hope is not a retirement strategy
TRANSCRIPT
A Copia Investment Partner
Jason TehChief Investment Officer
Hope is not a retirement strategy Financial Standard Retirement Income Forum 2020
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This presentation is for general information purposes only and does not take into account the specific investment objectives, financialsituation or particular needs of any specific reader. As such, before acting on any information contained in this presentation, readersshould consider the appropriateness of the information to their needs. This may involve seeking advice from a qualified financial adviser.Copia Investment Partners Ltd (AFSL 229316, ABN 22 092 872 056) (Copia) is the issuer of the Vertium Equity Income Fund (ARSN) (Fund).A current PDS is available from Copia located at Level 25, 360 Collins Street, Melbourne Vic 3000, by visiting Vertium.com.au or by calling1800 442 129 (free call). A person should consider the PDS before deciding whether to acquire or continue to hold an interest in the Fund.Any opinions or recommendation contained in this document are subject to change without notice and Copia is under no obligation toupdate or keep any information contained in this presentation current.
Past performance is not a reliable indicator of future performance. The total return performance figures quoted are historical, calculatedusing end-of-month mid prices and do not allow for the effects of income tax or inflation. The performance is quoted net of all fees andexpenses. The indices do not incur these costs. This information is provided for general comparative purposes. Positive returns, which theFund is designed to provide, are different regarding risk and investment profile to index returns.
Disclaimer
Hope is not a strategy
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Wealth
Years
Retirementrisk zone
Pre-retirees& retirees
Wealth
Years
Retirementrisk zone
Pre-retirees& retirees
Lucky Unlucky
Do not leave retirement outcome to luck
Source: FactSet, Vertium
Corrections occur more often than you think9 global slowdowns in 30 years
All Ords Price Index
Global slowdown periodsPeak to trough
return
Peak to trough
duration (mths)
Trough to peak
duration (mths)
Global Recession (1990) -27% 16 31
Great Bond Massacre (1994) -21% 12 21
Asian Crisis (1997) -11% 11 5
US Recession (2002) -19% 20 15
Global Financial Crisis (2008) -51% 16 125
Euro Crisis (2011) -17% 6 17
China Slowdown (2015) -16% 12 13
Median -19% 12 17
Global Slowdown (2018) -11% 4 4
COVID Recession (2020) -28% 2 ?
Average of 1 correction every 3.3 years
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Source: FactSet, Vertium
Big corrections (-20%)12 large corrections over 84 years
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MINIMISE LONGEVITY RISK
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Retirement objectives
Capital Preservation
Minimisesequencing risk
Reasonable Return
Minimiseinflation risk
Higher Income
MinimiseDrawing on savings
MINIMISE LONGEVITY RISK
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Why equity income?
Capital Preservation
Low risk strategyis required
Reasonable Return
Equities provide hedge against inflation
Higher Income
Equities provide greater yield than cash
Source: RBA, Iress
Income from Aussie equities are superior
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The allure of dividends …
9 Source: Iress, Vertium
ASX 100 stocksJune 2020
Source: Iress, Vertium
… but dividends are not risk-free
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All Ordinaries income
Source: FactSet, Vertium
COVID crisis dividend cuts
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Source: FactSet, Vertium
Generating more income during crises
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Source: FactSet, Vertium
Rich income universe during COVID crisisPotential income = dividend + franking + option income
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Multiple income sources Long-term expectation
Dividends 4%
Franking 1%
Option income 2%
Total grossed-up income 6 - 8%
Diversity of income sources from equities
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Put income $0.501H Dividend $0.09Total income $0.59
Strike Price $8.72Income return 6.7%Days to 1H Dividend 3.6 monthsIncome return (ann.) 24.1%
Strike price $8.72Put income -$0.501H Dividend -$0.09Breakeven Price $8.13
Valuation is attractive around $8
Source: FactSet, Vertium
Using options to enhance incomeSelling put options on Coca Cola Amatil
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Source: FactSet
Telstra trapChasing yield can result in capital loss
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Extreme valuations = low long-term returns
Source: http://www.econ.yale.edu/~shiller/data.htm
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Beware of extreme valuations …
Source: Refinitiv
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… led by US tech companies
Source: FactSet
2x
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Aussie valuations are high …
Source: FactSet
… and there are pockets of extreme valuations
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The real recession is still out there
Source: Bank of International Settlements, Vertium
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Complex outlook
• Weak dividend environment during COVID crisis
• Economic recovery is fragile
• Speculation always ends in tears
• Expect more volatility
MINIMISE LONGEVITY RISK
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Active management is critical for retirement
Capital Preservation
Low betaoutcome
Reasonable Return
Equities is best to hedge inflation
Higher Income
DividendsFranking
Option income
Equity income
0.60
0.80
1.00
1.20
10% 12% 14% 16% 18% 20% 22%
Fun
d b
eta
(mar
ket
sen
siti
vity
)
Standard Deviation (annualised)
RiskApril 2017 - June 2020
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Accumulation funds are higher risk
Source: Morningstar. Past performance is not a reliable indicator of future performance
Index
AccumulationAustralian equity funds
Accumulation Australian equity funds: Perpetual, Bennelong, Schroder, Fidelity, Allan Gray, and Alphinity
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Decumulation funds are lower risk
Index
AccumulationAustralian equity funds
DecumulationEquity Income funds
Source: Morningstar. Past performance is not a reliable indicator of future performance
Vertium EIF0.60
0.70
0.80
0.90
1.00
1.10
1.20
10% 12% 14% 16% 18% 20% 22%
Fun
d b
eta
(mar
ket
sen
siti
vity
)
Standard Deviation (annualised)
RiskApril 2017 - June 2020
Accumulation Australian equity funds: Perpetual, Bennelong, Schroder, Fidelity, Allan Gray, and AlphinityDecumulation equity income funds: Vertium, Merlon, Plato, Investors Mutual, Legg Mason Martin Currie, First Sentier
Source: RBC Dexia, Morningstar, Iress
Hope is not a strategyPrepare for the next crisis
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Key take outs
Do not leave retirement outcome to luck
Retirees have unique objectives:1. Reasonable return2. Lower risk3. Higher income
Active management is critical- Passive investing considered high risk for retirees- Accumulation funds are not generally designed for retirees- Equity income funds designed to deliver more robust retirement outcomes
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