7.83% 57% LESS VOLATILE - | Prerequisite Capital Management€¦ · higher) without exposing the...

Prerequisite Capital Management Pty Ltd (ABN 27 141 060 933) is an Authorised

Representative of AIW Dealer Services Pty Ltd (ABN 59 153 322 420), AFSL 414256.

www.prerequisite.com.au

The Context:

“So, what defines an absolute return fund in terms of required size of return and desirable timeframe?

My personal belief based on discussions with advisers and investors suggests the required return is

"equity-like" and the measured timeframe is one year. So, each year, investors expect and want to

see a positive return that is in the ballpark of cash plus 3% to 4%... Today, that means an annual

return of around 7% to 10% each year - again, much more easily said than done...

When you consider that a very high proportion of investors (and advisers) has an "absolute return"

investment objective, you have to wonder why there are so few investments designed to achieve it. The

bottom line is that absolute return investing is incredibly difficult and achieved by very few."

...Michael Furey, Managing Director of Delta Research & Advisory 29h April 2014, “Absolute Return Investing... a nice goal” (Portfolio Construction Forum)

Targeted Portfolio Returns:

To be UNCORRELATED to Share market or Economy (i.e. no equity market related ‘roller-coaster’ rides)

To have LESS VOLATILITY than the Share Market or other ‘risk assets’ (i.e. a more

consistent/reliable return stream) To have NO DEBT, leverage or margin-loans driving returns Seeks to produce POSITIVE RETURNS over most 2 year rolling periods whilst consistently

outperforming (by several percentage points net of costs) the cash-rate or inflation-rate (whatever’s higher) without exposing the portfolio to excessive undue risks*

*Undue risk may be defined as the possibility of ‘permanent impairment of capital’

Since Inception Portfolio Performance:


RISK Profile...

CORE Portfolio 7.83% 57% LESS VOLATILE than the Sharemarket (S&P/ASX 200)

(net of IM fees, inception 15th July 2013) 0.36 UNCORRELATED to the Sharemarket

Volatility 3.87% 26% Achieved with HIGH CASH Holdings (ave. cash since inception)

Sharpe Ratio: 1.38 78% CONSISTENTLY POSITIVE monthly returns (% positive months)

14% LOW PORTFOLIO TURNOVER (since inception p.a. turnover)

Strategic Opportunities 13.03% 52% LESS VOLATILE than the Sharemarket (S&P/ASX 200)

(net of IM fees, inception 23rd July 2013) 0.22 UNCORRELATED to the Sharemarket

Volatility 4.36% 38% Achieved with HIGH CASH Holdings (ave. cash since inception)

Sharpe Ratio: 2.42 83% CONSISTENTLY POSITIVE monthly returns (% positive months)

16% LOW PORTFOLIO TURNOVER (since inception p.a. turnover)

Most Recent Inflation & Cash Rates No Debt or Leverage

CPI (inflation) Rate 2.3% No Derivatives

(Q3 2014, YOY, Source: RBA) No Short-selling

RBA Cash Interest Rate 2.5% No Illiquid Securities or Investments

(as at 31st December 2014, Source: RBA)

Since Inception to 31st December 2014

ANNUALISED Rate of RETURN

SIMPLE, BIG, BORING, easy to understand, long-only, liquid,

direct, exchange-traded securities.

Liquidity UNconstrained StrategyLiquidity UNCONSTRAINED Strategy

SMA Solution:

General Information: This document has been prepared for the

general information of clients only and as such does not constitute

direct or specific advice to anyone. Should you require more

information, please contact your Prerequisite Advisor. Past

performance is not necessarily indicative of future performance.

Since Inception // Performance

INDEPENDENT CUSTODIAN

Assets securely held in your name (or the

name of your entity) directly by you using a

reputable and well-established custodian.

