Schroder Investment Management Australia Bringing it all together Time to Focus on Outcomes

Transcription

1 Schroder Investment Management Australia Bringing it all together Time to Focus on Outcomes Greg Cooper, CEO, Schroder Investment Management Australia Ltd November 2011 Schroder Investment Management Australia Limited ABN Australian Financial Services Licence Level 20 Angel Place, 123 Pitt Street, Sydney NSW 2000

2 My ventures are not in one bottom trusted, Nor to one place; nor is my whole estate Upon the fortune of this present year: Therefore my merchandise makes me not sad. Shakespeare, Merchant of Venice

3 10% Inflation Adjusted 10 Year Rolling Returns (%p.a.) 9% 8% 7% 6% 5% 4% 3% 2% 1% Objective based target return Australian Median Growth Manager inflation adjusted rolling 10 years return 5% excess Return target 0% -1% Dec-94 Dec-96 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Source: Schroders. Morningstar Australian Growth Manager. RBA. Net of fees, gross of tax.

4 % vs Benchmark vs Objective Yrs 5 Yrs Source: Schroders, ABS. Large Australian superannuation fund returns for high growth option vs benchmark and that options stated investment objective to 30 June Objective is CPI+5%.

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6 Is this the real world? 5 Risk is volatility Relative risk and return trade-off is stable Current valuations are irrelevant in the long term Order of returns doesn t matter

7 Return (%p.a.) Return (%p.a.) What we thought would happen What did happen Efficient Frontier 1980's Efficient Frontier 's and 2000's 19% 10.5% 18% 10.4% 17% 16% 80: % 10.3% 15% 60: % 40:60 14% 13% 12% 40: % 10.2% 10.1% 60:40 80:20 11% 10.1% 10% 10% 15% 20% 25% Risk - St Dev (% p.a.) 10.0% 6% 8% 10% 12% 14% 16% Risk - St Dev (% p.a.) Source: Schroders. Datastream. ASX 200 and UBS. A Composite index. Actual risk (standard deviation) and return for the period 1 Jan 1980 to 31 Dec 1989 and 1 Jan 1990 to 31 Dec 2010.

8 31/12/79=100 Time in the market not Timing the Market Fully invested Miss top 10 days Miss +/- 100 days

9 The order of returns matters $700,000 Account balance after drawdown $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 Scenario A Scenario B $- 8 -$100, Age Source: Schroders, Scenario A: 8% p.a for 10years then 4% p.a. Scenarios B: 4% p.a for 10years then 8% p.a. $40,000 p.a. drawdown

10 Valuations matter 9 Distribution of 10 year Australian Equity returns by P/E band at start of period Source: Schroders, Datastream, MSCI Australia from 1/1/ /7/09

11 How long is long term? 1 0 US Equity Market

12 US 6 months ago US at present Europe 6 months ago Europe at present UK 6 months ago UK at present Japan 6 months ago Japan at present Defensive not defensive 10yr = Real Yield + Inflation Premium US Term Premium Drivers (12 Month % Contribution) 80% 60% 40% 20% 0% -20% Inflation Premium Real Yield Normal Yield (10yr Average) -40% Liquidity Growth Inflation Flight to Quality Source: Schroders, Bloomberg as at 31 October 2011

13 Time to reframe the problem The SAA is not our objective Assumption is that SAA will meet/exceed the objective over time Large basis risk predicated on some very long term equity data 12

14 Which world do you live in? Risk is running out of money Relative risk and return trade-off varies considerably Valuations are very relevant Path dependency is critical Emphasis on outcomes vs liabilities I m not trying to look beautiful I m just trying to look better than everyone else there. 13

15 Final Word(s) The industry is not well structured to deliver the change required Are we too concerned about the peer group? MySuper better or worse? Post Retirement 14

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17 Investment presentation Disclaimer statement This presentation is intended solely for the information of the person to whom it was provided by Schroder Investment Management Australia Limited (ABN , AFSL ) (Schroders). Investment in Schroder Funds may be made on an application form in the Product Disclosure Statement (PDS) which is available from the Schroders website The information contained in this Presentation is general information only and does not take into account your objectives, financial situation or needs. Before acting on the information contained in this Presentation you should obtain a copy of the PDS and consider the appropriateness of the information in regard to your objective, financial situation and needs before making any decision about whether to invest, or continue to hold. Schroders does 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, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this presentation or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this presentation or any other person. Returns shown are before tax and fees and all income is reinvested. You should note that past performance is not a reliable indicator of future performance. Opinions constitute our judgement at the time of issue and are subject to change. The information and opinions and associated estimates and forecasts contained in this document have been obtained from or are based on sources believed by us to be reliable, but no responsibility can be accepted for error of fact or opinion. For security reasons telephone calls may be recorded. 16