Presentation on theme: "Investors’ Seminar May 2009 Is it the “Best” or “Worst” of Times If “Best of Times” = Significant Growth in LHS of Bucket If “Worst of Times” we can still."— Presentation transcript:
Investors’ Seminar May 2009 Is it the “Best” or “Worst” of Times If “Best of Times” = Significant Growth in LHS of Bucket If “Worst of Times” we can still achieve Specific goals Part-owning Specific Businesses is good investing
Disclaimer This is not Advice. Please see Mark before considering any changes. Mark will put any recommendations in writing The information contained in this presentation has been prepared for general use only and does not take into account your personal investment objectives, financial situation or particular needs. Before you make any decision about whether to invest in a financial product, you should obtain and consider the Product Disclosure Statement of the financial product. The information provided by HFS has been done so in good faith and has been derived from sources believed to be accurate at the time of compilation. Changes in circumstances, including unlawful interference and unauthorised tampering, after the date of publication may impact on the accuracy of the information. Neither HFS d nor any member of HFS accepts responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis of the information included. Past performance is not a reliable indicator of future performance. Neither HFS nor any member of HFS guarantees the performance of the Funds, the repayment of capital or any particular rate of return. The performance of any unit trust depends on the performance of its underlying investment which can fall as well as rise and can result in both capital losses and gains. Consequently, due to market influences, no assurance can be given that all stated objectives will be achieved.
Investors’ Seminar May 2009 Goals Structure Asset Mix Specialist Stock-Pickers But first a quick overview of the economy and Markets
Debt – Western Consumers; Deleveraging Sub-Prime in US; CDOs–and inter-bank transfers Fear replaced Greed in Markets Banking Crisis – near collapse Lower Consumer and Business Confidence Negative Cycle –Profits Drop; Unemployment increases; Consumer Confidence drops etc The current crisis
MARKET STATISTICS Bottom Up Consensus Earnings Forecasts Source: Ausbil calculation based on consensus broker earnings forecasts AS AT 12 th March 2009PE 2009 (E)PE 2010 (E) EPS GROWTH 2009 (E) EPS GROWTH 2010 (E) MARKET 10.6x10.2x-18.5%4.6% Financials9.2x8.7x-13.3%5.2% - Banks 9.4x9.0x-14.0%4.3% - REITS 6.1x6.5x-25.1%-5.8% Industrials 10.8x10.3x-13.0%5.3% Resources 14.4x13.5x-29.3%7.0% - Div Metals & Mining 12.7x12.3x-32.7%2.8%
MARKET VALUATIONS Dividends at risk – but value evident
AUSTRALIAN UNEMPLOYMENT Rising expectations Source: Butlin, ABS, Deutsche Bank
Adam Smith ’ s Invisible Hand ……very busy at present
Asset Mix Australian Shares International Shares Property Term Deposits Cash
AS IS P TD Cash Specialist Stock-pickers Fund Manager XYZ
Short-term goals; Long-term goals Realistic Goals are needed. Write them down Then we can plan the investments **** Inflation must be considered in goal-setting Review the Goals. Ensure all stake-holders know the goals – eg a 90yo should still set 10 year goals for investments and ensure beneficiaries are aware of these goals. Goals
Tax, Centrelink…….next Tuesday’s Budget? Cashflow - Lifestyle Goals The choice of holding investment funds in Super vs Outside Super. Preservation Age or Limits Choice of Super Fund (Admin and Trustee Role) – SMSF vs FChoice vs Wrap Structure and Strategy Issues
What are the CashFlow Needs for: Next 2 Years Next 5 Years & Beyond Need Cash and Term Deposits - this section is structured to be “Consumed” Security – eg Government Guarantee Return of the $ invested at the designated time Only after “signing off” this section of the bucket do we then look at LHS of the bucket Asset Mix - Decision 1
The LHS Side of the Bucket. The Goals are: Long-Term Total Returns – 10 Year Targets Sub-goal – replenish the Cash Logical, Rational Investments Volatile Returns are not a concern Income is not a focus – maximising returns is the goal. A business that reinvests is not any less attractive than one that pays out all profit as a dividend. Asset Mix - Decision 2
Invest in 3 ways – profit, rent or interest ************* Inclusions - What is in Hayden AAM– Cash & Term Deposits; Australian & International Shares; Property when attractive Exclusions -What is Excluded - Mortgage Trusts ; Hybrid Investments; Fixed Interest Pooled Investments; Loans to Companies or Property Syndicates; Mezzanine Funds; Second Tier Debt; Hedge Funds; Bond Funds; Balanced/Conservative etc; Structured Funds; Tax-driven investments; Alternatives The Hayden Asset Allocation Model
The three choices: Index Funds Choose Your Own Stocks Contract a Quality Stock-Picker A key question : Are some businesses better than others? Yes – either in a better Industry or having better Management. The business must have High Turnover or High Profit Margins – and this advantage must be sustainable. Stock-Picking - Decision 1
Top 100 companies by market capitalisation % returns for the year ended 28 February 2009. Source: IRESS. Past performance is no indication of future performance. year ended 28 February 2009 Best stocks %Worst stocks % Origin Energy61.52Babcock&Brown-98.23 Iluka Res33.88ING Industrial Fund-96.14 Santos Ltd22.68Boart Longyear-95.23 Oil Search Ltd15.94Babcock & Brown Infr-94.58 AGL Energy Ltd13.88Goodman Group-94.07 Arrow Energy9.43Asciano Group-91.26 Foster’s Group4.75Macquarie Office-88.62 Metcash Limited1.95Mount Gibson Iron-86.44 CSL Limited-1.32Futuris Corporation-86.32 Cochlear Limited-1.40OZ Minerals-83.80 Average16.13Average-91.47
