Upload
lekhanh
View
213
Download
0
Embed Size (px)
Citation preview
For
per
sona
l use
onl
y
DisclaimerThis presentation has been prepared by Watermark Funds Management Pty Ltd. The information contained in this presentation is for information purposes only and hasbeen prepared for use in conjunction with a verbal presentation and should be read in that context.
The information contained in this presentation is not investment or financial product advice and is not intended to be used as the basis for making an investment decision.Please note that, in providing this presentation, Watermark has not considered the objectives, financial position or needs of any particular recipient. Watermark stronglysuggests that investors consult a financial advisor prior to making an investment decision.
This presentation is strictly confidential and is intended for the exclusive benefit of the institution to which it is presented. It may not be reproduced, disseminated, quoted orreferred to, in whole or in part, without the express consent of Watermark.
No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions containedin this presentation. To the maximum extent permitted by law, none of Watermark, its related bodies corporate, shareholders or respective directors, officers, employees,agents or advisors, nor any other person accepts any liability, including, without limitation, any liability arising out of fault or negligence for any loss arising from the use ofinformation contained in this presentation.
This presentation includes “forward looking statements”. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks,uncertainties and other factors, many of which are beyond the control of Watermark and its officers, employees, agents or associates that may cause actual results to differmaterially from those expressed or implied in such statement. Actual results, performance or achievements may vary materially from any projections and forward lookingstatements and the assumptions on which those statements are based. Watermark assumes no obligation to update such information.
This presentation is not, and does not constitute, an offer to sell or the solicitation, invitation or recommendation to purchase any securities and neither this presentation noranything contained in it forms the basis of any contract or commitment.
This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in the United States. None of the securities discussed in thispresentation have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (Securities Act) or the securities laws of any state or otherjurisdiction of the United States, and may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and anyother applicable securities laws or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any otherapplicable securities laws.
NOT FOR DISTRIBUTION IN THE UNITED STATES
2
For
per
sona
l use
onl
y
Agenda
3
Performance Update
Market Outlook
Portfolio Review
Questions
For
per
sona
l use
onl
y
Watermark’s Objectives
• As an absolute return manager, we have two key objectives:
• Attractive returns (6-8% after fees) through an investment cycle
• Capital preservation when market risks are elevated
• We achieve these objectives through the use of hedging strategies:
• ALF employs a directional strategy, adjusting the amount of hedging through the cycle
• WMK and WGF are fully hedged at all times
• Returns in these strategies depend exclusively on the manager’s success in selecting the right securities and are uncorrelated with the share market
• We continue to strengthen our investment team
4
For
per
sona
l use
onl
y
Performance Review
• The Funds have fallen short of targeted returns in 2017
Our listed funds have seen modest falls in NTA so far in 2017 (Ex Dividends)
Strong returns from the long portfolio undermined by weaker performance of shorts
Substantial embedded value in all portfolios
• Comparisons with the share market are unhelpful the funds are fully hedged
Insurance has a considerable cost - we don’t participate in a rising market
• Watermark strategies will protect shareholders when this bull market ends
• Lower returns have left less retained profits to payout dividends
5
For
per
sona
l use
onl
y
400
420
440
460
480
500
520
540
560
580
600
4000
5000
6000
7000
8000
9000
10000
ASX 200 Industrial Index
EPS Best Estimate
Performance Summary
6
EARLY-CYCLE – 100% MID-CYCLE – 50% LATE-CYCLE – 0%
Objective : Capital preservation when risks are elevated
?
-150%
-50%
50%
150%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Net Exposure
Source: Bloomberg
For
per
sona
l use
onl
y
7
Time to Hedge?
Dec-
27
Dec-
37
Dec-
47
Dec-
57
Dec-
67
Dec-
77
Dec-
87
Dec-
97
Dec-
07
Price vs. US Recession
US Recession S&P 500 Index
?
