performance.

24 The slow motion recovery US double dip now increasingly unlikely: U.S growth picking up 3.5% plus for 2011 Quantitative easing continuing $75 billion a month Global equity market valuations are ok US equity market has doubled since GFC lows but has potential to rally further Lots of money still on the sidelines which could help underpin the rally Earnings Per Share (EPS) growth will be lower than in 2010, but still respectable 24

25 The slow motion recovery Bonds are still expensive especially US bonds Rates have backed up recently but could increase further Inflation increasingly thought of as a potential issue Australian dollar at extreme valuation Since the dollar was floated in 1983, it has only reached parity with the U.S dollar once China story and high relative interest rates underpin the $A but it is susceptible to shocks 25

26 What is our competitive advantage? A true performance culture Proactive, innovative approach delivering multiple sources of value add Team of investment professionals with proven track record Accountable/ focused/ alignment of interests Risk management culture New emphasis on asset allocation Investment professionals that can manage money not just a manager of managers 26

27 Benefits of investing with United Adviser Efficient investment management for client accounts less paperwork. Predictable investment returns through diversification no unwanted surprises! Concise monthly investment reporting and fund profiles. Client Access the best managers from around the world. Diversification across asset classes, within asset classes and across investment management styles Seamless changes and automatic rebalancing Peace of mind and security

28 The IOOF investment team Title Name Yrs exp Background CIO PM Australian Equities PM International Equities PM Property PM Alternatives PM Asset Allocation/ Implementation Senior Relationship Manager Steve Merlicek B.Ec (Hons), M.Com (Hons), F.Fin Dan Farmer B.Ec (Hons). M.Com (Hons) David Kilmer F.Fin, CPA Simon Gross Registered valuer Hugo Agudo B.Sc Stanley Yeo B.Com, LLB (Hons), CFA Charles Kneale (DipFP, SAFin) 22 Steve joined IOOF in the newly created role of CIO in October 09 with responsibility for IOOF s Funds Management Division, comprising of IOOF s multi-manager funds, MultiMix and United. Steve was formerly CIO at Telstra Super and has over 12 years specific portfolio management experience. 15 Dan joined the investment team from Telstra Super where he was in charge of the Australian Equity portfolio. Dan has experience in managing both direct portfolios and external managers. 13 David recently joined the investment team from the IOOF Research team where he was Head of Research. David has experience in managing both manager research and model portfolios for platforms and dealer groups. 12 Simon was part of the IOOF s MultiMix investment team, he continues his focus on researching and managing the indirect and direct property portfolios. He has a number of years experience in the direct property sector. 10 Hugo was also part of the IOOF MultiMix team and remains responsible for research and analysis for the alternatives portfolio. He also has experience in portfolio construction, manager research and alternatives. 11 Stan was employed as a Senior Consultant for Russell Investments for 9 years. He advised various large superannuation funds such as BHP, Funds SA, Pension Fund of Thailand in areas such as strategic asset allocation, constructing multi-manager portfolios and researching managers. Previous to this role, he was an analyst with Gartmore Investment Management in London. 23 Charles' experience includes Institutional business development roles with renowned companies such as Citicorp Global Asset Management (Citibank Ltd) and Dow Jones. Charles' present role - Senior Relationship Manager involves working with corporate super policy committees, financial advisers and research consultants.