View
492
Download
2
Tags:
Embed Size (px)
DESCRIPTION
Citation preview
Adrian WhittinghamHead of Retail
• Concentrated is better
• High dividend yield equals safety
• You have to be small to be good
• Cap weighted indices are hard to beat
Martin Conlon
Head of Australian Equities
Our Philosophy
Our Philosophy
• External pressures to change product and business direction may not always be well informed
• Change should be in the best interests of our clients
Myth Concentrated is better
Concentrated Portfolios – Will they win the race?
• Betting on fewer horses in the race doesn’t change the odds
• “Sure things” don’t always win
• Knowing a lot about 1 or 2 horses isn’t the point. To win you need to know how good they are versus the field
• Confidence from picking winners in the past doesn’t improve your odds in the next race
• Educated punters focus on process, not on outcomes
Is Concentrated Better?
Specialisation – has it gone too far?
• Clients of fund managers are consolidating rapidly while fund managers are fragmenting
• Decisions across asset classes have been largely removed from fund managers
• Myopia is a significant danger for fund managers as product specialisation narrows
Is Concentrated Better?
High Dividend Yield = Safe Investment
Myth
Stable business may not be a stable investment
•Aggressive gearing necessarily makes an equity investment more volatile
•Valuations are based on extrapolating cashflows into the distant future
•Distributions are not supported by current cashflow
Source: Morgan Stanley as at 30 June 2006
MIG Valuation Sensitivity
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
1% -1%
Risk FreeRate
Inflation Traffic
Stable business may not be a stable investment
• Investor’s focus on yield is removing focus on underlying cashflow
• Absence of tax and depreciation for most infrastructure and property trusts means yield comparisons with traditional companies are misleading
Source: Company Reports, Schroders as at 30 June 2006
7.1%
4.6%
6.3%
4.1%
7.6%
0
5
10
15
20
25
30
35
40
45
Macquarie Infrastructure
Group
Macquarie Goodman
Westfield Group
Coca-Cola Amatil
Telstra0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
EV/EBITDA Multiple Distribution Yield
Stable business may not be a stable investment
Source: Company Reports, Schroders as at 30 June 2006
High Dividend Yield = Safety?
Myth You have to be small
to be good
How have smaller managers fared?
• Limited evidence of smaller managers generating superior performance
•Strong performance of small cap stocks has provided a tailwind
•Track records are generally short and don’t cover varied market conditions
•There are many good boutiques, but size in itself is an overemphasised attribute
Australian Equity Managers/FUM vs Performance
Source: Mercer Australian Shares Survey 3 Years Ended 31 Aug 2006FUM Source: van Eyk, Rainmaker, Lonsec
S&P/ASX Accum Index 3 Year Return to 31 August 2006
22.1%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
SchroderAustralian
Equity
FU
M A
$ B
illi
on
0
5
10
15
20
25
30
35
3 Y
ea
r P
erf
orm
an
ce
% p
a
FUM (lhs) 3 yr Perf % (rhs)
How have smaller managers fared?
• Size of FUM is only one factor impacting investment performance – it shouldn’t be overemphasised
• Size is more important to short-term trading based processes than investment processes
• As companies become global, fund managers must have global capability
Incentivisation
GlobalCapability
Team &Focus
Systems &Resources
Process
FUM
PortfolioPerformance
Competition Works
• As the number of small boutiques proliferates, the claimed advantages of being small and nimble will dissipate
• Hedge funds have exhibited similar characteristics – their number has proliferated, excess returns have dwindled
Does Size Matter?
Myth Cap weighted indicies
Enough Diversity in the ASX300?
• Cap weighted indices often over emphasise sectors with strong recent performance
• A well diversified portfolio may significantly depart from the index
• Diversification is key – do your clients have property exposure in addition to a broader ASX mandate?
