THE ‘ EST OF’ THE INVESTING TIMES FOR 2016/17...In January 1988, the overall market produced $100 in earnings and the average person was willing to pay 14x that amount (equating

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THE ‘BEST OF’ THE INVESTING TIMES FOR 2016/17

36-pages of selected highlights

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Low AND high interest rates have

resulted in strong performance

Long-term history shows US and Australian shares

are closely correlated. The question is whether the

recent outperformance of US stocks could unwind

The market is no

longer undervalued

BUFFETT’S “BEST” MARKET INDICATOR

DO RATES REALLY MATTER? 100 YEARS SAYS SO

LESSONS FROM THE GREAT DEPRESSION

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

20

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60

1922

1923

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1927

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1929

1930

1931

1932

1933

1934

Great depression

recovery

Current recovery

The Australian market is

moving slightly ahead of its

economy, and well above the

margin of safety

Great depression &

great financial crisis

Size of the market

Size of the

economy

Margin of safety

5-ye

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ed in

Jan

192

2

2 Issue 388 – 31st March 2017

THREE REASONS THE INVESTING TIMES IS DIFFERENT

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¶ «

«¶

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««¶

«««

«««¶

««««

««««¶

«««««

Average 1-year forward

total share-holder return

Run

ning

sco

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f the

buy

sig

nals

(bl

ack

line)

mailto:[email protected]

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Issue 388 – 31st March 2017 3

P/E/ Ratio10 11 12 13 14 15 16 17 18 19 20

60 600 660 720 780 840 900 960 1020 1080 1140 1200

70 700 770 840 910 980 1050 1120 1190 1260 1330 1400

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170 1700 1870 2040 2210 2380 2550 2720 2890 3060 3230 3400

180 1800 1980 2160 2340 2520 2700 2880 3060 3240 3420 3600

190 1900 2090 2280 2470 2660 2850 3040 3230 3420 3610 3800

200 2000 2200 2400 2600 2800 3000 3200 3400 3600 3800 4000

210 2100 2310 2520 2730 2940 3150 3360 3570 3780 3990 4200

220 2200 2420 2640 2860 3080 3300 3520 3740 3960 4180 4400

230 2300 2530 2760 2990 3220 3450 3680 3910 4140 4370 4600

240 2400 2640 2880 3120 3360 3600 3840 4080 4320 4560 4800

250 2500 2750 3000 3250 3500 3750 4000 4250 4500 4750 5000

260 2600 2860 3120 3380 3640 3900 4160 4420 4680 4940 5200

270 2700 2970 3240 3510 3780 4050 4320 4590 4860 5130 5400

280 2800 3080 3360 3640 3920 4200 4480 4760 5040 5320 5600

290 2900 3190 3480 3770 4060 4350 4640 4930 5220 5510 5800

300 3000 3300 3600 3900 4200 4500 4800 5100 5400 5700 6000

310 3100 3410 3720 4030 4340 4650 4960 5270 5580 5890 6200

320 3200 3520 3840 4160 4480 4800 5120 5440 5760 6080 6400

330 3300 3630 3960 4290 4620 4950 5280 5610 5940 6270 6600

340 3400 3740 4080 4420 4760 5100 5440 5780 6120 6460 6800

4% 350 3500 3850 4200 4550 4900 5250 5600 5950 6300 6650 7000

6% 360 3600 3960 4320 4680 5040 5400 5760 6120 6480 6840 7200

10% 370 3700 4070 4440 4810 5180 5550 5920 6290 6660 7030 7400

13% 380 3800 4180 4560 4940 5320 5700 6080 6460 6840 7220 7600

16% 390 3900 4290 4680 5070 5460 5850 6240 6630 7020 7410 7800

19% 400 4000 4400 4800 5200 5600 6000 6400 6800 7200 7600 8000

22% 410 4100 4510 4920 5330 5740 6150 6560 6970 7380 7790 8200

25% 420 4200 4620 5040 5460 5880 6300 6720 7140 7560 7980 8400

28% 430 4300 4730 5160 5590 6020 6450 6880 7310 7740 8170 8600

31% 440 4400 4840 5280 5720 6160 6600 7040 7480 7920 8360 8800

34% 450 4500 4950 5400 5850 6300 6750 7200 7650 8100 8550 9000

37% 460 4600 5060 5520 5980 6440 6900 7360 7820 8280 8740 9200

40% 470 4700 5170 5640 6110 6580 7050 7520 7990 8460 8930 9400

43% 480 4800 5280 5760 6240 6720 7200 7680 8160 8640 9120 9600

46% 490 4900 5390 5880 6370 6860 7350 7840 8330 8820 9310 9800

49% 500 5000 5500 6000 6500 7000 7500 8000 8500 9000 9500 10000

Ea

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Before you consider the chart below, we encourage you to think about ‘fair value’ in similar style to legendry investors such as Warren Buffett. If

a company is earning $340 per share in earnings, how much would you be willing to pay? Would you pay 15x this amount? 17x this amount?

Something else? The chart below shows the historical progression of the share-market using the basic formula that Price = Earnings x Price-

Earnings Ratio. In January 1988, the overall market produced $100 in earnings and the average person was willing to pay 14x that amount

(equating to the All Ords index at 1,400). This has progressed with volatility, and now produces $340 along with a price-earnings ratio of 17x.

We encourage readers to fast forward 5 or 10 years: where will earnings be approximately? What will people be willing to pay? If you believe the

market is capable of hitting a new record high, we have highlighted the possible combinations in red.

RANDOMNESS OR JUST A LOT OF NOISE? CHANGE THE WAY YOU THINK

2000

2016

2004

2012

50% of Outcomes

2007 Peak

1996

1992

Gro

wth

Req

uir

ed


The definition of a super cycle is not commonly agreed on, however most acknowledge its existence. These are often referred to as secular and

persistent trends, which comprise large market shifts such as the rise of technology, the rise of healthcare or the rise of China’s middle-class.

The opposite also tends to exist, with secular stagnation in Japan and the misery of department stores commonly cited examples.

From an investors perspective, this outlines a potential opportunity. If one can identify a durable super-cycle, and can find investments that

benefit by catering to that secular trend, they have the opportunity to grow earnings at superior rates than other investments.

The general idea is to target areas that offer the greatest value-add to society. And based on historical analysis, this investment style has worked

quite well. As per the chart below, the technology and healthcare sectors have outperformed the broad market over the past 10 years by 42%

and 43% respectively.

Driving this are some obvious tailwinds when we

look back in hindsight. Most notably, we have

witnessed greater growth in these areas of the

economy, as spending on healthcare and online

sales outstrip spending on other areas. This has

seemingly transferred into greater earnings

growth, as technology and healthcare companies

can achieve greater revenue growth over the

long-term.

Yet, as we know, it costs a significant premium to

access these opportunities.

If we look at the current ‘value multiples’ of these

two sectors below, they are significantly more

expensive than the broad index on almost every

value measure. And while we would agree with

the concept that you can’t build a Ferrari in a Fiat

factory, everything has its price which can’t be

ignored when making an investment.

With expensive valuations, the only way these sectors will sustain a performance advantage is if the higher growth rates can be sustained. While

we never know what the future will produce, there is a reasonable basis for a sustained advantage at a headline level.

Take technology for a moment, where online sales are clearly

expanding from a very low base only 10 years ago. In the US,

online sales have increased from less than 5% of total retail

sales in 2000 and have recently eclipsed 10% for the first time

ever. In Australia, this number is considerably lower at around

7% today, but is clearly on an upward trajectory.

If this expands to say 20% or more over the coming decade/s,

the sector could see superior revenue growth rates overall.

However, this doesn’t quite paint a full picture, as it ignores

supply. As competition barriers are low, we would expect many

organisations to enter the industry and at least partially offset

this advantage.

Therefore, while there is no clear answer on the superiority of

technology companies, the early evidence is something

investors will want to consider in a low-growth environment.

SUPER CYCLES & THE INVESTMENT OPPORTUNITY

INVESTM

SUPER CYCLE PERFORMANCE: 10-YEAR ADVANTAGE

Fundamentals of Super CyclesPrice-to-Earnings -

past 12 months

Price-to-Earnings -

projectedPrice-to-Book-Value Dividend yield Price-to-Sales Price-to-Cash-Flow

Information Technology 24.63 18.79 3.45 1.39% 2.45 13.51

Healthcare 29.44 18.58 3.58 1.92% 2.02 16.76

Developed World 26.34 18.62 2.16 2.36% 1.53 10.86

Healthcare and technology have outperformed

by a sizeable margin over the past 10 years

Online spending now accounts for

more than 10% of US retail. This

super cycle continues to grow

ONLINE SPENDING SUPER CYCLE


It would seem intuitive that low rates would have a positive influence on asset market returns. After all, the reason the central banks cut interest rates is

to provide a form of stimulus by persuading people to move their cash. Yet even on the longest of timeframes, such as the chart above, the relationship

is often quite subtle and it is difficult to distinguish any meaningful insights.

Take the 1935-1955 era of low rates. These are the closest conditions we have ever had to today, as it was a period of rapid debt increases (in the 1940’s

the debt boom was mostly war related) along with ultra-low interest rates, a rapidly reducing unemployment rate, increasing inflation expectations and

a focus on reduced regulations. We can see in this time that both stocks and property increased at a pace slightly faster than historical averages,

although not alarmingly so.

It is also interesting to note the length of time rates can remain low.

There are a lot of commentators talking about the “Trump bump”

and “reflation”, although history also shows that low rates can last

years and even decades.

So, what does this mean for asset markets? One way of

demonstrating the relationship between rates, stocks and property

is to break the historical outcomes into five quintiles – representing

five buckets from the 20% lowest borrowing costs to the 20%

highest borrowing costs and the subsequent 5-year returns.

The outcome is depicted to the right, showing quite an interesting

dynamic. We find that low borrowing costs do indeed tend to result

in higher asset price returns (as per central bank logic) but high

borrowing costs also result in above average returns in nominal

terms.

It is worthwhile pondering why this might be the case, or whether

it is simply coincidental. To do so, we need to rewind to the 1980-

1989 decade, as the high borrowing costs are almost exclusively

related to this period. As we know, this period was dominated by

high inflation that began receding, creating a platform for interest

rate cuts that spurred sentiment and resulted in high nominal

returns (but lower real returns once adjusted for inflation).

Regardless of one’s view of future inflation, the ‘low rates super

cycle’ is indeed important and supports the notion that investors

tend to view both low absolute rates as well as reducing relative

rates favourably.

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THE MOST IMPORTANT SUPER CYCLE FOR INVESTORS

INVESTM

SUPER CYCLE: RATES NEAR RECORD LOWS & ASSET VALUES NEAR RECORD HIGHS

1

10

100

1000

10000

0.0%

2.0%

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Rates (10yr bond yield) Stocks (S&P500) Property (Shiller data)

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1 2 3 4 5

PROPERTY AND RATES OVER 100 YEARS


STOCKS AND RATES OVER 100 YEARS

Low rates do appear to lead

to higher returns


“What should an investor do when interest rates are at or near zero percent”? This is one of the most commonly fielded questions over the past decade

and has been used to explain the sharp increases in both stock-market and property-market valuations in recent years. Everywhere an investor looks,

they see headlines such as “record low rates” along with “stock market at record highs” and such a phenomenon has led to a variety of debates.

With this in mind, we want to investigate a long history and see the impact low interest rates really have on markets. To do this, we will use the USA as

a proxy as they have the longest and most reliable data source, which can then be used to assess the relationship with stocks and property elsewhere.

Average rates by quintile

The 30+ year super

cycle of reducing rates

Price (N

ominal Level)

Bon

d yi

eld

rate

5-ye

ar A

vera

ge R

etur

n 5-

year

Ave

rage

Ret

urn

Same applies to property.

Low rates also appear to

lead to higher returns


Taking this super cycle to the next level, investors tend to exert an

abnormal amount of energy attempting to understand the relationship

between stocks, the economy and inflation – and analysis such as the

previous page potentially validates a search for such catalysts. Yet, we

know the state of the economy and future inflation are incredibly difficult

to predict. Hence, any attempt to understand GDP and inflation

(especially relative to asset prices) must involve a long-term historical

appreciation.

In this regard, it is important to remember we have been through most

scenarios before, from fast growth with low inflation to the opposite

scenario of low growth and high inflation. Yet, despite all this knowledge,

the fact remains that it is very difficult to interpret what that means for

asset markets.

To bring this concept to life, we invite readers to attempt to answer the

following questions without looking at the charts to the right…

1. What would be the return of the stock market in a decade where

inflation is average and GDP growth is exceptionally strong?

Above average Average Below average


inflation turned negative (deflation) and GDP growth was in line

with long-term averages?



inflation is abnormally high and GDP growth average?


The reality is that the relationships are convoluted and often

counterintuitive. For example, the 1960s saw the strongest period of

economic growth at 5.3%pa, controlled inflation of 2.5%pa, and yet the

market produced well below its best at 6.6%pa. Conversely, the 1920s

saw a deflationary environment of -1.2%, average economic growth of

3.3%, and the markets produced a better result of 7.1%.

Therefore, the lesson is clear – be very careful using GDP and inflation

predictions as there are at least three problems in trying to use them as

your guide to the markets. The first problem is that we have a terrible

record of predicting both GDP and inflation. The second problem is that

we also struggle to interpret what this means for markets. The third is that

it ignores the importance of starting valuations.

Said simply, the strongest market returns don’t necessarily come from

strong economic conditions. They are more likely to come from

suppressed starting valuations, such as the period after the 1970s

muddle. In fact, the 1980s produced the strongest returns of all, with an

average of 11.6% per year, despite being a period of average GDP

growth at 3.4% and high inflation of 8.1%.

Therefore, when you hear commentators telling you that US economic

growth will be significantly higher in the 2017-2027 period and that this

will be a catalyst for a significant and sustained market rally, it is probably

wisest to call their bluff and point them to history.

HAVE WE BEEN HERE BEFORE?

GDP GROWTH (1900-1999)

0.6%

7.4%

-1.2%

1.9%

4.4%

6.0%

2.5%

10.4%

8.1%

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-2%

0%

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6%

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12%F

irst D

ecade

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ens

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s

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urt

ies

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tie

s

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venties

Eig

htie

s

Nin

etie

s

3.8%

1.0%

3.3%

2.0%

3.8%4.2%

5.3%

3.4% 3.4% 3.5%

-2%

0%

2%

4%

6%

8%

10%

12%

First D

ecade

Teens

Tw

enties

Th

irtie

s

Fo

urt

ies

Fifties

Six

tie

s

Se

venties

Eig

htie

s

Nin

etie

s

INFLATION (1900-1999)

6.6%

2.6%

7.1%

4.6%3.8%

7.6%

6.6%

1.1%

11.6%

6.3%

-2%

0%

2%

4%

6%

8%

10%

12%

First D

ecade

Te

ens

Tw

enties

Th

irtie

s

Fo

urt

ies

Fifties

Six

tie

s

Se

venties

Eig

htie

s

Nin

etie

s

STOCKS EX DIVIDENDS (1900-1999)

Average – 3.37%

Average – 4.21%

Average – 5.79%


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1923

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1925

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1932

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1934

GREAT DEPRESSION ANALYSIS COMPARED TO THE PERIOD SINCE THE GREAT FINANCIAL CRISIS

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1935

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1948

To get practical and turn the state of the economy into

something actionable for investors, we’ll turn to what

does work.

This pulls us towards the favoured metric by Warren

Buffett, a staunch advocate for ignoring macro-

economic predictions, but instead using the overall

size of the economy as a proxy for the ‘fair value’ of

the entire share-market.

