Perpetuals balanced funds Protecting your clients

1
Perpetuals balanced funds Protecting your
clients

• Presented byRichard Brandweiner, Group Executive
• Income and Multi-sector
• November 2008

2
Perpetuals Balanced Growth FundConsistently
delivered relative to competitors
Source Mercer as at 30 September 2008
3
Consistent outperformanceRolling 1 year excess
return relative to its benchmark.
Source Perpetual
4
Perpetuals Balanced Growth Fund Continually
enhancing the process
The value of 100 invested from December 1995
versus the market index
Unlisted property
In-house global equities
External asset consultant
Active fixed income
Alternatives
Active listed property
Perpetuals Balanced Growth Fund1
TAA
Balanced Growth Fund Index2

• Net of fees
• Balanced index is constructed by Perpetual and
  made up of 30 Blended Ordinaries Accum Index,
  25 MSCI World ex Australia Accum Index,
• 10 UBSW Bank Bill Month End index, 15 UBS
  Composite Bond All Maturities Month End Index, 5
  Blended Property Accum Index, 5 UBSW
• Bank Bill All Maturities Daily Index 3, 4 UBS
  Australian Government 10 Index 3

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Tactical asset allocation (TAA)Active,
disciplined positioning of the portfolio
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Starting principles of TAA

• Follow Perpetual philosophies of simplicity and
  transparency
• No reliance on forecasts, an imprecise science
• No committees
• No emotions (disciplined decision process)
• Not reliant on one or two indicators
• Adapt to a changing environment
• Incorporate value (moving target)

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Our TAA process

• Significant back testing project over two years
  by a team of five
• Original data sources back to 1979
• Well defined framework linked to a disciplined
  decision-making process no committees
• Evaluates impact of the earnings cycle on
  equities and business cycle on bonds
• Analyses valuations of equities and bonds
• Incorporates market sentiment through technical
  analysis

Aim to add value by favouring asset classes
which perform best under certain conditions and
are regarded as undervalued
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TAA structure
Equities
Bonds
Technical
Cycle
Value
Technical
Cycle
Value
Equities position
Bond position
100 Most bullish
100 Most bullish
-100 Most bearish
-100 Most bearish
Incorporates into portfolio reflecting
specified ranges around benchmark
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Inputs
Earnings momentum Short-term interest rates
Cycle
Equities
Earnings / Bond yield relationship Earnings /
Inflation relationship
Value
Domestic growth Short-term interest rates US long
bond rates
Cycle
Bonds
Aust 10 year real yield US / Aust 10 year real
yield spread
Value
No reliance on forecasts except inflation and
earnings
10
TAA process equity cycle
Current raw score 0
1.80
8.5
Earnings revisions Falling
Short-term interest rates falling aggressively
8
1.60
7.5
1.40
7
6.5
1.20
6
1.00
5.5
5
0.80
Earnings revisions (LHS)
4.5
Short-term interest rates (RHS)
0.60
4
May-
Aug-
Nov-
Feb-
May-
Aug-
Nov-
Feb-
May-
Aug-
Nov-
Feb-
May-
Aug-
Nov-
Feb-
May-
Aug-
Nov-
Feb-
May-
Aug-
03
03
03
04
04
04
04
05
05
05
05
06
06
06
06
07
07
07
07
08
08
08
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TAA process equity value
Current raw score 40
12.0
1500
Equities become very undervalued in 2008
Earnings yields spike while long bond rates fall
1000
10.0
500
8.0
0
6.0
-500
-1000
4.0
Earnings yield (LHS)
-1500
2.0
10 year bond yield (LHS)
-2000
Degree of relative valuation (RHS)
0.0
-2500
May-
Aug-
Nov-
Feb-
May-
Aug-
Nov-
Feb-
May-
Aug-
Nov-
Feb-
May-
Aug-
Nov-
Feb-
May-
Aug-
Nov-
Feb-
May-
Aug-
03
03
03
04
04
04
04
05
05
05
05
06
06
06
06
07
07
07
07
08
08
08
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TAA equity positions 2007 - 2008
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Stock selectionQuality and value
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Perpetuals Balanced Growth FundBenefits from
Perpetuals investment style across multiple
asset classes

• Source Datastream, Perpetual to 30 September
  2008
• 1. Perpetual Wholesale Australian Share Fund.
  Benchmark Post 31/3/2000 this index was the
  SP/ASX All Ordinaries Accumulation Index. Prior
  to 31/3/2000 it was the ASX All Ordinaries
  Accumulation Index
• 2. Perpetual Wholesale International Share Fund.
  Benchmark MSCI World ex Australia Accumulation
  Index A
• 3. Mercer Balanced Growth Median Manager Sep 2008

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We will remain focussed on quality and value

• Companies must pass four quality criteria
• Sound management
• Conservative debt
• Quality of business
• Recurring earnings

Quality
Perpetual universe

• Flexible approach
• Recognises the different nature of companies
• Analysts must clearly articulate the methodology
  used and the reasons

Company valuation
Stock rank

• Portfolio manager responsibility, within
  framework of
• Analyst stock ranks
• Perpetuals philosophy
• Risk controls and guidelines
• Monitoring framework

