Futuro Forum | Bowral 2012 Malcolm Palmer – Diversified Investment Portfolios

Diversified Investment Portfolios Economic Overview, Portfolio Structure & Investment Process Malcolm Palmer Managing Partner Joseph Palmer & Sons

‘General Advice’ Warning On behalf of Joseph Palmer & Sons: Any advice contained in this presentation has been prepared without taking account of your objectives, financial situation or needs; and …because of that, you should, before acting on any advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs; and …if any advice relates to the acquisition, or possible acquisition of a particular financial product - you should obtain a Product Disclosure Statement relating to the product and consider the Statement before making any decision about whether to acquire the product.

Introducing… Sterling Managed Investments The Process & the Portfolios

Diversified Investment Portfolios Malcolm Palmer Topics Economic Overview – Global & Domestic Interest rates & credit markets The stock market – outlook for 2013 Investment process – how assets are selected Sterling Managed Portfolio structures Q & A

Economic Overview – Global & Domestic The Sovereign Debt Crisis 4 th quarter 2012 outlook Savings ratio & debt The property & construction cycle Commodity prices China & emerging markets

The Sovereign Debt Crisis  The European sovereign debt crisis remains unresolved  The ‘Fiscal Cliff’ in the United States  Germany’s economic influence in Europe and globally is increasing  Markets remain fragile and volatile, and are reactive to news  The Public Sector GFC and the Private Sector GFC – distinctly different

Globalisation & Emerging Markets  Globalisation has accelerated post financial crisis due to the removal of some trade barriers, the rapid development of technology and economic strength of emerging economies relative to the mature economies  Intellectual property, patents and systems are voluntarily being transferred from the western world to emerging markets  Many emerging markets are significant beneficiaries of globalisation and will deliver GDP growth above OECD average rates for many years

GDP growth of major economies remains subdued

GDP growth rate in India and China is declining from recent peak

Chinese industrial production growth beginning to slow

Australian exports to China are now more than 20% of total – economic exposure is considerable

Commodity prices have fallen from the recent peak – but are still relatively high

Australians are saving, not spending!

High propensity to save leads to weak retail sector

Employment growing in mining & construction at the expense of manufacturing

…and residential property approvals will increase due to under supply

However commercial property construction activity bouncing from a long-term low point

Surging terms of trade allowed a rapid rebalancing of budget, however…….

Interest Rates & Credit Markets

Australian dollar remains near long-term high point

Australian dollar became overvalued in 2012 relative to commodity price trend

Interest rate forecasts for 2013

Corporate spreads are widening again due to European debt crisis

Domestic deposits are a high proportion of Banks’ funding

Banks’ interest margin steady for last few years

Bank profits remain robust

Capital ratios higher as Basel III approaches

The Stock Market – Outlook for 2013

Market volatility – an aberration or the norm?  Short termism is dominating investment strategies, leading to higher volatility  High Frequency Trading platforms and Dark Pools are more active  Exchange deregulation encouraging turnover  Regulators seem powerless to halt the trend  Dodd-Frank regulations in the US aims to curb proprietary trading

Australian shares underperformed as $A rose

The Australian Stockmarket – predicted trend

JPS RVA - Bond Yield/Earnings Yield model – fair value in 2013 is about 5000 index points

Corporate balance sheets significantly improved due to share issues

Investment Process – how assets are selected  Relative Value Analysis explained  Market timing – yield based analysis  Asset allocation –Growth Assets (Shares & Property) –Defensive Assets (Interest bearing investments)

Primary Process Methodologies  Equity Risk Premium  Relative PE Ratios  Price to Earnings Growth  Portfolio construction is neutral, not biased to growth or value styles  Portfolio not indexed weighted  Fairly concentrated portfolio – typically 15 to 25 stocks  ASX 100 constituent universe

Relative yield on corporate earnings is at highest level in recent history

Dividend yield considerably higher than the long-term average

Joseph Palmer Managed Portfolio Structures Diversified Portfolio Investment Options  Growth  Balanced  Conservative Diversified Portfolio – Pension  Balanced  Conservative Asset Class Portfolios  Australian Equity Growth

Systems based approach to portfolio rebalance Quantity % Total Value Portfolio Target Asset Allocation Action $ Action No Shares Shares ANZ ANZ Bank3, %3.50%Within rangeHold$1, ASX 2, %2.50%Within rangeHold$5, BHP BHP Billiton2, %4.00%UnderweightAdd$36, ,105 BXB Brambles9, %2.50%Within rangeHold$ CBA Commonwealth Bank1, %3.50%Within rangeHold$5, CCL Coca Cola Amatil7, %2.00%OverweightReduce-$45, ,259 CSL 1, %2.00%Within rangeHold$5,

Diversified Portfolios Sterling Conservative Portfolio  Asset Allocation –30% Growth & 70% Defensive  Income bias –Portfolio seeks to achieve an above average income return via a diversified portfolio of assets  Suitability –Suitable for Low to Medium risk investors, with a medium to long term objective

Diversified Portfolios Sterling Balanced Portfolio  Asset Allocation Target –60% Growth & 40% Defensive  Moderate growth bias –Portfolio seeks to achieve capital growth and income return via a balanced portfolio  Suitability –Suitable for Medium risk investors, with a medium to long term objective

Diversified Portfolios Sterling Growth Portfolio  Asset Allocation Target –80% Growth & 20% Defensive  Growth bias –Portfolio seeks to achieve mainly capital growth via a diversified portfolio  Suitability –Suitable for Medium to High risk investors, with a medium to long term objective

Questions please Thank you, Malcolm Palmer Joseph Palmer & Sons