Diversify
ASX300 Sector Breakdown
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Ban
ks
Mat
eria
ls
Rea
l Est
ate
Insu
ran
ce
En
erg
y
Div
ersi
fied
Fin
anci
als
Fo
od
& S
tap
les
Ret
ailin
g
Tra
nsp
ort
atio
n
Cap
ital
Go
od
s
Tel
eco
mm
un
icat
ion
Ser
vice
sF
oo
d B
ever
age
&T
ob
acco
Hea
lth
Car
eE
qu
ipm
ent
&
Med
ia
Co
nsu
mer
Ser
vice
s
Uti
litie
s
Co
mm
erci
alS
ervi
ces
&P
har
mac
euti
cals
&B
iote
chn
olo
gy
Ret
ailin
g
So
ftw
are
&S
ervi
ces
Co
nsu
mer
Du
rab
les
& A
pp
arel
Sem
ico
nd
uct
ors
&S
emic
on
du
cto
rA
uto
mo
bile
s &
Co
mp
on
ents
Tec
hn
olo
gy
Har
dw
are
&
Source: ASX300 as at 30 June 2006
Market Outlook
Market Outlook
• Momentum in earnings and returns is slowing
• Defensive assets are not defensively priced
• Despite weaker earnings environment, riskier earnings streams offer greater reward
Return on Equity
72 76 80 84 88 92 96 00 04 08
4
6
8
10
12
14
16
18
%
Return on Equity
Source: Schroders as at 30 June 2006
Australian Equity Fund Performance
Source: Schroders, performance is to end Sep 06, post fee
19.1
24.5
16.116
22.7
15.8
0
5
10
15
20
25
30
1 Year 3 Years 5 Years
Schroder Australian Equity Fund S&P/ASX 200 Accumulation Index
%
• Concentrated is better
• High dividend yield equals safety
• You have to be small to be good
• Cap weighted indices are hard to beat
Myths
Where can you access us?AMP
Portfolio Care
AUSMAQ
AXA Generations
AXA Summit
Asgard
BT Wrap
BT Wrap Essentials
Fiducian
First Choice
ING One Answer
IOOF
Macquarie Wrap
MLC Masterkey
MLC Masterkey Custom
Navigator
Navigator Access
Netwealth Investments Ltd
Oasis
Perpetual Wealthfocus
Synergy Capital
Skandia
Tower Trust
Westpac Life & PPS
Zurich Financial Services
Stephen Kwa
Head of Product & Marketing
Agenda
• Myths in global equity investing • Cap weighted indices are hard to beat• Concentrated is better• Small is good
• Schroder Global Active Value Fund (Hedged)
• Market Review
Myth Cap weighted indices are
hard to beat
All global stocks (>15,000)
MSCI All Country World (>2,700)
Where do you look for global opportunities?
MSCI World (>1,900)
Australian stocks
ASX 200
Consider this…In the top 100 stocks YTD Sep 06,
It’s a big world of opportunity…
Go broadSource: Schroders, MSCI
Paladin +145%
Pan Fish (Norway) +155%Akamai Tech (US) +151%
Shenzhen Inv (China) +153%
The other 96 stocksaverage stock +406%
Is your benchmark biased?
• 1,831 biggest stocks in the world
• Half of the benchmark is in the top 150 stocks
• A quarter of the benchmark is in the top 40 stocks
• Exposure to big, liquid stocks in developed markets.
IT HAS A DEVELOPED MARKET, MEGA CAP BIAS!!!
Source: MSCI at 29 September 2006
Go unconstrained
MSCI World ex Australia (unhedged to AUD) index is the most common benchmark used for international equities.
MSCI World ex Australia region exposure
North America
56%
Europe ex UK
21%
UK11%
Japan11%
Pacific ex Japan
1%
Emerging Markets
0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1992 1994 1996 1998 2000 2002 2004
Technology/Telecoms weight as a % of MSCI World
Other benchmark limitations
Do you want 36% of your portfolio in tech stocks here? Follow markets up…
and follow them back down!
• Buy & Hold / Momentum strategy • greater weight on stocks which have gone up
• Classic example - Tech boom of late 90’s
Invest Without ConstraintsSource: Schroders, MSCI
Limitations of cap weighted indices
• Universe excludes valuable investment opportunities
• Bias to developed markets not the best markets
• Bias to large stocks not the best stocks
• Momentum strategies forcing you to buy high and sell low
Go global and unconstrained
Myth
Concentrated is better
Concentration
• Reduce number of stocks and increase bet size
Concentration or Conviction?
Drop constraints
• Allow greater flexibility in stock, sector, region and currencies
Conviction = Backing your investment ideas
Not looking like the index
New sources of alphas
• Take off index bets
• Emerging, small/micro caps, etc
• Shorting
Conviction NOT concentration
Global Active Value Tracking Error versus global indices
7.7% 7.4%6.9% 6.6% 6.4%
0%
5%
10%
Traditionalmanager
Concentratedmanager
MSCI WorldSmall
MSCI WorldGrowth
MSCI World MSCI WorldValue
MSCI AC World
Diversification with conviction
Source: Schroders, Barra
Based on Schroder Global Active Value Fund, 29 September 2006
TrackingError(%pa)
Tracking Error: How much a fund’s returns deviate from the benchmark return
Conviction with diversification
Myth: Concentrated is better
• Concentration = more volatile returns
• Don’t confuse conviction and concentration
Conviction with diversification
MythYou have to be small to be
good
Myth: You need to be small to be good
The claims:
• More nimble and faster decision making
• Fewer capacity issues, can buy smaller stocks
• Better aligned incentives as fund managers own the business
The reality:
• Small is less relevant for low turnover long term strategies
• Capacity less of an issue in global markets
• Fewer distractions of business risks
• Systems and infrastructure
• Trading costs
Does size really matter?
