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Build a resilient portfolio for all stages of the economic cycle
- 1. Build a resilient portfolio for all stages of the economic cycle Presented by John Owen Portfolio Specialist MLC Investments 2 October 2019
- 2. | netwealth2 1 CPD point available • CPD details will be included in the post- webinar email This webinar is being recorded • Slides will be sent to you after the webinar via email Enter your questions in the chat • We’ll get to them at the end of the webinar Posting to social? • Make sure to use #netwealthinvest or tweet @netwealthInvest Housekeeping
- 3. | netwealth3 This webinar and information has been prepared and issued by Netwealth Investments Limited (Netwealth),ABN 85 090 569 109, AFSL 230975. It contains factual information and general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of any individual.The information provided is not intended to be a substitute for professional financial product advice and you should determine its appropriateness having regard to you or your client’s particular circumstances.The relevant disclosure document should be obtained from Netwealth and considered before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth product. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), no person, including Netwealth, or any other member of the Netwealth group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. Disclaimer Webinar Series
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- 7. | netwealth Webinar Series7 John Owen Portfolio Specialist MLC Investments Meet today’s speaker
- 8. JOHN OWEN PORTFOLIO SPECIALIST MLC ASSET MANAGEMENT NETWEALTH WEBINAR BUILDING RESILIENT PORTFOLIOS FOR ALL STAGES OF THE ECONOMIC CYCLE
- 9. GENERAL ADVICE WARNING AND DISCLAIMER The information in this presentation has been provided by MLC Limited (ABN 90 000 000 402) a member of the NAB Group of Companies, 105–153 Miller Street, North Sydney 2060 for advisers only. No company in the NAB group, nor MLC limited guarantees the capital value, payment of income or performance of any fund referred to in this presentation. Any opinions expressed in this communication constitute our judgement at the time of issue and are subject to change. We believe that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to their accuracy or reliability (which may change without notice) or other information contained in this communication. Any projection or forward looking statement in this report is provided for information purposes only and no representation is made as to the accuracy or reasonableness of such projection or that it will be met. Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market. Returns are not guaranteed and actual returns may vary from target returns described in this document. Please note that all performance reported is before management fees and taxes, unless otherwise stated. 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 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. This information has been provided by MLC Limited (ABN 90 000 000 402) members of the
- 10. AGENDA 10 Market and economic overview Managing changing market circumstances Asset class building blocks (e.g. Global Private Equity) Manager selection Which fund for which investor
- 11. 11 THERE’S STILL GROWTH BUT THERE’S LESS OF IT – ECONOMIC CONDITIONS HAVE DETERIORATED Source: Datastream
- 12. THE TRADE DISPUTE SHOWS NO SIGN OF EASING – EUROPE AND JAPAN ARE COLLATERAL DAMAGE 12Source: Federal Reserve St. Louis Source: Markit PMI surveys
- 13. GOVERNMENT BOND YIELDS ARE AT HISTORIC LOWS AT A TIME OF SIGNIFICANT CENTRAL BANK INTERVENTION 13 Source: Federal Reserve, CME Group
- 14. SPARE CAPACITY IN AUSTRALIA’S LABOUR MARKET IS CONSTRAINING WAGES GROWTH 14
- 15. AUSTRALIA’S LEADING ECONOMIC INDICATORS SUGGEST THE ECONOMY NEEDS A HELPING HAND 15 Source: RBA Statement of Monetary Policy (August 2019)
- 16. DESPITE POOR LENDING STATS, HOUSE PRICES IN SYDNEY AND MELBOURNE ARE STABILISING 16 Source: RBA Statement of Monetary policy (May 2019) Source: ABS, Core Logic
- 17. 17 DESPITE THE UNCERTAIN ENVIRONMENT, MARKET RETURNS HAVE BEEN POSITIVE -10% -5% 0% 5% 10% 15% 20% 25% Australian shares Global shares (hedged) Global shares (unhedged) Emerging markets (unhedged) Australian property securities Global property securities (hedged) Australian bonds Global bonds (hedged) Global high yield bonds (hedged) Australian Inflation- linked bonds Cash USD/AUD Global Hedge Fund (USD) Return%pa (annualisedforperiodsgreaterthanone year) 1 year to Aug 2019 % p.a. 3 years to Aug 2019 % p.a. 10 years to Aug 2019 % p.a. Index data source: Australian shares - S&P/ASX 200 Accumulation Index ; Global shares (hedged) - MSCI All Countries World (A$ hedged) ; Global shares (unhedged) - MSCI All Countries World; Emerging markets - MSCI Emerging Markets ; Australian property securities - S&P/ASX 300 LPT Accumulation Index; Global property securities - FTSE EPRA/NAREIT Developed (A$ hedged); Australian bonds - Bloomberg AusBond Composite 0+ Yr Index; Global bonds (A$ hedged) - BCGA Global Agg (A$ hedged); Global high yield bonds (A$ hedged) - Composite of BCGA US Corp HY BB/B (A$ hedged) & S&P LSTA BB/B Leveraged Loan Index; Australian inflation-linked bonds - Bloomberg AusBond Inflation Government 0+ Yr Index; Cash - Bloomberg AusBond Bank Bill Index; USD/AUD - WM/Reuters Daily; Global Hedge Fund) - HFRX Global Hedge Fund (USD)
