Independent Investment Solutions - My Dealer...
32
Transcript of Independent Investment Solutions - My Dealer...
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2
Agenda
• Our compelling offer to you
• Investment philosophy
• Our approach to asset allocation and equities portfolio management
• Market outlook and portfolio positioning
• Summary, questions and discussion
3
Andrew Doherty
Qualifications
• Master of Business Administration, AGSM, 1999-2004
• Master of Economics, Macquarie University, 1992-1993
• Bachelor of Economics, Macquarie University, 1986-1990
• HSC, Knox Grammar School Sydney, 1980-1985
Career Summary
• Morningstar - Head of Equities, July 2006-December 2013
• Aspect Huntley - Research Manager, 1999-2006
• Deutsche MG, London - Equity Derivatives Risk, 1997-1998
• JP Morgan, London - Fixed Income, 1996-1997
• Credit Suisse AM – Fixed Interest Investment Manager, 1994-1995
AssureInvest Mission
To provide independent, specialist
guidance to advisory firms and high net
worth individuals to help them achieve
their financial goals.
We form alliances with our clients
through objective, customised
investment and business solutions.
4
Equity portfolio outperformance versus market and peers
5
0.7
4.2
7.4
0.6
3.5
6.5
0
1
2
3
4
5
6
7
8
1 month 3 months Since Inception (Feb 14)
Returns to August 2014
AssureInvest Australian Equity S&P/ASX 200
%
Strong record of outperformance
Equities portfolio returns to November 2013
6
Specific portfolio management responsibility for Morningstar Core portfolio (inception 2004) July 2004 to March 2013, Income (inception 2001) March
2013 to December 2013, Sustainable (inception 2011) March 2013 to December 2013 and Small Cap (inception 2011) March 2013 to December 2013.
Oversight responsibility for all portfolios at other times.
12.2
10.0
19.2
12.5 13.2 15.0
-
16.3
-
19.1
-
5.0
10.0
15.0
20.0
25.0
3 Yr %pa Since Inception %pa
STRONG HISTORIC RETURNS
Core Income Growth Sustainable Small Cap
2.2
0.8
9.2
4.0 3.2
2.5
-
-0.3
-
25.5
-2.0
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
3 Yr %pa Since Inception %pa
RETURNS AHEAD OF BENCHMARK
Core Income Growth Sustainable Small Cap
Our compelling offer to you
• We collaborate with our clients to maximise their
business potential
• Experience, record of outperformance
• Exclusivity – we advise a strictly limited number of
highly valued clients
• Independence - trust, integrity, passion, transparency
• Variety of service options
• Investment consulting (governance, portfolio construction)
• Model portfolios
• Managed account portfolio licensing
• Client portfolio review
7
Investment Philosophy
8
Capital Preservation &
Superior Returns
• Long-term focus on fundamental high-quality and value
• Competitively advantaged firms preferred for investment of capital at high rates of return
• Allowing margin of safety increases potential gains while reducing chance of capital loss
• Suitable diversification across assets and sectors reduces risk
