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Food, Fuel and Fallen Angels

Liontamer has launched a pair of capital protected funds that provide investors with exposure to two new, and very topical, investment themes. FALLEN ANGELS Series 1 hunts for bargains amongst the global sharemarket fallout, while COMBI Series 5, the 'food and fuel' fund, continues Liontamer's successful series of commodity-linked investments.

Wednesday, May 21st 2008, 1:46PM
FALLEN ANGELS Series 1
Someone once said that 'volatility is just opportunity in fancy dress' i.e. it is sometimes difficult to recognise an advantageous situation when you are surrounded by distractions – and there have certainly been a lot of those about lately. Current market conditions are a case in point. There is a lot of 'noise' out there distracting investors from seeing the true nature of the global market. Investors have been understandably nervous; after-all the international sell-down is a direct result of fundamental concerns over the state of the global economy. The recent sell-off in international equities has seen the MSCI World Index lose over 19% since its 2007 high1. While that's concerning, it's no market crash, and history tells us that when sell-offs do occur they can provide a great buying opportunity for those willing to take a long-term view.

This most recent sell-down appears to have been largely indiscriminate. Around the globe quality companies with strong fundamentals have had their share prices knocked down along with those that perhaps deserved to lose value. Liontamer believes that the current environment can now be likened to a worldwide stock-take sale, where bargain basement prices are to be found – provided you look hard enough. The negative sentiment has spilled over to affect a wide range of sectors, resulting in solid companies with well known brands becoming undervalued. Savvy buyers can use this opportunity to purchase these 'fallen angels' at a discount to their true market value.

Hunting bargains
FALLEN ANGELS Series 1 contains a basket of companies, which in Liontamer's view, have been oversold relative to their underlying value, as a result of the recent market corrections. The methodology used to identify the 16 stocks that make up the basket involved first looking at the top stocks across the world's major indices. The companies Liontamer were looking for had to meet certain criteria, in particular each stock had to have underperformed the MSCI World Index over both a six and 12 month period2. Additionally, and very importantly, the company had to have a current 'buy' recommendation from our parent company, KBC Asset Management.^
It quickly became apparent that companies in the banking and financials sector represented good value at current levels. Financial stocks have been heavily discounted despite many continuing to show underlying financial strength; therefore a 50% index weighting was given to this sector. However, clearly not all banking stocks are 'fallen angels'. The final criterion was the specific exclusion of any US-based banks. Despite the likes of Citigroup and JP Morgan significantly underperforming the MSCI World Index over the relevant period, Liontamer and KBC Asset Management felt the on-going environmental risk in the US credit market effectively ruled these companies out of the Fallen Angels Index.

Get Smart-start
FALLEN ANGELS also introduces a brand new feature designed to address any market timing concerns investors may have. With the new 'Smart-start' feature investors can benefit even if the Index drops in value during the first few months of the investment term. Smart-start finds the lowest level at three points in time during those first few months (initial start date, and around three months and six months) and re-sets the initial opening value of the Index to that lowest level. So, even if markets keep falling during the early stages of the investment period, the Smart-start feature means investors in FALLEN ANGELS Series 1 can still benefit.

COMBI Series 5 – the fuel and food fund
A visit to the supermarket is enough to remind us that the price of many grocery items has increased dramatically over the last few years. Like all products, food prices are affected by the pressures of supply and demand. Currently there are two main factors affecting global demand for staple foods like sugar, wheat, soya and corn. First, people in developing nations are becoming wealthier as their economies thrive, resulting in a huge influx of middle-class consumers demanding access to quality foodstuffs, including grains and meat products. In 1985 the average annual meat consumption in China was 20kg; in 2007 it was 50kg per person. Given that it takes approximately 8kg of feed grain to produce 1kg of beef3, that's a lot of additional pressure on grain prices.
Secondly, the high price of oil is also contributing to rising food prices. The burgeoning bio-fuel industry has a huge appetite for corn, sugar and wheat; three of the main options from which to create ethanol. Soya beans are also used as a key ingredient for the production of bio-diesel. In 2006, bio-fuels used almost 50% of Brazil's total sugar production. This year, up to 30% of the grain harvest in the U.S. is expected to go straight to ethanol distilleries3. Despite a record growing season last year, suppliers are having trouble meeting the extra demand. COMBI Series 5 is a capital protected investment* that provides investors with a boosted exposure to a special commodities-linked index. The index contains a mix of important agricultural goods and essential energy resources – key elements that feed the world's expanding population and fuel global industry.


1.Reuters
2. As at 7 March 2008
3. The Economist
Full details are contained in the Investment Statement and registered Prospectus, provided by Liontamer Investment Management Pty Ltd (ABN 23 104 174 325). Copies can be obtained from Liontamer by calling 0800 210 450 or emailing adviser_relations@liontamer.com.
*Capital protection at maturity means you will receive back 100% or 90% (as applicable) of the combined amount invested and early bird interest (earned during the offer period) less any entry fee charged (up to 3%). There is a more detailed description of capital protection in the Investment Statement and the limited circumstances when capital protection may not be available. †Index levels are averaged monthly in the final year, which will protect you from any sharp falls in the index. In a rising market averaging lessens returns. #Liontamer has the discretion to reduce or increase the maturity date by six months, depending on market movements during the offer period. ^KBC Bank NV (as the Fund Asset Provider), is legally liable to pay to Liontamer, as trustee of the funds, certain amounts but it does not, and nor does any other entity (including KBC Asset Management NV), guarantee repayment of the investment amount or accept any liability to investors.

Order Investment Statements and fact sheets on 0800 210 450

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