Macquarie Diversified Fixed Interest Fund BRETT LEWTHWAITE HEAD OF - - PowerPoint PPT Presentation

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

MACQUARIE INVESTMENT MANAGEMENT | Teleconference Series

Macquarie Diversified Fixed Interest Fund

July 2013

BRETT LEWTHWAITE HEAD OF FIXED INCOME AND CURRENCY

PAGE 2

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

IMPORTANT NOTICE

For licensed adviser use only - not for distribution to retail investors This information has been prepared by Macquarie Investment Management Limited ABN 66 002 867 003 AFS Licence 237492 (MIML), the issuer of units in the Macquarie Diversified Fixed Interest Fund ARSN 101 815 141 (Fund). This information is confidential and is provided to licensed financial advisers and professional advisers only. It is not to be distributed to, or disclosed to retail clients. The information may be based on assumptions or market conditions and may change without notice. The information in this presentation is provided for general information purposes only and does not take into account the investment objectives, financial situation

• r needs of any person. It should not be relied upon in determining whether to invest in the Fund. In deciding whether to acquire or continue to hold an

investment in the Fund, an investor should consider the Fund’s product disclosure statement. The product disclosure statement is available on our website at macquarie.com.au/pds or by contacting us on 1800 814 523. Past performance information is for illustrative purposes only and is not indicative of future performance. This presentation may include forward-looking statements that represent opinions, estimates and projections, which may not be realised. We believe the information provided herein is reliable, as of the date hereof, but do not warrant its accuracy or completeness. Certain parts of this presentation may have been obtained or are based upon information obtained from third parties which may not have been checked or verified. Investments in the Fund are not a deposits with, or other liabilities of, Macquarie Bank Limited or of any other member of the Macquarie Group and are subject to investment risk, including possible delays in repayment and loss of income and principal invested. Neither Macquarie Bank Limited nor any other member of the Macquarie Group guarantees the performance of the Fund or the repayment of capital from a Fund, or any particular rate of return. Awards In October 2012, Professional Planner / Zenith awarded the Macquarie Diversified Fixed Interest Fund best global and diversified fixed interest fund at the Professional Planner / Zenith Fund Awards 2012. The Professional Planner/Zenith Fund Awards are determined using proprietary methodologies. Fund Awards and ratings are solely statements of opinion and do not represent recommendations to purchase, hold, or sell any securities or make any other investment

• decisions. Ratings are subject to change.

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

Agenda

01 The Macquarie Diversified Fixed Interest Fund – a quick recap 4 02 Economic and market environment 6 03 Positioning and performance 14 04 Contact details 19

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

01

A quick recap

PAGE 5

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

The Fund has been designed as an alternative to traditional Australian fixed interest funds Some of the benefits of investing in the Fund are:

 defensive, yet flexible strategy aiming to perform in all market conditions with a focus on

capital preservation

 higher return objective than Australian bonds with a similar level of risk in an

environment where credit / corporate bonds yields are particularly high

 diversification to equity market risk.

Macquarie Diversified Fixed Interest Fund

Macquarie continually reviews its managers and can change them without notice if Macquarie believes appropriate. The above allocations are indicative targets only.

Target allocation

50% 20% 15% 7.5% 7.5% 0% Australian fixed interest Global sovereign Investment grade credit High yield Emerging market debt Credit

• pportunities

Macquarie Macquarie Rogge Global Partners Wellington Management Stone Harbor Macquarie Australian fixed interest Global sovereign Investment grade credit High yield Emerging market debt Credit

• pportunities

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

02

Economic and market backdrop

PAGE 7

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

Strong start to 2013 by markets has given way to fears of QE ‘tapering’

Aims of QE



Raise asset prices



Create a wealth effect on economic growth



Remember 2013’s ‘game changer’ - where central banks embraced ‘growth targeting’ meaning risk assets rallied, even though there was little evidence QE worked. Outcomes



Nine months since the US Federal Reserve (Fed) embarked on QE3 unlimited - both economic growth and inflation have actually slowed and are being revised down



Where is the QE wealth effect and the stronger economic growth? — Monetary policy for all intents and purposes appears ineffective in what remains a ‘Liquidity Trap’ — Now in a QE world of unconventional and experimental monetary policy with many unknown consequences.

H2 2013 outlook

With or without quantitative easing (QE)?

With asset prices now at lofty levels and stronger economic growth remaining elusive, how will markets live with or without QE?

