Part of Netwealth's portfolio construction webinar series - ST Wong from Prime Value presented to an audience on 14th June 2016 on the topic of absolute investing.

1. Welcome to the netwealth
portfolio construction webinar series

2. Netwealth disclaimer

3. About Prime Value
 Boutique manager established in 1998
 Committed equity holders – Law Family
 High conviction, style neutral manager
 Consistent business and investment philosophy –
- core belief in co-investment (Building Wealth Together) and
stewardship
 Well resourced and high calibre investment team
 Significant infrastructure and back office resourcing
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4. Presenter ST Wong
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ST joined Prime Value in Dec 2011 and launched the Opportunities Fund in Oct
2012. He became PM for the Growth Fund in July 2013
ST Wong has over 20 years of funds management experience, most recently as
Head of Investments at Xantias Financial Management, a national wealth
management firm and Australian Fund Manager for AIG Investments, a global
investment manager
As an analyst at Daiwa Securities in Australia and BZW (Barclays de Zoete
Wedd) in Asia, ST covered a broad range of companies and sectors servicing
global institutional fund managers across regional financial centres in Asia,
Europe and the US
ST is a Chartered Financial Analyst charter holder

5. Absolute investing - strategies for positive returns in volatile markets
S.T. Wong; Portfolio Manager and CIO

6.  Part 1 – Absolute return investing
 Part 2 – Investing in a volatile market
 Portfolio construction
 Stock examples & key themes
 Part 3 – Prime Value Opportunities Fund
 Prime Value absolute return strategy in practice
 PVOF outcomes
 Part 4 – Questions & Answers
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Agenda

7. 01Absolute Return Investing
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8.  Absolute return investing aims to produce positive returns over
time – regardless of prevailing market conditions
 ABSOLUTE return differs from RELATIVE return because it is
concerned with the return of an asset
 Unlike traditional long only equity funds, absolute return funds are
not linked to any particular share market index
8
What is Absolute Return Investing?

9. Why Absolute Return Investing?
 Traditional equity funds: references a benchmark such as the
S&P/ASX200 Index and aim to achieve a certain amount over the
benchmark
 Returns: In a low and unstable economic growth environment
equity market returns may continue to be lacklustre and volatile
 Opportunities: Benchmarks are inefficient—backward looking
and limits investment opportunities
 Diversification: Absolute return strategies generally have low
correlation to equity markets
 Preserve capital: Lower volatility with downside protection
 Complements: long only funds and direct holdings
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10. Benchmarks Are Inefficient
Concentrated and backward looking
10
25 25
12
7 8
4
7
9
8
22 14
8
0
10
20
30
40
50
60
70
Dec-12 May-16 PVOF
Materials Diversified financials Real estate Commercial banks
% of the ASX300 Index
60.4%
56.8%
32.1%
Major sectors in typical indices/benchmarks: Financial and resources

11. Diversification and Opportunities
Size isn’t a reason to invest
11
0
10
20
30
40
50
60
70
80
90
Top 50 companies Mid-cap companies 100-200 Ex 200 companies Cash
PVOF ASX300 Index
10 stocks
5 stocks
12 stocks
5 stocks
%
Market capitalisation spread in typical indices/benchmarks: Top heavy

12. Lower Drawdowns
Maximum fund drawdown -5.0% vs ASX300 -13.5%
12
-15%
-10%
-5%
0%
Nov 12 May 13 Nov 13 May 14 Nov 14 May 15 Nov 15 May 16
PVOF S&P/ASX 300
Prime Value Opportunities Fund vs ASX300 Index drawdown

13. 02Investing in a volatile market
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14. Stock Selection is Half the Process
Portfolio construction is the other critical half
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 Diversification of equity risk is a key capital preservation
feature
 Balancing these defensive features, so that the portfolio
plays both the diversifying role and investing
opportunistically
 Focusing on absolute returns and risk is the best way to
achieve this balance

15. Portfolio construction in volatile markets
Opportunities across the market
15
Core
(18%)
Specific
growth
(21%)
Asset
realisation/
Valuation
(8%)
Turnaround
(10%)
Thematic
(29%)
• Stable and
sustainable
businesses
• Long term
prospects
• Ability to
deploy strong
balance sheets
• ORA, CSL
• Operate in
high growth
sectors or
possess
products or
services in
high demand
• Typically
smaller
companies
• IPH, BAP
• Stable and
sustainable
businesses
• Long term
prospects
• Ability to
deploy strong
balance sheets
• ORA, CSL
• Trading at
discount to
peers
• Assets or
prospects
unrecognised
due to
shortermism
• MQA, FLT
• Companies
expected to
drive returns
from turning
around
business
model
• Industry
structure
• SUN,LNK
• Companies
exposed to
structural or
cyclical themes
• SYD, BGA

