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Tuesday, 31 March 2009

ATI Equity Portfolio Mar 2009


Information as at 31 March 2009

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

ATI

10.9

0.6

[24.9]

[14.8]

[4.3]

[1.5]

S&P/ASX 300 Accumulation Index

8.1

[1.9]

[29.8]

[19.3]

[7.4]

[3.9]

*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 31 March 2009

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

BHP Billiton

14.5

13.6

Financials

40.2

36.8

Westpac

7.2

7.0

Materials

21.7

24.4

CBA

6.9

6.5

Consumer Staples

8.9

9.7

Telstra

6.4

4.2

Cons Discretionary

8.3

3.8

ANZ

6.1

4.3

Telecommunications

6.4

4.9

NAB

5.7

4.9

Industrials

5.8

5.7

Woolworths

4.1

3.9

Energy

1.8

8.0

QBE Insurance

4.0

2.4

Utilities

1.5

1.6

RIO Tinto

3.5

2.0

Healthcare

1.0

4.3

Westfield

2.9

2.6

Information Tech

0.0

0.7

Selected Portfolio Statistics as at 31 March 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

Sentiment towards equities improved significantly during March as a long awaited bounce finally appeared. The S&P/ASX300 Accumulation Index initially continued to decline lower, before rallying strongly after the US Fed aggressively began buying fixed income instruments and re-launched the Public-Private Investment Program (PPIP) aimed at stablising the banking system by dealing with toxic balance sheet assets. This buoyed financial stocks in the US and in International markets. The domestic rally was consistent with trends in offshore markets with the S&P/ASX300 Accumulation Index finishing the month up +8.1% (by comparison the S&P500 was up 8.6% and the DJ Industrials +7.7%). Risk aversion remains high in light of the difficult economic backdrop with the many investors continuing to view this as a “bear market rally”. Investors continued to digest company results and forward guidance provided during the ‘reporting season’. The focus on earnings risk now appears to be shifting to FY10, particularly in those stocks more leveraged to the economy while concerns around balance sheets and potential equity raisings still remain key issues.

The RBA left interest rates unchanged in March, remaining at 3.25%. The economic data remained weak during March. GDP during the December quarter declined by -0.5% confirming the non-farm economy is now in recession, having now had two consecutive quarters of negative growth. Housing finance data improved driven by first home buyers, consumer confidence remained steady at low levels and building activity continued to decline. The unemployment rate increased from 4.5% to 5.2%, representing the largest monthly increase since 1998. The AUD benefited from the global reduction in risk aversion and rallied strongly to finish the month at 68.7¢ (+4.8¢), after trading over 70.0c intra month. Crude oil firmed during March, up 12.5% at $49.67 (WTI) and reached its highest level since the start of December 2008, with the weaker $US and increased hopes for economic recovery supported the price. Gold was unable to hold onto the gains of February, posting a 2.6% decline in March to end the month at $926 per ounce. All base metal prices, except nickel, rose in March, with copper rising by +14.3%, aluminium up +5.6% and zinc rising +19.1%.

The key issues facing investors has shifted quickly from risk aversion to how sustainable the recent equity market rally is. While there is little debate that the macro news flow will remain poor in the near term, investors are now weighing the relative merits of defensive stock positions, particularly should the economic data and macro news flow begin to moderate. Valuations for equities remain attractive despite the negative sentiment investors have towards the macro outlook and the capacity of cyclical stocks to generate earnings growth in the current climate.

The Best and Worst Performing Sectors

The better performing sectors during the month were: Information technology (+22.0%); Financials (+13.3) and Industrials (+13.2%). The worst performing sectors were Healthcare (-9.0%); Telecommunications (-8.4%) and Consumer Staples (-1.5%).

Relative Portfolio Performance

Against this backdrop, the ATI Equity Portfolio rose +10.9% compared with a rise of 8.1% by the S&P/ASX300 Accumulation Index.
Those stocks that contributed most to the Portfolio’s relative performance during the month were:

Macquarie Group – MQG (+59.3%) shares recovered February’s losses following positive sentiment regarding the US Fed’s moves to allay the fears within the financial system via the PPIP and positive earnings commentary from the key US investment banks. The news that satellite MCG had received a takeover offer from a Canadian Pension Fund alleviated write-down concerns.

Macquarie Infrastructure Group – MIG (+42.7%) rebounded strongly in March on press speculation that it was looking to divest a significant stake in the H407. It also benefited from the rally in MQG associated stocks following the MCG takeover bid.

ANZ Bank – ANZ (+18.3%) was the best performer of the big four banks after experiencing a strong sell-down in January/February. ANZ re-affirmed that it expects FY09 cash earnings to be at FY08 levels and that the underlying business was performing well. It also announced plans to further expand its China operations.

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

Telstra – TLS (-5.6%) declined during the month as speculation mounted over the outcome of the NBN RFP and the negative impact if structural separation was to occur. Negative sentiment also was accentuated by the news that the ACCC may instigate legal proceedings for potential contravention of TLS’s obligation to provide ULL and LSS access.

Woolworths – WOW (-2.5%) shares declined during the month as investors shifted away from defensive stocks to cyclicals. During March, the ACCC decided not to oppose an exclusive agreement between WOW and HSBC in offering a Woolworths credit card as the only payment option at WOW’s new contactless pay at the pump facility.

Incitec Pivot – IPL (-2.8%) shares ended the month lower after management reiterated their lower earnings guidance to the market for FY09, and reinstated a DRP for the next three dividends. This is now the second earnings downgrade this financial year.

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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