This is what Buffett himself called “the best single

measure for the overall stock market valuation level

at a given time” and brings together the importance

of valuations and its relationship with the economy.

The basic premise is that the two will approximately

track each other in the very long-term, although can

differ by significant margins over shorter periods. This

provides windows of opportunity where the market is

undervalued relative to the economy, and windows of

danger where the market is overpriced relative to the

size of the economy. It also makes a case that economies with structural weakness (such as Japan) may struggle to sustain increasing market

capitalisations.

Bringing it together, it makes a comprehensive case that the state of the economy should not be ignored altogether, but must be put in perspective

by also considering valuations.

The Great Depression of 1929-1933 may be seen as the single worst period in the past century, where both the economy and the share market

collapsed. A black swan if you will.

The assumption by many investors is that the stock market crashed because of the economy, and for this reason we should pay close attention

to the current state of the economy. While this is true to an extent, the reality is that valuations were significantly stretched leading into the event.

This can be seen below, with the All Ords index in the Great Depression period and the Great Financial Crisis of 2007 overlaid as a proxy.

It is clear that valuations expanded well above the theoretical ‘fair value’ and this created downside risk prior to the great depression. Yet, even

with the economic crisis that acted as the catalyst, the reality is that the market eventually recovered and moved higher.

The message once again is that valuations are an important factor when assessing the danger in markets. Buy low and sell high can typically

be translated into “buy when others are fearful, and stay the course unless others are excessively greedy”. History doesn’t repeat, but it shows

similar traits.

VALUATIONS MATTER

‘Fairly-valued’ ‘Fairly-valued’

LESSONS FROM THE GREAT DEPRESSION

‘Fairly-valued’

‘Fairly-valued’

Great Depression 1929 (Blue)

Today

‘Fairly-valued’ In the long term, it has

paid to stay the course

The size of the market is

moving slightly ahead of the

economy, and well above the

margin of safety

Size of Economy

Margin of Safety

Size of Overall Share Market

Great Financial Crisis 2008 (Red)

‘Fairly-valued’

BUFFETT’S “BEST” MARKET INDICATOR


CORRELATIONS & BANKING DIVERSIFICATION

0

0.5

1

1.5

2

2.5

3

Apr

-200

0

Apr

-200

1

Apr

-200

2

Apr

-200

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Apr

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-201

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Apr

-201

5

Apr

-201

6

Overall Market (All Ords) Banks (ASX200 Banking Index)

0

0.1

0.2

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0.4

0.5

0.6

0.7

0.8

0.9

1

Jan-

2006

Aug

-200

6

Mar

-200

7

Oct

-200

7

May

-200

8

Dec

-200

8

Jul-2

009

Feb

-201

0

Sep

-201

0

Apr

-201

1

Nov

-201

1

Jun-

2012

Jan-

2013

Aug

-201

3

Mar

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-201

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May

-201

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Dec

-201

5

Jul-2

016

Feb

-201

7

Australian banks are a perceived risk. Not necessarily by valuations, but definitely on the basis of portfolio construction. With many

Australian’s wealth invested in property as well as a high allocation to the major banks (including hybrid securities), it has become clear

that the risk attribution could all be aligned to the same thing.

Said simply, many offshore investors are worried that all our

eggs are in the one basket (maybe two if we include mining).

The fact is that financials now account for 37.8% and property

securities another 8.4%. Therefore, the Australian index is

dominated by the major banks and could see a major problem

for passive investments if the property boom unravels or the

regulators tighten lending standards further.

In order to understand what this really means and what

options are available to obtain diversification, we’ll run

through the main issues at play.

BANKING HAS HELPED PERFORMANCE

Looking back since the turn of the century, Australia’s major

banks have been a pillar of strength. This is evident in the top

right chart, demonstrating that the banks have been

outperforming the overall market and helped propel it higher.

This correlation between banking success and the overall

market has averaged approximately 80% since 2006, which

can also be interpreted to mean that any banking crisis will

almost definitely have an adverse impact on market values.

The key here is to contemplate what impact this would have

at a total portfolio level. If it is a concern, there are options

available to help diversify your risks. To help you do so, below

are the correlations since January 2000 based on Australian

sector relationships. We can see the low correlations that may

warrant your attention include telecommunications, energy,

healthcare and tech.

To add a further layer of separation, we’ve also included the

international exposure options. While this does not assess

valuation appeal, it could help reduce single exposure risk.

BANKING OUTPERFORMING THE BENCHMARK

CORRELATIONS ARE EXTREMELY STRONG

GICS Sector Exposure Correlation Australia World USA Europe Japan Asia Pac ex Jap

Financials 95% 37.8 18.1 14.5 20.8 14.1 27.6

Materials 50% 16.2 5.2 3 8.5 6.4 7.2

Real Estate 61% 8.4 3.2 3 1.3 4.4 6.4

Consumer Staples 75% 7 9.7 9.1 13.8 7.5 5.3

Healthcare 44% 6.7 12 13.6 12.7 7.4 3.2

Industrials 67% 6.6 11.2 9.7 12.9 20.3 7.3

Consumer Discretionary 69% 5 12.3 12.8 10.9 20.3 8

Energy 39% 4.2 7 7.1 7.4 0.9 4.5

Telecommunications 23% 4.2 3.2 2.5 4.1 6 4.8

Utilities 45% 2.6 3.1 3.1 3.3 1.9 3.4

Information Technology 43% 1.3 15 21.5 4.3 10.9 22.2

Total 100 100 100 100 100 100

Banking sector has outperformed

significantly since 2000

This is a major portfolio construction

problem. The banking sector will likely

be a major driver of any broad share

market weakness if/when it occurs

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Official data showed the Australian economy slipped by 0.5% in the September quarter. This shocked many investors and put Australia in a perilously high-risk position as we entered 2017. If it were confirmed (on the all-important 1st March release date) that Australia experienced two quarters of negative growth in a row, it would have classified as a technical recession and would have marked the first of its kind for more than 25 years.

What caused the fall in GDP? Will it be sustained? These are the questions everyone wants to know. In order to understand what officially caused it, below we have split the contributors of the -0.5% outcome by state, with the data representing more than 95% of GDP.

As can be seen, Victoria, Tasmania, ACT and Western Australia all experienced recessionary conditions, with Western Australia by far the

worst. Offsetting this, the Northern Territory had a strong result while New South Wales, Queensland and South Australia were all marginally

positive contributors. Driving the negative outcome was the changes in ‘private gross fixed capital formation’, a term used to represent

investment spending. In Western Australia, this fell by -11.7% for the quarter alone, extending the annual decline to -31.9%. This is an

extraordinary fall (largely attributable to the lack of mining investment) and equates to approximately $6 billion in lost growth. It also creates a

significant 1.4% drag on overall Australian GDP growth.

Another somewhat surprising drag has been government spending. In aggregate, government spending fell by -0.2% or $190 million over the

September quarter, which is a small yet critical contributor to the lack of growth. What is equally surprising is the divergence by state, with

government spending in Northern Territory up 2.6% while ACT was down -1.2%.

THE LESSON

It is clear that mining investment in Western Australia continues to act as the biggest drag against GDP growth. Fortunately, household

spending continues to demonstrate consistency, even if it is slightly slower than historical standards. This is important because we can’t rely

on a mining or property boom forever and households are the largest contributor to sustainable overall growth in the long-term.

Northern Territory

Government spending +2.6% (vs +0.3%)

Household spending -0.1% (vs +1.7%)

Investment formation +10.0% (vs -8.8%)

GDP Growth +4.7% (vs -2.5%)

Queensland

Government spending -0.5% (vs +1.4%)

Household spending +1.0% (vs +0.5%)


GDP Growth +0.1% (vs +0.2%)

New South Wales



Investment formation +0.4% (vs +2.2%)


Victoria




GDP Growth -0.4% (vs +0.8%)

Tasmania





Western Australia



Investment formation -11.7% (vs -6.6%)

GDP Growth -3.8% (vs -1.8%)

South Australia



Investment formation -1.4% (vs -1.9%)


ACT





ECONOMIC WOES? WHAT CAUSED AUSTRALIA’S GDP SETBACK

Source: Australian Bureau of Statistics

WA fell by 3.8%,

acting as the biggest

drag on GDP


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In search for a behavioural advantage, many

investors look to margin lending data. This is

especially true today, as there is a lot of talk about

margin lending activity and its validity as a contrarian

indicator. The theory is that people succumb to bouts

of euphoria and pessimism, and one of the ways to

track any abnormal activity is to see whether people

are overextending by borrowing excessive amounts

of money to invest.

The biggest problem is that margin lending data

represents such a small amount of the market

(approximately 3% in the USA) and that it has a

natural tendency to increase and decrease in line

with the market. However, if an investor can see

through these weaknesses, it can be an insightful

guide to the ‘greed and fear’ scale.

What is interesting is that in recent times, we have

seen Australian margin lending hit decade lows at

the same time as the USA hits record highs.

A behavioural finance analyst would generally

conclude that this means the average American is far

more optimistic about the future direction of the

share market than the average Australian, and

hence may be feeling overly euphoric or greedy. As

a contrarian, this would lead a rational investor to

favour Australian share market in the long term.

While this confirms what logic would otherwise

suggest, it is worthwhile contemplating why this

might be the case. There are many plausible reasons

why this might be the case, but the type of lending

could distort any comparisons. For example, an

Australian with equity in their home could borrow at

cheaper rates by using this equity and remove the

risk of margin calls. This would be a more rational

decision than taking a formal margin loan agreement

with an institution. Therefore, the amount of

‘borrowed money’ in the Australian market is likely

understated by a significant amount. The same can

be applied in the USA, however with their fixed loan

structure on mortgage debt, this facility is less likely

to be used.

Therefore, there are definite dangers in drawing firm conclusions from this comparison. Yet, as a general observation, the lowest margin loan

debt for over 14 years does show that there is unlikely to be irrational exuberance at play in Australia. Furthermore, Australia coincidently has

record low margin calls, which is another positive sign for the behavioural positioning of everyday Australians.

The same can’t be said for the average American, and while margin calls are also low (as expected with the market at record highs), the

increasing debt positioning could prove problematic if an inevitable downturn does occur.

This is yet another metric demonstrating that the Australian share market could be better positioned to weather a storm than the USA. Hence,

while quality and concentration risk need to be considered, there is mounting evidence that these factors are more than priced in.

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USA margin debt is significantly

higher than financial crisis levels

BEHAVIOURAL INSIGHTS: MARGIN LENDING & MIXED MESSAGES

Australian nervousness towards margin

debt continues, falling even lower

despite strong market performance

AUSTRALIAN MARGIN LENDING AT 13-YEAR LOW

US MARGIN LENDING AT RECORD HIGH


With millions of words already said about Brexit, we were left to ponder what value we can really add that readers have possibly not

considered. Therefore, rather than write about the uncertainty and expected muddle, we tackle the British and European economies from an

outside perspective and look at the underpinning risks. These will ultimately need to be considered when deciding on exposures.

RECESSION RISK - PRE-BREXIT vs POST-BREXIT

When a major event like Brexit occurs, it makes one think about why the

people of Britain wanted to leave Europe so badly. There is a myriad of

reasons that have been detailed – including immigration, unnecessary

red tape, financial contributions, trade restrictions; and the list goes on.

The decision to “make Great Britain great again” is a powerful remark in

the short-term, however, these events don’t just happen overnight.

Usually, they involve a gradual shift over years of frustration. And while

no-one is really talking about it, one of the biggest frustrations appears

to be the lack of population growth in the working class.

To the right, we illustrate the working population growth trajectory of both

Great Britain and the European Union (of which the UK was a part of until

recently). We also include Australia as a basis for comparison. The

importance of this chart is best considered as follows:

Consider this for a moment. If you were asked in 1986 which country would grow the most from 1987 to today, knowing that Australia

would increase its working population by over 40% more than the UK or Europe, what would you choose?

Of course, Australia should grow the fastest unless abnormal labour productivity trends outweighed it. And Australia has indeed

outperformed both Europe and the UK dramatically since 1987. This is largely common-sense and should be no surprise given the tailwind

of more people contributing towards that economy.

The same question needs to be considered from 2016 to 2050 and it outlines a major problem for anyone expecting “Great Britain to be

great again”. The reality is that the UK has very low working class growth, and leaving the European Union will probably reduce immigration

rates further. The European Union is in even worse shape, making fast economic growth a seemingly practical impossibility.

We dwell on this fact because the real implications of Brexit are two-fold and both need to be considered with equal importance; 1) What

does Brexit mean for the global economy in the short-term (i.e. can we expect a recession and market turbulence)? And 2) What does the

future hold for mature populations like the UK and Europe?

With the Bank of England, International Monetary Fund, OECD, World Bank and even the

Federal Reserve supporting the view that the United Kingdom will encounter a recession

following the vote to leave Europe, it would be a brave person to predict otherwise.

The investing world hates nothing more than fear of a big capital loss, and the world is

watching for signs of a slowdown while this fear manifests its way into markets. At this stage

it is important to remember that a recession, defined as two quarters of negative economic

growth in a row, can usually be foreseen up to 6 months in advance by assessing a range of

economic drivers (we regularly assess these in Australia and have extended a slightly

modified version of this analysis to the UK). What we find is that the UK is supposedly in “low

risk” of a recession, or at least it was prior to Brexit vote. In the March 2016 numbers, only

construction, industrial production and the manufacturing survey showed negative signs –

which would be considered a sign of a reasonably healthy economy in normal times.

The biggest concerns will be business investment, dwelling formation and retail sales, which

could easily turn, and with only 2.01% as the current GDP growth rate, softness in these

areas would be enough to send the economy into negative territory.

We also foresee another 30-40 years of low-growth due to the population problems. Therefore, it makes one ponder whether they should

bother with exposure to low growth regions. The short answer is yes, but only when significant value is apparent; and with the UK share-

market in Zone 3 (fair value) the investment case is not looking great for Great Britain.

Recession Risk UK Last

Quarter

Household Consumption R 0.66

Business Investment R 0.01-

Dwelling Formation R 0.01

Yield Spread R 1.04

Historical GDP R 2.01

Retail Sales R 0.01

Construction V 0.01-

Industrial Production V 0.43-

Manufacturing Survey V 6.03-

Labour Productivity R 1.04


Many investors feared the worst in the Australian Federal Election.

A potentially ugly “hung parliament” in the House of

Representatives and a mix of extreme personalities in the Senate.

This means years of negotiating and Malcolm Turnbull’s roll of the

dice has back-fired.

However, election results and investment markets are two very

different beasts. The election implications for an investor can be

summarised into four key points:

1. Investment markets tend to struggle post-election.

2. Investment markets perform better under Liberal power

and even better when it is the retention of Liberal power.

3. Hung parliaments may be bad news for economic and social

progress, but have had an inconclusive impact on

investment markets.

4. Investment structural considerations remain unknown.

We will elaborate on each point in turn.

Investment markets tend to struggle post-election

There is an abundance of historical analysis around the election

cycle and investment markets, especially in the USA, suggesting

the 3rd year of an election cycle is the best performing whilst the 1st

year is the worst. The Australian track-record is harder to gauge

(given the irregularities of Australian elections), however there is

evidence that the year prior to an election significantly outperforms

the year post-election. As can be seen to the right, the capital

movement of the All Ordinaries index averages 11.2% pre-election

and 4.2% post-election; albeit with significant variability.

Investment markets perform better under Liberal power and

even better when it is the retention of the Coalition

The Liberal party being elected has generally resulted in better

forward returns for share-holders than Labor, as might be expected

given their traditionally conservative economic stance.

