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PENGANA SYMPOSIUM
Damian Crowley Director of Distribution
APRIL 2018
OVERVIEW
3
Focus on ‘high-end’ retail market
PRIMARY FOCUS IS TO DELIVER SUPERIOR LONG TERM RETURNS FOR OUR INVESTORS
Diversified group with FUM of over $3.5 billion
Leading provider of premium funds
Proven long-term performance over multiple funds
1. 2. 3. 4.
OUR PHILOSOPHY
4
WE AIM TO GENERATE SUPERIOR LONG TERM
RETURNS, WITH A FOCUS ON CAPITAL
PRESERVATION
TRUE TO
LABEL
GOAL OF CONSISTENT
‘GOOD’ RETURNS WITH
‘LOWER’ RISK
ADD VALUE TO
CLIENT
PORTFOLIOS
SUSTAINABLE &
REPEATABLE
HOW WE IMPLEMENT THIS
5
WE AIM TO GENERATE SUPERIOR LONG TERM
RETURNS, WITH A FOCUS ON CAPITAL
PRESERVATION
BENCHMARK-
UNAWARE &
ACTIVELY
MANAGED
ATTRACT & RETAIN
EXCEPTIONAL FM TEAMS
INSTITUTIONAL
INFRASTRUCTURE
& SEPARATION OF
DUTIES
CAPACITY
CONSTRAINTS
ADVISER
AND RETAIL
HNW FOCUS
CULTURE
6
FUND STRATEGIES
SUSTAINABLE INVESTING
WHEB Sustainable Impact Fund
ALL CAPS
International Fund International Fund - Managed Risk International Fund - Ethical International Fund - Ethical Opportunity Pengana International Equities Limited (ASX: PIA)
SMALL CAPS
Global Small Companies Fund
ALL CAPS
Australian Equities Fund Australian Equities Income Fund
SMALL CAPS
Emerging Companies Fund
MARKET NEUTRAL - GLOBAL
PanAgora Absolute Return Global Equities Fund
MARKET NEUTRAL– ASIA PACIFIC
Absolute Return Asia Pacific Fund
INTERNATIONAL EQUITIES AUSTRALIAN EQUITIES ABSOLUTE RETURN
7
IMPORTANT INFORMATION AND DISCLAIMER
This report has been prepared by Pengana Capital Limited (ABN 30 103 800 568, AFSL 226566) the issuer of units in the Pengana Australian Equities Fund (ARSN 146 346 929), Pengana Emerging Companies Fund (ARSN 111 894 510), Pengana Global Small Companies Fund (ARSN 604 292 677), Pengana PanAgora Absolute Return Global Equities Fund (ARSN 609 729 704), Pengana Absolute Return Asia Pacific Fund (ARSN 145 116 810), Pengana International Fund Managed Risk (ARSN 612 382 260) and the Pengana International Fund (ARSN 610 351 641 ). A product disclosure statement for each of these funds (‘Funds’) is available and can be obtained from our distribution team. A person should consider the product disclosure statement carefully and consult with their financial adviser before deciding whether to acquire, or to continue to hold, or making any other decision in respect of, the units in the relevant Fund.
Pengana Investment Management Limited (ACN 063 081 612), AFSL 219462) is the issuer of units in the Pengana Australian Equities Income Fund (ARSN 098 586 586), Pengana WHEB Sustainable Impact Fund (ARSN 121 915 526), Pengana International Fund - Ethical (ARSN 093 079 906), High Conviction Equities Trust (ARSN 602 546 332) and Pengana International Fund – Ethical Opportunity (ARSN 098 586 282 ). A product disclosure statement for each of these funds (‘Funds’) is available and can be obtained from our distribution team. A person should consider the product disclosure statement carefully and consult with their financial adviser before deciding whether to acquire, or to continue to hold, or making any other decision in respect of, the units in the relevant Fund.
PIML is also the manager of Pengana International Equities Limited (ASX:PIA) (“PIA”)
The performance calculations for the Funds in this report have been calculated net of fees and expenses, on a pre-tax basis and assume that all distributions are reinvested.
The value of investments can go up and down. Past performance is not a reliable indicator of future performance.
While care has been taken in the preparation of this report, Pengana make no representation or warranty as to the accuracy, currency or completeness of any statement, data or value. To the maximum extent permitted by law, Pengana expressly disclaim any liability which may arise out of the provision to, or use by, any person of this report.
SUSTAINABLE IMPACT INVESTING
Ted Franks
Partner and Fund Manager, WHEB Asset Management
APRIL 2018
9
IMPORTANT INFORMATION AND DISCLAIMER
WHEB Asset Management, LLP is permitted to conduct financial services in Australia pursuant to an exemption from the need to hold an Australian financial services licence under the Australian Corporations Act 2001. WHEB Asset Management, LLP is regulated by the Financial Conduct Authority of the United Kingdom under the laws of the United Kingdom, which differ from Australian laws.
