Full Report
PIC Wholesale Inflation Plus Assertive
Portfolio
Fund Overview
About the Fund
Aims to deliver a return of 6% pa above inflation (before fees and tax) over 7
year periods by limiting the risk of negative returns over this time frame.
This careful risk management approach means there may be times when the
portfolio doesnt achieve its return objective. In most circumstances the
portfolio is expected to provide a positive return over 7 year periods, although
there will sometimes be negative returns over shorter periods.
For additional information on the portfolio please view our page for this
portfolio
Key Information
APIR Code MLC0782AU
Status Onsale
Product Size as at 31 Jul 2014
$146.15M
Commencement Date
14 Mar 2007
Important Announcements
16 Jan 2014
Performance fee for Low Correlation strategy
The performance fee is included in the investment fee below. The actual performance fee charged in future periods may
vary from period to period. Further information on the Low Correlation strategy is available on mlc.com.au/lcs/
Page 1 of 19
Full Report
PIC Wholesale Inflation Plus Assertive
Portfolio
Fund Breakdown
By Asset Class as at 30 Sep 2014
The information displayed reflects the actual asset allocation based on the holdings within the fund at the effective date.
Multi-Asset Class Real Return Strategies
22.3%
Defensive Global Shares - Unhedged 19.6%
Global Shares (unhedged) 15.4%
Global Bank Loans 3.0%
Enhanced Cash 2.0%
Insurance Related Investments
1.7%
Cash 1.2%
Other 0.9%
Global Shares (hedged) 0.5%
Low Correlation Strategy 12.9%
Australian Shares 8.0%
Emerging Market Shares (unhedged) 6.6%
Australian Inflation-Linked Bonds 5.8%
Asset Class
Target
Actual
Multi-Asset Class Real Return Strategies
22.0%
22.3%
$2,230
Defensive Global Shares - Unhedged
20.1%
19.6%
$1,964
Global Shares (unhedged)
15.4%
15.4%
$1,543
Low Correlation Strategy
15.0%
12.9%
$1,290
Australian Shares
8.0%
8.0%
$798
Emerging Market Shares (unhedged)
7.0%
6.6%
$663
Australian Inflation-Linked Bonds
6.0%
5.8%
$581
Global Bank Loans
3.0%
3.0%
$295
Enhanced Cash
1.0%
2.0%
$198
Insurance Related Investments
2.0%
1.7%
$173
Cash
0.0%
1.2%
$121
Other
0.0%
0.9%
$90
Global Shares (hedged)
0.5%
0.5%
$53
100.0%
100.0%
$10,000
Total
Investment Amount
Page 2 of 19
Full Report
PIC Wholesale Inflation Plus Assertive
Portfolio
By Manager as at 30 Sep 2014
Asset Class
Manager
Percentage
Investment Amount
Australian Inflation-Linked Bonds
Antares
5.8%
$581
Australian Shares
Alphinity Investment Management
1.3%
$129
Antares
1.4%
$137
JCP
1.4%
$137
Northcape
0.9%
$93
Redpoint
1.6%
$163
Vinva
1.4%
$139
Cash
Cash
1.2%
$121
Defensive Global Shares - Unhedged
International Value Advisors
19.6%
$1,964
Emerging Market Shares (unhedged)
Capital International
6.6%
$663
Enhanced Cash
Antares
2.0%
$198
Global Bank Loans
Shenkman Capital
3.0%
$295
Global Shares (unhedged)
Carnegie Asset Management
0.7%
$75
Dimensional
0.7%
$68
Harding Loevner
0.8%
$79
Jackson Square Partners
0.6%
$62
Kiltearn Partners
0.4%
$42
Sands Capital
0.7%
$68
Tweedy, Browne
0.8%
$77
10.7%
$1,072
1.7%
$173
12.9%
$1,290
