clime investment dsp presentation nov 2015

Integrity Transparency Conviction

Clime Asset ManagementNovember 2015

Michael Kloeckner BCom LLB Dip Fin SuperDirector Private Clients Head Clime SuperClime Asset Management


Observations and views that will affect markets1. Asia (China) will continue to drive world growth for the next 10 years2. Developed world has a significant ageing population problem3. Central bank intervention remains for many more years maintaining near zero interest

rates4. Quantitative Easing morphs into a scheme of sovereign debt forgiveness5. Low real yields affect investment returns and therefore consumption of retirees6. Sustained low oil and energy prices create deflation environment7. China becomes the largest world economy (based on GDP) by 2025 and has a 500 million

lower middle class population8. China may move from exporting deflation to exporting inflation in next few years9. Japan - like most developed economies - will never repay their national debt10. Australia’s superannuation and tax system will be significantly restructured by 2020


Budget forecasts – Achievable or believable?


Australian growth… residential buildingKeep March Quarter figure in perspective

Australian GDP growth rateSource: ABS, Trading Economics


Non-mining capital investment has stalled


Unemployment creeping up

Unemployment rateSource: ABS, RBA


Historically low cash rates

Australian cash rateSource: ABS, RBA


Australian bond yields at all time low

10-year Australian government bond yieldSource: RBA


Australia’s inflation under control this year

Source: ABS, RBA


Mortgage rates continue to fall to historic lows

Australian housing lending ratesSource: ABS, APRA, Perpetual, RBA


Household sector

Source: ABS, RBA

Household debt nearing all time high…as the cost of debt plummets and loan approvals soar



House prices in Australia

Housing pricesSource: CoreLogic RP Data, RBA


Chinese inbound tourism – a big positive

Source: ABS

Australian equity marketWhat is actually happening?


Earnings per share

Forecast earnings per shareSource: MSCI, RBA, Thomson Reuters


The resources boom is overAustralian market has become highly leveraged to the banks

Composition of ASX 200Source: ASX, Thomson ReutersDatastream

Banks; 28%

Asset managers & FSPs; 4%

Resources; 11%Energy; 7%Property; 14%

Consumer discretionary; 4%

Industrial/commercial services; 6%

Transport; 6%

Insurance; 5%

Healthcare; 6%

Other; 9%

Model portfolios


Clime Private Client Offering

Platform / SMSF Admin / Individually Managed Accounts

Australian Equities

Discrete Share Portfolio

Listed Investment Company (ASX:CAM)

International Equities


Clime International Fund

Income Securities


Property

Property Syndicates

Clime Private Client Offering30 October 2015

Clime Wholesale Products 3 months 6 months 1 year

Blended Return (Income/Growth/International) -1.4% 0.7% 6.3%

ASX200 Price Index -8.1% -9.5% -5.2%



The market in contextNegative returns from market

• Returns from the ASX200 price index since 30 June 2014 has been negative 4.1% to 30 October 2015.

• Returns dominated by yield and stocks leveraged to weaker $A (ex resources)


The current model portfolio - Growth• Portfolio is focused on growth whilst managing risk via diversification


The current model portfolio - Income• Portfolio is focused on income whilst managing risk via diversification. Bond market

weakness makes higher cash (includes AAA) sensible


The current portfolio – International Fund• Portfolio is focused on high quality businesses with a global revenue base• Common theme - businesses are household names• Overview of fund performance illustrates our disciplined approach is delivering

desired returns

Fund Performance to 30 October 2015 AUD Portfolio Return

1 month 2.8%

3 months 3.4%

6 months 8.7%

1 year 21.9%

Since inception (annualised) 14.3%

Inception: Wholesale Units: 4 March 2014 .Performance figures for more than 1 year are annualised, calculated after all applicable fees and taxes. Performance figures compare unit price to unit price for the given period. Past performance is not a guarantee of future returns.


The market in context – Disconnect between PER and DY • Historically Australia has traded at a discount to

the world on a Price Earnings Ratio (PER) basis – Australia is now however broadly in-line• The reason for this is Australia has paid out a

greater proportion of their earnings in dividends given the franking incentives• With limited earnings growth expected in

Australia, the likely scenario is for a low returning environment• Future returns are more likely to be generated

from income rather than capital

Sectorial analysis


Sectorial analysis – Divergence by industry sector• Returns by sector illustrate the divergence between outperforming and

underperforming the ASX200 in FY2014/15.• Key standout sectors included Health and Telco whereas underperforming sectors

included Energy and Consumer…….. But recent corrections should be noted.