THE WHEB ADVANTAGE
10
SPECIALIST FIRM: Partnership, B-Corporation. Genuine ‘Intentionality’
LONG TERM BOTTOM-UP INVESTORS; ESG Integration and Stewardship comes naturally
SUSTAINABILITY and ESG ‘built in’ not ‘bolted on’
LEADING PROPONENT of impact investing
‘SOLUTIONS TO SUSTAINABILITY CHALLENGES’: social and environmental themes
HUMANITY’S FOOTPRINT IS LARGER THAN EVER
11 Sources: United Nations Population Division; “A Sustainable Model for Intensive Agriculture”, University of Sheffield Grantham Centre for Sustainable Futures, December 2015; “Species and Spaces, People and Places” 2014 Living Planet Report, World Wildlife Fund
Since 1970…
GLOBAL POPULATION HAS DOUBLED
A THIRD OF ARABLE LAND HAS BEEN LOST
HALF OF BIODIVERSITY HAS BEEN LOST
THE WORLD FACES GREATER CHALLENGES THAN WE HAVE EVER OVERCOME BEFORE
12
Sources: “Climate Change: Actions, Trends and Implications for Business”, The Intergovernmental Panel on Climate Change’s Fifth Report, Working Group 1, September 2013; “Energy Technology Perspectives 2016: Towards
Sustainable Urban Energy Systems”, International Energy Agency, June 2016; “Waste Production Must Peak this Century”, Hoornweg, Bhada-Tata and Kennedy, Nature Magazine, October 2013; “Food Needs and Population”,
United Nations Food and Agriculture Organisation
By 2050…
HALVE EMISSIONS
PROCESS TWICE AS MUCH SOLID WASTE
INCREASE FOOD PRODUCTION BY HALF
SOLVE SOARING CHRONIC DISEASE
THE SIXTH INDUSTRIAL REVOLUTION
13 Derived from: Technological revolutions and Financial Capital, Carlota Perez, 2002
1750 1790 1830 1870 1910 1950 1990 2030
Te
ch
no
log
ica
l m
atu
rity
INDUSTRIAL REVOLUTION
STEAM AND RAILWAYS
INFORMATION AND TELE-
COMMUNICATION
OIL, AUTOMATION
AND MASS PRODUCTION
STEEL, ELECTRICITY AND HEAVY
ENGINEERING
INDUSTRIAL TRANSITION TO A LOW CARBON & SUSTAINABLE
ECONOMY
OUR STRATEGY FOCUSES ON OPPORTUNITIES
14
20% 20% 60%
TRANSITIONING SUSTAINABLE GROWTH
UNSUSTAINABLE
CAPTURING THE OPPORTUNITY
ENVIRONMENTAL
SERVICES
CLEANER
ENERGY
SAFETY
RESOURCE
EFFICIENCY
WATER
MANAGEMENT
SUSTAINABLE
TRANSPORT
EDUCATION
HEALTH
15
WELL-BEING
SUSTAINABILITY CHALLENGES ARE RESHAPING THE GLOBAL ECONOMY
16 Sources: MSCI World Indexes: MSI World (ticker: MXWO), Energy (MXWO0EN), Utilities (MXWO0UT), Metals and Mining (MXWO0MM); WHEB Asset Management LLP
-7.9%
-4.3% -3.5%
5.6%
8.5%
TRADITIONAL ENERGY UTILITIES METALS AND MINING OVERALL ECONOMY SUSTAINABILITYSOLUTIONS
Global revenue growth by industry (listed participants), 2011-2017
ADVANCED MANUFACTURING: A REVOLUTION IN RESOURCE USE
17 Sources: Renishaw plc White Paper “The Survival of the Fittest” http://resources.renishaw.com/en/details/white-paper-survival-of-the-fittest-the-process-control-imperative--35900 ; Efficient use of resources in manufacture of metal components (2018, February 1) from https://phys.org/news/2018-02-efficient-resources-metal-components.html; IPG Photonics Presentation to Merrill Lynch Conference June 2015. Sources: Advanced Metrology - Credence Research (July 2016); Lasers and Fibre Lasers – IPG Photonics (June 2015); Additive Manufacturing – IDC (April 2016)
MACHINE VISION
20-30% EFFICIENCY IMPROVEMENTS
FIBRE LASER CUTTING
40-60% LOWER PROCESSING COSTS
ADDITIVE MANUFACTURING
20-60% MATERIAL SAVINGS
EFFICIENCY BEGINS WITH DESIGN
18 Source: Handprints of Innovation: A Case Study of Computer-Aided Design in the Automotive Sector, G. Norris (Center for Health and the Global Environment, Harvard T.H.Chan School of Public Health, and A Phansey (Dassault Systemes).
