Global Best Performer - DOC

Document Sample
Global Best Performer - DOC Powered By Docstoc
					  MLC Investment Management




MLC Horizon 5
Growth Portfolio
About the Portfolio                                                                      Target Asset Allocation
                                                                                      MLC Horizon 5 Growth Portfolio
The MLC Horizon 5 Growth Portfolio                                                       LTAR, 3.0%
aims to grow wealth for a moderate to
high level of expected volatility. The
                                                                Debt Securities, 15.0%
Portfolio is invested with a strong bias
towards growth assets.                                                                                                        Australian Shares, 35.0%

                                                          Global Private Assets,
The Portfolio is designed to be a                                 6.0%

complete investment portfolio solution.
                                                Global Property Securities,
It’s well diversified within asset classes,               3.0%
across asset classes and across
                                                            Global Shares (hedged),
investment managers who invest in                                   11.0%

many companies and securities around
the world.
                                                                                                  Global Shares (unhedged),
                                                                                                            27.0%


                                                                                            Source: MLC Investment Management



MLC Horizon 5 Growth Portfolio

                                              3 month               1 year                 3 year               5 year                10 year
Performance to 31 March 2011
                                                 %                    %                    % p.a.               % p.a.                 % p.a.

MLC MasterKey Super Fundamentals
                                                2.5                     4.3                  -0.4                    -                      -
(takes into account fees and tax)

MLC MasterKey Super Gold Star /
Business Super*                                 2.4                     3.7                  -0.9                  0.1                     3.4
(takes into account fees and tax)

MLC MasterKey Pension Fundamentals
                                                2.6                     4.8                  -0.1                    -                      -
(takes into account fees and tax)

MLC MasterKey Allocated Pension
                                                2.5                     4.3                  -0.6                  0.0                     3.9
(takes into account fees and tax)

*MLC MasterKey Business Super commenced on 30 April 2001 and issues the same unit price as that reported for
MLC MasterKey Superannuation Gold Star. The returns outlined above do not include allowance for fee rebates
Source: MLC Investment Management
Executive summary
For investors that stayed the course over the last few years the recovery of MLC Horizon 5’s
performance has now totalled 45.6% since March 2009. This demonstrates the importance of remaining
committed to an investment strategy and avoiding the sometimes irrational behaviour of the crowd,
especially when markets are in a state of fear and panic. Investors that have been sitting on the
sidelines could use this occasion as the catalyst to re-consider the opportunities available through
investing.
The quarter to March 2011 has seen positive contributions from all asset classes that MLC Horizon
portfolios invest in. This achievement belies the volatility over the period, with events like the floods in
Australia, to earthquakes in New Zealand and Japan buffeting markets. Not withstanding the
significance of the events above and the subsequent human suffering, the potential for greater
economic impact has came from the escalating geo-political tensions emanating out of North Africa and
the Middle East. These events, combined with more positive economic indicators out of the US have
provided no shortage of information for the markets to digest and as a result we’ve seen significant
movements in some key indicators. As this is being written, the AUD has jumped to US$1.07, gold has
reached a new record of $1,500/ounce and Brent Crude is 20% higher for the year reaching
US$117/barrel.
The impact of these events has been felt within the MLC Horizon portfolios with short term volatility
playing out at various points over the quarter. In periods like this, investors should gain comfort in the
knowledge that planning for the unexpected is part of the MLC Horizon design process. It’s also
important to remember that there will always be events that cause concern and worry, but achievement
of long term wealth generation goals can generally only be achieved by investing in assets that are
subject to a degree of volatility. One of the best ways to mitigate this volatility is still the age old adage of
diversify, diversify, diversify.
Not withstanding the themes mentioned above, the performance over the quarter was strong, recording
2.5% (after fees and taxes) and 4.3% for the year. The view of MLC and our managers is generally one
of cautious optimism with an expectation of modest growth. This view is balanced with the
understanding that short term volatility will continue as long as markets continue to be buffeted by
significant global events.

