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  1. 1. MLC Investments MLC Australian Share Value Style Fund Commentary About the Fund MLC Australian Share Value Style Fund is designed to deliver growth by using investment managers who invest and diversify across many companies listed on the Australian Securities Exchange (ASX). The investment managers focus on investing in companies they believe are undervalued in relation to their earning potential. Fund performance can be assessed against the S&P/ASX 300 Accumulation Index over rolling 5 year periods. MLC Australian Share Value Style Fund performance Performance to 3 month 1 Year 3 Year 5 Year 31 March 2010 % % % p.a. % p.a. MLC MasterKey Super Fundamentals / Gold Star / 1.2 52.0 -2.0 7.2 Business Super (before taking into account fees and tax) MLC MasterKey Super Fundamentals 0.9 49.9 -1.8 - (takes into account fees and tax) MLC MasterKey Super Gold Star / Business Super* 0.7 48.6 -2.5 5.7 (takes into account fees and tax) S&P/ASX 300 Accumulation Index 1.3 41.9 -2.6 8.0 *MLC MasterKey Business Super commenced on 1 October 2003 and issues the same unit price as that reported for MLC MasterKey Superannuation Gold Star. The returns outlined above do not include allowance for fee rebates you may be entitled to should you be part of a large employer plan. Source: MLC Investment Management Executive summary Market conditions remain favourable with the Australian sharemarket (as measured by the S&P/ASX300 Accumulation Index) rising by +1.3% in the March quarter and +41.9% in the year to 31 March. The profit reporting season which concluded during the quarter carried a positive tone with firm evidence of profit recovery and cautious optimism expressed by many companies on the near-term profit outlook. Steep rises in bulk commodity prices, recent corporate activity within the Energy sector and confidence in Australia’s improving economic circumstances helped sentiment. In this environment, cyclical sectors such as Industrials (+55.3%) and Consumer Discretionary (+54%) tended to deliver the more superior performances. Financials (ex LPTs) was also strong, rising by +53.7% in response to favourable profit announcements and trading updates by the major banks. The performances of defensive sectors such as Consumer Staples, Telecommunications, Property Trusts and Utilities tended to be more subdued. Despite the market’s focus on resource and energy companies, their performance was mixed over the year.
  2. 2. The performance of the MLC Australian Share Value Style Fund has been very strong with a March quarter return of +1.2% and +52% for the year (pre fees and tax). Both Maple-Brown Abbott and Dimensional outperformed the market’s one-year return by substantial margins as a result of their stock selection. Rewarding stock strategies included overweighting Macquarie Group, Wesfarmers, Fairfax Media, Mirvac Group, OneSteel and Amcor. Absolute returns The graph shows absolute total returns of the Fund over 1 year and 5 year periods. Historical Absolute Performance MLC MasterKey Super Gold Star Australian Share Value Style Fund (after taking into account fees and tax) 50% 40% 30% 20% Return % p.a. 10% 0% -10% -20% -30% -40% 2006 2007 2008 2009 2010 1 Year Ended 31 March 5 Years Ended 31 March Source: MLC Investment Management The last 12 months have been a golden period for Fund investors, capturing the very welcome and sustained market rally that commenced in March 2009. As a result, the one- year returns are the highest they’ve been for a number of years. Needless to say, this goes some way to offsetting the impact of the negative returns recorded in the previous two years when the Global Financial Crisis and economic uncertainty was at its worst. The enormity of the market’s recovery in the last year has also helped improve the Fund’s five-year returns which have remained positive. This is a sound outcome considering the variability of market and economic circumstances that we’ve seen in the last few years. And, is why it’s preferable to assess returns on a longer-term basis because the volatility of returns that inherently occurs in the short term is smoothed out. In addition to the Fund’s return arising from its market exposure, the stock selection of Dimensional and Maple-Brown Abbott has contributed an extra 10.1% above the market’s return in the year to 31 March (refer to the chart on page 4). MLC Super review for the year ending 31 March 2010 Page 2 of 7
