• Relatively high returns could be expected for such stocks compared with ordinary ones in the medium and long term; and
• Fluctuations in the prices of high dividend yield stocks would be relatively small and the risks involved fairly low.

One year on, the equity market environment has undergone changes. There are signs of slow improvement in parts of the global economy and it is hoped that this trend will continue. The monetary authorities and central banks in various countries have attempted a wide range of actions to boost their economies and, as a result, markets have seen historically low interest rates and high capital liquidity. This has prompted capital inflows into stock markets, boosting stock prices substantially over a short period of time.

However, governments’ fiscal problems are becoming increasingly serious and central banks’ balance sheets are continuing to swell. If their countries’ economies recover, interest rates will be revised sooner or later and capital will start to flee from the markets. The attention of the markets has recently been focused on when the US Federal Reserve will begin to scale back its third round of quantitative easing (QE3). It seems that market participants have started to factor in a rise in interest rates in the near future. High capital liquidity has channelled new investment funds into stock markets, creating an environment in which capital is seeking higher returns than can be provided by the historically low interest rates. Under these circumstances, we examine how stocks with high dividend yields, one of the main appeals of which is high income, are expected to fluctuate and whether our previous evaluations should be revised based on these expectations.

We (Nikko AM) use the MSCI Standard Indices (STD Indices) and the MSCI High Dividend Yield Index (HDY Index) (net, Yen-converted). The STD Indices are commonly used and include the MSCI Japan Equity Index and MSCI Kokusai Index. The HDY Index comprises those stocks used for the STD Indices that meet two major requirements:

• Passing dividend continuity screening tests, and
• Producing a dividend yield exceeding the average for STD Index stocks.

For this reason, we think that the HDY Index is effective for examining how stocks with high dividend yields differ from ordinary ones in the same market.

The following charts indicate monthly returns for the two types of equity in major stock markets for the first five months of 2013 (as of May 31; net and Yen-converted).

Both the STD Indices and the HDY Index had been achieving extremely high returns since the start of the year. However, interest rates responded sensitively following the US Federal Reserve’s recent announcement about possible tapering of quantitative easing (QE). Following this, the HDY Index performed poorly compared with the STD Indices. It can be understood from the performance of these two types of indices that fluctuations in interest rates have certain effects on equity performance and that stocks with high dividend yields tend to be more affected. But can such a tendency be actually observed in the stock markets?

The chart below compares the performance of the US HDY and STD Indices with yields for 10-year US Treasury bonds. The yield for 10-year U.S. Treasury bonds trended at about 5% around 2001, but since then has fallen to nearly 2%, showing a long-term downturn trend.

After the tech bubble burst around 2000, the recessionary phase continued until around 2003. Subsequently, the economy bottomed out and then started to pick up in the five years up to the collapse of Lehman Brothers. At the same time, interest rates continued to rise, if slowly. From the start of 2003 when they bottomed out, to the middle of 2007 when they peaked, both the HDY and STD Indices moved continuously in parallel, eventually registering an increase of over 90% as interest rates trended upwards. During this period, despite the fears of some market watchers, the rises in interest rates had absolutely no effect on the performance of stocks with high dividend yields.

If these facts are taken into consideration, it is reasonable to expect that future interest rate rises will have a smaller effect on stock prices than during the previous period when interest rates were on an upward trajectory. A similar tendency was observed in Europe, Japan and Australia (see charts below), and there was no evidence that the performance of stocks with high dividend yields was conspicuously inferior.

Stable changes in stock prices expected for high-dividend-return equity

Stock prices tend to rise when interest rates go up and to fall when interest rates go down. In addition, it seems that the STD Indices experience greater stock-price fluctuations than the HDY Index. Since the time period examined in this report included a period of economic deterioration during which investors became adverse to risky assets as the future of the economy became increasingly uncertain (the so-called risk-off effect), this does not necessarily suggest future trends in these indices. However, it does appear that over a long period of time, as interest rates fluctuate, stocks with high dividend yields are more stable than ordinary stocks. The analyses of the European, Japanese and Australian markets all produced similar results.