Source: Bloomberg
5
10
15
20
25
30
Jan-5
4
Jan-5
9
Jan-6
4
Jan-6
9
Jan-7
4
Jan-7
9
Jan-8
4
Jan-8
9
Jan-9
4
Jan-9
9
Jan-0
4
Jan-0
9
Jan-1
4
S&P 500 Index - PE Ratio
PE Ratio Average +1 SD -1 SDFor
per
sona
l use
onl
y
Fund Performance
8All NTA’s are Post Tax
For ALF & WMK share price data: Jun 16 to 13 Nov 17. Source: Bloomberg
For WGF share price data: Dec 16 to 13 Nov 17. Source: Bloomberg
11%11%
12%
For
per
sona
l use
onl
y
ALF Performance Summary Objective: Absolute Returns in excess of the All Ordinaries Accumulation Index
9
1 Year 3 Years (pa) 5 Years (pa) Since Inception (pa)
Long Portfolio 12.4% 15.6% 16.3% -
Short Portfolio 14.5% 6.4% 4.3% -
ALF -2.9% 4.0% 10.2% 12.6%
All Ords Accum 8.5% 7.3% 10.1% 8.7%
Excess -11.4% -3.3% 0.1% 3.9%
Avg Net Exposure -0.6% -2.0% 17% -
Fund Beta -0.04 -0.07 0.04 0.69
Volatility 3 6 7 13
Correlation -0.11 -0.14 0.06 0.68
ALF Portfolio Performance as at 30 September 2017
Data: Since inception (Feb 2004) to 30 Sept 2017
For
per
sona
l use
onl
y
WMK Performance Summary Objective: Absolute Returns in excess of the RBA Cash Rate
10
1 Year 2 Years (pa) 3 Years (pa) Since Inception (pa)
Long Portfolio 11.7% 22.0% 17.0% 15.8%
Short Portfolio 14.4% 15.8% 6.6% 5.1%
WMK -3.0% 2.1% 5.5% 5.8%
RBA Accum 1.5% 1.7% 1.9% 2.1%
Excess -4.5% 0.4% 3.6% 3.7%
Avg Net Exposure 1.2% -1.0% -0.1% 0.8%
Fund Beta -0.03 0.03 -0.11 -0.13
Volatility 2 5 6 6
Correlation -0.09 0.07 -0.21 -0.23
WMK Portfolio Performance as at 30 September 2017
Data: Since inception (July 2013) to 30 Sept 2017
For
per
sona
l use
onl
y
10% 10% 10%
4% 4% 4%
2%
2% 5%
1%
-5%
-3%
-1%
1%
3%
5%
7%
9%
11%
13%
15%
17%
19%
Long Only Manager ALF Long ALF Short ALF Gross FY18 ytd
Market Return Dividend Average Alpha Top Quartile Alpha ALF Alpha
FLAT
4%
-4%
11
Seeking Alpha – Waterfall of a difficult 16months
Figures based on 1 year numbers from Morningstar report ending June 17
Target
Jun 16 – Nov 17
For
per
sona
l use
onl
y
8% 8% 8%
3%
4% 4% 4%
2%1%
6%
-7%
13%
-10%
-5%
0%
5%
10%
15%
20%
Long Only Manager ALF Long ALF Short ALF Gross
Market Return Dividend Average Alpha Top Quartile Alpha ALF Alpha
12
Seeking Alpha – We have hit our targets over 5 Years
Figures based on 5 year numbers from Morningstar report ending June 17
For
per
sona
l use
onl
y
Alpha created every year
13
-35%
-25%
-15%
-5%
5%
15%
25%
35%
45%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 YTDLong return Short return L/S Spread
Equally weighted long and short portfolio returns for ALF
• A positive spread every year. Outperformance of Longs Vs Shorts
• When fully hedged, the value of the fund should only fall if the manager isunable to create a positive spread. (before costs)
For
per
sona
l use
onl
y
ALF Performance
• ALF’s performance has rarely been a straight line
• Periods of strong performance generally followed by periods of consolidation
• Returns have a low correlation with the share market
• ALF underperformed in FY17 after outperforming by 9% in FY16
• The Fund has beaten its benchmark by 4% pa. since inception.
