Disruption
Investment Review Project
Navwealth Investment Philosophy
1. Can’t accurately predict the future
2. Low turn over of investments (reduces cost and tax)
3. Tax considerations (imputation credits, Capital Gains tax)
4. Core Index allocation
5. Alpha only where value can be achieved
6. Defensive allocation and portfolio income to meet income requirements (i.e. not selling assets at the wrong time)
Navwealth Investment Philosophy
Most Trusted Adviser Award Renewal
Navwealth Website
Service Offering Flyers
Navwealth Gift Certificate
2300+
Employees around the world
13
Global offices throughout the Americas,
Europe and Asia
750+
Global investment professionals
250+
Portfolio Managers with an average of 14
years investment experience
150+
Investment professionals who have been
at PIMCO for more than 10 years
60+
Global Credit Analysts
14
Sector Specialty Desks
$1.47 trillion
Assets under management
To be the leading investment management firm in the world by consistently managing risk and delivering returns for our clients, across asset classes and risk exposures
“
”
As of 30 September 2015. SOURCE: PIMCO
PIMCO at a glance
Your Global Investment Authority
PIMCO Australia
Bonds and the Outlook for 2016
March 2016
For use by wholesale clients only (such as licensed financial advisers) and not for public distribution
pg 14Your Global Investment Authority
pg 15Your Global Investment Authority
Agenda
1. Who is PIMCO?
2. Why bonds?
3. Economic Outlook: Converging Growth – Diverging Policy
4. PIMCO Diversified Fixed Interest Fund – Portfolio Positioning
pg 16Your Global Investment Authority
Who is PIMCO?
intl_tab_12
pg 17Your Global Investment Authority
PIMCO at a glance
New York (2001)
Toronto (2004) London
(1997)
Singapore (1996)
Hong Kong (2006)
Amsterdam (2001)
Newport Beach (1971)
Zurich (2009)Munich (2000) Tokyo
(1997)
Sydney (1997)
Milan (2012)
Rio de Janeiro (2012)
2300+Employees around the world
13Global offices throughout the
Americas, Europe and Asia
700+Global investment professionals
250+Portfolio Managers with an average of
14 years investment experience
150+Investment professionals who have
been at PIMCO for more than 10 years
55+Global Credit Analysts
14Sector Specialty Desks
$1.43 trillionAssets under management
To be the leading investment management firm in the world by consistently
managing risk and delivering returns for our clients, across asset classes and risk
exposures
“”
As of 31 December 2015. SOURCE: PIMCO
PIMCO_Update_01
pg 18Your Global Investment Authority
Quiz - What do you know about bonds?
intl_tab_12
pg 19Your Global Investment Authority
Q1. What is the value of Australian Government bonds issued in the past 12 months?
a. $86bn
b. $369bn
c. $119bn
pg 20Your Global Investment Authority
Q2. Who is the largest corporate issuer in the Australian bond market?
a. Westpac
b. BHP
c. Apple
pg 21Your Global Investment Authority
Q3. What is a Kangaroo bond?
a. A new line of Chesty Bond underwear
b. A foreign entity raising AUD denominated debt
c. An Australian corporate raising debt in foreign
markets
pg 22Your Global Investment Authority
Why bonds?
intl_tab_12
pg 23Your Global Investment Authority
What makes a bond a bond?
EQUITY HOLDERS
Corporation issues equity to shareholders
Corporation issues bonds to bondholders
CORPCORP
BOND HOLDERS
Equity holders receive
� Dividend payments
� Earnings growth
� Price appreciation or depreciation
Bond (IOU) holders receive
� Coupon and principal payments
� Fixed yield quoted on bond
� Price appreciation or depreciation
(from changes in yields)Hypothetical Example Only.
pg 24Your Global Investment Authority
Why do you hold bonds?
Diversification
Income Generation
Liquid and transparent
Capital Appreciation
Capital Protection
pg 25Your Global Investment Authority
Capital structure determines risk & return
Source: PIMCO, Bloomberg, CBA, As of: 31 December 2015
*As of 15 May 2015 Distributions are non-cumulative, paid
at the discretion of the CBA board and subject to payment tests.
Based on 90 Day Bank Bill rate of 2.16% and a quoted margin of 2.8%.
