Escala Partners Investment Forum 04, 2014 · Escala Partners—Investment Forum 4 June 2014 Giselle Roux is the CIO (Chief Investment Officer) of Escala Partners, and is therefore

Escala Partners Investment Forum

4 June 2014

Identifying Opportunities in Global Equities

Douglas Isles, Platinum Asset Management

4 June 2014Escala Partners—Investment Forum

Douglas initially joined Platinum in May 2003 as an investment analyst covering industrials and as primary communicator for advisory/client presentations.

He previously worked for CBA as product actuary and prior to this, an investment manager for Aegon Asset Management in the UK. Douglas left Platinum in 2008 to work in Singapore where he developed Standard Chartered Bank’s Equities broking business. Having rejoined in February 2013, Douglas’ role is as investment specialist and intermediary between the investment team and the retail advisory network.

Mr. Douglas Isles MA Maths (Cantab) FFA

Escala Partners—Investment Forum 4 June 2014

Platinum Asset Management AFSL 221935

Douglas Isles, Investment Specialist Escala Partners

Melbourne, 4 June 2014



What many investors do…..

•  Herd mentality

•  Extrapolation

•  Recency bias


Platinum’s approach

Time

Discovery

Eulogistic Phase Deterioration

Boredom

Platinum Invests

Platinum Sells

Neglect

Source: Platinum

Pric

e


Google Trends: “Financial Crisis”

2006 2007 2008 2009 2010 2011

"Financial Crisis"

Source: Google, Bloomberg


Google Trends: “Financial Crisis” v S&P

600

800

1000

1200

1400

1600

2006 2007 2008 2009 2010 2011

"Financial Crisis" S/P 500 Index



Google Trends: “Subprime” v Lehman

0

20

40

60

80

2005 2006 2007 2008 2009 2010 "Subprime" Lehman



Google Trends: “QE” v US 10yr bonds

1

2

3

4

5

2007 2008 2009 2010 2011 2012 2013

QE 10yr



Long Term Returns (US, 1871-2013)

-20

-10

0

10

20

30

5 years 10 years 15 years

Source: Minack Associates


Long Term Returns (US, 1871-2013)

-20

-10

0

10

20

30

5 years 10 years 15 years 20 years 25 years 30 years

Source: Minack Associates



Coca-Cola 31 Oct 80 31 Jul 98 30 Apr 14

Share Price 64c $40 $41 P/E 10x 47x 21x

Source: Bloomberg

7 6 17 6 30 2

1980-1998 1998-2014

Sales Income Share Price


Intel, US


The cycle of a company

Source: Platinum


Australia’s Terms of Trade Boost

40

60

80

100

1959 1968 1977 1986 1995 2004 2013

Source: Bloomberg


Pharmaceuticals


MSCI World Index suggests…

Almost 50% of future value will be created by US corporates?

Source: MSCI


Summary •  Price is everything

•  History has lessons

•  Growth is great but there are other opportunities

•  DNA counts – can monopolies change?

•  Avoid over-simplification / cater for the unexpected

•  Extrapolation ignores change

•  Composition must anticipate the future not bask in the past


Escala Partners—Investment Forum 4 June 2014Montage Sources: TransPacific Project, Microsoft


Platinum : Quotes from 2012……

Source: Platinum

Platinum Asia Fund, June 2012 Quarterly Report

Platinum Asia Fund, September 2012 Quarterly Report


China – Local Stock Market

1500

2500

3500

4500

5500

Dec/07 Sep/08 Jun/09 Mar/10 Dec/10 Sep/11 Jun/12 Mar/13 Dec/13

Shanghai Composite

FALLING

Source: Bloomberg


6.5 year total returns – context for China

-7.7%pa -9.0%pa -9.6%pa -14.0%pa

-60

-50

-40

-30

-20

-10

0 Japan from 1989 Peak

Worst US market : to 1932

Nasdaq from 2000 Peak

China to NOW

Total Return

Source: Bloomberg, Minack Associates


China : Land of Opportunity

Source: National Geographic


Escala Partners—Investment Forum 4 June 2014Source : South China Morning Post


Current Key Investment themes •  E-commerce, data, mobility

•  Financial sector repair

•  Japan’s corporate rejuvenation

•  Emerging market consumer

•  Pharmaceuticals

•  US capital spending

•  China rebalancing


12.9% pa* OVER 19 YEARSHOW LUCKY CAN YOU GET?

In the game of investment, you can get a good run for a while, but nearly 20 years of consistently strong returns can’t be attributed to luck.

It’s a result of a rational methodology, keen attention to detail and the courage to go left when the rest of the market goes right; it works over time and it continues to pay off for Platinums’s clients.

Why not visit our website—you’ll be reassured by our long term results, and perhaps pleasantly surprised by our performance in the shorter term.

www.platinum.com.au


Disclaimer Platinum Asset Management has prepared this presentation material. Platinum Investment Management Limited ABN 25 063 565 006 AFSL 221935 trading as Platinum Asset Management (Platinum) is the responsible entity and issuer of units in the Platinum Trust Funds. Platinum is a member of the Platinum Group of companies.

The performance in slide 29 represents the compound pa return from inception of the Platinum International Fund on 1 May 1995 to 30 April 2014. The investment return is calculated using the Fund’s unit price and represents the combined income and capital return for the specified period. The return is net of fees and costs (excluding the buy-sell spread and any investment performance fee payable), pre-tax and assumes the reinvestment of distribution. The investment return shown is based on historical numbers and no warranty can be given for future performance. Past performance is not a reliable indicator of future performance. Due to the volatility of underlying assets of the Funds and other risk factors associated with investing, returns can be negative (particularly in the short-term). MSCI data has been sourced through MSCI.