14 TCO2 SAVED PER VEHICLE LIFETIME
7.5 TCO2 SAVED PER VEHICLE LIFETIME
FORD TRANSIT
FORD F150
1% 3% 4%
10%
15%
20%
30%
35%
50%
1950 1960 1970 1980 1990 2000 2010 2020 2030
ELECTRONIFICATION OF CARS…
Automotive electronic cost (% of total vehicle)
19 Source: Roland Berger, quoted in Siemens Mentor Automotive Blog
…IS MORE THAN JUST THE DRIVE CHAIN
Market development of advanced driving assistance in light vehicles
20 Source: “Global Automotive Supplier Study 2016: Being Prepared for Uncertainties” – Roland Berger, July 2016
0
5
10
15
20
25
30
2015 2017 2019 2021 2023 2025
EU
R B
n
Lane Departure Warning
Night Vision
Drowsiness Detection
Parking Assist
Blind Spot Detection
Highway Pilot
ANNUAL GROWTH
RATE:
16 %
CLIMATE PRESSURES GROWING ON WATER INFRASTRUCTURE
21 Source: Xylem (www.makingwaves.xylem.com)
WASTEWATER TREATMENT AND RECLAMATION
AGED SEWER BYPASS SOLUTIONS
UNDERGROUND WASTEWATER RECYCLING
KUWAIT USA CHINA
ADVANCED MATERIALS: LIGHTER, STRONGER, RECYCLABLE
22 Sources: Company websites
COMPOSITE WIND TURBINE BLADES
CARDBOARD DYNEEMA SYNTHETIC LINKS
THE LIFE SCIENCES R&D EXPLOSION
US federal research funding by discipline
23 [Source: National Science Foundation, Federal Funds for Research and Development series. FY2016 and 2017 data are preliminary. Constant-dollar conversions based on OMB’s GDP deflators. © 2017 AAAS
0
10
20
30
40
50
60
70
80
1970 1980 1990 2000 2010
US
D B
n LIFE SCIENCES
OTHER
LIFE SCIENCES R&D GROWS AT TWICE AS FAST AS OTHER CATEGORIES
3.2 %
CUTTING COSTS IN HEALTHCARE
24 Source: Lewin Group: “Medicaid Managed Care Cost Savings - A Synthesis of 24 Studies”, Updated March 2009; Jessica Van Parys, Columbia University: “How Do Managed Care Plans Reduce Healthcare Costs?”, 29 October 2014; Association for Community Affiliated Plans: “Potential Savings of Medicaid Capitated Care: National and State-by-state Estimates”, July 2017
Savings from managed medicaid vs. Fee-for-service (metastudies)
19%
12%
7%
3% 2%
2009 HIGH 2014 HIGH 2014 LOW 2017 2009 LOW
ANNUAL SAVINGS AT LEAST $7.1BN
25
THE FUTURE IS ALREADY HERE
BUILDING-INTEGRATED &
ROOFTOP SOLAR PANELS
HIGH-EFFICIENCY FACADE
LOW IMPACT MATERIALS
IN CLOTHING
GYM & FITNESS
BICYCLES
EDUCATION CENTRE HIGH EFFICIENCY LEDS
HEALTHY, ORGANIC FOOD
RECYCLING
ELECTRIC VEHICLES
26
INVESTMENT PROCESS
GROWTH QUALITY
VALUE
LONG TERM INVESTORS IN HIGH QUALITY COMPANIES
Unlevered cash flow return on invested capital (three year average)
27 Source: WHEB, MSCI, Bloomberg
9.4%
6.8% 6.5%
5%
6%
7%
8%
9%
10%
STRATEGY SUSTAINABILITY UNIVERSE BENCHMARK (MSCI WORLD)
ESG ANALYSIS HELPS CREATE A MORE COMPLETE PICTURE
28
A narrow financial focus… …Ignores vital information
$1M INVESTED IN THE STRATEGY DURING 2016 …
29 Derived from: WHEB Impact Report 2016 and AUDGBP spot rate on 31 December 2016.
STRATEGY HAS AN OVER 12 YEAR TRACK RECORD
Partial simulation: conversion of actual £ track record to A$ with fees
30
From August 2017, performance figures are those of the Pengana WHEB Sustainable Impact Fund’s class A units (net of fees and including reinvestment of distributions). The strategy’s AUD performance between January 2006 and July 2017 has been simulated by Pengana from the monthly net GBP returns of the Henderson Industries of the Future Fund (from 1 January 2006 to 31 December 2011) and the FP WHEB Sustainability Fund (from 30 April 2012 to 31 July 2017). This was done by: 1) converting the GBP denominated net returns to AUD using FactSet’s month-end FX rates (London 4PM); 2) adding back the relevant fund’s monthly ongoing charge figure; then 3) deducting the Pengana WHEB Sustainable Impact Fund’s management fee of 1.35% p.a. The WHEB Listed Equity strategy did not operate between 1 January 2012 and 29 April 2012 – during this period returns are nulled. The Henderson Industries of the Future Fund’s and the FP WHEB Sustainability Fund’s GBP net track record data is historical. Past performance is not a reliable indicator of future performance. The value of the investment can go up or down.
NET RETURNS (%) TO 31 MAR 18 1M 6M 1Y 3Y P.A. 5Y P.A. ITD P.A.
Fund 1.3 8.6
Fund & Strategy (partial simulation) 1.3 8.6 19.9 7.7 16.5 5.7
MSCI World Net Total Return -0.6 6.5 13.0 7.8 16.6 5.3
0
1
-50%
0%
50%
100%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Fund and Strategy
(partial simulation)
Actual Fund
performance
MSCI World
31
IMPORTANT INFORMATION AND DISCLAIMER
This presentation has been prepared by Pengana Investment Management Limited (ABN 69 063 081 612, AFSL 219 462) (‘Pengana’) and is being provided to wholesale investors solely for information purposes. This presentation does not
contain any investment recommendation or investment advice and has been prepared without taking account of any person’s objectives, financial situation or needs. This presentation and examples therein do not specify or summarise all of the
information which may be relevant to a decision about whether to invest in the products. Before making any investment decision a potential investor should consider the relevant Offer Document.
This presentation is not an offer of securities and it must not be construed as an offer to sell or an invitation to subscribe for any securities or other financial products in any jurisdiction or country.
Neither Pengana nor its related bodies corporate or their directors, officers, employees, agents, advisers or associates (‘Pengana Associates’) guarantee or warrant the outcomes outlined in this presentation and each recipient of this presentation
is responsible for forming their own opinion as to the possible financial outcomes.
Past performance is not a reliable indicator of future performance. The value of investments can go up and down. The potential investments are subject to investment risk, including possible delays in repayment and loss of income and principal
invested. The repayment of an investment in and the performance of the products are not guaranteed by Pengana or any of the Pengana Associates or any other person or organisation.
The information in this presentation is confidential and should not be disclosed to any other person without the prior consent of Pengana.
