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ipac securities limited
April 2015
ipac Investment Briefing
Jeff Rogers – Chief Investment Officer, ipac
Pete Burnett– Portfolio Specialist, AMP Capital
2
ipac asset management limited (ABN 22 003 257 225, AFSL 234655) (ipac) is the responsible entity of each of the Pathways
portfolios (each a “Fund”) and the issuer of the units in the Funds. This document has been prepared by AMP Capital Investors
Limited (ABN 59 001 777 591, AFSL 232497) (AMP Capital), which has been appointed to provide Fund-related services to ipac. To
invest in the Fund, investors will need to obtain the current ipac Pathways offer document from the AMP Limited website
(amp.com.au). The offer document contains important information about investing in the Fund and it is important that investors read
the offer document before making a decision about whether to acquire, or continue to hold or dispose of units in the Fund.
Neither AMP Capital, ipac nor any other company in the AMP Group guarantees the repayment of capital or the performance of any
product or any particular rate of return referred to in this document. Past performance is not a reliable indicator of future performance.
While every care has been taken in the preparation of this document, neither AMP Capital, ipac nor any other member of the AMP
Group makes any representation or warranty as to the accuracy or completeness of any statement in it including without limitation,
any forecasts. This document has been prepared for the purpose of providing general information, without taking account of any
particular investor’s objectives, financial situation or needs. Investors should, before making any investment decisions, consider the
appropriateness of the information in this document, and seek professional advice, having regard to their objectives, financial situation
and needs.
This presentation has been prepared for distribution to professional financial advisers only and is intended to provide general
information. It is not intended to be distributed or made available to existing or potential investors.
Asset allocations and investment programs may change from time to time from those stated in this presentation. For current
allocations and investment programs please contact us.
Important information
3
• What happened in the market over the year and quarter
• Portfolio performance
• Outlook and opportunities
Agenda
0.7
2.7 2.6 2.8
9.4
6.9
10.3 11.9
9.5 9.6
5.2
2.7
11.1 10.3 9.9
34.7
28.0
13.9
25.6
21.9
29.1
16.7
0
5
10
15
20
25
30
35
40
Australiancash
Australianfixed
interest
global fixedincome
global credit Australianlisted
property
global listedproperty
Australianshares
globalsmaller
companies
globalemergingmarkets
globalshares
(unhedged)
globalshares
(hedged)
(%)
3 months
12 months
4
past performance is not a reliable indicator of future performance
source: Bloomberg, as at 31 March 2015
Markets rose in the 12 months to March 2015
5
Source: AMP Capital and Bloomberg. As at 31 March 2015
• Economic growth rates are adequate
• Inflation rates remain low and expected to do so for some time
• Bond rates structurally lower for longer
• Monetary tightening – not ‘when’ but ‘how much’
• Low bond rates make income streams delivered in other sectors more attractive
0
1
2
3
4
5
6
7
2007 2009 2011 2013 2015
10 year bond yields (%)
US Germany Australia Japan UK
Interest rates lower for longer…
6
Finland Sweden
Germany
Switzerland
Denmark
France
Austria
Netherlands
Slovakia Spain
Source: AMP Capital, * http://www.thecorner.eu/financial-markets/ecbs-qe-programme-allows-spain-enter-negative-yield-club/45066/
^ http://www.bloombergview.com/quicktake/negative-interest-rates. Map sourced from http://philarcher.org/diary/2013/euromap/
• Almost a dozen European economies now in the negative yield club*
• In March, more than a quarter of debt issued by eurozone governments had negative yields^
… and can even turn negative
Portfolio Performance
8
Va
lue
of $
10
0 in
ve
stm
en
t
Past performance is not a reliable indicator of future performance
Source: AMP Capital, as at 31 March 2015
Performance of balanced portfolio – Pathways 70
$80
$100
$120
$140
$160
$180
$200
$220
$240
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
15.6
15.1
%
5.0%
-29.2%
19.3% 4.8%
-3.6%
16.1
%
20.1%
16.4
%
3 years
5 years
7 years
8.7%
6.7%
9
Portfolio performance as at 31 March 2015
returns net of fees (%)
Pathways
30
Pathways
70
Pathways
85
Pathways
95
Pathways
Value
3 months 3.5 6.7 7.7 8.4 5.4
1 year 9.4 14.9 16.4 17.5 12.5
3 years
(p.a.) 9.0 14.5 16.3 17.5 12.6
5 years
(p.a.) 7.5 9.8 10.5 10.9 9.2
Source: AMP Capital, as at 31 March 2015. Returns are shown after fees and before tax for class K units and assuming dividends
are re-invested.
Past performance is not a reliable indicator of future performance
10
Portfolio performance as at 31 March 2015
returns net of fees (%)
Life
Choices
active 50
Life
Choices
active 70
Life
Choices
active 85
Life
Choices
active 100
Income
Generator
Alternative
Balanced
Premium
Growth
3 months 5.2 6.7 7.7 8.7 5.5 5.6 5.7
6 months 9.0 11.2 12.5 14.0 9.7 9.2 8.7
1 year 12.8 15.6 16.8 18.5 13.2 13.2 15.1
2 years
(p.a.) 12.0 15.2 17.0 19.3 11.4 13.2 15.9
Past performance is not a reliable indicator of future performance
Source: AMP Capital, as at 31 March 2015. Returns are shown after fees and before tax for class L units and assuming dividends
are re-invested.