Walter Scott
Insurance Related Investments
Nephila
Low Correlation Strategy
MLC Alternative Strategies
Multi-Asset Class Real Return Strategies
Pyrford
7.1%
$715
Ruffer
15.2%
$1,516
Other
0.6%
$56
State Street (currency manager)
0.9%
$87
100.0%
$10,000
Other
Total
Page 3 of 19
Full Report
PIC Wholesale Inflation Plus Assertive
Portfolio
By Industry as at 30 Sep 2014
Other 54.4%
Financials 9.2%
Information Technology 6.1%
Consumer Discretionary 5.2%
Industrials 4.7%
Energy 4.5%
Consumer Staples 3.7%
Materials 3.6%
Industry
Other
Health Care 3.3%
Telecommunication Services 2.1%
Information Technology 1.4%
Real Estate Investment Trusts (REITs) 0.8%
Utilities 0.7%
Industrials 0.3%
Utilities 0.0%
Materials 0.0%
Percentage
Investment Amount
54.4%
$5,444
Financials
9.2%
$921
Information Technology
6.1%
$606
Consumer Discretionary
5.2%
$519
Industrials
4.7%
$470
Energy
4.5%
$446
Consumer Staples
3.7%
$371
Materials
3.6%
$356
Health Care
3.3%
$334
Telecommunication Services
2.1%
$210
Information Technology
1.4%
$140
Real Estate Investment Trusts (REITs)
0.8%
$82
Utilities
0.7%
$74
Industrials
0.3%
$26
Utilities
0.0%
$0
Materials
Total
0.0%
$0
100.0%
$10,000
Page 4 of 19
Full Report
PIC Wholesale Inflation Plus Assertive
Portfolio
By Country as at 30 Sep 2014
Australasia 36.0%
North America 32.0%
Developed Asia 9.6%
United Kingdom 9.5%
Developed Europe (ex U.K.) 8.3%
Emerging Asia 2.7%
Latin America and the Caribbean 1.3%
Africa/Middle East 0.3%
Emerging Europe 0.3%
Country
Percentage
Investment Amount
Australasia
36.0%
$3,604
North America
32.0%
$3,201
Developed Asia
9.6%
$957
United Kingdom
9.5%
$948
Developed Europe (ex U.K.)
8.3%
$830
Emerging Asia
2.7%
$268
Latin America and the Caribbean
1.3%
$133
Africa/Middle East
0.3%
$30
Emerging Europe
0.3%
$28
100.0%
$10,000
Total
Stock Holdings
Top Stocks for Fund as at 31 Aug 2014
The Top Stocks for Fund have a one month reporting delay.
Stock Description
Industry
Country
Percentage
Investment Amount
COMMONWEALTH BANK OF AUSTRALIA
Financials
Australia
0.7%
$67
BHP BILLITON
Materials
Australia
0.7%
$67
WESTPAC BANKING CORP
Financials
Australia
0.7%
$66
ANZ BANKING GROUP
Financials
Australia
0.6%
$57
TELSTRA CORP
Telecommunication Services
Australia
0.5%
$46
NATIONAL AUSTRALIA BANK
Financials
Australia
0.4%
$39
MICROSOFT CORP
Information Technology
USA
0.3%
$30
SCHLUMBERGER
Energy
Netherlands
0.3%
$28
NOVO NORDISK A/S-B
Health Care
Denmark
0.3%
$27
EOG RESOURCES INC
Energy
USA
0.3%
$27
CHINA MOBILE
Telecommunication Services
Hong Kong
0.3%
$26
NESTLE SA
Consumer Staples
Switzerland
0.2%
$25
NIKE INC
Consumer Discretionary
USA
0.2%
$24
MASTERCARD INC
Information Technology
USA
0.2%
$24
CNOOC LIMITED
Energy
Hong Kong
0.2%
$23
FANUC CORPORATION
Industrials
Japan
0.2%
$23
JOHNSON AND JOHNSON
Health Care
USA
0.2%
$23
ORACLE CORP
Information Technology
USA
0.2%
$23
PRAXAIR INC
Materials
USA
0.2%
$22
ROCHE
Health Care
Switzerland
0.2%
$22
Page 5 of 19
Full Report
PIC Wholesale Inflation Plus Assertive
Portfolio
Top Stocks by Asset Class as at 31 Aug 2014
The Top Stocks by Asset Class have a one month reporting delay.
