Investment Update. Agenda 7/11/2013. The University of Melbourne TOPIC PRESENTER. David Schneider Head of Research & Quant Methods

Transcription

1 Investment Update The University of Melbourne 7 November, 2013 Agenda TOPIC Investment Update (45 min) UniSuper Investment Options & Advice (10 min) PRESENTER David Schneider Head of Research & Quant Methods Graham Eggins Regional Manager Questions 2 1

2 The information contained within this presentation is intended to provide general advice only. It has been prepared without taking into account your objectives, financial situation or personal needs. Prior to making any investment decisions, you should speak with a financial adviser to consider whether this information is appropriate for your needs, objectives and circumstances. You should obtain a copy of the relevant product disclosure statement (PDS) prior to making a decision regarding any investment in any financial product. This information is current as at August 2013 and is based on our understanding of legislation at that date. Information relating to the 2012/13 & 2013/14 Federal Budgets, and announcements made by the Federal Government on 5 April 2013 is based on our understanding of the proposals. The information provided in this presentation in relation to these announcements is subject to change and certain proposals may not become effective until they are enacted by Parliament. You should not rely on this information and it should be verified prior to making any decision. Defined benefits (including defined benefit pensions) are not guaranteed and are subject to the risk that the pool of assets supporting them may not be sufficient to meet all of UniSuper s defined benefit obligations. In the event of prolonged underfunding, clause 34 of UniSuper s trust deed provides a mechanism for defined benefits to be reduced on a fair and equitable basis. A clause 34 monitoring period was recently concluded and it was resolved to reduce the defined benefit formula from 1 January 2015 by changing the definition of Benefit Salary as it applies to service on and after 1 January This change does not affect defined benefits or pensions that become payable before 1 January There are two further clause 34 monitoring periods in place concluding on 30 June 2015 and 30 June The information contained in this presentation is not legal, taxation or accounting advice. Professional advice should be obtained before making any decisions. Whilst care has been taken in the preparation of this information, the accuracy or completeness of the information is not guaranteed. This presentation was prepared and issued by UniSuper Management Pty Ltd ABN , AFSL No: , which is also the administrator of, and wholly owned by, the UniSuper Superannuation fund (ABN ). UniSuper Limited (ABN ) is the trustee of the fund. If you would like to contact us please do so on or alternatively send us an to enquiry@unisuper.com.au 3 Investment Update David Schneider Head of Research & Quant Methods The University of Melbourne November

3 Agenda Macro-economic update Financial conditions and market outlook Focus on UniSuper s options» Australian Equity Income Option» Global Companies in Asia Option» Defined Benefit Division Performance 5 Macro-economic update 3

4 The economic cycle; what is the new normal 20 USA QoQ GDP Growth (%) The economic cycle; what is the new normal 5 Australia QoQ GDP Growth (%)

5 The Australian economy mining investment slowing and non mining is mixed, but some signs of improvement Source: Thomson Reuters, AMP Capital 9 Australia s public finances are in relatively good shape Source: IMF, AMP Capital 10 5

6 Financial conditions and market outlook To understand markets pay attention to financial conditions Economic Fundamentals Financial Conditions GDP Growth Valuation Inflation Sentiment Unemployment Liquidity 12 6

7 Sentiment was very poor not long ago Warning from respected business journalist Alan Kohler on 17 December 2011 IMPORTANT: I believe the conditions are in place for another major panic sell-off on the sharemarket. I don't know when it will happen and it is not a certainty that it will happen (nothing is ever a certainty), but I think the risk is now such that you must take action. On Monday I will be significantly reducing my already reduced exposure to equities, possibly to zero 13 The post-gfc white-knuckle ride Alan Kohler says SELL! 14 7

