netwealth portfolio construction series - why you should consider investing outside of the asx top...

Welcome to the netwealth portfolio construction webinar

series

Netwealth disclaimer

Bennelong Australian Equity PartnersThe concentration of the Australian market and how

to properly diversify

May 2016

About the speaker Julian Beaumont is the Investment Director at Bennelong Australian Equity Partners

He has been in the investment industry for 13 years, previously at Investors Mutual Limited as an equity analyst and portfolio manager for seven years, and before then, as a fund manager at Montpelier Group in London

Previously, he was an investment banker in Sydney and Singapore, and a lawyer at a large Australian law firm

He holds a combined Bachelor of Laws (with Honours) / Bachelor of Science degree

He is also a CFA Charterholder and he now lectures in the CFA Program for the Sydney Branch of the CFA Society

About Bennelong Australian Equity Partners Boutique Australian equities focused fund manager, founded in 2008.

The interests of clients and BAEP are aligned around investment success, including through the investment team’s majority ownership of the firm

Investment approach is research-intensive and focused on business fundamentals

~$5 billion in Funds Under Management for retail, institutional and charitable clients

Agenda

Why ex-20?

― Understanding concentration risk in the Australian market

― Understanding the benefits of investing in the ex-20?

How BAEP invests in the ex-20?

Stock examples

Why ASX ex-20? Diversification & Opportunity

ASX 20

60%

Ex-20

40%

Source: BAEP, IRESS, as at 12 May 2016. Percentages are to the S&P/ASX 300.

The ASX top 20

Financials

AMP

ANZ

CBA

IAG

MQC

NAB

QBE

SUN

WBC

Property, Telco & Infrastructure

SCG

TCL

TLS

WFD

CommoditiesMass Retailers Healthcare

Industrials

BHP

RIOWPL

WESWOW

CSL

BXB

Concentration Risk & DiversificationSource: BAEP, IRESS, as at 31 December 2015

ASX top 20 Index Breakdown ASX ex-20 Index Breakdown

Investment returnsGrowth of $10,000 since 1 January 2000 to 31 December 2015

Source: MorningstarPerformance calculated for the period from 1 January 2000 to 31 December 2015.

10

Returns of ‘blue chips’

Index* Last 12 months

ANZ -24%

NAB -20%

BHP -32%

Woolworths -21%

Origin -48%

Top 20 -11%

ASX/S&P 300 -5%

Ex-20 +6%

Source: BAEP, as at 30 April 2016 * Top 20 = S&P/ASX 20; Ex-20 = S&P/ASX 300 excluding the S&P/ASX 20

Investment Returns to 30 April 2016

Consistent OutperformanceOutperformance of Bennelong ex-20 Fund by Half Years

-14%

-10%

-6%

-2%

2%

6%

10%

14%

18%

22%

Performance calculated for consencutive six month periods ending 30 June (with the last period ending 31 Dec 2015). Performance figures are gross (before fees and expenses).* The Benchmark is the S&P/ASX 300 Accumulation Index ex. S&P/ASX 20.

Benefits of investing in ex-20 sector Many portfolios are heavily concentrated in the top-20 so-called ‘blue chip’ stocks

− There is considerable concentration risk

− They are relatively homogenous in their investment attributes

− They limited in the exposures they offer

− They are very well known and researched

− They are over-owned

A portfolio of ex-20 stocks complements these portfolios and mitigates some of the unappreciated concentration risk

The ex-20 market offers greater exposure to a broader range of stocks, sectors, themes and high returning opportunities

There is greater reward in applying superior skills and effort via active management

How BAEP invests in ex-20 stocks Target high quality companies with strong long-term growth outlooks (so-called long duration

companies)

Focused on earnings momentum and near-term earnings outperformance (versus market expectations)

Research-intensive process to gain differentiated insights based around company meetings, industry contact (competitors, suppliers, customers, regulators, etc) and other primary research

Makes use of macro-economic analysis and insights for opportunities and risks

Selective stock picking leading to high conviction portfolios that diverges significantly from the index

TPG Telecom / TelstraSource: BAEP, consensus estimates, Company AccountsEarnings per Share (cents)

TPG Telecom / TelstraSource: BAEP, IRESSShare Price Chart

Ramsay Health Care

Source: Ramsay website

Largest private hospital operator in Australia with emerging businesses overseas

Owns large, popular hospitals with protection from high barriers to entry

Opportunity to expand existing hospitals to absorb strongly growing demand

― Waverley Private (2 new operating theatres, 1 new day procedure areas, 32 new private bedrooms)

Ramsay’s profit growth* FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Profit metric EPS NPAT NPAT EPS EPS EPS EPS EPS

Initial guidance 10-12% 12-14% 13-15% 10-12% 10-12% 12-14% 14-16% 12-14%

Interim guidance update ~20% 18-20% 22-24% 13-15% 13-15% 16-18% 18-20% 15-17%

Actual result 22% 22% 24% 15% 17% 21% 20% ?