11
Portfolio performance as at 31 March 2015
returns net of fees (%)
Classic 1 Classic 2 Classic 3 Classic Value Classic
Enhanced
Growth
3 months 3.5 6.6 7.5 5.3 5.4
1 year 9.0 14.4 15.8 11.7 14.6
3 years
(p.a.) 8.6 13.9 15.4 12.0 13.8
5 years
(p.a.) 7.2 9.3 9.9 8.7 9.9
Past performance is not a reliable indicator of future performance
Source: AMP Capital, as at 31 March 2015. Returns are shown after fees and before tax for class K units and assuming dividends
are re-invested.
12
Competitive performance continues to be strong
performance versus peers
Pathways 3 months 1 year 2 years 3 years 5 years
30 2nd 3rd 2nd 2nd 1st
70 2nd 2nd 1st 1st 1st
85 3rd 3rd 2nd 1st 1st
95 2nd 3rd 2nd 2nd 1st
source: Mercer, as at 31 March 2015. Survey of Retail – Conservative, Balanced Growth, High Growth and All Growth universes
past performance is not a reliable indicator of future performance
How asset allocation decision impacted performance
• currency positions
added value over the year and quarter from weaker Australian dollar
• low exposure to government bonds
detracted in the year and the quarter from falling bond yields
offset by benefits from interest rate sensitive assets such as REITs
Active management has been a strong source of value add over the year
• Australian and international shares added value over the quarter and year
• Multi-strategy fixed income delivered solid outperformance over the year
13
Key performance drivers
Alternatives sector restructure
Alternative Growth
• Consists of lesser known or harder to access investment
opportunities outside of standard asset classes.
• Looks to take advantage of significant dislocations between value
and market pricing.
• Typically consists of less liquid investments with a longer-term
investment horizon.
Alternative Defensive
• Strategies focus on manager skill in more liquid markets where the
expected return profile typically has low correlation to shares and
bonds.
• These strategies are often labelled as hedge funds.
15
Changes to the alternative investment program
16
Changes to the alternative investment programs
In Out
Alternative Growth • AMP Capital
Infrastructure Debt II
• Nephila
• Blackstone Strategic
Opportunities Fund
Alternative Defensive • Oak Hill
Outlook and opportunities
18
Growth
• US Economy growth acceptable but not quite as strong as anticipated
• Europe accelerating off a low base
• In Australia, confidence continues to be elusive
• China is decelerating
Inflation
• Deflationary concerns still evident in Japan, while receding in Europe on account of QE.
Monetary policy
• An rise in US interest rates is now accepted by the market, with the focus on the trajectory and extent of the tightening cycle
• Australian interest rates likely to be held low for a considerable time
• Europe and Japan are continuing with significant QE programs
Fiscal policy
• Key focus will be on the ability of leaders to develop and then deliver credible policies
Economic backdrop
• Bond prices likely to come under pressure as US interest rates begin to normalise
• Yields will likely be higher in the medium term, although remaining below their long-term historical average
• The economic climate remains supportive of corporate bonds though incremental yield has compressed
• ‘Safe assets’ continue to offer limited reward for risk
• Favour corporate relative to government bonds
19
Markets - debt
20
United States
• Strength of $US is crimping earnings from multi-national companies
• Wages growth remains tepid, underpinning high levels of corporate profitability
• Expect more subdued returns over the period ahead
Australia
• Lower A$ and easier monetary conditions should represent a tail-wind going forward
• Share prices have risen faster than earnings…
• …so we should expect more subdued returns over the period ahead
Asia
• China’s growth continues to moderate, permitting an easing of monetary conditions
Europe
• Stimulus program in place until Q3 2016, with capacity to extend if necessary
• Asset values are moving higher
Markets - equities
Valuations are more attractive in Europe and Asia relative to the US and Australia
Divergence in equity market valuations
21 Source: Bloomberg as at 31 March 2015
Past performance is not a reliable indicator of future performance
6
8
10
12
14
16
18
20
2003 2005 2007 2009 2011 2013
MSCI United States MSCI Australia MSCI Emerging Markets
PE ratio (x)
Australian equity yields much higher than TD rates
22 Source: Bloomberg as at 31 March 2015
Past performance is not a reliable indicator of future performance
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
ASX 200 Gross Dividend Yield
1 Year Bank Deposit9%
7%
5%
3%
Sub 3% from since February 2015
23
• Volatility has returned to more normal levels
• When US interest rates rise, they will likely end up at lower levels than historical averages
• Global growth is adequate
• US continues to lead
• European stimulus shows early signs of success
• Abe needs to drive reform post election reform agenda
• Emerging economies adjusting to more moderate economic growth
• Australia is growing but national income is stagnating
• Prospective returns from equities are below long-term averages but attractive relative to bonds and cash
• Constructive developments on fiscal policy and structural reform would help to extend market momentum
• Solid return prospects for diversified funds, with equity exposures the key driver of returns
Takeaways
Past performance is not a reliable indicator of future performance
ipac.com.au