Investment fundamentals - Presented by A picture book of investment fundamentals - IOOF
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Investment fundamentals Presented by A picture book of investment fundamentals.
Contents
Title of slide Illustrating Page
IOOF – Proud of our heritage Our long history in helping Australians secure their financial future 3
Australia’s big investment pool Growth in Australia’s managed funds industry 4
Understanding asset class returns
• Asset class returns Volatility in the asset classes and risk return trade-off 5
• Annualised asset class returns All averages out over the long run
Understanding volatility 7
• Rolling returns – Australian shares Compares short term volatility with longer term more stable returns
• Rolling returns – Fixed interest Even fixed interest returns can fluctuate over the short term
• Volatility versus the long term Rolling returns versus annualised returns
• Annualised asset class returns This years best performing asset class may not be next years winner
• Time in – not timing By pulling out of market you may miss periods of strong growth
• The emotions of investing Different parts of the economic cycle can trigger different emotions
Investing overseas does not have to be foreign
A world of opportunities Different countries are dominated by different industries 14
Access innovative sectors Comparison of US and Australian Healthcare and Information Technology sectors
More familiar than you thought Well known brands that investors may be surprised to learn are listed overseas
Understanding market size 17
• Australian market capitalisation Illustrates the differences between small, mid and blue chip stocks
• Smaller companies Smaller companies may outperform in strong markets but tend to underperform in weaker
markets
Investment concepts 20
• Understanding dollar cost averaging By averaging out investments, your average cost price may reduce
Understanding the value of a multi-manager solution 21
• A multi-manager works in partnership with advisers A solution that enables advisers to address your total financial plan
• Accelerate with confidence Benefits of an IOOF Multi-Manager Investment solution
2
IOOF
Proud of our heritage – excited by our future
3
Australia’s big investment pool
4
Asset class returns
Growth of $1000 over 20 years ending December 2017
$6,000
The risk-return trade off means
that you must be aware of your Australian Shares
$5,000 personal risk tolerance when
choosing investments for your
International Shares
portfolio. Some asset classes
may be more risky than others Australian listed
$4,000 and you must be able to tolerate property
that risk or lower your risk by
lowering return expectations. International Fixed
Interest
$3,000
Cash
$2,000
$1,000
$0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Mercer Insights 2018
ASX All Ordinaries TR, UBS Bank Bill, UBS Composite Bond, MSCI AC World, Barclays Capital Global Agg 5Annualised asset class returns
Annualised return over 20 years ending May 2017
0% 2% 4% 6% 8% 10%
Cash 4.7%
International Fixed Interest 7.5%
Australian Fixed Interest 6.3%
Australian Listed Property 7.6%
International Shares (hedged) 5.7%
International Shares 5.8%
Australian Shares 8.4%
Source: Bloomberg
Past performance is not a reliable indicator of future performance.
6Understanding volatility
“Investment markets by their own nature are
volatile. That’s why we always recommend
that investors seek professional financial
advice and are prepared to invest for the long-
term (ie five years or more) to ride out
periods of volatility. Investors who remain
focused on their investment approach despite Dan Farmer
periods of volatility, have a greater chance of Chief Investment Officer
achieving their goals.” IOOF
7Rolling returns – Australian shares
ASX All Ords
50.0
30.0
10.0
-10.0
-30.0
Rolling 1 yr Rolling 5 yrs
-50.0
2001
2005
2012
1995
1996
1997
1998
1999
2000
2002
2003
2004
2006
2007
2008
2009
2010
2011
2013
2014
2015
2016
2017
Rolling returns are useful for examining the behaviour of returns for different periods. We can see the
volatility experienced over a one year period versus the smoother experience over a longer period of time.
