Global Equities Investments update Webinar for accredited financial advisers Date: 21 March 2018 Presenters: Stephen Fallet, Manager, Investment Communications Derek Ovington, Global Equities Portfolio Analyst
This is general information only This information has been prepared for professional financial advisers only. It is not suitable for retail clients. The information is of a general nature and does not take into account any persons personal objectives, situation or needs. Before making a decision about AustralianSuper, you should consider their financial requirements and read our Product Disclosure Statement, available at australiansuper.com/adviserresources or by calling 1300 362 453. There are references to performance in this presentation. It is important to note that investment returns are not guaranteed and that past performance is not a reliable indicator of future returns. AustralianSuper Pty Ltd ABN 94 006 457 987 AFSL 233788 Trustee of AustralianSuper ABN 65 714 394 898 2
Presenter Stephen Fallet As Manager, Investment Communications, Stephen is responsible for monitoring and communicating the strategy and performance of AustralianSuper s PreMixed and DIY single asset class investment options. Stephen joined AustralianSuper in August 2014, bringing with him over 25 years experience in the investment management industry. With a background in economics, Stephen is a Fellow of Finsia (FFIN) and a Certified Investment Management Analyst (CIMA). 3
Presenter Derek Ovington As Global Equities Portfolio Analyst, Derek is responsible for covering ex-australia financial stocks. He joined AustralianSuper in November 2015 after five years on the sell-side with CLSA in Singapore and Hong Kong, covering Asian banks. Previous to this, he worked on the buy-side with MIR Investments Management and the sell-side with ABN AMRO Australia, and as a credit analyst with Westpac. With degrees in both Arts and Economics, Derek is a Fellow of Finsia (FFIN) and CFA Charterholder. 4
2017 growth and earnings deliver 2017 not too hot, not too cold. Steady global growth, low inflation and accommodative monetary policy fuels an ongoing broad based rally in asset prices. Low volatility risks complacency building with investors. Already evident in crypto-currencies! $25,000 $20,000 $15,000 $10,000 $5,000 $- Bitcoin Up 1,840% in 2017, before crashing Secular bull market in bonds markets at an end yields rising in 2017 and moving higher in 2018. Pace of US interest rate increases risk being influenced by political dynamic limited scope for higher rates in Australia. Twitter policy who would of thought it would be the biggest source of volatility in 2018. 5 Source: Factset / AustralianSuper
Recent short term noise 2,900 420 2,800 US Equities S&P Index 400 Credit Spreads BAML HY Spread 2,700 2,600 2,500 2,400 1/11/2017 1/12/2017 1/01/2018 1/02/2018 40 35 Volatility VIX index 30 25 20 15 10 5 1/11/2017 1/12/2017 1/01/2018 1/02/2018 380 360 340 320 300 1/11/2017 1/12/2017 1/01/2018 1/02/2018 3.0 2.8 US 10 year bond yield 2.6 2.4 2.2 2.0 1/11/2017 1/12/2017 1/01/2018 1/02/2018 6 Source: Factset / AustralianSuper
And a longer term perspective 3000 2500 2500 2000 US Equities S&P Index 2000 1500 Credit Spreads BAML HY Spread 1500 1000 1000 500 500 0 85 4.5 65 Volatility VIX index 4.0 3.5 US 10 year bond yield 45 3.0 2.5 25 2.0 1.5 5 1.0 7 Source: Factset / AustralianSuper
2017 asset class returns Asset class returns Emerging Mkt Equities (Unhedged) Developed Mkt Equities (Unhedged) Australian Equity Property Infrastructure Private Equity Australian Cash Global Bonds (Hedged) Australian Bonds Australian dollar -5% 0% 5% 10% 15% 20% 25% 30% 5 yrs annualised ending December 2017 1 year December 2017 8 Source: Factset / AustralianSuper
Balanced fund performance Ranking of returns to 31 January 2018 Balanced option Median * Relative Ranking FYTD% 8.4 6.9 +1.5 2 / 49 Year % 15.0 11.9 +3.1 1 / 49 3 years % pa 9.6 7.8 +1.8 2 / 49 5 years % pa 10.9 9.3 +1.6 2 / 49 7 years % pa 9.6 8.1 +1.5 3 / 49 10 years % pa 6.8 5.9 +0.9 4 / 45 Source: SuperRatings Fund Crediting Survey January 2018 9
Pre-Mixed options performance Ranking of returns to 31 January 2018 10 years p.a. 5 years p.a. 3 years p.a. 1 year FYTD High Growth 10 / 43 1 / 48 2 / 48 2 / 48 2 / 48 Balanced 4 / 45 2 / 49 2 / 49 1 / 49 2 / 49 Socially Aware = 2 / 44 = 4 / 47 = 7 / 47 = 8 / 47 = 23 / 47 Indexed Diversified n/a n/a n/a n/a n/a Conservative Balanced 2 / 22 1 / 24 1 / 24 2 / 24 3 / 24 Stable 1 / 44 2 / 48 1 / 49 2 / 49 7 / 49 Source: SuperRatings Fund Crediting Survey January 2018 10
2017 what we got right, sources of value add All three active management levers contributed to performance in the PreMixed options portfolio mix the most significant contributor. Asset Class 3 years p.a. 1 year FYD Budgeted value add (1 year) Portfolio mix 108 80 51 70 Asset Class mix 9 28 4 52 Security selection 95 245 63 128 Total 212 352 118 250 Source: AustralianSuper 11
2017 what we got right, sources of value add Consistency with portfolio mix, strong rebound in stock selection. Source: AustralianSuper 12