- 18. INCOME FROM INVESTING IN AUSTRALIAN SHARES IS SUPERIOR TO TERM DEPOSITS 18Source: ASX, Reserve Bank of Australia
- 19. HOW TO MANAGE CHANGING MARKET CIRCUMSTANCES 19 The future is uncertain To have insight into the future we must anticipate change There exists many possible futures. Investment markets can take a wide range of paths. Imagine a significantly different future. Behavioural biases affect market behaviour Investors extrapolate the past leading to unreliable forecasts.
- 20. GLOBAL GROWTH RECOVERY PRODUCTIVITY BOOM CREDIT CONTRACTION FINANCIAL COLLAPSE OILPRICE SHOCK STAGFLATION RISING INFLATION INVESTOR OPTIMISM RESOURCE BOOM CREDIT EXPANSION RECESSION PANDEMIC GLOBAL PROTECTIONISM SPECULATIVE BUBBLE LANDING HARD WAR DEFLATION RISE IN RISK PREMIUMS AUSTRALIAN BOOM STEADY GROWTH SLOWDOWN GLOBAL DEPRESSION STEADYSTATE RISK GEOPOLITICAL THE FUTURE COULD ENTAIL MANY DIFFERENT SCENARIOS 20 MLC Horizon portfolios What sets us apart? 20
- 21. FUND CHOICE IS IMPORTANT – WHICH PATH WILL YOU TAKE? Asset Allocation Constraints Downside Risk Management
- 22. PATH 1: SIMPLE/PASSIVE The range of possible outcomes is wide $ Time GOAL Sample Portfolio Shares Australian Global Bonds Government GlobalAustralian REITs Australian Global Are comfortable experiencing a wider range of potential outcomes because their returns are largely in the hands of the market Want to invest in passive funds and mainstream asset classes like Australian and global shares, REITs, fixed income Are seeking a lower cost option as they don’t see the benefit in paying for noon- traditional assets classes or the expertise of active managers. Path 1 is generally suited to investors who: Want the security of knowing exactly where their money is invested and don’t want their asset allocations changed. Range of returns possible
- 23. PATH 2: DIVERSIFIED/ACTIVE Aims to reduce potential return downside $ Time GOAL Are seeking a slightly narrower range of potential outcomes because they believe in the expertise of active managers being able to outperform the market. Want to invest in mainstream asset classes as well as some alternatives to better manage their risk. Are willing to pay a higher fee for access to more asset classes and the expertise of active managers Path 2 is generally suited to investors who: Sample Portfolio Shares Australian Global Bonds Government GlobalAustralian REITs Australian Global Corporate Emerging markets Australian Global Private assets Insurance related investments Alternatives Hedged Un- Hedged Emerging markets Want the security of knowing where their money is invested but allowing the investment manager to make small portfolio adjustments. High yieldPath 1 Path 2Legend Range of returns possible
- 24. PATH 3: INFLATION LINKED Aims to provide more consistent returns than traditional active management$ Time GOAL Are seeking more certainty of achieving a specific outcome Are comfortable to allow their investment manager to invest in any asset class in order to achieve returns above inflation Are willing to pay a higher fee in return for more certainty of outcome, especially limiting downside risk Path 3 is generally suited to investors who: Want the comfort of knowing their investment manager can move their funds around in order to achieve a specific outcome Sample Portfolio Shares Australian Global Bonds Government GlobalAustralian REITs Australian Global Corporate Emerging markets Australian Global Private assets Insurance related investments Hedged Un- Hedged Emerging markets Alternatives High yieldPath 1 Path 2 Path 3Legend Range of returns possible
- 25. GLOBAL PRIVATE EQUITY - AN EXTENSIVE OPPORTUNITY SET Time Cashflows 25 Venture Capital Seed, start-up Growth Bridge financing, phased Financing Buy-out Buy-out, MBOs Rescue / Turn-around Refinancing, special situation
- 26. Source: NAB Asset Management Services Limited Wide quartile spreads of manager returns Significant out-performance of top quartile funds Manager selection is a key skill “If you can identify and access the superior private equity firms, the potential returns are significant. If you can’t do both, don’t invest.” Watson Wyatt MANAGER SELECTION AND ACCESS IS CRITICAL IN PRIVATE EQUITY