Appeal of high-dividend-return stocks unlikely to wane

Market watchers hold various expectations for the future based on the prospects for economic recovery and rises in interest rates. However, it cannot necessarily be said that stocks with high dividend yields are more affected by fluctuations in interest rates. From a longer-term perspective, it is unlikely that the appeal of stocks with high dividend yields will diminish because they can avoid risks at the same time as earning a higher return than ordinary stocks.  In addition, we expect an increasing number of investors will seek high income (dividends) and companies will attempt to respond to such expectations by paying more dividends and raising their payout ratios. It’s likely that this will, in turn, lead to improved evaluations of the prices of stocks with high dividend yields. 

Disclaimer

Parts of this document have been prepared by Nikko AM. Nikko AM carries on business in Australia through its wholly owned subsidiary Tyndall Investment Management Limited ABN 99 003 376 252 AFS Licence 237563 (Tyndall AM). To the extent that any statement in this document constitutes general advice under Australian law, the advice is provided by Tyndall. Nikko AM does not hold an AFS Licence. This material has been prepared for general information purposes only for sophisticated investors.

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While recent research from Standard & Poor’s (S&P)1, announced this week, shows that most active Australian equities managers are failing to beat the index, Aviva Investors is one of the few managers to deliver outperformance over 1, 3 and 5 years.

S&P’s research found that for the five years to December 2010, more than 70 per cent of actively managed Australian equity funds underperformed the S&P/ASX 200 Accumulation Index.

The short-term figures were equally unsettling for investors: 81 percent of actively managed Australian equity funds underperformed the S&P/ASX 200 Accumulation Index in the year to end-December 2010.

Conversely, all of Aviva Investors’ actively managed Australian equities funds that have a 5-year track record have significantly outperformed their benchmarks over the 3 years and 5 years to December 2010.

In addition, Aviva Investors’ short-term performance numbers are also impressive with every fund significantly outperforming their benchmarks in the 12 months to December 2010.

“For many investors, it is clearly disappointing to hear that they are paying active fees to their investment manager to not even meet the index, never mind outperform it,” said Aviva Investors Head of Equities Glenn Hart.

“At Aviva Investors we are proud to say that we have delivered excess returns to our investors over both the long-term and the short-term. We do not believe that investors should have to choose between either short-term or long-term outperformance and have shown that the right manager can deliver both.”

Mr Hart said that this investment outperformance has been achieved by focusing on quality, in-house research.

“We believe markets are inherently inefficient and this results in stocks sometimes trading away from their underlying valuation for a period of time. We seek to exploit these mispricing opportunities by looking for stocks which are out of favour with the market.

“Our decision to invest is based on a detailed bottom-up analysis of the company’s future prospects, in which we have formed an in-house valuation which is significantly different to the consensus. We believe that adherence to this approach should produce consistent outperformance of the benchmark over the medium-to-long term in all but extreme market conditions.”

Professional Selection Australian Equities – Strong outperformance as at 31 December 2010

Investment returns are based on exit to exit prices of Professional Selection units, are net of management fees and assume reinvestment of all distributions. Past performance is not a guide to or indication of future performance.

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LUCRF Super is Australia’s first industry super fund, with over 184,000 members and more than $2.8 billion in funds under management.

Launched in July 2009 as part of Aviva Investors absolute return range, the Aviva Investors Absolute T250 Bond Fund targets low volatility and low correlation to traditional bond and equity markets by applying a macro fixed income strategy focused on global sovereign bond markets and interest rate disparities.

Managed by Shahid Ikram, Deputy CIO – Fixed Income at Aviva Investors,the fund targets an absolute return before fees of 3 month EURIBOR plus 2.5 percent and invests on both a long and short basis, offering investors the potential to profit from falling, as well as rising, asset prices.

