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Clime Asset Management. The impact on the macro-environment on the Australian market. Disclaimer.

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Clime asset management
Clime Asset Management

The impact on the macro-environment

on the Australian market


Disclaimer
Disclaimer

  • The information contained in this document is published by the Clime Group. The information contained herein is not intended to be advice and does not take into account your personal circumstances, financial situation and objectives. The information provided herein may not be appropriate to your particular financial circumstances and we encourage you to obtain your own independent advice from your financial advisor before making any investment decision. Please be aware that investing involves the risk of capital loss and past results are not a reliable indicator of future performance and returns. Clime Asset Management Pty Limited (Clime), Total Fund Services Limited and its directors, employees and agents make no representation and give no accuracy, reliability, completeness or suitability of the information contained in this document and do not accept responsibility for any errors, or inaccuracies in, or omissions from this document; and shall not be liable for any loss or damage howsoever arising (including by reason of negligence or otherwise) as a result of any person acting or refraining from acting in reliance on any information contained herein. No reader should rely on this document, as it does not purport to be comprehensive or to render personal advice.


Investment performance february 2011
Investment Performance – February 2011

Clime Australian Value Fund

Total Returns.



How we manage capital
How we manage capital

  • Capital preservation is essential, avoiding losing money is essential to maximising the return.

  • The sustainable NROE (profitability) of a company will determine the value of the company.

  • The company’s share price will eventually reflect the intrinsic value of the company in the medium term.

  • We identify companies who have:

    • attractive investment characteristics; and

    • buy those companies when their share price is lower than our assessment of the intrinsic value of the company.

  • We build a portfolio of approx 20 stocks or securities and we target a portfolio return of 12% pa


We create concentrated portfolios of listed company securities on the asx
We create concentrated portfolios of listed company securities on the ASX

  • We build concentrated portfolios of 15 – 25 investments.

  • We study the Australian and global economies, analysing the impact on companies.

  • We invest in ASX listed company securities (equity, hybrid, debt) that have attractive investment characteristics and where their share price is below our assessment of the value of the business.

  • If we cannot find investments that meet these requirements, we will hold cash.

  • We do not follow the market indices and are benchmark and sector unaware.


Understanding the operating environment of a company is critical
Understanding the operating environment of a company is critical

  • Companies do not exist in isolation;

  • To value a company one must understand and have a view on the operating environment - social, political, environmental, economic – ie, the operating environment will affect the outlook for a company and therefore its value;

  • The macro outlook will affect the valuation of the market and therefore should be considered and monitored to determine the amount of capital to allocate to the market so long as value is identified.


The critical issues for the world economy are
The critical issues for the world economy are… critical

  • The outlook for the US is most uncertain. The outlook for the economy and the markets is unclear as sustainable economic recovery has not been created. The US represents 20% of the world GDP – thus unsettling for all investment markets;

  • The introduction of QE2 in the US is supportive of speculation in financial markets but its effect on the real economy is also uncertain and so far unproven;

  • The UK is undertaking a massive fiscal workout , however it is benefitting from an independent currency in the European region;

  • Europe continues to be affected by the financial collapse of Iceland, Greece and Ireland. Other nations such as Spain, Portugal and Italy are teetering;


The critical issues for the world economy are1
The critical issues for the world economy are… critical

  • Japan has recently experienced a massive shock to its economic system now requiring massive repatriation of funds. This withdrawal of capital from Europe and the US will effect currencies in investment markets for the foreseeable future.

  • China is attempting to maintain its growth levels by undervaluing its currency, tightening of bank credit and adopting anti-inflationary measures; and

  • Australia is riding the Chinese growth story, however the uneven growth across the economy is testing economic policy settings and the political will.



Sovereign debt will actually increase despite austerity measures
Sovereign debt will actually increase despite austerity measures

Govt debt as a percentage of GDP for select G20 countries, actual & estimated



The level of sovereign debt has to be addressed
The level of sovereign debt has to be addressed unemployment

  • There will be $6T of government debt issued around the world in 2011;

  • Without quantitative easing, it is unclear as to how this is or was going to be funded;

  • Quantitative easing is being undertaken in the US, UK, Europe and Japan;

  • However there is one omnipresent issue for the western world which is now coming into focus and it is the aging population and the lack of fiscal preparedness for this event;


The level of sovereign debt has to be addressed1
The level of sovereign debt has to be addressed unemployment

  • Economic forecasters warned western governments 20 years ago of the aging baby-boomers who are now approaching retirement age;

  • Baby boomers are changing or refining their consumption patterns and are focusing on saving or preservation of capital;

  • Thus, governments will and are struggling to deal with pension costs and the activities of retirees is beginning to have a dramatic effect on consumption patterns, tax collections and social security drawdowns.