16. Stock examples: Core
Sustainable earnings backed by balance sheet
16
Orora share price vs ASX300 Index Orora Ltd: Core
• Market leader in Australian packaging
products, largely in F&B. Large US
corrugated board and packaging
operations. Spun out from Amcor 2013
• Steady and sustainable earnings due to
exposure to FMCG
• Management has been delivering
efficiencies in business and developing
new markets
• FY17e PER 19x, dividend yield 3.4%
What is the opportunity?
80
90
100
110
120
130
Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16
Orora
ASX300 Index
Base 31 Dec 15
Initiated position
Strong
market
position
Mature
industry
structure
Weakening
competition
Ability to consolidate

17. Stock examples: Specific Growth
Exponential growth in data and devices
17
Telecommunication stocks
share price comparison
TPG Telecom: Specific growth
• Exponential growth in global data
consumption
• Largest fixed broad-band subscriber base
after incumbents Telstra and Optus
• Ownership of infrastructure
• Grown through acquisitions and
organically
What is the opportunity?
• New markets: corporate, SME and
competing with NBN
• Leverage scale by being vertically
integrated
Threats
• Incumbents introduce price competition
• Regulation: ACCC on prices
• Integration risks
80
100
120
140
160
180
200
220
240
Jan 14 Jul 14 Jan 15 Jul 15 Jan 16
iiNet TPG
Base 1 Jan 2014
Exchanged iiNet
scrip for TPM shares

18. Stock examples: Valuation, Assets Unrecognised
Latent value
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National Storage REIT share price National Storage: Valuation
• Operates 100 self storage centres across
Australia and NZ: 70% residential
individuals, 30% business owners
• Generally well located and modern
facilities
• Requires low level of capex and
maintenance vs other types of properties
• Value in underlying property
What is the opportunity?
• Acquisitions: Strong balance sheet in a
fragmented sector: 70% of operators have
1-3 centres
• Organic: Scope for operating cash flow
growth improvements with occupancy
levels at 73% vs. leading peers’ mid 80%
80
100
120
140
160
180
200
Jan 14 Jul 14 Jan 15 Jul 15 Jan 16
NSR ASX300 Index
Base 1 Jan 2014
Established position

19. Stock examples: Turnaround
Resetting expectations
19
Insurance sector stocks share
price comparison
Suncorp: Turnaround
• Simplifying a complex group: clearer lines,
focus on profitability
• Reduced capital requirements
• Improved returns on capital
How do we become comfortable with a
turnaround?
90
100
110
120
130
140
150
160
170
180
Oct 12 Oct 13 Oct 14 Oct 15
Suncorp
IAG
ASX300 Index
Base 1 Oct 2012
Initiated SUN
position
Management
strength deep
and focussed
Balance sheet
with excess
capital
requirements
Insurance
industry
structure
+ve for
revenues
Positive outlook on
Suncorp

20. Stock examples: Thematic
Demographic changes at the doorstep
20
Infrastructure sector stocks share
price comparison
Sydney Airport: Thematic
• Major gateway but significant proportion of
earnings derived from retail and car parks
• Investment thesis: Exposure to the
proliferation of LLCs and in-bound visitors
• Management has been active in creating
value in both aviation and other land
based assets
What is the opportunity?
• International passenger growth
• Further asset developments
• Second Sydney airport
80
100
120
140
160
180
200
220
240
1-Oct-12 1-Oct-13 1-Oct-14 1-Oct-15
Sydney Airport
Transurban
ASX300 Index
Initiated Sydney Airport
position
Base 1 Oct 2012

21. Building Portfolio Positions
Portfolio positions materially different to Indices
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22. 03Prime Value Opportunities Fund
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23.  Prime Value’s absolute return strategy seeks to deliver positive returns by:
 Focussing on company fundamentals
 Constructing a diversified portfolio of stocks
 Having an ability to hold 100% of the Fund in cash
 Aligned interests
 Avoiding exposure to investing climates that seem less than favourable
 Minimizing mistakes
 Avoiding losers is just as important as identifying winners
 Invest on fundamentals: what do we look for?
 Management as operators and investors
 Quality of business and ability to grow over time
 Transparency of business
 Attractive valuations
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Prime Value Investment Philosophy

