Baillieu Holst 2016 Investment Seminar

Disclaimer
Baillieu Holst Ltd has prepared this presentation for the general information of investors. As no account has been taken of the
investment objectives, financial situation and needs of any particular person, it does not represent advice specific to any particular
person. Investors must decide whether information contained in this document or any recommendations whether express or implied
is appropriate in light of their specific investment objectives, financial situation and needs. Investors should consider seeking
professional investment advice from a licensed adviser before making an investment decision. Baillieu Holst Ltd makes no warranty
as to the accuracy, reliability or completeness of any information contained herein. Except to the extent that any liability under any
law cannot be excluded, no liability for any loss or damage which may be suffered by any person, directly or indirectly through
relying upon any information or statement in this presentation or any of its attachments is accepted by Baillieu Holst Ltd, its directors
employees or agents whether that loss or damage is caused by any fault or negligence on their part or otherwise. This document
should not be substituted for legal advice and is provide for information purposes only. Baillieu Holst does not give taxation advice or
legal advice

About Baillieu Holst
→ Baillieu Holst is one of Australia’s leading independent advisory and wealth
management firms.
→ Spanning generations, our firm has been built around relationships formed on trust,
experience and expertise.
→ E.L. & C. Baillieu commenced business in 1889, some five years after the
formation of the Stock Exchange of Melbourne Limited.
→ F.W. Holst & Co. Pty Ltd was established in 1893 when Frederick William Holst
opened a stockbroking business in Ballarat.
→ The merger of E.L. & C. Baillieu and F.W. Holst & Co. in 2012 combined two firms
with a long history of creating and managing client’s wealth.
→ Baillieu Holst is majority owned by its staff, with the balance owned by Credit
Suisse.
→ Baillieu Holst is in a strong financial position. The firm has a robust balance sheet,
is profitable and continues to grow.

→ Baillieu Holst is committed to providing you
with a full range of investment advice,
financial planning and superannuation
services of superior quality and value.
→ We offer integrated wealth management
solutions tailored to meet your unique
wealth creation, protection and
management needs.
→ With over 170 staff in seven locations
throughout Australia our private client
network consists of more than 80 advisers
and assistants, servicing clients with funds
under advice in excess of $15 billion.
→ Our strategic alliance with Credit Suisse
provides you with access to global
investment markets and research.
About Baillieu Holst
Melbourne
Bendigo
Geelong
Sydney
Newcastle
Perth Adelaide

Baillieu Holst - Adelaide Office
Mike James
Alex ButlerMatthew Loveder
Darryl Gobbett Helen Dundon Ben Prisk
Alan HutchinsonTravis Adams

The Good, the Bad and the Ugly: Often different sides of the same thing
→ Most Economies are growing, Profits are rising, Budget deficits are falling and Inflation is staying very low
→ Middle classes being squeezed in USA and Europe, Growing in the Emerging economies
→ Stresses caused by many different types of change
→ Debt issues in China and its shift to a market and more services and consumer focussed economy
→ US monetary firming
→ Energy glut
→ Impacts on the mix and rate of growth and confidence: Countries, Industries, Employment, Firms
→ Commodity prices down sharply overwhelmingly because of increased supply
→ Uncertainties and fear for deflation, employment, economic growth, profits, balance sheets etc
→ Falls in commodity currencies, including $A, $NZ, $C, SA Rand, Rouble
→ Cuts in credit ratings, Government revenues and deficits
→ Low energy and food costs, tourism growing
→ Interest rates are at record lows but credit spreads are rising
→ Pricing for risk got too narrow through 2014, New banking rules reducing risk taking capacity
→ Search for safety and liquidity, concerns at asset valuations and bank lending quality
→ “Risk off” for many Emerging economies
→ Productivity slow down globally since mid 2000s
→ Weaker and changing patterns of demand growth
→ Increased regulation
→ Another source of variation for company profitability and growth
Economic and Financial Update
Please read the disclaimer at the beginning of this report.