14
Objective : Absolute Returns in excess of the All Ordinaries Accumulation Index
All Ordinaries (Accum)
ASX 200 (Accum)
ASX 200 REIT (Accum)
MSCI World (Accum)
Gold Spot
Eurekahedge Long/Short Equity
Eurekahedge Equity Market Neutral
U.S. Treasury
Asian Pacific Aggregate
Cash (Aust)
Australian Leaders Fund (Net)
Market Neutral Fund (Net)
0%
2%
4%
6%
8%
10%
12%
14%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Return p.a.
Volatility p.a.
All asset class data is from Feb 04. Data for ALF (Feb 04) & WMK (Jul 13)
Source: Bloomberg
For
per
sona
l use
onl
y
ALFMedian
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14%
Pre
Ta
x N
TA
Div Yield
WMK
Dividend yields / NTA in the Australian LIC peer group
15Source: Independent Investment Research. Data as at 31 August 2017. Based on fully paid ordinary shares available for trade. Pre tax-NTA includes tax paid on realised gains
ASX Market Yield – 4.15%
For
per
sona
l use
onl
y
16
Outlook for the Funds
• Periods of underperformance have historically been followed by stronger returns
• More embedded value in the portfolios
• Old ideas are re-validated, and new ideas incorporated
• Team changes and reallocated responsibilities now complete
• More analysts, with greater experience are fully focused on their sectors
• Appointment of Harvey Migotti as Head of International Equities
• Alternative investments such as Watermark’s Funds will become more valuable for investors looking to hedge risks from expensive share markets
For
per
sona
l use
onl
y
Justin Braitling – CIOJustin has over 26 years’ experience investing in Australian and international securities.Prior to establishing Watermark in 2003, Justin spent 10 years as an investment analystand portfolio manager with the successful equities team at Bankers Trust. Justin is theChairman of ALF and a director of WMK and WGF.
Tom Richardson – Sector HeadTom is responsible for coverage of Basic Industries. He joined Watermark in December2009. Prior to this, Tom began his career as an Investment Analyst with RenaissanceAsset Management in 2006. Tom holds a Bachelor of Aerospace Engineering from theUniversity of Sydney and is a CFA Charterholder.
Harvey Migotti – Head of International EquitiesHarvey is portfolio manager for Watermark’s international funds and is responsible forcoverage of the Industrials sector. He will join Watermark in December 2017. Harveywas previously an investment analyst covering Industrials & Aerospace/Defence atBalyasny Asset Management in London. He has also held equity analyst roles withAmiya Capital and Apax Partners. Harvey holds a Bachelor of Business fromLancaster University Management School and attended Cambridge University JudgeBusiness School.
Ian Carmichael – Sector HeadIan is responsible for coverage of the Consumer sector. He joined Watermark inMarch 2017. Prior to this he spent four years with Platinum Asset Managementwhere he was the Consumer Team Leader and before that was a PortfolioManager at MLC Investment Management where he worked for five years. Ianbegan his career as a Chemical Engineer with roles at Montgomery WatsonHarza and Cochlear. He holds a Bachelor’s degree in Chemical Engineering, aMaster’s degree in Biomedical Engineering and is a CFA Charterholder.
Hamish Chalmers – Sector HeadHamish is responsible for coverage of Financials. Hamish joined Watermark inMay 2017. Prior to this he has been a Financial sector specialist with Och-ZiffCapital for the last 7 years. Between 2007 to 2010 he was a senior equity analyst(Insurance) for Fox-Pitt Kelton. Hamish holds a Bachelor of Civil Engineering andis a CFA Charterholder.
Delian Entchev – Sector HeadDelian is responsible for coverage of the Technology, Media andTelecommunications sectors. He joined Watermark in August 2014. Prior to this,he was undertaking a cadetship with UBS as an Equity Research Analyst. Delianholds a Bachelor of Commerce (High Distinction) from the University of NewSouth Wales.