• Macroeconomic overlay helps maximise portfolio returns and reduce risk
• Cost focus through direct securities, low turnover and tax management
• Investment success requires patience and discipline to reduce the risk of permanent capital loss
Equities Investment Process
9
Portfolio
Fundamental Data Screens
External Research Checks
Proprietary Research
Macro Overlay
Mandates & Best Practice
Fundamental Data Screens
Return on equity
Return on Invested Capital
Free cash flow
Reliable earnings growth
Responsible Leverage
Net Debt/Equity
EBIT/Interest Cover
EV/EBITDA
Operating Leverage
Valuation Methods
Price/Book
Price/Earnings
Price/Earnings Growth
Free Cash Flow Yield
Dividend Yield
EBIT/Enterprise Value
(EPS Growth + Yield)/PE
Margin of Safety
Measure Mandate
Objective Outperform
S&P/ASX 200
Accumulation
Index over long
term
Investment
Universe
S&P/ASX 200
Strategy Best S&P/ASX
200 high quality
opportunities,
concentrated
Number
stocks held
15 – 30
Maximum
position
weight
20%
Maximum
cash
weight
10%
Derivatives Not used
The importance of sustainable competitive advantage
• Companies able to invest capital at high
rates of return will create value over time
• Firms with sustainable competitive advantages
have unique assets or skills
• They will have strong industry positions in relation to
barriers to entry, rivalry, strength of consumers,
power of suppliers and degree of substitution
• Predictability of cash flows affects the ability
to reliably assess value
• Business risk is determined by revenue cyclicality,
operating leverage, balance sheet strength and
risk of unforeseen events
10
Sources of competitive advantage
11
Cost Advantage
Differentiation Advantage
Switching Costs
Network Effect
Asset Allocation Approach
Set Strategic Asset Allocations for Different Risk
Profiles
Estimate Asset Class Expected
Returns
Determine Asset Class Required Returns
Set Tactical TiltsAllowing a Margin of
Safety
Low Cost Implementation
12
15%
30%
50%
70%
85%
85%
70%
50%
30%
15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Defensive Moderately Defensive Balanced Moderate Growth High Growth
Strategic Asset Allocation - Asset Style by Portfolio
Growth Income
Various strategic asset allocations according to investor goals
13
10%
20%
30%
40%
55%
0%
5%
10%
10%
5%
3%
3%
6%
13%
16%
1.4%
1.4%
2.9%
5.7%
7.2%
0%
0%
1%
2%
2%
55%
45%
30%
15%
5%30%
25%20%
15%10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Defensive Moderately Defensive Balanced Moderate Growth High Growth
Australian Equities Australian REITs US Equities Europe Equities Japan Equities Australian Bonds Australian Cash
Strategic Asset Allocation - Assets Weights by Portfolio
14
Tactical Tilts away from European Equities and Bonds
15
0% 0% 0%
-1%
0%
-6%
7%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Australian Equities Australian REITs US Equities Europe Equities Japan Equities Australian Bonds Australian Cash
