INVESTSMART GROUP LIMITED — Regulatory Filings 2009

Nov 5, 2009

Fat Prophets Australia Fund Limited Annual General Meeting 2009 Manager Presentation

Angus Geddes CEO – Fat Prophets 6 November 2009

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Disclaimer

• Disclaimer

• The material in this presentation is prepared by Fat Prophets Fund Management Australia Pty. Limited (“ FPFMA ”) in good faith based on the facts known to it at the time of preparation and does not purport to contain all relevant information in respect of the Financial Products to which it relates. It is current as at the date of this presentation unless otherwise stated. Any projections are estimates only and may not be realised in the future. FPFMA has prepared this report for Fat Prophets Australia Fund Limited (“ FAT ”). It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or particular needs (“ Objectives ”) of any individual investor. Accordingly, no investment security mentioned in this presentation or in the material should be taken as an investment recommendation.

• Nothing in this research will be construed as a notification to buy or sell any Financial Products, or to engage in or refrain from engaging in any transaction in a Financial Product. This research is based on information obtained from sources believed to be reliable but FPFMA does not make any representation or warranty that it is accurate, complete or up to date. FPFMA accepts no obligation to correct or update the information or opinions in it. Any persons relying on the above information does so at their own risk.

• FPFMA disclaims liability for all loss or damage whatsoever arising from any use of this material or its contents or otherwise arising in connection therewith, notwithstanding any error or omission including negligence.

• All data in this presentation is for periods ended or as at 31 October 2009 unless stated otherwise

• Copyright & Trademarks

• All content used in this presentation is protected by copyright laws and may only be used for your personal reference. You may not otherwise use, reproduce, publish, modify, distribute, link, frame, transmit in any form or by any means, electronic or mechanical, for any purpose, any of y=the material in this report, except with the written permission of FPFMA

• Trademarks used in this report are the property of FPFMA or associated companies and may not be used without the prior written consent of the owner of that trademark.

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Today’s agenda

• The year that was – where we have come from…?

• How the Fat Fund was positioned over the last 12 months

• What is the value proposition now?

• Strategy and Portfolio Positioning

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The last 12 months - industrials

% change 30 September 2008 – 30 September 2009

S&P/ASX indices	Capital	Income (reinv)	Total return
300 Industrial	2.43%	6.2%	8.63%
Small Industrial	-2.76%	5.67%	2.91%
300 A-REIT	-29.37%	6.3%	-23.02%
300 Pharmaceutical	-1.98%	2.54%	0.56%
300 Diversified Financial	7.84%	7.29%	15.13%
UBS Composite Bond			5.2%

Source: IRESS, Fat Prophets

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The last 12 months - resources

% change 30 September 2008 – 30 September 2009

S&P/ASX indices	Capital	Income	Total return
300 Resources	5.8%	2.8%	8.6%
Small Resources	16.14%	0.94%	17.08%
A$/US$ rate			11.4%
	A$ terms		US$ terms
NYMEX Crude	-22.39%		-13.53%
Nickel	-1.24%		10.03%
Copper	-14.2%		-4.41%
Gold	3.98%		15.85%

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Source: IRESS, Fat Prophets

Bond Yield minus All Ords earnings yield

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10.00%
8.00%
6.00%
4.00%
Average since 1974 = 1.35%
2.00%
0.00%
-2.00%
-4.00%
Current -1.75%
-6.00%
Chea est since 1980
p
-8.00%
-10.00%
30 Sept 09: trailing P/E 14x (EY 7.1%) with bonds @ 5.4% = -1.75%
Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
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Fear indicator – VIX or Volatility Index

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Long term average:
19.5%
100 March high 89.5%; current 21%
90
80
70
60
50
40
30
20
10
0
1/2/04 4/20/04 8/5/04 11/18/04 3/8/05 6/22/05 10/6/05 24/1/06 5/10/06 23/8/06 12/6/06 27/3/07 7/12/07 25/10/07 2/12/08 29/5/08 9/12/08 29/12/08 16/4/09 31/7/09
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Junk versus Treasuries Merrill Lynch Global High Yield index

Junk bonds yield 20% over Treasuries!! Junk bonds yield 20% over Treasuries!! Back to L/T averages

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So where were we?

