tuesday 24 – thursday 26 august 2010 | sydney
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Tuesday 24 – Thursday 26 August 2010 | Sydney
[ Markets][ ]I’ve been thinking about…
the seeds of potential… the seeds of potential future failure
Chris SelthCIO & L d P tf li MCIO & Lead Portfolio Manager5 Oceans Asset Management Australia
Valuation; Bull ReadingValuation; Bull Reading
3
Bear Reading Shiller PEBear Reading – Shiller PE
4
S&P500 sector EPS moves
5Source: Factset, Five Oceans Asset Management
Emerging market valuations not e g g a et a uat o s otexpensive if earnings growth is sustainablesustainable
6
Source: MSCI, IBES, Morgan Stanley Research
Equity risk premiumEquity risk premium
7
Source: Goldman Sachs
Stocks have become highly correlated
8
Source: Bernstein Research (Sourcing: Factset, Bernstein analysis)
Growth versus value… massive convergence
9
Source: Bernstein Research (Sourcing: Factset, Bernstein analysis)
Stock selection within sectors significant
10
Source: Bernstein Research (Sourcing: Factset, Bernstein analysis)
The rise of the two speed economy; something changed a decade ago
11
Source: BEA, Morgan Stanley Research
The globalisation of equitiesThe globalisation of equities
12
Winners versus losersPrice Outperformance of Apple over Micrsoft
500%
600%
200%
300%
400%
0%
100%
ay-0
5
ec-0
5
ul-0
6
an-0
7
g-07
eb-0
8
p-08
ar-0
9
ct-0
9
ay-1
0
ov-1
0
-100% May
De Ju Ja Aug
Fe Sep
Ma
Oc
May
Nov
PE NTM
40.00
45.00MSFT AAPL
20.00
25.00
30.00
35.00
0.00
5.00
10.00
15.00
05 05 06 07 07 08 08 09 09 10 10
13
May
-0
Dec
-0
Jul-0
Jan-
0
Aug-
0
Feb-
0
Sep-
0
Mar
-0
Oct
-0
May
-1
Nov
-1
Source: Factset, Five Oceans Asset Management
Technology growth drivers in both the developed and developing world
Global PC Penetration Age of Corporate Desk Tops - Global
Source: Gartner, Credit Suisse Source: CLSA
14
Commodities vs industrial productionCommodities vs industrial production
Global Iron Ore - Market Balance
10
15
20
100
150
200
250
-5
0
5
2003 2004 2005 2006 2007 2008 2009 2010F 2011F 2012F 2013F 2014F 2015F
100
-50
0
50
-20
-15
-10
-250
-200
-150
-100
China Iron Ore Usage (YoY Mt) ROW Iron Ore Usage (YoY Mt)Seaborne Market Balance (LHS)Seaborne Market Balance (LHS)
15
Source: IMF
Mining sector discounted on LT hflcashflows
Rio Tinto – P/NPV – LT History
1.4
1.6
1 0
1.2
x)
LT avg 0.96x
0 6
0.8
1.0
P/N
PV (x Current 0.78x
0.4
0.6
Post Alcan Trough 0.24x0.2May-98 May-00 May-02 May-04 May-06 May-08 May-10
16
Source: Deutsche Bank
Penetration of financial productsPenetration of financial products
17
Financial product penetration of India
18
Comparing bank valuationsComparing bank valuations
Based on 2012 estimates
CBA ($AUD) Wells Fargo ($USD) ICICI Bank (Rp)
Current Share Price 50.3 25.38 1000P/TE 2.60x 1.45x 1.80x
Return on Assets 1.03% 1.50% 1.50%L 18 2 10 7 7 3Leverage 18.2x 10.7x 7.3x
Loan to Deposits 127% 104% 99%
2012 Earnings 4.62 3.82 68.432012 PE 10.89x 6.64x 14.61x
19
Source: Company Reports, Factset
Comparing amounts of debtComparing amounts of debt
20
Australia’s two speed economyAustralia s two speed economy
Australia's Monthly Exports$18 000 y p
$14,000
$16,000
$18,000
$8 000
$10,000
$12,000
$4,000
$6,000
$8,000
$0
$2,000
l-77
l-79
l-81
l-83
l-85
l-87
l-89
l-91
l-93
l-95
l-97
l-99
l-01
l-03
l-05
l-07
l-09
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Jul
Rural Goods Mining Related Other
21
Source: ABS
Australia buried in mortgage debt Supply side squeeze
70%
80%
90%
100%
40%
50%
60%
0%
30%
Mar
-02
Mar
-03
Mar
-04
Mar
-05
Mar
-06
Mar
-07
Mar
-08
Mar
-09
Mar
-10
Aussie Mortgage Debt to GDP US Mortgage Debt to GDPSource: Morgan Stanley
Over-valued by ~35%Source: Morgan Stanley