Japan europe usa have aging populations
Japan, Europe & USA have aging populations unemployment

Entitlement Programs Are Unsustainable


But the world is growing at about 3 p a for the next two years
BUT the world is growing at about 3% p.a. unemploymentfor the next two years


The two speed world is still a good world for australia
The unemploymenttwo speed world is still a good world for Australia

World Output – March Quarter 2006 = 100


China now the world s 2 nd largest economy
China now the world’s 2 unemploymentnd largest economy


In 2010 households suddenly decided to pay back debt around the world
In 2010, households suddenly decided to pay back debt around the world.

  • Meanwhile the Government increases debt



So who is buying us bonds in 2011 answer the fed
So who is buying US bonds in 2011? the world.Answer: THE FED!




What is the us budget outlook answer not good
What is the US budget outlook? the world.Answer: not good!




The result of these observations for the future is tax tax and more tax
The result of these observations for the future is TAX, TAX and more TAX

  • 2009/10 The year of sovereign debt

  • 2010/11 Restructuring of sovereign debt

  • 2011/12+ TAX, TAX and more TAX


Tax measures to address key global issues
Tax measures to address key global issues and more

  • Economic:Sovereign debt and fiscal stimulus will have to be serviced & repaid

  • Environmental:

  • Climate change addressed through a carbon tax Social:The aging population of the developed world

  • Wealth re-distribution. Eg Resources Super Profits Tax


Outlook for australia steady growth
OUTLOOK FOR AUSTRALIA and more Steady Growth




Who owns australia s assets answer middle aged and elderly
Who owns Australia’s assets? and more Answer: Middle aged and elderly


Australia s household wealth tied up in houses
Australia’s household wealth tied up in houses and more

Household balance sheet comparisons

Source: Australian Bureau of Statistics








Credit margins have increased in australia with interest rates rising faster than rba tightenings
Credit margins have increased in Australia with interest rates rising faster than RBA tightenings



Iron ore the powerhouse 20 of our exports
Iron ore the powerhouse: 20% of our exports trade surplus

Australian iron ore exports


Australian resource companies will benefit from us recovery through chinese trade
Australian resource companies will benefit from US recovery through Chinese trade

  • China’s growing share of US trade deficit



The outlook for australia
The outlook for Australia through Chinese trade

  • The economy is growing

  • The population is growing - immigration 160,000 + 270,000 births p.a.

  • The terms of trade are improving and are at a record high

  • AUD/USD above $1.00 holds down inflationary pressures

  • Government debt is under control, peak at $90bn 2013, 8% of GDP

  • Linked to growth engines of world, China & India

  • Risks

  • Very high household debt

  • Full employment (unemployment 5.4%) wages push

  • Slow down in China & India’s growth

  • The unknown shocks (Japan)


Conclusions
Conclusions through Chinese trade

  • Volatility remain in markets. We use it to our client’s advantage by having an active value based investment methodology.

  • It is not the time to be passive. Markets will go from optimism to depression. We have to stay alert and not listen to the noise.

  • Yield is important. We seek out quality yield investments in shares and hybrids.

  • Do not borrow to invest and keep cash.



An attractive company mms
An attractive company – MMS through Chinese trade


Mms what is it worth today
MMS: What is it worth today? through Chinese trade


Macquarie group limited asx mqg valuation 34 97
Macquarie Group Limited (ASX:MQG) through Chinese tradeValuation: $34.97


Bhp billiton limited asx bhp valuation 58 60
BHP Billiton Limited (ASX:BHP) through Chinese tradeValuation: $58.60


Telstra corporation limited asx tls valuation 3 15
Telstra Corporation Limited (ASX:TLS) through Chinese tradeValuation: $3.15


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