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Colonial First StateAn Introduction to Managed Funds
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This presentation is given by a representative of Colonial First State Investments Limited AFS License 232468 (Colonial First State). The presenter does not receive specific payments or commissions for any advice given in this presentation. The presenter, other employees and directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial First State receives fees for investments in its products. For further detail please read our Financial Services Guide (FSG) available at colonialfirststate.com.au or by contacting our Investor Service Centre on 13 13 36.
All products are issued by Colonial first State Investments Limited ABN 98 002 348 352. Prospectuses or Product Disclosure Statements (PDSs) describing the products are available from Colonial First State. The relevant prospectus or PDS should be considered before making a decision about any product.
This presentation does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision.
The information is taken from sources which are believed to be accurate but Colonial First State accepts no liability of any kind to any person who relies on the information contained in the presentation.
Disclaimer
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Agenda
What is a Managed Fund? Asset Classes What is the right balance for me? Why managed funds Investing for the long term
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What is a Managed Fund?
Your money is pooled with other investors
You decide on the type of fund (e.g. Australian share fund, international share fund, balanced fund)
Your fund manager researches and selects the companies (or assets) in which to invest
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Risk
Retu
rn
= Australian shares
= Fixed Interest & Cash
= Global shares
= Listed property
= Global property
Risk / return trade off
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Asset Classes
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Shares
Ownership in a company
Growth Asset Capital growth (earnings) Income (dividends)
Potential for high return
Higher risk
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Asset Class ComparisonValue of $10,000 invested Jun 1984 – Jun 2004
10,000
30,000
50,000
70,000
90,000
110,000
130,000
150,000
170,000
J un-84
J un-86
J un-88
J un-90
J un-92
J un-94
J un-96
J un-98
J un-00
J un-02
J un-04
Australian shares
Global shares
$ Annualised return = 13.2%
Annualised return = 12.7%
Source: IRESS - S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges
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Property
Investment in property securities Growth asset Income (rent) Capital Growth (increase in value of property)
Hedge against inflation 1980’s
Diversify Hotels, office towers, shopping centres
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Asset Class ComparisonValue of $10,000 invested Jun 1984 – Jun 2004
10,000
30,000
50,000
70,000
90,000
110,000
130,000
150,000
170,000
J un-84
J un-86
J un-88
J un-90
J un-92
J un-94
J un-96
J un-98
J un-00
J un-02
J un-04
Australian shares
Global shares
Property securities
Annualised return = 12.7%$
Source: IRESS - S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges
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Bonds
Income producing asset Purchase of bond = lending funds to issuer Income payments (coupons)
Can be traded on secondary market
Can generate both a profit & a loss
Distinct relationship between Bond prices Interest rates
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Bond example
Fund Manager holds $1,000 worth of Govt. bonds with a interest rate of 8%pa ($80) Interest rates fall to 6% ($60) Investor prefers 8% (profits) Interest rates rise to 10% ($100) Investor prefers 10% (loss)
There is an inverse relationship between interest rates and bonds
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Asset Class ComparisonValue of $10,000 invested Jun 1984 – Jun 2004
Annualised return = 11.0%
10,000
30,000
50,000
70,000
90,000
110,000
130,000
150,000
170,000
J un-84
J un-86
J un-88
J un-90
J un-92
J un-94
J un-96
J un-98
J un-00
J un-02
J un-04
Australian shares
Global shares
Property securities
Australian fixed interest
$
Source: IRESS - UBS Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges
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Cash
Security Capital Short term, i.e. 12 months or less
Cash Management Trust Generally provides better return than a bank account
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Asset Class ComparisonValue of $10,000 invested Jun 1984 – Jun 2004
Annualised return = 9.1%
10,000
30,000
50,000
70,000
90,000
110,000
130,000
150,000
170,000
J un-84
J un-86
J un-88
J un-90
J un-92
J un-94
J un-96
J un-98
J un-00
J un-02
J un-04
Australian shares
Global shares
Property securities
Australian fixed interest
Cash
$
Source: UBS Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1999), UBS Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges
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What is the Right Balance?
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What is the right balance?
List income & growth needs
Consider time horizon & degree of risk
Consider investment alternatives (which meet your needs)
Reassess your balance of investments as your needs and the economic environment change
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Cash
Fixed Interest
Property
Shares
Spreading your savings helps your chances of achieving your retirement goals
$ $ $
What is the right balance?Diversification across asset classes
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What is the right balance?Risk / return trade off
CFS Diversified Fund
CFS High Growth Fund
= Australian shares
= Fixed Interest & Cash
= Global shares
= Listed property
= Global property
Risk
Retu
rn
CFS Balanced Fund
CFS Conservative Fund
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Why managed funds?
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Why managed funds?
