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Quarterly

performance
update


Wholesale


30 September 2013

MLC Investment Management

General advice warning and disclaimer

This information has been provided by MLC Investments (ABN 30 002 641 661) and MLC Limited (ABN 90 000 000 402)
members of the National Australia Bank group of companies, 105

153 Miller Street, North Sydney 2060.

This communication contains general information and may constitute general advice. Any advice in this communication
has been prepared without taking account of individual objectives, financial situation or needs. It should not be relied upon

as a substitute for financial or other specialist advice.

Before making any decisions on the basis of this communication, you should consider the appropriateness of its content
having regard to your particular investment objectives, financial situation or individual needs. You should obtain a Product

Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited
(ABN 30 002 641 661) and MLC Nominees Pty Ltd (ABN 93 002 814 959) as trustee of The Universal Super Scheme
(ABN 44 928 361 101), and consider it before making any decision about whether to acquire or continue to hold the
product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning
the MLC call centre on 132 652 or on our website at mlc.com.au.

An investment in any product offered by a member company of the National Australia Bank group of companies does not
represent a deposit with or a liability of the National Australia Bank Limited ABN 12 004 044 937 or other member
company of the National Australia Bank group and is subject to investment risk including possible delays in repayment
and loss of income and capital invested. None of the National Australia Bank Limited, MLC Limited, MLC Investments
Limited or other member company in the National Australia Bank group guarantees the capital value, payment of income
or performance of any financial product referred to in this publication.

Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in
the market. Please note that all performance reported is before management fees and taxes, unless otherwise stated.



2

Table of contents

Overview

Market performance

Global economics

Investment Futures Framework

Activity this quarter

MLC Horizon 4 performance

MLC Horizon peer relative
performance

MLC fund performance

1

5

6

2

3

7

4

8

3

Overview

Bond returns have moderated as yields have
risen this year, while share market returns have
been exceptionally strong.

All asset classes positive
over the
quarter and year

We continue to seek and use alternative sources
of diversification (
eg

foreign currency exposure,
Low Correlation Strategy)


Traditional portfolio diversifiers
(cash, government bonds) remain
unattractive, despite price falls this
year


Share market gains have run ahead of economic
fundamentals.

Strong share market returns
have
been underpinned by quantitative
easing

1

4

Policymakers’ actions are the key source of
uncertainty. The current shenanigans over the
US debt ceiling and the likely pace of QE
tapering will continue to affect markets.

Despite strong returns,
risk is high



Market performance

Source: Datastream, market indices. Index data source: Benchmark data include UBS Bank Bill Index (Cash), UBS Composite Index

(A
ust fixed income)
Barclays Global Aggregate hedged to A$ (global fixed income), S&P/ASX200 A
-
REIT Accumulation Index (Aust REITs), EPRA/NAREIT ($A

hedged)
(Global REITs), S&P/ASX200 Accumulation index (Aust shares) and MSCI All Country Indices hedged and unhedged in A$) (global s
har
es).



2

A particularly strong quarter for Australian shares but all
shares and REITs strong over one and three years

5

0
5
10
15
20
25
30
35
Cash
Aust FI
Global FI
A-REITs
G-REITs (H)
Aust eq
Global eq (H)
Global eq (UH)
3mth
1yr
3yr
5yr
Periods to end September 2013 (%)

Data source: MSCI

*Emerging Markets equities

Japanese shares were boosted over the last year by stimulus measures, including a
massive quantitative easing program by the Bank of Japan, and signs of better economic
growth.

6


Market performance

2

Extraordinary action by central banks supported share markets. However, concerns about
the likelihood of the Fed ‘tapering’ its quantitative easing caused significant volatility in
share markets and continue to keep risk levels high.