Bringing it all together
Go global: Adopt widest possible universe
Schroder Global Active Value
Region/sector weights
Stock weights
Unconstrained bottom-up
Non cap weighted, max 0.5%
*Tracking error is not targeted, based upon simulations we expect a range of 5 to 10% p.a. relative to the MSCI world or comparable index
Target excess return
Number of stocks
Tracking error
3% to 4% p.a.
500+
5 to 10% p.a.
Global Active Value
Style Global Value
Universe >15,000 stocks > 45 countries
Remove constraints: Freeing ourselves from the rules of the benchmark boosts returns
Diversify broadly: To manage risk yet retain high conviction
Source: Schroders
Unifying strategy
Portfolio positioning – Cap weights
10.6%
0.2%
62.2%
27.0%16.4% 16.7%
42.9%
23.0%
0%
20%
40%
60%
80%
100%
Mega>US$20bn
Large US$5-20bn
Mid US$1-5bn
Small/Micro<US$1bn
Wei
gh
t
MSCI World Index
Global Active Value
• Mega and large caps crowd out other opportunities
• Mid cap stocks offer attractive opportunitiesSource: Schroder Global Quantitative Active Value Fund,
MSCI World ex Australia as at 29 September 2006
Mega and large account for 90% of
the indexMid cap offers
attractive opportunity
All cap not large or small cap
Portfolio Positioning - Regions
• More even allocation between regions
• Within Emerging Markets Asia is favouredSource: Schroder Global Active Value Fund, current weights at 29 September 2006
Global Active Value Performance
Source: Schroders. Inception is 01 September 2005 to 29 September 2006
Performance is in AUD and post fees
Schroder Global Active Value relative to MSCI World ex Australia (Both hedged to AUD)
13.1%
18.3%
20.5%
9.5%
17.4%
15.0%
0%
5%
10%
15%
20%
25%
2006 YTD 1 year Since Inception (Total)
Schroder Global Active Value (Hedged)
MSCI World ex Australia (Hedged in AUD)
(Inception: 1 September 2005)
GAV complements key competitors
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
Cor
rela
tion
Source: Zephyr, Schroders
Based on Schroder Global Active Value Composite and Backtest, 31 July 2003 to 30 June 2006
Global Active Value Correlation of Excess Returns with key competitors
Market Review
Source: MSCI as 29 September 2006
Global Equity ReturnsGrowth of $100 to Sep 06, local currency, dividends net of withholding tax reinvested
96
101
106
111
116
121
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Va
lue
of
$1
00
World ex Australia
Emerging
12.4%
8.4%
Global
Conclusion
Myths
• Cap weighted benchmarks are hard to beat
• Concentrated is better
• Small is goodDiversified
Global
Diversified
Unconstrained
Value
Global
Schroder Global Active Value
Available from
• Direct
• BT Wrap
• Macquarie Wrap
• SMF
Global Active Value offers a robust and repeatable process for capturing opportunities from global equity investing
Unconstrained
Diversified
Global
Diversified
Value
Panel Discussion
Tim Farrelly, Principal of farrelly’s
Marcus Hanel, Associate Standard&Poor’s
Randal Jenneke, Head of Research Schroders
David Philpotts, Portfolio Manager Global Active Value Schroders
farrelly’s
+3.6%pa
+9.1%pa
Small value and Big value vs All Ords
0.400
0.600
0.800
1.000
1.200
1.400
1.600
1.800
89 91 93 95 97 99 01 03 05
Small value vs All Ords Large value v All Ords
48.
CONFIDENTIAL AND PROPRIETARY.
Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.
Performance of large, mid & small caps
As at June 30, 2006 (% p.a.)
Source: Standard & Poor’s
0%
5%
10%
15%
20%
25%
30%
35%
1 year return 3 year return 5 year return
Large Cap (1-50) Mid Cap (51-100) Small Cap (ex 100)
49.
CONFIDENTIAL AND PROPRIETARY.
Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.
Mainstream vs boutique market cap exposure
As at June 30, 2006Source: Standard & Poor’s
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
S&P/ASX 200Accumulation Index
Average MainstreamManager
Average BoutiqueManager
Large Cap (1-50) Mid Cap (51-100) Small Cap (ex 100)
farrelly’s
Relative performance of Boutiques and Institutions for Australian equity
portfoliosBoutiques v Institutions
90
95
100
105
110
115
120
125
130
135
140
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
farrelly’s
Pricing Small v Big Australia
10
12
14
16
18
20
22
24
97 98 99 00 01 02 03 04 05
PE
Rat
io
ASX 100 ASX Small Ords
52.
