2010 ECONOMIC SEMINAR Active Asset Management Methodology Presented by Neil Cox, CFP Director & Head of Investment Research

General Advice Warning Today’s presentation may contain some general advice. This means that individual objectives and needs have NOT been considered in providing this advice. This information is general in nature and does not constitute comprehensive advice. Before acting on this advice, you should give consideration to the appropriateness of the advice for you. You should seek proper personal financial advice. While the information given in the presentation is in good faith and is believed to be accurate and reliable, Financial Foundations Australia does not give any warranty as to the reliability for any errors or omissions.

Active Asset Methodology Gradual implementation to this point due to GFC, frozen funds and human resources 94% of the return generated in a portfolio relate to the asset class selection. Monitor asset classes for signals of overselling and overbuying. Tactical asset allocations changes to take advantage of any opportunities that develop. Develop a low cost core component to our asset classes Low cost core component + Complimented with low-correlated active management = Best blend of investments whilst maintaining a competitive low cost structure

Goals overall performance responsiveness to market changes overall investment costs for clients

The Past specialist managers active managers – all target “alpha returns” conservative changes to asset allocation switching dependant on client response to letter - no change if not returned - delayed changes if client overseas, interstate, changed address etc…..

Important Factors Affecting Returns 1.Asset Allocation - between sectors 2.Market Returns – “Beta” 3.Brain Power – “Alpha” returns

Maximising these Factors 1.Asset Allocation Research - objective - timely - long term focus

Speed of Changes L A M A L imited A sset M anagement A uthority  Automatically updated at same time - never miss a switch even if overseas etc… - assumes your Risk Profile stays same. - “Limited” means you must still provide written request for changing address, bank details or to withdraw funds.

Processing Speed Commonwealth Bank (CFS) buying power allows - mandate structure - internal processing - switches at T + 1

2. Market Returns – Large active funds provide over 70% market return (beta) versus value added, alpha type returns - still charge active fee on whole balance - market returns available at low cost via index and enhanced index funds this becomes our portfolio ‘CORE’ Facts

3. Alpha Returns Active Managers - index unaware, don’t just track markets - smaller managers can target higher alpha - we must be able to switch quickly  LAMA of T + 1 processing is essential - e.g. Platinum International - very big here, but minnows overseas - very nimble and index unaware. - Fidelity Australian Shares - huge overseas but small to medium here.

Core - Satellite CORE Satellite 1 Satellite 3 Satellite 2 Core portfolio (indexed investments) Low Cost Index and Semi Active Index Fund Close tracking to benchmark performance Satellite portfolio (active investments) Enhanced returns (high alpha) Decorrelation (index unaware) Requires strong selection skills

Results more responsive portfolios active asset allocation never again be concerned about missing a switch no charge to implement changeover from current portfolios FFA guarantee that total investor costs reduce

2010 Federal Budget Nothing like a good rumour…. increase deductible limits from last years “knee jerk” ridiculous lows - maybe higher entry tax CGT – could change to curb rampant housing market - apply to Super transfers to Pension phase tax deductibility of fees for financial planning

Government’s response to Henry review The key Government proposals announced include: The superannuation guarantee (SG) rate will increase gradually from 9% to 12% from July 2013 A Government super contribution of up to $500 pa will be made for people earning up to $37,000 pa from 1 July 2012 to effectively refund contributions tax The CC cap will be reinstated to $50,000 pa from 1 July 2012 for people aged 50 or over with super balances below $500,000 The company tax rate will gradually reduce to 28% by 1 July 2014 (and two years earlier for eligible small businesses) very generous depreciation rules will apply to small businesses from 1 July 2012, and A 40% Resource Super Profit Tax will be introduced from 1 July The SG contribution age limit will increase from 70 to 75 from 1 July 2013

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