Specifically, a Liberal majority results in forward returns of 7.1%

versus Labor of just 0.5%. This can be further scrutinised, with

Liberal re-election resulting in 8.3% average forward returns.

Hung parliaments may be bad news for economic and social progress, but have had an inconclusive impact on investment markets

In Australia, we have only experienced two hung parliaments at a federal level. Once in the 1940 election, and once in 2010 between Julia Gillard

and Tony Abbott. The general concern is that policies are very difficult to implement, and legislation difficult to pass.

However, the impact of a hung parliament on investment markets appears inconclusive to weak. In 1940, the post-election return was +6.6%

despite World War 2, while in 2010, the return of -4.6% was largely attributable to a global turndown as opposed to domestic concerns.

Anyone fearing a share-market meltdown on the back of the potential for a hung parliament should take comfort that history has not shown

support for this.

Investment structural considerations remain unknown

One of the greatest advantages to a clear majority in the post-election period is the ability to structure your financial position with clarity on what

policies are likely to be pushed forward. Unfortunately, at the time of writing, there remains significant uncertainty and the Federal Budget cannot

yet be trusted with conviction. Therefore, care needs to be taken when reviewing and amending financial plans until we hear otherwise.

TIPS FOR INVESTORS CONCERNED ABOUT THE ELECTION

Elections and the

Share-Market

Australian

Labor Party

Seats Won

Liberal +

National Party

Seats Won

1 Year Return

Pre-Election

1 Year Return

Post-Election

2 Jul 2016 election TBC TBC -2.6% TBC

7 Sep 2013 election 55 90 17.2% 5.0%

21 Aug 2010 election 72 72 11.3% -4.6%

24 Nov 2007 election 83 65 27.5% -42.9%

9 Oct 2004 election 60 87 13.0% 18.5%

10 Nov 2001 election 65 82 -2.3% -8.2%

3 Oct 1998 election 67 80 -5.4% 13.3%

2 Mar 1996 election 49 94 22.2% 7.5%

13 Mar 1993 election 80 65 -2.1% 29.8%

24 Mar 1990 election 78 69 9.3% -9.3%

11 Jul 1987 election 86 62 46.9% -16.6%

1 Dec 1984 election 82 66 7.9% 36.4%

5 Mar 1983 election 75 50 -1.7% 43.2%

18 Oct 1980 election 51 74 50.2% -17.5%

10 Dec 1977 election 38 86 5.4% 17.6%

13 Dec 1975 election 36 91 30.0% -2.0%

18 May 1974 election 66 61 -7.5% -23.5%

2 Dec 1972 election 67 58 43.7% -28.7%

25 Oct 1969 election 59 66 -2.8% -1.1%

26 Nov 1966 election 41 82 0.9% 46.5%

30 Nov 1963 election 50 72 18.3% 3.3%

9 Dec 1961 election 60 62 3.0% -0.1%

22 Nov 1958 election 45 77 9.5% 38.2%

10 Dec 1955 election 47 75 3.2% 1.7%

29 May 1954 election 57 64 9.9% 13.2%

28 Apr 1951 election 52 69 26.1% -30.0%

10 Dec 1949 election 47 74 0.1% 26.7%

28 Sep 1946 election 43 26 18.3% 6.4%

21 Aug 1943 election 49 19 20.1% 2.7%

21 Sep 1940 election 32 36 -6.5% 6.6%

23 Oct 1937 election 29 44 8.3% -5.9%

15 Sep 1934 election 18 42 10.6% 14.4%

19 Dec 1931 election 14 50 1.8% 19.9%

12 Oct 1929 election 46 24 5.1% -26.2%

17 Nov 1928 election 31 42 9.3% -4.9%

14 Nov 1925 election 23 50 7.9% 9.8%

16 Dec 1922 election 29 40 14.6% 10.2%

13 Dec 1919 election 25 38 15.4% 2.5%

5 May 1917 election 22 53 3.1% 1.4%

5 Sep 1914 election 42 32 5.1% -0.4%

31 May 1913 election 37 38 2.0% 18.7%

13 Apr 1910 election 42 31 8.3% 1.7%

AVERAGE 50 60 11.2% 4.2%


It should not come as a controversial statement (at least within the context of this article) that the world is set to suffer from a slowing-population

problem as well as an ageing population problem. We are already seeing the growth rates slow drastically across key economies, which is mostly

due to a combination of a falling birth rate (less people choosing to raise large families) and a slowing death rate (people living longer). The

migration rate also plays an important role, although is variable depending on the country in question.

Overall, India remains well placed in absolute terms, with their population expected to grow at approximately 1.0% for the 2016-2030 period.

China, on the other hand, appear set to see its population growth slow to just 0.2% as a consequence of their historical one-child policy (the

change in policy won’t help for decades), and worse still, is set to fall nominally in 2026. Australia remains quite small and nimble on a global

scale, and despite an overall population increase from 7.4 million in 1945 to close to approximately 25 million today, is expected to continue

growing close to 0.9%pa over the coming 15 years.

The reality is that the real economy relies heavily on population growth; both logically and practically. There are many ways we can verify this

importance, however one of the best ways is to illustrate it over the very long-term by showing the 20-year trend of the economy, household

spending and population growth. This is an effective method because it massages out economic cycles and shows that all three are intricately

linked and generally mean-reverting in the long-term. Below is the case for Australia, showing a strongly aligned relationship.

Evidence of the Link between Population, GDP and Household Spending

Total Population: Slowing but not Falling (ex-Japan)

Q. WHAT ARE THE CURRENT TRENDS GLOBALLY?

Q. CAN WE LINK THE POPULATION TO ECONOMIC GROWTH?

GD

P G

row

th

Population G

rowth


Populations are slowing in

the major economies

Pop

ulat

ion

Gro

wth

Source: US Census Bureau


An added advantage for India is that they have a young population. This means more workers and less retirees, which by extension implies a

greater ability to earn more income and hence increase household spending. Some people are calling this the “peak spender theory”.

This demonstrates the importance of the ageing population, and can be similarly considered in Australia. One way to illustrate the impact of

the peak spender theory is to split the population by age group, then project this based on the amount each age bracket typically spends on a

weekly basis. In Australia, we can use the 2011 census data (the most recent available) and can see the peak spending age-bracket is 45-

54-year old’s. This makes sense as this age bracket are typically peak earners and are more likely to have adult children with private school

fees and other major expenses.

On a global level, we can also see that Australia remains reasonably well balanced between 2016-2030 in the peak spender bracket, with

growth rates in excess of the USA, UK, Japan and China (but behind India).

Using the population and peak spender logic, we can illustrate the “population effect” and the added “ageing population effect” as per the

chart below. This uses the expected population projection (accounting for expected changes in birth rates, death rates and an estimate of net

migration) and is adjusted for the “peak spender theory” in the dark blue dotted line. We find the ageing population is expected to have a

marginal impact on Australia’s future household spending growth.

This is the ageing

population problem

Prime-Age Population 45-64yo: Dire Backdrop Australian Household Spending by Age Bracket

Q. WHAT IS AUSTRALIA’S LONG-TERM PROJECTION?

Q. WHAT IS THE DIFFERENCE BETWEEN WORKERS AND NON-WORKERS?

GD

P G

row

th P

opulation Grow

th

Spe

ndin

g (i

n A

UD

) pe

r F

ortn

ight


Source: US Census Bureau



SHARE-MARKET VALUATION GUIDE

Arguably our greatest tool and a solution to the asset allocation dilemma is what we have called the ‘science of investing’ system outlined below. It is intended to identify the risk-adjusted returns validated by both logic and evidence of performance.

The underpinnings of the metrics featured herein have common-sense as a prerequisite and we believe may be one of the most practical ways to assess the investment choices for portfolio management.

The metrics are best viewed as a gauge between a bias for the share-market versus defensive assets such as bonds. In simple terms, we abide by the principle there are neurological and behavioural biases that can materially distort values over shorter time periods. By extension, this means there are times to favour growth assets (such as 2002-2006) and times to avoid growth assets (such as 2007-2009).

In order to track these nuances, we monitor nine valuation metrics and have assessed more than 300 rolling monthly periods from 1991 to today. We also assess the 1, 3, 5 and 10 year returns that follow.

If any indicator hints to a ‘buy signal’ for growth

assets, these are recorded and scored. If all nine

indicators are suggesting buying growth assets, the

score of 9 out of 9 is then assessed over 1, 3, 5 and

10 years. The same applies to all other scores.

The historical results (using the All Ordinaries index

excluding dividends) are detailed below.

This is the risk-adjusted measure. It

shows the return relative to the volatility

of outcomes, which could be seen as a

margin for error. A higher score means

cheaper valuations which tends to also

mean lower risk.

This is the future 5-year average capital

return once a signal is known.

Dividends are not included, so would

increase this further.

Weak signals

Strong buy signals

Across the 300+ periods, we

have a distribution set which

looks like a bell curve.

Pleasingly, the bell curve

nature showed that the

performance figures will be less

subjected to statistical outliers.

The Nine Metrics Buy Signal

Shiller P/E Ratio <15x

Long-term Dividend Yield 5% + higher than long-term average

The Buffett Metric <90% Market Cap to GDP

The Zone System Zones 3, 4 or 5

The Yield Gap Avg gross dividend yield 20%+ higher than avg bond yield

The Mature Age Working Population >2% growth

The Recession Indicator Bond yield spread >0%

The Coppock Indicator <0

Individual Allocations to Shares <8.5% of Total Wealth in Shares

AUSTRALIAN SHARES

This is the future 1-year average capital

return once a signal is known.

Dividends are not included, so would

increase this further.


POSITION

The normal trading range for the All Ords is currently between 4,740 and

6,820. With the current index at approximately 5,903 (at the time of writing)

this places the market in Zone 3 which is considered to be fairly valued.

This is also a subtle buy indicator under the methodology utilised.

1: LONG-TERM FAIR VALUE (ZONE SYSTEM)

32 YEAR VIEW (1985 – 2017)

Originally created by the late Austin Donnelly and then

advanced thereafter, the Zone System is a long-term

gauge of fair prices. The logic behind this system is that

the market should average a very similar performance

number over the very long-term, but this tends to

fluctuate due to the economic cycle and behavioural

sentiment. Therefore, the Zone System allows an

objective view by factoring in approximately two

business cycles of historical analysis. Our application

of the Zone System for the purpose of this piece is to

be willing investors if the market is equal to or below its

long-term average (i.e. Zones 3, 4 or 5).

In reality, the further below the long-term moving

average (i.e. Zone 5), the better the prospects for

forward returns. A strict application of investing only

when the market is below the Zone 5 line results in

more than twice the expected forward 5-year return

than when above Zone 1. It also has a tendency to

reduce overall volatility, despite the fear that causes

the valuations to fall in the first place.

WHAT IS IT AND WHY?

2: THE SHILLER P/E RATIO (CAPE)

WHAT IS IT AND WHY? 31 YEAR VIEW (1986 – 2017)

The Shiller P/E is a famous metric created by Robert

Shiller, Professor at Yale University and a Nobel Prize

winner.

His logic is that the traditional Price/Earnings gauge

had two major flaws; firstly, that corporate earnings

are too volatile, and secondly, that inflation needs to

be considered to gauge long-term earnings.

Hence, he created a long-term gauge that assesses

the past 10 years of real earnings (adjusted for

inflation) and uses it as a proxy for price. This creates

a much more stable expectation of earnings upon

which investors can make more reliable valuation

estimates on price.

The idea is to be a buyer when the Shiller metric is

under 15x and more cautious when it reverts above

15x. While unlikely to allow for perfect timing, it has

generally worked very well in Australia (as well as

abroad) and helped those who follow it to achieve

outperformance. It has also achieved marginally lower

volatility.

POSITION

The Shiller P/E is showing signs of stability at 14.8x according to our methodology.

This is within long-term norms but is becoming elevated relative to the post-crisis

range. It remains a subtle buy indication and demonstrates that the long-term real

earnings of corporate Australia are still being rated in line with historical averages.

.

AUSTRALIAN SHARES


POSITION

The aggregated dividend yield of the Australian share-market is currently

estimated at 4.2%. It continues to deteriorate as the market advances, which is

not a buying indicator according to our methodology. However, it does not look

dangerously low in absolute terms as it remains within historical norms.

3: THE LONG-TERM DIVIDEND YIELD

25 YEAR VIEW (1992 – 2017)

The dividend yield is one of the most under-rated

components of an investment return and was one of

Austin Donnelly’s favourite metrics. The dividend

yield is calculated as the average dividend per share

divided by the price. Therefore, a rising dividend yield

implies that either a) companies are increasing

dividends or b) that the price has fallen. The same

applies in reverse.

Given the negative correlation between dividend

yields and the price of the market, an opportunity

exists to prefer the share-market when dividend

yields are high.

While methods differ, our methodology takes the

average dividend yield over the past 15 years and

compares this to the current dividend yield. Including

a margin of safety, a buying indicator is apparent if

the current dividend yield is 5% or more above the

long-term average. This has historically resulted in

excess performance and could be expected to do so

given the strong backing of academic literature.

.

WHAT IS IT AND WHY?

POSITION

The current position shows that the market capitalisation is equal to 105% of

GDP. This continues to creep higher and is above the long-term fair-value. It

would need to drop by approximately 15% to warrant a buying indicator

according to our methodology.

.

4: THE BUFFETT METRIC

15 YEAR VIEW (2002 – 2017)

Warren Buffett may be the world’s most famous

investor and in recent decades he has unveiled his

favourite metric to gauge the overall share-market.

Buffett’s logic is that the size of all the listed

companies in a given country should roughly track the

overall size of the economy itself. The rationale is that

business revenues are a subset of the economy and

hence should roughly match over the long-term.

Therefore, the metric takes the market capitalisation

of all companies and compares this to the GDP. Over

the long-term, the idea is that the market is higher risk

when the ratio exceeds 100%. We apply a margin of

safety, so our methodology looks for times when the

market cap is less than 90% of GDP for a buying

signal.

Using this logic, we have found (similar to Buffett in

the USA) that the average return for a buy signal is

well in excess of the market average and comes with

lower volatility.

WHAT IS IT AND WHY?


POSITION

The yield gap has normalised following the rise in government bond

yields and a contraction in dividend yields. This suggests caution, despite

acknowledging that dividend yields still offer an advantage over bond

yields in absolute terms.

The mature age working population is defined as the

civilian population between the ages of 45 to 64. This

is deemed to be the most important segment of the

population for share-holders as these individuals are

the most likely to be net buyers of stocks. The logic

behind this is that 45-64yo individuals are generally

gearing up towards retirement and a combination of

greater incomes with lower family commitments in

general.

The importance of tracking demographic trends is

imperative, even in a country such as Australia where

we have not experienced a decline in this segment

since the Australian Bureau of Statistics commenced

records. We have still experienced marginally higher

asset returns during periods in which the mature age

population is growing at rates of more than 2%.

The average return when a buy signal is apparent is

marginally in excess of the market average. However,

we would expect this result to be even stronger if we

see a significant shift in the demographics of the

working population.

WHAT IS IT AND WHY?

WHAT IS IT AND WHY?

5: THE YIELD GAP

23 YEAR VIEW (1994 – 2017)

POSITION

The Australian mature-age working population is growing at 1.5%. This is

below the 2%+ buying indicator, however has improved and is unlikely to

act as a material threat to asset market values. It is also worth noting this

rate is still well in excess of most international peers.

