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Welcome_________
www.findex.com.au
Turbulent markets - the “new” normal
Local and global investment markets continue to be characterised by three
dominant features, sometimes referred to as the ‘new normal’.
2
• Interest rates around the world are at all time lows and there is nothing to suggest they will rise
• Demographics suggest lower population growth and an aging population. A key driver of
economic growth is now muted
• Significant policy issues lurk across the globe
•EU – subsequent to BREXIT – Italy, France and Netherlands referendums on leadership
•US Elections -Trump policies
•China policy reactions – transition to consumer economy
04/08 - Bank of England cuts Bank Rate to 0.25% and introduces a
package of measures designed to provide additional monetary stimulus.
04/08 – RBA cuts 0.25% to 1.5%
Our investment philosophy
Grow
Quality,
carefully, value
Protect against permanent lossFraud, panic buying in booms and selling in busts,
complexity opaqueness, fees, taxes, following the
herd, excess leverage
Preserve real value Asset Allocation Portfolio
Construction and Management
3
PS Organisation Chart
Chief Investment Officer
K CanavanCRH Risk
M Doukas
Head of Services
E Taylor
Head of Funds
Management
C Suchde
Head of Product
Development
M Waugh
Head of Research
S Cavaglia
Securities
Implementation
Co-ordinator
S Naz
Research
Coordinator
S Patterson
Research
Services
Manager
B Moran
Research
Services Officer
G Neacsu
Securities/Funds
Implementation
Co-ordinator
M Durso
Securities
Implementation
Administrator
B Yang
Fund Accountant
Finance Team
(Rotation)
Product Services
Officer
K Whiting
Product Services
Officer
J Tallant
Product Services
Officer
S Roszbach
Product Services
Administrator
K Wilkins
Resp Executive Oversight
Portfolio
Administration
Manager
D Owen
4
Senior Research
Analyst
Eddie Lee
Administration
S O’Connor
Administration
I Philip-Wilson
Senior
International
USA Research
Professional
A Sallander
Committee structure and overview
FIAAC is responsible for all
investment related decisions
within the group. This includes:
Single house view on
markets
Quarterly Tactical Asset
Allocation
All investment related policy
and business rules relating to
asset allocation, portfolio
construction and approved
products (APL)
The blending of investments
into portfolios, in accordance
with the portfolio construction
and management policies of
the Findex Group
External members have a veto
right over any internal product
decisions made by the
committee
Advisor representatives will sit
on the committee on a rotating
basis
External Members Vote
Allocation 37.5%
Advisor Members Vote
Allocation 37.5%
Management Members
Vote Allocation 25%
Findex Investment and Asset Allocation Committee
FIAAC (Quarterly AA, House View and APL as required)
Chairman – Tony Roussos (Non Voting)
Independent Voting Members Primary Voting Members Management Members
Non-Voting Members
Secondary Members
Emmanuel
Calligeris
Chris
Condon
John
Ives
Damian
McVilly
Greg
Barter
Kieran
Canavan
Matthew
Swieconek
Stefano
Cavaglia
Matt
Waugh
Danielle
Ludbey
Paul
Crowne
Rodney
Wark
Scott
Redpath
5
Investment Decision Flow
SSgA – Asset
Allocation
External Asset
ConsultantsInternal Research
Dr Cavaglia
Investment committee oversight
FIAAC
Exte
rna
l
Ad
vis
ors
Go
ve
rna
nce
Inve
stm
en
t D
ecis
ion
s
an
d S
olu
tio
ns
Imp
lem
en
tatio
n
an
d E
xe
cu
tio
n
Ad
vis
er
an
d
Clie
nt
AA DecisionsInvestment
Decisions
AA ModelsA, A+, B, C, D and
G
Investments (Shares, bonds
etc.)
AA Sectors (Passive, listed
etc.)
Wrap Platform
Custody, implementation & reporting
AdvisorConduit to client – match client with the investment and/or model solution that will give the client the best
chance of achieving their investment goal/s
Services
E Taylor
6
Investment services enhancements 2015
Investment
management
Governance and compliance
Investment Decisions
Improved advisory partners • Appointed State Street as AA Advisor
• Appointed Altair as direct equities advisor
• Appointed Dalton Nicol Reid as mandate
manager on MDA
.