- 27. MANAGER SELECTION – PAST PERFORMANCE SHOULDN’T BE RELIED UPON Ordered by best to worst benchmark relative performance for the 3 yrs ending December 1999 Source: Mercer Investment Consulting's Manager Performance Analytics software -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 31 December 1999
- 28. Ordered by best to worst benchmark relative performance for the 3 yrs ending December 1999 …and the benchmark relative performance for the subsequent 3 yrs to December 2002 Source: Mercer Investment Consulting's Manager Performance Analytics software -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 31 December 2002 MANAGER SELECTION – PAST PERFORMANCE ISN’T A RELIABLE GUIDE
- 29. Business stability • Including ownership structure, equity participation and incentives Investment philosophy • Do they have one and is stock selection consistent with that philosophy? Investment approach • The process applied to affect the investment philosophy must be clear and appropriately resourced Team structure • Structure of the team, culture, qualifications and knowledge Risk Management • Are systems in place and adequate to understand portfolio and business risk? Capacity • Can the manager continue to accept normal fund flows? MANAGER SELECTION – HOW IT SHOULD BE DONE Analyse both qualitative and quantitative factors:
- 30. The environment we are currently in is highly uncertain, which is why there is significant central bank intervention The best investment process is one that takes into account the many scenarios (both positive and negative) that could unfold and how portfolios should be adjusted to address potential risks and return Investing broadly, including an allocation to non-traditional asset classes and managers, can enhance diversification and provide a smoother pattern of returns Don’t let a recent university graduate manage your money – think carefully about who you choose to make investment decisions on your behalf CONCLUSION
- 32. | netwealth32 1 CPD point available • CPD details will be included in the webinar resources email Webinar recording and slides • These will be included in the webinar resources email Thank you
- 33. | netwealth Compare funds and models • Netwealth website: Personal>Resources and Tools Portfolio construction podcast series • Discover investment opportunities from wealth management professionals 33 Links will be in the follow-up email You may be interested in
- 34. | netwealth Banqer • Supporting financial literacy in schools • Refer a teacher today 34 Links will be in the follow-up email You may be interested in
- 35. | netwealth35 This webinar and information has been prepared and issued by Netwealth Investments Limited (Netwealth),ABN 85 090 569 109, AFSL 230975. It contains factual information and general financial product advice only and has been prepared without taking into account the objectives, financial situation or needs of any individual.The information provided is not intended to be a substitute for professional financial product advice and you should determine its appropriateness having regard to you or your client’s particular circumstances.The relevant disclosure document should be obtained from Netwealth and considered before deciding whether to acquire, dispose of, or to continue to hold, an investment in any Netwealth product. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), no person, including Netwealth, or any other member of the Netwealth group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. Disclaimer Thank you Webinar Series
Hinweis der Redaktion
- CORE BELIEFS Our Investment Philosophy consists of beliefs which underpin our approach to investing. They define our understanding of sources of superior risk adjusted returns, and specifically the management of risks to the achievement of the investment objectives of our investors.
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- In an unpredictable world, the Framework helps us to comprehensively assess what the future might hold by taking into account a number of scenarios that may unfold. This gives us an understanding of how risks and return opportunities change over time for both individual assets and total portfolios. This information then allows us to choose asset allocations that will help achieve our portfolios’ objectives. By adopting this risk-aware approach, we aim to provide a smoother pattern of returns for investors over time. That’s the value of our unique, forward-looking investment approach. Our scenarios analysis is used to identify target allocations which are more risk-return efficient than the benchmark, because these portfolios must remain true to label. As the riskiness of assets changes through time, we vary the asset allocation to position the portfolios to achieve a higher reward for risk than the benchmark.