While care has been taken in the preparation of this presentation, Pengana makes no representation or warranty as to the accuracy, currency or completeness of any statement in this presentation including, without limitation, any forecasts,
objectives, targets or values.
To the maximum extent permitted by law, Pengana expressly disclaims all or any liability which may arise out of the provision to, or use by, any person of the information contained in this presentation.
WHEB Asset Management LLP (‘WHEB’) has reviewed the attached marketing materials related to the Pengana WHEB Sustainable Impact Fund (the ‘Fund’) as advised by WHEB. WHEB’s comments and recommendations are intended to
ensure that the description of the advisory services provided by WHEB to the Fund is accurate and meaningful. WHEB has not otherwise reviewed this material for compliance with applicable regulations regarding the offering and/or marketing of
the Fund. It is WHEB’s understanding that these materials will be used solely to offer or market the Fund, and not to solicit potential advisory clients for WHEB.
To the fullest extent permitted by applicable law, regulation and rule of regulatory body, WHEB Asset Management, its group companies and its or their directors, officers, employees, associates and agents (‘WHEB Persons’) shall have no liability
for any loss in relation to this presentation, however arising including without limitation direct, indirect, consequential or loss of profit.
‘WHEB Asset Management’ is a trading name of WHEB Asset Management LLP, whose registered office is at 7 Cavendish Square, London W1G 0PE and which is registered in England and Wales with number OC 341489. WHEB Asset
Management LLP is authorised and regulated by the Financial Conduct Authority (UK) with Firm Reference Number 496413.
WHEB Asset Management, LLP is permitted to conduct financial services in Australia pursuant to an exemption from the need to hold an Australian financial services licence under the Australian Corporations Act 2001. WHEB Asset
Management, LLP is regulated by the Financial Conduct Authority of the United Kingdom under the laws of the United Kingdom, which differ from Australian laws.
Relating to data in this presentation sourced from MSCI: Neither MSCI no any other party involved in or relating to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such
data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without
limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other
damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.
The Responsible Investment Certification Program does not constitute financial product advice. Neither the Certification Symbol nor RIAA recommends to any person that any financial product is a suitable investment or that returns are
guaranteed. Appropriate professional advice should be sought prior to making an investment decision. RIAA does not hold an Australian Financial Services Licence.
The Lonsec Rating (assigned January 2018) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to "General Advice" (as defined in the Corporations Act 2001 (Cth)) and
based solely on consideration of the investment merits of the financial product(s). Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold
Pengana Capital product(s), and you should seek independent financial advice before investing in this product(s). The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following
publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria. For further information regarding Lonsec's Ratings methodology, please refer to our website at:
https://www.lonsecresearch.com.au/research-solutions/our-ratings.
MANAGING PORTFOLIO RISK FOR CLIENTS
Michael Armitage, Milliman
APRIL 2018
33
IMPORTANT INFORMATION AND DISCLAIMER The information, products, or services described or referenced herein are intended to be for informational purposes only. This information is confidential. This material is not intended to be a recommendation, offer, solicitation or advertisement to
buy or sell any securities, securities related product or service, or investment strategy, nor is it intended to be to be relied upon as a forecast, research or investment advice.
The products or services described or referenced herein may not be suitable or appropriate for the recipient. Many of the products and services described or referenced herein involve significant risks, and the recipient should not make any
decision or enter into any transaction unless the recipient has fully understood all such risks and has independently determined that such decisions or transactions are appropriate for the recipient. Investment involves risks. Any discussion of risks
contained herein with respect to any product or service should not be considered to be a disclosure of all risks or a complete discussion of the risks involved. Investing in foreign securities is subject to greater risks including: currency fluctuation,
economic conditions, and different governmental and accounting standards. There are risks associated with futures contracts. Futures contract positions may not provide an effective hedge because changes in futures contract prices may not
track those of the securities they are intended to hedge. Futures create leverage, which can magnify the potential for gain or loss and, therefore, amplify the effects of market, which can significantly impact performance. There are also risks
associated with investing in fixed income securities, including interest rate risk, and credit risk.
The recipient should not construe any of the material contained herein as investment, hedging, trading, legal, regulatory, tax, accounting or other advice. The recipient should not act on any information in this document without consulting its
investment, hedging, trading, legal, regulatory, tax, accounting and other advisors. Information herein has been obtained from sources we believe to be reliable but neither Milliman Pty Ltd (“Milliman”) nor its parents, subsidiaries or affiliates
warrant its completeness or accuracy. No responsibility can be accepted for errors of facts obtained from third parties.
Past performance is not indicative of future results. Index performance information is for illustrative purposes only, does not represent the performance of any actual investment or portfolio, and should not be viewed as a recommendation to
buy/sell. It is not possible to invest directly in an index. Any hypothetical, backtested data illustrated herein is for illustrative purposes only, and is not representative of any investment or product.
Results based on simulated or hypothetical performance results have certain inherent limitations. Unlike the results shown in an actual performance record, These results do not represent actual trading. Also, because these trades have not
actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as liquidity. Simulated or hypothetical trading programs, in general are also subject to the fact that they are
designed with the benefit of hindsight. No representation is being made that any account is or is likely to achieve profits or losses similar to those being shown.
For any hypothetical simulations illustrated, Milliman does not manage, control or influence the investment decisions in the underlying account. The underlying accounts in hypothetical simulations use historically reported returns of widely known
indices. In certain cases where live index history is unavailable, the index methodology provided by the index may be used to extend return history. To the extent the index providers have included fees and expenses in their returns, this
information will be reflected in the hypothetical performance. Milliman does not intend the use of such indices to be construed as investment advice or a recommendation to invest in similar accounts.
