Welcome to the netwealth portfolio construction webinar

series

Netwealth disclaimer

About Prime Value

Boutique manager established in 1998

Committed equity holders – Law Family

High conviction, style neutral manager

Consistent business and investment philosophy –

- core belief in co-investment (Building Wealth Together) and stewardship

Well resourced and high calibre investment team

Significant infrastructure and back office resourcing

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Presenter ST Wong

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ST joined Prime Value in Dec 2011 and launched the Opportunities Fund in Oct 2012. He became PM for the Growth Fund in July 2013

ST Wong has over 20 years of funds management experience, most recently as Head of Investments at Xantias Financial Management, a national wealth management firm and Australian Fund Manager for AIG Investments, a global investment manager

As an analyst at Daiwa Securities in Australia and BZW (Barclays de Zoete Wedd) in Asia, ST covered a broad range of companies and sectors servicing global institutional fund managers across regional financial centres in Asia, Europe and the US

ST is a Chartered Financial Analyst charter holder

Absolute investing - strategies for positive returns in volatile marketsS.T. Wong; Portfolio Manager and CIO

Part 1 – Absolute return investing

Part 2 – Investing in a volatile market Portfolio construction

Stock examples & key themes

Part 3 – Prime Value Opportunities Fund Prime Value absolute return strategy in practice

PVOF outcomes

Part 4 – Questions & Answers

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Agenda

01

Absolute Return Investing

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Absolute return investing aims to produce positive returns over time – regardless of prevailing market conditions

ABSOLUTE return differs from RELATIVE return because it is concerned with the return of an asset

Unlike traditional long only equity funds, absolute return funds are not linked to any particular share market index

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What is Absolute Return Investing?

Why Absolute Return Investing? Traditional equity funds: references a benchmark such as the

S&P/ASX200 Index and aim to achieve a certain amount over the benchmark

Returns: In a low and unstable economic growth environment equity market returns may continue to be lacklustre and volatile

Opportunities: Benchmarks are inefficient—backward looking and limits investment opportunities

Diversification: Absolute return strategies generally have low correlation to equity markets

Preserve capital: Lower volatility with downside protection

Complements: long only funds and direct holdings

Limiting drawdowns by having a higher cash holding in negative markets is crucial to wealth creation and capital preservation

Focus on finding outstanding companies with good management rather than being under or over weight index determined stock weightings

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Benchmarks Are InefficientConcentrated and backward looking

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Dec-12 May-16 PVOF0

10

20

30

40

50

60

70

25 25

12

7 8

4

79

8

22 14

8

Materials Diversified financials Real estate Commercial banks

% of the ASX300 Index

60.4% 56.8%

32.1%

Major sectors in typical indices/benchmarks: Financial and resources

Diversification and OpportunitiesSize isn’t a reason to invest

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Top 50 companies Mid-cap companies 100-200 Ex 200 companies Cash0

10

20

30

40

50

60

70

80

90

PVOF ASX300 Index

10 stocks

5 stocks

12 stocks

5 stocks

%

Market capitalisation spread in typical indices/benchmarks: Top heavy

Lower DrawdownsMaximum fund drawdown -5.0% vs ASX300 -13.5%

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Nov 12 May 13 Nov 13 May 14 Nov 14 May 15 Nov 15 May 16-15%

-10%

-5%

0%

PVOF S&P/ASX 300

Prime Value Opportunities Fund vs ASX300 Index drawdown

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Investing in a volatile market

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Stock Selection is Half the ProcessPortfolio construction is the other critical half

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Diversification of equity risk is a key capital preservation feature

Balancing these defensive features, so that the portfolio plays both the diversifying role and investing opportunistically

Focusing on absolute returns and risk is the best way to achieve this balance

Portfolio construction in volatile marketsOpportunities across the market

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Core (18%)

Specific growth(21%)

Asset realisation/Valuation

(8%)

Turnaround (10%)

Thematic (29%)

• Stable and sustainable businesses

• Long term prospects

• Ability to deploy strong balance sheets

• ORA, CSL

• Operate in high growth sectors or possess products or services in high demand

• Typically smaller companies

• IPH, BAP

• Stable and sustainable businesses

• Long term prospects

• Ability to deploy strong balance sheets

• ORA, CSL

• Trading at discount to peers

• Assets or prospects unrecognised due to shortermism

• MQA, FLT

• Companies expected to drive returns from turning around business model

• Industry structure

• SUN,LNK

• Companies exposed to structural or cyclical themes

• SYD, BGA

Stock examples: CoreSustainable earnings backed by balance sheet

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Orora share price vs ASX300 Index Orora Ltd: Core• Market leader in Australian packaging

products, largely in F&B. Large US corrugated board and packaging operations. Spun out from Amcor 2013

• Steady and sustainable earnings due to exposure to FMCG

• Management has been delivering efficiencies in business and developing new markets

• FY17e PER 19x, dividend yield 3.4%

What is the opportunity?