Disclaimer: The information provided in these presentation slides is not intended to provide advice. It does not take into account the investment objectives, financial situation and particular needs of any person, and should not be used as the basis for making investment, financial or other decisions. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Platinum does not guarantee the repayment of capital, payment of income or the performance of the Funds.

Australian Investment Conditions

Giselle Roux, Escala Partners CIO


Giselle Roux is the CIO (Chief Investment Officer) of Escala Partners, and is therefore responsible for leading the generation and communication of our research view.

This research output spans Asset Allocation, Domestic and International Macro, and the construction of our Model portfolios. Prior to joining Escala, Giselle was Managing Director and CIO of JB Were since 2007, and was responsible for managing its Australian and international equity portfolios. Giselle has also served as a Research Analyst at Citigroup, an Equity Analyst at Bank of America Merrill Lynch, has worked in strategy and business development at the Coles Group, and as an Equity Analyst at McIntosh Securities.

Giselle Roux Escala Partners CIO


Australian economic outlook

$b

Export VolumesQuarterly, 2011/12 prices, log scale

Business Investment Components*Share of nominal GDP

Source: ABS Source: ABS

$b

40

20

10

12

6

3

1995 2001 2007 2013 2001 2007 2013

ResourcesServices

Rural

Manufacturing

%

*Adjusted for second-hand asset transfers between the private and other sectors

8

6

4

2

0

%

8

6

4

2

0

1988 1993 1998 2003 2007 2013

Buildings

Machinery and equipment

Engineering


Correlation of ASX to GDP (26%)

versus S&P500 to GDP (63%)

GDP Growth and ASX 200

US GDP Growth and S&P 500

6%

5%

4%

3%

2%

1%

0%

40%

-40%

-50%

30%

-30%

10%

-10%

20%

-20%

0%

Jun 94 Jun 96 Jun 98 Jun 00 Jun 02 Jun 04 Jun 06 Jun 08 Jun 10 Jun 12

GDP growth

ASX 200

6%

4%

2%

0%

-2%

-4%

-6%

60%

-40%-50%

50%

-30%

30%

-10%

40%

-20%

20%

10%

0%

Jun 94 Jun 96 Jun 98 Jun 00 Jun 02 Jun 04 Jun 06 Jun 08 Jun 10 Jun 12

US GDP growth

S&P 500


Australian equity market Interest rate sensitive

– Banks– REITs– Utilities– Low growth, high yield industrials

Global growth– Healthcare– Selected industrial companies– Selected diversified financials

Commodities– Mining and resources– Energy– Mining services

Domestic demand– Retail– Building Materials– Media– Services

ValuationFlows

Momentum


Domestic economy

Equity options–Housing–Media–Entertainment–Retail –Services

Retail Sales Growth*

Source: ABS

%

*Percentage change over year to latest three months

8

4

%

0

5

%

8

4

%

0

-5

2002 2006 2010 2014

Values(year-ended*)

Volumes(year-ended)

Volumes (quarterly)


Portfolio options and recommendations

Housing: Boral CSR Dulux Fletcher Stockland Mirvac

Media: Nine Seven Ten News Seek RealEstate.com

Entertainment: Ardent Tatts Tab Echo

Services: Flight Centre Navitas Ozforex G8 Education

Retail: Wesfarmers Woolworths Myer Harvey Norman Super Retail JB-Hi Fi Premier Group Domino’s Pizza Carsales.com


Two major sources of risk:Asset class volatility, security selection away from index

S&P/ASX 200 – Price and Yield 7,000 7.5%

6,500 7.0%

6,000 6.5%

5,5006.0%

5,0005.5%

4,500

5.0%4,000

4.5%3,500

4.0%3,000

3.5%2,500

Dividend Yield (RHS)

S&P/ASX 200 Index(LHS)

2,000 3.0%2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Yield does not reduce risk, it changes the nature of your return


Yield on 5 year non financial corporate bonds

Non financial corporate bond spread to Government 5 year

14%

12%

10%

8%

6%

4%

2%

0%2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

BBB Rated

bp spread

0100200300400500600700800900

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

A rated

BBB Rated

A rated

Australian corporate bond return and risk


Australian interest rate returns (p.a)16%

14%

12%

10%

8%

6%

4%

2%

0%

Composite Bond

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Special Term Deposits

Mix of debt securities reduces volatility


Assessing credit risk

Leverage Interest Coverage

Cash Conversion Profit Margins

35%

30%

25%

20%

15%

10%96 98 00 02 04 06 08 10 12

9

7

8

5

6

3

4

1

2

096 98 00 02 04 06 08 10 12

91%

87%

83%

79%

76%96 98 00 02 04 06 08 10 12

16%

12%

8%

4%

096 98 00 02 04 06 08 10 12


Judgement on Australian equity allocation– Balance stable dividend with dividend growth– Maintain a reasonable spread of holdings in portfolio

– Low Australian equity weight more concentrated than high Australian equity weight

– Diversify themes and views

Global equities– Mostly unhedged, with hedging options– Mostly active, ETF’s to reduce volatility and cost– ETF’s to account for excess regional bias, if necessary

Fixed interest– Fixed Interest barbell of income (with some risk) and low volatility funds,

with intent to add broader base of bonds and debt securities as interest rates normalise

Portfolio considerations


General advice warning: this information has been issued by Escala Partners Limited (ABN 74 155 884 236). The information contained herein is of a general nature only and is not intended to represent investment or professional advice. We have not taken your circumstances into account when preparing this information so it may not be applicable to you.

Disclaimer

Thank you

Documents

Escala Partners Investment Forum 04, 2014 · Escala Partners—Investment Forum 4 June 2014 Giselle Roux is the CIO (Chief Investment Officer) of Escala Partners, and is therefore