Colonial First State
An Introduction to Managed Funds
Disclaimer
This presentation is given by a representative of Colonial First State Investments Limited AFS
License 232468 (Colonial First State). The presenter does not receive specific payments or
commissions for any advice given in this presentation. The presenter, other employees and
directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial
First State receives fees for investments in its products. For further detail please read our
Financial Services Guide (FSG) available at colonialfirststate.com.au or by contacting our
Investor Service Centre on 13 13 36.
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Prospectuses or Product Disclosure Statements (PDSs) describing the products are available
from Colonial First State. The relevant prospectus or PDS should be considered before making
a decision about any product.
This presentation does not take into account your individual objectives, financial situation or
needs. You should assess whether the information is appropriate for you and consider talking
to a financial adviser before making an investment decision.
The information is taken from sources which are believed to be accurate but Colonial First
State accepts no liability of any kind to any person who relies on the information contained in
the presentation.
Agenda
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



What is a Managed Fund?
Asset Classes
What is the right balance for me?
Why managed funds
Investing for the long term
What is a Managed Fund?



Your money is pooled with other investors
You decide on the type of fund (e.g. Australian share fund,
international share fund, balanced fund)
Your fund manager researches and selects the companies (or
assets) in which to invest
Risk / return trade off
= Global shares
Return
= Australian shares
= Global property
= Listed property
= Fixed Interest & Cash
Risk
Asset Classes
Shares


Ownership in a company
Growth Asset
 Capital growth (earnings)
 Income (dividends)

Potential for high return

Higher risk
Asset Class Comparison
Value of $10,000 invested Jun 1984 – Jun 2004
170,000
150,000
Australian shares
Global shares
130,000
110,000
$ 90,000
70,000
Annualised return = 13.2%
Annualised return = 12.7%
50,000
30,000
10,000
Jun84
Jun86
Jun88
Jun90
Jun92
Jun94
Jun96
Jun98
Source: IRESS - S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April
2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges
Jun00
Jun02
Jun04
Property



Investment in property securities
 Growth asset
 Income (rent)
 Capital Growth (increase in value of property)
Hedge against inflation
 1980’s
Diversify
 Hotels, office towers, shopping centres
Asset Class Comparison
Value of $10,000 invested Jun 1984 – Jun 2004
170,000
150,000
Australian shares
Global shares
Property securities
130,000
110,000
$ 90,000
Annualised return = 12.7%
70,000
50,000
30,000
10,000
Jun84
Jun86
Jun88
Jun90
Jun92
Jun94
Jun96
Jun98
Jun00
Source: IRESS - S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April
2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI
World Price Index (A$), All dividends reinvested, excluding fees and charges
Jun02
Jun04
Bonds

Income producing asset
 Purchase of bond = lending funds to issuer
 Income payments (coupons)

Can be traded on secondary market

Can generate both a profit & a loss

Distinct relationship between
 Bond prices
 Interest rates
Bond example


Fund Manager holds $1,000 worth of Govt. bonds with a
interest rate of 8%pa ($80)
 Interest rates fall to 6% ($60)
 Investor prefers 8% (profits)
 Interest rates rise to 10% ($100)
 Investor prefers 10% (loss)
There is an inverse relationship between interest rates and
bonds
Asset Class Comparison
Value of $10,000 invested Jun 1984 – Jun 2004
170,000
150,000
Australian shares
Global shares
Property securities
130,000
Australian fixed interest
110,000
$ 90,000
Annualised return = 11.0%
70,000
50,000
30,000
10,000
Jun84
Jun86
Jun88
Jun90
Jun92
Jun94
Jun96
Jun98
Jun00
Source: IRESS - UBS Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX
Property Accumulation Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries
Accumulation Index pre April 2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees
and charges
Jun02
Jun04
Cash


Security
 Capital
 Short term, i.e. 12 months or less
Cash Management Trust
 Generally provides better return than a bank account
Asset Class Comparison
Value of $10,000 invested Jun 1984 – Jun 2004
170,000
150,000
130,000
110,000
$ 90,000
Australian shares
Global shares
Property securities
Australian fixed interest
Cash
Annualised return = 9.1%
70,000
50,000
30,000
10,000
Jun84
Jun86
Jun88
Jun90
Jun92
Jun94
Jun96
Jun98
Jun00
Source: UBS Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1999), UBS
Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation
Index pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April
2000), MSCI World Price Index (A$), All dividends reinvested, excluding fees and charges
Jun02
Jun04
What is the Right Balance?
What is the right balance?

List income & growth needs

Consider time horizon & degree of risk

Consider investment alternatives (which meet your needs)

Reassess your balance of investments as your needs and the
economic environment change
What is the right balance?
Diversification across asset classes
Fixed
Interest
Property
$$$
Cash
Shares
Spreading your savings helps your chances
of achieving your retirement goals
What is the right balance?
Risk / return trade off
= Australian shares
= Fixed Interest & Cash
CFS High Growth Fund
Return
= Global shares
= Listed property
CFS Diversified Fund
= Global property
CFS Balanced Fund
CFS Conservative Fund
Risk
Why managed funds?
Why managed funds?