Craig Bingham, Chief Executive, Aviva Investors Asia Pacific, said: “We are delighted that LUCRF Super has awarded us this important mandate. The Aviva Investors Absolute T250 Bond Fund has an interesting approach in today’s challenging market conditions, as it can adapt to changing macro-economic circumstances and thus potentially outperform in falling markets. We are proud to be working with LUCRF Super and look forward to meeting the needs of their investors.”

Ben Samild, Head of Investment Strategy at LUCRF Super, commented: “We are looking forward to working with Aviva Investors, a firm which demonstrates both global strength and local market expertise. The firm’s Absolute T250 Bond Fund has impressive downside risk management and low correlation to traditional bond and equity markets, making it a good fit for our long-term investment objectives.”

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Jesse Lentchner, Chief Executive Officer, Asia Pacific for BTIG, said, “These are pivotal hires and will all play a significant role in the continued expansion of our business in Asia.”

Eddie Li has been appointed Director of Sales Trading. Li will be responsible for sales trading in Hong Kong and China B shares. Li has over 20 years of experience in Asian equity markets and was formerly with SG Securities in Hong Kong.

Mark Yetman has been appointed as Director of Equity Sales. Yetman will draw on his deep industry experience and contacts, especially in the technology sector. Yetman has over 17 years of experience as both an analyst and then research sales person and was formerly with CLSA Taiwan in the institutional equity sales division.

John Chang has been appointed as Director of Equity Sales. Chang has 18 years of securities industry experience, primarily in Korea and Hong Kong, and was previously with DBS Vickers Securities in Hong Kong.

Ken Gordon joins BTIG as a Fundamental Quantitative Analyst. Gordon brings to BTIG over 18 years of experience in providing unique quantitative analysis and Page 2 of 2 intuitive graphic representations of fundamental data on Japanese and other Asian securities.

Lentchner went on to say that “We continue to see growing demand for traditional stock broking that can deliver quality execution and industry insight. Investors want a trusted and experienced trading partner who is independent and un-conflicted. We are building a business and platform that addresses those needs.”

Lentchner, who was previously with Goldman Sachs, joined BTIG in March 2010 as its CEO of Asia Pacific. Lentchner is overseeing BTIG’s Hong Kong, Singapore and Sydney operations as well as BTIG’s expansion in the region.

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Three new funds were added to Lonsec’s universe in 2010 – the Zurich Investments Global Property Securities Fund (Recommended), BT Global Property Securities Fund (Investment Grade) and the Resolution Capital Global Property Securities Fund (Investment Grade).

Key themes from the 2010 review

Performance dispersion

Global real estate securities rallied over the year, driven by an increase in market confidence and renewed appetite for risk. Thembi Matabiswana, the Lonsec analyst who spearheaded the review, commented, “We found that those fund managers holding high levels of cash were more likely to outperform the benchmark over the longer period.”

“Cash levels were generally in the upper ranges of permissible and historical levels which support this view.”

Lonsec accepts that higher than normal cash levels are to be expected given the possibility of increased redemption requests and the more defensive portfolio positioning of many managers. However, advisers should take care when reviewing fund performance so as not to confuse strong fund performance due to high cash levels with strong fund performance due to stock picking skill.

While absolute returns have been positive in the 12 months to 30 November 2010 (average 20.9%), over a three year time horizon performance has been poor. When comparing managers across the sector, the dispersion between performances over the longer term continues to be high.

“Over the three years to 30 November 2010, ING was the top performer. This outperformance was largely driven by the manager‟s emphasis on top-down macroeconomic variables and effective re-positioning of its portfolio to accommodate changing market cycles,” said Matabiswana.

Access to equity and debt markets

REITs continued to tap both equity and debt markets throughout 2010, representing a material increase in activity from 2009. European real-estate securities in particular experienced a significant turnaround during the third quarter, driven by improving economic data and broad anticipation of additional quantitative easing programs.