The Good, the Bad and the Ugly: Often different sides of the same thing
→ Investment market impacts of the change, turbulence and volatility
→ Quickly changing Confidence, Investment fashions, Valuation methods
→ Mr Market’s prices seem to be increasingly separated from real value
→ Capital protection generally means no income
→ Heightened sensitivity to Political and Strategic shocks often with little real economic or business impact
→ Uncertainty and High Volatility point to importance of:
→ Knowing why you are investing and what is important to you
→ Getting Asset Allocation and Diversification right for you now and through time
→ What the big themes mean for your portfolio: Good, Bad, Ugly and Indifferent
→ Knowing what you are invested in
→ Have your Cash and Fixed Interest under direct control
→ Invest in companies, not markets or black-boxes
→ Investing as directly as possible: Reduce the layers of management
→ If you outsource management, know what it aims to do and that it will be true to label
→ Being patient when buying, holding and selling.
→ Taking profits

Global Growth, Inflation and Interest Rates
Output Growth, Inflation Adjusted, % pa Consumer
Price
Inflation %
pa
3 Month
Interest
Rates %
pa
10 year
Govt Bond
Yields %
pa
Structural
Central Govt
Budget
% of GDP
1997 -
2006
2014
2015
E
2016
F
2017
F
2017F Feb 2016
Feb
2016
2016F
United States 3.3 +2.4 +2.5 +2.6 +2.6 +1.8 0.62 1.75 -3.0
Japan 0.9 0.0 +0.6 +1.0 +0.3 +1.6 0.02 0.075 -4.3
Euro Area 2.3 +0.9 +1.5 +1.7 +1.7 +1.3 -0.2
0.263
(Germany)
-0.8
United Kingdom 3.1 +2.9 +2.2 +2.2 +2.2 +2.0 0.59 1.42 -2.5
China 9.4 +7.3 +6.9 +6.3 +6.0 +2.2 3.06 2.89 -2.0
India 6.6 +7.2 +7.3 +7.5 +7.5 +5.4 7.35 7.72 -6.9
Indonesia 2.5 +5.0 +5.2 +5.5 +5.5 +4.7 8.42 7.95 -2.1
ASEAN 5 na +4.6 +4.6 +4.9 +5.3 +3.8 na na na
Brazil 2.7 +0.1 -3.8 -3.5 0.0 +5.2 10.0 6.95 -5.4
Russia 5.0 +0.6 -3.7 -1.0 +1.0 +7.3 11.68 -3.6
Australia 3.6 +2.7 +2.4 +2.9 +3.1 +2.4 2.0 2.43 -1.2
World +3.4 +3.1 +3.4 +3.6
The West 1.7
New & Emerging 5.9
Source: IMF World Economic Outlook, Oct 2015, Update Jan 2016; www.tradingeconomics.com

The Emerging Middle Classes are still the Big drivers of Growth and Change

The USA
→ Economic growth lifting
→ Contraction in energy investment and public sectors
→ Federal Budget deficit has fallen sharply:
→ Growth coming from Business and Housing investment, Consumers
→ Very low interest rates and energy costs and record profits
→ Unemployment (4.9%) lowest since pre GFC, gross job creation at record high levels
→ Wages growth starting to lift: Help middle classes and consumption growth
→ Markets concerns ebb and flow:
→ Pace of Monetary policy firming: Federal Reserve Board will err on side of caution
→ Impacts on bank credit quality of energy market downturns: Company failures and country credit risk issues
→ China growth and debt issues
→ Company profitability and cash flows very strong
→ Sharemarket valuations and expectations perhaps got ahead of the real world
→ Now building in too many worries

Dividend Yield Price Earnings Ratio
12/2/16 Feb ‘15 12/2/16
Trailing
12 Months
Forward
Estimate
S&P500 2.39 1.96 20.58
Historical
Averaqe =
15
15.25
Russell 2000 1.89 1.36 100.14 14.4
Source: Wall Street Journal Market Data Centre, 14/2/2016