-30%

-20%

-10%

0%

10%

20%

30%

40%

Shareholder returns - Sector


Sectorial analysis – Banks

• Sustaining current levels of returns will be a challenge for banks with pressure coming from:

– Normalisation of impairment expense

– Higher capital requiring equity raisings

– Low funding cost increasing competition

– High household debt levels


Sectorial analysis – Retailers

• Key drivers for retailers are interest rates, house prices and consumer confidence – 2 out of 3 isn’t bad• Interest rates at record lows of 2% with expectations

of further cuts will see discretionary spending increase• House price growth (particularly in Sydney) has lead

to improvements in L4L retails sales• Unfortunately, consumer confidence remains weak

(Budget, RBA and Unemployment)• Lower AUD will see some pressure on margins• Household, Furniture and Electronic to outperform


Sectorial analysis – Resources

• Key drivers are commodity prices, currency, inflation and resources cost curves• Commodity prices continue to fall and are now

in-line with those seen during the depths of the GFC• Fortunately, the AUD at US$0.72 is well below

those levels seen during the GFC• Cost out strategies have seen cost curves fall e.g.

Large Fe produces targeting <$20 per tonne costs• Low cost producers to outperform e.g. BHP and

RIO

Our Investment Process


Example: Adelaide Brighton LimitedThe process in action


Example: Adelaide Brighton LimitedDelivering sound returns

Example: Seek Limited (SEK)Global growth, multiple levers

• Seek Limited (SEK) is a global leader in the employment classified industry

• Consistently sound profitability levels: 3, 5 & 10 year ave NROEs of 41.4%, 36.6% & 52.4%

• Financially strong: Low level of gearing coupled with strong recurring cash flows

• Competitive advantage drives strong margins: average EBITDA margin of ~40% since listing

• Continues to benefit from structural changes on a global basis: print to online migration continues while internet penetration rates drives substantial growth in emerging markets

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Example: Seek Limited (SEK)Outstanding track record of building value

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International Example: Alphabet Inc. (formerly called Google)Globally dominant market position, strong financials

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Income and Real Estate SecuritiesA sound base of recurring income

• Income Securities– Deep discount to face value: MBLHB, NABHA– Higher yielding: GMPPA, MXUPA– Preference share: SVWPA

• Real Estate Securities– Leaders: SCG, WFD

• Income reinvested into high quality, value opportunities over time


Property Syndication Opportunity: Primewest

Exchange Tower (50%)NLA 34,360Car bays 227Proposed Purchase Price $113,500,000 (50%)Acquisition yield 6.75%Fully leased market yield 10.2%Occupancy 62%Capital rate per metre $6,607Tenure Leasehold Tenure (107 years remaining)NABERS 4.5 starsHighlights Core location Premium grade office building Substantial capital appreciation

opportunity Significant discount to historical value Poised to benefit from Elizabeth QuayForecast Investor return (year 1) 7.5%Forecast Investor return (average) 8.9%Forecast IRR 16%Proposed investment term 4 years

Big calls for 2015 and 2016


The CALLS for late 2015 and 20161. Weak $A to settle below US 70 cents. Commodity prices remain under pressure2. QE tapers in US but roles forward in Europe. So $US up and Euro down3. European bonds to weaken from current “bubble” yields – expect cracks in 20164. US economic growth lifts but corporate earnings hampered by appreciating $US5. Japan QE continues as economy falters….capital flows into Aussie bonds6. China continues to affect a relative devaluation against the $US7. Inflation in Australia in 2016 becomes elevated again as currency weakens8. Equity markets remain volatile. Asset and stock selection the key to a absolute return.

Cash allocation should be made to $US before investing. Blended asset return target 6% to 8%.


Clime Asset Management features

• 1. Active management of equity portfolios. Value based• 2. Dynamic asset allocation discussion. Regular commentary• 3. Current weightings 1/3; 1/3;1/3. Views expressed regularly• 4. International Hedging at our discretion. Consistent with our $A view• 5. Constant dialogue with client. Regular client events


Clime Asset ManagementAbsolute return value asset managerAustralian & international equitiesListed investment company (Clime Capital)Individually managed portfoliosSMSF administrationInvestor education

Phone: 1300 788 568

Sydney

Melbourne

Perth

Level 7, 1 Market StreetSydney NSW 2000

Level 13, 200 Queen StreetMelbourne VIC 3000

Level 1, 307 Murray StreetPerth WA 6000

www.clime.com.au

http://www.clime.com.au/

http://www.clime.com.au/

clime investment dsp presentation nov 2015

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