ACTIVE EQUITY | STRATEGY HIGHLIGHTS

Australian Managed
Volatility Alpha
THE OTHER FORTY-FIVE PERCENT
The concentration of the Australian equity market is not a
sudden insight for most experienced investors, but it may
surprise some people to know how much contribution to risk
comes from banks and resources these days.
Firstly, lets touch on the banks. They are highly correlated,
so together they really represent one mega-bank: one exposure
amounts to about 30 percent of the S&P/ASX 300 Index. This
mega-bank is dependent on the Australian housing market and
unemployment remaining reasonable. If there are any doubts
about the local economy then you need to know that roughly
one third of the index is relying on it. How likely are the banks to
outperform the market for a third year in a row?
Next, lets think about the resources companies. Most of their
advancement and decline over the last 10 years has been
driven by expectations of Chinese demand for things we can dig
out of the ground. It is a fair expectation that the risk associated
with this segment will continue to be infuenced by surprises
to economic growth or policy response in China. Resources
contribute about a quarter of the risk of the S&P/ASX 300 index.
Where does that leave us? To summarise, approximately 30
percent of the Index could be impacted by a rollover in the
housing market and coupled with unemployment, 25 percent
from unexpected changes to Chinese growth and demand for
rocks. That leaves only around 45 percent of the Index exposed
to other thingsfor example, global developed market
growth, an ageing population and global regulatory changes for
healthcare reform, domestic staples, defensive segments and
technological advancement.
We think the banks and resources are likely to deliver below
market returns and/or higher risk to the market, so picking from
the other 45 percent is important for any Australian investment
portfolio in 2014. A diversifed and careful exposure to stocks
in these segmentssuch as healthcare and transport will
do better than concentrating the portfolio heavily in two narrow
themes, just as the market does. Our suggestion? Make sure
you build your portfolio with multiple sources of return, and a
greater contribution from the other 45 percent.
The SSgA Australian Managed Volatility Alpha Strategy (the
Strategy) prefers quality companies with growth potential,
strong cash fows, sustainable dividends at attractive valuations.
The benchmark index does not drive our portfolio construction.
MARCH 2014 MONTHLY UPDATE
by
Olivia Engel, CFA
Head of Active Quantitative
Equities, APAC
Figure 1: Contribution to Risk* S&P/ASX 300
Resources
25%
Others
44%
Banks
32%

Figure 2: Contribution to Risk* SSgA Australian Managed
Volatility Alpha Fund
*Contribution to total Industry Risk, Axioma Australian Medium Horizon Fundament Risk Model
Source: Axioma, Bloomberg, State Street Global Advisors, as of 31 December 2013
Resources
13%
Banks
4%
Others
83%
AUSTRALIAN MANAGED VOLATILITY ALPHA
2
The Strategy returned 0.07% (before fees) in March 2014.
The stock selection model showed good results within the
Consumer and Materials & Energy names. Companies that
were ranked well within our stock selection model such as G8
Education (+23.1%), DuluxGroup (+6.7%) and Kathmandu
(+20.5%) contributed positively. This was offset by the lower
representation in the major banks, which all performed strongly
during March. For the March quarter the Australian Managed
Volatility Alpha Strategy delivered a return of +2.5%, 0.5%
above the S&P/ASX 300 Index return of 2.0%.
Figure 3: SSgA Australian Managed Volatility Alpha (AMVA) Strategy
March 2014 Performance (gross)
1 Month (%) 3 Months (%) CYTD (%)
1 Year
(% p.a.)
3 Years
(% p.a.)
Since Inception
(% p.a.)
3 Years
Risk (%)^
3 Years
Sharpe Ratio
SSgA Australian Managed
Volatility Alpha*
0.07 2.51 2.51 11.95 14.51 12.07 8.00 1.35
Benchmark 0.21 1.99 1.99 12.97 8.17 7.31 12.21 0.36
Value Added** -0.14 0.52 0.52 -1.02 6.34 4.77 -4.21 0.98
Inception date is September 2009. Benchmark: S&P/ASX 300 Accumulation Index, S&P/ASX 200 All Australian Accumulation Index prior to February 2013
^ Standard deviation of monthly returns. *Performance shown is for the SSgA Australian Managed Volatility Alpha Trust. **The value added returns may show rounding differences.
Historic performance is not necessarily indicative of future performance, which could differ substantially. The performance fgures contained herein are provided on a gross of fees basis and do not
refect the deduction of advisory or other fees which could reduce the return. The performance includes the reinvestment of dividends and other corporate earning is calculated in Australian dollars.
The index returns are unmanaged and do not refect the deduction of any fees or expenses. The index returns refect all items of income, gain and loss and the reinvestment of dividends and other
income. Performance returns for periods of less than one year are not annualised.
Source: S&P and State Street Global Advisors
Figure 4: Broad Diversifcation Across Sectors and Valuation Measures
Current Positioning as at 31 March 2014
Industry Examples of Portfolio Holdings
Consumers Coca-Cola, SKY Network, Tassal Group, Tatts Group, Village Roadshow, Wesfarmers, Woolworth
Utilities & Infrastructure AGL Energy, DUET Group, Spark Infrastructure, SP Ausnet, Sydney Airport, Transurban
Industrials Aurizon, Programmed Maintenance, Toll Holdings
Health Care Ramsay, Resmed, Sonic Healthcare
Financials ANZ, Challenger, IAG, NAB, SunCorp
A-REITs BWP Trust, CFS Retail, Federation Centres, GPT, Westfeld Retail
Materials and Energy Amcor, BC Iron, BHP Billiton, Dulux Group, Rio Tinto, Woodside Petroleum
Source: State Street Global Advisors, Factset
3 2014 State Street Corporation. All Rights Reserved. ID1126-AUSMKT-1108 0414 Exp. Date: 30/04/2015
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AUSTRALIAN MANAGED VOLATILITY ALPHA