Share markets delivered for investors this year

0
10
20
30
40
50
60
70
Total return in local currency (%)
-

12 months to 30 September 2013

Source: Datastream

0
50
100
150
200
250
300
350
400
450
Q1 2008
Q1 2009
Q1 2010
Q1 2011
Q1 2012
Q1 2013
Desperate times called for desperate measures



massive quantitative easing

UK
US
Japan
Europe
Monetary

base (Q1 2008 equals 100)


Market performance

2

The world’s major central banks have injected an enormous amount of liquidity into the
financial system, supporting share markets.

7

Australian companies have increased payout ratios

Source: Morgan Stanley


Market performance

2

This trend doesn’t reflect an increase in earnings, but rather companies meeting investors’
appetite for higher dividends.

8

-40
-35
-30
-25
-20
-15
-10
-5
0
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Global
equity falls (six monthly%)

Hedged
Unhedged
We use foreign currency exposure to manage risk

Source: MSCI,
Factset
, MLC Investment Management


Market performance

2

Unhedged global shares tend to fall less than hedged when share markets are weak.

9

Despite massive central bank support, economic growth
remains slow and China’s growth has softened

3

China’s slowing growth has implications for Australia. The Chinese government has given
strong signals that they are committed to reforms that support long
-
term economic growth.
However, we are in a new era of policy moderation to underpin financial and economic stability.


Global economics

10

Source: Datastream

-15
-10
-5
0
5
10
15
Q4 2008
Q4 2009
Q4 2010
Q4 2011
Q4 2012
China
India
Australia
US
Japan
Eurozone
Real GDP y/y%

Current scenarios

Higher

Lower

Investment Futures Framework

4

Extended quantitative easing

Three speed global economy (China soft landing)

Early re
-
leveraging

One speed slow growth world

Two speed recovery

Developed market austerity, recession, stagnation

(Mild) inflationary resolution

China hard landing

Inflation shock

Sovereign yield re
-
rating

Reform

Stagflation

11

Probability

Extended risk aversion

For a description of each scenario, please refer to ‘MLC’s scenario insights & portfolio positioning’, October 2013.

Key positions we’ve taken

12

4

Investment Futures Framework

Position

Why we have the position

MLC portfolios we’ve
taken the position in

Inflation
Plus

MLC
Horizon


Maintained exposure to
growth assets

If economic growth continues, we could transition to a mild
-
inflationary resolution or early re
-
leveraging scenario and growth
assets should perform strongly. Another scenario positive for
growth assets is extended quantitative easing. This scenario may
re
-
emerge due to weak economic data.






Reduced exposure to
interest rate risk by
reducing duration

In an inflation shock scenario


possibly driven by expectations of
inflation


nominal bonds would perform poorly and are at risk of
negative returns.





Reduced exposure to
global government bonds

Government bonds, a traditional source of diversification, still
have fairly low yields. Our managers prefer non
-
government
bonds, which have more attractive yields.





Reduced exposure to the
Australian dollar

In most of our scenarios the AUD is expected to fall (
eg

China
slowdown scenario). This means we prefer foreign currency
(unhedged assets) as a source of diversification to decrease
overall risk.





Increased allocation to
defensive global shares

In a stagnation or deflationary slump scenario, economic growth
in the developed world would falter. In a weak global share
market, exposure to defensive global shares should help reduce
negative returns.




Source: MLC Investment Management

Strategic Overlay

4

Return potential

13

A strong September quarter has reduced potential returns from shares. As share prices rise faster than
the economic fundamentals, the potential returns decrease.

Activity during this quarter

MLC Inflation Plus

Sep


Reduced borrowings from 7.5% to 1% in the
Assertive Portfolio and reduced allocations to
unhedged global and Australian shares and the
emerging markets strategy.


We’ve been progressively reducing exposure to
higher risk assets as potential returns from shares
have decreased and risk potential has increased.

5

14



We’ve made a few adjustments to asset allocations

Visit mlc.com.au for
a summary
of our
strategy changes
in the last 12
months (updated by the end of October). Log in to the adviser
page
and
click on
mlc

funds/latest
news

MLC Horizon


Sep


In Horizon 2 to 4, added allocations of 1
-
2%
to the new Inflation Plus Conservative and
Moderate Portfolios.