The aim : We are buying a portfolio of shares and then contracting them to Manage it. We can see the underlying investments. We can address each holding and ask the Manager why they part-own that business and what are the key factors that would lead them to sell that business What makes a quality stock-picker Stock-Picking - Decision 2
Fund manager research focuses on the four ‘Ps’ Stated investment policies & strategies. PROCESS PEOPLE Background, qualifications & track record. PORTFOLIO Do the securities held reflect stated investment policies & strategies ? Returns generated relative to to the risks taken. PERFORMANCE Research Process
Investment Process - Overview Quantitative Assessment Qualitative Assessment Stock Score Portfolio Construction “SCOPE” Score (50%) Value for Money Management Industry Disciplined Common-sense Simplicity
Investment Process - Quantitative Information Financial Model Database Quantitative Score Company visits Management Competitors Broker Research Published Info Macro-economic Profit & Loss Balance Sheet Cashflow By Division 3 Year Horizon 120 EGG Models 40 Broker Models Industry Best +/- -/- +/+ -/+ High LowEPS Growth HighLow Price/Earnings Ratio
Investment Process - Qualitative Information Qualitative Scorecard Manager experience Company Visits Management Employees Competitors Published Research Media sources Macro-economic Management Track Record Capital Management Shareholder Alignment Strategic Plan New entrants Power of Buyers Power of Suppliers Rivalry of Incumbents Regulatory Change Industry Growth Rate Qualitative Score Statistical ranking
AS IS P TD Cash Ausbil - Visually Ausbil Holdings
AS IS P TD Cash Eley Griffiths and Challenger Microcap Cash Eley Griffiths Challenger
% Microsoft Corp 3.3 Mitsubishi UFJ Fin 3.2 Cisco Systems Inc 3.1 Siemens AG 2.7 Denso Corp 2.3 Hutchinson Whampoa 2.1 Sanofi-Aventis SA 2.1 Anglogold Ashanti 2.0 Henkel AG & CO 2.0 Samsung Electronics 2.0 … Other 27 stocks 37.7 Cash & Shorts 37.5 100 Platinum Int. – Current Holdings
AS IS P TD Cash D Hunter Hall & Magellan - Visually Magellan - MFFHunter Hall - GET
An ongoing method of analysing our Managers: We want the businesses that we part-own (via our specialist Fund Managers) to meet these criteria: A Good Business must have: Durable Competitive Advantage A Good Business will never have Price is the single most important motivating factor in the consumer’s decision to buy its Product/Service The Buffett Overlay
farrelly’s 10 Year Forecasts as at *Includes expected currency gain
farrelly’s Pessimistic 10 year forecasts as at February 2009 AssetDividend Yield EPS Growth PE Effect Pessimistic case Australian Equities6.7% 2 -2.0%0.0% 1 5.7% World Equities - Currency 3.4% 2 1.0% -1.0%0.0% 1 3.4% LPTs7.0%-3.3%-2.0%1.7% Bonds4.2% Cash1.0% 1.PE at 10, 8.5 2.Divs cut by 30% and then continue to slowly decline 3.LPT divs reduce by 33% over ten years after further 30% cut.
farrelly’s 10 Year Forecasts as at *Includes expected currency gain
Summary - farrellys 1. Don’t chase past returns 2. The long term is easier to forecast than the short term 3. In the short term expect the unexpected 4. When prices fall, future returns go up 5. Forecasting can identify good and bad periods to invest 6. Be wary of residential property 7. Equities offer good long-term returns 8. Diversification within portfolio is essential
Are either of these important for achieving our goals?: Picking the bottom? The time-frame to recover The goal is to never overpay for assets. Buy them cheaply.
“The market can stay irrational for longer than an Investor can stay solvent” – JK Gailbraith The HFS model is fine. Clearly defined goals for each section of the bucket. Avoid the Noise. Consider the vested interest of any party that comments.
Some key points: Concentrated Portfolios – Quality Businesses Indexes – what relevance: All Ords; MSCI; etc – basically define the sea in which to fish. We do not want to own a bit of every business. Can hold Cash – ie Fund Managers can hold Cash whilst they are awaiting a better buying opportunity for a business they want to eventually part-own. Specialist Stock-pickers
Average annual total returns after inflation Australian long term returns 1900- 2007 % 1950- 2007 % 1950s % 1960s % 1970s % 1980s % 1990s % 2000- 2007 % Real bond returns1.30.6-6.30.9-220.127.116.11.1 Real equity total returns7.96.99.010.6-18.104.22.168 10.2 Real equity capital gains2.01.52.44.6-10.64.04.66.1 Income compounding effect 22.214.171.124.06.42.64.44.1 Source: ABN AMRO / London Business School : ‘Global Investment Returns Yearbook 2008’ Past performance is not a reliable indicator of future performance.
Transparency Logical and Rational Sound plan – historically and theoretically Contract People with Integrity, Trust, and Mutual Goals Long-term Returns are the key goal For LHS – We need the best strategy for next 10 years. No need to predict short-term (it determines the path rather than the destination) Components of a Sound Plan
AS IS P TD Cash Investors’ & HFS’ Decisions Fund Manager XYZ
Asset Sector Changes – may be small changes needed when the 10 year return differential is significant; eg one sector may have run too fast it is time to move to another sector Switching of Fund Managers – may be needed at any time. NB we will be retaining the same asset sector exposure –eg retaining small-cap shares, but a different Manager It may be driven by portfolio analysis – eg portfolio held by A is not as robust as B. Or it may be driven by better skills or processes to monitor and re-weight the portfolio going forward Switching
Realistic Goals Structure/Strategy (Tax etc) Super Fund Admin Asset Mix (1) -Cash/TD needs Asset Mix (2) –ASvsISvsP % Stock-Picker Selection The Boxes to Tick