- Some of the numerous scenarios we consider. How do we make sense of this? Using a systematic approach to understanding the detail in each scenario
- Path 1 - Passive investments have defined asset allocations so are suited to clients who like the security of knowing where their money is invested Are a cheaper alternative for clients who want to rely largely on the market for returns What has been your experience investing in markets in the past? The 1st option we can consider is putting your money in a passive investment like an Index Fund. It invests in mainstream assets classes that you may be familiar with such as Australian & global shares, listed property and fixed income. This means the returns you will receive will be dictated by the market. So when markets are up, your returns will generally be up. When markets are down, the value of your portfolio will generally be down. This could lead you to either falling a long way short of your goal or there is always the potential that you land at a place higher than your goal. The downside of passive investments is that we don’t have a lot of control over those returns and it’s likely to be very volatile. This type of option is suited to investors where it’s very important to know exactly where their money is invested because the portfolios’ mix of growth and defensive assets are managed within defined ranges. This option is also suited to those who don’t believe that an Investment Manager can outperform the market and therefore don’t see value in paying the higher fees associated with active management. If the range of potential outcomes in path 1 bothers you, we can minimise the volatility of the returns but to reduce the downside risk you need to give up some of the upside - Nothing comes for free. (see next slide)
- Path 2 – Actively Managed Investments Can generate a slightly narrower range of potential outcomes due to the expertise of the Active Manager Have access to more diverse assets to better manage downside risk and deliver returns above their benchmarks How important is ------------- to you? (E.g. diversification, approach to downside protection, liquidity, a tailored strategy, active mgmt etc.) The 2nd option we can consider is to invest in actively manage funds. This means that specialist investment managers who have access to a more diverse range of assets can make predictions about what will happen in the markets and try to manage the risk of a loss. These managers have access to all the mainstream assets that Path 1 had as well as some alternative options and this helps them to manage downside risk and narrow the potential range of outcomes they achieve. It is suited to investors who can see value in paying a slightly higher fee in exchange for the expertise of an Active Manager who they believe can outperform the market.
- Path 3 – Inflation Linked Provides flexibility to change the mix of assets as the markets change Delivers a smoother, less volatile pattern of returns than the market Would it be important to you to have access to a fund that can take an active approach to managing money and make changes to asset classes in order to generate more consistent returns? The 3rd option we can consider is to lean on some experienced investment managers to make decisions to move the money and assets classes around in order to achieve a specific outcome with more consistent returns- This process is known as dynamic asset allocation. Traditional diversified funds have defined asset allocation ranges because they’re managed to a benchmark not to delivering a specific client outcome. This means the investment managers are restricted in their ability to manage changes in risk and/or take opportunities for greater returns leading the fund’s performance to largely reflect the market’s performance – good or bad. A dynamic asset allocation approach means that changes to the mix of assets can be made easily as market conditions evolve so as to provide more control to manage risk and capture return opportunities. This leads to the portfolio being better positioned for a range of possible future environments and allows it to deliver a more predictable path of returns providing a ‘smoother ride’ and better investment outcomes. It is suited to investors who are seeking more certainty of achieving their specific outcome and see value in paying a high fee in return for more consistent returns
- Finding the firms who are the best at stock selection isn’t easy. We believe that there are very few firms in any given asset class that have a real and sustainable competitive edge. To make our job even more difficult, we’re sceptical that a manager’s past performance is a reliable guide to how well they will do in the future. This chart and the next shows why our scepticism is well placed. Each column shown in this diagram represents the return of a manager versus the global share index in the three years to 31 December 1999. Those above the line have outperformed while those below the line have underperformed the index. If its true that past performance is a reliable indicator of how a manager will perform in the future, we would expect to see something similar in the next chart which shows managers returns in the same order for the three years period to 31 December 2002. Right?
- Wrong! There is clearly little if any consistency between the two periods. The two best performers in the previous period are now the worst performers and the worst performers than are now the best performers. So, if past performance can’t be used to identify skilled managers, how do we do it?