Balanced option How we re presently positioned Asset classes Current* Median Relative 2017-18 SAA Listed Equities 60.9% 56.0% +4.9 59.0% Australian 25.2% 25.5% -0.3 25.0% International 35.8% 30.5% +5.3 34.0% Private Equity 3.4% 2.8% +0.6 3.0% Unlisted Assets 23.5% 20.0% +3.5 26.0% Direct Property 7.4% 7.5% -0.1 7.0% Infrastructure 11.2% 7.5% +3.7 13.0% High Yield & Loans 4.8% 5.0% -0.2 6.0% Fixed Interest & Cash 11.2% 21.2% -10.0 12.0% Fixed Interest 3.3% 13.6% -10.3 2.0% Cash 8.9% 7.6% +1.3 10.0% Other Assets 0.0% 0.0% 0.0 0.0% TOTAL 100% 100% 100 100 Currency 22.2% 19.8% +2.4 23.0% * As at 16 March 2018. Median Australiansuper s estimate of the asset allocation of the median fund in the SuperRatings SR50 Balanced Fund Survey 13
How we re going in 2017-18 10% 9.35% 2017-18 FYTD returns 8% 6% 8.20% 6.98% 6.72% 6.11% 4% 4.40% 2% 0% High Growth Balanced Socially Aware Indexed Cons Bal Stable 14 As at 15 March 2018.
Single asset class options FYTD 14.0% 12.0% 12.20% 2017-18 FYTD returns 10.0% 8.0% 7.80% 6.0% 5.34% 4.0% 2.0% 2.05% 1.27% 0.0% Australian Shares International Shares Property Diversified Fixed Interest Cash 15 As at 15 March 2018.
Global Equities at AustralianSuper Global equities sector $43 billion (February 2018) Benchmarked MSCI All Country World ex Australia Multi-manager portfolio construction External and Internal portfolio management teams Combination of styles growth, GARP, quality and value Active regional allocation mix Specialist emerging markets sleeve Internal portfolio management capability established in 2016 Headed by Christine Montgomery, 6 senior analysts supported by equities research team. Based in Melbourne Active core style with quality bias Outperform MSCI World ex Australia by 2% p.a. $6.5 billion in AUM 14% of sector 16
Internal Global Equities Team - Objective Establishing an internal Global Equities team has been a key strategic priority for the Equities department, as part of the Fund s internal management program We are building a capability for scale (FUM capacity of $20 30 bn) that will maximise alignment with AustralianSuper s interests through lower MER and improved net performance The Global Equities team was fully established in July 2016, and refined the investment process ahead of commencing investment from late October 2016. Objective: Outperform the benchmark (MSCI World) by 2% net over a rolling 5 year period We aim to achieve this by: investing for the long term adhering to a team-based investment process owning businesses with the potential to create value following a disciplined portfolio construction and review process. 17
Internal Global Equities: our philosophy. Investment Culture: Team-based Respectful: open-minded, collaborative and challenging Reflective: we understand our strengths and weaknesses Patient: we are investors, not traders, and are willing to be different from the crowd Investment Philosophy: Long term We believe markets contain persistent inefficiencies because of human behaviour and cognitive biases These inefficiencies can be exploited at the individual stock level by adopting a long term perspective. Investment Style: Core We want to buy good companies with strong or improving fundamentals and returns on capital We want to buy companies priced below our estimate of intrinsic value. 18
Investment process: overview 3000 Universe of companies Analyst & quantitative screen 400 Long list High level review 160 Short list Fundamental analysis & peer review 120 Focus list Portfolio Construction 40 Portfolio 19
Stock example: Visa The world s largest processor of retail credit and debit payments, forms an effective duopoly with MasterCard Benefits from structural shift from cash and cheque payments to debit and credit transactions Hugely profitable, sustainable competitive advantage with economies of scale Net profit of US$6.7bn in 2017 and returned US$8.5bn to shareholders. Source: Euromonitor, FactSet, company data. 20
Stock example: Deutsche Börse Europe s largest and most diversified exchange group. Owns Frankfurt Stock Exchange, Eurex (Europe s largest derivatives exchange) and Clearstream (Europe s 2 nd largest securities depository) Benefits from increasing volatility (more derivatives trading) and rising interest rates DB1 share price derated in 2016 over bid for LSE, creating a window for us to purchase beneath fundamental value. Source: FactSet, company data. 21
Stock example: Charles Schwab The one that got away! We looked at buying SCHW but couldn t make the valuation stack up the stock subsequently took off. Originally a discount broking pioneer, now one of the larger wealth managers in the US with a strong brand and sticky FUM Attractive revenue mix of asset management fees, net interest income and commissions However, priced at an aggressive premium to fundamental value that couldn t be justified by its growth or returns profile. Source: FactSet, company data. 22
Thank you Please feel free to ask us questions!