8 Equities now appear fairly priced 18 Australian Equities - Forward Price Earnings Ratio Equities expensive Equities cheap May 2005 Aug 2005 Nov 2006 Feb 2006 May 2006 Aug 2006 Nov 2007 Feb 2007 May 2007 Aug 2007 Nov 2008 Feb 2008 May 2008 Aug 2008 Nov 2009 Feb 2009 May 2009 Aug 2009 Nov 2010 Feb 2010 May 2010 Aug 2010 Nov 2011 Feb 2011 May 2011 Aug 2011 Nov 2012 Feb 2012 May 2012 Aug 2012 Nov 2013 Feb 2013 May 2013 Aug FWD PE Average +/- 1 standard deviation Source: Bloomberg, UniSuper 15 Bond yields Still expensive from a historic perspective 8 10 Year Commonwealth Government Securities Long Bond Yield (%) Long Bond Yields Average 6% Yields Recover GFC: Flight to safety Eurozone/Sovereign Crisis Yields starting to normalise 2 Unprecedented levels 1 0 Jul 13 Jan 13 Jul 12 Jan 12 Jul 11 Jan 11 Jul 10 Jan 10 Jul 09 Jan 09 Jul 08 Jan 08 Jul 07 Jan 07 Jul 06 Jan 06 Jul 05 Jan 05 Jul 04 Jan 04 Jul 03 Jan 03 Jul 02 Jan 02 Jul 01 Jan 01 Jul 00 Jan 00 Jul 99 Jan 99 Source: Bloomberg, UniSuper 16 8

9 Dividend yields v. bonds Source: Bloomberg, UniSuper Past performance is not an indicator of future performance. Views on sentiments reflect currently available data, are subject to change and are not guaranteed. 17 Outlook for 2013 Valuations appear fair for equities SELL Valuations EXPENSIVE Liquidity / Funding costs unsupportive Sentiment very optimistic HOLD Valuations FAIR Liquidity / Funding costs neutral Sentiment neutral last year WAIT Valuations EXPENSIVE Liquidity / Funding costs unsupportive Sentiment nervous BUY Valuations CHEAP Liquidity / Funding costs supportive Sentiment very pessimistic 18 9

10 Periods of industrialisation have been good for equity markets Australian Sharemarket Returns Source: IRESS, GS&PA Research estimates < to to to 0 0 to to to to 40 >40 10

11 Australian Sharemarket Returns Source: IRESS, GS&PA Research estimates Industrialisation of the US < to to to 0 0 to to to to 40 > Australian Sharemarket Returns Source: IRESS, GS&PA Research estimates 1929 & 1930 Start of the Great Depression < to to to 0 0 to to to to 40 >40 11

12 Australian Sharemarket Returns Source: IRESS, GS&PA Research estimates Post WW2 recovery Commercial industrialisation of Japan < to to to 0 0 to to to to 40 > Australian Sharemarket Returns Source: IRESS, GS&PA Research estimates Industrialisation of South Korea < to to to 0 0 to to to to 40 >40 12

13 Australian Sharemarket Returns Source: IRESS, GS&PA Research estimates 2003 onwards Industrialisation of China begins to hit critical mass < to to to 0 0 to to to to 40 >40 Summary The economic cycle is still alive;» the global economy continues to heal after the great recession The equity market has largely anticipated the improved macro picture and now looks fairly valued Bonds, however, still look expensive Given favourable relative valuations, and favourable global trends, UniSuper still prefers equities over bonds Equity preferences are:» High quality fortress assets» Global companies benefiting from emerging Asia» High yielding Australian equities 26 13

14 UniSuper Option Focus Australian Equity Income Option Australian Equity Income Investment thesis In a post-gfc world, interest rates are likely to stay low for a long time due to:» Lower inflation expectations; and» Accommodative monetary policies as central banks take on most of the responsibility to stimulate economic growth. Low bond yields, cash and term deposit rates will encourage investors to seek higher yielding assets. While investors will be prepared to accept more risk, many will be very selective with respect to the type of equity risk they are prepared to accept. For many investors, high yielding blue chip companies will be preferred over general equity exposure

15 In search of yield Australian Equity Income Option Option Objectives Provide income yield greater than Australian share market (currently 4%)» Note that franking credits can increase income yield by an additional 1.4% Provide capital growth potential Suitable for Risks Investors who want equity exposure with a preference for blue-chip, high yielding equities, as distinct from general equity market exposure which includes higher risk / higher growth companies Investors able to benefit from franking credits (i.e. superannuation funds) Volatility associated with equity markets, which can result in large fluctuations in capital values Investment time horizon has to be long term (i.e. five years or longer) 29 USA v. Australia Australia s post GFC performance appears to be well behind the USA 130 S&P 500 vs ASX Standardised to 100 from January US S&P500 AU ASX