Dec 15 Jan 16 Mar 16 Apr 16 May 16 Jun 1680

90

100

110

120

130

OroraASX300 Index

Base 31 Dec 15

Initiated position

Strong market position

Mature industry structure

Weakening competition

Ability to consolidate

Stock examples: Specific GrowthExponential growth in data and devices

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Telecommunication stocks share price comparison

TPG Telecom: Specific growth• Exponential growth in global data

consumption• Largest fixed broad-band subscriber base

after incumbents Telstra and Optus• Ownership of infrastructure• Grown through acquisitions and

organically

What is the opportunity?• New markets: corporate, SME and

competing with NBN• Leverage scale by being vertically

integrated

Threats• Incumbents introduce price competition• Regulation: ACCC on prices• Integration risks

Jan 14 Jul 14 Jan 15 Jul 15 Jan 1680

100

120

140

160

180

200

220

240

iiNet TPG

Base 1 Jan 2014

Exchanged iiNetscrip for TPM shares

Stock examples: Valuation, Assets UnrecognisedLatent value

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National Storage REIT share price National Storage: Valuation• Operates 100 self storage centres across

Australia and NZ: 70% residential individuals, 30% business owners

• Generally well located and modern facilities

• Requires low level of capex and maintenance vs other types of properties

• Value in underlying property

What is the opportunity?• Acquisitions: Strong balance sheet in a

fragmented sector: 70% of operators have 1-3 centres

• Organic: Scope for operating cash flow growth improvements with occupancy levels at 73% vs. leading peers’ mid 80%

Jan 14 Jul 14 Jan 15 Jul 15 Jan 1680

100

120

140

160

180

200

NSR ASX300 Index

Base 1 Jan 2014

Established position

Stock examples: TurnaroundResetting expectations

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Insurance sector stocks share price comparison

Suncorp: Turnaround• Simplifying a complex group: clearer lines,

focus on profitability• Reduced capital requirements• Improved returns on capital

How do we become comfortable with a turnaround?

Oct 12 Oct 13 Oct 14 Oct 1590

100

110

120

130

140

150

160

170

180SuncorpIAG

Base 1 Oct 2012

Initiated SUN position

Management strength deep and focussed

Balance sheet with excess

capital requirements

Insurance industrystructure+ve for

revenues

Positive outlook on Suncorp

Stock examples: ThematicDemographic changes at the doorstep

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Infrastructure sector stocks share price comparison

Sydney Airport: Thematic• Major gateway but significant proportion of

earnings derived from retail and car parks• Investment thesis: Exposure to the

proliferation of LLCs and in-bound visitors• Management has been active in creating

value in both aviation and other land based assets

What is the opportunity?• International passenger growth• Further asset developments• Second Sydney airport

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100

120

140

160

180

200

220

240

Sydney AirportTransurbanASX300 Index

Initiated Sydney Airport position

Base 1 Oct 2012

Building Portfolio PositionsPortfolio positions materially different to Indices

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03

Prime Value Opportunities Fund

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Prime Value’s absolute return strategy seeks to deliver positive returns by: Focussing on company fundamentals Constructing a diversified portfolio of stocks Having an ability to hold 100% of the Fund in cash

Aligned interests

Avoiding exposure to investing climates that seem less than favourable

Minimizing mistakes

Avoiding losers is just as important as identifying winners

Invest on fundamentals: what do we look for?

Management as operators and investors

Quality of business and ability to grow over time

Transparency of business

Attractive valuations

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Prime Value Investment Philosophy

PVOF Fund Objectives Deliver attractive risk adjusted returns over the medium to long

term: target >8% p.a.