Source: Mercer Insight 2018
Past performance is not a reliable indicator of future performance. 8Rolling returns – Fixed interest
Barclays Capital Global Aggregate Bond Index ($A hedged)
14
12
10
8
6
4
2
0
-2
2002
2010
1996
1997
1998
1999
2000
2001
2003
2004
2005
2006
2007
2008
2009
2011
2012
2013
2014
2015
2016
2017
Rolling 1 yr Rolling 5 yrs
Source: Mercer Insight 2018
Past performance is not a reliable indicator of future performance. 9Volatility and the long term
Annualised S&P/ASX 300 returns Annualised MSCI World returns
and rolling one year returns and rolling one year returns*
40% Calendar Year Return (%) Rolling 3 year returns 50% Calendar Year Return (%) Rolling 3 year returns
30% 40%
20% 30%
10% 20%
0% 10%
-10% 0%
-20% -10%
-30% -20%
-40% -30%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
* MSCI World Ex Australia (Un-hedged) Index
10
Source: Mercer Insight 2018Calendar year returns
Australian Australian
Australian International
Listed Fixed Interest Cash (%)
Shares (%) Shares (%)
Property (%) (%)
Many investors consider
changing asset classes to chase 2000 5 19 2 12 6
the next return. 2001 10 15 -10 5 5
2002 -9 12 -27 9 5
But as you can see, it’s very
difficult to predict which asset 2003 15 9 -1 3 5
class will perform strongest in 2004 28 32 10 7 6
the following year. 2005 22 13 17 6 6
2006 25 34 11 3 6
This years winner may not
2007 16 -8 -3 3 7
necessarily be next years.
2008 -39 -55 -25 15 8
2009 38 10 0 2 3
2010 2 -1 -2 6 5
2011 -11 -2 -5 11 5
2012 20 33 14 8 4
2013 20 7 48 2 3
2014 5 27 15 10 3
2015 3 14 12 3 2
2016 12 13 8 3 3
2017 12 6 13 4 2
Source: FactSet – Australian Shares: S&P/ASX300 Accumulation Index, Australian Property: S&P/ASX300 A-REIT Accumulation Index,
International Shares: MSCI World Ex Australia (un-hedged), Fixed Interest: UBS Composite Bond Index 0+YR, Cash: UBS Bank Bill Index 90 day
Calendar year returns. Past performance is not a reliable indicator of future performance.
11Time in – not timing
Annualised 10 year return to 31 December 2017
Missed best 50 days -12.02%
Many people try to pick when
the best time to invest will be.
Missed best 40 days -9.81% Unfortunately markets are
unpredictable and none of us
can be sure.
Missed best 30 days -7.27% What we can be certain
about however is that by
trying to time the market, you
could in fact miss out on
Missed best 20 days -4.29%
periods of strong returns.
Missed best 10 days -0.67%
S&P ASX 300 Accumulation Index 3.99%
-14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6%
Source: Bloomberg (ASX300 accumulation index)
Annualised 10 year returns to 31 December 2017
Past performance is not a reliable indicator of future performance.
12A cycle of emotions
Content
Positive
Concern
Cautious
Cautious
Panic
Unsure
Despair
2006 2007 2008 2009
Source: Mercer Insight S&P/ASX300 2006 – 2009 Actual data
13Australia’s share of global listed stocks
Hong Kong
8%
S.Korea
3%
Taiwan
2%
US
41%
Japan
11%
Australia
3%
Switzerland
3% Italy
1%
Istanbul
0%
Germany
4%
France
3% UK Canada
13% 5%
Chile Brazil
Mexico
0% 2%
1%
The Australian market represents just 3 per cent of the world’s listed stocks
Source: Bloomberg – December 2017
14Global share markets by sectors
120
100
Real Estate
Utilities
80
Energy
Consumer Discretionaries
60 Telecommunication Services
Health care
Information Technology
40
Consumer Staples
Industrials
20
Materials
Financials
0
Australia EU China United States Japan Brazil Canada UK Germany
The Australian market is dominated by financials. By looking overseas to invest, you may benefit from access to
industries not represented domestically and add further diversification to your portfolio.
