clime investment dsp presentation nov 2015
TRANSCRIPT
Integrity Transparency Conviction
Clime Asset ManagementNovember 2015
Michael Kloeckner BCom LLB Dip Fin SuperDirector Private Clients Head Clime SuperClime Asset Management
Integrity Transparency Conviction
Observations and views that will affect markets1. Asia (China) will continue to drive world growth for the next 10 years2. Developed world has a significant ageing population problem3. Central bank intervention remains for many more years maintaining near zero interest
rates4. Quantitative Easing morphs into a scheme of sovereign debt forgiveness5. Low real yields affect investment returns and therefore consumption of retirees6. Sustained low oil and energy prices create deflation environment7. China becomes the largest world economy (based on GDP) by 2025 and has a 500 million
lower middle class population8. China may move from exporting deflation to exporting inflation in next few years9. Japan - like most developed economies - will never repay their national debt10. Australia’s superannuation and tax system will be significantly restructured by 2020
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Budget forecasts – Achievable or believable?
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Australian growth… residential buildingKeep March Quarter figure in perspective
Australian GDP growth rateSource: ABS, Trading Economics
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Non-mining capital investment has stalled
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Unemployment creeping up
Unemployment rateSource: ABS, RBA
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Historically low cash rates
Australian cash rateSource: ABS, RBA
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Australian bond yields at all time low
10-year Australian government bond yieldSource: RBA
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Australia’s inflation under control this year
Source: ABS, RBA
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Mortgage rates continue to fall to historic lows
Australian housing lending ratesSource: ABS, APRA, Perpetual, RBA
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Household sector
Source: ABS, RBA
Household debt nearing all time high…as the cost of debt plummets and loan approvals soar
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House prices in Australia
Housing pricesSource: CoreLogic RP Data, RBA
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Chinese inbound tourism – a big positive
Source: ABS
Australian equity marketWhat is actually happening?
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Earnings per share
Forecast earnings per shareSource: MSCI, RBA, Thomson Reuters
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The resources boom is overAustralian market has become highly leveraged to the banks
Composition of ASX 200Source: ASX, Thomson ReutersDatastream
Banks; 28%
Asset managers & FSPs; 4%
Resources; 11%Energy; 7%Property; 14%
Consumer discretionary; 4%
Industrial/commercial services; 6%
Transport; 6%
Insurance; 5%
Healthcare; 6%
Other; 9%
Model portfolios
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Clime Private Client Offering
Platform / SMSF Admin / Individually Managed Accounts
Australian Equities
Discrete Share Portfolio
Listed Investment Company (ASX:CAM)
International Equities
Discrete Share Portfolio
Clime International Fund
Income Securities
Discrete Share Portfolio
Property
Property Syndicates
Clime Private Client Offering30 October 2015
Clime Wholesale Products 3 months 6 months 1 year
Blended Return (Income/Growth/International) -1.4% 0.7% 6.3%
ASX200 Price Index -8.1% -9.5% -5.2%
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The market in contextNegative returns from market
• Returns from the ASX200 price index since 30 June 2014 has been negative 4.1% to 30 October 2015.
• Returns dominated by yield and stocks leveraged to weaker $A (ex resources)
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The current model portfolio - Growth• Portfolio is focused on growth whilst managing risk via diversification
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The current model portfolio - Income• Portfolio is focused on income whilst managing risk via diversification. Bond market
weakness makes higher cash (includes AAA) sensible
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The current portfolio – International Fund• Portfolio is focused on high quality businesses with a global revenue base• Common theme - businesses are household names• Overview of fund performance illustrates our disciplined approach is delivering
desired returns
Fund Performance to 30 October 2015 AUD Portfolio Return
1 month 2.8%
3 months 3.4%
6 months 8.7%
1 year 21.9%
Since inception (annualised) 14.3%
Inception: Wholesale Units: 4 March 2014 .Performance figures for more than 1 year are annualised, calculated after all applicable fees and taxes. Performance figures compare unit price to unit price for the given period. Past performance is not a guarantee of future returns.
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The market in context – Disconnect between PER and DY • Historically Australia has traded at a discount to
the world on a Price Earnings Ratio (PER) basis – Australia is now however broadly in-line• The reason for this is Australia has paid out a
greater proportion of their earnings in dividends given the franking incentives• With limited earnings growth expected in
Australia, the likely scenario is for a low returning environment• Future returns are more likely to be generated
from income rather than capital
Sectorial analysis
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Sectorial analysis – Divergence by industry sector• Returns by sector illustrate the divergence between outperforming and
underperforming the ASX200 in FY2014/15.• Key standout sectors included Health and Telco whereas underperforming sectors
included Energy and Consumer…….. But recent corrections should be noted.