6: THE MATURE AGE POPULATION GROWTH

31 YEAR VIEW (1986 – 2017)

The Yield Gap applies logic that investors are always

making a decision between stocks and bonds (or at

least between growth assets and defensive assets).

Therefore, it is common-sense to analyse the

purchasing power of these assets in relative terms on

a cyclically-adjusted basis. There are various

versions on the most appropriate application of this

logic (Benjamin Graham was one of the first to

publicly advocate it), but our methodology uses the

dividend yield compared to the bond yield over the

long-term. By comparing the grossed up dividend

yield to the 10-year bond yield, we can clearly see

which way investors might move their funds. For

example, if bond yields are very high relative to

stocks, a rational investor will move his/her money

from stocks to bonds and vice versa.

Our methodology uses the long-term moving average

of these numbers and the grossed up dividend yield

needs to be at least 20% higher than its bond

equivalent for a buying signal. The average return

when a buy signal is apparent is well in excess of the

market average and comes with lower volatility.


POSITION The yield curve has picked back up in recent months, suggesting a recession is

not imminent. The ‘spread’ between long-dated bond and short-dated bonds

remains in a healthy position, which is a buying signal according to our

methodology.

7: THE RECESSION FACTOR

32 YEAR VIEW (1985 – 2017)

8: THE COPPOCK INDICATOR

32 YEAR VIEW (1985 – 2017)

The recession factor draws on a body of evidence,

both in Australia and globally, demonstrating the

power of the yield curve in predetermining

recessionary conditions. More specifically, an inverse

yield curve is said to be one of the most reliable

predictors of a recession among all financial data.

Our application of tracking the yield curve is a simple

calculation taking the 10-year government bond yield

minus the 5-year government bond yield. The idea is

to simply avoid the share-market during times when it

is negative. It should be noted that a positive yield

curve is considered normal as it factors in inflationary

expectations and liquidity risks.

In Australia, the yield curve has been positive in

approximately 90% of instances since 1991. The key

to this indicator is the avoidance of a negative

number, where the market tends to significantly

underperform.

WHAT IS IT AND WHY?

POSITION

The current value of the Coppock indicator shows that caution is warranted. The

current figure of 91.5 is on an upward trajectory, which is generally seen to be a bad

sign for long-term market performance and signals that behavioural biases against

shares are no longer influencing the market. It is worth noting it is still below most

international peers, with the USA and UK considerably higher.

The Coppock Indicator is famous among technical

traders but is very under-utilised by long-term value

investors. E.S.C Coppock was a well-known

economist in the 1960’s that utilised knowledge of

behavioural patterns, especially around

bereavement. Specifically, he found that the average

human mourns for a period of approximately 11 to 14

months on average before finding stability. Coppock’s

logic was that investors experience a similar sense of

bereavement when markets fall which requires a

period of mourning. He therefore rationalised that an

investor would not re-enter the market until this period

of mourning has finished.

From this behavioural pattern, Coppock created a

technical system that identifies recovery patterns in

share-markets. While the story is unique, the

evidence is compelling and is the reason why it is

contained in this report. Our application of this

methodology seeks a negative number.

WHAT IS IT AND WHY?

AUSTRALIAN SHARES


As can be seen, four of the nine factors outlined are positive (down from six in late 2016 but steady through early 2017), which would seem to indicate the market is approximately fair value or slightly over-valued. This is supported by the four best known metrics all being reasonably balanced, with the Zone System, the Shiller P/E ratio, Yield Gap and the Buffett Indicator all approximately in line with long-term averages.

History shows us that the market is in its most common position, and has a 65.1% likelihood of delivering a positive return in the next year. If historical precedence is valid, this implies an average one year return of mid-single digits (excluding dividends), but with a range from -26.0% to +32.1%. Therefore, the market can be expected to carry a reasonable amount of volatility going forward as the standard deviation of asset values tends to increase with a lower score.

As a fair-value test, the system denotes that growth assets continue to deserve your attention, although should be balanced by a healthy amount of caution. This also implies that investors may need to work harder for their returns by sourcing selected opportunities that have better prospects than the average market position.

POSITION The average Australian household is directing 7.17% of its wealth into personal

equities. This shows that Australian households continue to be pessimistic

towards the share-market according to our methodology. It is therefore a

contrarian buying indicator and differ significantly from the optimism in the USA.

.

9: THE OPTIMISM/PESSIMISM ALLOCATION

WHAT IS IT AND WHY? 28 YEAR VIEW (1989 – 2017)

The optimism/pessimism allocation is a gauge of

household behaviour towards the share-market. It

specifically tracks the percentage of household

wealth being directed towards personal equities,

which has had a history of averaging approximately

8.5%.

If the average household is investing less than

average in the share-market, this is considered a sign

of excessive pessimism and can be expected

increase over time. The same applies in reverse, as a

high percentage shows unnecessary optimism and

can be expected to fall.

The inflows/outflows this creates over the long-term

has had a significant impact on performance and has

worked very well in Australia. The average return is in

excess of the market average and with less volatility.

Run

ning

sco

re o

f the

buy

sig

nals

(bl

ack

line)

S

hare-market A

ll Ords 5-Y

ear Returns (coloured line)

SUMMARY OF THE SHARE-MARKET INDICATORS

AUSTRALIAN SHARES


Ave

rage

For

war

d 1

Yea

r P

erfo

rman

ce

A global market

in Zone 5 has

significantly

outperformed a

market in Zone 1

Best performer Worst performer

GLOBAL SHARE-MARKET OPPORTUNITIES

Below we explore global share-markets using the same methodology as the Zone System, which has strong historical evidence that a Zone

5 share-market has a strong probability of outperforming a Zone 1 or Zone 2 share-market on a global basis. Therefore, this tool can be very

effective at identifying valuation opportunities as well as risks in global share-markets.

If we witness the performance table below, it is possible to identify a few major trends. 12-months ago it was quite obvious that many markets

were identified as ‘cheap’ (Zones 5). This makes intuitive sense, given that the global economy was wobbling, led by the commodity crash,

and share markets were under pressure. As a contrarian indicator, the tool attempts to identify opportunities to buy low and sell high.

AUSTRALIAN SMALL COMPANIES 1=expensive, 2=mildly overvalued 3=fair value, 4=mildly undervalued

5=cheap.

Australian small caps have been an outstanding performer over the past 12 months, as had been expected according to the zone system.

Going forward, both large and small cap indices still appear fair-value in Australia and the divergence has now narrowed.

To our eye, the table below should be considered on a relative and risk-adjusted basis. More specifically, it is noticeable that the balance of

valuations are far more neutral than 12 months ago. This increases an overall sense of caution, with a distinct preference to favour the markets

shaded in green (India, Malaysia and Brazil) and become increasingly cautious of markets in pink (USA and Japan).

It is worthwhile mentioning that there seems to be a distinct ‘quality bias’ at play too. The expensive markets (USA, Japan, UK and Germany)

are generally seen to be more stable and less susceptible to a downturn. Therefore, it is important to consider the table with both risk and

return in mind.

AUSTRALIAN SMALL COMPANIES 1=expensive, 2=mildly overvalued 3=fair value, 4=mildly undervalued 5=cheap.

Australian small caps have been an outstanding performer over the past 12 months, as had been expected according to the zone system.

Going forward, both large and small cap indices still appear fair-value in Australia and the divergence has now narrowed.

GLOBAL ZONE SYSTEM Current Zone Current Star 12 Months Ago Index Type 1 Month 3 Months 6 Months 12 Months

Australia

Broad market 3 4 All Ords Index 2.5% 3.2% 6.9% 14.6%

Small caps 3 4 ASX Small Ordinaries Index 1.8% 0.4% -2.5% 10.2%

USA

Top 500 1 2 S&P500 Index 0.0% 5.6% 9.0% 14.8%

Small caps 2 3 Russell 2000 Index 0.1% 2.1% 10.8% 24.4%

Europe

Germany 2 3 DAX 4.0% 7.2% 17.1% 23.6%

England 2 4 FTSE100 0.8% 2.5% 6.1% 18.6%

Greece 4 5 Athex Composite Share Price Index 3.1% 3.5% 17.8% 15.4%

Americas

Brazil 5 5 Bovespa -2.4% 8.0% 11.5% 30.0%

Developed Asia

Japan 1 1 Nikkei 225 -1.1% -1.1% 15.0% 12.8%

Hong Kong 4 5 Hang Seng 1.6% 9.6% 3.5% 16.1%

Taiwan 3 4 Taiwan Weighted 0.6% 6.0% 7.0% 12.2%

Emerging Asia

China 3 3 Shanghai Composite -0.6% 3.8% 7.3% 7.3%

India 5 5 BSE 30 3.1% 11.2% 6.3% 16.9%

Malaysia 5 5 KLSE Composite 2.7% 6.0% 5.3% 1.3%


If we agree the primary objective of stock-picking is to pick the winners and/or avoid the losers, then the framework must start with a methodology that helps determine which companies to include.

For the vast majority of investors, this begins with a screening process to reduce the direct share universe down to a manageable number. The problem is that most screening processes involve no validation despite the fact there is an abundance of academic literature on the topic.

In the pages that follow, we attempt to offer logic, academic rigour and validity to your screening process. We have assessed the ASX200 using 17 factors that each have academic support in contributing to outperformance. They generally cover seven styles; aiming to achieve dividend strength, growth, value, stability, momentum, sector fundamental and pricing acknowledgement.

The most practical way to assess the different metrics as a collective whole was to introduce a weighted scoring system. This allows us to illustrate a number of “optimal” selections across differing styles – including balanced, stability-focused, dividend-strength, deep-value, growth-bias and sector rotation (we highlight optimal because it is subject to the weaknesses outlined overleaf).

The underpinnings that make our research different to others is that it focuses heavily on relativity to the sector median. This is vital and a key advantage to the historical outperformance. For example, a utility company (typically with a high depreciation expense) should not be compared to a bank as their earnings and cash-flow are accounted for very differently. Therefore, our logic implies that the Price to Earnings ratio should be isolated and compared by sector rather than by market.

Our data has allowed us to stress-test the outcomes of our findings over 6 years, involving more than 850 data validation periods. We acknowledge this isn’t nearly enough to have outright conviction. However, until such time that we can obtain reputable data beyond 6 years of history (including across all key financial metrics we cover herein which is difficult to obtain), we believe a combination of 6 years of stress testing along with a body of academic literature supporting the underlining metrics is a form of validation.

Regarding each of the 17 metrics, the rules for each metric are as listed above right, with the exception of the sector fundamentals and sector zone system explained overleaf.

The logic is that if any indicator hints to a buy signal, these

are recorded and scored. If all seventeen indicators are

suggesting underlying appeal, the weighting is applied then

recorded with a score of 100. We also include a star system

ranking to help differentiate between companies.

Note: Across the 850+ validation points, we have

distribution sets which looks like a bell curve (see right for

“balanced”). Again, the bell curve nature showed that the

performance figures will be less subjected to statistical

outliers.

DIRECT SHARE RESEARCH

INDIVIDUAL STOCK SELECTION GUIDE

Dividend strength Gross Yield above Sector Average

Dividend strength Yield above 5%

Growth Dividend Growth above Sector Average and Positive

Growth Earnings Growth above Sector Average and Positive

Value P/E Ratio below Sector Average

Value Price to Book Value below Sector Average

Stability Total 3-Year Return above Sector Average and Positive

Stability Yearly price variability subject to max 50%

Stability Payout Ratio below Sector Average and covered by earnings

Momentum Total 1-Year Return above Sector Average and Positive

Momentum Closer to year-high than low

Sector Fundamentals Sector Economic Factor 1





Sector Value Sector Zone System

17 Contributing Factors to Future Stock Selection

This is the tally of the 850+

points split by the number

of buy signals.

BELL CURVE


While many of the stock specific metrics involve sector comparatives, we have also added sector economics to the framework. This requires a

very different yet complimentary view of the direct share universe, with the logic being that you will rarely consider a company without first

considering its economic drivers. For example, buying a mining company in the midst of a commodity price crash would appear illogical.

SECTOR FUNDAMENTAL ECONOMIC PERFORMANCE

According to our methodology, the assessment is to track 23 important leading economic variables (GDP, inflation, interest rates, unemployment,

commodity prices, retail sales, business confidence, credit growth, export volumes, import volumes, motor vehicle sales, housing starts, etc) and

find the five most important to each individual sector. For example, mining companies are affected by base metal prices more than the banks,

while the banks are affected by business conditions more than healthcare. Our research has found that sector rotation can potentially be

accomplished with success, or at least has been able to be done historically, but it requires significant thought into the key economic variables

that impact the sector.

SECTOR ZONE SYSTEM PERFORMANCE

The Zone System has been a trademark of this publication and research for many years, and we have seen the successful application in both

Australia and across global share-markets since records commenced as early as 1875. The principle is to “buy low and sell high” and the Zone

System is a systematic method to accomplish such an objective. The five zones have been known as; 1=overvalued 2 =moderately overvalued

3=fair value 4=moderately undervalued 5=undervalued.

While the underlying formula behind the Zone System remains part of our “secret sauce” if you like, we always give away the answers/outcomes

to our readers and have previously disclosed that a key input requires at least 15 years of data. Given that sector records commenced in March

2000, we now have enough data to implement the Zone System by sector, but not enough data to validate its performance specifically.

In order to be transparent, we do warn that the implementation of the Zone System on a sector basis does have more limitations than when used

for the overall market index. The most significant limitation is sector concentration, such as Telstra making up the vast majority of the

telecommunication sector. While the above limitations need to be acknowledged, we do feel the compelling historical record on the broader

market justifies its inclusion for direct share selection.

HOW TO USE THE PAGES OVERLEAF

In the pages that follow, we have broken down the ASX200 by the 17 contributing factors. We start with a “bottom-up” mentality, analysing the

17 indicators across six differing styles – balanced, stability-focused, dividend-strength, deep-value, growth-bias and sector-rotation. In each

style, we outline the weightings applied to each indicator, the average performance since 2009 for score ranges, and finally the top 20 companies

and bottom 20 companies using that weighting.

We then apply a “top-down” mentality, illustrating the entire ASX200 across each sector. We show the individual companies that constitute the

index (ranked by market capitalisation, meaning the household names are first) and show a few key stock fundamentals. In the grey shaded

boxes we also show the ranking of the “balanced” style weighting.

In theory, and in history, the higher scoring stocks/sectors have excelled on a forward looking basis. Therefore, we remain optimistic that the

future high scores will also lead to future above average results. While we leave the application of this research to your own discretion, we would

love to see readers use this as part of their screening process when assessing their portfolio (for example, concentrate holdings into stocks with

high scores for your preferred style), as well as to generate new investment ideas and/or achieve broader diversification. We hope you find it

insightful and supportive of your investment process.

UNDERPINNINGS OF THIS RESEARCH (Continued)

WARNINGS AND LIMITATIONS

While our best efforts have been made, we acknowledge that no investment process is bullet-proof - including this one. Below we outline a number of limitations, however these

should not be seen to be exhaustive.

- No qualitative judgements – we are unable to capture management quality, corporate governance, business strategy and other qualitative judgements in the framework. Our

data inputs also do not include analyst forecasting such as forward price/earnings ratios.

- Correlation between metrics and styles – some metrics, such as the Dividend Yield and P/E Ratio, have tight correlations which potentially create a value bias if the weightings

are not distributed correctly. There is also a correlation between the styles, with the highest and lowest scoring companies being represented on multiple lists.

- IPO’s are potentially unfairly treated – we require a history of financials for our measurements, which some IPO’s may not yet have. This would reduce their score accordingly,

and on the rare occasion, multiple IPO’s in one sector could also potentially distort the group averages.

