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1 Investing for Income February 2014 High Livez Did your investment return 9.63% over the last 12 months?

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Presentation on theme: "1 Investing for Income February 2014 High Livez Did your investment return 9.63% over the last 12 months?"— Presentation transcript:

1 1 Investing for Income February 2014 High Livez Did your investment return 9.63% over the last 12 months?

2 2 Economic Environment GFC first saw deposit rates increase as banks scurried to find funding Jan 1990 to Dec 2008 = 228 months, 34 months 1 year TD rate > RBA Cash rate, highest 1.45%, average -0.47% Jan 2009 to Oct 2013 = 58 months, 56 months 1 year TD rate > RBA Cash rate, highest 2.25% average 1.11% Central banks around the world then dramatically cut interest rates to “save” economies While the global recovery is happening, interest rates don’t look like increasing significantly in the near future But investors still need to generate sufficient income from their portfolios What are some of your options in the fixed income market? High Livez Did your investment return 9.63% over the last 12 months?

3 3 Product comparison – Term deposits, Mortgage funds, Bond funds AttributeTerm depositsMortgage fundsBond funds (Firstmac High Livez) Frequency of distributionsDepends on term, monthly available at a cost Monthly distributions Capital GrowthNo Potential for capital growth LiquidityLocked in for term, fees if term broken early Generally locked in for at least 12 months Monthly, subject to potential restrictions Capital riskRepayment of capital is government guaranteed subject to limits Repayment of capital is not guaranteed Underlying assetsAll lending activity of the ADI Residential, land, commercial, rural, development, construction Australian prime residential first mortgages Current yield3.4%-4.0% for 1 year3.8%-4.2%5.50%-6%

4 4 High Livez Did your investment return 9.63% over the last 12 months? Yield comparison – Term deposits, Mortgage funds, RMBS Source: RBA, Macquarie, SQM Research, Morningstar

5 5 High Livez Did your investment return 9.63% over the last 12 months? Risk/Return comparison – Term deposits, Bond fund, Mortgage funds Higher risk Lower risk Lower returnHigher return Term deposit RMBS bond fund Mortgage funds Property Australian shares International shares

6 6 Types of Clients The Retiree The Independently Wealthy The Balanced SMSF Client The Importance of Income for every Client High Livez Did your investment return 9.63% over the last 12 months?

7 7 Retiree Portfolio High Livez Did your investment return 9.63% over the last 12 months? Asset ClassesPercentageAmountIncome Cash5%$50,000$1,000 Fixed Income -TD’s -Firstmac High Livez 35% $150,000 $200,000 $5,250 $11,000 Australian Equities -Direct -Funds 25% $200,000 $50,000 $10,000 $2,000 International Equities -Funds 5% $50,000$1,000 Property30%$300,000$15,000 Totals100%$1,000,000$45,250 4.5%

8 8 Independently Wealthy Portfolio High Livez Did your investment return 9.63% over the last 12 months? Asset ClassesPercentageAmountIncome Cash2%$40,000$800 Fixed Income -TD’s -Bonds -Firstmac High Livez 18% $60,000 $150,000 $2,100 $6,000 $8,250 Australian Equities -Direct -Funds 35% $500,000 $200,000 $25,000 $8,000 International Equities -Funds 15% $300,000$6,000 Property30%$600,000$30,000 Totals100%$2,000,000$86,150 4.3%

9 9 Balanced SMSF Client High Livez Did your investment return 9.63% over the last 12 months? Asset ClassesPercentageAmountIncome Cash5%$15,000$300 Fixed Income -TD’s -Firstmac High Livez 35% $52,500 $1,838 $2,888 Australian Equities -Direct -Funds 25% $60,000 $15,000 $3,000 $600 International Equities -Funds 10% $30,000$600 Property25%$75,000$3,750 Totals100%$300,000$12,975 4.3%

10 10 The Importance of Income The more frequent you get income and build up cash reserves means:  the less you need to redeem other assets to meet your income needs  sooner you can buy more assets without having to sell or borrow High Livez Did your investment return 9.63% over the last 12 months? Amount of Income % paFrequency Firstmac High Livez5.5%Monthly Rolling 3 month TD2.5%Quarterly BHP Dividends1%Half yearly CBA Dividends5%Half yearly International shares2%Half yearly Property5%Monthly but lumpy