New committee structures• Best practice structures
• Additional external members –
leaders in industry – Chris
Condon and Emmanuel Calligeris
– both successful ex CIOs
• Broad adviser representation from
all brands
Internal Research Division• New Head of Investment
Research – Dr Stefano Cavaglia
• Additional research resources –
GN (actuary and maths) + support
and communications for advisers
7
Three new hires for 2016
How we aim to achieve our clients goals
Asset A
llocation
Austr
alia
n E
quitie
s
Inte
rnational
Equitie
s
Fix
ed I
ncom
e
Port
folio
Constr
uction
Altern
ative A
ssets
Your goals
Disciplined, strategic thinking is required to harness risk in order to meet investors’ goals.
Building wealth in the new investment landscape
Asset Allocation
Lower growth = lower expected equity returns
Lower interest rates = lower expected bond returns
Macro uncertainty = increased turbulence
Key insights:
• Revise expectations
• Seek new return drivers: alternative investments
• Build portfolios that account for increased turbulence
9
The basis for Asset Allocation is that different asset classes offer returns / risks
that are not perfectly correlated and diversifying portfolios across asset classes
will help to optimise risk-adjusted returns.
State Street – Advisors to Findex Group
10
What do we gain?
• Institutional quality investment management
• Greater depth across the asset classes supported by large global
investment team (research and portfolio implementation) with a significant
local presence
• Ability to structure investment strategies – leading to greater breadth and
cost efficiency
• Access to proprietary data; key competitive advantage
• Leading edge implementation of goals based investment strategies
• Strategic Partnership (one of 20 around the globe)
• Long Standing relationship: 20 years +
Portfolio Management In Practice
Boston, London, Paris, Dublin, Tokyo, Hong Kong, Sydney (~70 people) Locations
Functional
units
Portfolio
Management
Strategy and
Research
Investment Mgr
Oversight Team
Task teams are selected from all functional units
Task
teams
Selection &
Rotation
Asset
Class (9 sub teams)
Economic Alpha
Research
Strategy
Research MRI
Policy &
Politics (6
sub teams)
Voting (7 sub
teams)
All functional units
2 years
All units
(PM)
All units
(geography)
All units (self select)
Strategy and Research
Static (specialists)
Task teams provide quantitative and qualitative input
Monthly Alpha (TAA) Meeting
Annual SAA Review
Local portfolio management team implement global views with local mandate applicability
This information contained above is for illustrative purposes only.
A multi-faceted approach to delivering
robust investment outcomes
What is it Frequency Return profile Risk profile
Strategic Asset
Allocation (SAA)
Assets held fit for
their purpose
Annual review to
determine relevance
Driver of long- term
performance in
‘normal’ markets
Driver of long-term
risk with limited
capacity to manage
risk outside ‘normal’
markets
Tactical Asset
Allocation (TAA) Tactical tilts Quarterly / Monthly
Driver of relative
performance on a
quarterly / monthly
basis
Risk management
relative with limited
ability to protect on
the downside
Strategic Asset Allocation
Goal: Seeks to meet or exceed custom benchmark’s risk and return
characteristics over the long term
Philosophy • We believe Strategic Asset Allocation is the most
important investment decision; it can be the greatest
contributor to a fund’s long-term performance
Process
• Manage diversified multi-asset class portfolios, usually
fund of funds structure using active or passive underlying
funds
• Portfolio reset to benchmark weights monthly, preferred
calendar, or range-based rebalancing methodology
• Intra-month cash flow monitoring to minimize tracking
error
Results
• Efficient implementation with a choice of internally or
externally managed active and passive commingled
funds, ETFS or Derivatives based overlay strategies
• Daily oversight and automatic rebalancing to minimize
monitoring needs
Strategic Positioning • Low cost, flexible commingled fund (conservative,
moderate and aggressive risk profiles) or custom
separate account solutions
Client Focused Approach in Developing
Strategic Asset Allocations
• Validate that strategic allocation expectations meet identified client needs and incorporate client specific constraints
• Portfolio management review of asset allocation mix for reasonability
• Continuous review of strategic allocation and benefits of potential implementation of new asset classes