Australian Shares
Stock Description
Industry
Country
Percentage
Investment Amount
COMMONWEALTH BANK OF AUSTRALIA
Financials
Australia
0.7%
$67
BHP BILLITON
Materials
Australia
0.7%
$67
WESTPAC BANKING CORP
Financials
Australia
0.7%
$66
ANZ BANKING GROUP
Financials
Australia
0.6%
$57
TELSTRA CORP
Telecommunication Services
Australia
0.5%
$46
NATIONAL AUSTRALIA BANK
Financials
Australia
0.4%
$39
WOOLWORTHS LTD
Consumer Staples
Australia
0.2%
$22
RIO TINTO
Materials
Australia
0.2%
$22
WESFARMERS
Consumer Staples
Australia
0.2%
$20
QBE INSURANCE GROUP
Financials
Australia
0.2%
$16
Emerging Market Shares (unhedged)
Stock Description
Industry
Country
Percentage
Investment Amount
BANGKOK BANK
Financials
Thailand
0.1%
$11
MINTH GROUP LTD
Consumer Discretionary
USA
0.1%
$9
TAIWAN SEMICONDUCTOR
Information Technology
Taiwan
0.1%
$9
FIRST QUANTUM MINERALS LTD
Materials
Canada
0.1%
$9
BHARTI AIRTEL LIMITED
Telecommunication Services
India
0.1%
$9
MEDIATEK INC
Information Technology
Taiwan
0.1%
$9
INFOSYS LTD
Information Technology
India
0.1%
$8
HKT TRUST AND HKT LTD
Telecommunication Services
Hong Kong
0.1%
$8
DELTA ELECTRONICS
Information Technology
Taiwan
0.1%
$7
HYUNDAI MOTOR CO
Consumer Discretionary
South Korea
0.1%
$7
Global Shares (hedged)
Stock Description
Industry
Country
Percentage
Investment Amount
MICROSOFT CORP
Information Technology
USA
0.0%
$1
VISA INC
Information Technology
USA
0.0%
$1
NESTLE SA
Consumer Staples
Switzerland
0.0%
$1
GOOGLE INC
Information Technology
USA
0.0%
$1
SCHLUMBERGER
Energy
Netherlands
0.0%
$1
HDFC BANK LTD ADR
Financials
India
0.0%
$1
NIKE INC
Consumer Discretionary
USA
0.0%
$1
WELLS FARGO
Financials
USA
0.0%
$1
NOVO NORDISK A/S-B
Health Care
Denmark
0.0%
$1
BAIDU INC - ADR
Information Technology
USA
0.0%
$1
Page 6 of 19
Full Report
PIC Wholesale Inflation Plus Assertive
Portfolio
Global Shares (unhedged)
Stock Description
Industry
Country
Percentage
Investment Amount
MICROSOFT CORP
Information Technology
USA
0.3%
$30
SCHLUMBERGER
Energy
Netherlands
0.3%
$28
NOVO NORDISK A/S-B
Health Care
Denmark
0.3%
$27
EOG RESOURCES INC
Energy
USA
0.3%
$27
CHINA MOBILE
Telecommunication Services
Hong Kong
0.3%
$26
NESTLE SA
Consumer Staples
Switzerland
0.2%
$25
NIKE INC
Consumer Discretionary
USA
0.2%
$24
MASTERCARD INC
Information Technology
USA
0.2%
$24
CNOOC LIMITED
Energy
Hong Kong
0.2%
$23
FANUC CORPORATION
Industrials
Japan
0.2%
$23
Performance
Historical Performance
Absolute Fund Returns as at 30 Sep 2014
Returns for periods one year or greater are calculated on an annualised basis. All returns are calculated using end of
month redemption prices assuming all distributions are reinvested and are net of management fees which may include
administration fees, issuer fees and investment fees and prior to any individual tax considerations, and do not allow for
initial entry fees.
The returns outlined below represent historical performance only and is not an indication of future performance. The value
of an investment may rise or fall with changes in the market. Returns are calculated in accordance with FSC Standard No
6.
Fund Performance
Growth
Distributi
on
3 month
6 month
1 Year
3 Years
5 Years
4.3%
6.1%
4.3%
0.0%
10 Years
9.7%
13.7%
10.4%
N/A
Since
Inception
14 Mar 2007
5.1%
3.8%
7.3%
10.9%
5.3%
N/A
-1.4%
2.3%
2.4%
2.8%
5.1%
N/A
6.5%
Page 7 of 19
Full Report
PIC Wholesale Inflation Plus Assertive
Portfolio
For performance over a longer period, performance figures are provided for MLC Wholesale - MLC Wholesale Inflation
Plus - Assertive Portfolio as at 30 Sep 2014
Fund Performance
Growth
Distributi
on
3 month
6 month
1 Year
3 Years
5 Years
4.3%
6.1%
4.3%
0.0%
10 Years
9.7%
13.6%
10.3%
N/A
Since
Inception
5 Dec 2005
5.9%
3.8%
7.3%
10.9%
5.3%
N/A
-0.3%
2.3%
2.4%
2.7%
5.0%
N/A
6.2%
Page 8 of 19
Full Report
PIC Wholesale Inflation Plus Assertive
Portfolio
Annual Distributions
Period
CPU
2013/2014
2.05
Franking
Level
10.8%
Assessable Income
Non-Assessable Income
29.9
70.1
2012/2013
0.95
23.2%
81.4
18.6
2011/2012
3.00
7.7%
91.3
8.7
2010/2011
4.22
7.1%
93.2
6.8
2009/2010
7.66
2.9%
98.9
1.1
2008/2009
2.13
14.3%
39.2
60.8
2007/2008
12.21
2.2%
85.5
14.5
2006/2007
8.07
3.6%
53.4
46.6
2005/2006
6.30
6.8%
61.3
38.7
Commentaries
Fund Commentary
As at 30 September 2014
The portfolio returned 4.3% in the quarter and 11.3% in the year to 30 September 2014 (before fees and tax).