Variance from benchmark asset allocations for Moderate Growth Portfolio
Low Cost Implementation
16
0.15% 0.14% 0.13% 0.12% 0.10%
1.3%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
Defensive Moderately
Defensive
Balanced Moderate Growth High Growth Average Multi-Asset
Managed Fund *
Investment in direct securities and ETFs reduces product fees
well below multi-asset managed funds
* Source: Morningstar (fees before any performance fees)
Moderate Growth Portfolio - Implementation Example
17
10%
5%
4%
13%
5%
2%
22%
40%
Vanguard Australian Prop Secs Index ETF (VAP) iShares UBS Composite Bond ETF
AGB 2.75% 21/4/2024 iShares Core S&P 500
iShares Europe ETF iShares MSCI Japan ETF
BetaShares Aus High Interest Cash ETF (AAA) AssureInvest Australian Equities Portfolio
Investment outlook
18
US Fed Balance Sheet has Expanded by USD 3.3 Tr Since 2008Fed Funds Rate at Historic Lows
19
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2002 -12 - 1 8 2004 -12 - 1 8 2006 -12 - 1 8 2008 -12 - 1 8 2010 -12 - 1 8 2012 -12 - 1 8
US FED BALANCE SHEET (USD TR)
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2002 -07 - 0 1 2004 -08 - 0 1 2006 -09 - 0 1 2008 -10 - 0 1 2010 -11 - 0 1 2012 -12 - 0 1
%
US FED FUNDS RATE
Source: FRED
US Economy No Longer Weak…Supporting Fed Funds Rise Mid-2015
20
Avg Since Jan
1993= 4.6 %
-15.0
-10.0
-5.0
-
5.0
10.0
15.0
Ja
n-1
99
3
Se
p-1
99
3
Ma
y-1
99
4
Ja
n-1
99
5
Se
p-1
99
5
Ma
y-1
99
6
Ja
n-1
99
7
Se
p-1
99
7
Ma
y-1
99
8
Ja
n-1
99
9
Se
p-1
99
9
Ma
y-2
00
0
Ja
n-2
00
1
Se
p-2
00
1
Ma
y-2
00
2
Ja
n-2
00
3
Se
p-2
00
3
Ma
y-2
00
4
Ja
n-2
00
5
Se
p-2
00
5
Ma
y-2
00
6
Ja
n-2
00
7
Se
p-2
00
7
Ma
y-2
00
8
Ja
n-2
00
9
Se
p-2
00
9
Ma
y-2
01
0
Ja
n-2
01
1
Se
p-2
01
1
Ma
y-2
01
2
Ja
n-2
01
3
Se
p-2
01
3
Ma
y-2
01
4
US Retail Sales Growth Near Long Term Average
Long Term Avg:
85.1
50.0
60.0
70.0
80.0
90.0
100.0
110.0
120.0
197
8-0
1-0
1
197
9-0
5-0
1
198
0-0
9-0
1
198
2-0
1-0
1
198
3-0
5-0
1
198
4-0
9-0
1
198
6-0
1-0
1
198
7-0
5-0
1
198
8-0
9-0
1
199
0-0
1-0
1
199
1-0
5-0
1
199
2-0
9-0
1
199
4-0
1-0
1
199
5-0
5-0
1
199
6-0
9-0
1
199
8-0
1-0
1
199
9-0
5-0
1
200
0-0
9-0
1
200
2-0
1-0
1
200
3-0
5-0
1
200
4-0
9-0
1
200
6-0
1-0
1
200
7-0
5-0
1
200
8-0
9-0
1
201
0-0
1-0
1
201
1-0
5-0
1
201
2-0
9-0
1
University Michigan Consumer Confidence Now
Around Long Term Average
Average since
1967: 80.6
65.0
70.0
75.0
80.0
85.0
90.0
196
7-0
1-0
1
196
8-1
0-0
1
197
0-0
7-0
1
197
2-0
4-0
1
197
4-0
1-0
1
197
5-1
0-0
1
197
7-0
7-0
1
197
9-0
4-0
1
198
1-0
1-0
1
198
2-1
0-0
1
198
4-0
7-0
1
198
6-0
4-0
1
198
8-0
1-0
1
198
9-1
0-0
1
199
1-0
7-0
1
199
3-0
4-0
1
199
5-0
1-0
1
199
6-1
0-0
1
199
8-0
7-0
1
200
0-0
4-0
1
200
2-0
1-0
1
200
3-1
0-0
1
200
5-0
7-0
1
200
7-0
4-0
1
200
9-0
1-0
1
201
0-1
0-0
1
201
2-0
7-0
1
201
4-0
4-0
1
US Capacity Utilisation @ LT average
LT Avg 2.9%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
195
7-0
1-0
1
195
9-0
2-0
1
196
1-0
3-0
1
196
3-0
4-0
1
196
5-0
5-0
1
196
7-0
6-0
1
196
9-0
7-0
1
