Report for 2Q 2004 Hong Kong Baptist University 1998 Superannuation Fund.
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Transcript of Report for 2Q 2004 Hong Kong Baptist University 1998 Superannuation Fund.
Report for 2Q 2004
Hong Kong Baptist University1998 Superannuation Fund
Hong Kong Baptist University 2
Contents
• Portfolio Size Summary
• Performance Summary
• Asset Allocation
• Performance Review
• Current Investment Strategy and Market Outlook
Portfolio Size Summary
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Portfolio Size Summary
MLIIF US Dollar Global Bond Stable Fund
US$ HK$ US$ HK$
30 July 2004 958,130.71 7,473,131.14* 1,084,438.76
8,458,622.33+
* The exchange rate is the deal FX rate, which is 7.799699 HKD/USD as of 30 July 2004.+ The exchange rate is based on the spot rate from Bloomberg, which is 7. 8000 HKD/USD as of 30 July 2004.
Performance Summary
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Performance Summary
MLIIF US Dollar Global Bond Stable Fund
Actual %1 Benchmark %2 Actual %3 Benchmark %4
July 2004 0.46 0.52 -1.13 -0.61
June 2004 -0.33 -0.01 0.69 0.61
May 2004 -0.16 -0.20 0.04 0.13
2Q 2004 -1.58 -1.50 -0.25 -0.78
YTD (1 January 04 – 30 July 04) 0.44 0.94 -0.05 0.75
Inception-to-date (26 April 02 – 30 July 04) 8.45 10.36 8.44 11.10
Remarks: 1. Performance figures are net of 1.15% management fee and after 0.75% rebate.2. Citigroup WGBI - 18 US $ Hdgd3. Performance figures are net of 1.15% management fee and after 0.70% rebate.4. 70% Citigroup WGBI - 18 US $ Hdgd and 30% MSCI World (net)
As at 30 July 2004
Note: The performance figures for the Stable Fund are based on month-to-month data except for the since inception performance that is based on cumulative since inception return.
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-0.3 -0.1
8.4
-0.8
0.8
11.1
-1.6
0.4
8.5
-1.5
0.9
10.4
As of 30 July 2004
Performance Summary
MLIIF USD Global Bond Fund * Stable Fund **
Remarks: * Performance figures: USD Global Bond Fund - net of 1.15% management fee and after 0.75% rebate. Benchmark: Citi WGBI - 18 US $ Hdgd. **Performance figures are net of 1.15% management fee and after 0.70% rebate. Benchmark is 70% Citi WGBI - 18 US $ Hdgd and 30% MSCI World (net) in HK$. Source: Merrill Lynch Investment Managers
Fund Benchmark
Since inceptionYTD2Q 04 Since inceptionYTD2Q 04
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-1.1
-0.3-0.1
-3.3
0.9
-0.9
0.5
-1.6
0.4
-3.3
0.9
-0.9
As of 30 July 2004
Performance Summary
MLIIF USD Global Bond Fund * Stable Fund **
Remarks: * Performance figures: USD Global Bond Fund - net of 1.15% management fee and after 0.75% rebate. Benchmark: Citi WGBI - 18 US $ Hdgd. **Performance figures are net of 1.15% management fee and after 0.70% rebate. Benchmark is 70% Citi WGBI - 18 US $ Hdgd and 30% MSCI World (net) in HK$. Source: Merrill Lynch Investment Managers
Fund MSCI World
YTDJuly 2Q 04 YTDJuly 2Q 04
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0.0%
1.1%
0.4%
4.0%4.6%
0.7%
As of 29 July 2004
Actual Returns on Funds*
MLIIF USD Global Bond Fund
Assuming a constant contribution on Every 29th of the Month and the Funds
stay without switching
Source: MLIM* Performance figures are net of management fee but are gross of rebates
1 year Since Inception
Stable Fund
2 years1 year Since
Inception2 years
Asset Allocation
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MLIIF US Dollar Global Bond Fund (%)
4.7
59.2
20.7
15.4
By Region, as at 30 July 2004
MLIIF US Dollar Global Bond Fund
* Citigroup WGBI - 18 US $ Hdgd Source: Internal; Datastream
The Fund Benchmark*(%) (%)
North America 4.7 23.0
Europe 59.2 47.2
Japan 15.4 28.7
Other 0.0 1.1
Cash 20.7 0.0
Total 100 100
Benchmark* (%)
22.4
47.0
29.8
0.8
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Benchmark* (%)
30
70
Stable Fund (%)
42.8
42.9
14.3
By Asset Class, as at 30 July 2004
Stable Fund
The Fund Benchmark* (%) (%)
Equities 42.8 30.0
Bonds 42.9 70.0
Cash 14.3 0.0
Total 100 100
* 70% Citigroup WGBI - 18 US $ Hdgd and 30% MSCI World (net)Source: Internal; Datastream
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By Region, as at 30 July 2004
Stable Fund
* 70% Citigroup WGBI - 18 US $ Hdgd and 30% MSCI World (net)Source: Internal; Datastream
Stable Fund (%)
22.6
15.6
4.3
0.310.9
25.4
6.6
14.3
The Fund Benchmark*
(%) (%)
Equities
North America 22.6 17.2
Europe 15.6 8.8
Japan 4.3 3.0
Pacific Basin 0.3 1.0
