quarterly performance review march 2016 · in the netwealth global specialist series active...

netwealth Model Portfolios

Quarterly Performance Review

March 2016

For Adviser Use Only

Disclaimer

Advisers should read the following carefully as it contains important information.

netwealth Disclaimer & Conditions of Use

netwealth Investments Limited (ABN 85 090 569 109, AFSL 230975) makes this report available for the assistance of financial advisers in preparing advice for their clients. It

is not intended to be made available to investors. netwealth selects the Investor Rewards Program products based on the rating of the products by a research company (as

approved by netwealth from time to time) from funds provided by fund managers who have agreed to participate in netwealth’s Investor Rewards Program. netwealth

receives payments from fund managers who have agreed to participate in netwealth’s Investor Rewards Program. netwealth bases the asset allocation on that of the Funds

in the netwealth Global Specialist Series Active Diversified Funds (except in the case of the Income Model Portfolio). netwealth does not take responsibility for that asset

allocation, where applied to the Model Portfolios. Similarly, netwealth accepts no liability for the accuracy, currency, validity, or appropriateness of the asset allocation, and

relies on investment ratings when selecting products. netwealth expresses no opinion in relation to the products.

Morningstar Disclaimer

Morningstar Investment Management Australia Limited (ABN 54 071 808 501, AFS Licence 228986) (‘Morningstar’) has entered into a commercial arrangement with

netwealth Investments Limited (ABN 85 090 569 109, AFS Licence 230 975) (‘netwealth’) and provides model portfolio advice to netwealth. Morningstar also provides

selected content for inclusion in this report. In compiling this content, Morningstar has relied on information and data supplied by third party information providers. Whilst all

reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third parties accept responsibility for any inaccuracy or for

investment decisions or any other actions taken by any person on the basis or context of the information included. The information provided is for general use only. Past

performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment or the return of capital. Morningstar warns

that it has not considered any individual person’s objectives, financial situation or particular needs. Individuals should seek advice and consider whether the advice is

appropriate before making any decision about whether to invest.

Contents

Introduction 4

Morningstar’s Investment Principles 5

Investment Environment 6

Morningstar’s Investment Outlook 6

Investment Positioning 7

Model Portfolios 8

Model Portfolio Performance 13

Index Opportunities Model Portfolios Performance 14

Investment Fund Performance 15

Manager Performance Commentary 16

Key Organisations

Model Manager netwealth

Investment Consultant Morningstar Investment Management Australia Limited

Data Provider Morningstar Australasia Pty Limited

Fund Managers

Morningstar Bennelong Macquarie UBS

Colonial First State Nikko AM APN Grant Samuel

Australian Unity Ausbil Zurich Aberdeen

4 For Adviser Use Only netwealth Model Portfolios Quarterly Performance Review March 2016

Introduction

Welcome to the netwealth Model Portfolio Quarterly Performance Review.

The purpose of this report is to provide an overview of events during the quarter, and report on model portfolio

performance and positioning. The report covers the performance drivers of each underlying investment and outlines

model portfolio returns in comparison to the relevant inflation-linked performance objective.

It goes without saying that quarterly performance is not an appropriate timeframe over which to judge outcomes, but

this report should provide sufficient background to assist you in your discussions with clients.

Additionally, the report contains a section on Morningstar’s Investment Principles. While it is the model manager

(netwealth) which makes all investment decisions on advice from Morningstar, it is important to have a sense of how

Morningstar think about portfolio construction and how this flows into their advice.

We hope you enjoy the netwealth Model Portfolio Quarterly Performance Review and we welcome your feedback.

netwealth Model Portfolios Quarterly Performance Review March 2016 For Adviser Use Only 5

Morningstar’s Investment Principles

The following investment principles drive Morningstar’s investment management framework.

× We put investors first

We believe the firms that put investors first win in the long term because their investors win.

Since 1984, Morningstar, Inc. has been helping investors reach their financial goals. Putting investors’ interests above all

else is the foundation of our company and we encourage firms to manage investors’ money as if it were their own. We

align our interests with investors, and remain committed to helping them achieve better outcomes.

× We’re independent-minded

To deliver results, we think it’s necessary to invest with conviction, even when it means standing apart from the crowd.

Following the crowd can prove hazardous to one’s wealth. Our research shows that making decisions based on

fundamental analysis, rather than short-term factors, may help deliver better long-term investment results. As a result,

we’re not afraid to take a contrarian view when our research supports it.

× We invest for the long term

Taking a patient, long-term view helps people ride out the market’s ups and downs and take advantage of opportunities

when they arise. Long-term investors may capitalise on short-term swings in the market driven by changes in sentiment

rather than the fundamentals of what they’re investing in. While returns may fluctuate widely from year to year, holding

assets for longer periods of time may help reduce risk significantly.

× We’re valuation-driven investors

Anchoring decisions to an investment’s fair value—or what it’s really worth—can lead to greater potential for returns. A

valuation-driven approach is designed to help investors get more than what they’re paying for. We seek to apply a

margin of safety—knowing what we think an investment is worth and getting it for a discounted price. Valuation

represents the discounted value of the benefits of ownership.

× We take a fundamental approach

Powerful research is behind each view we hold, and we understand what drives every investment we analyse. We think

it’s important to understand the fundamental drivers of all investments owned. An investment’s price may tell you little

about its fair value. Instead, we focus on research into the cash flows and other potential benefits of ownership to drive

investment decisions.

× We strive to minimize costs

Controlling costs helps investors build wealth by keeping more of what they earn.

Investment returns are uncertain, but costs are not. Lower costs allow investors to keep more of their returns. Fees,

transaction costs, and taxes reduce the compounding benefits of investing, and we think it’s important to minimise them

whenever possible.

× We build portfolios holistically

To help manage risk and deliver better returns, truly diversified portfolios combine investments with different underlying

drivers. Portfolios should be more than the sum of their parts. True diversification can have a powerful impact on a

portfolio’s risk-adjusted returns—but simply holding more investments isn’t the same as true diversification. That’s why

we recognize the importance of taking a holistic approach to building portfolios. We look at the fundamentals of each

underlying investment to determine what’s driving their cash flows and to assess how each might interact under varying

market conditions.