“A report prepared by Jones Lang LaSalle stated that Europe dominated cross-border investment activity over the first half of 2010,” said Matabiswana.

“The report specifies that global real-estate investment totalled US$132 billion, almost double for the same period in 2009, with more than 50% of this occurring cross-border in Europe.”

As it stands, REITs continue to enjoy far superior access to capital compared to their unlisted real-estate counterparts and are therefore well positioned both offensively and defensively as economic recovery continues to strengthen or worsen.

Currency headwinds

The Australian dollar has experienced a significant amount of volatility over the last two years. The largest fall was seen over the three months to October 2008, where the Australian dollar dropped from a high of 91 cents in July to as low as 60c. With all the funds in the review offering fully hedged products, most of them have been unable to pay distributions as a result.

This is because July 2008 saw tax law changes that required all classes of income to be included in the calculation of taxable income. This included realised currency hedge gains/losses. Realised currency losses, in some instances, reduce the level of distributions that a fund can pay, if significant enough to cause a net loss on its taxable income. Importantly, currency losses continue to be carried forward until they are completely offset by future income.

“Therefore, for most of the hedged funds, such currency losses will continue to be carried forward until they are completely offset by future income. It is therefore possible that some funds‟ future distributions may continue to be affected by previous currency losses,” said Matabiswana.

“AMP and RREEF were the exceptions as these managers have continued to pay distributions; they have done this by funding the hedging losses through the sale of stock in the portfolio.”

In fact, both approaches should result in a similar outcome and not have a material effect on total returns. Those funds that will reduce or not pay distributions will benefit by a commensurate increase in their Net Asset Value (NAV) per unit. Those funds that do pay distributions will fund this by selling down a portion of their portfolio. This will act to reduce their NAV equal to this distribution amount.
Greater conviction at the regional level, for a more active global portfolio

In the past Lonsec has criticised managers for not being active enough at a global portfolio level. Managers’ active positions relative to their benchmarks were considered too small when compared to other sectors. This continues to be the case with high fees for mid conviction “active management”.

This is particularly disappointing given the extensive investment teams and resources afforded to most “active” global property securities fund managers.

“Some managers, such as RREEF and Principal, have acknowledged this. These managers have undertaken further research at a portfolio construction level and found that in order for an active position to be significant at a global level, there would have to be sufficient flexibility to take even larger regional bets,” said Matabiswana.

“These managers have adjusted their risk management systems accordingly, as well as encouraging regional teams to take larger active positions. Lonsec continues to encourage this evolution in portfolio construction, as long as it is supported by adequate resourcing and the appropriate tools and systems.”

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Mark Burgess, incoming Chief Investment Officer at Threadneedle, looks ahead to 2011: “Our central case for 2011 is one of reasonable global growth led by emerging markets. Against this backdrop world equity markets look good value, particularly against government bonds. In addition, many companies have strong, healthy balance sheets and are sitting on large cash piles, having held back on investment during the recession. We expect corporates globally to start to use this cash to increase capex, raise dividends, buy-back stock or undertake merger and acquisition activity. We believe that emerging markets will continue to grow and outperform the rest of the world, helping to fuel demand for consumer goods and commodities.

“At the same time we must be mindful of the risks to this scenario. The credit crisis elicited a range of untested policy responses and we are yet to see the full consequences of these policies. The banking sector globally needs to continue to raise capital, which will restrain credit expansion and hence economic growth. In emerging markets there is the potential for growth to turn into a bubble and inflation to become a risk. Globally, markets remain fragile and any major shocks could cause volatility.

“This volatility should create opportunities for nimble, experienced investors with a proven ability to look through short-term noise and indentify long-term winners.”

