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April 2012
IOOF Presentation
Peter Mahoney
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contents1. philosophy & process
2. investment team
3. performance
4. stock insight & strategy
5. summary
6. appendices
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proven investment approach – the way we invest
We are style-neutral investment managers who pick stocks using fundamental analysis to exploit market inefficiencies in forecasts
and valuations.
Fundamental analysis is optimised by career-long analysts being empowered and rewarded as portfolio managers.
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investment process
• Philosophy or Style change – none
• Investment Process change – none
• Risk Management Policy changes – none
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investment team
• Investment Team changes:
– Lisa Domagala accepted role as ESG Analyst
– Michael Bell taken responsibility for Steel from 1 July 2011
– Lorana Szeto joined Solaris investment team on 3 October 2011
– John Hodder resigned from Solaris investment team effective 31 January 2012.
– Lorana Szeto has taken responsibility for Diversified Metals & Mining, Aluminium and Precious Metals.
– No further changes currently anticipated.
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stable & experienced investment team
Denis Donohue
Managing Director
27 Years of experience
23 Years with team
Sean Martin
Analyst
16 Years of experience
11 Years with team
Will Earnshaw
Analyst
15 Years of experience
12 Years with team
Andrew Gatenby
Analyst
10 Years of experience
10 Years with team
Bernard Machen
Analyst
17 Years of experience
12 Years with team
Damien Keune
Head of Dealing
10 Years of experience
6 Years with team
Rob Pownall
Portfolio Analyst
17 Years of experience
5 Years with team
Michael Bell
Analyst
17 Years of experience
15 Years with team
Gus Roberts
Dealer
6 Years of experience
2 Years with team
Lisa Domagala
ESG Analyst
21 Years of experience
16 Years with the team
Lorana SzetoAnalyst
16 Years of experience
16 Years with team
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Portfolio Returns Month Quarter 1 year 2 Years p.a. 3 Years p.a. Inception p.a.
Solaris Core Australian Equity Fund (Performance Fee Option) – APIR: WHT0017AU
Retail investors
Inception Date: 20 Mar 2009
Portfolio Net Return 2.42% 7.09% -6.73% 0.06% -- 11.14%
Benchmark Return # 1.91% 5.64% -6.57% 0.75% -- 12.31%
Active Return (Net) 0.51% 1.45% -0.16% -0.70% -- -1.17%
* as at 29 February 2012
# S&P/ASX200 Accumulation Index
The performance data above is based on month end prices before tax. Net performance is calculated after management fees and operating costs, excluding
taxation.
3 performance – Core Fund*
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volatility and correlation
• Volatility- 60 day
standard
deviation of
stock returns for
each stock, then
market cap
weighted.
• Correlation-
Correlations of
stocks across
the index.
Calculated daily
on a rolling 60
day basis.
3.1
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historical performance – EOFY actives
Performance prior to January 2008 is the Suncorp Australian Equities Trust (source: Morningstar); performance from January 2008 is the Solaris Core
Australian Equity Fund. Gross performance is stated excluding all fees, cost and taxation.
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historical performance – monthly actives
Performance prior to January 2008 is the Suncorp Australian Equities Trust (source: Morningstar); performance from January 2008 is the Solaris Core
Australian Equity Fund. Gross performance is stated excluding all fees, cost and taxation.
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Solaris Core Strategy - Long Term Performance
Monthly Active Return (LHS)
Cumulative Active (pa) (RHS)
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significant overweights
Overweight positions as at 29 February 2012
StockActive
weight Rationale
Henderson Group 1.92%
Valuation now showing material upside to the share price with the market misinterpreting the degree of EPS that is under their control. 50% of any effects of market declines can be offset by cost control which, combined with the Gartmore (on track) integration sees HGG able to source strong EPS growth in the next 2 years. HGG is on 8x FY12 making for a very attractive opportunity in all but the direst of markets.
Iluka Resources Limited 1.81%Strong competitive position in the concentrated high grade mineral sands feedstock segment. Rising pricing due to constrained supply and growing demand result in significant earnings and dividend distributions.
QR National Limited 1.69%
Produced a strong underlying result with cost & revenue improvements largely offsetting the one-off impacts of the flood. The market, while warming to the story from a low base, still fails to realise the large opportunity that exists for continued cost, revenue and capital efficiency improvements. Furthermore, balance sheet is materially under-leveraged, the rectification of which over the next 12-18 months will significantly improve return. Finally, the winning of the WICCET project is a return accretive transaction.
National Australia Bank 1.69%NAB's earnings growth is the best and ROE maintenance is one of the best among the major banks. Amongst other things, this is because it has gained market share (credit growth) and continuing to do so as a consequence of its (largely pricing) strategies.
Lend Lease Group 1.58%
Lend Lease is currently being priced on cyclical low earnings, however the business continues to transform itself and is in an excellent position to capitalise on an engineering and construction recovery across a number of markets. The negative press on Barangaroo is excessive and the upside from an announcement on Phase 1 of the iconic project should support the share price. Their work book is growing at a greater rate than depletions, and the excess returns on offer at the current trading price are very attractive.