Investment Environment

The quarter began with heightened fear and volatility as investors grappled with comments from the U.S. Federal

Reserve affirming their expectations for a more aggressive outlook for U.S. interest rate tightening. This combined with

renewed concerns regarding the strength of global growth, sent shudders through global markets – major equity indices

sank, oil plunged and safe haven assets such as the U.S. Dollar, Japanese Yen and higher quality bonds moved sharply

higher. China, the largest of the Emerging Market economies, unexpectedly increased the rate of devaluation of their

currency, raising concerns about the ability of policy makers to manage a slowdown in economic growth.

By early February, worries had spread to Europe and Japan, induced by the Japanese Central Bank’s surprise decision to

cut official interest rates into negative territory, in an effort to boost growth. Indeed, at the February 11 lows, the MSCI

World Ex Australia (A$ Hedged) Index was down 12.5% since 1 January 2016. However, markets turned and rallied

strongly following comments from the U.S. Federal Reserve Chairperson, Janet Yellen, stating that financial conditions

"have become less supportive of growth". This eased market concerns that U.S interest rates would rise aggressively

throughout 2016, as was first expected.

The benchmark index for International equities, the MSCI World Ex Australia (A$ Hedged) Index, finished the quarter

down 1.8%. Emerging Market and United States equities (as represented by the MSCI Emerging Market Index and S&P

500 Index) were the best performing regions returning 2.7% and 1.2%, respectively, in local currency terms. Whilst

global equities, in aggregate, had a weak quarter, returns were further impacted by the Australian dollar appreciating

significantly, most notably against the U.S. dollar, where it rallied more than 7% for the month of March. Australian

equities too recorded losses, with the S&P/ASX 200 Accumulation Index falling by 2.75%, for the quarter. This result

sees it now down 9.6% for the 12 months to 31 March 2016.

Australian and global fixed income returns were positive during the quarter, with the Bloomberg AusBond Composite

Index and Barclays Global Aggregate (A$ Hedged) Index returning 2.05% and 3.71%, respectively. This was due to the

more accommodative monetary policy, globally. That said, fixed income markets were not immune from the volatility in

equity markets at the beginning of the quarter. Indeed, credit spreads in Emerging Market Debt and High Yield Credit

were at levels that would typically be seen in times of crisis, driven by elevated levels of investor fear and uncertainty, at

the start of the year. They subsequently returned to more normal levels as investor confidence returned with equity and

commodity markets rallying on the back of more global central bank stimulus.

Morningstar’s Investment Outlook

During the quarter Morningstar took advantage of the market volatility to increase overall exposures to the level of

growth assets in the netwealth Active Funds, at more appealing valuations. Morningstar continues to expect heightened

volatility in markets as Central Bank policy plays out and investors get greater clarity with regard to the outlook for global

growth. In their view, having a valuation-driven asset allocation approach in this environment will be crucial to achieving

the investment objectives, over the longer term.


Investment Positioning

The netwealth model portfolios are constructed in a way that broadly reflects Morningstar’s risk and return

expectations for the major asset classes (i.e. local and global shares, property, bonds and cash).

The table below summarises the additional asset class and regional views that apply within the netwealth Active funds.

Growth Assets

Australian Equities

US Equities

EAFE1 Equities

Emerging Markets Equities

European Equities

UK Equities

Japan Equities

Global Listed Infrastructure

Australian REITs

Non-US REITs

US REITs

Income Assets

Australian Bonds (Composite)

Australian Inflation-Linked Bonds

Australian Cash

Global Bonds (Government)

Global Bonds (Credit)

Global Inflation-Linked Bonds

Negative Y Neutral Positive T

1

EAFE stands for Europe, Australasia, and the Far East. It includes those developed markets outside of the US and Canada.


netwealth

Conservative Model Portfolio The netwealth Conservative Model Portfolio aims to earn a rate of return that exceeds CPI by at least 1.0% per annum

over rolling 3 year periods. The portfolio is designed for investors with an investment time horizon of three years who

seek the potential for stable income and some capital growth and diversification across multiple asset classes, and

investment strategies. A low to medium risk of capital loss can be expected.

APIR Exposure (%) Range (%)

Cash 0–30

netwealth Cash Account 21.00

Diversified

netwealth Active Conservative Fund NET0025AU 50.00

Fixed Interest 0–40

Macquarie Income Opportunities Fund MAQ0277AU 3.00

AUI – Altius Bond Fund WFS0486AU 11.00

Property 0–15

APN A-REIT Fund APN0008AU 3.00

Australian Shares 0–15

Zurich Investments Equity Income Fund ZUR0538AU 4.00

International Shares 0–15

Aberdeen Emerging Opportunities Fund ETL0032AU 2.00

Zurich Investments Global Thematic Share Fund ZUR0061AU 4.00

CFS Global Listed Infrastructure Securities Fund – Wholesale FSF0905AU 2.00

Total 100.00

The asset mix underpinning the model is shown below. The long term Strategic Asset Allocation (SAA) reflects where

the portfolio would be positioned in an environment where all markets are deemed fair value. Dynamic Asset Allocation

(DAA) takes into account the expected medium-term return for each asset class.

Asset Allocation

0

5

10

15

20

25

30

35

40

45

Australian

Shares

International

Shares

Australian REITS Global REITS Alternatives Fixed Interest Cash

SAA DAA

Graph includes actual mix in the netwealth Active Conservative Fund, as at quarter end.

* Ranges don’t include

asset class exposures in

the netwealth Active

Conservative Fund.


netwealth

Balanced Model Portfolio The netwealth Balanced Model Portfolio aims to earn a rate of return that exceeds CPI by at least 2.5% per annum over

rolling 5 year periods. The portfolio is designed for investors with an investment time horizon of five years who seek the

potential for moderate capital growth with some income and diversification across multiple asset classes, and

investment strategies. A medium risk of capital loss can be expected.