Sep



In Horizon 2 to 5, we increased allocations
to inflation
-
linked bonds by 0.75% and reduced
enhanced cash to take advantage of an attractively
priced new government bond issue.

MLC
Horizon 4 Balanced
Portfolio

Performance overview

6

Analysis is for the year to 30 September 2013

Source: MLC Investment Management

15

Highlights for the year:

Performance to 30 September 2013
3 Months
1 yr
3 yr
5 yr
10 yr
%
%
% pa
% pa
% pa
MLC Wholesale/Masterkey Investment
Service Fundamentals
(after fees)
7.1
6.9
17.9
9.2
6.6
Australian shares were the strongest contributor to
returns over the quarter and year. Market sentiment was
supported by a clear federal election result, better
economic news from China, the RBA’s decision to again
reduce interest rates in August and a solid profit
reporting season.

All asset classes were positive over the year, with shares
and REITs very strong. Better than expected economic
data in the US, Europe and China contributed to market
sentiment.

Largest contributors to absolute returns for the year
were:


Australian shares: 26% (currently 31% of the portfolio)


Unhedged global shares: 33% (currently 21% of


the portfolio).

The Australian dollar’s decline over the past year has
meant unhedged global shares have significantly
outperformed hedged.

MLC Horizon 4 Balanced Portfolio

5

Performance

Total returns before fees and taxes

16

Returns are positive over one, five and ten years

* As at 30 September 2013. The returns are for calendar years and the 2013 period is calendar year to date. That means the 1
yea
r return for 2013 only includes
a 9 month return.

Source: MLC Investment Management

-30%
-20%
-10%
0%
10%
20%
30%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Return % pa
Absolute performance
MLC Horizon 4 Balanced Portfolio
(before fees and tax, calendar years*)
1 year
5 years
10 years
*Please note the latest period is calendar year to date
MLC
Horizon 4
Balanced Portfolio

6

Asset class strategy
returns

17

Total return by asset class (before fees and tax)

As at 30 September 2013

Source: MLC Investment Management

0%
5%
10%
15%
20%
25%
30%
35%
Australian
shares
Global
shares
(unhedged)
Global
shares
(hedged)
Defensive
global
shares
Global
property
securities
LTAR
Multi-asset
real return
strategy
Emerging
markets
strategy
Low
correlation
strategy
Australian
bonds
Global
bonds
Cash
Return %
(annualised for periods greater than 1 year)
Total return by asset class
MLC Wholesale Horizon 4 Balanced Portfolio
(before fees)
Quarter to Sep 2013
1 year to Sep 2013
3 years to Sep 2013
5 years to Sep 2013
MLC Horizon 4 Balanced
Portfolio

6


Snail trail

Risk and return snail trail vs neutral benchmark (before fees and taxes)

18

The snail trail tracks how much value the portfolio has
added relative to its market benchmark.

The upper left quadrant is the optimal position.

Our three and five year result is now here, indicating
higher returns and lower risk than the benchmark.

The 10 year result is currently in the bottom left
quadrant, indicating lower risk than benchmark with
marginally lower returns.

As at 30 September 2013

Source: MLC Investment Management

-1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
-1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
Excess return pa (vertical)
Excess standard deviation pa (horizontal)
Risk and return snail trail vs reference benchmark
MLC Horizon 4 Balanced Portfolio
(before fees and tax)
Rolling 10 years to September 2013
Rolling 5 years to September 2013
Rolling 3 years to September 2013
Starting point June 2011
Starting point June 2006
Starting point June 2004
To 30 September 2013

1 year

3 years

5 years

10 years

MLC Horizon 2

Q3

Q2

Q3

-

MLC Horizon 3

Q3

Q3

Q2

Q2

MLC Horizon 4

Q3

Q2

Q1

Q2

MLC Horizon 5

Q2

Q2

Q2

Q3

MLC Horizon 6

Q2

Q1

Q1

-

Source: Morningstar Direct

MLC Horizon peer
relative performance



7

Quartile performance rankings (MLC Wholesale)

19

Peer universe is the MLC Morningstar Wholesale Universe


MLC Horizon 4 Balanced Portfolio

6


Peer relative

20

As at 30 September 2013

Source: Morningstar Direct









MLC Horizon series



7

Peer relative performance

21

MLC Horizon 4’s one year peer relative
return is below median. Strong returns
from the share market hurt our peer
relative position because the portfolio
is slightly overweight fixed income.
Good performance from our fixed
income strategy reduced the impact.