INVESTMENT THEMES FOR 2011

Policy responses to remain a key driver of markets

Growing economic divergences highlight critical global imbalances that require intervention. The Eurozone is in crisis, China is tightening policy and the actions of developed markets threaten to spark currency wars. These issues all demand that policymakers adopt appropriate measures in a timely manner, yet policy response remains the single most difficult risk to assess. We believe that the ride will be bumpy but that policymakers will eventually arrive at the right place, allowing supportive fundamentals and ample liquidity to support asset prices.

• The European Central Bank must act urgently, as it has been reactive and fallen behind the curve in protecting the Eurozone. The ECB should recognise that policy must support the weaker economies and not simply be tuned to the mantra of “one size fits all”. This will necessitate a policy that is far too easy for stronger members, but the viability of the monetary union is at stake. We believe the ECB is likely to adopt some combination of lower rates, below-market rate loans to troubled economies, liquidity provisions and outright bond purchases.
• As QE becomes a more prevalent policy tool it is certain to evoke fears of competitive currency devaluation. There will likely be growing calls for capital controls in many developing economies reluctant to see an unwanted surge of liquidity into their economies. Such steps should not undermine the global growth story, but will likely stoke higher volatility across markets.
• China’s deflationary boom is turning inflationary, representing a paradigm shift in the economy at the heart of global imbalances. The ability of Chinese policymakers to tighten policy without rattling investors will require more skill than in past cycles.
• Ongoing de-leveraging continues to unleash powerful deflationary forces, which should allow developed economies to sustain modest growth whilst pursuing reflationary policies.

QE consequences

Quantitative easing has unleashed a wave of liquidity that must find a home. At the same time, it has stirred strong opposition in some quarters.

• QE2 is explicitly targeting asset prices and liquidity is likely to find its way into the areas offering the best value and potential returns. Currently this means higher risk assets such as equities. This is one of the reasons why we remain overweight in equities versus bonds.
• Specifically, emerging market equities and bonds are likely to be well supported. We may be in the early stages of a bubble in these assets.
• Subsequent waves of QE will become increasingly difficult to defend on the world stage. This could tip the current phase of currency devaluation into full-blown protectionism. Stocks with significant overseas earnings could suffer in this scenario (this is not our central case).

“Emerging market exposure is a consensus trade, but it can continue to reap rewards throughout 2011. It doesn’t make sense to stand in the way of this tide of liquidity.” Sarah Arkle, Chief Investment Officer (Vice Chairman from Jan 2011)

Stock picks: Sun Hung Kai, Barrick Gold

Untested policies

The credit crisis elicited a range of innovative and untested policy responses. This is likely to lead to ongoing volatility, rotation and unforeseen consequences.

• An important skill in 2011 will be the ability to look through short-term volatility to see the longer-term pricing anomalies.
• Ongoing uncertainty means that it will be more important than ever to be aware of risks in portfolios and ensure that all risks are understood and intended.
• Active management and stock picking are likely to add significant value in 2011.

“We are in completely uncharted waters here. Investors expecting a reversion to mean may be disappointed.” Jim Cielinski, Head of Fixed Income

The haves and the have-nots

Two-speed economies are developing at a global (emerging vs developed world), European (core vs periphery) and US level (skilled vs unskilled workforce). These distortions create socio-political tensions but also provide opportunities in a number of sectors.

• US unemployment remains high but in certain sectors, wage bargaining power is evident. When analysing companies, we will be emphasising their ability to retain talented staff without instigating wage inflation.
• With interest rates at all-time lows and QE2 targeting higher asset prices, employed, asset-rich consumers with mortgages should feel wealthier in 2011. This will support high-end consumer discretionary stocks.
• European banks with exposure to the periphery have been de-rated significantly. This creates the scope for a sharp rally if solvency fears are addressed decisively by the ECB. We remain underweight but continue to monitor the sector closely.

“You can’t take someone that was laying bricks on a building site in 2007 and put them into Google’s product development team. Specialist skills are in short supply and will be rewarded in 2011.” Cormac Weldon, Head of US Equities

Stock picks: Tiffany, Polo Ralph Lauren

The search for yield

We believe that inflation is not a risk in the developed world and that interest rates will be kept at historic lows in these markets. As such, government bond yields are unlikely to rise significantly and investors will seek income in higher-yielding areas.