11 11 The Importance of Income High Livez Did your investment return 9.63% over the last 12 months? High LivezRolling TDBHPCBAPlatinum IntWestfield Jan-13$511$0 Feb-13$575$0 $2,353 Mar-13$435$975$1,466$0 Apr-13$459$0 $2,593$0 May-13$486$0 Jun-13$499$900$0 $2,973$0 Jul-13$438$0 Aug-13$533$0 $2,424 Sep-13$486$863$1,698$0 Oct-13$706$0 $3,162$0 Nov-13$399$0 Dec-13$525$775$0 Total$5,952$3,513$3,164$5,755$2,973$4,777 Yield5.95%3.51%3.16%5.75%2.97%4.78%

12 12 The Australian RMBS Market High Livez Did your investment return 9.63% over the last 12 months?

13 13 The Australian RMBS Market The first Australian RMBS was issued in 1992 Approximately $500 billion of bonds issued since 1992 Currently around $100 billion of bonds outstanding All the major bank, regional banks, credit unions and non-bank lenders use this market to fund their residential loans The major investors in the RMBS market are the industry super funds, fund managers, family offices, HNW. This is not a new market, it just hasn’t be readily accessible by the retail investor No noteholder of any prime Australian RMBS has ever lost money  So what is it that I am buying? High Livez Did your investment return 9.63% over the last 12 months?

14 14 Bonds backed by Australian home loans High Livez Did your investment return 9.63% over the last 12 months? SeriesFirstmac 1-2010Firstmac 2-2011Firstmac 1-2012Firstmac 3-2012Firstmac 1e-2013 Closing DateAug-10Dec-11Aug-12Dec-12Jun-13 Total Issuance (AUD m)416300 440500 Loans Number of Loans1,4451,0591,0281,4641,584 Average Loan Size (A$)245,244208,936239,548241,972265,170 Maximum Loan Size (A$)765,464692,249743,036750,000994,822 Loan to Value Ratio Maximum LVR95% 92%95% WA Current LVR76%69%68%71% Current LVR > 80%32%20% 22%25% States NSW18%29%25%33%31% VIC18%20%24%20%21% QLD39%27%30%31%32% Other States25%24%21%16% % of loans > 30d arrears0.45%0.25%0.11%0.24%0.00%

15 15 Recent issuance comparison table High Livez Did your investment return 9.63% over the last 12 months? SeriesFirstmac 1e-2013 Resimac 1-2012 AMP Bank 1-2012 Westpac 1-2012 ME Bank 1-2012 ING Bank 1-2012 BankWest 1-2011 Closing DateJun-13Jun-12May-12 Apr-12 Nov-11 Total Issuance (AUD m)500 1,1501,000800500 Loans Average Loan Size (A$)265,170215,021269,546210,739170,039200,401239,063 Maximum Loan Size (A$)994,822745,000744,0511,457,948737,135724,555980,232 Loan to Value Ratio Maximum LVR95% 94%95%90%94% WA Current LVR71%70%64%63%62% 61% Current LVR > 90%5%2%1% 5%1% Current LVR > 80%25%20%9%3%16%14%7% Location Metropolitan72%77%78%76%75%66%89%

16 16 Firstmac High Livez November 2013 The trust aims to provide stable monthly income from a diversified portfolio of asset backed securities and short term money market securities High Livez Did your investment return 9.63% over the last 12 months?

17 17 High Livez at a glance Investment Overview Investment objectiveThe trust aims to provide stable monthly income from a diversified portfolio of asset backed securities and short term money market securities Investment timeframe3 to 5 years Investment Strategy Minimum initial investment$10,000 Minimum additional investment$1,000 Minimum investment balance$10,000 ValuationsMonthly MinimumMaximum RMBS50%90% Cash products10%50% High Livez Did your investment return 9.63% over the last 12 months?

