Why International? Access to global themes and global best practice. Narrow concentration of Australian share-market and economy creates a bottle-neck for growth and adds unnecessary portfolio risk. Equity is the GROWTH asset. As the lowest end of the capital structure, the attraction in holding equity invariably is the GROWTH aspect. This compensates us for the risk born in owning equity. Slowing Australian growth & falling cash rates mean investors should cast a wider net.

1. Helping clients protect assets and build wealth
‘Time to Expand our Horizons’
Jonathan Bayes, Chief Investment Officer

2. Disclaimer
The
informa,on
contained
in
this
presenta,on
is
for
informa,onal
purposes
only
and
is
not
intended
to
be
exhaus,ve
or
complete.
This
informa,on
does
NOT
cons,tute
financial
advice
and
should
NOT
serve
as
the
basis
for
any
decision
by
you.
The
informa,on
does
not
take
into
account
the
objec,ves
and
circumstances
of
the
individual
investor
and
we
recommend
that
you
consult
a
financial
adviser
should
you
have
ques,ons
regarding
the
informa,on
contained
in
this
presenta,on.

3. Helping clients protect assets and build wealth
Introduction – Key Points

4. Introduction – Key Points
§ Acknowledge this is as much a discussion about
diversity as it is about international investment
opportunities … means to an end.
§ Geographic diversity is no different to asset-class
diversity – aim being to optimize returns,
minimize risks and balance correlation.
§ Establish the merit for foreign investment – both
opportunity for return and mitigation of domestic
risks.

5. Helping clients protect assets and build wealth
Diversity – Why Do We Diversify?

6. Diversity – Why Do We Diversify?
§ To create a portfolio that delivers an appropriate risk/
return profile across a broad base of economic &
investment market outcomes.
§ Different asset classes and different geographies have
different profiles by risk, return, volatility & etc.
§ Similarly, different regions have different attributes and
shortcomings in terms of growth, liquidity corporate
governance, regulation and respect for shareholder and
property rights

7. Helping clients protect assets and build wealth
Australia – An Anchor

8. Australia – An Anchor
§ ‘Home bias’ carries sway – matching future liabilities & simple investor ‘comfort’.
§ Australian investor ‘home bias’ is & has been even more powerful due to the
superannuation system and tax-treatment of investment funds & franking credit rebates
BUT
§ Australia’s economy & share-market is concentrated & narrow.
§ Commonwealth Bank is 9.2% of the ASX200, ‘Big-4 Banks’ are 28%
§ Indirectly Australia’s share-market is hence very closely correlated to residential housing
§ Australia is a small, under-inhabited island nation. It is hard to build scale here.
AND
§ Australia is the 4th largest global pool of superannuation funds, but only the 2.3% of World
GDP and 1.6% of World stock-market value.
§ Superannuation is a genuine Australian ‘natural resource’ .
§ “We don’t sell all the iron ore we make here, and nor should we invest all the
savings we have here”.

9. Helping clients protect assets and build wealth
International Assets

10. International Assets
Why International?
§ Access to global themes and global best practice.
§ Narrow concentration of Australian share-market and economy creates a bottle-neck for
growth and adds unnecessary portfolio risk.
§ Equity is the GROWTH asset. As the lowest end of the capital structure, the attraction in
holding equity invariably is the GROWTH aspect. This compensates us for the risk born in
owning equity.
§ Slowing Australian growth & falling cash rates mean investors should cast a wider ne.t
Why Now?
§ Globalisation is unending, markets and economies and societies are becoming ever more
interconnected so themes are becoming truly global in nature.
§ To gain access to these themes and the growth associated, invariably requires a willingness
to invest offshore.
§ So much of investing is a reflection of one’s psyche – that investors now know the global
brands, themes and social movements, they are increasingly comfortable in investing along
these lines.

11. The World Is Your Oyster – Global Themes
Investing overseas provides
access to global themes and
global best-practice.
§ Big-data – Amazon ($230bn),
Google ($420bn)
§ Smartphones – Apple ($620bn),
Samsung ($140bn)
§ Social-Media – Facebook ($250bn)
§ Biotechnology – Gilead Sciences
($150bn), Amgen $117bn)
§ New energy – Tesla ($32bn)
§ Internet of Things – TSMC
($104bn)
§ China – Tencent ($160bn), Nestle
($230bn)

12. The World Is Your Oyster – Australia in a
Global Context
§ US share-market value of US$23tln
compares to Australia at US$1tln.
§ Apple is the worlds most valuable
company at US$640bn.
§ Apple’s corporate value is 90% of the
Australian share-market value.
§ Apple is only 1% of the total value of
the US share-market – a 1% weight in
the ASX200 would equate to Brambles
(BXB), with A$15bn value & 21st
ranking in the ASX200.
§ Korea’s stock-market value is 10%
larger than Australia

13. Helping clients protect assets and build wealth
International Assets – Why Prime?

14. International – Why PRIME?
§ Evolutionary move – needs & wants aligned.
§ Client base increasingly ‘aware’ of the shortfalls of
domestic equity market and of the opportunity set
available offshore.
§ PRIME’s ability to cater to this need is now fully aligned &
operational in terms of internal skill-set and functional
abilities
§ Significant personnel change adds a skill-set and know-
how in international assets
§ Platform technology that will allow PRIME clients to gain
reporting capabilities on international assets

15. International – Where to Invest & Why?
§ Three major regions – North
America, Europe & Asia – the first
two are predominantly seen as
Developed Markets, the latter a
combination of developing and
emerging markets.
§ Developed markets – greater size
of assets because of corporate
governance, history of earnings,
regulatory oversight, and by virtue
of these things, liquidity.
§ Emerging markets – less liquid,
often faster growing, but lower
GDP/capita, developing
infrastructure and regulation.
Shorter proven track record of
results.

16. International – How Do We Do It?
§ Two questions – where do we invest, and in what structure?
§ How do we split our international allocation by region? –
considerations here include risk profile, income needs,
currency exposure and outlook, valuation and potential for
growth
§ Is the investment vehicle a passive or active one?
§ PRIME advocate for active funds management groups with
similar investment philosophy, demonstrable track-record &
a willingness to hold a view OR blue-chip, low-cost, highly
liquid Exchange Traded vehicles (ETF).

17. International – How Much to Invest?
§ The good news – there is no right or wrong number! It is
highly subjective.
§ But…that doesn’t diminish the importance nor relevance
of this presentation!
§ All investors are individual, so one size does not fit all –
risk appetite, return aspirations & etc all play a role. IT IS
VITAL TO GET THIS CORRECT.
§ Empirical evidence suggests a figure of 10-40% in
international growth assets. PRIME ‘Balanced’ portfolio’s
suggest 17.5% of assets (range 10-27.5%).

18. The Future Fund – A Real World Example
§ Not comparing apples with apples… but…
§ Future Fund is far heavier on alternative asset classes such as
hedge funds, infrastructure & private equity at the expense of
Australian equity notably.

19. Jonathan Bayes, Chief Investment Officer
Email: jonathanb@primefinancial.com.au

20. Prime Financial Group Ltd
ACN: 009 487 674
Head Office
Level 17, Como Office Tower
644 Chapel Street
PO Box 6105
South Yarra VIC 3141
Tel 03 9827 6999
Fax 03 9827 9100
Client Services
1800 064 959
clientservices@primefinancial.com.au
www.primefinancial.com.au
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