CBA PERLS VII Capital Notes:Approximately 4.48%*
“AA-”
Telstra, USD 2021 Bond:4.81%
“A”
US Treasury, USD 2021 Bond:3.56%“AA+”
“Big 4 bank” Equity:Dividend yield:
7.29% Grossed Up“AA-”
Lowest Risk
Highest Risk
pg 26Your Global Investment Authority ubs_review_16a
As of 31 Dec 2015SOURCE: PIMCO
Bonds – Diversity & liquidity
CBA Equity
$140bn
CBA Debt
• $122bn• 20 Currencies• Maturities out to 2047
15yr
30yr
10yr
3yr
1yr
1 stock
819 Issues
5yr
2yr
pg 27Your Global Investment Authority
The size of financial markets:Why care about bonds?
Global Equity Market: A$83 Tr
Global Bond Market:
A$107 TrSource: Global Equities: Bloomberg Financial Markets, Index used for issues: MSCI World as of 31 Jan 2015Global Bonds: Bank of International Settlements, Index used for issuers: Barclays Capital Multiverse Index,as of 30 June 2014, PIMCO Estimates
Issues: 19,332
Index constituents: 1634
pg 28Your Global Investment Authority
PIMCO’s Cash Rate Quiz
?
pg 29Your Global Investment Authority
Economic outlook
intl_tab_12
pg 30Your Global Investment Authority
The New Neutral® in a nutshell
Aging population, weak productivity growth, debt overhang and muted inflation
Slow growth (real and nominal)
Low interest rates
pg 31Your Global Investment Authority
PIMCO’s cyclical outlook
PIMCO forecast as of 17 December 2015. BRIM is Brazil, Russia, India and Mexico. Real GDP and inflation projections reflect the midpoints of PIMCO’s forecasts for the four quarters ending Q4 2016Refer to Appendix for additional forecast, outlook and risk information.
Mk_4cs_intl_outlook_01
U.S.
2.25%
1.75%
GDP
Inflation
Despite lackluster demand from abroad, the economy should deliver above-trend
growth as wage gains take the baton from payroll increases as a
driver of consumption.
BRIM
6.00%
1.75% GDP
Inflation
Increasingly divergent economic conditions
and idiosyncratic factors suggest a cautious
outlook for emerging markets.
EUROZONE
1.50%
1.00%
GDP
Inflation
Better credit conditions and weaker euro should
continue to support growth momentum,
though low inflation may warrant more ECB action.
U.K.
2.25%
1.50%
GDP
Inflation
Domestic demand remains key to growth, though uncertainty around the
“Brexit” referendum looms.
CHINA
GDP6.00%
2.00% Inflation
Modified currency regime should signal more market-
based yuan depreciation as a complement to continuing
stimulus on the monetary and fiscal side. PJA AN
1.00%
0.75%
GDP
Inflation
New arrows of Abenomics II focused on redistribution over reflation as monetary
support may face technical limits.GDP
Inflation
2.30%
2.20%
Sluggish rebalance away from mining-linked
sectors and few signs of increased capex despite
easy monetary conditions suggest a cautious growth
outlook.
AUSTRALIA
pg 32Your Global Investment Authority
1224
363739
455858
7378
92106
120
0 20 40 60 80 100 120 140
July 1980
November 1970
May 1954
March 1975
November 2001
November 1982
March 1991
Duration of U.S. expansions since 1945 (months, trough to peak)
Star
tin
g m
on
thU.S.: Resilient economy should continue to grow
As of 31 December 2015
SOURCE: NBER, Bloomberg, PIMCO
Old, but not dead yet
4cs_intl_outlook_03
The current expansion may be old by historical standards, but it is likely to continue as long as the usual suspects remain absent
The Usual Suspects
NO Policy over-kill
NO Oil shock
NO Overheating
NO Overinvestment
NO Overconsumption
pg 33Your Global Investment Authority
Eurozone: ECB spurring positive growth momentum
As of 31 December 2015
SOURCE: Haver, Bloomberg, PIMCO
Finally catching up
4cs_intl_outlook_05
ECB QE has led to a weaker euro and improved credit conditions, though inflation undershoots may warrant more action
-8
-6
-4
-2
0
2
4
6
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Rea
l GD
P g
row
th (
%)
Eurozone U.S. U.K.
pg 34Your Global Investment Authority
Japan: Policy focus shifting to redistribution
� The “new” arrows of fiscal policy are intended to stimulate consumption and
income growth
As of 31 December 2015
SOURCE: Bloomberg, PIMCO
Reloading the quiver
4cs_intl_outlook_06
As limits of monetary policy become apparent, Abenomics is adapting to structural constraints
� Fiscal stimulus
� Monetary easing
� Structural reforms
� Cash transfers to elderly and poor
� Increase in minimum wage
� Expanded child/elder care
Abenomics II (redistribution)
ABENOMICS I (reflation)
pg 35Your Global Investment Authority
China cooling – who will feel the cold?