China
→ Issues
→ Economic growth slowing, changing, harder to measure. More deregulation and focus on market outcomes
→ Working population shrinking and population ageing quickly
→ Debt issues of provincial governments and property developers
→ Should not be significant credit issue for the West: Little debt held outside of China
→ Not an issue for wealth of general population
→ Central Government will oversee sorting out the problems
→ Oversupply of housing in some cities, Expensive in others
→ Focus changing:
→ From transport infrastructure, business investment and low cost exports
→ To spreading benefits of growth, imports, services, consumption, innovation, environmental remediation
→ Central planners still planning for 6-7% pa for next few decades
→ Two Child policy
→ Wanting to be bigger influence in world and regional affairs
→ Implications for Australian investors
→ Energy and Mineral demand slowing and changing but China will still be world’s biggest markets for each
→ Higher quality, branded, safe and more western goods and services in demand
→ Beef, Dairy, Healthcare, Wine, Tourism, Financial services, Social welfare, Aged care
→ We need to recognise China’s desire for high self sufficiency
→ Defence

% change, inflation adjusted
(Italicised are DG forecasts)
11/12 12/13 13/14 14/15 15/16f 16/17f
Household Consumption 3.2 2.0 2.5 2.2 (2.5) 2.5 (2.75) 2.75 (3.25)
New Motor Vehicle Sales, m* 1.03 1.14 1.12 1.2 1.35 1.45
Private Investment - Dwellings -3.6 -0.1 5.1 7.7 (6.5) 8.5 (6.5) 2 (4.5)
No. of Private Dwellings Started (‘000)* 141 159 178 200 225 230
Business Investment – Mining
Business Investment – Non Mining
74.7
1.7
13.6
-9.7
-7.0
-3.7
-17.3 (-15.5)
1 (2.0)
-26 (-25.5)
-0.5 (4.0)
-25.5 (-30.5)
4.5 (7.5)
Private Final Demand 6.2 2.8 0.9 0.75 (1.25) 0.75 (1.25) 1.75 (2.25)
Public Final Demand 2.3 -1.3 1.6 -0.1 2 (1.5) 1.5 (1.5)
Australia
→ Issues
→ Economic growth slow with falling Mining Investment just being offset by increased housing investment, exports
→ Govt growth forecasts revised down in December 2015 from May 2015 Budget
→ Non Mining Investment not growing as fast as Budgeted
→ Employment growing as growth areas are more labour intensive than Business Investment
→ Working population growth slowing
→ Inflation staying very low and wages growth very slow
Source: Australian Government 2015/16 Budget Paper No. 1, Mid Year Economic and Fiscal Outlook December 2015
* DG Forecasts

Australia
→ Issues
→ Employment and Wage Growth to support moderate retail spending growth but increasing competition
→ Lower $A helping shift spending locally, eg Tourism and Education, Margin squeeze for importers
→ Labour force participation lower for 19 – 65 year old males, rising for baby boomers
→ Population and Working age population growth slower than earlier estimated has issues longer term
→ Employment growth, housing demand, retail spending, tax etc
→ Very slow Wages growth and Inflation means interest rates staying lower for longer
Source: Australian Government 2015/16 Budget Paper No. 1, Mid Year Economic and Fiscal Outlook December 2015
* DG Forecasts
11/12 12/13 13/14 14/15 15/16f 16/17f
Employment, % change to June qtr 0.5 1.2 0.7 1.5 2 (1.5) 1.75 (2.0)
Wage Price Index, % change to June qtr 3.7 2.9 2.6 2.3 2.5 (2.5) 2.75 (2.75)
Unemployment Rate, % June qtr 5.25 5.6 5.9 6.25 6 (6.5) 6 (6.25)
Labour Force Participation Rate, % June qtr 65 65.1 64.6 64.7 65 (64.75) 65 (64.75)
Household Savings Ratio, % June qtr, trend
*DG forecast
11.5 10.5 10 9* 9* 9*
Consumer Price Inflation, % change to June qtr 1.2 2.4 3.0 1.5 2 (2.5) 2.25 (2.5)

Australia
→ RBA forecasts
→ Inflation expected to be in policy target range, likely at lower end
→ Economic growth below potential but that is now lower with slower population growth
Source: RBA Statement on Monetary Policy Feb 2016

Australia
→ Interest Rates
→ RBA looking to keep cash rate on hold to retain “flexibility” if conditions turn out worse than expected.
→ Term Deposit rates reflecting banks have sharply increased retail funding since 2008, now have less need.
→ New banking rules mean longer term TDs more attractive to banks.
→ Under 12 months rates likely to be at or under the cash rate.