CONFIDENTIAL AND PROPRIETARY.
Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.
Disclosure
Analyst Disclosure: Analyst(s) remuneration is not linked to the rating outcome. The Analyst(s) may hold the financial product(s) referred to in the website or a rating report but Standard & Poor’s considers such holdings not to be sufficiently material to compromise the rating or opinion. Analyst(s) holdings may change during the life of a rating report. The Analyst(s) certify that the views expressed in the website or a rating report reflect their personal, professional opinion about the financial product(s) to which the website or report refers.
Standard & Poor’s Disclosure: In the event of any person subscribing to the financial product(s) referred to in the website or a rating report, such subscriptions may result in a Standard & Poor’s client receiving a commission, fee or other benefit or advantage. Details of any such benefits can be obtained from your financial adviser. Standard & Poor’s itself does not receive any commission. Prior to the assignment of any rating, the fund manager agreed to pay Standard & Poor’s a fee for the appraisal and rating service rendered. Standard & Poor’s assign ratings using comprehensive and objective criteria. Standard & Poor’s fee is not linked to the rating outcome. Costs incurred during the rating process, including travel and accommodation expenses, may be paid for by the fund manager to enable on site reviews. Standard & Poor’s does not hold or have a material interest in the financial product(s) referred to in the website or a rating report. Standard & Poor’s associates may hold the financial product(s) referred to in the website or a rating report but detail of these holdings are not known to the Analyst(s). Standard & Poor’s from time to time provides fund managers with investment data, research software, consulting and other financial planning services. Standard & Poor’s is a wholly owned member of the McGraw Hill Companies, a New York Corporation. The analytic services and products provided by Standard & Poor’s are the result of separate activities in order to preserve the independence and objectivity of each analytic process. Each analytic product or service is based on information received by the analytic group responsible for such product or service. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process. Standard & Poor’s holds an Australian Financial Services Licence Number 258896.
Standard & Poor’s Information Services (Australia) Pty Limited
53.
CONFIDENTIAL AND PROPRIETARY.
Permission to reprint or distribute any content from this presentation requires the written approval of Standard & Poor’s.
Disclosure
Analyst Disclosure: Analyst(s) remuneration is not linked to the rating outcome. The Analyst(s) may hold the financial product(s) referred to in the website or a rating report but Standard & Poor’s considers such holdings not to be sufficiently material to compromise the rating or opinion. Analyst(s) holdings may change during the life of a rating report. The Analyst(s) certify that the views expressed in the website or a rating report reflect their personal, professional opinion about the financial product(s) to which the website or report refers.
Standard & Poor’s Disclosure: In the event of any person subscribing to the financial product(s) referred to in the website or a rating report, such subscriptions may result in a Standard & Poor’s client receiving a commission, fee or other benefit or advantage. Details of any such benefits can be obtained from your financial adviser. Standard & Poor’s itself does not receive any commission. Prior to the assignment of any rating, the fund manager agreed to pay Standard & Poor’s a fee for the appraisal and rating service rendered. Standard & Poor’s assign ratings using comprehensive and objective criteria. Standard & Poor’s fee is not linked to the rating outcome. Costs incurred during the rating process, including travel and accommodation expenses, may be paid for by the fund manager to enable on site reviews. Standard & Poor’s does not hold or have a material interest in the financial product(s) referred to in the website or a rating report. Standard & Poor’s associates may hold the financial product(s) referred to in the website or a rating report but detail of these holdings are not known to the Analyst(s). Standard & Poor’s from time to time provides fund managers with investment data, research software, consulting and other financial planning services. Standard & Poor’s is a wholly owned member of the McGraw Hill Companies, a New York Corporation. The analytic services and products provided by Standard & Poor’s are the result of separate activities in order to preserve the independence and objectivity of each analytic process. Each analytic product or service is based on information received by the analytic group responsible for such product or service. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during each analytic process. Standard & Poor’s holds an Australian Financial Services Licence Number 258896.
Standard & Poor’s Information Services (Australia) Pty Limited
DisclaimerThis presentation is intended solely for the information of the person to whom it was provided by Schroder Investment Management Australia Limited (ABN 22 000 443 274) (Schroders). Investment in the Schroder Australian Equity Fund or the Schroder Global Active Value Fund Hedged (“the Fund”) may be made on an application form in the Product Disclosure Statement available from the Manager website www.schroders.com.au. It does not contain and should not be taken as containing any securities advice or securities recommendations.
Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this presentation. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this presentation or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this presentation or any other person. Returns shown are before tax and after fees and all income is reinvested.
You should note that past performance is not a reliable indicator of future performance. Opinions constitute our judgement at the time of issue and are subject to change.