Total Equities 42.8 30.0
Bonds
North America 10.9 16.1
Europe 25.4 33.0
Japan 6.6 20.1
Other 0.0 0.8
Total Bonds 42.9 70.0
Cash 14.3 0.0
Total Fund 100 100
Benchmark* (%)
17.2
3.0
1.0
16.133.0
20.0
0.8
8.8
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Stable Fund* (%)
26.4
13.6
11.410.6
10
9.3
9.1
4.6 31.7 0.3
By Sector, as at 30 July 2004
Stable Fund
Benchmark+ (%)
23.8
12.2
12.110.3
9
11.1
8
4.94.9 3.7
* Allocation only includes the equity portion of Stable Fund.+ MSCI World (net)Source: Internal; Datastream
The Fund* Benchmark+
(%) (%)
Financials 26.4 23.8
Consumer Dis. 13.6 12.2
Information Tech. 11.4 12.1
Industrials 10.6 10.3
Consumer Staples 10.0 9.0
Healthcare 9.3 11.1
Energy 9.1 8.0
Materials 4.6 4.9
Telecoms Services 3.0 4.9
Utilities 1.7 3.7
Cash 0.3 0.0
Total 100 100
Performance Review
MLIIF US Dollar Global Bond Fund
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MLIIF US Dollar Global Bond Fund
• Our underweight US bond market position impacted negatively on the Fund’s relative performance in July. Yields moved from 4.56% to 4.35% before moving back to 4.46%. The fall in yields at the start of the month led the Fund to underperform the US dollar bloc.
• Positioning in the euro-zone had no material impact on overall performance, however the relative value trade out of the US into Europe contributed positively.
• Being underweight Japanese bonds during a period that saw yields rise, was positive and the currency positioning also had a small positive impact on performance
Performance Review
Stable Fund
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Stable Fund
• The Fund underperformed in July. The performance suffered from our underweight in US bonds, despite the positive contribution from our stock selection in the equity side.
• On the equity side, relative performance benefited from stock selection within information technology (IT) notably high quality, cash generative businesses such as Microsoft and Dell, which outperformed.
• A number of IT companies failed to meet the market’s high expectations leading to sharp declines for many stocks we did not hold - Veritas Software, Texas Instruments and Nokia.
• In energy our focus on companies with attractive asset and production profiles was rewarded as high oil prices led to gains for stocks such as Suncor, Talisman and BP.
Performance Review
Major Markets Summary
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Major Markets Summary
Jul-04 Q2-04 YTD
% % %
MSCI Hong Kong (27.0%) 1.4 -4.4 3.6MSCI North America (14%) -3.2 1.6 0.1MSCI Europe (9%) -2.8 2.5 1MSCI Japan (5%) -5.9 -3.7 4.7ALL COUNTRIES MSCI Pacific free ex Japan & Hong Kong (7.5%) -1.8 -7.7 -1.9MSCI Emerging Markets Free (7.5%) -1.8 -9.5 -2.1Lehman Global Agg.Bond (50% hedged)(27%) 0.3 0.5
Thailand (SET) (Price Index) local currency -1.5 -0.1 -17.5Indonesia (JCI) (Price Index) local currency 3.4 -0.5 9.4Philippines (PHISX) (price Index) local currency 0.3 10.9 9.9Korea (KOSPI) -6.4 -10.8 -9.3Taiwan (weighted) (Price Index) local currency -7.2 -10.5 -8Mexico (IPC) (price Index) local currency -1.6 -2.2 15MSCI World in (price index) HK$ -3.3 0.4 -0.44Hang Seng (price Index)(local currency) -0.4 -3.1 -2.7S&P 500 total return in HK$ -3.3 1.7 0.5MSCI Europe ex UK (price Index) in HK$ -3.8 1.2 -2.26FT All Share (UK) (total Return) HK$ -1.3 1.1 3.3HK Dollar to Japanese Yen -3.93 -4.21 -2.73HK Dollar to Sterling (Sterling to HK Dollar) -0.3 1.2 -2HK Dollar to Euro (Euro to HK Dollar) 1.1 0.9 4.3HK Dollar to Aus Dollar -9.22 1.45 -6.37
All indices in HK dollar terms except where indicated
Investment Outlook
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Global real short rates remain close to zero
Source: Datastream
G3 Real Short Rates
%
1999 2000 2001 2002 2003 2004-1.0
-0.5
0
0.5
1.0
1.5
2.0
2.5
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Tailwinds will fade during H2 2004
• Monetary and fiscal stimulus
• Cost cutting
• Impact of steepening yield curve on financial sector earnings
• Narrowing gap between reported and operating earnings
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Headwinds are building
• High oil price
• Excessive debt
• Tightening global monetary conditions - UK, Australia, China, US, New Zealand and Switzerland
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China’s credit slowdown
Source: Datastream
%
2001 2002 2003 20040
5
10
15
20
25
30
Loans, Y/Y M2 Money Supply, Y/Y