197
1-0
8-0
1
197
3-0
9-0
1
197
5-1
0-0
1
197
7-1
1-0
1
197
9-1
2-0
1
198
2-0
1-0
1
198
4-0
2-0
1
198
6-0
3-0
1
198
8-0
4-0
1
199
0-0
5-0
1
199
2-0
6-0
1
199
4-0
7-0
1
199
6-0
8-0
1
199
8-0
9-0
1
200
0-1
0-0
1
200
2-1
1-0
1
200
4-1
2-0
1
200
7-0
1-0
1
200
9-0
2-0
1
201
1-0
3-0
1
201
3-0
4-0
1
US Industrial Prod’n (YoY Chg%) modest, steady and near LT Avg
US Unemployment Could Fall to around 5% in mid-2015Inflation No Immediate Concern
21
1 year rolling avg
since 1990: 1.3%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
US Unit Labour Cost Average Annual Growth Below Long Term Average
5.4
4.94.7
4.6
6.1
9.69.5
9.0
8.1
7.2
6.1
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2004 2006 2008 2010 2012 2014
US Unemployment Continues to Decline (August, seas)
-4.0
-2.0
-
2.0
4.0
6.0
US CPI Contained Despite Recent Uptick
Source: US Bureau Labor Statistics
European GDP has recovered (again) but remains constrained
22
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
01/0
3/2
00
9
01/0
6/2
00
9
01/0
9/2
00
9
01/1
2/2
00
9
01/0
3/2
01
0
01/0
6/2
01
0
01/0
9/2
01
0
01/1
2/2
01
0
01/0
3/2
01
1
01/0
6/2
01
1
01/0
9/2
01
1
01/1
2/2
01
1
01/0
3/2
01
2
01/0
6/2
01
2
01/0
9/2
01
2
01/1
2/2
01
2
01/0
3/2
01
3
01/0
6/2
01
3
01/0
9/2
01
3
Eurozone GDP Annual Growth
0
5
10
15
20
25
30
European unemployment remains high
Doubling Consumption Tax Hits Japan YoY GDP Change
23
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
19
95-0
1-0
1
19
95-0
7-0
1
19
96-0
1-0
1
19
96-0
7-0
1
19
97-0
1-0
1
19
97-0
7-0
1
19
98-0
1-0
1
19
98-0
7-0
1
19
99-0
1-0
1
19
99-0
7-0
1
20
00-0
1-0
1
20
00-0
7-0
1
20
01-0
1-0
1
20
01-0
7-0
1
20
02-0
1-0
1
20
02-0
7-0
1
20
03-0
1-0
1
20
03-0
7-0
1
20
04-0
1-0
1
20
04-0
7-0
1
20
05-0
1-0
1
20
05-0
7-0
1
20
06-0
1-0
1
20
06-0
7-0
1
20
07-0
1-0
1
20
07-0
7-0
1
20
08-0
1-0
1
20
08-0
7-0
1
20
09-0
1-0
1
20
09-0
7-0
1
20
10-0
1-0
1
20
10-0
7-0
1
20
11-0
1-0
1
20
11-0
7-0
1
20
12-0
1-0
1
20
12-0
7-0
1
20
13-0
1-0
1
20
13-0
7-0
1
20
14-0
1-0
1
Australian growth modest while driver shifts from resources
24
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Ma
r-20
05
Ju
n-2
00
5
Se
p-2
00
5
De
c-2
00
5
Ma
r-20
06
Ju
n-2
00
6
Se
p-2
00
6
De
c-2
00
6
Ma
r-20
07
Ju
n-2
00
7
Se
p-2
00
7
De
c-2
00
7
Ma
r-20
08
Ju
n-2
00
8
Se
p-2
00
8
De
c-2
00
8
Ma
r-20
09
Ju
n-2
00
9
Se
p-2
00
9
De
c-2
00
9
Ma
r-20
10
Ju
n-2
01
0
Se
p-2
01
0
De
c-2
01
0
Ma
r-20
11
Ju
n-2
01
1
Se
p-2
01
1
De
c-2
01
1
Ma
r-20
12
Ju
n-2
01
2
Se
p-2
01
2
De
c-2
01
2
Ma
r-20
13
Ju
n-2
01
3
Se
p-2
01
3
De
c-2
01
3
Ma
r-20
14
Australian Annual GDP and CPI Changes
CPI GDPSource: ABS
Bond yields to normalise over a multi-year timeframe
25
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Au
g-1
99
0
Ma
r-19
91
Oc
t-19
91
Ma
y-1
992
De
c-1
99
2
Ju
l-199
3
Fe
b-1
994
Se
p-1
99
4
Ap
r-19
95
No
v-1
995
Ju
n-1
99
6
Ja
n-1
997
Au
g-1
99
7
Ma
r-19
98
Oc
t-19
98
Ma
y-1
999
De
c-1
99
9
Ju
l-200
0
Fe
b-2
001
Se
p-2
00
1
Ap
r-20
02
No
v-2
002
Ju
n-2
00
3
Ja
n-2
004
Au
g-2
00
4
Ma
r-20
05
Oc
t-20
05
Ma
y-2
006
De
c-2
00
6
Ju
l-200
7
Fe
b-2
008
Se
p-2
00
8
Ap
r-20
09
No
v-2
009
Ju
n-2
01
0
Ja
n-2
011
Au
g-2
01
1
Ma
r-20
12
Oc
t-20
12
Ma
y-2
013
De
c-2
01
3
Ju
l-201
4
Australian interest rates
RBA Cash Rate Australian 10YB
AssureInvest Australian Equities Portfolio
26
Australian equities - Attractive portfolio characteristics
• Forecast earnings per share (EPS)
growth for the portfolio exceeds the
market average due to the
preponderance of premium-quality
companies able to reinvest capital at
high rates of return
• This is seen in the higher portfolio return
on equity (ROE) compared to the
market
• Though the portfolio price/earnings
ratio is higher than ideal, it is below
market average
27
10.4
16.3 16.7
4.2
-1.8
18.4
10.8
4.0
-5.0
-
5.0
10.0
15.0
20.0
EPS Gth 5Y Fcst PE FY1 ROE Net Yld FY1
Portfolio Market Avg
Australian equities portfolio weighted to conviction sector opportunities
4%
8%6%
45%
5%7%
1%
16%
5%
2%0%
4%
8%
36%
12%
4% 3%
18%
6%
3%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Sector Relative Weights
Index Wt Portfolio Wt
28
Australian equities portfolio - Top 10 holdings
ASX
code Name GICS Sector Price Weight
Mkt Cap
($, 000)
EPS Gth
5Y Fcst
PE
FY1
Net Yld
FY1 P/Book
(EPS Gth
+ Yld) /
PE Equity Style ROE
Int
Cover PEG
WBC Westpac Financials 35.22 7.80% 109,501 5.3 14.3 5.30% 2.3 0.9 Growth 15.2 na 1.9
ANZ ANZ Bank Financials 33.67 6.40% 92,815 5.3 13.3 5.30% 2.1 0.9 Growth 15 na 2.3
TLS Telstra Telecom 5.72 6.30% 71,174 3.8 17.8 5.20% 5.5 0.5 Growth 33.7 7.5 20.1
CBA Commonwealth Financials 81.70 6.00% 132,462 4.8 14.5 5.20% 2.9 0.7 Growth 18.5 na 2.2
SHL
Sonic
Healthcare Health Care 17.71 5.90% 7,098 5.9 17.2 4.10% 2.4 0.8 Income 12.8 10 1.6
BHP BHP Materials 36.20 5.40% 116,263 9.1 14.3 3.80% 2.5 0.8 Growth 19.4 18.3 1.3
NAB National Financials 35.31 5.20% 83,535 4.3 13.2 5.70% 2 0.9 Growth 13.1 na 1.7
Cash Cash 5.00%
WPL Woodside Energy 43.31 4.90% 35,684 7 13.5 5.90% 2.1 1.5 Income 11.9 16.9 0.8
WES Wesfarmers Cons Stap 43.80 4.40% 50,075 6.8 17.9 5.00% 1.9 1.2 Income 10.3 7.2 2.1
Total Portfolio
100.00
% 10.2 16.7 4.10% 2.7 1.2 16.8 2.7
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Summary
• Investors should acclimatise to lower returns than in the recent past due to full
valuations and modest growth outlook
• Focus on higher-quality companies particularly vital given lack of value in the
market as these will be less affected by unforeseen shocks
• Competitively advantaged firms will rise in value over time due their ability to
invest capital at greater return than the costs
• Additional cash is valuable given likely rise in volatility which may create
opportunity for investment
30
Questions and Discussion
31
Contact Information
Andrew Doherty
Director
AssureInvest
Level 1, 50 Yeo Street
PO Box 612, Neutral Bay NSW 2089
m + 61 400 456 132
p + 612 8094 8410
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