MLC Global Share Value Style Fund Commentary About the Fund MLC Global Share Value Style Fund is designed to deliver growth by using investment managers who invest and diversify across many companies listed on share markets anywhere around the world. The investment managers focus on investing in companies that they believe are undervalued in relation to their earning potential. Fund performance can be assessed against the MSCI All Country World Index over rolling 5 year periods. MLC Global Share Value Style Fund Performance Performance to 31 March 2010 3 month % 1 Year % 3 Year % p.a. 5 Year % p.a. MLC Wholesale (before taking into account fees) 1.0 21.8 -14.5 -1.9 MLC Wholesale (takes into account fees) -0.2 20.0 -15.5 -3.0 MSCI All Country World Index 1.2 18.3 -7.9 1.0 Source: MLC Investment Management Executive summary All global sharemarkets provided high returns for the year with the MSCI All Country World Index (ACWI) delivering +18.3% (unhedged). The MLC Global Share Value Style strategy beat the index and returned +21.8% over the year. It’s important to remember that strategies which favour certain styles of investing can outperform or under-perform a market neutral index such as MSCI ACWI over a significant length of time as styles go in and out of favour. The rally of “relative” and “deep” value stocks that began in March 2009 extended through the first quarter of 2010, and helped close the relative performance gap (when compared to the benchmark) of the strategy. Changes we made to our manager line-up have also helped remove the drag on performance created in 2008, with the new managers in the portfolio performing in line with expectations. MLC Investments
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MLC Global Share Value Style Fund Commentary About the Fund
MLC Global Share Value Style Fund is designed to deliver growth by using investment managers who invest and diversify across many companies listed on share markets anywhere around the world. The investment managers focus on investing in companies that they believe are undervalued in relation to their earning potential.
Fund performance can be assessed against the MSCI All Country World Index over rolling 5 year periods.
MLC Global Share Value Style Fund Performance
Performance to 31 March 2010
3 month %
1 Year %
3 Year % p.a.
5 Year% p.a.
MLC Wholesale
(before taking into account fees)
1.0 21.8 -14.5 -1.9
MLC Wholesale
(takes into account fees)
-0.2 20.0 -15.5 -3.0
MSCI All Country World Index 1.2 18.3 -7.9 1.0
Source: MLC Investment Management
Executive summary
All global sharemarkets provided high returns for the year with the MSCI All Country World Index (ACWI) delivering +18.3% (unhedged). The MLC Global Share Value Style strategy beat the index and returned +21.8% over the year. It’s important to remember that strategies which favour certain styles of investing can outperform or under-perform a market neutral index such as MSCI ACWI over a significant length of time as styles go in and out of favour.
The rally of “relative” and “deep” value stocks that began in March 2009 extended through the first quarter of 2010, and helped close the relative performance gap (when compared to the benchmark) of the strategy. Changes we made to our manager line-up have also helped remove the drag on performance created in 2008, with the new managers in the portfolio performing in line with expectations.
The new strategy comprising of three managers (Tweedy Browne, Mondrian and Dimensional) with an equal weighting has now been in place for one year. They all provided positive absolute returns for the year, with Mondrian (-1.9%) the only manager to post a negative return over the March quarter.
We believe we’ve seen most of the easy gains from rising markets with future returns to be driven by individual company selection. Having three value managers with different approaches to company selection should help investors in an environment where understanding risk has become more important.
MLC Investments
Absolute returns
The graph shows absolute total returns of the Fund over 1 year and 5 year periods.
Historical Absolute PerformanceMLC Wholesale Global Share Value Style Fund
(after taking into account fees)
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Source: MLC Investment Management
The mix of managers with different approaches to selecting companies helped the strategy continue its remarkable performance turnaround. All managers provided positive, double-digit absolute returns for the year. Except for Mondrian (-1.9%), the returns were positive over the March quarter as well. Markets were volatile due to the potential of European governments defaulting on their debt. However, these worries were quickly overturned by positive earnings news across global sharemarkets.