The portfolios objective is to deliver a return of 6% pa above inflation (before fees and tax) over 7 year periods by limiting
the risk of negative returns over this time frame. The portfolio has not achieved this return target over the 7 years to 30
September 2014, but it has produced a positive return of 6.0%, which was 3.3% above inflation, and has controlled risk
over the period.
Contributors to performance
Key contributors to performance for the quarter and the year are in the following table. Returns are before fees and tax.
For the quarter
Page 9 of 19
Full Report
PIC Wholesale Inflation Plus Assertive
Portfolio
The portfolios defensive global shares strategy delivered a very strong return of 6.7%. IVA, the defensive global shares managers, continued
to benefit from good stock picking.
The multi-asset real return strategy delivered a solid return of 3.2% over the quarter.
The portfolios global shares (unhedged) strategy delivered a very strong return of 5.6%. Global shares performed well in the quarter despite
market volatility beginning to increase in the month of September. Improving economic data from the US and accommodative monetary
policy continued to push share prices higher around the world.
For the year
The portfolios investment in defensive global shares (unhedged) produced a very strong return of 16.0% over the year.
The multi-asset real return strategy delivered a solid return of 6.8% over the year.
The portfolios investment in the global shares (unhedged) strategy delivered a very strong return of 17.9%. Five of seven managers
underperformed the broader market for the year (the eighth manager, Kiltearn, has been in the portfolio for less than a year). Strong
performance by Carnegie couldnt overcome the drag caused by Jackson Square Partners and Walter Scott.
Portfolio positioning
These are currently the main positions in the portfolio.
Changes in asset allocation this quarter
There were no major changes to the asset allocation during the September quarter. The portfolio has been positioned
defensively for some time. The protection we had already built into the portfolio offset the drag on performance from the
declining performance of riskier assets (such as shares).
Potential risk or opportunity
Change in the portfolio and reason
Risk of a market correction
Several factors have combined to raise the risk of a further market correction. These include the prospect of more
normal monetary policy settings in the US, slowing global growth and the possibly of renewed recession in Europe,
the spread of Ebola, and a worrying mix of other geopolitical factors. While none of these factors is new, the risk of
each has intensified. Because of these factors, along with stretched market valuations, the portfolio had been
positioned increasingly defensively before the September market decline by reducing the allocations to Australian
shares and increasing the allocations to multi-asset real return (MARR) strategies in portfolio. The MARR strategies
invest flexibly across many types of assets, but also focus strongly on controlling risk. These strategies have some
exposure to share markets, but their tight risk control will help the portfolios in more negative scenarios.
So far, the decline in share prices has not been enough to offset the rise in risk, which meant the portfolio
remained defensively positioned at the end of the September quarter.
Risk of an eventual rise in
inflation
This risk has been increasing during 2014. We therefore increased the allocations to Australian inflation-linked
bonds and short duration Australian non-government bonds in previous quarters.
Inflation-linked bonds can help provide protection against unexpected rises in inflation in scenarios such as
Stagflation and Inflation shock. These bonds lagged rallying traditional bond markets, providing an opportunity to
add to the Conservative portfolios exposure this quarter.
Australian non-government bonds provide exposure to the higher expected returns from taking credit risk, without
exposing the portfolio to substantial interest rate risk.
Key asset allocation positions that were unchanged this quarter
Page 10 of 19
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PIC Wholesale Inflation Plus Assertive
Portfolio
Asset class or
strategy
Role in the portfolio
Performance implications
Foreign currency
exposure
When designing the portfolio, we aim to combine assets and strategies that perform
differently in different scenarios. Global share markets and the Australian dollar (AUD)
tend to move in the same direction. By having an exposure to foreign currencies (for
example, by not hedging some of our overseas assets to the AUD) we can help
insulate our portfolios against losses when share markets fall.
Foreign currency exposure is therefore an important diversifier of risk for the portfolio.
We expect it will help generate more robust returns in a number of difficult potential
scenarios for which there are currently few other opportunities for diversification. This
was the case during the September quarter: gains from the foreign currency
exposure offset declining share prices.