Australia
→ Real Incomes, including profit, boosted since 2005 by commodity price surge, high $A and increased investment
→ Trading Partner Growth back to long run average levels of 4%
→ Terms of Trade not expected to lift sharply in next few years
→ $A likely to be in $US0.65 to $US0.75 range for some time
→ Income and Profit growth then has to now come from increased productivity, including at company level

Australia
→ Share market outlook
→ Recent falls concentrated in Resources and Banks
→ Company profits holding up well overall. Growth harder to come by through 2016 and 2017
→ Miners and Mining Services profits to fall further, Bank profits flat with slower loan growth and cost of new rules
→ Other major sector earnings to continue to grow
→ High yield and Earnings Growth stocks likely to remain in favour
→ Stock pickers’ market
Source: RBA Chart Pack Feb 2016

→ Baillieu Holst provides high quality research generated by our in-house research team, as
well as comprehensive, global research provided by our partner, Credit Suisse.
→ We provide comprehensive coverage of the ASX 100 stocks, with our internal research team
specialising in identifying unique opportunities in quality small to mid-cap sized companies.
→ Baillieu Holst adopts a bottom-up fundamental approach in identifying companies that are
well managed, operate in a strong industry structure and have excellent future prospects.
→ This research capability, together with the experience and expertise of your adviser, enables
us to carefully monitor and manage your investment portfolio.
Mining Services /
Engineering /
Basic Industrials
Energy
Small Cap /
General
Industrials
Emerging
Technology
Mining
ASX 100-300
Small / Mid Cap coverage through Baillieu Holst Research
ASX 100
Coverage through support from Credit Suisse, including global economic and strategy
ASX 300 +
Small Cap / Emerging Growth Company coverage through Baillieu Holst Research
Research Offering

Recent in-house company presentations
Large Cap
Mid / Small Cap

Research Reports

Regular Communications
Weekly
Publication
Daily
Note
Bi-annual
Newsletter

Asset
allocation is a
critical
component of
our investment
philosophy
Diversification & Asset Allocation
→ Asset allocation is the decision about which
asset class funds should be invested in, to
achieve desired risk/return objectives.
→ More importantly, it is vital that investors are
aware of what industries, sectors and themes
they are exposed to.
→ Asset allocation needs to be tailored to the
individual and needs to re-assessed on a
ongoing basis.

Lowest Highest
% return
Source: Vanguard

The old adage
of not having
all your eggs in
one basket still
rings true to
this day
→ Diversification means spreading your capital
across different investments to reduce your
overall investment risk.
→ Diversifying your investments will help you
achieve smoother, more consistent returns
over the longer-term.
→ Diversifying within asset classes is important to
reduce non-market risk.

Fund Manager Utilisation
→ “If you accept your limitations you go beyond them”
Brendan Behan
→ It is imperative to have both absolute control and
clarity of who is managing your wealth.
→ Know the people involved, understand the process
& have conviction in what the long term outcome
will provide.
People, process and performance

Direct Term Deposits
→ The ability to cherry pick the best rates for the term
most appropriate for clients.
→ Clients invest directly into the term deposit in their
own name and access the Federal Government
Guarantee.
→ Simplicity is often the best solution.
Access to the major financial institutions

Direct Equities
→ Quality is defined as sustainable increasing shareholder
value over time
→ A company must always have good prospects
→ Aim to buy a quality company with good prospects and
pay a price that is below the estimated long term value
Look for Quality, Prospects and Price