PAGE 8

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

Addictions and side effects

Instability and volatility

This quarter has revealed how asset prices have benefitted from QE



Ben Bernanke’s announcement of the possibility of ‘adjusting’ QE had major effects across all markets with: — higher bond yields – tighter financial conditions — major equity indices declining — credit spreads wider — the only increase observed was USD!



Rationale for the timing of the announcement varies from: — ‘positive’ economic data emerging from the US — asset prices supported by QE have outpaced underlying fundamentals & required tempering — the US Fed is preparing for the transition to a new chairperson.

Source: Bloomberg, June 2013

Credit spreads

PAGE 9

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

Source: Bloomberg June 2013

QE1 announced QE2 news (Jackson Hole) Operation Twist announced Operation Twist extended QE1 ends QE2 ends QE3 announced ‘Tapering’ mentioned

QE will prove a very hard habit to break

Markets jitter on talk of ‘tapering’

PAGE 10

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS



Despite the lack of the QE wealth effect, Bernanke introduced the concept of altering the pace of QE. However: — the Fed is downgrading economic growth and inflation — the FOMC has a track record of being too

• ptimistic on growth.

Why taper now?



QE isn’t working



QE risks outweigh its benefits



Pre-emptive move against stronger growth



Concern around asset prices



Bernanke is preparing the transition to a new chairperson.

Tapering

Are costs beginning to outweigh the benefits of QE?

Source: FOMC & Bloomberg, June 2013

Actual GDP 2010 2011 2013 2012 2014 2015

PAGE 11

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

Both growth and inflation are slowing

(Still) waiting for the QE wealth effect

Where is QE’s impact on economic growth? Nine months since QE unlimited was announced, growth hasn’t improved

Source: Bloomberg June 2013 Source: Bloomberg June 2013

PAGE 12

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

Source: Bloomberg, June 2013

Bond yield fundamentals

Increasing debt burdens and modest growth



It remains a low yield world, although a volatile one susceptible to episodic panics



Similar historical environments shown in the chart reveal a market of grinding low bond yields with moments of sharp moves higher



Higher bond yields will affect economies given heightened debt levels



Currency volatility is back, stronger economies see higher currencies, undermining their growth



Indebted economies cannot afford structurally higher bond yields

1990 2013 1995 2000 2005 2013 2005 2000 1925 1941 1930 1935

PAGE 13

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

 Watch current and growing disconnect between growth/earnings (fundamentals) and a

market buoyed by central bank support (liquidity)

 Expect increased volatility as the Fed decides whether or not they will reduce QE  US economy performing well in the face of fiscal headwinds, but now has tighter

financial market conditions to contend with

 Global growth is modest at best

— European issues remain unresolved — Japan actions have stirred currency volatility — China growth appears to be disappointing

 Market belief in the ‘immaculate withdrawal’ may prove misplaced

— complications could occur with or without QE — could risk assets aided by central banks move into bubble territory?

Outlook

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

03

Positioning and performance

PAGE 15

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

Macquarie Diversified Fixed Interest Fund

Positioning

As at 30 June 2013

70.0% 0.0% 18.9% 4.3% 0.0% 6.8% Diversification to equities Exposure to unique credit opportunities

Range

20% - 100% 0% - 60% 0% - 40% 0% - 20% 0% - 20% 0% - 20%

Strategic asset allocation

50% 20% 15% 7.5% 7.5% 0%

Australian fixed interest Global sovereign Investment grade credit High yield Emerging market debt Credit

• pportunities

PAGE 16

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

We significantly reduced our high yield and emerging market exposure before the FOMC statement at the end of May We then exited emerging markets by quarter end



These sectors combined have added to performance over the financial year despite the recent underperformance



We will look to re-establish long positions if the opportunity arises, when volatility subsides and market dynamics improve in credit



Bond duration has been held at neutral to underweight

Chart source: Barclays Capital, June 2013

Macquarie Diversified Fixed Interest Fund

Positioning

PAGE 17

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

1. Inception date: September 2002 2. Please refer to ‘Important information’ on slide 22 for further information in researcher ratings Source: Macquarie Investment Management Past performance is not an indication of future performance.