The materials in this document represent the opinion of the authors at the time of authorship; they may change, and are not representative of the views of Milliman or its parents, subsidiaries, or affiliates. Milliman does not certify the information,
nor does it guarantee the accuracy and completeness of such information. Use of such information is voluntary and should not be relied upon unless an independent review of its accuracy and completeness has been performed. Materials may
not be reproduced without the express consent of Milliman.
This presentation is solely for wholesale investors. None of Pengana Capital Limited (ABN 30 103 568, AFSL 226566) nor any of its related bodies corporate or associates guarantee or warrant the outcomes outlined in this presentation. Each
recipient of this presentation is responsible for forming an opinion as to the possible financial outcomes.
Relating to data in this report sourced from MSCI: Neither MSCI nor any other party involved in or relating to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data
(or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without
limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other
damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.
The Zenith Investment Partners (“Zenith”) Australian Financial Services License No. 226872 rating (assigned November 2017) referred to in this document is limited to “General Advice” (as defined by the Corporations Act 2001) for Wholesale
clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek
independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or
offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Zenith usually charges the product issuer, fund manager or a related party to conduct Product Assessments. Full details
regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessment’s and at http://www.zenithpartners.com.au/RegulatoryGuidelines
for more information:
au.milliman.com
+61 02 8090 9100
THE INVESTMENT CHALLENGE
Many clients need growth assets but they are often riskier
Protecting on the downside whilst also providing upside
About risk adjusted returns not just returns
34
THE CHALLENGES OF EQUITY INVESTING
Diversification alone
leaves portfolios open to
systematic risk
Retiree dynamics –
sequence risk – underscores
need to manage risk
Want/need exposure to
growth assets, but
markets are volatile
High volatility experienced
in equities leads to poor
investor behaviour
35
PENGANA INTERNATIONAL FUND-MANAGED RISK
36
Active International Equity Manager & Institutional Risk Manager
INTERNATIONAL FUND
The Pengana International Fund aims
to provide exposure to a diversified
portfolio of highly cash-generative and
growing global companies purchased
at compelling valuations.
MILLIMAN MANAGED RISK
STRATEGY MMRS™
is a rules based strategy designed to
stabilise portfolio returns and minimise
loss in sustained market falls while
allowing for meaningful participation in
growth of the underlying portfolio.
37
MILLIMAN – OVERVIEW
SNAPSHOT
EXPERTISE
Milliman is a global leader in risk management
SCALE
Milliman’s size , global platform provides 24 hour –
real time risk management. Further, access to global
consultants on strategy research and development
at lower cost
STRUCTURE
Allows us to structure customized and cost effective
Risk Management
COSTS
The Milliman fee is paid by the manager
Among the world’s largest providers of actuarial
and risk consulting services
Global Authority on the dynamics of retirement
Investment advisory, hedging and consulting
services on A$184 billion in global assets
(as of March 2018)
Offices around the world & >3,000 employees
>130 risk trading professionals
BENEFITS
WHY A MANAGED RISK STRATEGY?
A growing subset of investors face specific risks
38
PORTFOLIO RISK MANAGEMENT STRATEGIES
CATASTROPHE
PROTECTION
EXPLICIT OPTION
PURCHASES
RISK
CONTROL
ASSET
ALLOCATION
TYPICAL COST
OF RISK
MANAGEMENT
39
40 Data Source: Bloomberg, Milliman
DIVERSIFICATION FAILS WHEN YOU NEED IT MOST
MOST ASSET
CLASSES TREND
DOWN TOGETHER
41
EQUITIES: THE SEQUENCE OF RETURNS MATTER
Investors are exposed to market falls as they approach retirement
42
BEHAVIOURAL BIAS: EXACERBATES SEQUENCING RISK
De-risking to low risk investments at the peak of market drawdowns significantly extends the time it takes for their balance to recover, if at all
43
OBJECTIVES OF MANAGED RISK STRATEGY
Equity Exposure + MMRS = Managed Risk Equity Exposure
ACTIVE RISK MANAGEMENT PROVIDES A SMOOTHER RIDE...
EXPLICIT RISK
MANAGEMENT
SMOOTHER
RETURNS
BETTER RETIREMENT
OUTCOMES
Reduces losses
Addresses sequencing risk
Counters behavioural bias by providing confidence to stay invested
Increases the likelihood of meeting goals
GIVES PROVIDES
PENGANA INTERNATIONAL FUND - MANAGED RISK
Active equity investing plus explicit risk control
44
EXPLICIT RISK
OVERLAY
PORTFOLIO
CONSTRUCTION
STOCK SELECTION
& ACTIVE
MANAGEMENT
MULTIPLE LAYERS OF RISK MANAGEMENT
Managing both diversifiable and systemic risk
STOCK SELECTION
LOGICAL, COMMON SENSE AND WIDELY PROVEN TO WORK
CASH
GENERATION
GROWING
GOOD
MANAGEMENT
POSITIVE
TAILWINDS
REASONABLE
VALUATION
UNLIKELY
TO BLOW UP
46
47
Data Source: Milliman Economic Scenario Generator and Simulation Model.
These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Milliman does not manage the underlying fund.