The three and five year returns are still negative due to the size of the drop during the Global Financial Crisis. As noted previously, strategies which favour certain styles of investing can be in or out of favour for prolonged periods of time.
The portfolio continues to benefit being exposed to emerging markets, which returned +58.4% (as measured by the MSCI Emerging Markets index) for the year. The emerging market exposure as at 31 March 2010 is 8.9% of the aggregate portfolio.
MLC Wholesale review for the year ending 31 March 2010 Page 2 of 7
Relative returns
The graph shows returns of the fund relative to the index over 1, 3 and 5 years.
Rolling Performance in Excess of the IndexMLC Wholesale Global Share Value Style Fund
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Contributors to the Fund’s relative returns
Over the year, the strategy was +3.4% ahead of the benchmark (+19.6%).
Dimensional (+15.7% over the benchmark) was exposed to those shares that fell quite heavily during the Global Financial Crisis, which subsequently rebounded strongly.
Tweedy, Browne marginally outperformed the benchmark for the year by +0.34%. The returns were fuelled in large part by consumer related businesses, industrial companies and Financials with US, Switzerland, UK, Netherlands and Germany among the top contributing countries.
Comments for the quarter
Dimensional (+2.1% over the benchmark) continued to provide the highest excess returns during the volatile last quarter.
Detractors from the Fund’s relative returns
Mondrian (-4.9% below the benchmark) underperformed for the year due to allocations to sharemarkets in Spain and Singapore. Further, unsuccessful security selection within the US, UK, Australia and Germany had a negative impact on performance.
Comment for the quarter
The MLC Global Share Value strategy underperformed by -0.2% during the last quarter. This was on account of underperformance by Mondrian (-3.0% below the benchmark).
MLC Wholesale review for the year ending 31 March 2010 Page 3 of 7
Manager returns
The chart shows manager performance relative to index
Manager Performance in Excess of the IndexMLC Wholesale Global Share Value Style Fund
(before taking into account fees and tax)
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Mondrian Tweedy, Browne Dimensional Global Share Value StyleFund
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Quarter to Mar-10 1 Year to Mar-10 3 years to Mar-10 5 Years to Mar-10So
urce: MLC Investment Management
Manager summary
Manager Style/Role in Portfolio Current Positioning
Mondrian
(33%)
90-100 stock portfolio with a large cap value (dividend) bias, which is expected to provide capital preservation during volatile market conditions.
Mondrian remains cautious about the global recovery. Given that, and using a sector-approach, their valuations are tending to find value among areas traditionally characterised as being defensive, such as Telecoms, Health Care and Consumer Staples. Further, they have limited exposure to pro-cyclical sectors, such as, Consumer Discretionary and Materials.
Mondrian remains comfortable with their underweight allocation to emerging markets, where their estimates suggest that the risk-reward doesn’t favour a full allocation to these areas.
Tweedy, Browne
(33%)
30-50 stock portfolio with a mid-large cap value bias, which is expected to provide capital preservation during volatile market conditions.
The Top 25 holdings for Tweedy, Browne continue to consist of larger, globally diversified businesses that trade at very reasonable multiples of estimated earnings and have a dividend yield on average above 3%. These companies generally have strong balance sheets which should allow them to withstand any potential economic turbulence. Many of them also benefit significantly from sales into the emerging markets.
Dimensional
(33%)
500 stock portfolio with a small-mid cap deep value bias, which may provide volatile market relative performance.
Will remain focused on small-cap deep value portion of both developed and emerging markets. This segment of the market has rallied the most during the past year, and growth is expected to moderate over the next few quarters.
MLC Wholesale review for the year ending 31 March 2010 Page 4 of 7
Regional and sector exposure
The strategy is well diversified across countries, industries and companies. This diversification is a result of each manager making decisions on which companies to invest in.