Direct Equities
→ Likely to be a bumpy ride in the short to medium
term but on a long term horizon, we feel the current
valuation is favourable.
→ With our analysis it is highly unlikely for BHP to
sustain the dividend at US$1.24/yr.
→ Likely a $2bn provision for Samarco, reflecting
BHP’s 50% interest.
→ We think management will use the upcoming
interim result to put a line in the sand and reset the
investment thesis by revisiting the dividend policy.
Resources - always go for the top shelf

Source: Wind, CEIC, Fidelity Investments InternationalSource: Wind, CEIC, Fidelity Investments International
Source: Wind, CEIC, Fidelity Investments International

How can Baillieu Holst help you?

Strategic Financial Planning
→ To achieve your financial goals
you need structure and planning.
→ The financial planning team at
Baillieu Holst is highly skilled and
experienced in providing advice
that is specific to your broader
financial needs and objectives.
→ Whether you need to pay school
fees, prepare for retirement or
plan for the transfer of wealth to
future generations, our expert
financial planning team can help
you identify strategic opportunities
and implement the best structures
to realise your goals.
Objectivity and professionalism guide the delivery
of strategies and advice in the following areas:
Wealth creation and asset allocation strategies
Superannuation strategies
Remuneration packaging
Retirement planning
Assistance with estate and succession planning
Redundancy and benefit schemes
Insurance, risk management and asset protection
strategies

Strategic Financial Planning
Strategies for 2016 and beyond
• Centrelink
• Budget Issues
• Tax changes
• Superannuation changes

Age Pension changes
→ Impact of new rules means investment assets over $450,000 will likely cut pension benefits faster than investment
income will rise.
→ Pension Supplement and Energy Supplement fully available from $1 of Age Pension.
→ $3,078 pa is a substantial return if you can get just under the top threshold of $823,000
→ Issues:
→ Need some home repairs etc?
→ Gifting?
→ Should focus of the portfolio be capital growth or spendable income?
→ Decision pre-Age Pension age of getting well over $1.3m?
→ Government Loan Scheme?
Income, Age Pension and Supplements from 1/1/2017
Assessable Assets Investment Income
at 5% pa
Age Pension pa Supplements pa Total
$825,000 $41,250 $0 $0 $43,750
$820,000 $43,500 $207 $3,078 $46,785
$700,000 $35,000 $8,484 $3,078 $46,563
$500,000 $25,000 $22,280 $3,078 $50,356
$375,000 $18,750 $30,903 $3,078 $52,731

Baillieu Holst
As a client of Baillieu Holst Adelaide, you have access to:
A dedicated Adviser and Adviser Assistant – it’s about service and advice!
A local team of experts in their field
Research capabilities of one of Australia’s leading wealth management firms

To discuss any of the services available at Baillieu
Holst, please contact us.
08 7074 8400
info@baillieuholst.com.au
www.baillieuholst.com.au
Melbourne Head Office
Phone +61 3 9602 9222
Email melbourne@baillieuholst.com.au
Bendigo Office
Phone +61 3 4433 3400
Email bendigo@baillieuholst.com.au
Geelong Office
Phone +61 3 5229 4637
Email geelong@baillieuholst.com.au
Newcastle Office
Phone +61 2 4037 3500
Email newcastle@baillieuholst.com.au
Perth Office
Phone +61 8 6141 9450
Email perth@baillieuholst.com.au
Sydney Office
Phone +61 2 9250 8900
Email sydney@baillieuholst.com.au
Adelaide Office
Phone +61 8 7074 8400
Email Adelaide@baillieuholst.com.au

Baillieu Holst sponsor the Adelaide Fringe

Baillieu Holst 2016 Investment Seminar

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Baillieu Holst 2016 Investment Seminar

Similar to Baillieu Holst 2016 Investment Seminar (20)

More from Darryl Gobbett

More from Darryl Gobbett (10)

Recently uploaded

Recently uploaded (20)

Baillieu Holst 2016 Investment Seminar