Source: Bloomberg - December 2017
15Access innovative sectors
Index Weight
United States Australia
40%
Amgen
35%
Gilead Sciences
Healthcare
30% Pfizer
Johnson & Johnson
25%
20%
Microsoft
15% Google
Information
eBay
Technology
10%
Apple Cochlear
5% Intel Healthcare CSL
ResMed
ComputerShare
0%
S&P 500 Index S&P / ASX 200
Source: Bloomberg as at March 2018
16More familiar than you thought
Many well-known brands are actually listed on overseas
share markets, so they are really not that foreign to you
after all!
17Australian market capitalisation
Market Cap - $1,290 billion
Market
• Cochlear capitalisation
• CSL is the total
Top dollar market
50 value of all of
a company's
Stocks 50-100 outstanding
Market Cap - $264 billion shares. We
tend to use
Mid Caps • Resmed this figure to
• Seek determine a
• Carsales.com company's
size, as
opposed to
Stocks 100-300 sales or total
asset figures.
Small Market Cap - $254 billion
Companies • Early stage innovators
Source: ASX 2018
18Smaller companies
Rolling 1 year returns
S&P/ASX Small Ords median S&P/ASX 300 median
80
60
40
20
%
0
-20
-40
-60
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Smaller companies by their nature tend to outperform during periods when the market is rising and
underperform when the market is falling. Investors have the potential to be rewarded for riding out
periods of volatility.
Source: Mercer Insight 2017
Past performance is not a reliable indicator of future performance. 19Understanding dollar cost averaging
Amount invested Unit price Number of units
January $1,000 $22 45.45
February $1,000 $24 41.67
March $1,000 $27 37.04
April $1,000 $32 31.25
May $1,000 $31 32.26
June $1,000 $36 27.78
July $1,000 $35 28.57
August $1,000 $34 29.41
September $1,000 $32 31.25
October $1,000 $27 37.04
November $1,000 $26 38.46
December $1,000 $27 37.04
Average $29.42 Total units 417
If you had invested $6,000 each in of June and July, he would
have only been able to buy 338 units, against 417 by investing
steadily over the whole year.
20Multi-Manager solutions work in
partnership with your adviser
Cashflow Retirement
management planning
Wealth
Asset
protection
allocation
Wealth
accumulation
Where is Manager
selection
your
Role of yourtime
financial
adviser
best spent?
Aged care Portfolio
advice construction
Estate Manager
planning research
Investment
research
21IOOF Multi-Manager Investments
Multiple sources of value-add
Manage diversified portfolios of
high quality managers
Manage asset allocation
Manage risk
22Pick the right speed… and
accelerate with confidence
25 years of multi-manager experience
• IOOF has its origins in one of the first multi-managers
in Australia.
• Depth of experience in process.
IOOF MultiMix
The right scale not too big; not too small
• $17.6 billion in FUM.
• Big enough to access the very best managers.
• Small enough to derive meaningful value from boutiques.
Source: IOOF
23Important Note: This booklet is issued by IOOF Investment Management Limited (IIML) ABN 53 006 695 021, AFS Licence
No. 230524, as Responsible Entity for IOOF MultiSeries and IOOF MultiMix. IIML is a company within the IOOF group which
consists of IOOF Holdings Ltd ABN 49 100 103 722 and its related bodies corporate.
Past performance is not a reliable indicator of future performance. Performance is net of fund manager fees and
charges and is based on exit price to exit price for the period and assumes that all distributions are reinvested. Investment
management fees, other fees, expenses and tax (where applicable) are accounted for in the exit prices. Unit prices may rise
and fall in line with the value of the underlying assets. IIML does not guarantee the performance or any rate of return of the
investments.
This booklet contains general advice which does not take into account your taxation and financial circumstances, needs and
objectives. Before making any decision based on this booklet, you should assess your own circumstances or seek advice
from a financial adviser. You should also obtain and consider a copy of the relevant formal offer documents available from us
or your financial adviser. The information in this document has been given in good faith and has been prepared based on
information that is believed to be accurate and reliable at the time of publication.
March 2017
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