-30%
-20%
-10%
0%
10%
20%
30%
40%
Shareholder returns - Sector
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Sectorial analysis – Banks
• Sustaining current levels of returns will be a challenge for banks with pressure coming from:
– Normalisation of impairment expense
– Higher capital requiring equity raisings
– Low funding cost increasing competition
– High household debt levels
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Sectorial analysis – Retailers
• Key drivers for retailers are interest rates, house prices and consumer confidence – 2 out of 3 isn’t bad• Interest rates at record lows of 2% with expectations
of further cuts will see discretionary spending increase• House price growth (particularly in Sydney) has lead
to improvements in L4L retails sales• Unfortunately, consumer confidence remains weak
(Budget, RBA and Unemployment)• Lower AUD will see some pressure on margins• Household, Furniture and Electronic to outperform
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Sectorial analysis – Resources
• Key drivers are commodity prices, currency, inflation and resources cost curves• Commodity prices continue to fall and are now
in-line with those seen during the depths of the GFC• Fortunately, the AUD at US$0.72 is well below
those levels seen during the GFC• Cost out strategies have seen cost curves fall e.g.
Large Fe produces targeting <$20 per tonne costs• Low cost producers to outperform e.g. BHP and
RIO
Our Investment Process
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Example: Adelaide Brighton LimitedThe process in action
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Example: Adelaide Brighton LimitedDelivering sound returns
Example: Seek Limited (SEK)Global growth, multiple levers
• Seek Limited (SEK) is a global leader in the employment classified industry
• Consistently sound profitability levels: 3, 5 & 10 year ave NROEs of 41.4%, 36.6% & 52.4%
• Financially strong: Low level of gearing coupled with strong recurring cash flows
• Competitive advantage drives strong margins: average EBITDA margin of ~40% since listing
• Continues to benefit from structural changes on a global basis: print to online migration continues while internet penetration rates drives substantial growth in emerging markets
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Example: Seek Limited (SEK)Outstanding track record of building value
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International Example: Alphabet Inc. (formerly called Google)Globally dominant market position, strong financials
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Income and Real Estate SecuritiesA sound base of recurring income
• Income Securities– Deep discount to face value: MBLHB, NABHA– Higher yielding: GMPPA, MXUPA– Preference share: SVWPA
• Real Estate Securities– Leaders: SCG, WFD
• Income reinvested into high quality, value opportunities over time
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Property Syndication Opportunity: Primewest
Exchange Tower (50%)NLA 34,360Car bays 227Proposed Purchase Price $113,500,000 (50%)Acquisition yield 6.75%Fully leased market yield 10.2%Occupancy 62%Capital rate per metre $6,607Tenure Leasehold Tenure (107 years remaining)NABERS 4.5 starsHighlights Core location Premium grade office building Substantial capital appreciation
opportunity Significant discount to historical value Poised to benefit from Elizabeth QuayForecast Investor return (year 1) 7.5%Forecast Investor return (average) 8.9%Forecast IRR 16%Proposed investment term 4 years
Big calls for 2015 and 2016
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The CALLS for late 2015 and 20161. Weak $A to settle below US 70 cents. Commodity prices remain under pressure2. QE tapers in US but roles forward in Europe. So $US up and Euro down3. European bonds to weaken from current “bubble” yields – expect cracks in 20164. US economic growth lifts but corporate earnings hampered by appreciating $US5. Japan QE continues as economy falters….capital flows into Aussie bonds6. China continues to affect a relative devaluation against the $US7. Inflation in Australia in 2016 becomes elevated again as currency weakens8. Equity markets remain volatile. Asset and stock selection the key to a absolute return.
Cash allocation should be made to $US before investing. Blended asset return target 6% to 8%.
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Clime Asset Management features
• 1. Active management of equity portfolios. Value based• 2. Dynamic asset allocation discussion. Regular commentary• 3. Current weightings 1/3; 1/3;1/3. Views expressed regularly• 4. International Hedging at our discretion. Consistent with our $A view• 5. Constant dialogue with client. Regular client events
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Clime Asset ManagementAbsolute return value asset managerAustralian & international equitiesListed investment company (Clime Capital)Individually managed portfoliosSMSF administrationInvestor education
Phone: 1300 788 568
Sydney
Melbourne
Perth
Level 7, 1 Market StreetSydney NSW 2000
Level 13, 200 Queen StreetMelbourne VIC 3000
Level 1, 307 Murray StreetPerth WA 6000
www.clime.com.au