Spread investment risk

Potential for higher returns

Liquidity of asset holding

Fund manager expertise

Ability to invest in overseas markets that are otherwise
difficult to access
Asset class returns (%pa)
Annual Returns to 30th June 2004
1995 1996 1997 1998
1999
2000
2001 2002
2003
2004
AUSTRALIAN
Cash
7.1
7.8
6.8
5.1
5.0
5.6
6.1
4.7
5.0
5.3
11.9
9.5
16.8
10.9
3.3
6.2
7.4
6.2
9.8
2.3
Listed Prop
7.9
3.6
28.5
10.0
4.3
11.9
13.9
14.9
12.1
17.2
Shares
5.7
15.8
26.6
1.6
15.3
15.1
9.1
-4.5
-1.6
21.7
6.7
28.5
41.6
8.2
23.7
-5.8
-23.3
-18.3
19.4
Bonds
INTERNATIONAL
Global shares
14.1
Percentage return over 1 year to 31st March 2004. Source: UBS Australia Bank Bill Index (91 day Commonwealth Treasury Note Index
pre Jan 1999), UBS Australian Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index
pre April 2000), S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index
(A$), and the SSB World Government Bond Index *ex Australia Hedged to A. All dividens reinvested excluding fees and charges
Why managed funds?
Taking the best of each asset class
170,000
150,000
130,000
110,000
Australian shares
Global shares
Property securities
Australian fixed interest
Cash
Diversified
$ 90,000
70,000
50,000
30,000
10,000
Jun84
Jun86
Jun88
Jun90
Jun92
Jun94
Jun96
Jun98
Jun00
Source: UBS Australia Bank Bill Index (91 day Commonwealth Treasury Note Index pre Jan 1999), UBS Australian
Composite Bond Index, S&P/ASX 200 Property Accumulation Index (ASX Property Accumulation Index pre April 2000),
S&P/ASX 300 Accumulation Index, (ASX All Ordinaries Accumulation Index pre April 2000), MSCI World Price Index (A$),
All dividends reinvested, excluding fees and charges
Jun02
Jun04
Why managed funds?
Gain access to global markets
World equity markets by market capitalisation
as at 30th November 2003
60%
50%
40%
30%
20%
10%
0%
US
Source: Rimes
Data to 30th November 2003
UK
Europe (ex
Uk)
Japan
Asia Pacific
(ex Japan)
Aust
Why managed funds?
Putting it into perspective
Australia
A$bill
USA
A$bill
News Corp
49
General Electric
479
BHP
47
Microsoft
411
NAB
45
Exxon Mobil Corp
409
Commonwealth Bank
41
Pfizer
360
ANZ
33
Citigroup
323
Telstra
31
Wal Mart
312
Westpac
31
AIG
253
AMP
12
Bank of America
240
Woolworths
12
Intel
233
St George
11
Johnson & Johnson
226
48% of ASX 300 A$649 bill
23% of S&P 500 US$10,408 bill
Source: IRESS, ITG. Data as at 30th June 2004. Global stock data as at 12th July 2004
Understanding the current market
Understanding the current market
International shares… we’ve seen better!
6200
The 21st C
Global shares in AUD
5200
4200
3200
2200
1200
Dec-90
Dec-93
MSCI – World Net Index ($A)
Source: IRESS. Data to 30th June 2004
Dec-96
Dec-99
Dec-02
Understanding the current market
US sharemarket and company earnings
4500
US Sharemarket
4000
3500
3000
2500
2000
1500
US company earnings
1000
500
Mar-90
Mar-93
Mar-96
Mar-99
Source: Bloomberg. Sharemarket data and earnings data to October 2003
Mar-02
Share prices & company profits grow together
35
4000
30
$bill
25
3000
Australian share price index
20
2000
15
10
1000
Corporate profits
5
0
Sep-59
Sep-70
Sep-81
Corporate profits -Source: RBA Bulletin table G12. Data to 31st March 2004
Australian Share price index – Source: IRESS. Data to June 2004
Sep-92
0
Sep-03
Understanding the current market
A ‘new’ era?
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
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Recessions – USA, Europe,
Japan
Wars – Afghanistan, Iraq
Pestilence – SARS
Terror – September 11
Scandals – Enron

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Recessions in 1970s, 1980s,
1990s
Korea, Cold War, Gulf War
AIDS
IRA, Red Brigade, Black
September
Barings, S&L crisis
Investing for the Long Term
Investing for the long term
Patience has been rewarded
80%
70%
60%
1 year rolling returns
(%)
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
-40%
Source: Rimes. Returns from the MSCI World Net Index $A, calendar years to 30th November 2003
Patience has been rewarded
50%
40%
3 year (%)
30%
20%
10%
0%
-10%
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
-20%
Source: Rimes. Returns from the MSCI World Net Index $A, calendar years to 30th November 2003
Patience has been rewarded
35%
30%
5 year (%)
25%
20%
15%
10%
5%
0%
-5%
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
-10%
Source: Rimes. Returns from the MSCI World Net Index $A, calendar years to 30th November 2003
Time in the market, not timing
Australian shares to 30th June 2004
10 years less 30 best
days
3.04%
10 years less 20 best
days
5.07%
10 years less 10 best
days
7.33%
10 years less 5 best
days
8.61%
10 year return (%p.a)
0%
10.50%
2%
Source: IRESS, Colonial First State
*All Ordinaries Accum Index used prior to April 2000
4%
6%
8%
10%
12%
Conclusion


Understand how sensitive you are to changes in the market &
know your investment time frame
Managed funds making accessing a range of asset classes
easy

Invest for the long term

Diversification is the key