Colonial First State An Introduction to Managed Funds

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Agenda  What is a Managed Fund?  Asset Classes  What is the right balance for me?  Why managed funds  Investing for the long term

What is a Managed Fund?  Your money is pooled with other investors  You decide on the type of fund (e.g. Australian share fund, international share fund, balanced fund)  Your fund manager researches and selects the companies (or assets) in which to invest

Risk Return = Australian shares = Fixed Interest & Cash = Global shares = Listed property = Global property Risk / return trade off

Asset Classes

Shares  Ownership in a company  Growth Asset  Capital growth (earnings)  Income (dividends)  Potential for high return  Higher risk

Asset Class Comparison Value of $10,000 invested Jun 1984 – Jun 2004 $ Annualised return = 13.2% Annualised return = 12.7% Source: IRESS - S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges

Property  Investment in property securities  Growth asset  Income (rent)  Capital Growth (increase in value of property)  Hedge against inflation  1980’s  Diversify  Hotels, office towers, shopping centres

Asset Class Comparison Value of $10,000 invested Jun 1984 – Jun 2004 Annualised return = 12.7% $ Source: IRESS - S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges

Bonds  Income producing asset  Purchase of bond = lending funds to issuer  Income payments (coupons)  Can be traded on secondary market  Can generate both a profit & a loss  Distinct relationship between  Bond prices  Interest rates

Bond example  Fund Manager holds $1,000 worth of Govt. bonds with a interest rate of 8%pa ($80)  Interest rates fall to 6% ($60)  Investor prefers 8% (profits)  Interest rates rise to 10% ($100)  Investor prefers 10% (loss)  There is an inverse relationship between interest rates and bonds

Asset Class Comparison Value of $10,000 invested Jun 1984 – Jun 2004 Annualised return = 11.0% $ Source: IRESS - UBS Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges

Cash  Security  Capital  Short term, i.e. 12 months or less  Cash Management Trust  Generally provides better return than a bank account

Asset Class Comparison Value of $10,000 invested Jun 1984 – Jun 2004 Annualised return = 9.1% $ Source: UBS Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1999), UBS Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges

What is the Right Balance?

What is the right balance?  List income & growth needs  Consider time horizon & degree of risk  Consider investment alternatives (which meet your needs)  Reassess your balance of investments as your needs and the economic environment change

Cash Fixed Interest Property Shares Spreading your savings helps your chances of achieving your retirement goals $ $ $ What is the right balance? Diversification across asset classes

What is the right balance? Risk / return trade off CFS Diversified Fund CFS High Growth Fund = Australian shares = Fixed Interest & Cash = Global shares = Listed property = Global property Risk Return CFS Balanced Fund CFS Conservative Fund

Why managed funds?

 Spread investment risk  Potential for higher returns  Liquidity of asset holding  Fund manager expertise  Ability to invest in overseas markets that are otherwise difficult to access

Asset class returns (%pa) Annual Returns to 30 th June 2004 INTERNATIONAL Cash Bonds Listed Prop Shares Global shares Percentage return over 1 year to 31st March Source: UBS Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1999), UBS Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), and the SSB World Government Bond Index *ex Australia Hedged to A. All dividens reinvested excluding fees and charges AUSTRALIAN

Why managed funds? Taking the best of each asset class Source: UBS Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1999), UBS Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges $

Why managed funds? Gain access to global markets World equity markets by market capitalisation as at 30 th November 2003 Source: Rimes Data to 30th November 2003

Why managed funds? Putting it into perspective AustraliaUSAA$bill 48% of ASX 300 A$649 bill23% of S&P 500 US$10,408 bill News Corp49 BHP47 NAB45 Commonwealth Bank41 ANZ33 Telstra31 Westpac31 AMP12 Woolworths12 St George11 General Electric479 Microsoft411 Exxon Mobil Corp409 Pfizer360 Citigroup323 Wal Mart312 AIG253 Bank of America240 Intel233 Johnson & Johnson226 Source: IRESS, ITG. Data as at 30th June Global stock data as at 12th July 2004

Understanding the current market

Understanding the current market International shares… we’ve seen better! The 21 st C Global shares in AUD MSCI – World Net Index ($A) Source: IRESS. Data to 30th June 2004

US company earnings US Sharemarket Source: Bloomberg. Sharemarket data and earnings data to October 2003 Understanding the current market US sharemarket and company earnings

Corporate profits -Source: RBA Bulletin table G12. Data to 31st March 2004 Australian Share price index – Source: IRESS. Data to June 2004 Australian share price index Corporate profits $bill Share prices & company profits grow together

Understanding the current market A ‘new’ era?  Recessions – USA, Europe, Japan  Wars – Afghanistan, Iraq  Pestilence – SARS  Terror – September 11  Scandals – Enron  Recessions in 1970s, 1980s, 1990s  Korea, Cold War, Gulf War  AIDS  IRA, Red Brigade, Black September  Barings, S&L crisis

Investing for the Long Term

Investing for the long term Patience has been rewarded Source: Rimes. Returns from the MSCI World Net Index $A, calendar years to 30th November 2003

Patience has been rewarded Source: Rimes. Returns from the MSCI World Net Index $A, calendar years to 30th November 2003

Patience has been rewarded Source: Rimes. Returns from the MSCI World Net Index $A, calendar years to 30th November 2003

Time in the market, not timing Australian shares to 30 th June 2004 Source: IRESS, Colonial First State *All Ordinaries Accum Index used prior to April 2000

Conclusion  Understand how sensitive you are to changes in the market & know your investment time frame  Managed funds making accessing a range of asset classes easy  Invest for the long term  Diversification is the key