• Quarterly ISG asset lass risk/return expectations • Foundation for developing forward looking,
diversified strategic asset allocations • Analysis of long windows of historic data
overlayed with forward looking analytics • Expected return forecasts include:
• Top down macro variables • Bottom up valuation
• Collaborate with clients seeks to understand unique circumstances
• Level of risk aversion • Return expectations • Liquidity needs • Unique circumstances
• Define appropriate asset class universe
• Inputs begin with previously identified asset class universe and ISG forecasts
• Run unconstrained optimization • Incorporate client specific constraints into
optimization process (e.g., limit exposure to specified asset class)
• Optimized output generates efficient, asset allocation portfolios – Maximize return for level of risk
ISG Client Collaboration
Annual review of existing SAA
Asset ClassForecasts
FundamentalReview
PortfolioOptimisation
TAA Difference
EXPERIENCE
• Global tactical asset allocation management dating back to 1989
• Over 50 portfolio managers at 8 global sites with an average of 15 years of investment experience
• Leverage 40+ person PhD level Advanced Research Center (ARC) for testing intricate quantitative models
PROCESS
• Unique and differentiated blend of quantitative rigor and fundamental perspectives
• Quantitative power derives from Market Regime Indicator (MRI) and specific asset class models providing predicted returns on ~100 asset classes
• Fundamental perspectives, opinions and experience to consider implications of events that cannot be modeled
RESULTS
• Outperformed benchmark in 9 of the past 10 years
• TAA alpha generation across a breadth of investment decisions (eg, stock/bond, country/region, mkt cap)
• Strict risk management with transparent tracking error ranges and customizable guidelines / bands
Key Differentiators
Market Regime Assessment
SSgA’s Market Regime Indicator (“MRI”) is based on forward-looking signals
Equity Index
Implied Volatility
Currency pairs
one month
Implied Volatility
Spreads on
risky debt
Market
Regime
Forecast
We identify five distinct
regimes
within the market cycle
Portfolio
Risk
Target
CRISIS
Extreme risk aversion
(‘fear’)
HIGH RISK AVERSION
Aversion towards risk-
taking
NORMAL
Neutral market sentiment
LOW RISK AVERSION
Appetite towards risk-
taking
EUPHORIA
Extreme risk appetite
(‘greed’/complacency)
Market Regime Assessment
Decision Making Process for Positioning Inputs
TasksT 0 T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 End
Politics and Policy Discussion
MRI Discussion – set active risk budget
Models processed and run
Asset summaries completed and optimization run
Outputs reviewed by voting members
Recommended trades reviewed / PM leaders set
consensus trades
“Devils Advocate” prepares their case
Alpha meeting takes place – trades finalised
Execution may begin
Start
Completion - implementation
Process begins – completed monthly
Risk mitigation – devils advocate
Discrete steps
Tactical asset allocation shifts
19
13.021.5 28.5
39.556.5
74.5
9.0
15.018.0
17.0
15.0
11.0
78.063.5
53.543.5
28.514.5
0
20
40
60
80
100
DEFENSIVE MODERATE BALANCED GROWTH HIGH GROWTH GROWTH PLUS
Equities Alternatives Bonds
CURRENT ASSET ALLOCATION – RISK CLASS
Current asset allocation - Strategic
20
8.0
14.018.0
25.0
35.0
47.0
5.0
7.5
10.5
14.5
21.5
27.5
5.0
8.0
10.0
10.0
9.0
6.0
3.0
3.0
3.0
3.0
3.0
4.0
1.0
1.0
1.0
1.0
1.0
1.0
50.0
43.5
34.5
25.5
12.5
5.5
9.0
9.0 8.0 7.0 5.0
2.0
5.0
5.0 5.0 5.0 5.01.014.0
6.0 6.0 6.0 6.0 6.0
0
10
20
30
40
50
60
70
80
90
100
DEFENSIVE MODERATE BALANCED GROWTH HIGH GROWTH GROWTH PLUS
Cash
International Credit
Domestic Credit
International Government Bonds
Domestic Government Bonds
Hedge Funds
International Infrastructure
Domestic Infrastructure
International Real Estate
Domestic Real Estate
Emerging Equities
International Developed Equities
Domestic Equities
Compounding
21
Alternative Investments
22
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%
Cash
Gbl Corp Credit*
Dom Credit
Gbl Gov't Bonds*
Dom Gov't Bonds
Hedge Funds*
International Infra
Domestic Infra
Int'l Real Estate
Dom Real Estate
Int'l Dev'd Equities
Dom Equities
Average monthly return when ASX All Ords ↑
-3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0%
Cash
Gbl Corp Credit*
Dom Credit
Gbl Gov't Bonds*
Dom Gov't Bonds
Hedge Funds*
International Infra
Domestic Infra
Int'l Real Estate
Dom Real Estate
Int'l Dev'd Equities
Dom Equities
Average monthly return when ASX All Ords ↓
* Asset classes marked with * are hedged into AUD. All return data from Feb 1990 through Nov 2015.
