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Saturday, 28 February 2009

ATI Equity Portfolio Feb 2009

Information as at 28 February 2009

Fund 1 Mth (%) 3 Mth (%) 1 Yr (%) 2 Yr (%pa) 3 Yr (%pa) Inception (%pa)

ATI

[4.6]

[10.6]

[33.8]

[17.2]

[4.8]

[4.5]

S&P/ASX 300 Accumulation Index

[4.6]

[9.5]

[37.3]

[21.1]

[8.3]

[5.0]

*Past performance is not a guarantee of future results and may not be indicative of them. The net returns are calculated using the Portfolios Net Asset Value of a model mandate within the Direct Portfolio Services SMA product. Performance assumes reinvestment of all income. Inception date is 23 December 2005.

Portfolio Objective

The ATI Australian Equity Portfolio seeks to achieve total returns (includes income and capital appreciation and before the deduction of fees and taxes) that exceed those on the S&P/ASX 300 Accumulation Index by 3% per annum over rolling three-year periods.

Portfolio Details as at 28 February 2009

  Fund S&P/ASX300     Fund S&P/ASX300
Largest Holdings Weight (%) Weight (%)   Sector Allocation Weight (%) Weight (%)

BHP Billiton

14.6

13.3

 

Financials

39.1

35.1

Telstra

7.6

5.1

 

Materials

21.6

20.5

Westpac

6.8

6.7

 

Consumer Staples

11.8

10.6

CBA

6.4

5.7

 

Telecommunications

7.6

5.7

ANZ

6.0

3.8

 

Cons Discretionary

7.4

3.6

NAB

6.0

4.7

 

Industrials

5.3

5.3

Wesfarmers

5.0

2.8

 

Energy

2.3

7.8

Woolworths

4.6

4.4

 

Utilities

1.4

1.5

QBE

4.3

2.6

 

Healthcare

1.0

5.1

Westfield

3.3

2.9

 

Information Tech

0.0

0.6

Selected Portfolio Statistics as at 28 February 2009

Inception Date 23-Dec-05   MER (est.) 0.80% p.a.
Number of Stocks 33   Tracking error (forward estimate) ~ 3% p.a.
ATI Funds Under Management ~$300m      


General Market Commentary

Australia's Market Performance

The Australian market suffered its sixth consecutive monthly decline as February proved to be another difficult month for equities with the S&P/ASX300 Accumulation Index declining by 4.6%. Risk aversion remained high in the face of further deterioration in global economic data, accelerated earnings downgrades during the reporting season and renewed concerns about the viability of financial companies as the US and UK governments debated nationalizing key financial institutions. Domestic investors were mainly focused on the significant amount of data provided during the ‘reporting season’. Industrial company earnings declined by about 12% on pcp whilst resource company earnings increased by over 20% as they continued to benefit from the strong residual bulk commodity prices and the impact of currency devaluation. Analysts continued to revise down their FY09 earnings expectations in light of weaker revenue expectations and declining margins. Balance sheet risks remained a priority and this resulted in a continuation of equity raisings across many companies and sectors.

The RBA cut interest rates by 100bp in February, lowering rates to 3.25% which is the lowest level for 45 years. The Federal Government also announced an additional $42Bn in stimulus packages to be rolled out over the next four years. Economic data worsened over February and house prices declined at the fastest rate on record (-3.3% yoy) as private sector credit contracted for the first fall since 1992. Building approvals continued to fall although December retail sales bounced in response to an earlier fiscal stimulus package. Employment data saw a large decline in full-time jobs. The AUD consolidated in a tight trading band during February finishing the month at 64.6¢ (-1.0¢). In a change from recent volatility, crude oil traded in a narrow range but held the gains of January to end the month up 5.8% at $44.15 (WTI). Gold rose by 1.7% in February and at one stage threatened the all-time high of March 2008. Base metal prices were generally weaker in February, with copper being the only winner, rising by +9%.

The key issues for investors near term remains the trade-off between additional earnings risk from the deteriorating economic data, both domestic and global, the weakness in commodity prices and the longer term implications from the global financial crisis; versus increasingly attractive valuations for equities. A longer than expected economic slowdown and a failure for the US authorities to appease the capital markets worldwide still remain key risks to both resource and industrial earnings forecasts.
 

The Best and Worst Performing Sectors

The better performing sectors during the month were: Energy (+1.9); Consumer Staples (-1.1%) and Information technology (-2.3%). The worst performing sectors were Industrials (-21.3%); Property Trusts (-17.9%); and Utilities (-10.7%).

Relative Portfolio Performance

Against this backdrop, the ATI Equity Portfolio fell 4.6% compared with a fall of 4.6% by the S&P/ASX300 Accumulation Index.
Those stocks that contributed most to the Portfolio’s relative performance during the month were:

Wesfarmers – WES (+16.4%) rose throughout the month after announcing 1H09 NPAT of $1,046m, up 74% on pcp. Comparable 2Q09 Coles sales growth was 3.8% which was the best growth reported by the business in 4 years. The result also included some favourable information on the improvements occurring in the Coles business which the market received well.

Commonwealth Bank – CBA (+7.0%) outperformed its peers during February after delivering a stronger than expected 1H09 result. CBA reiterated comments made in previous guidance around strong revenue growth, however, provisions guidance for bad debts was worse than the market expected. CBA made it clear that future dividends were unlikely to be as high as this period.

RIO Tinto – RIO (+14.5%) rose in February following the release of a stronger than expected result FY08 result. Overshadowing this result was the fact that the company plans to sell stakes in some of its key assets to Chinalco in order to strengthen its balance sheet. The deal (if approved) would lift the Chinese ownership in RIO to over 15% and significantly lower RIO’s debt levels.

Stocks that detracted most from the Portfolio’s relative performance during the month were:

APN News & Media – APN (-40.8%) fell sharply during February as the outlook for APN continued to deteriorate after a very disappointing FY08 financial result. The result incorporated $192m of impairment and restructuring charges that the market was not expecting. A potential overhang of INM stock as well as debt refinancing issues continue to impact the share price.

Fairfax Media – FXJ (-32.4%) shares slumped again during February after the company announced its intention to raise capital by way of a $684m capital raising. This announcement was very disappointing as it came shortly after the company had announced at its 1H09 result that it did not ‘currently’ need to raise equity. Post raising the debt and gearing levels will be much lower.

Suncorp – SUN (-22.8%) share price fell steadily over the month before the company announced a $900m equity raising at a fixed price of $4.50, with potential for another $402m non-underwritten. SUN also released its 1H09 result which was well below market expectations and included large impairment charges and write-downs. The CEO (John Mulcahy) also announced his resignation.
 

Outlook
Looking ahead, ATI will continue to search for opportunities to invest in companies that, subject to our disciplined investment process, trade at a discount to our assessment of their intrinsic ‘fair’ value. ATI believes that a combination of bottom-up fundamental analysis of intrinsic value and use of select earnings data, together with a sound risk management overlay, will continue to add value for our investors over the medium to long-term.

 


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