Macquarie Income Opportunities Fund BRETT LEWTHWAITE HEAD OF FIXED - - PowerPoint PPT Presentation

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Macquarie Income Opportunities Fund

BRETT LEWTHWAITE HEAD OF FIXED INCOME AND CURRENCY

July 2013

MACQUARIE INVESTMENT MANAGEMENT | Teleconference Series

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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 Income Opportunities Fund ARSN 102 261 834 (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.

IMPORTANT NOTICE

STRICTLY CONFIDENTIAL

Agenda

01 Macquarie Income Opportunities Fund – a quick recap 4 02 Economic and market environment 6 03 Positioning and performance 14 04 Contact details 19

STRICTLY CONFIDENTIAL

01

Macquarie Income Opportunities Fund – a quick recap

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Macquarie Income Opportunities Fund

Income strategy

Hybrid securities 0% – 10% Global investment grade credit 0% - 40% Global high yield 0% - 15% Emerging market debt 0% - 15% Credit

• pportunities

0% - 20%

Core income portfolio

20% - 100% Trust a manager that performed well through the global financial crisis A conservative philosophy - we believe in preserving capital rather than chasing yield The Fund invests in credit/corporate bonds and has a flexible, multi strategy and opportunistic structure

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STRICTLY CONFIDENTIAL

02

Economic and market backdrop

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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?

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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

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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’

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

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

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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

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Source: Bloomberg, June 2013

Its a low growth, low yield world

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

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

10 year bond yields through history

US: 2000 - Present US: 1925 - 1941 Japan: 1990 - Present

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

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 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

STRICTLY CONFIDENTIAL

03

Positioning and performance

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Macquarie Income Opportunities Fund

Positioning

*Yield to maturity (YTM) is the return the Fund would earn over the next year based on current market conditions if there were no changes to interest rates, and assuming there are no changes to the current portfolio. The number which is quoted is pre-fees. Yield to maturity is not the actual return that an investor can expect to receive from a holding of units in the Fund.

Hybrids securities 0.6% Global investment grade credit 0.0% Credit

• pportunities

4.5%

Core income portfolio

90.7%

Allocation as at 30 June 2013

Global high yield 4.2%

Credit quality % of portfolio AAA 18.3 AA 5.7 A 32.4 BBB 12.6 BB and below 5.8 Cash 25.2 Statistics Average rating AA- Yield to maturity* 4.2% pa

Emerging market debt 0.0%

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Source: Morningstar Past performance is not an indication of future performance; 100 base at March 07. This is a representative, but not exhaustive, sample of floating rate funds competing with the Macquarie Income Opportunities Fund in the retail space. The funds selected are the largest as measured by funds under management as at 31 March 2007. *Source: Datastream, MSCI world un-hedged. ^Fund closed in February 2011.

Competitor: Global Income Fund Competitor: Monthly Income Fund Competitor: High Yield Fund^ MSCI World* Macquarie Income Opportunities Fund

Macquarie Income Opportunities Fund

Performance through the crisis

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Past performance is not an indication of future performance.

Macquarie Income Opportunities Fund

Performance and ratings

Source: Macquarie Investment Management, June 2013 1. Inception date: September 2003 2. Refer to ‘Additional information’ on page 23 for further details regarding researcher ratings.

Researcher ratings2 Zenith+ Recommended Lonsec^ Highly Recommended van Eyk* A Rated

Post fee as at 30 June 2013 3 months (%) 1 year

(%)

3 years

(%pa)

Since inception1

(%pa)

Fund 1.00 7.72 7.06 5.97 UBS Bank Bill Index 0.75 3.28 4.32 5.28

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0% 10% 20% 30% 40% 50% < -1% Between -0.5% and -1% Between -0.25% and -0.5% Between 0% and -0.25% Between 0% and 0.25% Between 0.25% and 0.5% Between 0.5% and 1% > 1% % of months Monthly return (%)

High proportion of positive monthly returns

The above post-fee performance information is from the inception of the Fund, 19 September 2003, to 30 June 2013. Performance results may vary according to differences in fees and implementation. Past performance is not a reliable indicator of future performance . * For the 12 months ending 31 March 2009 ^ For the 12 months ending 30 April 2010

Number of positive months 107 Lowest rolling 12 month return*

• 0.79%

Total number of months 117 Highest rolling 12 month return^ 13.09% % of positive months 91.5% Since inception standard deviation of returns 1.74% Number of negative months Number of positive months

Distribution of monthly Fund returns

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Summary

 Heightened volatility will likely be an ongoing feature in markets  The current investment environment offers the chance to buy high quality credit assets

at much higher yields than their long term averages.

Macquarie Income Opportunities Fund

We have a conservative philosophy - we believe managing credit is about preserving capital rather than chasing yield The Fund has a flexible, multi strategy and opportunistic structure Trust a manager that performed well through the Global Financial Crisis.

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STRICTLY CONFIDENTIAL

04

Contact details

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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

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Thank you for dialing in to the Macquarie Income Opportunities Fund update. We hope you can join us for tomorrow's update on the Macquarie High Conviction 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

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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 May 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

• bligation 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. Awards In August 2012, the Financial Review awarded the Macquarie Income Opportunities Fund best Diversified credit/multi-strategy income fund at the Financial Review Smart Investor Blue Ribbon Awards 2012.

ADDITIONAL INFORMATION