While the fall in the AUD was positive for the portfolios returns, it does weaken the
potential future diversification benefit of foreign currency exposure. However, our
assessment is that the diversification benefit still outweighs the risks. We continue to
monitor this position closely.
Our foreign currency exposure is intended to reduce the portfolios vulnerability to
negative returns in a number of adverse scenarios, including a China hard landing.
Its important to note that our portfolio positioning doesnt assume that the AUD will
decline. We also consider scenarios in which the AUD rises, including Extended
quantitative easing and Sovereign yield re-rating. However, in many scenarios we
expect the AUD to fall further, particularly if share prices fall sharply. These scenarios
include China hard landing.
The AUD and global share
markets fell in September. Our
foreign currency exposure
worked well this quarter,
offsetting the negative share
market returns. Earlier in the
year it also helped to reduce
the volatility of returns.
Defensive global
shares strategy
The main global shares exposure in the portfolio is through our defensive global
shares strategy. This strategy has a capital protection focus and aims to sustainably
grow wealth, rather than beat the market. These active investment managers have
the flexibility to invest in a range of assets (not just global shares). It helps protect the
portfolios capital in weak global growth scenarios such as Developed market
austerity, Recession, Stagnation and China hard landing.
For the last few years share market returns, supported by unusually low interest
rates, have been strong and have tended to run ahead of actual company earnings.
Recently, there have been signs of change in the share markets behaviour, with
higher volatility and the US Federal Reserve being less successful in soothing market
concerns.
As a result, during the quarter there was a limited reversal of strong share market
returns. However, our assessment remains that the decline in share prices has not
been enough to offset the rise in the risk of a market correction. In these
circumstances, we need to keep some powder dry by investing more defensively.
This requires that we limit exposure to significant negative returns and wait for more
favourable conditions in which to seek higher returns.
Good stock selection in the
defensive global shares
strategy generated robust
returns while share markets
remained strong.
The strategy also performed
well in volatile markets during
the September quarter,
assisted by its substantial
allocation to assets other than
global shares.
No direct allocation to
long duration
traditional bonds
The portfolio has limited vulnerability to changes in bond interest rates. This is
reflected in the following positions:
By avoiding the risks of
traditional bonds, we have
been able to increase the
portfolios exposure to other
risks, which have delivered
better returns.
no direct exposure to long duration traditional bonds
exposure to short duration Australian non-government bonds, global bank
loans (largely floating rate bonds) and cash.
Government bonds, a traditional source of diversification, still have very low yields.
They offer limited potential for both real returns and diversification. At their present
valuations, these arent attractive investments for the portfolio.
The portfolio has exposure to inflation-linked bonds. Unlike traditional bonds, their
returns move with changes in inflation. This means they can help protect against the
risk of rising inflation, although (like all bonds) they are still exposed to the risk that the
interest rate on the bond may rise.
Note:
- Please refer to the Market commentary for an overview of what happened in domestic and global markets over the
quarter.
- Fund commentary for this fund will be updated two to three weeks after the end of the month
Page 11 of 19
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PIC Wholesale Inflation Plus Assertive
Portfolio
Market Commentary
As at September 2014
Returns to 30 September 2014*
Asset class
3 mth (%)
1yr (%)
3yr (%)
5yr (%)
10yr (%)
Cash
0.7
2.6
3.4
3.9
4.9
Australian bonds
1.0
6.0
5.8
6.7
6.3
Global investment grade bonds (hedged)
1.8
8.1
7.1
8.0
7.6
A-REITs
1.1
12.2
18.9
8.6
1.9
Global REITs (hedged)
-1.3
12.0
19.8
15.8
na
Australian shares
-0.6
5.9
14.8
6.8
8.4
Global shares (hedged)
2.0
18.3
22.0
14.3
9.6
Global shares (unhedged)
5.5
19.6
21.4
10.8
5.8
Sources: Datastream, MLC Investment Management. *Annualised returns except for 3 month.
Benchnark data include UBS Bank Bill Index (Cash), UBS Composite Index (Aust bonds) Barclays Global Aggregate hedged to A$ (Global bonds),
S&P/ASX200 A-REIT Accumulation Index (A-REITs), MLC Global property strategy benchmark hedged to A$ (Global REITs), S&P/ASX200
Accumulation index (Aust shares) and MLC global equity strategy benchmark (MSCI All Country Indices hedged and unhedged in A$).
World share markets managed to post solid gains over the September quarter, despite declines in US and UK share
prices and some key emerging markets during September. Unhedged global share returns were boosted by a sharply
lower Australian dollar, which fell below US90c in September.