TOTALLY TRANSPARENT

(i.e. nothing hidden or opaque, knowing

and seeing exactly what you own, what it’s

worth, and what costs are associated with

it anytime you want etc)

EASY, AUTOMATED

ADMINISTRATION and reporting

(i.e. to make it easy to monitor and come

tax time your accountant will love you)

http://www.prerequisite.com.au/

Prerequisite Capital Management Pty Ltd ACN 141 060 933, is an Authorised Representative of AIW Dealer Services Pty Ltd ABN 59 153 322 420, an Australian Financial Services Licensee with its registered office at Level 1, 155 Baroona Road Rosalie Qld 4064


PCM Strategic Opportunities Portfolio:

% Positive Months: 83%

Average Monthly Return:

1.00%

Average Cash Holding: 38%

Portfolio Turnover:

16% p.a.

52.3% less volatile than ASX & uncorrelated (0.22). [Carrying an average of about 38% cash throughout this period.]

+19.31% (net of IM fees)

(Daily, to 31st December 2014)



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% Equities - International

Equities - Domestic

Commodities

Precious Metals

Bonds - Intl (Sovereign)

Cash & T-Bills

Net of Investment Management Fees

$10,000 Period 1 Mth 2 Mth 3 Mth 6 Mth 1 Year Inception Cumulative Return Volatility

10,000$ 30-Jun-13 (inception date 23rd July 2013)

10,110$ 31-Jul-13 1.10% 1.10%

10,127$ 31-Aug-13 0.17% 1.27% 1.27%

9,892$ 30-Sep-13 -2.32% -2.15% -1.08% -1.08%

9,937$ 31-Oct-13 0.46% -1.87% -1.71% -0.63% -2.28% 5.19%

10,117$ 30-Nov-13 1.81% 2.27% -0.10% 1.17% 3.32% 5.42%

10,253$ 31-Dec-13 1.35% 3.18% 3.65% 2.53% 2.53% 5.83% 5.09%

10,487$ 31-Jan-14 2.28% 3.66% 5.53% 3.73% 4.87% 9.46% 5.24%

10,579$ 28-Feb-14 0.88% 3.17% 4.56% 4.46% 5.79% 9.78% 4.86%

10,378$ 31-Mar-14 -1.90% -1.04% 1.22% 4.91% 3.78% 5.54% 5.46%

10,421$ 30-Apr-14 0.42% -1.49% -0.63% 4.87% 4.21% 5.50% 5.14%

10,524$ 31-May-14 0.99% 1.41% -0.51% 4.03% 5.24% 6.16% 4.92%

10,505$ 30-Jun-14 -0.19% 0.80% 1.22% 2.45% 4.92% 5.05% 5.40% 4.73%

10,556$ 31-Jul-14 0.49% 0.31% 1.30% 0.66% 4.32% 5.56% 5.44% 4.53%

10,718$ 31-Aug-14 1.53% 2.03% 1.84% 1.32% 5.67% 7.18% 6.46% 4.47%

11,017$ 30-Sep-14 2.80% 4.37% 4.88% 6.16% 10.78% 10.17% 8.49% 4.77%

11,100$ 31-Oct-14 0.75% 3.57% 5.15% 6.52% 11.07% 11.00% 8.54% 4.61%

11,523$ 30-Nov-14 3.81% 4.59% 7.51% 9.49% 13.02% 15.23% 11.02% 5.19%

11,931$ 31-Dec-14 3.54% 7.49% 8.29% 13.58% 15.15% 19.31% 13.03% 5.49%

Since Inception Annualised (p.a.)


Portfolio Turnover:

16% p.a.



PCM Core Portfolio:

57.5% less volatile than ASX & uncorrelated (0.36). [Carrying an average of about 26% cash throughout this period.]

+11.67% (net of IM fees)

% Positive Months: 78%

Ave. Monthly Return:

0.62%


Portfolio Turnover:

14% p.a.