Cash 0–15


Diversified

netwealth Active Balanced Fund NET0006AU 50.00




Property 0–15



Nikko AM Tyndall Australian Share Wholesale Portfolio TYN0028AU 3.50

Bennelong Australian Equities Fund BFL0001AU 3.50




Aberdeen Actively Hedged International Share CRS0005AU 4.00

CFS Global Listed Infrastructure Securities – Wholesale FSF0905AU 2.00

Total 100.00

The asset mix underpinning the model is shown below. The long term Strategic Asset Allocation (SAA) reflects where

the portfolio would be positioned in an environment where all markets are deemed fair value. Dynamic Asset Allocation

(DAA) takes into account the expected medium-term return for each asset class.

Asset Allocation

0

5

10

15

20

25

30

35

Australian

Shares

International

Shares


SAA DAA

Graph includes actual mix in the netwealth Active Balanced Fund, as at quarter end.




Balanced Fund.


netwealth

Growth Model Portfolio

The netwealth Growth Model Portfolio aims to earn a rate of return that exceeds CPI by at least 3.5% per annum over rolling

7 year periods. The portfolio is designed for investors with an investment time horizon of seven years who seek the potential

for capital growth and diversification across multiple asset classes, and investment strategies. A medium to high risk of

capital loss can be expected.


Cash 0–15


Diversified

netwealth Active Growth Fund NET0013AU 50.00



Property 0–20





Ausbil Australian Active Equity Fund* AAP0103AU 2.50






Total 100.00

*Added on 31 March 2016

The asset mix underpinning the model is shown below. The long term Strategic Asset Allocation (SAA) reflects where the

portfolio would be positioned in an environment where all markets are deemed fair value. Dynamic Asset Allocation (DAA)

takes into account the expected medium-term return for each asset class.

Asset Allocation

0

5

10

15

20

25

30

35

40

Australian

Shares

International

Shares


SAA DAA

Graph includes actual mix in the netwealth Active Growth Fund, as at quarter end.




Growth Fund.


netwealth

High Growth Model Portfolio

The netwealth High Growth Model Portfolio aims to earn a rate of return that exceeds CPI by at least 4.5% per annum over

rolling 9 year periods. The portfolio is designed for investors with an investment time horizon of nine years who seek the

potential for moderate to high capital growth and diversification across multiple asset classes, and investment strategies. A

medium to high risk of capital loss can be expected.


Cash 0–10


Diversified

netwealth Active High Growth Fund NET0008AU 50.00



Property 0–25


UBS Clarion Global Property Securities HML0016AU 2.00




Ausbil Australian Active Equity Fund* AAP0103AU 2.50






Total 100.00

*Added on 31 March 2016

The asset mix underpinning the model is shown below. The long term Strategic Asset Allocation (SAA) reflects where the

portfolio would be positioned in an environment where all markets are deemed fair value. Dynamic Asset Allocation (DAA)

takes into account the expected medium-term return for each asset class.

Asset Allocation

0

10

20

30

40

50

Australian

Shares

International

Shares


SAA DAA

Graph includes actual mix in the netwealth Active High Growth Fund, as at quarter end.




High Growth Fund.


netwealth

Income Model Portfolio

The netwealth Income Model Portfolio seeks to provide diversification while generating consistent income and total returns

in excess of the Bloomberg AusBond Bank Bill Index +2% after investment management fees (ICR as fee measure) over a

five-year plus timeframe. Investors are prepared to accept a medium risk of capital loss to achieve this objective.

APIR Exposure (%)

Cash


Fixed Interest



Property


Australian Shares

Zurich Investments Equity Income Fund ZUR0538AU 8.50

Nikko AM Tyndall Australian Share Income Fund TYN0038AU 8.50

International Shares

Grant Samuel/EPOCH Global Equities Shareholder Yield Hedged Fund GSF0001AU 8.00



Total 100.00

The asset mix underpinning the model is shown below.

Asset Allocation

0

5

10

15

20

25

30

35

Australian

Shares

International

Shares


AA


Model Portfolio Performance

As at 31 March 2016 1 month

%

3 months

%

6 months

%

1 year

%

3 years

%p.a.

5 years

%p.a.

From

01/11/08

%p.a.

netwealth Conservative Model Portfolio 0.94 0.66 1.72 0.78 5.42 6.07 6.98

CPI + 1% pa 0.02 0.07 0.68 2.31 2.85 2.94 3.12

netwealth Balanced Model Portfolio 1.31 0.36 2.04 -0.23 7.14 6.77 8.04

CPI + 2.5% pa 0.15 0.44 1.43 3.81 4.35 4.44 4.62

netwealth Growth Model Portfolio 1.47 0.08 2.18 -0.90 8.67 7.51 8.77

CPI + 3.5% pa 0.23 0.68 1.92 4.81 5.35 5.44 5.62

netwealth High Growth Model Portfolio 1.89 0.06 2.41 -1.35 9.31 7.91 8.93

CPI + 4.5% pa 0.31 0.93 2.41 5.81 6.35 6.44 6.62

*Simulated


%

3 months

%

6 months

%

1 year

%

2 years

%p.a.

3 years

%p.a.

From

01/01/11

%p.a.

netwealth Income Model Portfolio 1.74 0.81 3.17 0.30 5.55 6.27 7.30

Bloomberg AusBond Bank Bill Index + 2% pa 0.36 1.07 2.12 4.24 4.48 4.58 5.32

Disclaimer

The model portfolios in the table above were launched 1 November 2008 (netwealth Conservative Model Portfolio, netwealth Balanced Model Portfolio, netwealth

High Growth Model Portfolio), 1 January 2011 (netwealth Income Model Portfolio) and 1 November 2011 (netwealth Growth Model Portfolio). Returns shown have been

generated using Morningstar Direct™, with the exception of the netwealth Cash Account which has been based on the RBA cash target rate minus 0.25% as instructed

by netwealth. The remaining underlying fund returns have been calculated using Morningstar’s standard performance methodology. Returns are before tax and after fees.

