Clime Asset Management

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18 Νοε 2013 (πριν από 3 χρόνια και 4 μήνες)

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Clime Asset Management

The impact on the macro
-
environment

on the Australian market

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Disclaimer

The

information

contained

in

this

document

is

published

by

the

Clime

Group
.

The

information

contained

herein

is

not

intended

to

be

advice

and

does

not

take

into

account

your

personal

circumstances,

financial

situation

and

objectives
.

The

information

provided

herein

may

not

be

appropriate

to

your

particular

financial

circumstances

and

we

encourage

you

to

obtain

your

own

independent

advice

from

your

financial

advisor

before

making

any

investment

decision
.

Please

be

aware

that

investing

involves

the

risk

of

capital

loss

and

past

results

are

not

a

reliable

indicator

of

future

performance

and

returns
.

Clime

Asset

Management

Pty

Limited

(Clime),

Total

Fund

Services

Limited

and

its

directors,

employees

and

agents

make

no

representation

and

give

no

accuracy,

reliability,

completeness

or

suitability

of

the

information

contained

in

this

document

and

do

not

accept

responsibility

for

any

errors,

or

inaccuracies

in,

or

omissions

from

this

document
;

and

shall

not

be

liable

for

any

loss

or

damage

howsoever

arising

(including

by

reason

of

negligence

or

otherwise)

as

a

result

of

any

person

acting

or

refraining

from

acting

in

reliance

on

any

information

contained

herein
.

No

reader

should

rely

on

this

document,

as

it

does

not

purport

to

be

comprehensive

or

to

render

personal

advice
.

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Investment Performance


February 2011


Total Returns.

1 year

2 years

3 years

4 years

Clime Australian Value Fund

17.44%

99.66%

47.37%

28.23%

ASX All Ordinaries Accum. Index

10.20%

62.03%

-
1.21%

0.05%

CAVF Outperformance

7.24%

37.63%

48.58%

28.18%

Clime Australian Value Fund


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What’s happened in 2011

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How we manage capital


Capital preservation is essential, avoiding losing money is essential to
maximising the return.


The sustainable NROE (profitability) of a company will determine the
value of the company.


The company’s share price will eventually reflect the intrinsic value of the
company in the medium term.


We identify companies who have:

-
attractive investment characteristics; and

-
buy those companies when their share price is lower than our
assessment of the intrinsic value of the company.


We build a portfolio of
approx

20 stocks or securities and we target a
portfolio return of 12% pa





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We create concentrated portfolios of listed
company securities on the ASX


We build concentrated portfolios of 15


25 investments.


We study the Australian and global economies, analysing the impact on
companies.


We invest in ASX listed company securities (equity, hybrid, debt) that
have attractive investment characteristics
and

where their share price is
below our assessment of the value of the business.


If we cannot find investments that meet these requirements, we will hold
cash.


We do not follow the market indices and are benchmark and sector
unaware.


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Understanding the operating environment
of a company is critical


Companies do not exist in isolation;



To value a company one must understand and have a view on the
operating environment
-

social, political, environmental, economic



ie, the operating environment will affect the outlook for a company and
therefore its value;



The macro outlook will affect the valuation of the market and therefore
should be considered and monitored to determine the amount of capital to
allocate to the market so long as value is identified.

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The critical issues for the world economy
are…

1.
The outlook for the US is most uncertain. The outlook for the economy
and the markets is unclear as sustainable economic recovery has not
been created. The US represents 20% of the world GDP


thus unsettling
for all investment markets;


2.
The introduction of QE2 in the US is supportive of speculation in financial
markets but its effect on the real economy is also uncertain and so far
unproven;


3.
The UK is undertaking a massive fiscal workout , however it is benefitting
from an independent currency in the European region;


4.
Europe continues to be affected by the financial collapse of Iceland,
Greece and Ireland. Other nations such as Spain, Portugal and Italy are
teetering;

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The critical issues for the world economy
are…

5.
Japan has recently experienced a massive shock to its economic system
now requiring massive repatriation of funds. This withdrawal of capital
from Europe and the US will effect currencies in investment markets for
the foreseeable future.


6.
China is attempting to maintain its growth levels by undervaluing its
currency, tightening of bank credit and adopting anti
-
inflationary
measures; and


7.
Australia is riding the Chinese growth story, however the uneven growth
across the economy is testing economic policy settings and the political
will.

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But sovereign debt is growing with $6
trillion of new debt in 2011.