(Daily, to 31st December 2014)



0%

20%

40%

60%

80%

100%

Jul-

13

Au

g-1

3

Sep

-13

Oct

-13

No

v-1

3

De

c-1

3

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May-…

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

De

c-1

4

Equities - International

Equities - Domestic

Precious Metals

Bonds - Sovereign

Cash & T-Bills

Net of Investment Management Fees

$10,000 Period 1 Mth 2 Mth 3 Mth 6 Mth 1 Year Inception Cumulative Return Volatility

10,000$ 30-Jun-13 (inception date 15th July 2013)

10,181$ 31-Jul-13 1.81% 1.81%

10,346$ 31-Aug-13 1.62% 3.46% 3.46%

10,126$ 30-Sep-13 -2.13% -0.54% 1.26% 1.26%

10,161$ 31-Oct-13 0.35% -1.79% -0.19% 1.61% 5.56% 6.29%

10,092$ 30-Nov-13 -0.69% -0.34% -2.46% 0.92% 2.44% 5.71%

10,095$ 31-Dec-13 0.03% -0.65% -0.30% 0.95% 0.95% 2.07% 5.11%

10,200$ 31-Jan-14 1.04% 1.07% 0.38% 0.19% 2.00% 3.68% 4.80%

10,406$ 28-Feb-14 2.01% 3.08% 3.11% 0.57% 4.06% 6.57% 4.92%

10,333$ 31-Mar-14 -0.69% 1.31% 2.36% 2.05% 3.33% 4.73% 4.81%

10,436$ 30-Apr-14 1.00% 0.30% 2.32% 2.71% 4.36% 5.54% 4.59%

10,540$ 31-May-14 0.99% 2.00% 1.29% 4.44% 5.40% 6.18% 4.39%

10,567$ 30-Jun-14 0.25% 1.25% 2.26% 4.67% 5.51% 5.67% 5.92% 4.19%

10,711$ 31-Jul-14 1.37% 1.62% 2.63% 5.01% 5.07% 7.11% 6.80% 4.10%

10,767$ 31-Aug-14 0.52% 1.90% 2.16% 3.47% 3.98% 7.67% 6.77% 3.94%

10,690$ 30-Sep-14 -0.71% -0.19% 1.17% 3.45% 5.42% 6.90% 5.67% 3.96%

10,823$ 31-Oct-14 1.24% 0.52% 1.04% 3.70% 6.31% 8.23% 6.29% 3.89%

10,974$ 30-Nov-14 1.39% 2.65% 1.92% 4.12% 8.38% 9.74% 6.98% 3.84%

11,167$ 31-Dec-14 1.76% 3.18% 4.46% 5.68% 10.09% 11.67% 7.83% 3.85%

Since Inception Annualised (p.a.)

Average Cash Holding:

26%

Portfolio Turnover: 14% p.a.




How PCM Portfolios Compare:

“When you consider that a very high proportion of investors (and advisers) have an "absolute return" investment objective, you have to wonder why there are so few investments designed to achieve it.”

...Michael Furey, Managing Director of Delta Research & Advisory

29th April 2014, “Absolute Return Investing... a nice goal” (Portfolio Construction Forum)

The Correlation Grid:

(monthly returns from 31st Jul 2013)




Australia, iShares UBS Treasury ETF, Total Return

S&P/ASX 200 (AI)

60/40 Portfolio (ASX Equities/UBS Treasuries)

CorCapital Fund

PCM Core Portfolio

PCM Strategic Opportunities Portfolio

HFRX, Global Hedge Fund Index (AUD)

60/40 PCM Portfolios (60% Core, 40% Strategic Opps)

HFRX, Absolute Return Index (AUD)

0%

2%

4%

6%

8%

10%

12%

0% 2% 4% 6% 8% 10% 12%

Ret

urn

(p

.a.)

Risk (Volatility, p.a.)

Return vs. Risk (31 Jul 2013 to 31 Dec 2014)

No Derivatives

No Short-selling

No Leverage (or Leveraged ETFs) No Inverse ETFs No Illiquid Securities or Investments No Opaque/Expensive/Complicated

Hedge Funds or Managed Funds (only index funds, ETFs and direct securities)

PCM Investment Portfolios. Absolute Returns, Liquid, Transparent...

CORE Portfolio

• Conservative Capital Preservation Mandate

• Only ASX listed securities (shares, bonds, ETFs)

• Domestic focus (Australia)

Strategic Opportunities Portfolio

• Conservative but more Proactive Mandate

• Only ASX & NYSE listed securities (shares, bonds, ETFs)

• International Exposure




Portfolio:


1.0 Inception Date 23rd July 2013 (Model Portfolio listed on the Linear Platform)

2.0 Investment Objective The Strategic Opportunities Portfolio (STRAT OPS) seeks to take calculated risks in order to generate above average returns and to produce positive real total-returns over any 24 month rolling timeframe. It targets a dampened volatility profile of up to 20-30% relative to the equity market and seeks to be materially uncorrelated to the equity market over a full cycle of 7 years. No leverage or short-selling is used.