18 18 Portfolio construction criteria RMBS  ‘Prime’ residential loans  Insurable loans  No adverse credit history  Registered first mortgage  No construction or development lending  Australian Issuers  Residential mortgage pools with weighted average LVR less than 80%  Minimum single A rated tranches but majority AA-  Weighted average life of the fund targeted between 3 and 5 years Liquid assets invested across A1 rated banks call, term deposits and commercial paper High Livez Did your investment return 9.63% over the last 12 months?

19 19 Risk management constraints Interest rate risk  Floating rate assets only  Bonds all reset over 1 month BBSW Foreign exchange risk  AUD denominated assets only Compliance  Perpetual Trustees is RE and control cash flow movement of fund bank accounts High Livez Did your investment return 9.63% over the last 12 months?

20 20 Managing RMBS risks Net Income Mortgage Insurance Borrower’s equity High Livez Did your investment return 9.63% over the last 12 months?

21 21 Firstmac Historic Losses and Claims Life to date Issuance since 2003 Firstmac RMBS Issued = $12,000,000,000 Loss on Sale of defaulted properties= $23,322,633 Claims paid by Mortgage Insurer= $22,225,856 Shortfall= $1,096,777 Shortfall as a % of Issuance= 0.01% This loss of 0.01% is covered by excess of Borrower Interest Paid over funding costs There has never been a single dollar of losses against any Australian Prime Issued RMBS High Livez Did your investment return 9.63% over the last 12 months?

22 22 RMBS Explained SeriesVolume Expected Maturity RatingCoupon Rate Class A$450m3 yrsAAABbsw1m + 1.10% Class AB$35m6.1 yrsAAABbsw1m + 1.75% Class B$15m6.1 yrsAA-Bbsw1m + 3.50% TOTAL$500m Interest Rate paid by Borrower = 5.00% Floating bank bill rate (bbsw1m) = (2.50%) Gross Margin = 2.50% Weighted Average Funding Margin = (1.22%) Net Margin = 1.28% High Livez Did your investment return 9.63% over the last 12 months?

23 23 High Livez past performance - as at 31 December 2013 1 month3 months6 months1 year %2 year % paSince Inception (29/3/11) Distribution Return0.51%1.58%2.91%6.17%6.62%6.97% Growth Return-0.07%-0.40%-0.24%3.46%2.05%1.67% Total Return0.44%1.18%2.67%9.63%8.67%8.64%

24 24 Returns Example Portfolio 85% at bbsw1m + 3.50%2.50% + 3.00% = 5.50% 15% at bbsw1m + 1.00%2.50% + 0.15% = 2.65% Gross Margin above bbsw1m2.50% + 3.15% = 5.65% Buy / sell spread, entry, exit feesNil less Fees-0.60% Net Distribution above bbsw1m2.50% + 2.55% = 5.05% High Livez Did your investment return 9.63% over the last 12 months?

25 25 Questions…..?? High Livez Did your investment return 9.63% over the last 12 months?

26 26 Disclaimer Firstmac High Livez is issued by Perpetual Trust Services Limited (”Perpetual”) ACN 000 142 049 AFSL 236648 as the Responsible Entity of the Trust. The Investment Manager is Firstmac Limted (”Firstmac”) ACN 094 145 963 AFSL 290600. Firstmac High Livez and the Product Disclosure Statement (PDS) is available at www.Firstmac.com.au or by contacting Firstmac on 13 12 20. The information in this document is general information only and does not take into account any person’s situation, financial objectives or needs. You should read the PDS in its entirety before making any decision to invest. Perpetual and Firstmac strongly recommend you obtain independent professional financial advice on the risks and suitability of this product. The value of your investment in High Livez could go down as well as up. Past performance is not a reliable indicator of future performance. Restrictions may apply to the amount and timing of withdrawal requests. Performance is calculated on an initial investment of $10,000 with distributions reinvested. Ongoing fees and expenses have been applied however individual taxes are excluded. The Zenith Investment Partners (“Zenith”) ABN 60 322 047 314 rating (assigned January 2013) referred to in this document is limited to “General Advice” (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product(s), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective. High Livez Did your investment return 9.63% over the last 12 months?


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