Nick Cameron – Sector HeadNick is responsible for coverage of the Healthcare sector. He joined Watermark in March2015. He began his career in finance with KPMG in 2008, before moving into researchroles with Credit Suisse and Deutsche Bank. Prior to joining the Watermark Nick was aninvestment analyst at GenesisCare. Nick has completed bachelor degrees in Science andBiotechnology and holds a PhD from Griffith University in the fields of Molecular Biologyand Neuroscience.
Matthew Blumberg – Investment AssociateMatthew is an Investment Associate concentrating on Oil & Gas and Utilities.Matthew recently received his Master of Business Administration (MBA) from YaleUniversity, and joined Watermark in June 2017. Prior to this, Matthew spentapproximately 5 years working as an engineer in the Oil & Gas space at 2HOffshore Engineering. Matthew holds a first-class honors degree in Engineeringand a Bachelor of Commerce from UWA.
17
Watermark’s Expanded Investment Team
For
per
sona
l use
onl
y
SHORTLONG
FinancialsGlobal interest rates will continue to rise, with positive and negative effects for asset prices
The “global synchronised recovery” continues. All OECD countries (except Australia and Switzerland) have seen GDP upgrades in the last 12 months
Inflation remains subdued in most countries, but there is evidence of tightening labour markets which is likely to lead to wage inflation
Generally, those economies that did worse in the GFC are enjoying the most sustainable current economic momentum. The Australian economy appears to be losing momentum relative to other developed, highly levered economies with high house prices (e.g. Canada, Sweden, New Zealand, Norway)
How are we positioned?
Synchrony Financial. Differentiated business model in US consumer credit, high ROE, good growth, cheap valuation
Provident Financial. Opportunity to buy a high quality business following two profit warnings
Short Bankia. Company will find it very hard to grow revenues as a half of pre-tax profit is Sovereign bond carry trade, which is falling as European peripheral government spreads tighten.
18
1
2
3
1
2
3
MOST LARGE ECONOMIES ARE EXPANDING
For
per
sona
l use
onl
y
SHORTLONG
ConsumerSector is expensive with limited pockets of growth
High-quality consumer companies are fully priced, while challenged retailers represent crowded short opportunities
Online is structurally changing the retail landscape, half of online sales growth is being captured by Amazon. Online comes at a high cost to traditional bricks & mortar retailers
Consumer packaged goods companies are on the wrong side of health and wellness trends and are challenged by new local competitors that are able to bootstrap their businesses by exploiting online reviews and new distribution channels
How we are positioned
Woolworths Winning significant market share in grocery, best in class liquor business, and optionality around Big W turnaround or disposal.
H&M (Short) Aggressive store rollout, deteriorating store economics, unclear economics of online sales
The Star Sydney and Gold Coast casinos outperforming their local markets, VIP players are returning to Australia, capital efficient expansion plan to deliver further growth
19
1
2
3
1
2
3
0
500
1000
1500
2000
2500
3000
3500
Amazon
Department Stores
AMAZON VS US DEPARTMENT STORES
Source: Bloomberg
For
per
sona
l use
onl
y
SHORTLONG
Technology-Media & Internet-Telecom (TMT)Tech is leading the market; media/telco struggling
1) Structural growth across key industrial, auto and consumer end markets is buoying semiconductor demand. Software and Internet shares move from strength to strength.
2) Structural pressures remain in media as digital share of ad spend rises. Content remains king, but competition is heating up as distribution companies move upstream to protect margins.
3) Telcos are struggling as broadband and mobile penetration matures, deflationary trends continue in shift from voice to data. Convergence across mobile/broadband/content is accelerating.
How we are positioned
Long analog semis exposed to content growth. Short logic as shift to cloud drives down returns.
Long undervalued content – video games and music. Short vulnerable media agencies and broadcast networks.
Long telcos in ‘recovering’ markets and short telcos which are overearning or under competitive threat.