Returns have been generated using the underlying fund data and rebalanced monthly (assuming the reinvestment of income).

The returns for the netwealth Conservative Model Portfolio are calculated using the former netwealth Global Specialist Conservative Fund (among others) until 30

September 2012.

*Simulated

The returns for the netwealth Growth Model Portfolio during the period prior to 1 November 2011 are simulated using the performance of the Russell Growth Fund (net of

fees) as the core. An adjustment has also been made to the performance of the Russell Growth Fund to reflect the fee differential between the netwealth Global

Specialist Series Growth Fund (the previous core) and the Russell product. The asset mix as at 1 November 2011 was used as if this model had been invested this way

since 1 November 2008. Simulated returns are purely hypothetical and are in no way a historical record. They are only intended as an illustration of what might have

happened if these model portfolios were available on and since the respective launch dates. Different assumptions would produce different simulated results.

Past performance is not a reliable indicator of future performance.


Index Opportunities Model Portfolios Performance

(simulated prior to 31 March 2013)


%

3 months

%

6 months

%

1 year

%

3 years

%p.a.

5 years

%p.a.

From

01/11/08

%p.a.

netwealth Index Opportunities Conservative Model Portfolio 1.60 0.07 1.95 -1.31 5.49 6.35 7.16

Morningstar Australia OE Multisector Moderate 0.92 0.01 1.21 -1.18 4.71 5.29 5.61

netwealth Index Opportunities Balanced Model Portfolio 2.25 -0.47 2.26 -2.77 6.63 6.86 8.11

Morningstar Australia OE Multisector Balanced 1.45 -0.78 1.03 -2.84 6.12 6.04 6.50

netwealth Index Opportunities Growth Model Portfolio 2.66 -1.06 2.31 -3.92 7.52 6.93 8.36

Morningstar Australia OE Multisector Growth 1.87 -1.76 0.94 -4.46 6.98 6.51 6.77

*Simulated

Disclaimer

The model portfolios in the table above were launched on 31 March 2013. Returns shown are simulated and have been generated using fund performance information

from Morningstar DirectTM

, with the exception of the netwealth Cash Account, which has been based on the RBA cash rate target minus 0.25%, as instructed by

netwealth. Returns are before tax and after management fees. Returns have been generated using the underlying fund data and rebalanced monthly (assuming the

reinvestment of income).

*Simulated

Returns shown are simulated based on the assumptions described below. Simulated returns are purely hypothetical and are in no way a historical record. They are only

intended as an illustration of what might have happened if these model portfolios were available prior to the launch date. Different assumptions would produce different

results.

The return assumptions for each model are as follows:

1. The returns for the netwealth Index Opportunities Conservative Portfolio are calculated using the same satellite fund allocations as the netwealth

Conservative Model Portfolio. The core diversified fund refers to the netwealth Index Opportunities Conservative Fund, which was previously the netwealth

Global Specialist Series Conservative

2. The returns for the netwealth Index Opportunities Balanced Portfolio are calculated using the same satellite fund allocations as the netwealth Balanced

Model Portfolio. The core diversified fund refers to the netwealth Index Opportunities Balanced Fund, which was previously the netwealth Global Specialist

Series Diversified 50 Fund.

3. The returns for the netwealth Index Opportunities Growth Portfolio are calculated using the same satellite fund allocations as the netwealth Growth Model

Portfolio and these were also simulated prior to 1 November 2011. The core diversified fund refers to the:

× netwealth Index Opportunities Growth Fund from 1 November 2012.

× netwealth Global Specialist Series Growth Fund from 1 November 2011 to 31 October 2012.

× The Russell Growth Fund, with an adjustment made to reflect the fee differential between the Russell product and netwealth Global Specialist Series

Growth prior to 1 November 2011.

Past performance is not a reliable indicator of future performance.


Investment Fund Performance

As at 31 March 2016 APIR 1 month

%

3 months

%

6 months

%

1 year

%

3 years

% p.a.

5 Years

% p.a.

Diversified

netwealth Active Conservative1 NET0025AU 0.85 0.56 1.56 0.68 5.25

netwealth Active Balanced NET0006AU 1.12 0.26 1.91 0.10 7.08 6.68

netwealth Active Growth NET0013AU 1.29 0.00 2.16 -0.43 8.51

netwealth Active High Growth NET0008AU 1.57 -0.11 2.38 -0.76 9.26 7.48

netwealth Index Opportunities Conservative NET0004AU 2.17 -0.63 1.95 -3.52 5.40 6.47

netwealth Index Opportunities Balanced NET0002AU 3.00 -1.41 2.32 -4.97 6.13 6.92

netwealth Index Opportunities Growth1 NET0027AU 3.68 -2.30 2.37 -6.47 6.31

Fixed Interest

Altius Bond WFS0486AU 0.37 1.67 2.16 2.07 4.10

Macquarie Income Opportunities MAQ0277AU 0.81 0.08 0.79 0.59 2.89 4.17

netwealth Australian Bond Index1 NET0023AU -0.23 2.03 1.70 1.73 5.11

Benchmark 1: Bloomberg AusBond Comp 0+ Yr Index -0.21 2.05 1.80 1.97 5.39 6.63

Benchmark 2: Barclays Global Aggregate TR (A$ Hedged) 0.92 3.71 4.33 4.51 6.11 7.75

Property

APN A-REIT APN0008AU 2.84 6.63 13.35 12.62 15.97 16.51

UBS Clarion Global Property Securities HML0016AU 8.14 3.03 8.16 1.42 11.32 12.64

netwealth Australian Property Index NET0010AU 2.47 6.30 12.68 11.28 15.87 13.32

Benchmark 1: S&P/ASX 300 A-REIT TR 2.50 6.38 12.78 11.40 16.26 15.83

Benchmark 2: FTSE EPRA/NAREIT Developed NR Hdg AUD 7.59 3.30 8.53 0.69 9.89 11.82