Strategic Overlay
                        1



The current set of Strategic Overlay scenarios have been in place for several quarters. We continue to
have a significant weighting to a relatively benign resolution to the developed world’s debt overhang, to
an extent, giving the significant remaining difficulties the benefit of the doubt. Overall, with much
uncertainty and risk remaining, our medium term scenarios remain skewed towards sub-par growth.

Key points:

•        Credible future scenarios involve (at best) modest global GDP growth. Companies remain
         relatively robust, and low cash rates also support global shares.

•        The return potential from equities in many markets is now close to ‘normal’ potential with PE
         ratios near fair value, though Australian equities show a slightly lower potential than long term
         estimates.

•        Global shares unhedged remains relatively attractive from a risk control perspective, given the
         Australian dollar remains above parity with the US dollar.

•        Global sovereign bond yields have again risen slightly, but prospective return potential remains
         very compressed and below ‘normal’.




1
    Refer to the April edition of the Strategic Overlay for a detailed overview of our medium term outlook.

MLC MasterKey Super and Pension review for the year ending 31 March 2011                                            Page 2 of 8
Absolute returns
The graph shows absolute total returns of this portfolio of investments over one year and five
year periods.

                                                Historical Absolute Performance
                                     MLC MasterKey Super Gold Star Horizon 5 Growth Portfolio
                                                  (after taking into account fees and tax)

                    30%


                    20%


                    10%
    Return % p.a.




                     0%


                    -10%


                    -20%


                    -30%
                           1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011

                                                 1 Year Ended 31 March      5 Years Ended 31 March
Source: MLC Investment Management

The chart above shows that 5 year returns have always been positive and 1 year returns have been
positive for 11 of the past 14 years. This highlights the benefits of a diversified multi manager approach
that can provide greater consistency in outcomes over shorter time frames when compared to single
manager or single asset class portfolios.
MLC Private Equity has generated impressive results from broad exposure to Europe, Asia and the US.
Significant exposure to ‘Buy Outs’ should continue to produce positive results as companies employ
excess cash on balance sheets. The results from Private Equity have been positive for 7 straight
quarters and relative to the benchmark, the manager has achieved above benchmark performance of
9.8% p.a., this is an outstanding track-record and clearly highlights the benefits of active management.
Another strong performer over the year has been Global Property Securities (hedged) which
outperformed Australian REITS by more than 15% over the year, following strong demand from new
tenants and rising rents. This strategy has also been able to demonstrate a track record of above
benchmark performance over a 5 year time frame.
The Long-Term Absolute Return (LTAR) strategy returned 10.9% for the year, with Bridgewater Pure
Alpha the clear standout, recording +40.5% for the year and +16.2% p.a. over 3 years. Insurance
Related Investments recorded negative performance over the quarter, which is unsurprising given the
sequence of natural disasters. However the strategy has still achieved strong longer term performance
                                                                                             2
of 9% p.a. over 3 years, second only to Bridgewater. The Strategic Overlay (within LTAR ) was adjusted
over the quarter, with a further increase to unhedged global equities. The Strategic Overlay has added
4.7% p.a. over the last 5 years. Additionally, as a result of the active risk control employed in the
Strategic Overlay, monthly returns of the portfolio have continued to be significantly less volatile than the
neutral strategy.
Within Debt, a small overweight allocation to higher quality asset backed mortgages in the US payed off,
with the strategy returning +15.8% over the year. More generally, having exposure to credit risk was
positive over the year because yields on non-government bonds fell in Australia and the US. This is a
good result given the negative sentiment resulting from natural disasters and geopolitical issues.
Whilst most asset classes had a very positive 12 months, portfolio returns were moderate over the period
as two of the largest allocations, Australian equity and unhedged global equity had a flat 12 months.
Unhedged global equity suffered as a result of a strong rise in the Australian currency, which was up
12.6% against the USD, and Australian shares suffered from the affects of a strong economy, namely a
tightening labour market and strong currency which reduced the competitiveness of Australian companies.