Spread investment risk
Potential for higher returns
Liquidity of asset holding
Fund manager expertise
Ability to invest in overseas markets that are otherwise difficult to access
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Asset class returns (%pa)Annual Returns to 30th June 2004
INTERNATIONAL
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Cash 7.1 7.8 6.8 5.1 5.0 5.6 6.1 4.7 5.0 5.3
Bonds 11.9 9.5 16.8 10.9 3.3 6.2 7.4 6.2 9.8 2.3
Listed Prop 7.9 3.6 28.5 10.0 4.3 11.9 13.9 14.9 12.1 17.2
Shares 5.7 15.8 26.6 1.6 15.3 15.1 9.1 -4.5 -1.6 21.7
Global shares 14.1 6.7 28.5 41.6 8.2 23.7 -5.8 -23.3 -18.3 19.4
Percentage return over 1 year to 31st March 2004. Source: UBS Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1999), UBS Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), and the SSB World Government Bond Index *ex Australia Hedged to A. All dividens reinvested excluding fees and charges
AUSTRALIAN
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Why managed funds?Taking the best of each asset class
Source: UBS Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1999), UBS Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges
10,000
30,000
50,000
70,000
90,000
110,000
130,000
150,000
170,000
J un-84
J un-86
J un-88
J un-90
J un-92
J un-94
J un-96
J un-98
J un-00
J un-02
J un-04
Australian shares
Global shares
Property securities
Australian fixed interest
Cash
Diversified
$
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0%
10%
20%
30%
40%
50%
60%
US UK Europe (exUk)
Japan Asia Pacific(ex Japan)
Aust
Why managed funds?Gain access to global markets
World equity markets by market capitalisationas at 30th November 2003
Source: RimesData to 30th November 2003
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Why managed funds?Putting it into perspective
Australia USAA$bill A$bill
48% of ASX 300 A$649 bill 23% of S&P 500 US$10,408 bill
News Corp 49
BHP 47
NAB 45
Commonwealth Bank 41
ANZ 33
Telstra 31
Westpac 31
AMP 12
Woolworths 12
St George 11
General Electric 479
Microsoft 411
Exxon Mobil Corp 409
Pfizer 360
Citigroup 323
Wal Mart 312
AIG 253
Bank of America 240
Intel 233
Johnson & Johnson 226
Source: IRESS, ITG. Data as at 30th June 2004. Global stock data as at 12th July 2004
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Understanding the current market
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1200
2200
3200
4200
5200
6200
Dec-90 Dec-93 Dec-96 Dec-99 Dec-02
Understanding the current marketInternational shares… we’ve seen better!
The 21st CGlobal shares in AUD
MSCI – World Net Index ($A) Source: IRESS. Data to 30th June 2004
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500
1000
1500
2000
2500
3000
3500
4000
4500
Mar-90 Mar-93 Mar-96 Mar-99 Mar-02
US company earnings
US Sharemarket
Source: Bloomberg. Sharemarket data and earnings data to October 2003
Understanding the current market US sharemarket and company earnings
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0
5
10
15
20
25
30
35
Sep-59 Sep-70 Sep-81 Sep-92 Sep-03
0
1000
2000
3000
4000
Corporate profits -Source: RBA Bulletin table G12. Data to 31st March 2004Australian Share price index – Source: IRESS. Data to June 2004
Australian share price index
Corporate profits
$bill
Share prices & company profits grow together
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Understanding the current market A ‘new’ era?
Recessions – USA, Europe, Japan
Wars – Afghanistan, Iraq Pestilence – SARS Terror – September 11 Scandals – Enron
Recessions in 1970s, 1980s, 1990s
Korea, Cold War, Gulf War AIDS IRA, Red Brigade, Black
September Barings, S&L crisis
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Investing for the Long Term
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Investing for the long termPatience has been rewarded
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
1 year rolling returns(% )
Source: Rimes. Returns from the MSCI World Net Index $A, calendar years to 30th November 2003
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Patience has been rewarded
-20%
-10%
0%
10%
20%
30%
40%
50%
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
3 year (% )
Source: Rimes. Returns from the MSCI World Net Index $A, calendar years to 30th November 2003
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Patience has been rewarded
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
5 year (% )
Source: Rimes. Returns from the MSCI World Net Index $A, calendar years to 30th November 2003
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Time in the market, not timingAustralian shares to 30th June 2004
10.50%
8.61%
7.33%
5.07%
3.04%
0% 2% 4% 6% 8% 10% 12%
10 year return (% p.a)
10 years less 5 bestdays
10 years less 10 bestdays
10 years less 20 bestdays
10 years less 30 bestdays
Source: IRESS, Colonial First State*All Ordinaries Accum Index used prior to April 2000
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Conclusion
Understand how sensitive you are to changes in the market & know your investment time frame
Managed funds making accessing a range of asset classes easy
Invest for the long term
Diversification is the key