Ramsay Health Care

Source: BAEP, Company ASX announcements

Ramsay Health Care

$0

$10

$20

$30

$40

$50

$60

$70

Primary

Ramsay

Source: IRESS, as at December 2015

Domino’s Pizza Source: BAEP, consensus estimates, Company Accounts

2007 2008 2009 2010 2011 2012 2013 2014 2015 20160

20

40

60

80

100

120

Earnings per Share (cents)

Domino’s Pizza

Source: Company 1H16 Presentation Pack

BWX Limited

Manufactures Sukin and other branded natural skin care products

Founded by current MD, John Humble, over two decades ago

Affordable offering currently growing sales at 40%+ and with the prospect of ramping up exports into China and elsewhere

BAEP invested pre-IPO in June 2015 and is now the largest shareholder with a ~13% stake

Flying off the shelf

Top HoldingsTop 10 Holdings

8.5%

8.2%

6.8%

6.1%

5.7%

5.2%

4.4%

4.4%

4.1%

3.5%

TPG Telecom

Ramsay Health Care

Domino's Pizza

The Star Entertainment

Aristocrat Leisure

Flight Centre Travel

IPH

Fisher & Paykel Healthcare

Eclipx

ARB

Source: BAEP, as at 30 April 2016

Net returns (after fees and expenses)

FYTD One year 3 years pa 5 years pa Since inception** pa

Bennelong ex-20 fund 22.18% 15.04% 13.11% 12.32% 13.56%

Benchmark* 11.19% 6.31% 8.96% 6.39% 6.56%

Value added +10.99% +8.73% +4.15% +5.93% +6.99%

Performance calculated for the period ending 30 Apr 2016. Performance figures are net (after fees and expenses).* The Benchmark is the S&P/ASX 300 Accumulation Index ex. S&P/ASX 20. **The inception date for the Fund is 2 November 2009.

Appendices

Fund DetailsFeature Ex-20APIR code BFL0004AU

mFund code BAE03

Benchmark S&P/ASX 300 Accumulation Index excluding S&P/ASX 20 Leaders Index

Investment objective 4% p.a. above benchmark measured over rolling 3-year periods

Investment manager Bennelong Australian Equity Partners (BAEP)

Active stock limit ± 10%Cash limit 0-10%

Inception date 2 November 2009

Recommended investment period Long term (five years plus)

Buy/sell spread +/-0.30%Entry/exit fees Nil

Management Fee 0.95% p.a. of Net Asset Value of the Fund

Performance Fee 15% of any amount by which the Fund's return is greater than the return generated by the S&P/ASX 300 Accumulation Index excluding S&P/ASX 20 Leaders Index

DisclaimerThis information is issued by Bennelong Funds Management Limited (ABN 39 111 214 085, AFSL 296806) (BFML) in relation to the Bennelong ex-20 Australian Equities Fund, Bennelong Concentrated Australian Equities Fund, Bennelong Australian Equities Fund, the Bennelong Twenty20 Australian Equities Fund, and institutional mandates.

The information provided is general information only. It does not constitute financial, tax or legal advice or an offer or solicitation to subscribe for units in any fund of which BFML is the Trustee or Responsible Entity (Bennelong Fund). This information has been prepared without taking account of your objectives, financial situation or needs. Before acting on the information or deciding whether to acquire or hold a product, you should consider the appropriateness of the information based on your own objectives, financial situation or needs or consult a professional adviser. You should also consider the relevant Information Memorandum (IM) and or Product Disclosure Statement (PDS) which is available on the BFML website, bennelongfunds.com, or by phoning 1800 895 388.

BFML may receive management and or performance fees from the Bennelong Funds, details of which are also set out in the current IM and or PDS. BFML and the Bennelong Funds, their affiliates and associates accept no liability for any inaccurate, incomplete or omitted information of any kind or any losses caused by using this information. All investments carry risks. There can be no assurance that any Bennelong Fund will achieve its targeted rate of return and no guarantee against loss resulting from an investment in any Bennelong Fund. Past fund performance is not indicative of future performance. Information is current as at May 2015. Bennelong Australian Equities Partners (ABN 69 131 665 122) is a Corporate Authorised Representative of Bennelong Funds Management Limited (BFML), ABN 39 111 214 085, Australian Financial Services Licence No. 296806.

Questions and answers