Eurozone3% of total exports
Japan18% of total exports
Korea26% of total exports
Brazil20% of total exports
Chile25% of total exports
Peru19% of total exports
Australia33% of total exports
China
USA8% of total exports
As of 31 August 2015
SOURCE: China National Bureau of Statistics, CEIC, Bloomberg
Not drawn to scale. Arrow width is proportional to represent % of GDP exported to China
3cs_EM_outlook_05 pg 35
pg 36Your Global Investment Authority
Turning 100: Can Australia manage one more miracle?
While Australia looks set to reach100, another year of sluggish economic rebalance will mean the RBA is more likely than not to provide additional policy support
0 20 40 60 80 100
1980
1958
1971
1954
1949
1975
2001
2009
1983
1961
1991
Australia 1991 - Current
Number of Quarters
Duration of Expansions
United States
As of 31 December 2015SOURCE: Haver
pg 37Your Global Investment Authority
Europe & China easing
US Recovery
Fed lift-off
Property boom
Big-4 rate rises
Resilient AUD
RBA – a slow rebalance
pg 38Your Global Investment Authority 4cs_intl_outlook_02
Cash “safety” is costly – sacrifices return while barely reducing risk
As of 31 December 2015SOURCE: Bloomberg, PIMCO.The 60-40 portfolio reflects a 60% allocation to stocks and 40% to bonds. The 60+Cash portfolio represents the same 60% allocation to equities with 40% to cash. All portfolios are re-balanced quarterly. Stocks are represented by the S&P ASX200 Accumulation Index, bonds by the Barclays Global Aggregate Index (AUD Hedged), and cash by the Bloomberg AusBond Bank Bills Index.
50,000
100,000
150,000
200,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
60-40 Portfolio 60+Cash Portfolio
6.7% per
annum
5.5% per
annum
Bonds
(Global Agg
H)
Stocks
(S&P/ASX20
0)Cash (AU
Bank Bills)
60-40
Portfolio
60+Cash
Portfolio
3%
6%
9%
0% 5% 10% 15% 20%
Moving to cash: Lower return for similar riskR
etu
rn
Risk (volatility)
Gro
wth
of
$100,0
00 o
ver
10 y
ear
s
pg 39Your Global Investment Authority
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2016 2017 2018 2019 2020
Global Fixed Interest - Interest Rate Shock Scenarios
+25 bps
+50 bps
+100 bps
As of 31 December 2015. SOURCE: PIMCOHypothetical example for illustrative purposes only. Other factors besides current interest rates will impact returns. No representation is made that a particular return may be achieved by a particular strategy. Scenarios are defined as immediate shocks in the first year and constant rates going forward.
Amidst short-term rising rates, long-term returns benefit
As rates rise, the higher level of yields boosts returns in later years
A rising rates event
may cause a short-
term return impact,
though yield provides
a buffer.
pg 40Your Global Investment Authority
How does PIMCO invest in bonds?
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pg 41Your Global Investment Authority
PIMCO Diversified Fixed Interest Fund:Performance
PIMCO Diversified Fixed Interest
Fund Size $1,645,049,617
Inception Date 31 May 99
Investment Overview
Benchmark50% Barclays Capital Global Aggregate Index hedged into AUD / 50% Bloomberg AusBond Composite 0+ Yr Index
StrategyTo provide a diversified exposure to global and Australian fixed interest securities and to seek to preserve capital through prudent investment management.
ObjectiveTo achieve maximum total return and to seek to preserve capital through prudent investment management.
Performance 1 Mo 3 Mo 6 Mo CYTD FYTD 1 Yr 2 Yr 3 Yr 5 Yr 10 Yr SI*
PIMCO DFI (%) 1.01 0.77 1.61 1.01 3.01 1.59 6.39 5.03 7.08 7.23 7.19
Benchmark (%) 1.44 1.22 2.40 1.44 3.70 2.51 6.50 5.60 7.10 6.91 6.94
Alpha (bps) - 43 - 45 - 79 - 43 - 69 - 92 - 11 - 57 - 2 + 32 + 25
As of Jan 31, 2016
Inception Date: May 31, 1999
Performance is Net of fee. Returns of one year or more are annualised .