EXPLICIT RISK OVERLAY ACROSS MARKET CYCLES
NORMAL MARKET UP MARKET DOWN MARKET LARGE DOWN MARKET MARKET IN RECOVERY NORMAL MARKET
Protection strengthens as
volatility increases and as
markets fall, seeking to provide a
substantial cushion in a crisis
In stable rising markets,
protection softens as markets
grow, seeking to allow greater
upside participation
Protection level adjusts
dynamically seeking to harvest
gains and allow the portfolio to
participate in a market recovery
48
BENEFITS OF MANAGED RISK STRATEGY
SMOOTHS
A smoothing capability that reduces chance of poor investor behaviour
CUSHIONS
Designed to truncate loss from sustained market falls
VALUE
The ‘cost’ of this cushion is a small drag on market upside
LIQUID
Uses the simplest of exchange traded instruments to provide protection
PREDICTABLE
Explicit risk management following a rules based approach
TESTED
Implemented by Global Leader in risk hedging solutions 24/5
49
WHAT THE MANAGED RISK STRATEGY DELIVERS
Transforms equity to ‘managed risk equity’
Stabilise portfolio volatility around
a target level
Capture growth in up markets
Defend against losses during
sustained market declines
OBJECTIVES: ROUND-THE-CLOCK
MONITORING
FULL TRANSPARENCY
PROVIDED
PENGANA INTERNATIONAL FUND MANAGED RISK OVERLAY: Futures & Cash (~ 5%)
PENGANA INTERNATIONAL FUND Remains largely invested as before (~95%)
50
Source: Bloomberg
The results shown are historical, for informational purposes only, not reflective of any investment, and do not guarantee future results. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the results of an actual investment portfolio.
MANAGED RISK STRATEGY AIMS TO CUSHION AGAINST SEVERE MARKET FALLS
Cumulative simulated impact
51 These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Milliman does not manage the underlying fund.
PERFORMANCE EXPECTATIONS IN DIFFERENT MARKET ENVIRONMENTS
STRONGEST PERFORMANCE WEAKEST PERFORMANCE
52
ENHANCING THE POWER OF COMPOUND RETURNS INTO A PORTFOLIO
RETURN VOLATILITY RETURN/RISK RATIO MAXIMUM DRAWDOWN
YEAR MSCI WORLD
EX AUST
MSCI WORLD
EX AUST + MMRS
MSCI WORLD
EX AUST
MSCI WORLD
EX AUST + MMRS
MSCI WORLD
EX AUST
MSCI WORLD
EX AUST + MMRS
MSCI WORLD
EX AUST
MSCI WORLD
EX AUST + MMRS
2000 5.8% 4.0% 18.4% 9.9% 0.32 0.40 14.3% 7.0%
2001 -9.1% -4.2% 18.9% 7.1% -0.48 -0.59 21.8% 8.9%
2002 -26.8% -10.2% 21.8% 5.8% -1.23 -1.75 34.4% 12.4%
2003 -0.7% 3.7% 17.7% 5.5% -0.04 0.68 18.6% 3.9%
2004 10.4% 7.2% 13.5% 8.8% 0.77 0.82 9.4% 6.6%
2005 17.3% 14.7% 10.1% 8.3% 1.70 1.78 5.1% 3.8%
2006 12.0% 11.6% 10.7% 9.0% 1.12 1.29 10.4% 8.8%
2007 -1.9% -1.9% 12.4% 9.5% -0.15 -0.20 11.0% 8.7%
2008 -25.4% -11.0% 28.0% 7.5% -0.91 -1.48 28.5% 11.6%
2009 1.6% 5.4% 16.4% 6.3% 0.10 0.86 18.5% 4.7%
2010 -1.5% -0.5% 11.0% 7.7% -0.14 -0.06 7.8% 5.5%
2011 -5.0% -3.8% 15.4% 8.0% -0.33 -0.48 18.8% 11.9%
2012 14.8% 10.4% 9.1% 6.2% 1.63 1.68 7.4% 5.5%
2013 49.2% 45.8% 11.3% 10.3% 4.37 4.45 6.0% 5.4%
2014 15.7% 10.7% 11.7% 10.4% 1.33 1.03 7.5% 7.3%
2015 11.9% 6.6% 15.9% 11.1% 0.75 0.60 8.6% 5.7%
2016 9.1% 7.9% 11.9% 8.9% 0.77 0.89 9.2% 6.7%
2017 13.7% 13.9% 8.8% 8.5% 1.57 1.63 6.4% 6.4%
AVERAGE 3.8%p.a 5.5%p.a 15.4%p.a 8.4%p.a 0.24p.a 0.65p.a 51.3%p.a 20.9%p.a
53 Source: S&P / Milliman Managed Risk Indices
UNMANAGED VS MANAGED RISK PORTFOLIOS
Historical sharpe ratio and maximum drawdown: Managed risk indices versus unmanaged portfolios
1.20
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
Ris
k-A
dju
ste
d R
etu
rn
0% 10% 20% 30% 40% 50% 60%
Maximum Drawdown
50/50
Managed Risk Unmanaged
60/40
70/30
80/20
100/0
90/10 50/50
60/40
70/30
80/20
100/0
90/10
AUSTRALIAN EQUITIES FUND APRIL
2018 Rhett Kessler
Fund Manager
KEY Themes
THE FUNDAMENTALS FOR CAPITAL
PRESERVATION AND WEALTH CREATION IN
EQUITY MARKETS ARE INTACT.
OUR INVESTMENT TEAM, PROCESS AND
MANDATE IS WELL PLACED TO TAKE
ADVANTAGE OF THE INCREASED
VOLATILITY.
1.
2.