2.1 Investments Australian (ASX) and US Listed ETFs & stocks (ASX300 & S&P500). Equities, Fixed Interest, Precious Metals, Cash, Commodities, Property & Currencies.

2.2 Strategy The Strategic Opportunities Portfolio uses a top-down global tactical asset allocation approach (with a portfolio-wide absolute return objective) that manages allocations and positions on the basis of trend following techniques complemented by macro-fundamental cycle and valuation analysis methodologies.

2.3 Asset Allocation Ranges Equities (0% to 70%), Bonds (0% to 70%), Precious Metals (0% to 50%), Cash (0% to 100%), Property (0% to 40%), Commodities (0% to 50%), Currency thematic positions (0% to 40%).

2.4 Minimum/Maximum Number of Securities to be Held

Minimum: Four ETF securities

Maximum: 30 Exchange Listed Securities

3.0 Minimum Initial Investment $25,000. (Minimum additional contribution thereafter is $1000.)

3.1 PCM Investment Management Fees

Base Management Fee: 1.11% pa (GST inclusive)

Performance Fee: 15% of outperformance (net of fees) above a hurdle of cash rate +3%, provided that the previous rolling 12 month high-water mark has been exceeded.

Calculated on a daily basis, paid to PCM monthly in arrears.

3.2 Linear Platform Administrative Charges

0.44% pa from $0 to $500,000

0.22% pa from $500,001 to $1,000,000

0.11% pa from $1,000,001 to $2,000,000

0.055% pa >$2,000,000

Calculated daily, paid to Linear Asset Management Pty Ltd monthly in arrears.

3.3 Transaction Costs To minimise costs, portfolio transactions are processed by Linear at wholesale brokerage rates. PCM receives no remuneration from such transactions.

4.0 PCM Investment Team Daniel J. Want (CIO): Daniel has been both an Investment Strategist for an Award Winning Australian Hedge Fund and also a Portfolio Manager for an Australian Listed Funds Management Company. Daniel’s background is both unconventional and unique, however it is precisely this unconventional background that has allowed him to accumulate and develop significant competitive advantages within the field of Investment Management and Research.

Darren A. Brind (Portfolio Manager): Darren has served extensively on Investment and Research Committees at both a Dealer Group and Fund Manager level. Darren’s experience over 24 years in the financial services industry encompasses: financial planning, funds management, corporate banking and stockbroking at a senior level for both boutique and institutional organisations.

4.1 Custodian The Responsible Entity has appointed JP Morgan Chase Bank, N.A. (Sydney Branch) (“JPMorgan”) to custody certain assets held through the Linear Managed Accounts. As such, JPMorgan will provide custody services in relation to certain investments made through the Scheme and will hold legal title of those investments. JPMorgan holds these assets on behalf of the Responsible Entity and is responsible to the Responsible Entity under a contractual relationship.

Key Person Risk:

Client portfolios are managed in a way that they are both transparent and highly-liquid. In the event that

both Daniel and Darren are unexpectedly rendered unable to provide Portfolio Management services,

then the Licensee would be able to convert the portfolio securities to cash within an orderly and quick

timeframe enabling the integrity of client funds to be maintained.

“Diversified risk-budgeting with the capacity for excess returns.”




Portfolio:

PCM Core Portfolio

1.0 Inception Date 15th July 2013 (Model Portfolio listed on the Linear Platform)

2.0 Investment Objective The Core Portfolio has a capital-preservation mandate and seeks to produce a positive real total-return over any 24 month rolling timeframe. It targets a dampened volatility profile of up to 40% relative to the equity market and seeks to be materially uncorrelated to the equity market over a full cycle of 7 years. There is no use of leverage or short selling.