Australian Shares

Ausbil Australian Active Equity2

AAP0103AU 5.46 -2.54 3.84 -9.23 6.56 6.00

Bennelong Australian Equities BFL0001AU 3.26 -3.29 8.32 -1.58 9.39 9.08

Platypus Australian Equities – Wholesale3

AUS0030AU 2.05 -5.68 5.06 -3.00 10.11 7.92

Nikko AM Tyndall Australian Share Income Fund TYN0038AU 5.16 -1.20 7.35 -5.77 7.90 7.92

Nikko AM Tyndall Australian Share Portfolio – Wholesale TYN0028AU 5.37 -2.69 2.64 -10.54 6.43 6.23

Zurich Investments Equity Income ZUR0538AU 4.12 -3.93 -0.82 -12.01 1.06 2.64

netwealth Australian Equities Index NET0001AU 4.73 -2.71 3.56 -9.55 4.97 4.51

Benchmark 1: S&P/ASX 300 TR 4.78 -2.64 3.72 -9.27 5.29 5.45

Benchmark 2: S&P/ASX Small Ordinaries TR 5.47 1.03 12.47 3.72 1.50 -2.08

International Shares

Aberdeen Actively Hedged International Equities CRS0005AU 0.11 -2.20 -3.54 -9.76 9.91 9.39

Aberdeen Emerging Opportunities ETL0032AU 5.05 2.24 -0.93 -10.46 4.54 5.00

CFS Global Listed Infrastructure – Wholesale FSF0905AU 6.38 8.04 9.56 4.56 14.61 14.19

Grant Samuel/EPOCH Gbl Eq Shldr Yld Hgd Fund GSF0001AU 4.69 4.25 8.08 1.38 10.69 12.13

Zurich Investments Global Thematic Share Fund ZUR0061AU -1.16 -6.10 -4.72 -7.99 13.67 10.07

netwealth International Equities Index NET0009AU -0.98 -5.72 -4.08 -3.65 18.72 12.73

Benchmark 1: MSCI World Ex Australia NR AUD -0.99 -5.81 -4.19 -3.90 18.68 13.27

Benchmark 2:MSCI Emerging Markets NR AUD 5.14 -0.02 -2.86 -12.63 5.68 1.71

1

Inception 19 October 2012

2

Added on 31 March 2016

3

Removed on 31 March 2016


Manager Performance Commentary

March Quarter 2016

Altius Bond Fund

The Fund returned of 1.7% for the quarter, outperforming the return from RBA cash by 1.2% while trailing its benchmark

Bloomberg AusBond Composite Index by 0.4%. Relative to the benchmark, attribution of performance before fees indicates

that duration risk management was neutral for relative performance; yield curve management was a negative, while sector

allocation and stock selection were largely neutral. The Chinese economy remained a major focus for markets with a fully-

fledged bear market in global equity markets following the first Fed funds rate rise in a decade. Global commodity prices

remained under pressure early in the quarter but made a strong recovery in March supporting equities and putting bonds on

the retreat. This moderated the strong early gains but bond market returns were very healthy for the quarter. Credit spreads

widened marginally as a consequence of the volatile swings in risk appetite.The Fund remains defensively placed with the

majority of the underweight position, relative to its benchmark, in longer dated Commonwealth bonds, where the portfolio

manager believes the risk to capital is greatest.

Macquarie Income Opportunities Fund

The Fund returned 0.1% over the quarter, underperforming its cash benchmark Bloomberg AusBond Bank Bill Index by 0.5%.

This result saw it underperformed the traditional bond index, the Bloomberg AusBond Composite Bond Index, which returned

2.1% for the quarter. The Fund has increased its exposure to investment grade credit, mostly through the reduction in

hedging positions during the first half of March. However, the Fund has maintained elevated liquidity levels, as it expects

some of the key risks for credit markets are likely to resurface and volatility for markets to persist.

APN A-REIT Fund

The Fund returned of 6.6% for the quarter ended 31 March 2016. This compares with the S&P/ASX 300 Property

Accumulation Index total return of 6.4% over the quarter. The Fund returned 12.6% (Index 11.4%) for the year ending 31

March 2016. Over the last six months, the Fund has delivered a total return of 13.4% versus the Index return of 12.8%. Since

inception, the Fund has recorded a total return of 17.0% versus 13.8% for the index. The top 3 contributors to the Fund’s

performance over the quarter were MGR, CQR and VCX while the detractors were ABP, IDR and CMW.

UBS Clarion Global Property

The Fund returned 3.0% over the quarter, underperforming its benchmark FTSE EPRA/NAREIT Developed Rental Net Return

Index (AUD Hedged) by 1.7%. This was largely due to positions in the US office sector, as overweight positions in Manhattan

focused SL Green Realty, west coast office company Kilroy Realty and Vornado Realty Trust hurt performance. The

outperformance of net lease REITs also contributed to the drag in relative performance given the Fund’s underweight to this

property type, as investors appeared to seek safety in a volatile market. Somewhat offsetting the above was favourable stock

selection in the mall, lodging and healthcare sectors. An underweight to the healthcare sector also added to relative

performance for the quarter. Asset allocation was negative for the quarter as an underweight position to Canada detracted

from relative performance, which was unusual after over a year of contributing materially. Canadian REITs recorded a very

strong quarter on the back of a rebounding oil price.


Ausbil Australian Active Equities Fund

The Fund performance for the March Quarter was -2.5% versus the benchmark return of -2.6%. At a sectoral level, the Fund

benefited from the overweight positions in the Energy, Telecommunications and Consumer Discretionary sectors. The

underweight position in the Healthcare sector, as well as the nil holding in the Information Technology sector also added

value. Conversely, the overweight positions in the Financials (ex REITs) and Materials sectors detracted from relative

performance. The positions in the Consumer Staples and Industrials sectors, as well as the nil holding in the Utilities sector,

also detracted value. At a stock level, the overweight positions in Bluescope Steel, CIMIC Group, Santos, Treasury Wine

Estates, Medibank Private, South32 and Boral were the main contributors to relative performance. The underweight position

in ANZ Bank also added value. Conversely, the overweight positions in National Australia Bank, QBE Insurance, Westpac

Corporation and Caltex detracted from relative performance. The underweight positions in Wesfarmers and Newcrest Mining,

as well as the nil holding in Scentre Group, also detracted from relative performance.