Government Net Debt

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Govt debt as a percentage of GDP for select G20 countries, actual & estimated

Sovereign debt will actually increase
despite austerity measures

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It will be a challenge to reduce fiscal
deficits with high unemployment

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The level of sovereign debt has to be
addressed


There will be $6T of government debt issued around the world in 2011;



Without quantitative easing, it is unclear as to how this is or was going to
be funded;



Quantitative easing is being undertaken in the US, UK, Europe and
Japan;



However there is one omnipresent issue for the western world which is
now coming into focus and it is the aging population and the lack of fiscal
preparedness for this event;


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The level of sovereign debt has to be
addressed


Economic forecasters warned western governments 20 years ago of
the aging baby
-
boomers who are now approaching retirement age;



Baby boomers are changing or refining their consumption patterns
and are focusing on saving or preservation of capital;



Thus, governments will and are struggling to deal with pension costs
and the activities of retirees is beginning to have a dramatic effect on
consumption patterns, tax collections and social security drawdowns.


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Japan, Europe & USA have aging
populations


Entitlement Programs Are Unsustainable

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BUT the world is growing at about 3% p.a.

for the next two years

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The
two

speed world is still a good world
for Australia

World Output


March Quarter 2006 = 100

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China now the world’s 2
nd

largest
economy

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In 2010, households suddenly decided to
pay back debt around the world.

Meanwhile the Government increases debt

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US Government debt has been rising
rapidly since GFC

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So who is buying US bonds in 2011?

Answer: THE FED!

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And Japanese Bonds?

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Federal Reserve Balance Sheet

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What is the US budget outlook?

Answer: not good!

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The US has stagnated over the last 10
years; real wealth and employment static

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The US distribution of wealth needs to be
addressed, but no political will to do so!



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The result of these observations for the
future is TAX, TAX and more
TAX

2009/10

The year of sovereign debt


2010/
11 Restructuring of sovereign debt


2011/12+

TAX, TAX and more
TAX



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Tax measures to address key global
issues



Economic:

Sovereign debt and fiscal stimulus will have to be serviced &
repaid


Environmental:

Climate change addressed through a carbon tax


Social:

The aging population of the developed world

Wealth re
-
distribution. Eg Resources Super Profits Tax

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OUTLOOK FOR AUSTRALIA

Steady Growth

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China’s growth the key

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Australia’s aging population

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Who owns Australia’s assets?

Answer: Middle aged and elderly

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Australia’s household wealth tied up in
houses

Local $

Assets:
Houses

Other

Tangibles

Financial

Debt

Net

Australia

$3.7T

$0.3T

$A2.4T

$A1.4T

$A5.0T

US

$18.2T

$4.9T

$45.1T

$14.0T

$54.2T

% of GDP

Australia

285%

22%

190%

111%

378%

US

126%

34%

312%

97%

375%

Household balance sheet comparisons

Source: Australian Bureau of Statistics

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Where is Australia’s debt?

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Household Debt is 150% of household
income and 110% of GDP

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Australia’ foreign debt continues to rise

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Australia’s national interest bill is rising

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Australia’s Household Saving Ratio is
increasing and will effect banks and retailers

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Debt reduction and lower debt funded
consumption affects retail sales

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Credit margins have increased in Australia
with interest rates rising faster than RBA
tightenings

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Australian Resources: improving terms of
trade will lead to trade surplus

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Iron ore the powerhouse: 20% of our
exports

Australian iron ore exports

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Australian resource companies will benefit
from US recovery through Chinese trade

China’s growing share of US trade deficit

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Share of Australian exports: Europe not
significant

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The outlook for Australia


The economy is growing

The population is growing
-

immigration 160,000 + 270,000 births p.a.

The terms of trade are improving and are at a record high

AUD/USD above $1.00 holds down inflationary pressures

Government debt is under control, peak at $90bn 2013, 8% of GDP

Linked to growth engines of world, China & India

Risks

Very high household debt

Full employment (unemployment 5.4%) wages push

Slow down in China & India’s growth

The unknown shocks (Japan)


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Conclusions


Volatility remain in markets. We use it to our client’s advantage
by having an active value based investment methodology.


It is not the time to be passive. Markets will go from optimism
to depression. We have to stay alert and not listen to the noise.


Yield is important. We seek out quality yield investments in
shares and hybrids.


Do not borrow to invest and keep cash.




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We screen ASX listed companies for their
historical ROE




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An attractive company


MMS

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MMS: What is it worth today?

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Macquarie Group Limited (ASX:MQG)

Valuation: $34.97

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BHP Billiton Limited (ASX:BHP)

Valuation: $58.60

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Telstra Corporation Limited (ASX:TLS)

Valuation: $3.15