This chart shows the regional exposure of the Fund
Global Regional ExposureMLC Wholesale Global Share Value Style Fund
America, 39.4%
Asia, 6.4%
Australia, 1.9%
Europe, 40.4%
Japan, 7.5%
South America, 2.5%
Other, 1.0%
Africa, 0.9%
Source: MLC Investment Management
This chart shows the sector exposure of the Fund
Industry ExposureMLC Wholesale Global Share Value Style Fund
Consumer Discretionary, 11.3%
Consumer Staples, 13.5%
Energy, 9.8%
Financials, 25.2%
Health Care, 9.9%
Industrials, 10.0%
Information Technology, 3.4%
Materials, 6.1%
Telecommunication Services, 6.4%
Utilities, 1.9%
Other, 2.4%
Source: MLC Investment Management
MLC Wholesale review for the year ending 31 March 2010 Page 5 of 7
The following table shows the top ten stocks by portfolio weight in the MLC Global Share Value Fund, as at 31 March 2010.
Stock Name Region Industry Sector Portfolio Weight
NOVARTIS AG REG SHS Europe Health Care 2.1%
GLAXOSMITHKLINE PLC Europe Health Care 2.1%
TOTAL Europe Energy 1.9%
JOHNSON AND JOHNSON America Health Care 1.6%
BANK OF AMERICA CORP America Financials 1.6%
VODAFONE GROUP PLC Europe Telecommunication Services 1.5%
WAL-MART STORES INC America Consumer Staples 1.5%
3M CO America Industrials 1.5%
CONOCOPHILLIPS America Energy 1.4%
GENUINE PARTS America Consumer Discretionary 1.4%
Source: MLC Investment Management
Stock Story
EM financials: African Bank (South Africa) and Garanti Bank (Turkey)
One of the common themes we discovered over the last quarter was new positions initiated by one of the managers in financial firms listed in two different emerging markets. Mondrian’s focus on growing dividends within the strategy made them identify two banks with strong potential payout characteristics.
Mondrian added two financial services companies in South Africa and Turkey, namely African Bank and Garanti Bank.
African Bank is very well capitalised and operates, with few competitors, in the micro-financing segment of the South African banking market. This creates opportunities for strong dividend growth over the long term through a combination of high levels of profitable loan growth and high payout ratios.
Garanti is a leading private sector bank in Turkey with a robust capital position and disciplined management which combines a healthy dividend yield with attractive long-term growth potential.
Figure 1: Growth history over the last five years of Garanti Bank, Turkey
Source: Garanti Bank Annual Report, 2009.
MLC Wholesale review for the year ending 31 March 2010 Page 6 of 7
Important information
This information has been provided by MLC Investments a member of the National Group, 105-153 Miller Street, North Sydney 2060. This material was prepared for advisers only.
Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs. Because of this you should, before acting on any information in this communication, consider whether it is appropriate to your objectives, financial situation and needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited (ABN 30 002 641 661) and MLC Nominees Pty Ltd (ABN 93 002 814 959) as trustee of The Universal Super Scheme (ABN 44 928 361 101), and consider it before making any decision about whether to acquire or continue to hold the product. A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on 132 652 or on our website at mlc.com.au.
An investment in any product offered by a member company of the National group does not represent a deposit with or a liability of the National Australia Bank Limited ABN 12 004 044 937 or other member company of the National Australia Bank group of companies and is subject to investment risk including possible delays in repayment and loss or income and capital invested. None of the National Australia Bank Limited, MLC Limited, MLC Investments Limited or other member company in the National Australia Bank group of companies guarantees the capital value, payment of income or performance of any financial product referred to in this publication.
Past performance is not indicative of future performance. The value of an investment may rise or fall with the changes in the market. Please note that all return figures reported are before management fees and taxes, and for the period up to 31 March 2010, unless otherwise stated.
The specialist investment management companies are current as at 31 March 2010. Funds under management figures are as at 31 March 2010, unless otherwise stated. Investment managers are regularly reviewed and may be appointed or removed at any time without prior notice to you.
MLC Wholesale review for the year ending 31 March 2010 Page 7 of 7