Bennelong Australian Equities Fund

The Fund returned -3.3% for the March quarter, while the benchmark returned -2.6%. By far the largest detractor over the

quarter was IPH, an intellectual property professional services firm. It announced its 1H earnings result in February, and while

it met its earnings guidance, it was nevertheless sold down presumably because the market had expected more. The Fund’s

performance was also held back over the quarter by its avoidance of the REITs, which outperformed the market, and its

positions in a select number of financial services companies which underperformed. On the other side, there were some

strong performances in the Gaming and Leisure sector (such as The Star Entertainment Group) and Telecommunications

sector (TPG Telecom). In addition, an underweight position in the Banks assisted performance as the sector underperformed

over the quarter.

Platypus Australian Equities Fund

The Fund returned -5.7% over the quarter, underperforming its benchmark the S&P/ASX 300 Accumulation Index by

3.0%. Healthcare stocks dominated the list of detractors with Sirtex Medical (-1.27%) being the largest

detractor. Macquarie Bank (-1.07%) was also a significant drag on performance, as was Select Harvests (-0.74%),

Henderson Group (-0.72%) and IPH Limited (-0.58%). Major contributors to performance included Oz minerals (0.93%), ANZ

Group, (0.78%), TPG Telecom (0.59%), JB HiFi (0.53%) and Aconex Ltd (0.42%). At the sector level portfolio performance

was adversely affected by the underweight position in Financials (-2.38%) and the overweight in Healthcare (-1.6%). During

the quarter, the Fund exited its positions in IPH Limited and Select Harvests. It also dramatically reduced its positions in

Macquarie Bank and Henderson’s to help reduce the portfolio beta. The Fund switched the residual of its National Australia

Bank holding into Westpac Banking Corporation. It also added to positions in Adairs, BWX, Freedom Foods, Fisher & Paykel

Healthcare and Sirtex Medical.

Nikko AM Tyndall Australian Share Income Fund

The Fund delivered a -1.2% return over the quarter. BlueScope Steel, GWA Group, JB Hi-Fi, Iluka Resource and CSR were

positive contributors over the quarter. Conversely, CBA, ANZ, NAB, Westpac and Incitec Pivot were the key detractors.

BlueScope Steel, Iluka and GWA Group were up strongly following their first half results, pleasing investors. CSR rose due to

a positive outlook in the construction sector and following their announcement of an AUD 150 million share buyback. JB Hi-Fi

benefitted after reporting an increasing first half profits due to strong sales growth. The company also benefitted after Dick

Smith’s announcement of voluntary administration which would lessen the competitive landscape for JB Hi-Fi. The large

banks were detractors over the quarter given a broader sell-off across the Financials sector. In addition, ANZ announced an

expected increase to its bad debt charge. Incitec Pivot weakened over the quarter due to a combination of weaker than

expected FY16 earnings, a stronger AUD and weaker diammonium phosphate, urea and ammonia prices.


Nikko AM Tyndall Australian Share Wholesale Fund

The Fund returned -2.7% over the quarter, slightly outperforming the S&P/ASX 200 Accumulation Index which returned -2.8%.

Overweight positions in BlueScope Steel, Seven West Media and Sims Metal provided positive contributions to performance.

An underweight position in CBA and nil weighting to Macquarie Group also benefited the Fund. BlueScope and Seven West

Media rose on a stronger than expected profit results. Sims Metal benefitted from a broad rally in commodity prices with

strong gains in scrap prices. Macquarie Group and CBA lagged during the quarter given a broader sell-off in the Financials

sector. The Fund’s overweight position in Henderson Group, NAB, ANZ and Incitec Pivot were detractors over the quarter as

was its nil weight in Newcrest Mining. Henderson, NAB and ANZ were sold off heavily over the quarter, reflecting the

broader sell-off across the Financials sector. Incitec Pivot weakened over the quarter due to a combination of weaker than

expected FY16 earnings, a stronger AUD and weaker diammonium phosphate, urea and ammonia prices. Newcrest Mining

performed strongly, reflecting the strengthening gold price over the quarter.

Zurich Investment Equity Income Fund

The Fund returned -3.9% for the March quarter, underperforming the S&P/ASX 50 Accumulation Index by 0.1%. In National

Australia Bank, Westpac Bank and Commonwealth Bank of Australia, the Fund has implemented a stock replacement

strategy where it has sold physical shares and bought call options over the names. With the stocks showing increasingly

slowing generic momentum and higher intra-month volatility, it was a trade the Fund initiated to protect the portfolio. The

trade allows the Fund to maintain upside exposure but also gives it inbuilt downside protection in bank names. After a strong

rally into late March the Fund has also been active in writing calls over all the major banks. This new call-writing positioning

served to protect the portfolio as the market, and in particular, the banks fell away in the last week of the quarter. For BHP

Billiton and Rio Tinto the environment remains challenging as continued volatility in the commodities sector impacts their

share price. The Fund has been particularly active in selling calls over BHP Billiton on any sign of share price rally. This practice

has netted good premiums as volatility levels remain high. After the most recent rally in both stocks, in early March, the Fund

chose to purchase puts on both names to protect against any dramatic falls.