2
 The Strategic Overlay within LTAR has significantly wider operational bands when compared to the
Strategic Overlay applied to the Horizon portfolios.

MLC MasterKey Super and Pension review for the year ending 31 March 2011                                                     Page 3 of 8
This table outlines the performance of the MLC Horizon 5 Portfolio components before taking
into account fees and tax.

                                               1 year                        5 year
                                                 %                           % p.a.
Performance to
31 March 2011                         Strategy      Benchmark       Strategy     Benchmark



Australian Shares                        2.5            3.8            3.5            3.2

Global Shares (unhedged)                 1.6            1.7           -4.8            -3.9

Global Shares (hedged)                  12.4            13.1           0.6            2.8

Global Property Securities
                                        21.3            22.4           0.8            -0.9
(hedged)

Global Private Assets (hedged)          21.5            13.1          12.6            2.8

Debt securities                          8.4            7.8            6.2            6.2

MLC Long-Term Absolute Return
                                        10.9            2.2            4.7            2.8
Portfolio

Source: MLC Investment Management



Contributors to the investment portfolio’s absolute returns
   Over the year Debt Securities continued to be the most significant contributor to returns, providing
    approximately a third of the total portfolios return for the year. All managers in debt produced
    positive returns over the year. In particular, the extended credit (non-investment grade) sector
    produced very strong returns with the standout being global mortgages manager, Stone Tower
    recording an outstanding return of +15.8% , +10.9% above their benchmark.
   Over the quarter it was Australian Shares and Unhedged Global Shares that were the main
    contributors as shares proved remarkably resilient in the face of geo-political tensions and natural
    disasters.
Detractors from the investment portfolio’s absolute returns
   While all major asset classes provided positive contributions over the year, returns from Australian
    equity and global shares were modest. Given their large weightings in the portfolio, this negatively
    impacted the absolute returns of the portfolio.
   Over the quarter and in spite of macro shocks, all asset classes provided healthy contributions to
    absolute returns.




MLC MasterKey Super and Pension review for the year ending 31 March 2011                                   Page 4 of 8
The chart shows asset class contributors to the return

                                                                                                      Contribution to Total Return by Asset Class
                                                                                                           MLC Horizon 5 Growth Portfolio
                                                                                                            (before taking into account fees and tax)

                                                                        7

                                                                        6
                         (annualised for periods greater than 1 year)




                                                                        5
 Return Contribution %




                                                                        4

                                                                        3

                                                                        2

                                                                        1

                                                                        0

                                                                        -1

                                                                        -2
                                                                             Australian   Global Shares Global Shares     Global      Global Private   LTAR     Debt Securities   Total
                                                                              Shares        - Hedged     - Unhedged      Property        Assets
                                                                                                                         Securities
                                                                                     3 months to Mar-2011        1 year to Mar-2011       3 years to Mar-2011    5 years to Mar-2011
Please note that contribution to return is approximate, calculated on a monthly basis. Therefore variations from actual performance, which is
calculated using daily prices, are expected.


Source: MLC Investment Management




MLC MasterKey Super and Pension review for the year ending 31 March 2011                                                                                                                  Page 5 of 8
Asset class role and performance
Detailed commentaries for each asset class are available online

       Asset Class                         Role in Portfolio                                   1 year performance

Australian Shares            Australian Shares aims to deliver capital growth       The strategy March quarter and year end pre-
                             by using investment managers who invest and            fees and tax returns were below the market
(35%)
                             diversify across many companies listed in the          return. The impact of the strategy low exposure
8 Managers                   Australian sharemarket. Results can be volatile        to the outperforming small to medium sized
                             over the short term (under three years), but are       resource and energy companies was the
                             expected to provide growth over longer terms (in       principal cause of the performance shortfall
                             excess of five years).                                 versus index, as well as ownership of Insurance
                                                                                    Australia Group, National Australian Bank,
                                                                                    Westpac, Fairfax Media, Brambles and Boral.
                                                                                    Last quarter, the strategy manager
                                                                                    arrangements were revised. The mandates of
                                                                                    Contango and Lazard were terminated and their
                                                                                    allocations were shared amongst the remaining
                                                                                    eight managers.