• Emerging market and corporate bond valuations remain attractive relative to their improving fundamentals. We continue to favour these bonds over government issues in fixed income.
• Income stocks are likely to be in favour in equities. Moreover, companies that are reinstating or raising their dividends are likely to be re-rated.

“Why would I lend money to the UK government at 3.5% when I can get 5.1% with the prospect of dividend and capital growth from AstraZeneca?” Leigh Harrison, Head of Equities

Stock picks: AstraZeneca, Vodafone, BT

The emerging market consumer

Emerging markets will continue to produce superior growth in 2011 and growing wealth among consumers in these markets will support demand in a number of areas.

• We continue to invest in luxury goods stocks in Europe, where robust earnings growth has seen multiples decline despite rising share prices.
• More recently, we have expanded this theme into European premium auto stocks, eg BMW, where the valuation is attractive relative to its Asian joint venture partners.
• Banks in under-penetrated markets such as Indonesia and India are likely to attract capital as investors follow through the consumer theme.

“Luxury goods stocks were the first beneficiaries of growing emerging market wealth. The developing consumer credit cycle will create bigger ticket opportunities as this theme matures.” William Davies, Head of European Equities

Stock picks: BMW, Bank Rakyat

The return of capex

Companies have been very cautious in their investment plans in this cycle, preferring to maintain high levels of cash. Corporate balance sheets are strengthening and capital expenditure to depreciation ratios are at all time lows. We believe this trend will change in 2011.

• Improving economic confidence and high commodity prices are likely to drive increased capex in the extractive industries. Industrial stocks will be among the key beneficiaries.
• The replacement of ageing IT infrastructure at a wide range of companies will support earnings in the software and hardware sub-sectors.

“Mining equipment companies have been buffeted by changes in economic sentiment in 2010. They are attractively valued and there is scope for significant upgrades to earnings.” Simon Brazier, Co-Head of UK Equities

Stock picks: IMI, Komatsu

Mergers and acquisitions

Cash balances are high, valuations are attractive and companies will crystallise value in the market by undertaking earnings-enhancing corporate activity such as m&a. Meanwhile, private equity companies are under pressure to invest. Emerging market corporates are also likely to take advantage of currency strength to acquire footholds in companies in the developed world. This, together with share buy-backs, will drive a significant phase of m&a.

• Companies with unique assets, superior growth or access to proprietary technology will be among the main takeover targets.
• Management quality and valuation may not always be key drivers: small and mid-caps are likely to attract interest despite full relative valuations.
• Companies deploying cash in shareholder-friendly ways are likely to outperform as investors become more focused on the efficient use of capital.

“2011 could be the year when a household western name gets taken over by an emerging market rival.” Jeremy Podger, Head of Global Equities

Stock picks: Mid-cap resources, industrial companies

Commodity prices will remain underpinned

The outlook for commodity prices is positive, given the recovery in the world economy and the dominance of resource-hungry emerging markets in the global growth profile.

• Commodity-rich nations will continue to witness capital inflows, further strengthening FX positions and credit worthiness. This should support equity valuations and further spread tightening in fixed income.
• Companies using more expensive raw materials in their production processes will witness margin pressures.
• Rising commodity prices could be a source of inflationary pressure.

“Our growth forecasts imply additional demand of around 1.5m to 2m barrels of oil per day in 2011. If it becomes apparent that OPEC does not have sufficient spare capacity to meet this demand, the oil price could move sharply higher.” David Donora, Head of Commodities

• Mark Burgess becomes Chief Investment Officer from Jan 2011, when current CIO Sarah Arkle moves into her role as Vice Chairman.

