Download Legg Mason Australia

0317
March Quarterly Report
Legg Mason Martin Currie
Diversified Income Trust*
Objective
Market Review
To provide a total return of the Consumer Price Index plus 4% and to
grow the income stream in line with CPI over 3 to 5 year periods.
Benchmark
The performance of the Trust is measured against a benchmark
comprising the following sectors:
30%
Australian Equities
S&P/ASX 200 Accumulation Index
30%
Real Assets
50% S&P/ASX 200 A-REIT Accumulation
Index and 50% S&P/ASX 200 Utilities
Index
30%
Australian Fixed Income
Bloomberg AusBond Composite Index
10%
Cash
Bloomberg AusBond Bank Bill Index
Performance as at 31 March 2017
Gross %
Net %
3.46
3.32
3 months
Benchmark
%
3.41
6 months
6.22
5.94
5.49
1 year
14.88
14.25
11.98
2 years p.a.
9.08
8.48
6.51
Past performance is no indication of future performance.
Sector Allocations
SAA
Current
%
Allocation %
Australian Equities
30
46
Real Assets1
30
34
Australian Fixed Income
30
14
Cash
6
Total growth assets
10
45
63
Total defensive assets
55
37
1 Real
The Australian equity market rose 4.8% in the first quarter of
2017, as measured by the S&P/ASX 200 Accumulation Index,
and over the past 12 months, the index has risen 20.5%. The
market strength saw the index approach its highest point in
almost two years. Within the index, relatively defensive
sectors health care, consumer staples and utilities had the
largest positive gains. On the other side, telecommunications
was the only sector to deliver a negative return and real
estate could only post a marginal gain.
The strength in Australian equities continued, despite the
global political backdrop and mixed domestic economic
conditions. During the quarter, the National Australia Bank
(NAB) business confidence rating rose to its highest level
since 2007 and an improved trade balance resulted in
Australia’s current account deficit shrinking to less than 1% of
GDP, its lowest level since 1979. Unemployment rose to 5.9%
and house-price inflation was 4.1% quarter on quarter for the
final three months of 2016. Although the Reserve Bank of
Australia (RBA) left the official interest rate unchanged at
1.5%, banks raised their own interest rates, and GDP growth
in the last quarter of 2016 came in at 1.1% which was above
expectations.
Continued strong performance in the real asset universe in
the March quarter was led by the utilities sector, which was
buoyed by rising electricity prices, gaining 10.7% (as
measured by the S&P/ASX 300 Utilities Index). Infrastructure
also outperformed the broader equities market, the S&P ASX
Infrastructure Accumulation Index rising 7.6%. The Australian
real estate investment trust (A-REIT) sector was a laggard,
the S&P/ASX 300 A-REIT Accumulation Index down 0.1%. In
comparison, the broader equity market gained 4.8%, as
measured by the S&P/ASX 200 Accumulation Index. Over the
last 12 months, the real asset universe has delivered strong
returns with utilities up 28.8% and infrastructure up 24.7%,
relative to A-REITs which was up 6.3%.
Assets predominantly consist of Australian REITs, utility, infrastructure and like securities
(as defined by Legg Mason Australia) that are listed on the Australian Stock Exchange. For the
purpose of the table above, Real Assets are allocated equally between growth and defensive
assets.
*Formerly known as Legg Mason Martin Currie Multi Asset Retirement Income Trust
Issued and approved by Legg Mason Asset Management Australia Limited, ABN 76 004 835 849, AFSL No. 240827. Level 47, 120 Collins Street, Melbourne VIC 3000.
0317
March Quarterly Report
Legg Mason Martin Currie
Diversified Income Trust*
In contrast to the sharp moves of late-2016, yields were
relatively stable through Q117. The US Federal Open Market
Committee (FOMC) raised the fed funds rate by 25 basis
points (bps) in March after substantial forward guidance,
bringing the total to 75 bps of rate increases in the 16 months
leading up to March with an expectation for two further rises
this year along with increasing discussion around a pause
after that to make way for balance sheet run-off. However,
forward guidance for the remainder of 2017 was tempered by
US Federal Reserve (Fed) Chair Janet Yellen’s comments in
a post-meeting statement that were less hawkish than
expected. This, along with a partial unwind of the Trump
trade, that was the basis for much of the strong run-up in risk
assets and bond yields in late-2016, caused bond yields to
decline into quarter-end. Australian government bond yields
finished lower by 5 bps, 6 bps and 19 bps in the 3-year, 10year and 20-year tenors, respectively.