- Sector data time lags – some economic data inputs are made in real-time (e.g. interest rates) and others with a significant lag (e.g. GDP). Our calculations have been made

conservatively, allowing for a 2-month lag, but the reality is these could be reduced. We believe this could offer upside, but our model is not yet able to capture real-time.

- Data integrity – we are only as good as the quality of our data, and while we are very careful to ensure the integrity of our source data remains accurate, we cannot make any

guarantees on its quality or precision.

- Sector classifications – making sector comparisons means we need to be very careful on sector groupings. It is a fine line between relevancy and ensuring enough data to

avoid concentration issues. We have generally used the GICS industry groups with a few exceptions were deemed beneficial.


¶ «

«¶

««

««¶

«««

«««¶

««««

««««¶

«««««

BALANCED

BOTTOM-UP FUNDAMENTALS

PERFORMANCE HISTORY

RISK HISTORY – STD DEVIATION

TOP 20 COMPANIES

BOTTOM 20 COMPANIES

Creating a balanced direct share model has its

difficulties. It requires a subjective view of what the

characteristics of a well-rounded portfolio should

look like. Our weighting system for a balanced

profile covers dividends, value, stability, growth,

momentum and sector economics all in one, with a

slight preference for low volatility and value (see

bottom right).

Therefore, for general investors wanting to achieve

a diversified core portfolio with potential upside

returns and below average risk, a balanced view of

the 17 contributing factors could be a logical

framework. As can be seen in the charts below, the

balanced framework has a history of sourcing

outperforming companies while reducing risk. It is

also intended to achieve broad diversification, with

multiple sector groups covered in the current list of

the top 20 holdings.

Weighting %

Dividend strength Gross Yield above Sector Average 3

Dividend strength Yield above 5% 4

Growth Dividend Growth above Sector Average and Positive 4

Growth Earnings Growth above Sector Average and Positive 8

Value P/E Ratio below Sector Average 8

Value Price to Book Value below Sector Average 7

Stability Total 3-Year Return above Sector Average and Positive 9

Stability Yearly price variability subject to max 50% 12

Stability Payout Ratio below Sector Average and covered by earnings 7

Momentum Total 1-Year Return above Sector Average and Positive 9

Momentum Closer to year-high than low 8

Sector Fundamentals Sector Economic Factor 1 3





Sector Value Sector Zone System 5




ASX Code Company Name Star RatingRaw Total Score

out of 100

Change in

ScoreSector

GMA Genworth Mortg Ins ««««¶ 81 14 Banking

TWE Treasury Wine ««««¶ 80 7 Consumer Staples

MQG Macq Grp «««« 77 -3 Financials ex-AREIT

NUF Nufarm «««« 74 16 Materials

REH Reece «««« 72 22 Industrials

IOF Investa Office Fd «««« 72 -3 Real Estate Investment Trust

ABP Abacus Prop Grp «««« 72 -10 Real Estate Investment Trust

BEN Bendigo&Adelaide Bk «««« 70 5 Banking

FMG Fortescue Metals Grp «««¶ 68 7 Materials

QBE QBE Insurance Grp «««¶ 68 12 Financials ex-AREIT

MGR Mirvac Grp «««¶ 67 5 Real Estate Investment Trust

ORA Orora «««¶ 67 4 Materials

API Aust Pharmaceutical «««¶ 67 N/A Healthcare

BSL BlueScope Steel «««¶ 66 0 Materials

AIZ Air New Zealand «««¶ 65 10 Industrials

SXL Sthn Cross Media «««¶ 65 7 Consumer Discretionary

DUE DUET Grp «««¶ 64 9 Utilities

SHL Sonic Healthcare «««¶ 63 -1 Healthcare

MQA Macq Atlas Roads Grp «««¶ 63 29 Industrials

PGH Pact Grp Hldgs «««¶ 63 12 Materials


out of 100

Change in

ScoreSector

HGG Henderson Grp « 12 -11 Financials ex-AREIT

BXB Brambles « 15 -29 Industrials

STO Santos « 18 3 Energy

CYB Cybg « 18 2 Banking

NVT Navitas « 18 -9 Consumer Discretionary

REG Regis Healthcare « 19 7 Healthcare

SWM Seven West Media «¶ 21 -5 Consumer Discretionary

ILU Iluka Res «¶ 22 -4 Mining

WTC Wisetech Global «¶ 22 -2 Utilities

VAH Virgin Aus Hldg «¶ 22 2 Industrials

WFD Westfield «¶ 23 -28 Real Estate Investment Trust

MSB Mesoblast «¶ 23 N/A Healthcare

ALQ ALS «¶ 24 2 Industrials

MYX Mayne Pharma «¶ 24 7 Healthcare

IGO Independence Grp «¶ 25 -10 Mining

INM Iron Mountain Inc «¶ 26 1 Industrials

BKI BKI Invest «¶ 27 -3 Financials ex-AREIT

DMP Domino's Pizza «¶ 28 3 Consumer Discretionary

WOR WorleyParsons «¶ 28 3 Energy

VOC Vocus Grp «¶ 28 -5 Telecommunications


ASX Code Company Name Star Rating

GMA Genworth Mortg Ins ««««¶TWE Treasury Wine ««««¶MQG Macq Grp ««««NUF Nufarm ««««REH Reece ««««IOF Investa Office Fd ««««ABP Abacus Prop Grp ««««BEN Bendigo&Adelaide Bk ««««FMG Fortescue Metals Grp «««¶QBE QBE Insurance Grp «««¶MGR Mirvac Grp «««¶ORA Orora «««¶API Aust Pharmaceutical «««¶BSL BlueScope Steel «««¶AIZ Air New Zealand «««¶SXL Sthn Cross Media «««¶DUE DUET Grp «««¶SHL Sonic Healthcare «««¶MQA Macq Atlas Roads Grp «««¶PGH Pact Grp Hldgs «««¶SNZ Summerset Grp «««¶HVN Harvey Norman «««¶SGR The Star Entertain «««¶SOL Soul Pattinson WH «««¶SDF Steadfast Grp «««¶DXS DEXUS Prop Grp «««¶COH Cochlear «««¶CSR CSR «««¶CWN Crown Resorts «««¶WHC Whitehaven Coal «««¶IVC InvoCare «««¶WEB Webjet «««¶SVW Seven Grp «««EBO EBOS Grp «««SPK Spark New Zealand «««EVT Event Hospitality «««APE AP Eagers «««RMD ResMed Inc «««AST AusNet Services «««BOQ Bank of Qld «««CNU Chorus «««SUN Suncorp Grp «««TAH Tabcorp Hldgs «««GNE Genesis Energy «««MMS McMillan Shakespr «««CBA C'wlth Bank of Aust «««NAB National Aust Bank «««WES Wesfarmers «««CIM Cimic Grp «««GPT GPT Grp «««REA REA Grp «««JBH JB Hi-Fi «««IFL IOOF Hldgs «««GNC GrainCorp «««BKL Blackmores «««GMG Goodman Grp «««SKI Spark Infrastructure «««CSL CSL «««MFG Magellan Fin Grp «««TNE Technology One «««ALL Aristocrat Leisure «««TTS Tatts Grp «««TPM TPG Telecom «««CTD Corporate Travel «««WPL Woodside Pet «««SYD Sydney Airport «««CCL Coca-Cola Amatil «««CTX Caltex Aust «««IRE IRESS «««AOG Aveo Grp «««RRL Regis Res «««SCG Scentre Grp «««S32 South32 «««AZJ Aurizon Hldgs «««QAN Qantas Airways «««NHF NIB Hldgs «««XRO Xero «««CHC Charter Hall Grp «««SCP SCA Prop Grp «««DOW Downer EDI ««¶AHG Automotive Hldgs ««¶WBC Westpac Banking ««¶RHC Ramsay Health Care ««¶CAR Carsales.com ««¶MTS Metcash ««¶BKW Brickworks ««¶ECX Eclipx Grp ««¶WOW Woolworths ««¶MPL Medibank Private ««¶AIA Auckland Intl Airport ««¶ANN Ansell ««¶LNK Link Admin Hldg ««¶ZEL Z Energy ««¶NST Northern Star ««¶OZL OZ Min ««¶

ASX Code Company Name Star Rating

PMV Premier Invest ««¶SUL Super Retail Grp ««¶BAP Bapcor ««¶BHP BHP Billiton ««¶RIO Rio Tinto ««¶ASX ASX ««¶IPL Incitec Pivot ««¶HSO Healthscope ««¶CMW Cromwell Prop ««¶NXT NEXTDC ««¶MYR Myer Hldgs ««¶NWS News Corp ««¶ALU Altium ««¶BLD Boral ««¶PPT Perpetual ««¶TME Trade Me Grp ««¶ANZ ANZ Banking Grp ««¶IAG Insurance Aust Grp ««¶TLS Telstra Corp ««¶JHX James Hardie Ind ««¶QUB Qube Hldgs ««¶MEZ Meridian Energy ««¶VCX Vicinity Centres ««¶CGF Challenger ««¶ABC Adelaide Brighton ««¶BTT BT Invest Mgt ««¶OGC OceanaGold Corp ««¶CWY Cleanaway Waste ««¶BPT Beach Energy ««¶SFR Sandfire Res ««¶DLX DuluxGroup ««¶SGM Sims Metal Mgmt ««¶TCL Transurban Grp ««¶SGP Stockland ««¶AMP AMP ««APA APA Grp ««AWC Alumina ««MYO MYOB Grp ««CPU Computershare ««MIN Mineral Resources ««CQR Charter Hall Ret REIT ««NHC New Hope Corp ««LLC Lendlease Grp ««SIP Sigma Pharmaceut ««BRG Breville Grp ««AMC Amcor ««NCM Newcrest Min ««ORG Origin Energy ««FBU Fletcher Bld ««SKC SkyCity Entertain ««SBM St Barbara ««ARB ARB ««MND Monadelphous Grp ««SRX Sirtex Medical ««BWP BWP Tr ««IEL IDP Education ««AGL AGL Energy ««ORI Orica ««FPH Fisher & Paykel Hlth ««EVN Evolution Min ««A2M The A2 Milk Company ««CGC Costa Grp ««NEC Nine Entertainment ««GUD GUD Hldgs ««PTM Platinum Asset ««FLT Flight Centre Travel ««GOZ Growthpoint Prop ««OSH Oil Search ««SEK Seek ««FXJ Fairfax Media ««GEM G8 Education ««PRY Primary Health Care ««IFT Infratil ««HTA Hutchison ««SKT Sky Network TV «¶SPO Spotless Grp Hld «¶DMP Domino's Pizza «¶WOR WorleyParsons «¶VOC Vocus Grp «¶BKI BKI Invest «¶INM Iron Mountain Inc «¶IGO Independence Grp «¶ALQ ALS «¶MYX Mayne Pharma «¶WFD Westfield «¶MSB Mesoblast «¶ILU Iluka Res «¶WTC Wisetech Global «¶VAH Virgin Aus Hldg «¶SWM Seven West Media «¶REG Regis Healthcare «STO Santos «CYB Cybg «NVT Navitas «BXB Brambles «HGG Henderson Grp «

REPORTING SEASON OBSERVATIONS

With the February reporting season now behind us, it is an

opportune time to provide an overview of events.

As a general summary, we saw the following:

- A staggering 91% of companies that reported

declared a profit. This was a significant increase

from the August reporting season and a reflection

that the mining downturn is now officially behind

us. Furthermore, profit growth increased by a

staggering 36% across the companies that

reported (excluding BHP Billiton).

- 68% of companies that reported lifted dividends,

with a further 14% holding dividends. The total

dividend pool therefore lifted by 6.7%. In fact, 88%

of companies paid a dividend, which was

generally deemed to be a sign of confidence by

management.

- Revenue also increased by 5.0%, a positive result

that was approximately in line with nominal GDP

(real economic growth plus inflation).

- Costs were down 1.2%, showing efficiencies are

still important among corporate Australia.

It will take some time for these numbers to be fully

understood and the impact on the balanced scorecard has

shown some interesting insights.

In this regard, with major changes to the profitability

numbers, we would have expected the general scores to

have increased. However, this was generally not the case.

As one goes through the fundamental data, it is possible to

see that the scores edged lower in most sectors, and while

some companies saw a material jump, many lost ground

despite reasonable reporting. A part of this can easily be

explained by the use of sector medians, but it actually better

reflects the stale economic backdrop we are in. As the

scorecard uses 23 leading economic variables as part of its

input, there is not much basis for excitement at a sector

rotation level.

It is useful to remind readers that this is purely quantitative,

and thus we would suggest that there is scope for a

qualitative overlay to be applied. For example, Fortescue

Metals Group ranks very highly for a company that has

already rallied 158% in the past 12 months. While it is

plausible that it rallies further, a pragmatic investor would

likely see better opportunities elsewhere on the

leaderboard.


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SPECIFIED INVESTMENT STYLE

FOCUS ON “LOW VOLATILITY”

PERFORMANCE HISTORY


TOP 20 COMPANIES

BOTTOM 20 COMPANIES

A stability-focused portfolio has an objective to be

biased towards low beta investments that offer

lower volatility than the broader market but with

reasonable return expectations.

The weightings we have applied (see right) are

intended to achieve this objective. Using

historical analysis, these weightings have

reduced risk by as much as 29.4% and resulted

in enhanced risk-adjusted returns. The

conservative industries such as healthcare and

utilities tend to score well, while the mining and

energy are generally low scoring.

It should be warned it can be difficult to assemble

a stability-focused list using historical financials.

For example, it was a long-held view that the

major banks are stable holdings, yet have

encountered significantly higher volatility in

recent years.

Weighting %





















ASX Code Company Name Star Rating12mth Price

VariabilityPayout Ratio

3 Year Total

Return %

GMA Genworth Mortg Ins ««««¶ 47.2% 75.3%

MQG Macq Grp ««««¶ 48.9% 69.1% 21.7

TWE Treasury Wine ««««¶ 43.3% 71.8% 55.8

ABP Abacus Prop Grp ««««¶ 26.6% 32.2% 18.0

NUF Nufarm ««««¶ 48.3% 26.3% 36.5

REH Reece «««« 47.4% 47.0% 13.3

IOF Investa Office Fd «««« 22.6% 27.8% 19.3

ORA Orora «««« 30.5% 69.0% 33.6

QBE QBE Insurance Grp «««« 44.0% 63.4% 4.2

CWN Crown Resorts «««« 36.4% 45.9% -4.8

SGR The Star Entertain «««« 35.9% 44.8% 34.0

MQA Macq Atlas Roads Grp «««« 48.1% 44.0% 26.8

SDF Steadfast Grp «««« 49.3% 64.0% 22.6

DXS DEXUS Prop Grp «««« 30.3% 34.6% 21.7

MGR Mirvac Grp «««« 27.5% 35.1% 13.4

BEN Bendigo&Adelaide Bk «««« 62.5% 79.5% 8.4

RMD ResMed Inc «««¶ 34.3% 37.4% 27.0

SNZ Summerset Grp «««¶ 47.3% 11.7% 16.5

CIM Cimic Grp «««¶ 50.0% 62.3% 23.9

MFG Magellan Fin Grp «««¶ 31.8% 70.4% 24.4

ASX Code Company Name Star Rating12mth Price

VariabilityPayout Ratio

3 Year Total

Return %

BXB Brambles ¶ 51.5% 77.1% 3.0

HGG Henderson Grp ¶ 67.0% 103.2% -3.8

CYB Cybg « 63.1% 0.0%

STO Santos « 53.6% 0.0% -29.6

ALQ ALS « 77.4% 0.0% -0.6

VAH Virgin Aus Hldg « 105.3% 0.0% -19.9

NVT Navitas « 50.7% 72.8% -11.8

MYX Mayne Pharma « 95.4% 0.0% 16.9

REG Regis Healthcare « 57.6% 100.1%

MSB Mesoblast « 157.9% 0.0% -25.3

ILU Iluka Res « 50.3% 0.0% -6.4

WOR WorleyParsons « 127.7% 0.0% -7.1

FXJ Fairfax Media « 59.0% 0.0% 8.4

A2M The A2 Milk Company « 115.6% 0.0%

CGC Costa Grp « 70.9% 77.8%

SWM Seven West Media « 84.2% 150.0% -19.2

VOC Vocus Grp «¶ 154.8% 88.2% -0.4

ORG Origin Energy «¶ 69.0% 0.0% -14.9

CPU Computershare «¶ 65.9% 61.2% 8.2

AGL AGL Energy «¶ 61.4% 142.1% 26.6


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ALTERNATIVE INVESTMENT STYLE

TIVE INVESTMENT STYLE

FOCUS ON “DIVIDEND-STRENGTH”

PERFORMANCE HISTORY


TOP 20 COMPANIES

BOTTOM 20 COMPANIES

Dividends have increased in popularity in recent

years, with a combination of an ageing population

and low interest rates. It has also been

academically validated as an outperforming

investment technique.