  3. 3. Relative returns The graph shows returns of the Fund relative to the index Rolling Performance in Excess of the Index MLC Australian Share Value Style Fund (before taking into account fees and tax) 15% (S&P/ASX 300 Accumulation Index) 10% Annualised Excess Return 5% 0% -5% -10% -15% Mar-05 Mar-06 Mar-08 Mar-09 Mar-10 Mar-07 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 1 Year 3 Years 5 Years Source: MLC Investment Management Contributors to the Fund’s relative returns • The Fund marginally underperformed the index (before fees and tax) in the March quarter. The outperformance achieved by Maple-Brown Abbott was offset by Dimensional, who underperformed. Stock selection strategies that made a positive contribution to the Fund’s return included ownership of Amcor, Fairfax Media and not owning Woolworths and QBE Insurance. • In the year to 31 March, the Fund’s return was +10.1% above the market’s return (before fees and tax). This strong return outcome was due to the stock selection of both Maple-Brown Abbott and Dimensional. Stock strategies that contributed to the Fund’s outperformance include overweighting Macquarie Group, Wesfarmers, Fairfax Media, Mirvac Group, OneSteel and Amcor. Detractors from the Fund’s relative returns • In the quarter to 31 March, stocks that detracted from the Fund’s relative performance included ownership of BlueScope Steel, Goodman Fielder, Mirvac and Lend Lease. • Stock positions which detracted from returns for the year were overweight Crown and National Australia Bank and underweight Commonwealth Bank, Westpac and Orica. MLC Super review for the year ending 31 March 2010 Page 3 of 7
  4. 4. Manager returns The chart shows manager performance relative to index Manager Performance in Excess of the Index MLC Australian Share Value Style Fund (before taking into account fees and tax) 14.0% Excess Return vs S&P/ASX 300 Accumulation Index 12.0% (annualised for periods greater than 1 year) 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Maple-Brown Abbott Dimensional Australian Share Value Style Fund Quarter to Mar-10 1 Year to Mar-10 3 years to Mar-10 5 Years to Mar-10 Source: MLC Investment Management Manager summary Manager Style Current Positioning Maple-Brown “Traditional” value criteria, long Maple-Brown Abbott are concerned about the market’s Abbott term investors, contrarian in heightened expectations for earnings growth in the next nature two years, with many stocks already priced accordingly. (50%) Defensive companies are offering better value and their largest holdings (Brambles, Telstra, National Australia Bank, Fosters and ANZ Bank) reflect this. Dimensional Deep Value with a bias to Dimensional’s stock selection approach is more small companies “mechanistic” and based largely on a narrow definition (50%) of value. Current stock favourites are Amcor, Crown, Suncorp-Metway, Macquarie Group and Bluescope Steel. Note the composition of the Fund’s manager strategy is designed to achieve a portfolio of Australian shares with a specific and pronounced ‘value’ style bias. Both managers are longstanding and experienced value investors who prefer to own companies who are selling at prices they consider below their true worth. MLC Super review for the year ending 31 March 2010 Page 4 of 7
  5. 5. Sector exposure The strategy is well diversified across industries and companies. This diversification is a result of each manager making decisions on which companies to invest in. The chart shows the industry exposure of the Fund Industry Exposure MLC Australian Share Value Style Fund Other, 5.4% Utilities, 0.5% Consumer Telecommunication Discretionary, 12.0% Services, 4.0% Consumer Staples, 10.4% Materials, 22.1% Energy, 4.7% , Industrials, 7.9% Health Care, 2.1% Financials, 30.8% Source: MLC Investment Management The following table shows the top ten stocks by portfolio weight in the MLC Australian Share Value Fund, as at 31 March 2010. Portfolio Stock Name Industry Sector Weight AUSTRALIA AND NEW ZEALAND BANKING GROUP Financials 6.2% NATIONAL AUSTRALIA BANK Financials 5.9% WESFARMERS LIMITED Consumer Staples 4.5% BHP BILLITON Materials 4.4% WESTPAC BANKING CORPORATIONORD Financials 4.1% SUNCORP-METWAY Financials 3.3% TELSTRA CORPORATION Telecommunication Services 2.9% AMCOR Materials 2.6% RIO TINTO Materials 2.5% MACQUARIE GROUP Financials 2.4% Source: MLC Investment Management MLC Super review for the year ending 31 March 2010 Page 5 of 7