Portfolio yields
^The franked yield forecast for the next 12 months is calculated using the weighted average of
broker consensus forecasts of each portfolio holding and research conducted by Martin Currie
Australia and is gross of fees. Neither the yield forecasts nor past performance is a guarantee of
future results.
Performance
The Trust returned 3.5% (gross of fees) for the March quarter,
compared to the benchmark which was up 3.4%. The Trust’s
overweight allocation to high yielding growth assets was the
key driver of performance. Both the Legg Mason Martin Currie
Equity Income and Real Income Funds performance strongly.
This reflects the forward yield for the Australian fixed
income sector being well below its historical average
while the forward yield for equities and real assets is in line
or ahead of the historical average. The higher allocation to
growth assets, relative to the strategic asset allocation,
provides the dual benefits of higher yield and improved
growth opportunities for the Trust, in line with its investment
objectives.
Outlook
While global economic growth is appearing to improve (as
evidenced by rising bond yields and inflation data globally)
volatility is still a major theme in markets. From here, we
believe world nominal GDP growth will accelerate due to the
recent rise in commodity prices after five years of declines,
which led to reduced inflation and growth.
The Australian economy continues to be positively impacted
by the lower Australian dollar, population and employment
growth. The diversification of the economy, with education,
tourism and a range of services contributing meaningfully to
GDP, has seen a successful transition from mining to nonmining sectors.
Against a steady domestic economy we continue to see
modest upward revisions to free cash flow and sustainable
dividends. Furthermore, we are seeing some positive signals
with regards to the external economy. Indeed, mining and
cyclical companies have now begun to see positive earnings
revisions. Meanwhile, high-quality companies continue to
enjoy positive earnings momentum, and earnings before
interest, tax, depreciation and amortisation (EBITDA) margins
remain steady on a forecast basis. However, we continue to
keep our exposure to bond rate-sensitive sectors at low levels
to maximise the potential stronger economic growth that
higher bond rates imply.
Companies with high return on invested capital, modest
balance sheets, high barriers to entry and sustainable cash
flow contribute to the high-quality nature of the Equity Income
strategy and positive outlook for 2017.
Positioning
The Trust continues to exhibit overweight allocations to the
Legg Mason Martin Currie Equity Income Trust and the Legg
Mason Martin Currie Real Income Fund, and a
corresponding underweight exposure to the Legg Mason
Western Asset Australian Bond Trust.
Legg Mason Asset Management Australia Ltd (ABN 76 004 835 849 AFSL 240827) is part of the Global Legg Mason Inc. group. Any reference to Legg Mason Australia or Martin
Currie Australia is a reference to Legg Mason Asset Management Australia Limited. Martin Currie Australia is a division within Legg Mason Asset Management Australia Limited.
Legg Mason Australia is the Responsible Entity of the Legg Mason Martin Currie Diversified Income Trust (ARSN 169 461 116)(Trust). The Trust predominantly invests in units of
other managed investment schemes (‘Schemes’) for which Legg Mason Australia is the Responsible Entity. These Schemes are managed on behalf of the Responsible Entity by a
variety of Legg Mason Inc. specialist investment managers that can include Martin Currie Australia (Australian equities and property) and Western Asset Management Company Pty
Ltd (Australian fixed income). Before making an investment decision you should read the Product Disclosure Statement (PDS) for the Trust carefully and you need to consider, with
or without the assistance of a financial advisor, whether such an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. The
PDS is available and can be obtained by contacting Legg Mason Australia on 1800 679 541 or at www.leggmason.com.au. This product has not been prepared to take into account
the investment objectives, financial objectives or particular needs of any particular person. Neither Legg Mason Australia, nor any of its related parties guarantees any performance
or the return of capital invested. Past performance is not necessarily indicative of future performance. Investments are subject to risks, including, but not limited to, possible delays
in payments and loss of income or capital invested. These opinions are subject to change without notice and do not constitute investment advice or recommendation.