2.1 Investments The portfolio invests in predominantly ASX-listed ETF products or index funds (with exposures to equities, fixed interest securities, precious metals, commodities, property and some foreign currency), ASX 300 stocks and has a domestically orientated bias to its exposure profile.

2.2 Strategy The Core Portfolio uses a top-down dynamic asset allocation approach (with a portfolio-wide absolute return objective) that allocates on a diversified basis to asset classes using trend following techniques complemented by macro-fundamental cycle and valuation analysis methodologies. There is no use of leverage or short-selling.

2.3 Asset Allocation Ranges Equities (0% to 55%), Bonds (0% to 55%), Precious Metals (0% to 55%), Cash (0% to 100%), Property (0% to 27%), Commodities (0% to 27%)

2.4 Minimum/Maximum Number of Securities to be Held

Minimum: Four ETF securities (diversified asset class index-style funds)

Maximum: 30 Exchange Listed Securities

3.0 Minimum Initial Investment $25,000. (Minimum additional contribution thereafter is $1000.)

3.1 PCM Investment Management Fees

Base Management Fee: 0.81% pa (GST inclusive)

Performance Fee: 15% of outperformance (net of fees) above a hurdle of cash rate +2%, provided that the previous rolling 12 month high-water mark has been exceeded.

Calculated on a daily basis, paid to PCM monthly in arrears.

3.2 Linear Platform Administrative Charges

0.33% pa from $0 to $500,000

0.165% pa from $500,001 to $1,000,000

0.11% pa from $1,000,001 to $2,000,000

0.055% pa >$2,000,000

Calculated daily, paid to Linear Asset Management Pty Ltd monthly in arrears.

3.3 Transaction Costs To minimize costs portfolio transactions are processed by Linear at wholesale brokerage rates. PCM receives no remuneration from such transactions.

4.0 PCM Investment Team Daniel J. Want (CIO): Daniel has been both an Investment Strategist for an Award Winning Australian Hedge Fund and also a Portfolio Manager for an Australian Listed Funds Management Company. Daniel’s background is both unconventional and unique, however it is precisely this unconventional background that has allowed him to accumulate and develop significant competitive advantages within the field of Investment Management and Research.

Darren A. Brind (Portfolio Manager): Darren has served extensively on Investment and Research Committees at both a Dealer Group and Fund Manager level. Darren’s experience over 24 years in the financial services industry encompasses: financial planning, funds management, corporate banking and stockbroking at a senior level for both boutique and institutional organisations.

4.1 Custodian The Responsible Entity has appointed JP Morgan Chase Bank, N.A. (Sydney Branch) (“JPMorgan”) to custody certain assets held through the Linear Managed Accounts. As such, JPMorgan will provide custody services in relation to certain investments made through the Scheme and will hold legal title of those investments. JPMorgan holds these assets on behalf of the Responsible Entity and is responsible to the Responsible Entity under a contractual relationship.

“All-weather capital preservation with the flexibility to ride profitable trends”



Incorporating Risk Profiling into an Absolute Return approach:

The following illustrates how we typically manage the Portfolio Combinations relative to our Client’s Risk

Profiles (Private Wealth Clients).

Conservative Balanced Growth High Growth

PCM Core Portfolio 100% 80% 60% 40%


20% 40% 60%

Contact Information:

Daniel J. Want (Director)

[email protected]

Darren A. Brind (Director)

[email protected]

m. 0498 671 505

Prerequisite Capital Management Pty Ltd

ABN 27 141 060 933

Authorised Corporate Representative of

AIW Dealer Services Pty Ltd

AFSL 414256

ph 1300 133 681

a PO Box 144 Morningside QLD 4170


“I would highly recommend the team at PCM to anyone who is seeking professional financial advice and

peace of mind around their investments and financial future.

Their “All-Weather” approach to investing is what you would expect of an adviser focussed on results

and outcomes for both me and my family. It is reassuring to know that they stand completely behind

what they do, and that their own family and friends are invested in similar ways that I am.

It is rare to find a team so committed to the principles of transparency, integrity and discretion – in all my

years I have yet to come across a team as passionate (and as family orientated) as those at PCM.”

…D. Raisin, Business Owner, QLD

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