Global Shares (unhedged)     In addition to what’s discussed above for              The MLC Global Share strategy (unhedged)
                             Australian shares, Global Shares invests in            returned +1.6% for the year, before fees and
(27%)
                             global companies listed in sharemarkets from           taxes, under performing the benchmark by -
8 Managers                   around the world. The strategy also invests in         0.2%. The managers in the strategy had a
                             emerging markets, helping capture key                  mixed performance year. Sands Capital
                             opportunities from these new markets.                  (+14.3.%) continues to be the best performing
                                                                                    manager on the back of the balance sheet
                                                                                    strength of many of the companies they have
                                                                                    invested in. Tweedy, Browne (+3.4%) had a
                                                                                    good year on strong selections within the Oil and
                                                                                    Gas sector with U.S. holdings besting European
                                                                                    and Asian counterparts. Walter Scott (-2.5%)
                                                                                    disappointed for the year, dragged down by their
                                                                                    holdings in Japan which were volatile in the
                                                                                    aftermath of the disaster in March.

Global Shares (hedged)       In addition to what’s discussed above, returns         The MLC Hedged Global Share strategy
                             are hedged back to the $AUD, significantly             returned +12.5%, under performing the hedged
(11%)
                             reducing the impact of currency movements on           benchmark by -0.6%. Currency hedging
In addition to those         returns.                                               provided the lion’s share of this return with the
managers above, there                                                               AUD currency rising by 12.6% against the USD
are two specialist                                                                  over the year. The managers in the strategy had
currency managers.                                                                  a mixed performance year. Sands Capital
                                                                                    (+14.3.%) continues to be the best performing
                                                                                    manager on the back of the balance sheet
                                                                                    strength of many of the companies they have
                                                                                    invested in. Tweedy, Browne (+3.4%) had a
                                                                                    good year on strong selections within the Oil and
                                                                                    Gas sector with U.S. holdings besting European
                                                                                    and Asian counterparts. Walter Scott (-2.5%)
                                                                                    disappointed for the year, dragged down by their
                                                                                    holdings in Japan which were volatile in the
                                                                                    aftermath of the disaster in March.

Global Property Securities   The strategy is designed to provide                    The strategy return in the March quarter was
                             comprehensive exposure to global listed                below benchmark. This was due in part to the
(3%)
                             property securities (including REITs). It aims to      weakness of Asian REIT markets, principally
3 Managers                   deliver growth by using investment managers            Japan, Singapore and Hong Kong where some
                             who invest and diversify across many companies         of the strategy largest investments are
                             and securities within that asset class. Returns        denominated. Stock specific strategies that
                             from property are generally expected to be             detracted from returns in the quarter included
                             higher than those from bonds, but lower than           Mitsubishi Estate (Japanese developer), Sun
                             shares over the medium to long term. All returns       Hung Kai Properties (Hong Kong developer) and
                             from this asset class are fully hedged back to the     Big Yellow Group (UK storage company).
                             Australian dollar.                                     For the year, the strategy return was below
                                                                                    index. Strategy holdings that detracted from
                                                                                    returns include Mitsubishi Estate and Sun Hung
                                                                                    Kai Properties.

Global Private Assets        These are investments in assets that aren’t            The global private assets strategy had
                             traded on listed exchanges. An example of this         performance of +21.5% for the year. The
(6%)
                             is an investment in a privately owned business.        strategy has generated impressive results from
35+ Managers                 Private assets can be volatile and are included in     broad exposure to Europe, Asia and the US.
                             this portfolio for their growth characteristics. All   Significant exposure to ‘Buy Outs’ should
                             returns from this asset class are fully hedged         continue to produce positive results as
                             back to the $AUD.                                      companies employ excess cash on balance
                                                                                    sheets.