Longer
-
term peer relative returns are
solid due to:


overweight to global property
securities, and


outperformance of our fixed income
and global shares strategies.

The MLC Horizon portfolios are above median over most periods.

MLC fund performance

8

MLC’s diversified portfolios (net of fees)

22

Source: MLC Investment Management


MLC Wholesale

Performance to 30 September 2013



1 year

% pa

3 years

% pa

5 years

% pa


10 years

% pa


MLC Horizon 1

Bond Portfolio

3.1

4.5

4.6

-

MLC Horizon 2

Income Portfolio

8.4

7.3

5.9

-

MLC Horizon 3

Conservative Growth
Portfolio

13.4

8.1

6.6

6.7

MLC Horizon 4

Balanced Portfolio

17.9

9.2

6.9

7.1

MLC Horizon 5

Growth Portfolio

21.5

9.9

7.0

7.1

MLC Horizon 6

Share Portfolio

26.3

10.9

7.4

7.4

MLC Horizon 7

Accelerated Growth
Portfolio

33.1

12.4

7.5

7.3

MLC Inflation Plus


Assertive Portfolio

(previously MLC Long
-
Term Absolute Return Portfolio)

19.9

10.4

8.2

-


MLC fund performance

8

MLC asset class funds

23

Source: MLC Investment Management

Performance to 30 September 2013
1 year
3 years
5 years
7 years
%
% pa
% pa
% pa
MLC Australian Share Fund (before fees and tax)
26.9
8.7
7.5
4.8
Excess return (relative to S&P/ASX 200 Accumulation Index (S&P/ASX
300 prior to Sep 2012, S&P/ASX 200 Index prior to Nov 2002))
2.6
-0.4
0.3
0.2
MLC Global Share Fund (before fees and tax)
32.5
13.3
5.6
1.4
Excess return (relative to MSCI All Country World Index (MSCI World
Index prior to July 2002))
0.9
1.2
1.0
0.2
MLC Hedged Global Share Fund (before fees and taxes)
23.7
15.2
9.6
-
Excess return (relative to MSCI All Country World Index Hedged (MSCI
World Index Hedged prior to July 2002))
0.4
1.0
-0.1
-
MLC Global Property Fund (before fees and taxes)
14.8
12.9
7.9
-
Excess return (relative to EPRA/NAREIT ($A Hedged) (UBS Global
Investors Index (hedged) prior to 1 Aug 2011))
-1.8
-2.1
0.8
-
MLC Diversified Debt Fund (before fees and tax)
3.0
7.0
7.0
-
Excess return (relative to 50% UBS Composite Bond Index & 50%
Barclays Capital Global Aggregate Bond Index (hedged))
0.5
0.1
-0.9
-
Log in to secure website
-

mlc.com.au/adviser


-

Presentation of fund performance
for the quarter



Detailed
client report on fund performance for the


12 months, updated quarterly


More information


24

Quarterly performance update

Annual investor commentaries

8



Quarterly
update on our investment positions




Information
on fund performance for the
quarter,
updated monthly


MLC's medium
-
term view and
Strategic Overlay positions

Fund Profile Tool commentaries



Outline
of changes to our investment strategies,
including client letters and other tools




Commentary
on current events and investment issues

for your clients


Strategy updates

Investment insights and news


Monthly
commentary
on
economic and market
developments, available as video and client Q&A

Economic updates


Market update prepared for calendar and financial
years for your clients

Year in review