55
Source: Morgan Stanley Research, ABS
POPULATION GROWTH REMAINS STEADY UNDERPINNING GDP GROWTH
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Mar 00 Mar 02 Mar 04 Mar 06 Mar 08 Mar 10 Mar 12 Mar 14 Mar 16
Real GDP Growth Population Growth
56
Source: ABS, Morgan Stanley Research
UNEMPLOYMENT RATE IS LOW, AND PARTICIPATION RATE HIGH…
57
Source: NAB Business Confidence Survey
NAB SURVEYS INDICATE BUSINESS CONFIDENCE AND CONDITIONS APPEAR SOLID AND TRENDING POSITIVELY
-40
-30
-20
-10
0
10
20
30
1997 2000 2003 2006 2009 2012 2015 2018
NAB Business Confidence NAB Business Conditions
58
Source: ANZ Research
ANZ JOB ADVERTISEMENTS HAVE BEEN TRENDING POSITIVELY FOR SOME TIME…
59
Combined Victoria and Queensland poker machine revenue growth (NSW data not current).
Source: VCGLR & QOLQR
POKER MACHINE REVENUE TRENDS HAVE TRADITIONALLY BEEN A GOOD INDICATOR OF CONSUMER CONFIDENCE…
Poker machine revenue growth
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
05 06 07 08 09 10 11 12 13 14 15 16 17 18
60
Source: Macquarie Research
US LONG TERM BOND YIELDS HAVE BEGUN TO RISE, THOUGH REMAIN AT LOW LEVELS RELATIVE TO HISTORY…
61
Yield on safe US 10-yr bonds
Source: ABS, Morgan Stanley Research
NON DISCRETIONARY INFLATION REMAINS A CONCERN
62
ITS BUSINESS AS USUAL FOR US….
OUR FUNDAMENTAL BELIEFS
CAPITAL
PRESERVATION
BENCHMARK
UNAWARE
IF WE CANNOT FIND
INVESTMENTS THAT
JUSTIFY RISK, STAY IN
CASH 64
LIMIT
CAPACITY
OUR BELIEFS
FUND
MANAGERS
ARE CO-
INVESTORS
TAX
AWARE
THE AUSTRALIAN EQUITIES INVESTMENT TEAM
Over 100 years combined experience
RHETT KESSLER
• CA
• CMA
• Years in industry: 30
CIO & FUND MANAGER
ANTON DU PREEZ
• CA
• CFA
• CMA
• Years in industry: 30
DEPUTY CIO & FUND MANAGER
MARK CHRISTENSEN
• CA
• Years in industry: 20
ANALYST
CHRIS TAN
• Years in industry: 23
ANALYST
65
66 Source: Bloomberg and Pengana
HOW CASH HOLDINGS HAVE EVOLVED RELATIVE TO MARKET PERFORMANCE
-15%
-10%
-5%
0%
5%
10%
15%
50%
40%
30%
20%
10%
0.%
10.%
20.%
30.%
40.%
50.%
Aug 2008 Aug 2009 Aug 2010 Aug 2011 Aug 2012 Aug 2013 Aug 2014 Aug 2015 Aug 2016 Aug 2017
Cash deployed following periods of market weakness
AEF Cash % (LHS) All Ords Index Monthly Returns
67 Source: Bloomberg, Pengana
THERE’S A TIME TO BE DISCIPLINED AND A TIME TO BE BRAVE
Source: FactSet and Pengana
VALUE OF CAPITAL PRESERVATION AND A REASONABLE RETURN
68 Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. Past performance is not a reliable indicator of future performance, the value of investments can go up and down. Inception 1st July 2008..
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FYTD18
Retu
rns (
%)
Pengana Australian Equities Fund S&P/ASX All Ordinaries Accum. Index Average PAEF Average S&P/ASX All Ordinaries Accum. Index Target
69
OUR INVESTMENT PROCESS
IDEA GENERATION
PRIVATE INDUSTRY NETWORK COMPANY MANAGEMENT BROKER RESEARCH FUNDAMENTAL SCREENS
IS IT A GOOD BUSINESS?
STAKEHOLDER POWER PREDICTABILITY MANAGEMENT TRANSPARENCY
CAN WE ACQUIRE IT AT THE RIGHT PRICE?
AFTER TAX CASH EARNINGS
YIELD OF AT LEAST 6%
AUSTRALIAN EQUITIES INCOME FUND
Can this provide the basis for a sustainable
and growing dividend stream
AUSTRALIAN EQUITIES FUND
Can this be reasonably expected to grow
to 10% in the medium term
70
TOP 10 HOLDINGS AND SECTOR EXPOSURE
SECTOR EXPOSURES
Defensive 40%
Financials * 30%
Consumer Disc. 10%
Commodity Services 0%
Cash 20%
Total 100%
Non-AUD Earnings 9%
TOP 10 HOLDINGS
CSL
Resmed
Z Energy
Telstra
Woolworths
NIB
Credit Corp
Westpac
ANZ
SG Fleet
CUMULATIVE WEIGHT IN FUND
45 %
CUMULATIVE WEIGHT IN ASX300
20 %
71
What are we buying? Is Bingo a good business?
Is management competent? Can we acquire it at the right price?
Vertically-integrated waste business focussed on
B&D and Commercial sectors
Collections: 45%
Post-collections: 55%
Key asset is Bingo’s network of recycling facilities in
metropolitan Sydney allowing the company dominate
the treatment of B&D waste by diverting waste from
landfill
Bingo is in the early stages of replicating this strategy
in Victoria
CEO Daniel Tartak has spent his entire career at
Bingo and has been instrumental in growing the
business from a small family business to a $1bn listed
company.