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MLC acquired a minority ownership stake in Meritum as part of its acquisition of Aviva Australia in 2009 and has now increased its ownership to 100 per cent.

Richard Nunn, MLC’s Executive General Manager of Advice & Marketing said, “Bringing quality financial advice to more Australians is an important component of MLC’s overall growth strategy and we are focused on attracting advisers to our network through support and investment.

“We are very pleased to be adding Meritum to our network of aligned advice businesses.”

Stephen Trist, formerly Executive Director for Distribution and Marketing at Aviva Australia, has been appointed to the role of General Manager, Meritum and Meritum founders Brian Dau and Theo Christopolous will continue in their current roles.

Mr Trist said, “Since our initial investment in Meritum, our two businesses have worked closely together. Like MLC, Meritum provides significant support to its advisers and their clients, and favours a conservative and client centric model.

“Having Brian and Theo committed to the group for the long term is also a great outcome. They bring continuity to the business and will be instrumental in maintaining the adviser service culture that Meritum is known for.

“The support of MLC will be important over the coming years, particularly in light of the upcoming period of change facing the advice industry. MLC brings both resources and expertise to the table and will help ensure Meritum remains a force in the advice market,” added Trist

Meritum was established in 2003 and has over 110 financial advisers across the country. It has more than $3.5 billion in funds under management and in excess of $45 million in annual insurance premiums inforce.

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The Bledisloe Group has built a strong suite of brands across Australia and New Zealand to emerge as New Zealand’s largest provider of funeral services and as one of the top three operators in several key Australian markets. It will be acquired by InvoCare Limited (ASX code: IVC) for A$114 million.

Jon Schahinger, Managing Director of ING Private Equity Access Limited (ING PEAL) commented that the sale was a great example of a classic private equity strategy – “buy and build” in a disaggregated industry.

“Propel Investments identified the funerals sector as one well suited to a buy and build strategy and acquired Bledisloe in December 2005. It subsequently grew the business organically and via acquisitions in both Australia and New Zealand. The acquisition by InvoCare represents another successful investment for Propel and ING PEAL shareholders,” said Mr Schahinger.

The acquisition will be funded through cash and escrowed shares in InvoCare and is expected to be completed by March 2011. The transaction was at a price above its recent carrying value and should result in Propel achieving a 3.3 times return on its investment.

ING PEAL is expecting to receive more than $2.5 million.

In other portfolio news, a venture capital investment of private equity manager CM Capital, Piedmont Pharmaceuticals (www.piedmontpharma.com), has signed a major, long-term deal with Bayer Animal Health for its chewable drug delivery innovations. This will enable CM Capital 4 Fund to make its first return of cash to its investors, including ING PEAL. CM Capital will continue to own 28% of Piedmont which it is holding with expectations of significant upside potential.

More details on ING Private Equity Access Limited and its investments can be found at www.ingpeal.com.au.

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• In recent weeks investors have no doubt found it difficult to sort fact from fiction in the public discussion about company balance sheets. Some commentators have questioned whether banks are generating
  above-normal profits. Others have questioned whether some companies such as BHP Billiton are making profitable use of capital or whether a portion needs to be returned to shareholders. And still others have focussed on the sustainability of high dividend returns from companies such as Telstra.
• To provide a base for the discussion, CommSec has compiled a set of tables on various measures for the S&P/ASX50 – the 50 biggest companies on the sharemarket. The tables are generated from data available from financial research firm, Morningstar.
• In 2010 while major banks’ posted solid profits, their return on equity ratios were largely in line with the average of S&P/ASX50 companies. And their return on assets ratios were at the bottom of the pack. By contrast Telstra reported market-leading return on equity and return on capital ratios in 2010.
• Over the past decade, seven S&P/ASX50 companies had negative shareholder returns including Telstra. Shareholder returns were close to average for CBA, ANZ and Westpac but returns for NAB were below the average of S&P/ASX50 companies.
• Resource companies dominate the results of average shareholder returns over the past decade.

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