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Earnings cycle is maturing
World real EPS
Source: MSCI, MLIM
US
$
MSCI World actual EPS ($, 1995 prices) Trend EPS
15
20
25
30
35
40
45
80 82 84 86 88 90 92 94 96 98 00 02 04
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Global earnings momentum is peaking
Source: IBES
-6
-4
-2
0
2
4
6
8
10
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
-80
-60
-40
-20
0
20
40
60
Lead Economic Indicator Rate of Upgrade, % FY1 EPS
Global Earnings Revisions
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Source: MLIM
World P/NE
Global equity valuations back at top of pre-bubble range
5
10
15
20
25
30
35
40
45
70 71 72 73 74 75 76 77 78 79 80 82 83 84 85 86 87 88 89 90 91 92 93 95 96 97 98 99 00 01 02 03 04
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US valuation gap with Europe has widened
Europe US
Source: MLIM
5
10
15
20
25
30
35
40
45
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04
P/NE
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Source: MLIM; Citigroup. As at 31 May 2004
Medium term implied earnings growth
Technology valuations have returned to extremes
Co
ns
Sta
ple
s-15
-10
-5
0
5
10
15
20
25
30
Util
itie
s
En
erg
y
Fin
an
cia
ls
He
alth
care
Ma
teria
ls
Ind
ust
rials
Ma
rke
t
Co
ns
Dis
cre
tion
Te
leco
ms
Info
Te
ch
%
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Growth styles becoming more attractive
Source: Citigroup, MLIM
Ratio of dividend yield - growth vs valueR
ati
o %
0.33
0.38
0.43
0.48
0.53
0.58
0.63
0.68
0.73
1990 1992 1994 1996 1998 2000 2002 2004
DY +2 SD Mean -2 SD
Expensive
Cheaper
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Value is appearing in short duration bonds
Source: MLIM
Eurozone 2-year yield deviation from fair value
-3
-2
-1
0
1
2
3
01/93 01/95 01/97 01/99 01/01 01/03 01/05
No
. o
f S
tan
da
rd D
evi
atio
ns
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Value is appearing in short duration bonds
Source: MLIM
US 2-year yield deviation from fair value
-3
-2
-1
0
1
2
3
01/93 01/95 01/97 01/99 01/01 01/03 01/05
No
. o
f S
tan
da
rd D
ev
iati
on
s
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Investment grade credit offers little value
Source: Bloomberg
Basis points
0
20
40
60
80
100
120
140
160
180
200
31/01/97 31/01/98 31/01/99 31/01/00 31/01/01 31/01/02 31/01/03 31/01/04
US Credit spread European A Credit spread
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Still some value in high yield
High Yield spread over Treasuries
0
2
4
6
8
10
12
14
31
/01
/82
30
/04
/83
31
/07
/84
31
/10
/85
31
/01
/87
30
/04
/88
31
/07
/89
31
/10
/90
31
/01
/92
30
/04
/93
31
/07
/94
31
/10
/95
31
/01
/97
30
/04
/98
31
/07
/99
31
/10
/00
31
/01
/02
30
/04
/03
ML High Yield 175 Index YTM spread over 5-year Treasury benchmark
%
Source: MLIM
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So where from here?
• Focus on equity markets where valuations are reasonable and growth will be sustained
• Opportunities exist in larger capitalisation stocks, particularly in Europe and Japan
• Invest in short duration bonds and selected credit
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Asset allocation stance
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The following notes should be read in conjunction with the attached document: 1. Issued by Merrill Lynch Investment Managers Limited, authorised and regulated by the Financial Services Authority and a
subsidiary of Merrill Lynch & Co., Inc. Merrill Lynch Investment Managers is a trading name of Merrill Lynch Investment Managers Limited. Merrill Lynch & Co., Inc. and its subsidiaries are known as the Merrill Lynch Group.
2. Past performance is not necessarily a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
3. Any research in this document has been procured and may have been acted on by Merrill Lynch Investment Managers for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the Merrill Lynch Group or any part thereof and no assurances are made as to their accuracy.
4. This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any Merrill Lynch Group funds and has not been prepared in connection with any such offer.
5. This material is for distribution to Intermediate Customers (as defined by the FSA Rules).
Unless otherwise specified, all information contained in this document is current as at July 2004.
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