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significant underweights
Underweight positions as at 29 February 2012
StockActive
weight Rationale
Telstra Corporation Limited -2.46%After strong rally, is now expensive relative to recent history. Needs future earnings announcements and NBN transition to go seamlessly to retain rating.
ANZ Banking Group Limited -2.11% Fully priced relative to the other banks leading to a negative excess return.
Westfield Group -1.82%A lot of negative catalysts (retailer distress, internet retailing, poor consumer sentiment and spending) with few positive catalysts that will move the dial for Westfield. The valuation does not offer an excess return so funds are better utilised elsewhere.
Westpac Banking Corp -1.36%WBC has the largest negative excess return in the sector, lowest EPS growth and least attractive ROE profile.
AMP Limited -1.12% Currently not cheap enough, troubled business model.
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stock insight
• QR National Limited (QRN)
– Strong underlying result misinterpreted – $180m of flood impact offset by > $120m of sustainable cost & revenue improvements
– EPS growth of 50% & 20% for the next 2 years
– Expected return of 40% and a top 5 active position
• Macquarie Group Limited (MQG)
– Continues to face headwinds in short-term BUT
– Being priced at 8x FY 2012 and 70% of book. This effectively prices in a
disintegration of the current franchise
– Only a slight change in conditions would see a large re-rating in the price while even in tough markets a large amount of bad news is priced in
– Expected return of >50% and a top 5 active position
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portfolio positioning4.1
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strategy
• Current Strategy:
– Select stocks using fundamental analysis to exploit market
inefficiencies in forecasts and valuations.
– Meet our investment objective of exceeding the benchmark by
300 bps p.a. over rolling 3 year periods.
• Strategy for next quarter:
– As above.
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summary
• Portfolio well positioned to deliver outperformance
• Risk managed, robust business designed for longevity
• Stable team
• No change to process
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1. risk management
6 appendices
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regular team meetings
• Daily Analysts meetings (all investment team)
– Pre-trading meeting of 30-minutes duration
– Stock issues, market news & previous day’s orders
• Monthly Analysts meetings (all investment team)
– Peer review of portfolio positions of 2-hour duration
– Procedural reviews of stocks & portfolio positions
• Monthly Portfolio Analytics meetings
– Attendees – Managing Director, Product Specialists & Portfolio Analyst
– Formal review of portfolio positions & structure
• Annual investment strategy days (all Solaris team)
– Formal performance reviews
– Strategic initiatives
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risk management – portfolio management
• Analysts monitor the following re their allocated sectors:
– Stock’s Excess Return aligned with active position
– Active sector positions are appropriate & within guidelines
– Performance contribution derived from active positions
– Orders initiated to amend stock positions as required
• Managing Director:
– Reviews all active positions
– Reinforces the ‘sell’ discipline
– Reviews overall portfolio structure using portfolio analytics
6.1.2
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risk management – portfolio analytics6.1.3
• Automated daily mandate checks.
• Risk reviewed via Goldman Sachs JB Were Portfolio Analyser:
– Total risk
– Individual stock risk
– Sectoral risk
– Style risk including growth, value, cyclical, defensive
– Size risk
– Stock and portfolio liquidity risk
• Monthly risk meeting with MD, Portfolio Analyst and the investment team.
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portfolio’s major active positions6.1.4
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This presentation has been prepared by Solaris Investment Management Limited ABN 72 128 512 AFSL 330 505 (Solaris) and is supplied on the following conditions which are expressly accepted and agreed to by each interested
party (Recipient).
The information in this presentation is not financial product advice and has been prepared without taking into account the objectives, financial situation or needs of any particular person.
This presentation does not purport to contain all of the information that may be required to evaluate the Solaris Core Australian Equity Fund (the Fund) and the Recipient should conduct their own independent review,
investigations and analysis of the Fund and of the information contained or referred to in this presentation.
None of Solaris or their representatives and their respective employees or officers (collectively, the Beneficiaries) make any representation or warranty, express or implied, as to the accuracy, reliability or completeness of the
information contained in this presentation or subsequently provided to the Recipient by any of the Beneficiaries, including, without limitation, any historical information, performance and any other financial information
derived there from, and nothing contained in this presentation is, or shall be relied upon, as a promise or representation, whether as to the past or the future. Past performance is not a reliable indicator of future
performance.
The information in this presentation is not personal financial product advice and has been prepared without taking into account the objectives, financial situation or needs of any particular person. Before making a decision to
invest or continue to hold investments in any of the Solaris Funds, you should obtain, read and consider the respective Product Disclosure Documents, as supplemented from time to time and available from our website
www.solariswealth.com.au.
Except insofar as liability under any law cannot be excluded, the Beneficiaries shall have no responsibility arising in respect of the information contained in this presentation or subsequently provided by them or in any other
way for errors or omissions (including responsibility to any person by reason of negligence).