Our methodology and weighting system is intended

to source companies with overall dividend strength.

This requires:

a) A strong absolute yield

b) A strong yield relative to peers; and

c) A history of dividend growth.

As can be seen below, the past six years has

rewarded investors who focus on dividend strength,

with above average returns and below average

volatility. There is a reasonable basis to expect this

to continue in the future and our list offers broad

diversification by industry group.

Weighting %





















ASX Code Company Name Star RatingNet Dividend

Yield %

Gross Dividend

Yield %

Dividend Growth

%

BXB Brambles ¶ 3.1 3.4 3.6

HGG Henderson Grp ¶ 4.6 4.6 -73.2

CYB Cybg « 0.0 0.0 0.0

WFD Westfield « 3.7 3.7 -5.6

STO Santos « 1.3 1.9 -100.0

ALQ ALS « 1.9 2.3 -55.2

INM Iron Mountain Inc « 0.0 0.0 0.0

WTC Wisetech Global « 0.2 0.3 0.0

VAH Virgin Aus Hldg « 0.0 0.0 0.0

MYX Mayne Pharma « 0.0 0.0 0.0

MSB Mesoblast « 0.0 0.0 0.0

HTA Hutchison « 0.0 0.0 0.0

OSH Oil Search « 0.6 0.6 -67.0

WOR WorleyParsons « 0.0 0.0 -100.0

IGO Independence Grp « 0.8 1.2 -76.5

AGL AGL Energy « 2.9 4.0 6.3

SKC SkyCity Entertain « 4.5 4.5 7.5

FXJ Fairfax Media « 3.9 5.1 0.0

A2M The A2 Milk Company « 0.0 0.0 0.0

CGC Costa Grp « 2.3 3.3 0.0

ASX Code Company Name Star RatingNet Dividend

Yield %

Gross Dividend

Yield %

Dividend Growth

%

GMA Genworth Mortg Ins ««««« 8.9 12.7 23.6

FMG Fortescue Metals Grp ««««¶ 5.1 7.3 200.0

BEN Bendigo&Adelaide Bk ««««¶ 5.6 8.0 3.0

AIZ Air New Zealand ««««¶ 8.4 8.4 29.3

SXL Sthn Cross Media ««««¶ 5.2 7.4 12.5

CSR CSR ««««¶ 5.5 5.5 17.5

CWN Crown Resorts «««« 5.9 7.5 96.0

DUE DUET Grp «««« 6.5 6.5 7.2

HVN Harvey Norman «««« 6.8 9.8 50.0

SPK Spark New Zealand «««« 6.5 6.5 8.9

BOQ Bank of Qld «««« 6.3 8.9 8.6

SKI Spark Infrastructure «««« 6.1 6.1 20.8

TAH Tabcorp Hldgs «««« 7.8 11.1 20.0

ABP Abacus Prop Grp «««« 5.3 5.3 0.0

SCP SCA Prop Grp «««« 5.6 5.6 7.0

VCX Vicinity Centres «««¶ 6.2 6.2 4.7

API Aust Pharmaceutical «««¶ 2.9 4.2 112.5

SUN Suncorp Grp «««¶ 5.4 7.7 -10.5

AST AusNet Services «««¶ 5.1 6.8 2.0

IFL IOOF Hldgs «««¶ 6.1 8.7 2.8


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FOCUS ON “DEEP-VALUE”

PERFORMANCE HISTORY


TOP 20 COMPANIES

BOTTOM 20 COMPANIES

Value investing is the favoured method of many

famous investors such as Warren Buffett and ‘the

father of investing’ Benjamin Graham.

Conceptually, the idea is to find unloved

companies that are offering fundamental strength

relative to their price.

Our methodology has a strong weighting towards

high dividend yields, low price to earnings ratios

and low price to book-value ratios.

All of these have been academically validated as

outperforming metrics. The performance history

outlined below concurs with this analysis, with

high scoring companies delivering

outperformance relative to low scoring

companies.

Weighting %





















ASX Code Company Name Star RatingPrice to

Earnings Ratio

Price to Book

Value Ratio

Gross Dividend

Yield %

BXB Brambles ¶ 24.9 3.7 3.4

WFD Westfield « 9.8 1.4 3.7

ALQ ALS « 2.6 2.3

WTC Wisetech Global « 100.0 8.3 0.3

HTA Hutchison « 8.2 0.0

OSH Oil Search « 88.6 1.7 0.6

WOR WorleyParsons « 1.4 0.0

AGL AGL Energy « 48.7 2.2 4.0

SEK Seek « 33.2 3.0 3.8

DMP Domino's Pizza « 57.4 13.1 1.9

HGG Henderson Grp « 22.5 1.5 4.6

A2M The A2 Milk Company « 33.9 15.5 0.0

CGC Costa Grp « 33.9 3.9 3.3

BRG Breville Grp « 25.3 5.5 3.7

ARB ARB « 24.6 4.7 3.2

IEL IDP Education « 26.1 14.5 3.2

GUD GUD Hldgs « 3.7 5.3

FPH Fisher & Paykel Hlth « 33.8 10.3 2.0

CYB Cybg «¶ 0.6 0.0

AMC Amcor «¶ 56.4 15.3 3.6

ASX Code Company Name Star RatingPrice to

Earnings Ratio

Price to Book

Value Ratio

Gross Dividend

Yield %


BEN Bendigo&Adelaide Bk ««««¶ 14.2 1.1 8.0

AIZ Air New Zealand ««««¶ 6.8 1.3 8.4


CSR CSR ««««¶ 12.7 1.7 5.5

CWN Crown Resorts «««« 7.8 1.7 7.5


BOQ Bank of Qld «««« 14.2 1.3 8.9

API Aust Pharmaceutical «««« 19.2 1.9 4.2

SUN Suncorp Grp «««« 16.1 1.3 7.7

AST AusNet Services «««« 20.4 1.7 6.8

IFL IOOF Hldgs «««« 18.7 1.8 8.7

GNE Genesis Energy «««« 10.8 1.0 7.8

SOL Soul Pattinson WH «««« 21.2 1.2 4.2

ABP Abacus Prop Grp «««« 6.0 1.2 5.3

SHL Sonic Healthcare «««¶ 19.9 2.5 3.8

EBO EBOS Grp «««¶ 19.9 2.4 4.4

MQG Macq Grp «««¶ 14.5 2.0 5.6

SVW Seven Grp «««¶ 22.7 1.1 5.3

EVT Event Hospitality «««¶ 18.1 2.0 5.7


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FOCUS ON A “GROWTH-BIAS”

PERFORMANCE HISTORY


TOP 20 COMPANIES

BOTTOM 20 COMPANIES

For more aggressive investors, a growth-bias

intends to capture companies that are

experiencing prolific growth strategies. While this

is notoriously difficult to capture using historical

financials, our methodology uses a weighting

system which is biased towards earning growth,

dividend growth and price growth.

As a combination, history has shown the growth-

bias can be a more effective tool for stock

avoidance than stock selection, with the low

scoring companies generally underperforming

significantly.

At present, there is diversity in both lists, although

the bottom 20 contains many businesses with a

lack of financial data.

Weighting %





















ASX Code Company Name Star RatingDividend

Growth %

Earnings

Growth %

1 Year Total

Return %

HGG Henderson Grp ¶ -73.2 -26.4 -19.0

CYB Cybg « 0.0 0.0 14.7

WFD Westfield « -5.6 -73.9 -8.0

STO Santos « -100.0 -83.8 -5.7

INM Iron Mountain Inc « 0.0 0.0

WTC Wisetech Global « 0.0 0.0

NVT Navitas « 0.0 -1.3 -9.4

REG Regis Healthcare « -12.8 -34.6 -7.6

MSB Mesoblast « 0.0 0.0 -11.3

OSH Oil Search « -67.0 0.0 7.4

ILU Iluka Res « -88.0 0.0 16.7

IGO Independence Grp « -76.5 -95.6 27.5

ALQ ALS « -55.2 -36.8 57.2

SWM Seven West Media « -20.0 -31.5 -17.6

ARB ARB « 8.6 3.7 -0.3

IEL IDP Education « 0.0 0.0 5.0

BKI BKI Invest « 0.7 -5.8 3.3

PRY Primary Health Care « -40.0 -93.6 -2.0

HTA Hutchison «¶ 0.0 -65.2 0.7

ORI Orica «¶ -48.4 -37.1 18.2

ASX Code Company Name Star RatingDividend

Growth %

Earnings

Growth %

1 Year Total

Return %


FMG Fortescue Metals Grp ««««¶ 200.0 221.8 158.3

MQG Macq Grp ««««¶ 21.2 33.3 44.0

TWE Treasury Wine ««««¶ 45.4 137.7 29.6


NUF Nufarm ««««¶ 10.0 36.2 31.1

CSR CSR ««««¶ 17.5 15.6 45.7

QBE QBE Insurance Grp «««« 8.0 14.4 23.7

DUE DUET Grp «««« 7.2 165.9 26.5

REH Reece «««« 21.1 22.7 24.5

AIZ Air New Zealand «««« 29.3 85.7 8.8

MGR Mirvac Grp «««« 5.3 19.3 15.8

ORA Orora «««« 26.7 28.7 22.3

PGH Pact Grp Hldgs «««« 7.7 32.5 45.1

SPK Spark New Zealand «««« 8.9 9.6 3.6

COH Cochlear «««« 21.1 29.5 34.6

API Aust Pharmaceutical «««« 112.5 21.5 7.7


JBH JB Hi-Fi «««« 11.1 11.0 10.2

SDF Steadfast Grp «««« 20.0 21.9 45.6


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FOCUS ON “SECTOR-ROTATION”

PERFORMANCE HISTORY


TOP 20 COMPANIES

BOTTOM 20 COMPANIES

The global economic themes that have played

out in recent years have created greater scrutiny

on sector rotation. With growth slowing,

commodity prices volatile and interest rates being

cut, some industries stand to benefit more than

others.

Our methodology for sector rotation intends to

capture these economic trends and identify

themes that may offer upside as well as sectors

that appear higher-risk. History has shown an

ability to identify both.

Weighting %





















ASX Code Company Name Star Rating SectorRaw Total Score

out of 100

HGG Henderson Grp « Financials ex-AREIT 15

WFD Westfield « Real Estate Investment Trust 19

BXB Brambles «¶ Industrials 22

BKI BKI Invest «¶ Financials ex-AREIT 25

STO Santos «¶ Energy 26

ALQ ALS «¶ Industrials 27

INM Iron Mountain Inc «¶ Industrials 27

WTC Wisetech Global «¶ Utilities 27

VAH Virgin Aus Hldg «¶ Industrials 27

NVT Navitas «¶ Consumer Discretionary 27

MYX Mayne Pharma «¶ Healthcare 28

REG Regis Healthcare «¶ Healthcare 28

MSB Mesoblast «¶ Healthcare 28

LLC Lendlease Grp «¶ Real Estate Investment Trust 29

GOZ Growthpoint Prop «¶ Real Estate Investment Trust 29

HTA Hutchison «¶ Telecommunications 29

PTM Platinum Asset «« Financials ex-AREIT 30

OSH Oil Search «« Energy 31

CYB Cybg «« Banking 31

ILU Iluka Res «« Mining 31

ASX Code Company Name Star Rating SectorRaw Total Score

out of 100

TWE Treasury Wine «««« Consumer Staples 76

GMA Genworth Mortg Ins «««« Banking 76

BEN Bendigo&Adelaide Bk «««« Banking 71

BKL Blackmores «««¶ Consumer Staples 66

FMG Fortescue Metals Grp «««¶ Materials 65

AIZ Air New Zealand «««¶ Industrials 62

SXL Sthn Cross Media «««¶ Consumer Discretionary 62

WES Wesfarmers «««¶ Consumer Staples 61

CCL Coca-Cola Amatil «««¶ Consumer Staples 61

BOQ Bank of Qld «««¶ Banking 61

GNC GrainCorp «««¶ Consumer Staples 61

NUF Nufarm «««¶ Materials 60

CSR CSR «««¶ Materials 60

API Aust Pharmaceutical ««« Healthcare 58

CWN Crown Resorts ««« Consumer Discretionary 57

DUE DUET Grp ««« Utilities 57

HVN Harvey Norman ««« Consumer Discretionary 57

REH Reece ««« Industrials 57

NAB National Aust Bank ««« Banking 56

WOW Woolworths ««« Consumer Staples 56


The financials index is in Zone 2 according to the Zone System. While this

would point to a moderate overvaluation, if banking is isolated, it is currently in

Zone 3 and “fair value”.