Macquarie Diversified Fixed Interest Fund

Performance and ratings

Researcher ratings2 Zenith+ Recommended Lonsec^ Recommended van Eyk* BB Rated

Post fee as at 30 June 2013 3 months (%) 1 year (%) 3 years (%pa) Since inc1 (%pa) Fund performance

• 0.17

2.88 7.09 7.04

UBS Composite Bond Index

0.41 2.78 6.83 6.20

PAGE 18

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

Summary Your core fixed interest solution

Macquarie Diversified Fixed Interest Fund

The Macquarie Diversified Fixed Interest Fund seeks to take advantage of the current climate with a time tested tactical asset allocation process The current investment environment appears attractive for the asset class and the Fund

• 1. Bonds offset equity risk
• 2. The Fund has a defensive yet flexible strategy
• 3. Credit offers compelling opportunities

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

04

Contact details

PAGE 20

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

Business Development Team

Cameron Farrar Head of National Sales P (02) 8237 5438 M 0425 317 203 E cameron.farrar@macquarie.com Jimmy Byrne Business Development Manager P (02) 8232 0604 M 0422 429 865 E jimmy.byrne@macquarie.com Raegan Williams Business Development Manager P (07) 3233 5220 M 0417 448 473 E raegan.williams@macquarie.com Jessica Chen Business Development Associate P (02) 8237 6835 E jessica.chen2@macquarie.com Rani Singh Business Development Officer P (03) 9635 9292 E rani.singh@macquarie.com Benjamin Price Head of National Accounts and Researcher Relations P (02) 8237 4243 M 0414 973 494 E benjamin.price@macquarie.com Haydn Scott Business Development Manager P (03) 9635 9679 M 0408 902 427 E haydn.scott@macquarie.com Alana Grist Business Development Manager P (03) 9635 8035 M 0417 455 831 E alana.grist@macquarie.com Joel Lewis Business Development Associate P (03) 9635 8392 E joel.lewis@macquarie.com Sam Bishop Business Development Officer P (07) 3233 5221 E sam.bishop@macquarie.com

NSW ACT NSW NSW ACT QLD VIC TAS VIC SA WA VIC SA WA TAS QLD VIC SA WA TAS

PAGE 21

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS



Thank you for dialling in to the Macquarie Diversified Fixed Interest Fund update.



We hope you can join us for tomorrow's update on the Macquarie Asia New Stars No.1 Fund. For more information on Macquarie Investment Management, please visit macquarie.com.au/mim

Thank you

Day (10am and 1pm AEST) Fund Monday 15 July Macquarie Diversified Fixed Interest Fund Tuesday 16 July Macquarie Asia New Stars No.1 Fund Wednesday 17 July Macquarie Income Opportunities Fund Thursday 18 July Macquarie High Conviction Fund Friday 19 July Macquarie International Infrastructure Securities Fund Monday 22 July Macquarie Australian Small Companies Fund

PAGE 22

FOR LICENSED ADVISER USE ONLY – NOT FOR DISTRIBUTION TO RETAIL INVESTORS

Researcher ratings For full explanation of the meanings of the ratings, refer to the relevant researcher website: www.zenithpartners.com.au ; www.lonsec.com.au ; www.irate.vaneyk.com.au + The Zenith Investment Partners (Zenith) ABN 60 322 047 314 rating 'Recommended' (May 2013) referred to in this document is limited to General Advice (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product(s), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective. * van Eyk Research Pty Ltd ABN 99 010 664 632, corporate authorised representative of van Eyk Financial Group Pty Ltd ABN 28 149 679 078, AFSL 402146 (authorised representative number 408625) (van Eyk) rates investment management capabilities rather than individual products. This rating is valid as at March 2012 but can change or cease at anytime and should not be relied upon without referring to the meaning of the ratings, as well as the full manager reports, available to subscribers at www.iRate.vaneyk.com.au. van Eyk has not directed the publication of Macquarie Funds Group's rating. Past performance information is given for illustrative purposes only and should not be relied upon as it is not an indication of future performance. The rating is not intended to influence you and your client's investment decision in relation to any products managed by Macquarie Funds Group and does not take into account your client's individual financial situation, needs or objectives. We recommend that you and your client do not rely on this rating in making an investment decision and instead you seek advice from an appropriate investment adviser and read the product disclosure statement before making such a decision. ^ The Lonsec rating (assigned June 2013) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421445. The rating is a ‘class service’ (as defined in the Financial Advisers Act 2008 (NZ)) or is limited to ‘General Advice’ and based solely on consideration of the investment merits of the financial product(s). In New Zealand it must only be provided to ‘wholesale clients’ (as defined in the Financial Advisers Act 2008 (NZ)). It is not a recommendation to purchase, sell or hold the relevant product(s), and you should seek independent financial advice before investing in this product(s). The rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following

• publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria. For further

information regarding Lonsec’s ratings methodology, please refer to our website at: https://www.lonsec.com.au/aspx/Public/Documents/Ratings%20Definitions.pdf.

ADDITIONAL INFORMATION