16 The Importance of Dividends After including dividends the performance gap narrows considerably ASX200 vs S&P500 Total Return 120 Standardised to 100 from January US S&P500 AU ASX In search of yield Australian Equity Income Option Australian Equity Income vs. ASX300 (Cumulative Returns) Top 10 Holdings STOCK NAME PORTFOLIO WEIGHT (%) DIV YIELD (NET %) DIV YIELD (GROSS %) Index Value TELSTRA WESTPAC CBA NAB ANZ TRANSURBAN Apr 2012 May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2013 Apr 2013 WOOLWORTHS WESFARMERS WOODSIDE Aust Equity Income (After Tax and Fees) ASX 300 (After tax and Fees) ASX Source: Net and Gross dividend yields sourced from Goldman Sachs forecast data

17 Example of a key AEI holding: Woolworths Consistent earnings and dividends what GFC? $35 Woolworths Share Price vs Dividend per Share $2.00 $30 $1.80 $1.60 $25 $1.40 Share Price $20 $15 $1.20 $1.00 $0.80 Dividend Per Share $10 $0.60 $5 $0.40 $0.20 $ FY End DPS Price $ UniSuper Option Focus Global Companies in Asia Option 17

18 Global Companies in Asia Investment thesis The industrialisation and urbanisation of Asia will be the most important economic development for at least the next few decades, and possibly the 21 st century Investing in Asian based companies may well be rewarding. However, Asian markets are still relatively under developed, illiquid, and often lack robust corporate governance frameworks Therefore, a potentially less risky way of benefiting from the Asian story is to identify companies listed in developed markets. These will include many well known global brands, deriving a significant proportion of their sales from the emerging Asian region 35 Why? 1. Population growth Between now and 2050, the world s population will grow by 2 billion people» 2.2 billion people will be from developing nations! Source: UniSuper, United Nations Department of Economic and Social Affairs Population Division,

19 Why? 2. Urbanisation China s urbanisation rate will rise from 50% to 65% over the next 15 years» By 2025 China s urban population will grow by 300 million people Source: UniSuper, United Nations Department of Economic and Social Affairs Population Division, Why? Result = increasing Share of GDP World GDP Source: UniSuper, United Nations Department of Economic and Social Affairs Population Division,

20 Why? 3. Rising middle and upper class By 2030 the global middle class will number 4.9 billion from 2 billion today» China and India will account for 2 billion of the 2.9 billion new middle class 16% 5% Source: UniSuper, McKinsey 39 Why? 4. Spending habits change Projected change in breakdown of consumption spend, urban China Source: UniSuper, National Bureau of Statistics of China +17bn RMB 40 20

21 Portfolio Construction Criteria Algorithm Total Securities 67,190 35,748 Remove Emerging Markets Remove Incorporation in EM 33,024 4,359 Remove Mkt Cap <$US1bn Remove Tobacco 4,348 1,648 Consider only consumption based Add major brands 1,673 10% or $1B in EM sales Growth in sales over 3 year period Global Companies in Asia Portfolio Snapshot at 30 September 2013 Top 5 Holdings by Region NORTH AMERICA % of Portfolio Citigroup 3.59 General Electric 3.07 Apple 3.04 JPMorgan 2.93 Qualcomm 2.67 EUROPE % of Portfolio Nestle 2.91 Unilever 2.38 Siemens 2.11 BMW 2.10 Volkswagen 2.07 ASIA PACIFIC % of Portfolio Samsung 2.10 AIA 1.97 United Overseas 1.12 ANZ Bank 1.06 Toyota 0.63 Industry Classification Country Classification % % 42 21

22 UniSuper Option Focus Defined Benefit Division Defined Benefit Division ABI and VBI as at June 2013 Defined Benefit Division VBI and ABI 44 22

23 DBD positioning Required return of ~7% p.a. High weighting to growth assets to achieve required return High weighting to high yielding Australian assets Positioning generated a return of 18.3% Actual Asset Allocation 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Past performance is not an indicator of future performance. Views on sentiments reflect currently available data, are subject to change and are not guaranteed. 0% 30 June June 2013 Global Shares Australian Shares Alternative Assets Australian Property Cash & Bonds 45 Performance 23