He retains all his shares in the company and recently
added to his investment
At our entry price Bingo is forecast to deliver an
ATCEY of 9.5%+
At current market price it still offers a very
respectable 7% ATCEY, with the prospect of
growing to ~10% within 3 years
72 *Net performance figures are shown after all fees and expenses, and assume reinvestment of distributions. Past performance is not a reliable indicator of future performance, the value of investments can go up and down. Inception 1st July 2008. Annualised standard deviation since inception. Relative to ASX All Ordinaries Index.
FUND PERFORMANCE JULY 2008 TO MARCH 2018
Growth of A$100,000 (Since July 2008 Inception)*
-
50,000
100,000
150,000
200,000
250,000
300,000
Pengana Australian Equities Fund ASX All Ordinaries Index (Accum.) RBA Cash Rate RBA Cash Rate + 6%
STOCK EXAMPLES
74
What are we buying? Is the plasma fractionation business a good business?
Is management competent? Can we acquire it at the right price?
Plasma fractionation: 92% ($27b of value)
Royalties, R&D, Vaccines: 8% ($3b of value)
Economically insensitive business
Large Scale barriers to entry (CSL is lowest cost producer globally)
“Last Litre Economics” make FDA Approved Suite of
Products a necessity
Very efficient raw materials source – US Collection centre network
Consistently under promised and over delivered
Conservative accounting with good disclosure
Consistently invested ahead of the curve in long term
strategic projects
Quality sensitive product has reputation of reliability
Current sustainable after tax cash earnings yield of 6%, growing at 10%+
Exposure to non-AUD earning streams
75
What are we buying? Are Mobile & Recurring NBN good businesses?
Is management competent? Can we acquire it at the right price?
Mobile Business: 45%
Recurring NBN income stream: 20%
IP & Data: 15%
Non Recurring NBN income: 10%
Other business units: 10%
TLS is dominant mobile network operator with scale ensuring leadership in breadth
and quality. Enhanced ability to bundle with home broadband, phone, pay TV.
Data component of Mobile Network is a non discretionary part of the consumer
budget as evidenced by low through the cycle bad debts.
Nearing the end of the investment to meet demand without pricing power.
Recurring NBN income is a quasi government backed income stream with inflation
step ups each year.
Potentially the biggest upside if Management and Board
are prepared to shrink the business to greatness.
Taken the first pragmatic step by admitting reduced
ambitions on acquisitions
Individual business managers have demonstrated core
competencies.
Current after tax cash earnings yield of 13.5% for FY19 including
non recurring NBN payments, or 8% excluding non recurring NBN,
with scope for growth from 2019.
Sustainable cash dividend yield of 6.6%, and almost 9.5% post
franking.
76
IMPORTANT INFORMATION AND DISCLAIMER
This information has been prepared by Pengana Capital Ltd (ABN 30 103 800 568, Australian financial services license number 226566). This information does not contain any investment
recommendation or investment advice and has been prepared without taking account of any person’s objectives, financial situation or needs. Therefore, before acting on this information a
person should consider the appropriateness of the information, having regard to their objectives, financial situation and needs.
Pengana Capital Ltd (ABN 30 103 800 568, Australian financial services license number 226566) is the issuer of units in the Pengana Australian Equities Fund (ARSN 146 346 929) (the
“Fund”). Pengana Investment Management Limited (ABN 69 063 081 612, AFSL 219462) is the issuer of units in the Australian Equities Income Fund (ARSN 098 586 586) (the “Fund”).
Product disclosure statements for the Funds are available and can be obtained from our distribution team. A person should obtain a copy of the product disclosure statement and should
consider the product disclosure statement carefully before deciding whether to acquire, or to continue to hold, or making any other decision in respect of, the units in the Funds.
Neither Pengana Capital Limited nor its related bodies corporate or their agents guarantee or warrant the outcomes outlined in this presentation and each recipient of this presentation is
responsible for forming its own opinion as to the possible financial outcomes.
The repayment of an investment in and the performance of the Funds is not guaranteed by Pengana Capital or any of its related bodies corporate or any other person or organisation. The
potential investment is subject to investment risk, including possible delays in repayment and loss of income and principal invested.
Past performance is not indicative of or a guarantee of future results. This presentation is intended to provide a general outline only and is not intended to be a definitive statement on the
subject matter.
Icons made by http://www.freepik.com from http://www.flaticon.com is licensed under Creative Commons BY 3.0
Images: www.pixabay.com
IMPACT CALCULATOR LAUNCHED MEASURE THE IMPACT OF YOUR CLIENTS’ INVESTMENT
78 Data per $1M invested in the Fund. Derived from: WHEB Impact Report 2016 and AUDGBP spot rate on 31 December 2016.
PENGANA.COM/
IMPACT-CALCULATOR
PORTFOLIO CONSTRUCTION
79
CORE CYCLICAL OPPORTUNISTIC
PORTFOLIO
DIVERSIFIED GROWING RIGHT VALUATION
0–30% OF FUND
0–20% OF FUND
Stable and growing companies
with favourable tailwinds
Operating in cyclical industries
that are poised for an upturn
Unique company specific
situations with attractive
potential upside
60–80% OF FUND
FURTHER INFORMATION
PENGANA CAPITAL GROUP
ABN 43 059 300 426
Level 12, 167 Macquarie Street, Sydney, NSW 2000
T: +61 2 8524 9900
F: +61 2 8524 9901 PENGANA.COM
T: +61 2 8524 9900
CLIENT SERVICE