Portfolio construction
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The search for value many more opportunities
Changes in 1 year forward P/E ratio between June
2003, June 2007 and June 2008 ASX300 ex banks and
resources
100
P/E gt 17
90
P/E gt 17
P/E gt 17
80
70
60
ASX300 of market ex banks and resources
50
40
30
P/E lt 17
P/E lt 17
P/E lt 17
20
10
0
Jun 2003
Jun 2007
June 2008
Source Factset
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Global equities a quality assessmentPortfolio
Characteristics 30 September 2008
Strong quality characteristics across a number of
measures
Quality minimises risk
Source UBS Portfolio Analysis System
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Quality outperforms over the long term20 years
of data to 30 September 2008
Quality universe vs MSCI Global Index -
cumulative total return (AUD) since 1988
900
800
MSCI World Index
Quality stocks
700
8.9 pa
600
500
7.1 pa
400
300
200
100
0
Aug-88
Aug-89
Aug-90
Aug-91
Aug-92
Aug-93
Aug-94
Aug-95
Aug-96
Aug-97
Aug-98
Aug-99
Aug-00
Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Source Morgan Stanley Quantitative Research
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But it doesnt outperform all the time20 years
of data to 30 September 2008
MSCI World 1 year rolling return vs universe of
quality stocks
60
The quality index has had strong performance in
weaker markets, but
50
also performed well in strong market of mid 1990s
40
30
20
1 year excess return
10

0
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
-10
-20
The excess credit creation, leverage and
Historically, the quality index underperforms
indifference to risk of the 2004-
-30
in the latter stages of bull markets
07 period meant quality went
unrewarded.
-40
MSCI World 1 year rolling return
12m excess return
Source Morgan Stanley Quantitative Research
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Perpetuals Balanced Growth Fund team update
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A new addition to the Perpetual team

• Michael Blayney joins us as Portfolio Manager of
  our Diversified Funds (including the Balanced
  Growth, Conservative Growth and Diversified
  Growth Funds)
• Michael has 12 years experience in the investment
  and superannuation markets
• Most recently employed at leading investment
  consultant, Watson Wyatt, specialising in
  providing investment strategy advice to some of
  Australias largest institutional investors
• Specialist skills in asset allocation advice,
  asset and liability modelling
• Bachelor of Laws, Bachelor of Science and a
  Fellow of the Institute of Actuaries of Australia

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Asset allocation review board
Asset Allocation Review Board Emilio
Gonzalez Vasant Khilnani Richard Brandweiner
Michael Blayney Portfolio Manager
External asset consultant
External manager selection and review
Implementation, research and attribution
Analytics and Research Quantitative
Investments Thomas Choi Team of nine
Multi-manager team Damien Webb Team of
Four 2.5bn FUM
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Appendix
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Balanced funds A steady long-term option
Source Datastream, Perpetual to 30 September 08
(UPDATE). 1. Blended All Ordinaries Index. Post
31/3/2000 this index was the SP/ASX All
Ordinaries Accumulation Index. Prior to 31/3/2000
it was the ASX All Ordinaries Accumulation
Index 2. SP/ASX 300 Property Trust Index. Post
30/6/2002 this index was the SP/ASX 300 Property
Trusts Accumulation Index. Between 1/4/2000 and
30/6/2002 it was the SP/ASX 200 Property
Accumulation Index. Prior to 1 April 2000 it was
the ASX Property Trusts Accumulation Index. 3.
Mercer Balanced Growth Median Manager Sep 2008
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Funds under managementAs at 30 September 2008

• Perpetuals total FUM 28.9 billion
• Conservative Growth Fund FUM 0.6 billion
• Diversified Growth Fund FUM 0.3 billion
• Balanced Growth Fund FUM 2.2 billion
• Split Growth Fund FUM 0.1 billion

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Perpetuals Balanced Funds A focus on real risk
and return objectives
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Perpetuals balanced funds Benchmark strategic
asset allocation
Asset allocation
5
5
10
15
10
25
15
30
5
40
25
5
Alternatives
Cash
20
Fixed income
Property
5
5
International
35
shares
25
20
Australian
shares
Conservative
Moderate
Assertive
(Diversified Growth Fund)
(Balanced Growth Fund)
(Conservative Growth Fund)
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• This presentation was prepared by Perpetual
  Investment Management Limited (PIML), ABN 18 000
  866 535, AFSL 234426. It is general information
  only and is not intended to provide advice to
  particular investors, or take into account an
  individual's investment objectives, circumstances
  or needs for investment. Investors should consult
  a financial adviser. Past performance is not
  indicative of future performance. The information
  is believed to be accurate at the time of
  compilation and is provided by PIML in good
  faith. To the extent permitted by law, no
  liability is accepted for any loss or damage as a
  result of any reliance on this information. PIML
  is part of the Perpetual Group (Perpetual Limited
  ABN 86 000 431 827 and its subsidiaries). No
  company in the Perpetual Group guarantees the
  performance of any fund or the return of an
  investors capital. The offer to invest in any of
  Perpetuals Funds will be made in a copy of the
  relevant product disclosure statement (PDS) for
  the Fund. The relevant PDS should be considered
  before deciding whether to acquire or hold units
  in the Fund. The PDS can be obtained by calling
  1800 062 725 or visiting www.perpetual.com.au.
  Anyone wishing to invest will need to complete
  the application form in the relevant PDS.