Minimise mistakes and preserve capital

Research process is to build a robust portfolio by selecting appropriate securities without reference to any particular benchmark

Long only, concentrated fund

No gearing or shorting

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PVOF Fund Characteristics

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Criteria  PVOF Guidelines

No of stocks 10-30

Max weight of any stock in portfolio ≤ 15%

Benchmark 8%

Inception November 2012

Market Cap All Cap

Style Active Style, Benchmark Agnostic

Cash holding Up to 100%

Non Australian equity holding Up to 20%

Fee (ICR) 0.95% p.a.

Performance Fee 15% p.a of performance above benchmark

Building Longer Term Performance15.9% appreciation p.a. since inception, preserved capital in 93% of down markets

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PRIME VALUE OPPORTUNITIES FUND Monthly Performance Summary

(%) July August Sept October Nov Dec January February March April May June FYFY13PVOF         1.8 1.7 4.3 6.2 -0.6 4.0 -2.2 -1.7 14.1ASX300 Ac Index 1.3 3.3 5.0 5.3 -2.3 4.3 -4.5 -2.48% Benchmark         0.6 0.7 0.7 0.6 0.7 0.6 0.7 0.6  Cash at month end 33.4 31.0 15.2 15.5 13.1 12.9 12.0 10.5

FY14PVOF 4.4 2.6 4.4 5.0 -1.1 1.5 -1.9 5.9 0.2 0.3 0.3 -1.4 21.4ASX300 Ac Index 5.3 2.5 2.2 3.9 -1.4 0.8 -3.0 4.9 0.2 1.7 0.7 -1.58% Benchmark 0.7 0.6 0.6 0.7 0.6 0.7 0.7 0.6 0.7 0.6 0.6 0.6  Cash at month end 8.3 9.9 6.9 8.1 7.3 10.0 11.0 10.5 10.1 9.1 13.0 13.3

FY15PVOF 2.5 1.0 -4.1 3.1 -1.9 0.7 1.5 5.7 1.4 -1.0 0.5 -4.2 4.6ASX300 Ac Index 4.4 0.6 -5.4 4.3 -3.2 2.0 3.2 6.9 -0.1 -1.7 0.4 -5.38% Benchmark 0.7 0.6 0.6 0.7 0.63 0.6 0.6 0.6 0.7 0.6 0.6 0.6  Cash at month end 8.3 11.2 12.1 10.5 9.8 9.7 10.0 10.2 7.7 9.7 9.7 9.7

FY16PVOF 5.3 -3.7 0.1 5.5   1.7 2.4   -3.4 -1.9   3.6  2.3 4.4    17.0ASX300 Ac Index 4.3 -7.7 -2.9 4.4 -0.7 2.7 -5.4 -1.7 4.8 3.3 3.1 3.48% Benchmark 0.7 0.7 0.6  0.6 0.6  0.7   0.6  0.6  0.7  0.6 0.7     Cash at month end 6.1 10.6 11.0 10.0 10 9.0 8 13 10 12 14.1                           

Since inception of PVOF, in 93% of negative months, PVOF has outperformed the ASX300 Accumulation Index

Building Longer Term Performance15.9% appreciation p.a. since inception (Nov 2012)

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Performance summary to 31 May 16 (%) PVOF 8%

Benchmark

Relative performance to benchmark

ASX300 Accumulation

Index

Relative performance

to ASX300

Since inception (p.a.) 15.9 8.0 7.9 10.0 5.9

3 years 13.5 8.0 5.5 7.7 5.8

1 year 12.0 8.0 4.0 -2.1 13.9

6m 7.4 4.0 3.4 6.6 0.8

1m 4.4 0.7 3.7 3.1 1.3

Key Stock Performers (last 12 months)

IPH SYD AIO MQA IIN VED CTD BAP AMC APO

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Important Information

The information contained in this presentation is general in nature and has no

regard to the specific investment objectives, financial or particular needs ofany specific recipient. It is not intended to constitute investment advice or apersonal securities recommendation.

This presentation is not a Product Disclosure Statement (PDS) or an offer of units, and contains a brief overview of the investment only. Any prospectiveinvestor wishing to make an investment in the Fund must obtain and readthe relevant PDS (particularly the risk factors discussed) and complete an application form attached to the PDS. Neither Prime Value Asset Management Limited nor its associates ordirectors, nor any other person, guarantees the success of the Prime ValueFunds, the repayment of capital or any particular rate of capital or incomereturn, or makes any representation in relation to the personal taxationconsequences of any investor’s investment.

04

Questions & Answers

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