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Gross performance returns and benchmark performance shown do not include expenses, fees or tax. Net performance returns are prepared on an exit-to-exit fee basis which includes all ongoing fees and expenses.

Market review

• The potential for a more sluggish economic recovery in the developed world has started to gain traction as the year has progressed. The waning effects of government stimulus coupled with European countries’ shift towards austerity measures leaves the private sector to deliver a greater proportion of economic growth.
• Unfortunately, the deleveraging process remains in the early stages in the U.S. and Europe where household debt levels have only marginally adjusted downward since the onset of the credit crisis.
• Given the weakness in U.S. and European labour markets, the most likely method by which consumer deleveraging will continue is through a higher savings rate. Although this process will ultimately help repair consumer balance sheets, it is likely to crimp discretionary spending and provide a headwind to economic growth.
• As developed economies cope with rising budget deficits and deleveraging consumers, emerging market economies continue to perform well.
• In Q2 2010, interest rate increases in several markets including India, Malaysia, and Brazil served as reminders that strong economic growth has caused higher inflation and necessitated tightening measures by central banks.
• Although these rate increases, along with China’s efforts to cool property prices, have unsettled investors about the growth prospects for these economies, we view this as a cyclical slowdown rather than a “hard landing.”
• In fact, emerging market equities outperformed developed market equities in Q2 2010 and are outperforming for the YTD period as well. This suggests investors are looking at recent volatility as a potential entry point for long-term investment.
• Government policy will remain a focal point for the market in the second half of the year.
• Increased regulation in the financial sector is on the verge of being announced in the U.S. and Europe although the exact provisions are still unknown.
• Politicians’ desires to enact further government stimulus will have to be balanced against investors’ increasing concerns about rising budget deficits. As a result, any additional government borrowing is unlikely to come at an attractive cost.

• In addition, given the near-zero short-term interest rates in the U.S., Europe, and Japan, the prospects of renewed quantitative easing remains.
• Given recent volatility, we feel it’s important for investors to use price as their primary determinant in making investment decisions. In that respect, as we evaluate our investment alternatives, we feel that large-cap, high quality, dividend paying equities remain the asset class of choice when compared to long duration government bonds and cash.
• While the recovery in equity prices since March 2009 has been impressive, the earnings recovery has been even more pronounced leaving many large cap companies trading at very attractive P/E multiples with dividend yields that rival that of government bonds.
• Despite the compelling argument around equity valuations, increased market volatility will require a diversified approach and the flexibility to adapt to changes in the environment as they present themselves.

Portfolio activity

• As of quarter end, the portfolio's allocation is 55.2% equities, 30.3% fixed income and 14.5% cash.
• During the quarter, the Fund’s overall equity allocation fell to 55% from 58% of net assets reflecting decreases in Europe (-1.5%) and Asia (-1.1%).
• Within equities, the Fund remains overweight Asia (13.3% vs. 8.4% of benchmark) and Latin America (2.6% vs. 1.4% of benchmark) with underweights in the U.S. (29.3% vs. 36.0% of benchmark) and Europe (6.8% vs. 11.9% of benchmark).
• From a sector perspective, the Fund's overweights include Materials, Telecommunication Services, and Energy with underweights in Consumer Discretionary, Financials, Consumer Staples, Information Technology, Utilities, and Industrials.
• In fixed income, the Fund remains underweight U.S. nominal Treasuries 9.3% vs. 24.0% of benchmark).
• In Europe and Asia, the portfolio remains underweight fixed income primarily due to underweights in sovereign debt markets in the U.K., Germany, and Japan.
• In credit, our preferred theme remains convertible bonds although our exposure remains broad based across sectors and geographies with 4.2% in U.S. converts and 5.1% in a variety of USD denominated and local currency denominated foreign converts (primarily in Asia).
• As for currency exposure, relative to its benchmark, the Fund is underweight the Euro (-12.5%), Japanese yen (-4.1%) and British pound (-2.6%), and overweight the U.S. dollar (+9.3%), Brazilian real (+2.7%), Singapore dollar (+1.5%), and Russian ruble (+1.2%).
• The Fund is also overweight a number of Asian currencies including the Malaysian ringgit, Indian Rupee, and South Korean won.
• The Fund’s internal reference benchmark currency weights remain fully hedged back to Australian dollars.

Performance Review as at 30/06/10

Positive influences on performance were:

• Overweight allocation and stock selection in Canada.
• Overweight allocation to a number of Asian equity markets, including India, Singapore, and Malaysia, coupled with effective stock selection in Taiwan.
• Stock selection in Materials and an overweight and stock selection in the Telecommunication Services sector.

Negative influences on portfolio performance were:

• Overweight allocation and stock selection in Japan.
• Underweight allocation and stock selection in Germany.
• Detracting moderately was an overweight allocation and stock selection in Energy.
• Underweight allocation and stock selection in Consumer Discretionary.
• Stock selection in Industrials and Financials.
• Within the fixed income portfolio, the Fund’s overweight to convertible bonds detracted from relative performance.

Composition of the Fund 

About the Fund

Investment objective
The Fund seeks to maximise total investment returns while managing risk by actively investing in global equities, debt and short-term securities.

Fund strategy
The Fund is managed by the Global Allocation Team (“G.A. Team”) which is based in Princeton, New Jersey, USA. The investment strategy is to invest in global equities, fixed income and cash, with the combination varied both with respect to types of securities and markets, in response to changing market conditions and economic trends.

In selecting equity investments, the Fund mainly seeks to invest in securities which are believed to be undervalued. The Fund may buy fixed income securities of varying maturities.

The Fund can, and does, look for investments in all the markets of the world, however, it will typically invest a majority of its assets in the securities of companies and governments located in North and South America, Europe and Asia. The G.A. Team aims to identify the long-term trends and changes that could benefit particular markets and/or industries relative to other markets and industries.

Currency is actively managed in the Fund around a fully-hedged Australian dollar benchmark.

Designed for investors who…

• Seek a single fund that offers broad global exposure and the largest universe of securities from which to choose.
• Seek a fund that maximises total investment return while having the flexibility to manage risk and move into safer instruments.
• Have a long term investment horizon.

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