The Australian share market had a disappointing quarter. Bank shares fell on concerns about the possibility of regulatory
intervention in lending markets (particularly housing) and possible changes to capital requirements, which could impede
the banks future profitability. Mining shares also dropped sharply as the price of iron ore fell to five-year lows.
Government bond yields were little changed in the US, but declined in most other world bond markets, allowing bond
investors to enjoy reasonable gains during the quarter.
Share prices continued to benefit from extraordinarily easy monetary policy, despite the impending end of the US Federal
Reserves quantitative easing program, and a stronger global economy, largely due to a clear improvement in US growth.
Indications of renewed weakness in the eurozone have prompted the European Central Bank to adopt further monetary
measures to boost growth.
Geopolitical concerns continued to periodically trouble financial markets. The Ukrainian crisis remains unresolved, even
though there have been efforts to secure a ceasefire. The so-called Islamic State remains in control of large swathes of
Syria and north-western Iraq, despite the commencement of US and allied airstrikes against it.
The Australian economy continues to expand at a moderate pace in spite of continued weakness in mining investment.
There are signs that the non-mining economy is improving: housing activity is picking up, business investment outside the
mining industry is starting to grow, and private sector credit growth has been accelerating. However, whether this pick-up
in non-mining activity will be sufficient to offset weaker mining investment is still unclear.
The Reserve Bank of Australia kept interest rates on hold over the quarter and has signalled its intention to leave rates
unchanged for some time to come. At just 2.5%, the official cash rate remains at its lowest level in living memory. While
Australias economic growth is far from spectacular, the economy does not appear weak enough to reduce rates further,
particularly given concerns about a potentially overheated property market. However, the economy not is strong enough
to warrant higher interest rates at this point.
Page 12 of 19
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MLC Investment Process
MLC Investment Philosophy
At MLC, we design investment portfolios based on the fundamental need of our investors; to grow and protect wealth for
the long term.
The core of any successful investment is a clear investment philosophy. Our investment philosophy defines the kind of
investor we are, and most importantly, how we manage your money in our diversified portfolios.
Our Investment Philosophy is:
We manage uncertainty about the future by considering many market environments
We are risk managers, not risk avoiders
We are responsible for all aspects of our portfolios
We can never be complacent.
Our approach to investing, the way we design, construct and implement our diversified portfolios is built around these
four key beliefs. Combined, these form the foundations of how we manage your money. Ultimately, we aim to deliver
more reliable returns in a broad range of market conditions.
Portfolio Design
At MLC we put you at the centre of our thinking and focus on what really makes an impact on investor outcomes: asset
allocation. With this in mind, we concentrate on finding the right allocations between asset classes and sub-asset classes
and design portfolios which help investors achieve their financial goals.
Formulating the portfolio
Firstly we consider the objectives of the portfolio and the level of volatility expected. We then look at the different classes
of assets and calculate how we expect them to perform over long periods of time. This helps us to formulate the asset
allocation for the portfolio because longer-term data is far more reliable for predicting the outcomes of asset classes.
To reduce risk we invest in many asset classes because they each perform differently in different circumstances. This
diversification also reduces volatility and leads to smoother returns for the overall portfolio.
Fine tuning the portfolio
We confirm the robustness of the portfolios asset allocation by stress-testing it in around 40 potential economic and
investment environments and against historical market performance data from the last 100 years. This allows us to
develop a clearer picture of how the portfolio will perform in different market conditions and provide investors with
portfolios which have already experienced a range of future outcomes. The process helps us with any fine tuning of the
portfolio to improve the outcome for clients.
Scenario insights and portfolio positioning
Our unique Investment Futures Framework helps us comprehensively assess what the future might hold and how risks
and opportunities may change over time. We use this information to adjust the investment strategy of our portfolios to
manage risk and capture opportunities for returns.
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Managing the Managers - Manager Selection
Finding the best businesses to invest in around the world is a specialist skill. We look for investment managers who can
demonstrate a sustainable competitive edge. We also ask our managers to build portfolios that reflect their best ideas.
Our approach to identifying exceptional investment managers involves:
maintaining a clear-cut view on what constitutes an exceptional investment manager e.g. a logical and robust
investment process applied through different market environments; the right people and experience to apply their
process.
meeting regularly with investment managers and individuals in the firm to get a better understanding of how the
investment manager operates, and
analysing the investment managers' portfolios to ensure they are investing the way they say they are.