FINANCIALS INDEX Top five economic factors condusive to sector growth

Business conditions improving NAB Business Survey, quarterly

Interest rates falling RBA Official Interest Rates, quarterly

Yield curve narrowing 10-Year Treasury Bond Yield, quarterly

Inflation rate falling Consumer Price Index, quarterly

Sector momentum positive S&P GICS Market Data, quarterly

BANKING AND FINANCIALS (EX-AREIT’S)

STOCK SPECIFIC ANALYSIS BY SECTOR

INFORMATION TECHNOLOGY

INFO TECH INDEX Top five economic factors condusive to sector growth


Economy falling Official GDP Real Growth, quarterly

Share-market falling All Ordinaries Index Data, quarterly

Terms of trade falling ABS Export and Import Data, quarterly


The information technology index is in Zone 4 at the current time

and “moderately undervalued” according to the Zone System.


out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

ALU Altium ««¶ 46 -3 3.3 30.5 5.6 25.0 -75.3 32.1 53.1 Information Technology

CAR Carsales.com ««¶ 48 -3 4.9 25.6 10.3 10.0 7.6 -1.9 4.4 Information Technology

CPU Computershare «« 38 -14 2.7 25.3 5.1 6.5 -8.1 48.1 8.2 Information Technology

IRE IRESS ««« 51 -12 4.7 31.6 5.0 3.0 5.8 4.8 15.3 Information Technology

LNK Link Admin Hldg ««¶ 47 -3 1.9 30.2 4.8 0.0 0.0 4.3 Information Technology

MYO MYOB Grp «« 39 -16 3.2 38.8 2.5 125.0 0.0 12.3 Information Technology

NXT NEXTDC ««¶ 46 N/A 0.0 81.3 3.5 0.0 0.0 48.4 28.0 Information Technology

TNE Technology One ««« 53 -3 2.1 38.7 11.6 9.9 13.7 9.3 33.7 Information Technology

XRO Xero ««« 50 -3 0.0 9.9 0.0 1.6 29.7 -21.1 Information Technology

SECTOR AVERAGE 47.0 2.7 31.1 5.1 6.5 0.0 12.3 15.3 Information Technology


out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

ANZ ANZ Banking Grp ««¶ 44 2 7.2 16.1 1.6 -11.6 -27.9 43.8 4.6 Banking

BOQ Bank of Qld ««« 57 2 8.9 14.2 1.3 8.6 -2.0 7.5 4.7 Banking

BEN Bendigo&Adelaide Bk «««« 70 5 8.0 14.2 1.1 3.0 -3.9 45.1 8.4 Banking

CBA C'wlth Bank of Aust ««« 55 2 7.0 15.5 2.4 0.5 1.7 21.1 9.4 Banking

CYB Cybg « 18 2 0.0 0.6 0.0 0.0 14.7 Banking

GMA Genworth Mortg Ins ««««¶ 81 14 12.7 8.4 0.8 23.6 31.2 59.7 Banking

NAB National Aust Bank ««« 55 2 8.5 100.0 1.7 0.0 8.1 36.2 4.9 Banking

WBC Westpac Banking ««¶ 48 -1 7.7 15.6 2.0 1.8 -11.1 22.6 6.8 Banking

SECTOR AVERAGE 55.0 7.8 15.5 1.5 1.2 -1.0 29.4 5.9 Banking

AMP AMP «« 39 4 7.5 2.0 0.0 -57.2 -5.5 6.4 Financials ex-AREIT

ASX ASX ««¶ 46 0 5.7 22.6 2.6 5.7 5.7 26.9 17.0 Financials ex-AREIT

BKI BKI Invest «¶ 27 -3 6.5 21.0 1.1 0.7 -5.8 3.3 4.4 Financials ex-AREIT

BTT BT Invest Mgt ««¶ 42 -10 4.9 18.4 4.2 13.5 11.6 7.3 15.8 Financials ex-AREIT

CGF Challenger ««¶ 42 -3 3.8 24.0 2.7 8.3 4.3 54.3 29.9 Financials ex-AREIT

ECX Eclipx Grp ««¶ 48 -11 5.0 20.7 1.6 111.5 34.1 33.0 Financials ex-AREIT

HGG Henderson Grp « 12 -11 4.6 22.5 1.5 -73.2 -26.4 -19.0 -3.8 Financials ex-AREIT

IAG Insurance Aust Grp ««¶ 44 13 6.1 24.1 2.1 -10.3 -26.2 13.4 9.3 Financials ex-AREIT

IFL IOOF Hldgs ««« 55 5 8.7 18.7 1.8 2.8 44.4 2.1 4.8 Financials ex-AREIT

MQG Macq Grp «««« 77 -3 5.6 14.5 2.0 21.2 33.3 44.0 21.7 Financials ex-AREIT

MFG Magellan Fin Grp ««« 53 -3 4.6 21.8 11.4 19.2 14.2 7.6 24.4 Financials ex-AREIT

MPL Medibank Private ««¶ 47 -3 5.7 18.4 4.9 107.5 46.3 0.4 Financials ex-AREIT

NHF NIB Hldgs ««« 50 -15 4.2 21.4 6.7 28.3 24.0 56.5 34.0 Financials ex-AREIT

PPT Perpetual ««¶ 45 2 7.1 17.8 4.0 6.3 -1.1 26.1 6.7 Financials ex-AREIT

PTM Platinum Asset «« 32 -3 8.6 17.0 8.3 -13.5 -6.6 -14.4 -6.3 Financials ex-AREIT

QBE QBE Insurance Grp «««¶ 68 12 5.1 15.1 1.2 8.0 14.4 23.7 4.2 Financials ex-AREIT

SDF Steadfast Grp «««¶ 62 2 3.5 26.2 2.1 20.0 21.9 45.6 22.6 Financials ex-AREIT

SUN Suncorp Grp ««« 56 -12 7.7 16.1 1.3 -10.5 -3.2 17.1 7.6 Financials ex-AREIT

SECTOR AVERAGE 46.5 5.7 20.7 2.1 7.2 8.7 15.3 8.5 Financials ex-AREIT


MATERIALS INDEX Top five economic factors condusive to sector growth

Base metal prices increasing RBA Commodity Price Data, quarterly

Credit growth increasing APRA Bank Lending Data, quarterly

Unemployment falling Official Unemployment Rate, quarterly

Economy growing Official GDP Real Growth, quarterly


The materials index is in Zone 4. The mining index, if isolated, is in Zone 5. There

appears to be further upside in this space on a long-term basis according to the

Zone System, although many company fundamentals appear unattractive.

The telecommunication index is in Zone 2 but still “moderately

overvalued” according to the Zone System.

TELECOMMUNICATIONS INDEX Top five economic factors condusive to sector growth

Business conditions deteriorating NAB Business Survey, quarterly


Credit growth falling APRA Bank Lending Data, quarterly



MINING AND MATERIALS

TELECOMMUNICATIONS


out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

CNU Chorus ««« 57 9 4.9 18.5 1.9 0.0 -33.4 15.3 38.3 Telecommunications

HTA Hutchison «« 30 7 0.0 8.2 0.0 -65.2 0.7 -4.7 Telecommunications

SPK Spark New Zealand ««« 58 -2 6.5 15.8 3.6 8.9 9.6 3.6 19.2 Telecommunications

TLS Telstra Corp ««¶ 43 -2 9.5 10.4 3.5 1.6 0.8 -7.0 2.7 Telecommunications

TPM TPG Telecom ««« 52 -2 3.2 14.8 3.3 26.1 35.8 -37.5 3.0 Telecommunications

VOC Vocus Grp «¶ 28 -5 4.6 27.2 0.8 387.5 32.7 -46.9 -0.4 Telecommunications

SECTOR AVERAGE 47.5 4.7 15.8 3.4 5.3 5.2 -3.2 2.9 Telecommunications


out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

BHP BHP Billiton ««¶ 46 0 4.3 35.7 1.0 -75.6 21.3 46.9 -6.2 Mining

EVN Evolution Min «« 33 1 1.9 26.3 2.3 50.0 -27.8 43.4 41.3 Mining

ILU Iluka Res «¶ 22 -4 4.1 2.9 -88.0 0.0 16.7 -6.4 Mining

IGO Independence Grp «¶ 25 -10 1.2 33.6 1.4 -76.5 -95.6 27.5 -1.6 Mining

NCM Newcrest Min «« 35 0 0.9 28.7 1.8 0.0 -17.4 32.5 31.5 Mining

NST Northern Star ««¶ 47 -11 2.5 12.8 5.4 40.0 50.0 21.1 56.9 Mining

OGC OceanaGold Corp ««¶ 42 17 0.6 20.1 1.3 -49.5 38.8 7.5 18.2 Mining

OZL OZ Min ««¶ 47 -9 3.3 21.9 1.0 0.0 -21.3 60.0 34.4 Mining

RRL Regis Res ««« 51 0 6.9 13.0 3.4 116.7 28.6 41.5 16.9 Mining

RIO Rio Tinto ««¶ 46 0 5.3 17.0 0.4 -24.9 -6.0 47.2 3.3 Mining

SFR Sandfire Res ««¶ 42 8 3.1 14.7 2.6 -15.4 -35.5 14.6 5.5 Mining

S32 South32 ««« 50 4 2.2 13.5 1.2 0.0 -91.4 92.7 Mining

SECTOR AVERAGE 44.0 2.8 20.1 1.6 -7.7 -11.7 37.0 16.9 Mining

ABC Adelaide Brighton ««¶ 42 -2 5.0 19.8 3.0 5.3 -9.8 17.7 18.0 Materials

AWC Alumina «« 39 -12 6.3 1.9 -11.2 -67.5 44.8 19.4 Materials

AMC Amcor «« 35 -3 3.6 56.4 15.3 7.0 1.9 8.9 17.6 Materials

BSL BlueScope Steel «««¶ 66 0 0.8 13.7 1.4 0.0 30.7 99.5 27.2 Materials

BLD Boral ««¶ 45 -15 5.8 17.3 2.0 25.0 31.3 4.8 7.0 Materials

BKW Brickworks ««¶ 48 8 4.8 20.8 1.2 6.7 22.3 -4.0 4.5 Materials

CSR CSR «««¶ 61 -1 5.5 12.7 1.7 17.5 15.6 45.7 15.1 Materials

DLX DuluxGroup ««¶ 41 8 5.3 19.1 7.0 6.7 3.8 8.1 8.4 Materials

FBU Fletcher Bld «« 35 -14 4.6 11.6 1.5 5.5 14.5 11.3 -1.4 Materials

FMG Fortescue Metals Grp «««¶ 68 7 7.3 7.5 1.7 200.0 221.8 158.3 10.3 Materials

IPL Incitec Pivot ««¶ 46 9 2.8 49.5 1.4 -26.3 -15.9 21.0 11.8 Materials

JHX James Hardie Ind ««¶ 43 17 2.1 39.2 15.2 -17.6 17.5 17.0 Materials

NUF Nufarm «««« 74 16 1.2 21.2 1.7 10.0 36.2 31.1 36.5 Materials

ORI Orica «« 33 8 3.3 19.1 2.4 -48.4 -37.1 18.2 -3.7 Materials

ORA Orora «««¶ 67 4 3.8 20.4 2.4 26.7 28.7 22.3 33.6 Materials

PGH Pact Grp Hldgs «««¶ 63 12 4.1 21.9 5.7 7.7 32.5 45.1 31.9 Materials

SGM Sims Metal Mgmt ««¶ 41 -3 3.7 21.4 1.3 -24.1 -45.4 47.1 10.7 Materials

SBM St Barbara «« 35 -17 0.0 6.8 3.9 0.0 600.7 19.0 105.4 Materials

SECTOR AVERAGE 44.0 4.0 19.8 1.9 6.7 15.1 20.0 16.1 Materials


The consumer staples index is just in Zone 4 and “moderately undervalued” according

to the Zone System. There appears to be upside on a sector basis.

CONSUMER STAPLES INDEX Top five economic factors condusive to sector growth


Term deposits with banks falling RBA Data on TD's on Issue, quarterly

Retail sales falling Retail Sales Data, quarterly

Dwelling approvals growing ABS Dwelling Approval Statsitics, quarterly


CONSUMER STAPLES

A-REITS

The A-REIT index remains in Zone 1. This is “overvalued” according to the Zone System,

although the fundamental appeal of some individual companies appears strong.

Please note: The earnings growth and Price to Equity data is based on statutory ‘Earnings

Per Share’, which includes property revaluations. Therefore, caution needs to be placed

on these figures.

A-REIT INDEX Top five economic factors condusive to sector growth

Dwelling approvals growing ABS Dwelling Approval Statsitics, quarterly






out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

ABP Abacus Prop Grp «««« 72 -10 5.3 6.0 1.2 0.0 93.5 15.1 18.0 Real Estate Investment Trust

AOG Aveo Grp ««« 51 -3 2.5 10.5 1.1 60.0 123.0 -1.8 19.2 Real Estate Investment Trust

BWP BWP Tr «« 34 -3 6.0 11.7 1.1 6.0 5.4 -12.3 12.9 Real Estate Investment Trust

CHC Charter Hall Grp ««« 50 11 5.1 9.3 1.7 11.2 -17.3 22.6 16.7 Real Estate Investment Trust

CQR Charter Hall Ret REIT «« 38 5 6.5 6.9 1.2 2.2 -14.7 0.6 13.8 Real Estate Investment Trust

CMW Cromwell Prop ««¶ 46 -4 8.8 5.8 1.1 4.3 30.5 8.1 Real Estate Investment Trust

DXS DEXUS Prop Grp «««¶ 61 -11 4.4 8.0 1.2 6.0 56.3 28.7 21.7 Real Estate Investment Trust

GMG Goodman Grp ««« 54 -3 3.2 15.1 1.7 8.1 85.6 20.1 22.3 Real Estate Investment Trust

GPT GPT Grp ««« 55 6 4.5 8.0 1.1 4.0 38.3 7.7 17.6 Real Estate Investment Trust

GOZ Growthpoint Prop «« 32 -12 6.6 9.2 1.3 4.1 10.0 7.6 16.9 Real Estate Investment Trust

IOF Investa Office Fd «««« 72 -3 4.2 6.7 1.1 1.8 37.6 18.4 19.3 Real Estate Investment Trust

LLC Lendlease Grp «« 37 -3 4.0 11.7 1.6 11.1 -10.6 17.2 14.5 Real Estate Investment Trust

MGR Mirvac Grp «««¶ 67 5 4.6 7.6 1.1 5.3 19.3 15.8 13.4 Real Estate Investment Trust

SCP SCA Prop Grp ««« 50 -11 5.6 5.5 1.2 7.0 11.1 0.6 16.0 Real Estate Investment Trust

SCG Scentre Grp ««« 50 7 5.3 7.6 1.2 1.9 9.4 1.1 22.2 Real Estate Investment Trust

SGP Stockland ««¶ 40 -3 5.4 12.4 1.2 2.1 6.9 14.6 13.6 Real Estate Investment Trust

VCX Vicinity Centres ««¶ 42 -3 6.2 7.8 1.0 4.7 -46.5 -6.3 12.7 Real Estate Investment Trust

WFD Westfield «¶ 23 -28 3.7 9.8 1.4 -5.6 -73.9 -8.0 16.2 Real Estate Investment Trust

SECTOR AVERAGE 50.0 5.2 8.0 1.2 4.5 10.6 7.7 16.5 Real Estate Investment Trust


out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

BKL Blackmores ««« 55 0 4.3 24.2 10.7 102.0 114.0 -34.6 67.6 Consumer Staples

CCL Coca-Cola Amatil ««« 51 0 5.6 33.6 3.4 5.8 -37.4 28.0 4.0 Consumer Staples

CGC Costa Grp «« 33 0 3.3 33.9 3.9 0.0 0.0 54.4 Consumer Staples

GNC GrainCorp ««« 55 -9 1.7 67.3 1.2 10.0 10.3 22.1 4.2 Consumer Staples

MTS Metcash ««¶ 48 0 0.0 13.6 1.8 -100.0 -5.5 42.0 0.3 Consumer Staples

A2M The A2 Milk Company «« 33 -8 0.0 33.9 15.5 0.0 0.0 60.2 Consumer Staples

TWE Treasury Wine ««««¶ 80 7 2.0 35.1 2.5 45.4 137.7 29.6 55.8 Consumer Staples

WES Wesfarmers ««« 55 9 6.3 86.5 2.2 -7.0 6.9 13.9 8.1 Consumer Staples

WOW Woolworths ««¶ 47 0 3.6 73.7 3.9 -44.6 10.5 23.2 -5.8 Consumer Staples

SECTOR AVERAGE 51.0 3.3 33.9 3.4 0.0 6.9 28.0 4.2 Consumer Staples


The industrials index is on the edge of Zone 1 and Zone 2. There appears to be

limited upside according to the Zone System.