• VERY overweight BANKS ! We got in early and cheap and participated in all equity raisings on the way…wanted to be buyers before bad debt cycle had peaked

• Our overweight positions in the four major banks (approx 9%), gave the fund approximately 250bps of out-performance

• The banking environment over last 12 months has seen vastly reduced competition - margins

• We maintained our positions in very cheap asset plays which were very out of favour. eg Oceania Capital

• We maintained full weight in resource majors with a particular bias toward Gold: Newcrest, Lihir, Kingsgate and Mundo

• Portfolio was re-weighted toward large capitalisation stocks as these are typically the first to recover after a downturn

• Strong focus on buyback whilst discount persists

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Where are we now?

• Interest rate cycle has turned –gradually upward from here - good news for banks (ability to re-price, margins) and insurers

• Value clearly harder to find now – strong AUD benefits retailers – PMV, JBH, PBG etc

• Consumer confidence is high – highest level since July 07 – WES recent trading update – strong!!

• Australia well positioned versus other developed markets – esp. US and Europe

• China will continue to propel resources – next 5 years

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Portfolio positioning….

• We are lifting our cash weighting – oversold to overbought??

• Lighten our bank exposure- take profits

• Maintain bias to large cap stocks (75% in Top 100) will continue search for value at the small end

• Markets likely to become more volatile – environment similar to 1970’s

• We continue to like Gold- systemic drop in USD – likely to increase weight in precious metals

• Sectors we favour at the moment are Energy and Healthcare

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Gold Price – USD terms

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SPT GLD.FX: C andle 1052.85, 1067.37, 1047.2, 1059.92
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1080
1040
1000
Wary of transmission shock if USD 960
920
keeps falling – Gold will remain well
supported 880
840
800
760
720
680
640
600
560
520
480
440
400
360
320
280
240
99 01 02 03 04 05 06 07 08 09
2000 2005
Source: Iress
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Telstra – relative valuation…

TLS/LARGE INDUSTRIALS EX FIN (MEDIAN) - Relative PER

Prospective GSJBW TLS PER (Pre G/will) v's Large Industrials ex Fin (Median) source: GSJBW Research Estimates

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Current PER
TLS (10e) 9.28
Large Industrials ex Fin (Median) (10e) 15.77
PER Relative(%): -41.2
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Prem/Disc (%)
85.0
65.0
45.0
+1 StDev : 34 . 8% $7.38
25.0
5.0 Ave REL PER :5.5% $5.77
$5.47
-15.0
-1 S t Dev : -23.8% $4.17
-35.0
$3.22
Prices: 03/11/09 23:30
-55.0
Nov 97 Aug 98 Jun 99 Mar 00 Jan 01 Oct 01 Aug 02 May 03 Mar 04 Dec 04 Oct 05 Jul 06 May 07 Mar 08 Dec 08 Oct 09
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Largest positions against benchmark (T100)

Overweight	% devn	Underweight	% devn
Westpac	+3.88	Woodside Pet.	-2.3% #
National Bank	+2.89	Telstra	-2.0%
QBE Insurance	+2.00	Macquarie Bank	-1.4%#
ANZ Banking	+1.25	Origin Energy	-1.3% #
Commonwealth Bank	+1.17	Santos	-1.3% #
Mirvac Group	+1.16	AMP	-1.3% #
CSL Group	+0.90	Fosters Group	-1.0% #
Dexus	+0.83	Brambles Inds	-1.0% #
Aust. Worldwide Expl.	+0.83	Suncorp	-1.0% #
Lihir Gold	+0.76	Westfield	-0.92%

Source: Fat Prophets Data as at 20 October 2009 # = nil holding

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Lar est overwei g ght positions outside T100

Overweight	% devn	Industry
Oceana Capital	+1.95	Investment Company
Beach Petroleum	+1.91	Oil and gas producer
Premier Investments	+1.59	Clothing Retailer
Magellan Financial	+1.39	Fund Manager
GPG	+1.30	Activist investor
Seven Network	+1.29	Media investor
APN News & Media	+1.16	Media
Kingsgate Gold	+1.07	Gold Miner
BT Investment Management	+1.05	Fund Manager
AIQ – Alterative Investment	+0.93	Fund of hedge funds
Mundo Minerals	+0.87	Gold Miner

Source: Fat Prophets

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Data as at 20 October 2009

QUESTIONS

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