Current Benchmark is 50% Barclays Capital Global Aggregate Index hedged into AUD / 50% Bloomberg AusBond Composite 0+ Yr Index.
Past performance is not a reliable indicator of future results. *SI Means Since Inception
pg 42Your Global Investment Authority
PIMCO Diversified Fixed Interest Fund: Sector breakdown
Government: 57%Examples:• Government bonds, e.g.
Australian Government Bonds, European Gov’t bonds.
State Govt/Agency: 15%Examples:• Local Government & Agencies,
e.g. Province of Quebec
IG Corporates: 17%Examples:• Top tier Global Banks, e.g.
Barclays Bank, Lloyds, Citigroup
Emerging Markets/Other: 3%Examples:• EM’s with healthy balance sheets,
e.g. Mexico, Brazil• Top tier EM Corporates/Quazi
Sovereigns, e.g. State Bank of India, Korea Development Bank
High Yield: 2%Refers to high yielding bonds with sub investment grade ratings.
DWE%
Securitised: 6%Examples:• Mortgage Securities,
e.g. U.S. non-agency MBS
As of 31 January 2015
pg 43Your Global Investment Authority ubs_review_16a
Key Take outs for 2016…
1. STAY INVESTED - active management can support capital preservation and income objectives
2. Rising rates BENEFIT long-term investors
3. You can’t market-time DIVERSIFICATION
pg 44Your Global Investment Authority
Appendix
OUTLOOKStatements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
RISK Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. All investments contain risk and may lose value. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Sovereign securities are generally backed by the issuing government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested.
Capital_Securities_Appendix
pg 45Your Global Investment Authority
Disclaimer
The material in this presentation has been prepared by PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862 (PIMCO Australia) and is intended to provide general information only. This presentation is not a recommendation to hold, purchase or sell a particular financial product and may not include all the information an investor needs to make an investment decision. The information contained herein does not take into account the investment objectives, financial situation or needs of any particular investor. Before making an investment decision investors should consider whether the information contained herein is appropriate in light of their particular investment needs, objectives and financial circumstances and any relevant offer document. Investors should obtain relevant and specific professional advice before making any investment decision.
Investment management products and services offered by PIMCO Australia are offered only to persons within its respective jurisdiction, and are not available to persons where provision of such products or services is unauthorised.
Equity Trustees Limited ("EQT") (ABN 46 004 031 298, AFSL 240975) is the Responsible Entity of the PIMCO Diversified Fixed Interest Fund (ARSN 093 519 558). PIMCO Australia is the investment manager and distributor of the Fund. This publication may not include all the information an investor needs to make an investment decision. Before making an investment decision, investors should consider whether the information herein is appropriate in light of their particular investment needs, objectives and financial circumstances and any relevant offer document. Investors should obtain relevant and specific professional advice before making any investment decision. A current PDS can be obtained from pimco.com.au Neither PIMCO Australia nor any of its related bodies corporate make any representations or warranties, express or implied, as to the accuracy or completeness of any of the information contained in this presentation. To the maximum extent permitted by law, neither PIMCO Australia nor its directors, employees, agents, representatives or advisers accepts any liability whatsoever for any loss arising from the use of information in this presentation.
Past performance is not a reliable indicator of future results. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Except to the extent implied by law, no representation or warranty as to the validity, certainty or completeness of any of the assumptions or the accuracy of the information, opinions, estimates or forecasts contained in this presentation is made by PIMCO Australia. This presentation contains the opinion of PIMCO Australia as at the date of the presentation and such opinions are subject to change without notice.
The content of this presentation remains the property of PIMCO Australia. No part of this presentation may be reproduced in any form, or referred to in any other publication, or conveyed to a third party without express written permission of PIMCO Australia. PIMCO is a trademark or registered trademark of Allianz Asset Management of America L.P. in the United States and throughout the world.
THE NEW NEUTRAL and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Pacific Investment Management Company LLC in the United States and throughout the world. © PIMCO, 2016.
© 2015 Morningstar, Inc. All rights reserved. Award to PIMCO for Australian Fixed Interest Fund Manager of the Year 2015. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice or ‘class service’ have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement (Australian products) or Investment Statement (New Zealand products) before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO").