Transcript Investment Update December 2011 Quarter

Investment Update
December 2011 Quarter
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General advice warning and disclaimer
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105–153 Miller Street, North Sydney 2060.
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contained in this communication.
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changes in the market. Please note that all performance reported is before management fees and taxes, unless
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Agenda
Time*
Activity
Speaker
11:00am
Welcome & Introduction
Mark Montaldi
11:05am
Investment Update
Michael Karagianis &
Andrew Connors
11:50am
“Q & A”
Midday
Close
* All times shown as Eastern Daylight Savings Time
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Review of 2011 Performance
4
PIC 70/30 strategy
- asset class returns
Total Return by Asset Class
MLC Wholesale Horizon 4 Balanced Portfolio
(before taking into account fees)
Return %
(annualised for periods greater than 1 year)
10%
5%
0%
-5%
-10%
-15%
-20%
Australian
Shares
Global Shares Global Shares Global Property
(Unhedged)
(Hedged)
Securities
Quarter to Dec-2011
5
Source: MLC Investment Management
1 year to Dec-2011
LTAR
Australian
Bonds
3 years to Dec-2011
Global Bonds
5 years to Dec-2011
6
The Chaser vs. a Strategic Balanced portfolio
Chaser closes gap, but still trails Strategic Funds
7
Key Investment Themes for 2012
8
Key Investment Themes for 2012
1. Economic prospects for 2012
2. China - key issues for 2012
3. The role of alternatives in a post-GFC portfolio
4. Income investing – Investment fad or trend?
5. Where to next? Australian housing market update
6. Investment outlook and strategies for 2012
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Sovereign debt levels a concern
Eurozone has a critical problem – growth not austerity is the answer
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Source: IMF (2012 estimates)
Eurozone headed for a nasty recession
Eurozone struggling with the myth of “expansionary austerity”
Source: Datastream
11
US housing market still a problem
But US economy looking a little better at the moment
12
Chinese economy is slowing
Could impact on demand for commodities – expect easier policy in 2012
Source: Datastream
13
Australian growth to improve but . . .
Multi-speed economy still a problem
Source: Datastream
14
Debt servicing costs are still high
Most of it relates to mortgage debt – creating stress for many households
Source: Reserve Bank of Australia
15
Interest rates are falling
Further rate cuts would be temporary however
Source: Reserve Bank of Australia
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Safe haven assets have done well
Don’t expect the same in 2012
Source: Datastream
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Safe haven strategies
RBA rate cuts and falling bond yields will see future returns lower
Source: Sydney Morning Herald - 24th January 2012
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Bond yields are looking expensive
Any rise in yield could hurt investors
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Source: Datastream
Simple solutions will not deliver long term
Retirees will run out of funds – need more sophisticated solutions to last
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Why invest overseas ?
Growth does not always give a good guide to sharemarket performance
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Source: Datastream
Equities & credit more attractive
Expected to outperform cash and bonds but with tail risks & continuing volatility
22 Source: MLC Investment Management
Snapshot of Innovation
The Long Term Absolute Return Portfolio (LTAR)
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What is LTAR?
The Challenge:
• Volatility has wreaked havoc to investor plans over the past few
years
• Many investments and asset classes did not perform how they
were expected to, meaning many people are now seeking new
places to invest
MLC Response:
• LTAR is different to traditional funds. It has flexibility to invest
anywhere, at any time, even in none traditional asset classes. And
as well as providing additional sources of returns, this also
provides additional sources of diversification – to help buffer when
markets are volatile.
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Traditional Diversified Funds
Equity risk dominates
Portfolio 1 – 65/35
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Portfolio 2 – 50/50
Why invest? Features and benefits
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Feature
Benefit
Multi-sector, multi-manager
An increased level of diversification by accessing
many sources of return, especially through
alternative assets such as: Private markets,
commodities, high-yield debt, mezzanine debt,
hedge funds, emerging markets, insurance related
investments, Alpha investments
More diversification means the portfolio can
generate from different assets, regardless of market
cycle.
Gearing
Can be applied to the portfolio to magnify returns
(but also losses).
Real return objective above
inflation
Aim of growing long-term wealth for investors (for
example, in saving for retirement)
Strategic overlay
Risk is actively managed by making medium term
(3-7 year) asset allocation changes in response to
the market
LTAR – Asset Allocation
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Source: MLC Investment Management
Strategic Overlay Performance
Protecting against major risks
LTAR Actual versus Neutral Rolling 1 Year Return (gross)
35%
Total return and VA (% pa)
Rolling 1 yr
return
Value Added
25%
15%
5%
-5%
-15%
Value added since inception:
+4.6% per annum
-25%
-35%
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
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Contribution to total return
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Daring to be different
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Gross returns to end
Dec 2011
1 Year
3 Years
5 Years
MLC LTAR
0.9%
11.0%
3.2%
100% Growth
-5.4%
7.4%
-2.5%
Growth 85/15
-3.2%
7.6%
-1.1%
Balanced 70/30
-1.0%
7.9%
0.5%
50/50
1.8%
7.8%
2.4%
Capital Stable 30/70
3.9%
7.2%
3.6%
“Q&A”
MLC Investment Management speakers today:
•Michael Karagianis – Snr Investment Strategist
•Andrew Connors – Portfolio Specialist
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