Specialist managers
Our process typically results in the appointment of managers that specialise in a particular investment style or asset class,
rather than managers who favour an overall approach. The theory behind this is that it's easier to be good at one discipline
than a number of them.
Manager access
Through MLC, our investors can access investment managers who typically only deal with institutional investors. This
gives more access to a wider selection of the best managers in the world, not just those in Australia.
We look at past performance, we dont rely on it
When selecting managers, we look beyond brand and past performance. As markets move in cycles, certain market
conditions will suit different types of managers at different times. This means even the best managers will experience low
performance if market conditions dont suit their approach, and isn't a reason to terminate a manager.
Managing the Managers - Customised Mandates
We typically appoint investment managers who specialise in particular asset classes and investment styles, and assign
each one of them a specific mandate. This approach encourages them to focus on their areas of expertise and build a
portfolio of only their best or highest conviction ideas - companies the managers believe will provide better returns than
other companies and the market overall.
The benefits include:
Higher expected long-term after-tax returns from tailored high conviction portfolios
Insulation from transactions initiated by other investors within a larger investment pool, and
Transaction costs and capital gains tax are reduced both day-to-day and when manager changes occur.
Tax aware investing
Australia has different tax laws to the rest of the world. We select and assign mandates to investment managers we
believe can generate strong-after tax returns over the long term.
Unconstrained approach
We give our global managers the freedom to find the best investments anywhere in the world. This truly global
perspective ensures we make the most of our managers expertise for our investors.
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Managing the Managers - Manager Blending
Why blend managers?
We blend managers with different, but complementary, insights into investment markets. This diversification gives
managers the freedom to run with their convictions without having much impact on the overall risk of the portfolio.
And, by selecting only the best managers, who will each peak at different times, long-term returns shouldnt be diluted by
combining several different managers.
Determining each managers allocation
Each asset class strategy we design has a desired risk and return profile. This is used as the basis for determining the
appropriate combination of managers to achieve that profile.
Determining the allocation to each manager starts with our judgement based on intimate knowledge of each managers
investment approach. Data analysis is then used to test the proposed combinations.
Analysing manager portfolios
We use an analytical tool which contains details of every security in each managers portfolio and their characteristics. This
helps us to monitor the managers style and ensures theyre consistent with the strategys objective. We use this
information to confirm the combination of managers who best meet the objectives of the portfolios.
Portfolio Implementation
We have a team of investment professionals dedicated to portfolio implementation. Their key jobs include:
managing daily cash flows to ensure asset allocations and manager weights are kept in balance
managing transitions that result from strategy changes
structuring investment vehicles to facilitate efficient outcomes, and
ensuring the portfolio is implemented in a tax-efficient manner.
Rebalancing and managing cash flows
We apply a disciplined rebalancing approach to keep each portfolio within 2% of its target asset allocation. This means
investors can be confident the original characteristics of the portfolio are retained.
Reducing costs
Implementing changes within the portfolios will result in associated costs. However, our experience in transition
management helps us to keep these costs down so our investors returns are higher.
Ongoing Review
Ongoing research
We actively research asset classes and seek new opportunities to increase returns and reduce risk in our investments.
Manager review activities
We continuously review current and potential managers to ensure we have the best combination to manage our
portfolios.
Manager changes
Just as a sustainable competitive edge is what attracts us to a certain manager, the loss of this edge can lead to a
managers removal. Structural changes to our investment strategy may also lead to changes to the manager line-up.
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MLC's Multi-Manager Credentials
A market leader
Weve been providing multi-manager investment portfolios for more than 25 years. Rather than just delivering good returns
over a single period or timeframe, our strategies have consistently delivered strong peer-relative returns on an after-tax
and after-fees basis.
A history of innovation
We continually review and refine our investment solutions. This culture of innovation is driven by our determination to
design investment portfolios which help our investors achieve their financial goals.
Scale
Diversifying across a wide range of some of the worlds best investment managers and implementing the strategy
efficiently takes significant scale and resources. As at 31 March 2010 we had approximately A$50 billion funds under
management making us the largest multi-manager in Australia.
Who uses MLC?
Our investment process is used by some of Australias largest companies and by over one million Australians.
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Manager
Profiles
Manages Australian equities for MLC (since November 2012).
Manages AUD$3.1 billion in FUM at 31 December 2012
Based in Sydney, Australia
Manages Australian cash, inflation-linked securities and nominal bonds, since 1991
Stable team of experienced investment professionals
Located in Sydney, Australia
Manages global shares and emerging markets shares for MLC since 1985.
Over 75 years of investment management experience.