MLC MasterKey Super and Pension review for the year ending 31 March 2011                                                 Page 6 of 8
       Asset Class                       Role in Portfolio                                 1 year performance

Debt securities            Debt securities are usually included in a portfolio   All our bond managers produced positive returns
                           for their defensive and income characteristics.       over the quarter and year, particularly in Global
(15%)
                           Our strategy is designed to provide                   Multi-Sector Bonds, High Yield Bonds, Bank
13 Managers                diversification when growth assets are weak.          Loans and Mortgages where demand was strong
                                                                                 for bonds with higher yields. Our managers, on
                                                                                 average, outperformed their market benchmarks
                                                                                 over the year and the quarter with Franklin
                                                                                 Templeton and Stone Tower standing-out.

LTAR                       The Long-Term Absolute Return strategy has a          Returns over the past year are positive in
                           unique mandate to provide real returns (after         absolute terms, and are 0.7% ahead of the
(3%)
                           fees, taxes and inflation) +5.5% per annum, over      Neutral strategy. Excess returns relative to
65+ Managers               a longer time horizon of 20 years and isn’t           Neutral have been negative since September
                           constrained in its approach. In addition to           2010, on the back of equity market strength.
                           investing in traditional assets, the strategy has     Returns since inception remain ahead of the
                           the ability to invest in unique assets such as        Neutral strategy, with the portfolio delivering
                           Insurance Related Investments (IRI).                  annualised outperformance of 3.8%.
                                                                                 Additionally, monthly returns have continued to
                                                                                 be significantly less volatile than the Neutral
                                                                                 strategy. Given the current outlook (discussed
                                                                                 earlier) LTAR remains risk controlled through
                                                                                 relatively defensive positioning.



Stock story
TJX
Walter Scott added a new position over the quarter in US retailer TJX. TJX is the world’s largest
operator of off-price apparel and home fashions retail stores and are known for their treasure hunt
shopping experience. Off-price retailing is where a retailer will opportunistically buy brand name
merchandise at significant discounts from speciality shops that can’t sell all of a line or produce more
than they require.
Like most retailers TJX benefits from a healthy economy. However, unlike many retailers, the
fundamentals of its off-price business model give TJX great resilience during economic downturns as
the concept appeals to a broader customer base. The company has a strong balance sheet and is
highly cash generative. It has entered the German and Polish markets and international and local
expansion will boost long term growth.




The business has had a great track record of growth both within their existing network along with their
expansion into new markets. Over the 33 year history of the business in only one year has there ever
been a decline in comparable store sales (a measure of growth in existing stores) which includes
periods after recessions. This can be seen in the chart below.




MLC MasterKey Super and Pension review for the year ending 31 March 2011                                              Page 7 of 8
With good cash flow generation TJX has the ability to both reinvest in the business as well as continue
to distribute dividends to investors. Earlier this month TJX announced a 27% increase in their quarterly
dividend and adds to them having 15 consecutive years of increasing dividends.
Given Walter Scott’s process these are exactly the type of businesses they are expected to hold: proven
wealth generators that can continue to grow.


Source of charts: Investor Information – TJX website www.tjx.com




Important information
This information has been provided by MLC Investments, ABN 30 002 641 661 a member of the National Australia
Bank group of companies, 105-153 Miller Street, North Sydney 2060. This material was prepared for advisers only.
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 or 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 of companies 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.
The specialist investment managers are current as at the date this communication was prepared. Investment
managers are regularly reviewed and may be appointed or removed at any time without prior notice to you.




MLC MasterKey Super and Pension review for the year ending 31 March 2011                                                 Page 8 of 8

				
DOCUMENT INFO
Description: Global Best Performer document sample