24. PVOF Fund Objectives
 Deliver attractive risk adjusted returns over the medium to long term:
target >8% p.a.
 Minimise mistakes and preserve capital
 Research process is to build a robust portfolio by selecting
appropriate securities without reference to any particular benchmark
 Long only, concentrated fund
 No gearing or shorting
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25. PVOF Fund Characteristics
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Criteria PVOF Guidelines
No of stocks 10-30
Max weight of any stock in portfolio ≤ 15%
Benchmark 8%
Inception November 2012
Market Cap All Cap
Style Active Style, Benchmark Agnostic
Cash holding Up to 100%
Non Australian equity holding Up to 20%
Fee (ICR) 0.95% p.a.
Performance Fee 15% p.a of performance above benchmark

26. Building Longer Term Performance
15.9% appreciation p.a. since inception, preserved capital in 93% of down markets
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PRIME VALUE OPPORTUNITIES FUND Monthly Performance Summary
(%) July August Sept October Nov Dec January February March April May June FY
FY13
PVOF 1.8 1.7 4.3 6.2 -0.6 4.0 -2.2 -1.7 14.1
ASX300 Ac Index 1.3 3.3 5.0 5.3 -2.3 4.3 -4.5 -2.4
8% Benchmark 0.6 0.7 0.7 0.6 0.7 0.6 0.7 0.6
Cash at month end 33.4 31.0 15.2 15.5 13.1 12.9 12.0 10.5
FY14
PVOF 4.4 2.6 4.4 5.0 -1.1 1.5 -1.9 5.9 0.2 0.3 0.3 -1.4 21.4
ASX300 Ac Index 5.3 2.5 2.2 3.9 -1.4 0.8 -3.0 4.9 0.2 1.7 0.7 -1.5
8% Benchmark 0.7 0.6 0.6 0.7 0.6 0.7 0.7 0.6 0.7 0.6 0.6 0.6
Cash at month end 8.3 9.9 6.9 8.1 7.3 10.0 11.0 10.5 10.1 9.1 13.0 13.3
FY15
PVOF 2.5 1.0 -4.1 3.1 -1.9 0.7 1.5 5.7 1.4 -1.0 0.5 -4.2 4.6
ASX300 Ac Index 4.4 0.6 -5.4 4.3 -3.2 2.0 3.2 6.9 -0.1 -1.7 0.4 -5.3
8% Benchmark 0.7 0.6 0.6 0.7 0.63 0.6 0.6 0.6 0.7 0.6 0.6 0.6
Cash at month end 8.3 11.2 12.1 10.5 9.8 9.7 10.0 10.2 7.7 9.7 9.7 9.7
FY16
PVOF 5.3 -3.7 0.1 5.5 1.7 2.4 -3.4 -1.9 3.6 2.3 4.4 17.0
ASX300 Ac Index 4.3 -7.7 -2.9 4.4 -0.7 2.7 -5.4 -1.7 4.8 3.3 3.1 3.4
8% Benchmark 0.7 0.7 0.6 0.6 0.6 0.7 0.6 0.6 0.7 0.6 0.7
Cash at month end 6.1 10.6 11.0 10.0 10 9.0 8 13 10 12 14.1
Since inception of PVOF, in 93% of negative months, PVOF has outperformed the
ASX300 Accumulation Index

27. Building Longer Term Performance
15.9% appreciation p.a. since inception (Nov 2012)
27
Performance summary
to 31 May 16 (%)
PVOF
8%
Benchmark
Relative
performance
to benchmark
ASX300
Accumulation
Index
Relative
performance
to ASX300
Since inception (p.a.) 15.9 8.0 7.9 10.0 5.9
3 years 13.5 8.0 5.5 7.7 5.8
1 year 12.0 8.0 4.0 -2.1 13.9
6m 7.4 4.0 3.4 6.6 0.8
1m 4.4 0.7 3.7 3.1 1.3

28. Key Stock Performers (last 12 months)
 IPH
 SYD
 AIO
 MQA
 IIN
 VED
 CTD
 BAP
 AMC
 APO
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29. Important Information
The information contained in this presentation is general in nature and has no
regard to the specific investment objectives, financial or particular needs of
any specific recipient. It is not intended to constitute investment advice or a
personal securities recommendation.
This presentation is not a Product Disclosure Statement (PDS) or an offer of
units, and contains a brief overview of the investment only. Any prospective
investor wishing to make an investment in the Fund must obtain and read
the relevant PDS (particularly the risk factors discussed) and complete an
application form attached to the PDS.
Neither Prime Value Asset Management Limited nor its associates or
directors, nor any other person, guarantees the success of the Prime Value
Funds, the repayment of capital or any particular rate of capital or income
return, or makes any representation in relation to the personal taxation
consequences of any investor’s investment.

30. 04Questions & Answers
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