Aberdeen Actively Hedged International Equities Fund

The Fund returned -2.2%, outperforming the MSCI AC World ex-Australia AUD unhedged benchmark which fell 5.1% over the

quarter. On a geographic basis returns were mixed within the benchmark. Emerging markets, particularly Brazil and parts of

Asia, led the way. Meanwhile returns were negative in in North America and across Europe. At the industry level consumer

discretionary and information technology were the strongest performers whereas health care and financials struggled during

the first quarter of the year. With regards to relative returns consumer discretionary was the largest contributor to relative

out-performance with TJX and Comcast both strong performers. Financials also contributed to outperformance with Banco

Bradesco the strongest performing investment as investor sentiment around the environment in Brazil improved slightly,

albeit from a very low base. Avoiding many of the Japanese and US based financials was another factor here as they were

particularly weak. Information technology exposure was another positive contributor. US listed Oracle, a leader in

infrastructure technology and Taiwan Semiconductor both enjoyed very solid starts to the year. Consumer staples exposure

and tobacco investments also did well with British American Tobacco, posting solid full year results. In terms of negatives,

stock selection within telecommunication services was a slight detractor as was the underweight to utilities.

Aberdeen Emerging Opportunities Fund

The Fund returned 2.2% in the first quarter, outperforming the benchmark by 2.2% on the back of both allocation and stock

selection. All regions contributed positively to performance. In China, concerns over the weakening currency and slowing

growth led to a 9.9% decline in the benchmark. As a result, the Fund’s underweight exposure there, driven by a lack of quality

companies, added to relative performance. Elsewhere, the Fund benefited from holding Astra Intl, as the group is well-placed

to capitalise on a recovery and better outlook in Indonesia. Thai lender Siam Commercial bank was another outperformer as

investors saw value following a period of weakness. On the flip side, Hang Lung and AIA Group detracted on growing


concerns over their exposure to China. The overweight position to India was another laggard. Brazil led gains in Latin America

with a 21.6% rise over the quarter, buoyed by the growing likelihood of President Dilma Rousseff’s impeachment and hopes

of possible reforms. The Fund’s overweight position and holdings there, such as Banco Bradesco, Multiplan and Ultrapar,

contributed to relative performance. The EMEA region also added to relative performance with allocation being the main

contributor while stock selection was flat.

CFS Global Listed Infrastructure Fund

The Fund returned 8.0% in the quarter, 1.2% better than its benchmark and well ahead of global equities, which ended the

quarter broadly flat. Security selection within the energy pipelines sector boosted relative performance. The Fund’s focus on

operators with lower leverage and more realistic growth expectations delivered significant outperformance relative to the

benchmark index. The Fund also benefitted from increasing levels of M&A activity. Two Fund holdings - electric transmission

utility ITC Holdings and gas pipeline operator Columbia Pipeline Group - received takeover bids during the first quarter of 2016,

both at significant premia to their previous share prices. An underweight position in Asia Pacific airports detracted from the

Fund’s relative performance. These are attractive infrastructure assets; however stretched valuation multiples have led the

Fund to maintain its focus on peers trading at more reasonable levels such as European peers Fraport and AENA.

Grant Samuel/EPOCH Global Equity Shareholder Yield (Hedged) Fund

The Fund returned 4.3% in the first quarter, outperforming MSCI World ex-Australia Index (Net) 100% hedged into $A by

6.1%. The Fund posted positive absolute results capturing returns from cash dividends, share buybacks and debt reduction.

Absolute returns were led by holdings within the utilities and telecom sectors which benefitted from renewed investor

interest in more defensive names amid continued market volatility and global growth concerns. Relative results were driven

by the Fund's allocations to utilities and telecom, which were the two best performing sectors of the market this quarter.

Stock selection within telecom and financials also proved beneficial as did stock selection within the U.S. Top contributors

included several companies within the telecommunications sector. BCE, Canada’s largest communication company, reported

strong 4th quarter numbers that demonstrated the resilience in the face of commodity driven macro headwinds. Investors

rewarded the company for its steady growth and consistent dividend increases. The largest detractors included

ConocoPhillips. Falling energy prices have significantly reduced its cash flow and dividend coverage. While the company

stated that it was dedicated to preserving its dividend, the Fund exited the position as its balance sheet capacity weakened

and the risk of a dividend cut rose.

Zurich Global Thematic Fund

The Fund returned -6.1% for the March quarter, underperforming the MSCI World ex-Australia Accumulation Index (in AUD)

by 0.3%. Themes contributing positively to returns over the quarter were Gold & Precious Metals, Information in Systems –

Regulated and Information in Systems – Asset Heavy. All other themes fell. Information in Systems – R&D Productivity, Japan

(Antimatter), National Platforms, Information in Systems – Asset Light and Internet Giants were most notable. The rise in the

bullion price, up 16% in US dollar terms in the quarter, explains the returns of the Gold & Precious Metals theme. Gold mining

stocks rose much more, with Barrick gaining most of all. In the Information in Systems – Regulated theme, delayed US

interest rate rises helped utilities perform well. Edison, NextEra, and AES all rose. Under Information in Systems – Asset

Heavy, TSMC rose, helped by the general improvement in emerging markets. The Information in Systems – R&D Productivity

returns can be explained by the sell-off of generally weak pharmaceutical company stock prices in the biotech sector. Anxiety

in the run up to US elections, as well as the general biotech decline, were important factors. Japanese bank shares declined

significantly due to the challenges to profitability from negative interest rates. Mitsubishi UFJ, Sumitomo Mitsui (both

eliminated), and Mizuho all fell.


netwealth Active Conservative Fund

The investment manager for the underlying Fund is Morningstar. The Conservative portfolio delivered a return of 0.6% for the

quarter. Pleasingly, the portfolio outperformed its CPI + objective for the quarter, which is a strong result under the

circumstances, as the disciplined approach to asset allocation and focus on assets offering the most attractive reward for risk

ensured that the impact of weaker and more volatile equity markets was minimised. The portfolio further remains well ahead

of its CPI + objective on a three and five year view. Strong gains were recorded from International and Australian fixed

income, given more dovish U.S. interest rate expectations, whilst Cash, Australian listed property and global infrastructure

also delivered positive returns. The portfolio’s Japanese equities allocation detracted from performance due to the market’s

negative response to the negative interest rate policy adopted by the Bank of Japan. Emerging Market equities fared well,

thanks in part to allocations to Taiwanese equities. Alternatives also detracted slightly from performance.