Investment offices in 7 countries. Based in Los Angeles, USA.
A total of 46 portfolio managers and 128 research analysts.
Manages Global Shares for MLC, since 2010
Over 20+ years of investment management experience. The philosophy has been unchanged since 1986.
Based in Copenhagen, Denmark
Manages two share portfolios for MLC:
Global shares, since 2005
Over 25 years of funds management experience.
Manages global shares for MLC, since 2009
Managed global funds for 20 years
Based in New Jersey, USA
Employs 20 professionals
Manages defensive global shares for MLC (since 2012)
Founded in October 2007, IVA is an investment advisory firm independently owned and managed by five
partners, all of whom worked together previously.
The team is based in New York, USA.
IVA offers a cautious and opportunistic approach to global value investing that has been practised by its
two Portfolio Managers for over forty years combined.
Manages Australian shares for MLC, since 2001
Origins dating back to 1998
50% owned by employees of the firm
Manages global shares for MLC, since March 2014
Based in Edinburgh, UK
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Manages insurance related investments in MLCs low correlation strategy (since 2007)
Origins dating back to 1997
Based in Bermuda, the financial centre of the specialist natural catastrophe reinsurance market.
Manages Australian shares for MLC, since 2005
Based in Sydney, Australia.
Entirely owned by investment team
The Other category includes currency positions, money that is transitioning between managers and securities that
have not been classified by asset class.
Manages a multi-asset real return strategy for MLC, since 2012
Based in London, UK
Pyrford has been managing Global Absolute Return assets since 1988
Manages a multi-asset class real return strategy for MLC, since 2009.
Origins dating back to 1994.
Employs 85 professionals.
Based in London, UK
Manages global shares for MLC, since 2009
21-year track record of growth investing
Based in Arlington, Virginia, USA
Manages global banks loans for MLC, since 2010.
Origins dating back to 1985 - a pioneer firm in the leveraged finance market
Majority of company owned by the investment team
Located in New York and Connecticut, USA and London, UK
Employs 28 investment professionals
Manages global shares for MLC, since 2009
Founded in 1920 and serving originally as a broker to Benjamin Graham and other highly noted value
investors, the Firm began managing its first value share portfolio in 1959
Offices in New York and London (research office only). Based in New York, USA
The Firm is managed by five Managing Directors who have worked together between 18-35yrs.
As of 31 December 2008, the current Managing Directors and retired principals and their families, as well
as employees of Tweedy, Browne, had $476 million USD invested in portfolios combined with or similar to
client portfolios.
Manages australian equities for MLC (since 2012)
Established in 2010
Based in Sydney, Australia
An independent boutique investment manager
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Manages global shares for MLC, since 2005
Over 25 years of funds management experience
Information in this report does not take into account your objectives, financial situation or needs. Before acting on the information you should consider
whether it is appropriate to your situation. You should consider the relevant Product Disclosure Statement before making a decision about the product.
Past performance is not a reliable indicator of future performance. Please also see Advice Warning and Important Information.
MLC Limited (ABN 90 000 000 402 AFSL 230694) is the issuer of:
MLC MasterKey Investment Bond
MLC Nominees Pty Ltd (ABN 93 002 814 959 AFSL 230702 Trustee of The Universal Super Scheme ABN 44 928 361 101) is the issuer of:
MLC MasterKey Business Super (including MLC MasterKey Personal Super), MLC MasterKey Superannuation, MLC MasterKey Super, MLC MasterKey
Super Fundamentals, MLC MasterKey Allocated Pension, MLC MasterKey Pension, MLC MasterKey Pension Fundamentals, MLC MasterKey Term
Allocated Pension
MLC Investments Limited (ABN 30 002 641 661, AFSL number 230705) is the issuer or operator of:
MLC Investment Trust, MLC MasterKey Investment Service, MLC MasterKey Investment Service Fundamentals, MLC MasterKey Unit Trust, MLC
Investments Limited also trades as MLC Private Investment Consulting.
NULIS Nominees (Australia) Limited (ABN 80 008 515 633 AFSL 236465):
trustee of the MLCS Superannuation Trust ABN 31 919 182 354 is the issuer of Navigator Eligible Rollover Fund ABN 32 649 704 922;
trustee of the MLC Superannuation Fund ABN 40 022 701 955 is the issuer of MLC Wrap Super and MLC Navigator Retirement Plan.
Navigator Australia Limited (ABN 45 006 302 987 AFSL 236466) is the Operator and issuer of:
MLC Wrap Investments, MLC Wrap Self Managed Super and MLC Navigator Investment Plan.
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