INDUSTRIALS INDEX Top five economic factors condusive to sector growth




Base metal prices increasing RBA Commodity Price Data, quarterly


INDUSTRIALS

ENERGY

ENERGY INDEX Top five economic factors condusive to sector growth

Business conditions improving NAB Business Survey, quarterly

Credit growth increasing APRA Bank Lending Data, quarterly

Unemployment falling Official Unemployment Rate, quarterly

Economy growing Official GDP Real Growth, quarterly


The energy index remains deep in Zone 5 and “undervalued”, although many of the

underlying companies continue to exhibit poor fundamentals.


out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

AIZ Air New Zealand «««¶ 65 10 8.4 6.8 1.3 29.3 85.7 8.8 19.9 Industrials

ALQ ALS «¶ 24 2 2.3 2.6 -55.2 -36.8 57.2 -0.6 Industrials

AIA Auckland Intl Airport ««¶ 47 -7 2.9 30.0 2.0 18.6 7.0 9.1 24.0 Industrials

AZJ Aurizon Hldgs ««« 50 2 6.7 47.3 1.9 2.5 -38.8 40.2 5.9 Industrials

BXB Brambles « 15 -29 3.4 24.9 3.7 3.6 2.8 -20.7 3.0 Industrials

CIM Cimic Grp ««« 55 -3 4.4 20.3 3.5 14.6 -3.5 5.1 23.9 Industrials

CWY Cleanaway Waste ««¶ 42 2 2.3 38.7 1.1 13.3 -7.8 58.4 3.8 Industrials

DOW Downer EDI ««¶ 49 -7 5.9 13.4 1.5 0.0 -15.8 66.6 12.8 Industrials

INM Iron Mountain Inc «¶ 26 1 0.0 0.8 0.0 0.0 Industrials

MQA Macq Atlas Roads Grp «««¶ 63 29 3.7 11.9 2.7 800.0 82.8 10.7 26.8 Industrials

MMS McMillan Shakespr ««« 56 N/A 7.0 13.1 3.0 21.1 5.1 11.4 15.6 Industrials

MIN Mineral Resources «« 38 9 5.6 29.8 2.0 31.1 0.0 85.6 2.3 Industrials

MND Monadelphous Grp «« 35 -5 6.5 19.9 3.1 -34.8 -37.0 82.8 -1.7 Industrials

QAN Qantas Airways ««« 50 -2 4.8 8.7 2.2 0.0 91.4 -0.5 57.1 Industrials

QUB Qube Hldgs ««¶ 43 19 3.1 36.6 1.8 1.6 -48.4 10.9 7.7 Industrials

REH Reece «««« 72 22 3.3 20.5 3.9 21.1 22.7 24.5 13.3 Industrials

SEK Seek «« 31 -13 3.8 33.2 3.0 11.1 -4.0 2.3 -0.5 Industrials

SVW Seven Grp ««« 59 11 5.3 22.7 1.1 0.0 21.6 104.5 15.7 Industrials

SPO Spotless Grp Hld «¶ 29 -10 6.4 1.4 -15.0 -9.1 -8.7 Industrials

SYD Sydney Airport ««« 51 6 4.6 47.2 14.0 21.6 12.6 6.1 23.1 Industrials

TCL Transurban Grp ««¶ 40 7 4.4 100.0 3.7 14.2 -9.9 7.3 23.1 Industrials

VAH Virgin Aus Hldg «¶ 22 2 0.0 1.8 0.0 5770.0 -48.0 -19.9 Industrials

SECTOR AVERAGE 45.0 4.4 23.8 2.1 7.4 0.0 10.7 13.1 Industrials


out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

BPT Beach Energy ««¶ 42 17 2.7 6.6 1.4 -66.7 67.3 24.6 -20.9 Energy

CTX Caltex Aust ««« 51 -1 4.9 12.7 2.7 -12.8 27.1 -10.5 13.4 Energy

NHC New Hope Corp «« 38 3 4.8 100.0 0.8 -38.5 0.0 39.2 -12.6 Energy

OSH Oil Search «« 31 -1 0.6 88.6 1.7 -67.0 0.0 7.4 -3.6 Energy

ORG Origin Energy «« 35 3 1.4 0.9 -77.1 0.0 38.5 -14.9 Energy

STO Santos « 18 3 1.9 0.8 -100.0 -83.8 -5.7 -29.6 Energy

SOL Soul Pattinson WH «««¶ 62 3 4.2 21.2 1.2 4.0 7.4 11.5 8.6 Energy

WHC Whitehaven Coal «««¶ 60 3 0.0 17.4 1.1 0.0 3350.0 356.5 21.8 Energy

WPL Woodside Pet ««« 51 20 4.9 22.3 1.2 -27.7 3225.5 28.0 -1.0 Energy

WOR WorleyParsons «¶ 28 3 0.0 1.4 -100.0 7.1 104.7 -7.1 Energy

ZEL Z Energy ««¶ 47 15 4.0 36.1 5.1 10.4 1869.1 9.4 27.0 Energy

SECTOR AVERAGE 42.0 2.7 21.8 1.2 -38.5 7.4 24.6 -3.6 Energy


The healthcare index has encountered volatility but remains in Zone 3.

HEALTHCARE INDEX Top five economic factors condusive to sector growth



Exports rising ABS Export Data, quarterly

Dwelling approvals falling ABS Dwelling Approval Statsitics, quarterly


HEALTHCARE

UTILITIES

UTILITIES INDEX Top five economic factors condusive to sector growth




Dwelling approvals increasing ABS Dwelling Approval Statsitics, quarterly


The utilities sector has rebounded back to Zone 1 and “overvalued” according to the

Zone System. However, on a stock-selection basis, some companies continue to

offer fundamental appeal.


out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

AGL AGL Energy «« 33 0 4.0 48.7 2.2 6.3 -51.1 48.6 26.6 Utilities

APA APA Grp «« 39 8 5.0 38.0 2.5 9.2 -21.3 6.7 18.9 Utilities

AST AusNet Services ««« 57 0 6.8 20.4 1.7 2.0 282.7 19.6 14.1 Utilities

DUE DUET Grp «««¶ 64 9 6.5 45.4 2.0 7.2 165.9 26.5 19.0 Utilities

GNE Genesis Energy ««« 56 0 7.8 10.8 1.0 0.8 71.3 12.1 Utilities

IFT Infratil «« 30 -6 5.3 56.4 15.2 -94.1 -8.0 17.4 Utilities

MEZ Meridian Energy ««¶ 43 0 4.7 33.9 0.7 5.6 -31.7 18.5 45.1 Utilities

SKI Spark Infrastructure ««« 54 -4 6.1 49.2 1.9 20.8 -19.0 21.7 18.9 Utilities

WEB Webjet «««¶ 60 8 1.9 21.0 7.4 9.1 4.6 86.7 66.2 Utilities

WTC Wisetech Global «¶ 22 -2 0.3 100.0 8.3 0.0 0.0 Utilities

SECTOR AVERAGE 48.5 5.2 41.7 2.0 6.8 -9.5 19.6 19.0 Utilities


out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

ANN Ansell ««¶ 47 4 2.4 16.7 2.3 6.0 -21.6 42.9 12.2 Healthcare

API Aust Pharmaceutical «««¶ 67 N/A 4.2 19.2 1.9 112.5 21.5 7.7 59.0 Healthcare

COH Cochlear «««¶ 61 2 2.6 37.6 17.3 21.1 29.5 34.6 36.5 Healthcare

CSL CSL ««« 53 -1 1.4 31.8 16.5 5.9 -17.2 25.4 23.7 Healthcare

EBO EBOS Grp ««« 59 -13 4.4 19.9 2.4 135.7 27.8 14.7 32.1 Healthcare

FPH Fisher & Paykel Hlth «« 33 -1 2.0 33.8 10.3 29.1 15.8 1.4 33.1 Healthcare

HSO Healthscope ««¶ 46 -1 3.3 22.5 1.7 5.7 20.7 -12.3 Healthcare

MYX Mayne Pharma «¶ 24 7 0.0 19.1 5.7 0.0 249.4 0.4 16.9 Healthcare

MSB Mesoblast «¶ 23 N/A 0.0 43.1 1.4 0.0 0.0 -11.3 -25.3 Healthcare

PRY Primary Health Care «« 30 -1 4.5 68.7 0.8 -40.0 -93.6 -2.0 -5.4 Healthcare

RHC Ramsay Health Care ««¶ 48 8 2.6 30.0 6.9 17.8 20.4 15.8 15.2 Healthcare

REG Regis Healthcare « 19 7 5.2 27.6 7.7 -12.8 -34.6 -7.6 Healthcare

RMD ResMed Inc ««« 57 0 1.3 29.0 5.8 16.3 6.0 26.8 27.0 Healthcare

SIP Sigma Pharmaceut «« 37 -20 6.1 23.9 2.6 10.0 12.0 27.2 30.3 Healthcare

SRX Sirtex Medical «« 35 N/A 2.2 21.2 5.3 50.0 32.3 -37.5 5.6 Healthcare

SHL Sonic Healthcare «««¶ 63 -1 3.8 19.9 2.5 5.7 26.7 21.8 12.6 Healthcare

SNZ Summerset Grp «««¶ 63 3 1.5 7.8 2.1 50.7 -94.6 41.9 16.5 Healthcare

SECTOR AVERAGE 47.0 2.6 23.9 2.6 10.0 15.8 14.7 16.9 Healthcare


Throughout the research, we access data from numerous sources. Below is a list of major sources that were considered and are duly

referenced in no particular order:

Reserve Bank of Australia, ABS, ASX, Factset, Forbes, Investing.com, Vanguard,

Bloomberg, Yale University, OECD, Yahoo Finance, uBank, AFR, BWTS, Standard & Poors, World Bank

Our research is proprietary, however if you wish to request more information please send your request to [email protected].

The consumer discretionary index remains in Zone 1 and “overvalued” according to the

Zone System. There is significant diversity within this sector, although the median

results show relatively poor underlying fundamentals.

CONS DISCRETIONARY INDEX Top five economic factors condusive to sector growth






CONSUMER DISCRETIONARY

SOURCES AND DEFINITIONS

Disclaimer: The advice provided in this newsletter is general advice only and therefore your particular objectives, needs and financial position have not been considered. Before making a decision on the basis of the advice, you need to consider, with or without the assistance of a financial advisor, whether the advice is appropriate in light of your particular needs, objectives and financial circumstances, and when applicable obtain a relevant Product Disclosure Statement and read it.

“The Investing Times” – ABN 37884594495 - Providing financial and investment wealth creation strategies since 1971.

POST

PO Box 233 Ringwood VIC 3134.

WEBSITE

www.investingtimes.com.au

EMAIL

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out of 100

Change in

Score

Gross Dividend

Yield %

Price to

Earnings Ratio

Price to Book

Value Ratio

Dividend

Growth %

Earnings

Growth %

1 Year Total

Return %

3 Year Total

Return %Sector

APE AP Eagers ««« 58 14 5.5 16.4 2.3 9.4 9.2 -3.3 25.7 Consumer Discretionary

ARB ARB «« 35 3 3.2 24.6 4.7 8.6 3.7 -0.3 11.9 Consumer Discretionary

ALL Aristocrat Leisure ««« 52 3 1.4 32.6 10.7 47.1 82.5 77.4 52.7 Consumer Discretionary

AHG Automotive Hldgs ««¶ 49 3 7.8 16.0 1.9 2.3 7.8 6.2 7.6 Consumer Discretionary

BAP Bapcor ««¶ 47 3 2.8 29.8 4.4 26.4 0.9 28.9 Consumer Discretionary

BRG Breville Grp «« 36 15 3.7 25.3 5.5 5.6 7.5 36.2 6.4 Consumer Discretionary

CTD Corporate Travel ««« 52 3 1.9 42.2 7.8 50.0 41.8 52.3 49.6 Consumer Discretionary

CWN Crown Resorts «««¶ 60 11 7.5 7.8 1.7 96.0 -11.8 7.0 -4.8 Consumer Discretionary

DMP Domino's Pizza «¶ 28 3 1.9 57.4 13.1 41.9 46.2 2.5 44.7 Consumer Discretionary

EVT Event Hospitality ««« 58 3 5.7 18.1 2.0 13.3 14.9 -12.0 18.6 Consumer Discretionary

FXJ Fairfax Media «« 31 -4 5.1 2.3 0.0 -6.1 24.0 8.4 Consumer Discretionary

FLT Flight Centre Travel «« 32 -1 6.8 14.4 2.2 0.0 5.0 -30.4 -14.8 Consumer Discretionary

GEM G8 Education «« 31 -24 8.4 19.2 2.6 0.0 -8.0 15.7 -0.9 Consumer Discretionary

GUD GUD Hldgs «« 33 N/A 5.3 3.7 2.4 -12.9 77.5 35.9 Consumer Discretionary

HVN Harvey Norman «««¶ 62 -14 9.8 12.0 1.9 50.0 31.3 2.5 18.9 Consumer Discretionary

IEL IDP Education «« 34 3 3.2 26.1 14.5 0.0 0.0 5.0 Consumer Discretionary

IVC InvoCare «««¶ 60 37 6.5 21.9 6.6 11.8 36.1 15.9 12.7 Consumer Discretionary

JBH JB Hi-Fi ««« 55 -5 6.3 15.4 7.0 11.1 11.0 10.2 15.1 Consumer Discretionary

MYR Myer Hldgs ««¶ 46 -9 7.1 16.2 0.9 -23.7 -24.6 8.7 -12.4 Consumer Discretionary

NVT Navitas « 18 -9 6.2 16.7 7.6 0.0 -1.3 -9.4 -11.8 Consumer Discretionary

NWS News Corp ««¶ 46 N/A 1.0 0.1 90.5 58.0 3.8 0.6 Consumer Discretionary

NEC Nine Entertainment «« 33 N/A 9.7 0.9 30.4 -46.5 -13.5 -13.3 Consumer Discretionary

PMV Premier Invest ««¶ 47 -6 5.1 21.6 1.7 14.3 14.4 -12.6 17.5 Consumer Discretionary

REA REA Grp ««« 55 20 2.1 18.2 10.9 16.4 0.0 11.4 8.3 Consumer Discretionary

SWM Seven West Media «¶ 21 -5 10.9 19.6 0.9 -20.0 -31.5 -17.6 -19.2 Consumer Discretionary

SKT Sky Network TV «¶ 29 -18 8.9 11.9 1.1 2.7 -5.5 -15.9 -10.4 Consumer Discretionary

SKC SkyCity Entertain «« 35 3 4.5 15.7 2.3 7.5 24.0 -11.8 6.0 Consumer Discretionary

SXL Sthn Cross Media «««¶ 65 7 7.4 13.1 1.1 12.5 13.1 36.6 7.8 Consumer Discretionary

SUL Super Retail Grp ««¶ 47 3 6.0 21.9 2.8 3.8 7.8 24.8 1.1 Consumer Discretionary

TAH Tabcorp Hldgs ««« 56 13 11.1 27.0 2.4 20.0 -47.3 17.0 20.0 Consumer Discretionary

TTS Tatts Grp ««« 52 17 5.6 31.0 2.2 6.1 2.6 22.2 20.1 Consumer Discretionary

SGR The Star Entertain «««¶ 62 3 3.9 16.3 1.4 18.2 12.4 -1.0 34.0 Consumer Discretionary

TME Trade Me Grp ««¶ 45 7 3.5 23.2 2.8 4.9 11.4 20.7 11.1 Consumer Discretionary

SECTOR AVERAGE 47.0 5.6 19.2 2.3 9.4 7.5 7.0 8.4 Consumer Discretionary

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Documents

THE ‘ EST OF’ THE INVESTING TIMES FOR 2016/17...In January 1988, the overall market produced $100 in earnings and the average person was willing to pay 14x that amount (equating