20
1
2
1
2
3
3
0
200
400
600
800
1000
1200
1400
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
peak of dot-com boom
US Technology Index US Telecom Index US Media Index S&P 500
TECH SECTOR HAS LED THE MARKET HIGHER
Source: Bloomberg
For
per
sona
l use
onl
y
SHORTLONG
HealthcareDrug pricing remains the key risk, competition is fierce
1)Global healthcare is a broad investment universe with defensive and cyclical subsectors. Volatility and subsector divergences more pronounced recently
2)Biopharma becoming more competitive, advances in biotechnology allows ‘fast followers’ to accelerate development of ‘me too’ drugs. Drug price headwinds (consolidation of US payers/PBMs) remains a key risk
3)Medical Devices, Managed Care and Life Sciences are ‘safe havens’ with stable growth and capital management upside
How we are positioned
1.Longs: Merck, leader in immuno-oncology, recent concerns overdone. Ramsay, a quality operator unloved right now.
2.Shorts: Lilly, diabetes exposure (pricing pressure), pipeline skew to highly competitive indications. Grifols peak multiples, 4.3x levered, disadvantaged portfolio, no room for error
3.Long businesses with large competitive moats (Ramsay) and emerging biotech. Short large pharma, levered service providers
21
1
2
3
1
2
3
PHARMA LAGS, DEVICES & BIOTECH AHEAD
Source: Bloomberg
For
per
sona
l use
onl
y
SHORTLONG
Basic IndustriesBasic Industries benefitting from global demand
Tighter credit conditions in China will impact demand in 2018 – however supply side reforms are assisting some commodities.
Global crude inventory draws suggest a rebalancing in the oil markets pushing Brent above $60/barrel for the first time in two years.
High electricity prices have led to regulatory uncertainty in wholesale and retail energy markets.
How we are positioned
We are neutral the mining sector as China continues to cool. We are long BHP due to Oil optionality and continual pressure for improved performance.
We are neutral the Energy sector, having been net long before reducing our position in Anadarko as the company announced a buyback.
We are balanced in utilities preferring turnaround stories such as E.On, and having a preference for transmission over distribution.
22
1
2
3
1
2
3
20
40
60
80
100
120
140
160
5,000
10,000
15,000
20,000
25,000
30,000
35,000 FTSE Mining
China MonetaryConditions
CHINA CREDIT IMPULSE HAS PEAKED
Source: Bloomberg
For
per
sona
l use
onl
y
SHORTLONG
IndustrialsIndustrial recovery accompanied by winners & losers
Industrial conglomerates’ performance differentiated by cost cutting and efficiency of capital allocation.
Aerospace industry seeing solid growth from continued increase in global air traffic.
Some leading franchises available in Australia (eg. Brambles), opportunities from significant valuation dispersion in sector.
How we are positioned
Honeywell – industrial powerhouse benefitting from restructuring and growth in aerospace industry, capital allocation has added value. Emerson – leader in process automation, however capital allocation has destroyed value.
Safran – leader in aerospace components, LEAP engine gaining share (jv with GE). Rolls Royce – strong technology, but inefficient manufacturer, valuation optimistic.
Brambles – global leader in growing market of supply chain outsourcing (pallet pooling). Sandvik – machine tool bit demand undermined by new materials, optimistic valuation.
23
1
2
3
1
2
3
INDUSTRIAL RECOVERY, RISKS REMAIN
MSCI AC World Industrial Index
Source: Factset
For
per
sona
l use
onl
y
24
• Challenges in FY17 arising from a growing business have been addressed
• The investment team is well-equipped to deliver stronger returns in FY18
• While markets have proven resilient, valuations are stretched and risks forshares remain elevated
• The Australian economy faces a further challenge if the property market falls
• Hedging strategies are more relevant than ever as this market cyclecompletes
Summary
For
per
sona
l use
onl
y
25
Thank YouQUESTIONS?
Tim Bolger
Chief Operating Officer
+61 2 9251 8227
Rani Singh
Business Development Manager
+61 2 8047 7744
For more information, please contact:
For
per
sona
l use
onl
y