Value of housing stock to GDP
300%
350%
150%
200%
250%
0%
50%
100%
Jun-
88
Jun-
90
Jun-
92
Jun-
94
Jun-
96
Jun-
98
Jun-
00
Jun-
02
Jun-
04
Jun-
06
Jun-
08
22Source: Morgan Stanley
Australian Residential Real Estate Value to GDPUS Residential Real Estate Value to GDP
AUD versus equitiesqA changed relationship
1 00 1800
AUD SPX
0.90
0.95
1.00
1400
1600
1800
0.80
0.85
0.90
1000
1200
1400
0.70
0.75
600
800
1000
0.60
0.65
200
400
600
0.50
0.55
1985 1989 1993 1997 2001 2005 20090
200
23
Source: Bloomberg
Why International?ySnail Trail - ASX 200 vs MSCI World (ex Aust)
Snail Trail - ASX 200 Vs MSCI World (ex AUS)
40
50
10
20
30
ing
1 ye
ar r
etur
n
-10
0
10
-10 -8 -6 -4 -2 0 2 4 6 8 10
- diff
eren
ce in
rolli
-40
-30
-20
Ret
urn
(%) -
-50
40
Risk (%) - difference in standard deviation
24
As at 31 July 2010
Source: Bloomberg
Why International?S il T il ASX 200 I t ti l b tSnail Trail – ASX 200 vs International beta hedged strategies
Snail Trail - ASX 200 versus International beta hedged strategisSnail Trail ASX 200 versus International beta hedged strategis
40
50
10
20
30
ollin
g 1
year
retu
rn
20
-10
0-10 -8 -6 -4 -2 0 2 4 6 8 10
%) -
diff
eren
ce in
ro
-40
-30
-20
Ret
urn
(%
As at 31 July 2010
-50
Risk (%) - difference in standard deviation
25
Rolling 1 year returns, since inception of Five Oceans W/S World Fund
Source: Bloomberg
Risk adjusted performancej pSnail Trail – Combined returns
Snail Trail - combined returns
20
30
urn
10
n ro
liing
1 y
ear r
etu
-10
0-8 -6 -4 -2 0 2 4 6 8
n (%
) - d
iffer
ence
in
30
-20
Ret
urn
As at 31 July 2010Rolling 1 year returns, since inception of Five Oceans W/S World Fund
-30
Risk (%) - difference in standard deviation
26
Portfolio represents equal weighting of Five Oceans World Fund and S&P/ASX 200 AI
Source: Bloomberg
DisclaimerDisclaimer
I f ti t i d h i i t t 25th A t 2010 l th i ifi d d iInformation contained herein is current as at 25th August 2010 unless otherwise specified and is provided by Five Oceans Asset Management Pty Limited ABN 90 113 453 160 AFSL 290540 (Five Oceans). Portfolio and performance information contained in this presentation relates to the Five Oceans World Fund, an onshore Australian based unit trust denominated in Australian dollars and is
id d b Ch ll M d I t t Li it d (Ch ll ) ABN 94 002 835 592 AFSL 234provided by Challenger Managed Investments Limited (Challenger) ABN 94 002 835 592 AFSL 234 668, the issuer of the Five Oceans World Fund (Fund). Five Oceans Asset Management is the Investment Manager for the Fund. It is intended solely for the recipient who is a wholesale investor within the meaning of the Corporations Act 2001 (Cth). It must not be passed on without the prior
itt t f Fi O It h ld b d d l i f ti l th th d iwritten consent of Five Oceans. It should be regarded as general information only rather than advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of any particular investor. Because of that, each person should, before acting on any such information, consider its appropriateness, ha ing regard to their objecti es financial sit ation and needs Each person sho ld obtain a cop of ahaving regard to their objectives, financial situation and needs. Each person should obtain a copy of a current relevant offer document and consider that before making any decision to invest. Past performance is not an indication of future performance. For further information please call +612 99947490 or email ryoungman@5oam.com or see our website: www.5oam.com.
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Tuesday 24 – Thursday 26 August 2010 | Sydney
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