24 Option performance as at 30 September 2013 OPTION FYTD (%) 1 YEAR (%) 3 YEARS (%) 5 YEARS (%) 7 YEARS (%) High Growth Balanced Cash DBD OPTION FYTD (%) 1 YEAR (%) SINCE INCEPTION (21 APRIL 2012) Australian Equities Income Global Companies in Asia Global Environmental Opportunities Quartile ranking of UniSuper s diversified accumulation option performance* UNISUPER DIVERSIFIED OPTION 1 YEAR 3 YEARS 5 YEARS 7 YEARS 10 YEARS Cash Q2 Q2 Q2 Q2 Q1 Capital Stable Q2 Q1 Q1 Q1 Q1 Conservative Balanced Q1 Q1 Q1 Q1 Q1 Balanced Q2 Q1 Q1 Q1 Q1 Growth Q2 Q2 Q1 Q1 Q1 High Growth Q3 Q2 Q1 Q1 Q1 Key Q1: Top quartile (i.e. top 25% of all superannuation funds that participate in the SuperRatings Survey) Q2: Second quartile (i.e. between the median and the top 25% of all superannuation funds) Q3: Third quartile * SuperRatings Crediting Rate Survey 30 June 2013 Past performance is not an indicator of future performance. Survey data is for Pension Options not Accumulation Options

25 UniSuper Investment Options & Advice Graham Eggins Regional Manager The University of Melbourne November 2013 Get to know your tolerance to risk High Low Potential return The higher the potential return, the higher the potential risk... Cash Australian Bond Balanced Socially Responsible Balanced Capital Stable Conservative Balanced Listed Property Growth Australian Shares International Shares High Growth Socially Responsible High Growth Global Environmental Opportunities Australian Equity Income Global Companies in Asia Growth assets Defensive assets Single-asset class options Low Expected risk High This is a conceptual chart showing the risk/return trade offs where risk means volatilityas opposed to the risk of a negative return 50 25

26 Making the most of your Accumulation account Choose your investment option A single Pre-Mixed investment option or elect your own mix from our range of: - 6 Pre-Mixed investment options, and - 9 Single Asset Class investment options UniSuper offers separate investment choice functionality to: - Direct how future contributions are invested - Direct how rollovers are invested - Switch your existing investments independent of which options your future contributions are invested 51 Pre-Mixed investment options Investment option Strategic Growth/Defensive asset mix (%) Performance objective over suggested investment horizon Capital Stable 30/70 2.0% pa + CPI Conservative Balanced 50/50 2.5% pa + CPI Balanced 70/30 3.0% pa + CPI Socially Responsible Balanced 70/30 3.0% pa + CPI Growth 85/15 4.0% pa + CPI High Growth 100/0 5.0% pa + CPI As at 30 June Each investment option has a strategic asset allocation to various asset classes. Actual allocations to each asset class (and therefore to growth and defensive assets) may deviate within permitted ranges. Strategic asset allocations and permitted ranges may change from time to time. Refer to our website for further details. Source:

27 Sector investment options Investment option Strategic Growth/Defensive asset mix (%) Performance objective over suggested investment horizon Cash 0/ % pa + CPI Australian Bond 0/ % pa + CPI Listed Property 100/0 3.0% pa + CPI Australian Shares 100/0 5.0% pa + CPI International Shares 100/0 5.0% pa + CPI Socially Responsible High Growth 100/0 5.0% pa + CPI Global Environmental Opportunities 100/0 5.0% pa + CPI Australian Equity Income 100/0 To exceed the Australian equity market dividend yield, and provide potential for capital growth Global Companies in Asia 100/0 5.0% pa + CPI As at 30 June Each investment option has a strategic asset allocation to various asset classes. Actual allocations to each asset class (and therefore to growth and defensive assets) may deviate within permitted ranges. Strategic asset allocations and permitted ranges may change from time to time. Refer to our website for further details. Source: 53 How UniSuper can help UniSuper offers 3 levels of advice: General Advice (phone-based) - Not specific to your personal situation Limited Advice (phone-based) - Single issue personal advice specific to your situation Comprehensive Personal Advice (face to face) - Full personal advice covering multiple issues specific to your situation Call UniSuper Advice today on for a complimentary initial assessment on the level of advice that might suit you 54 27

28 Any questions? 55 28