  6. 6. Stock story ASX Limited A recent addition to the Fund’s portfolio is ASX Limited. The main operating activity of the Australian Securities Exchange (ASX) is to provide a market for trading equities and derivatives (e.g. options, futures, warrants), and the clearing and settlement of ASX-traded securities. Other activities include listing new entities, providing market data and company announcements as well as maintaining market integrity via monitoring companies’ compliance with listing rules. Maple-Brown Abbott recently purchased shares in ASX for the Fund. As a value manager, Maple-Brown Abbott is interested in situations where the market’s pricing of a company is at a discount to the true value of the company’s assets and future earnings potential. ASX has recently fallen into this category as it has underperformed the broader market by a significant margin. This is shown in the accompanying diagram which shows the performance of the ASX share price versus the market (S&P/ASX300 Index). The downward sloping line for much of the last year indicates that the share price performance of ASX has been poor versus the market A SX.A SX / XKO .ASX: 0.0068 0.0096 0.0094 0.0092 0.009 0.0088 0.0086 0.0084 0.0082 0.008 0.0078 0.0076 0.0074 0.0072 0.007 0.0068 0.0066 A pr Jun Jul A ug S ep O ct N ov Dec Jan F eb M ar A pr 2009 2010 The cause of this underperformance is twofold. Firstly, the Federal Government announced last year that trading supervision currently undertaken by ASX will be transferred to ASIC by the September quarter this year. In addition, the Federal Government announced in March this year that it will allow alternative trading exchanges into the Australian market, in effect ending ASX’s exclusivity as an exchange facilitator. Maple-Brown Abbott believes that competition concerns have been exaggerated given ASX only derives 10% of group revenue from equity trading. Also, they believe the higher volumes that usually arise in multi-exchange markets will also provide a positive offset to any potential loss of equity trading market share. Maple-Brown Abbott note ASX is one of few vertically integrated stock exchanges in the world and is positively leveraged to increasing trade volumes in the equities, derivatives and debt markets. Trading at half its historical Price Earnings multiple premium, Maple-Brown Abbott believes ASX, which is a well managed company with a near-monopoly business, represents an attractive investment opportunity for the Fund. MLC Super review for the year ending 31 March 2010 Page 6 of 7
  7. 7. Important information This information has been provided by MLC Limited (ABN 90 000 000 402) a member of the National Group, 105-153 Miller Street, North Sydney 2060. This material was prepared for advisers only. Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. Because of this you should, before acting on any information in this communication, consider whether it is appropriate to your objectives, financial situation and needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited (ABN 30 002 641 661) and MLC Nominees Pty Ltd (ABN 93 002 814 959) as trustee of The Universal Super Scheme (ABN 44 928 361 101), and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on 132 652 or on our website at An investment in any product offered by a member company of the National group does not represent a deposit with or a liability of the National Australia Bank Limited ABN 12 004 044 937 or other member company of the National Australia Bank group of companies and is subject to investment risk including possible delays in repayment and loss or income and capital invested. None of the National Australia Bank Limited, MLC Limited, MLC Investments Limited or other member company in the National Australia Bank group of companies guarantees the capital value, payment of income or performance of any financial product referred to in this publication. Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in the market. Please note that all return figures reported are before management fees and taxes, and for the period up to 31 March 2010, unless otherwise stated. The specialist investment management companies are current as at 31 March 2010. Funds under management figures are as at 31 March 2010, unless otherwise stated. Investment managers are regularly reviewed and may be appointed or removed at any time without prior notice to you. MLC Super review for the year ending 31 March 2010 Page 7 of 7