netwealth Active Balanced Fund

The investment manager for the underlying Fund is Morningstar. The Balanced portfolio delivered a return of 0.3% for the

quarter. Whilst a return below the CPI + objective is disappointing, this is a strong result under the circumstances, as the

disciplined approach to asset allocation and focus on assets offering the most attractive reward for risk ensured that the

impact of weaker and more volatile equity markets was minimised. Pleasingly, the portfolio remains well ahead of its CPI +

objective on a three and five year view. Australian listed property remained a standout performer with gains also being

recorded for global infrastructure and the fixed income components of the portfolio, given more dovish U.S. interest rate

expectations. The portfolio’s Japanese equities allocation detracted from performance due to the market’s negative response

to the negative interest rate policy adopted by the Bank of Japan. Emerging Market equities fared well, thanks in part to

allocations to Taiwanese equities. Alternatives also detracted slightly from performance.

netwealth Active Growth Fund

The investment manager for the underlying Fund is Morningstar. The Growth portfolio delivered a return of 0.0%, for the

quarter. Whilst a low absolute return is disappointing, this is a strong result, under the circumstances, as the disciplined

approach to asset allocation and focus on assets offering the most attractive reward for risk ensured that the impact of

weaker and more volatile equity markets was minimised. Pleasingly, the portfolio remains well ahead of its CPI + objective

on a three and five year view. Australian listed property remained a standout performer with gains also being recorded for

global infrastructure and the fixed income components of the portfolio, given more dovish U.S. interest rate expectations. The

portfolio’s Japanese equities allocation detracted from performance due to the market’s negative response to the negative

interest rate policy adopted by the Bank of Japan. Emerging Market equities fared well, thanks in part to allocations to

Taiwanese equities. Alternatives also detracted slightly from performance.

netwealth Active High Growth Fund

The investment manager for the underlying Fund is Morningstar. The High Growth portfolio delivered a return of -0.1%, for the

quarter. Whilst a negative return is disappointing, this is a strong result, under the circumstances, as the disciplined approach

to asset allocation and focus on assets offering the most attractive reward for risk ensured that the impact of weaker and

more volatile equity markets was minimised. Pleasingly, the portfolio remains well ahead of its CPI + objective on a three

and five year view. Australian listed property remained a standout performer with gains also being recorded for global

infrastructure and the fixed income components of the portfolio, given more dovish U.S. interest rate expectations. The

portfolio’s Japanese equities allocation detracted from performance due to the market’s negative response to the negative

interest rate policy adopted by the Bank of Japan. Emerging Market equities fared well, thanks in part to allocations to

Taiwanese equities. Alternatives also detracted slightly from performance.


netwealth Index Opportunities Conservative Fund

The investment manager for the underlying Fund is UBS. The Fund returned -0.6% in the March quarter. Tactical asset

allocation decisions detracted from returns relative to the benchmark, through directional and relative value equity positions;

particularly an overweight to Japan and Europe; and an underweight to international government bonds. Government bonds

contributed to absolute returns during the quarter. A preference for Australian and Italian government bonds contributed but

did not offset the relative underweight to this asset class. UBS reduced the equity overweight exposure during February,

moving outright underweight equities by quarter end, particularly US equities. Risk was re-deployed within the portfolio to

diversified relative value trades within equity and fixed income, an underweight to German five year government bonds and

overweight to European High Yield. Within the currency overlay, a preference for the Indian rupee relative to Korean won and

Taiwan dollar was added. Duration risk in the Fund was increased to be inline with the benchmark. At quarter end,

approximately 25.7% of the Fund was invested in growth assets (including shares and property). The Fund’s allocation to

income assets was 74.3% (including fixed interest and cash holdings). During the quarter, UBS maintained an overweight

position in investment grade credit. Credit positions were diversified across sectors, with an overweight to European high

yield introduced and an underweight to emerging market debt. The currency overlay contributed to performance during the

quarter.

netwealth Index Opportunities Balanced Fund









Taiwan dollar was added. Duration risk in the Fund was increased slightly to be inline with the benchmark. At quarter end,

approximately 44.8% of the Fund was invested in growth assets (including shares and property). The Fund’s allocation to

income assets was 55.2% (including fixed interest and cash holdings). During the quarter, UBS maintained an overweight

position in investment grade credit. Credit positions were diversified across sectors, with an overweight to European high

yield introduced and an underweight to emerging market debt. The currency overlay contributed to performance during the

quarter.

netwealth Index Opportunities Growth Fund









Taiwan dollar was added. Duration risk in the Fund was inline with the benchmark. At quarter end, approximately 64.4% of

the Fund was invested in growth assets (including shares and property). The Fund’s allocation to income assets was 35.6%

(including fixed interest and cash holdings). During the quarter, UBS maintained an overweight position in investment grade

credit. Credit positions were diversified across sectors, with an overweight to European high yield introduced and an

underweight to emerging market debt. The currency overlay contributed to performance during the quarter.


netwealth Australian Bond Index Fund

During the March quarter the Fund returned 2.0%. This was broadly in line with the Bloomberg AusBond Composite Index.

netwealth Australian Property Index Fund

During the March quarter the Fund returned 6.3%. This was broadly in line with the S&P/ASX 300 Property Trusts

Accumulation Index.

netwealth Australian Equities Index Fund

During the March quarter the Fund returned -2.7%. This was broadly in line with the S&P/ASX 300 Accumulation Index.

netwealth International Equities Index Fund

During the March quarter the Fund returned -5.7%. This was broadly in line with the MSCI World Ex Australia NR AUD Index.


Level 36, Australia Square Locked Bag 25 Tel: +61 2 9276 4550 www.morningstarinvestments.com.au

264 George Street Royal Exchange Fax: +61 2 9276 4545

Sydney NSW 2000 Sydney NSW 1225

[email protected]

8/52 Collins Street PO Box 336 Freecall: 1800 888 223 www.netwealth.com.au

Melbourne VIC 3000 South Melbourne or +61 3 9655 1330

VIC 3205 Fax: +61 3 9655 1333

quarterly performance review march 2016 · in the netwealth global specialist series active...

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