Alternative
investments
When the
market rises
Alternative
investments
When the
market falls
Alternative Investments
23
2008 2012
Drawdowns comparison – various periods
24
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
All Ords Accum Index MSCI WORLD Standard GR AUD
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
All Ords Accum Index MSCI WORLD Standard GR AUD
-50%
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
All Ords Accum Index MSCI WORLD Standard GR AUD
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
All Ords Accum Index MSCI WORLD Standard GR AUD
Alternative Investments
25
Performance 30 June 2016
26
Moderate Portfolio - Portfolios Excess Return
-5.00% -2.50% 0.00% 2.50% 5.00%
FIWA Market Hybrid Moderate
FIWA Market Active Moderate
FIWA Equity Income Moderate
Findex Moderate - Listed (DNR HC)
Findex Moderate Unlisted
3 Months 1 Year 3 Years (p.a.)
Performance 30 June 2016
27
Growth Portfolio - Portfolios Excess Return
-5.00% -2.50% 0.00% 2.50% 5.00%
FIWA Market Hybrid Balanced
FIWA Market Active Balanced
FIWA Ethical Balanced SRI
Findex Growth - Listed (DNR HC)
Findex Growth Unlisted
FIWA Equity Income Balanced
FIWA Direct Equity Core - Balanced
FIWA Direct Equity Inc - Balanced
3 Months 1 Year 3 Years (p.a.)
Performance 30 June 2016
28
Returns over the last year % Returns since inception %
Inception
Date
05/2011
02/2013
05/2011
05/2011
05/2011
05/2011
3.24
3.55
3.64
2.96
1.82
0.49
3.59
3.94
4.12
3.83
3.10
2.05
2.98
1.90
1.90
1.29
1.02
1.02
0 5
A
A+
B
C
D
G
Listed Unlisted Morningstar
6.78
7.66
7.99
8.56
9.14
8.85
7.23
8.21
8.71
9.57
10.43
10.28
5.47
6.71
6.28
6.82
7.80
7.80
0 5 10 15
A
A+
B
C
D
G
Listed Unlisted Morningstar
Performance 30 June 2016 cont.
29
Returns over the last 3 months %
1.76
2.45
2.85
3.04
3.24
3.33
1.77
2.47
2.88
3.09
3.32
3.46
2.15
2.42
2.42
2.61
3.28
3.28
0 5
A
A+
B
C
D
G
Listed Unlisted Morningstar
Returns over the last year % Returns since inception %
Inception
Date
05/2011
02/2013
05/2011
05/2011
05/2011
05/2011
3.24
3.55
3.64
2.96
1.82
0.49
3.59
3.94
4.12
3.83
3.10
2.05
2.98
1.90
1.90
1.29
1.02
1.02
0 5
A
A+
B
C
D
G
Listed Unlisted Morningstar
6.78
7.66
7.99
8.56
9.14
8.85
7.23
8.21
8.71
9.57
10.43
10.28
5.47
6.71
6.28
6.82
7.80
7.80
0 5 10 15
A
A+
B
C
D
G
Listed Unlisted Morningstar