Transcript
1 CONSISTENT CONSERVATIVE CONTRARIAN
Current ChallengesIn
Structuring Domestic Portfolios
Unit Trust Inflows Q2
2012242bn
Money Market
Outflows Q2 2012
R8.8bn
Why?
12/31/1948
1/3/1952
1/3/1955
1/3/1958
1/3/1961
1/3/1964
1/3/1967
1/3/1970
1/3/1973
1/3/1976
1/3/1979
1/3/1982
1/3/1985
1/3/1988
1/3/1991
1/3/1994
1/3/1997
1/3/2000
1/3/2003
1/3/2006
1/3/2009
1/3/2012
4.00%
9.00%
14.00%
19.00%
24.00%
SA Prime
SA Prime
Please sir…Can I have some
more…?
Prudential Variable Equity
Prudential (Low Equity)
Prudential (Variable Equity)
Fixed Interest (Variable
Specialist)
Who were the
winners?
Why are the
Balanced Funds
Ruling?
Structural Reasons
Relative Reasons
DiversificationWinning TeamFlexibility
The Team
11 CONSISTENT CONSERVATIVE CONTRARIAN
Equity team
AdrianClayton
JanMouton
NeelsVan
Schaik
ShaunLe Roux
GregHopkins
HennoVermaak
PaulBosman
PhilippWörz
B.Soc Sc. (UCT), PDM (UCT), MBL
(UNISA)
B. Acc (Stell) (Cum Laude), CA
(SA),M. Phil
(Cambridge)
B.Com (Econ)
(Stell), CFA
B.Com (UCT), CA (SA), CFA
B.Com (UCT), CA (SA), CFA
B. Com (Hons)
(Stell),CFA, FFA
B.Com (Hons)
(Stell), CFA
B.Com (UNISA), B.Com (Hons) (Stell),
CFA
17 Years Investmen
t Experienc
e
10 Years Investme
nt Experienc
e
14 Years Investme
nt Experienc
e
15 Years Investmen
t Experienc
e
15 Years Investme
nt Experienc
e
4 Years Investme
nt Experienc
e
8 Years Investme
nt Experien
ce
5 Years Investme
nt Experienc
e
12 CONSISTENT CONSERVATIVE CONTRARIAN
Risk Fund Type Fund Name
High Equity PSG Equity Fund
High EquityPSG Global Equity Fund &PSG Global Equity Feeder Fund
Moderate to High Flexible PSG Flexible Fund
Moderate Prudential PSG Balanced Fund
Moderate to Low Stable* PSG Stable Fund*
Low Income* PSG Income Fund*
Negligible Money Market PSG Money Market Fund
PSG Asset Management: Core funds
* Launched 1 September 2011
13 CONSISTENT CONSERVATIVE CONTRARIAN
PSG Money Market
PSG Income
PSG Balanced
PSG Flexible
PSG Equity
Average Risk
Ret
urn
s
PSG Asset Management: Core funds
PSG Global Equity
PSG Stable
Philosophy
15 CONSISTENT CONSERVATIVE CONTRARIAN
Consistent
Conservative
Contrarian
PSG Asset Management: Philosophy
- Consistently applied investment process
- Companies with a margin of safety
- Out of favour assets
16 CONSISTENT CONSERVATIVE CONTRARIAN
PSG Balanced Fund: Managers
Adrian Clayton Neels van Schaik
17 CONSISTENT CONSERVATIVE CONTRARIAN
PSG Balanced Fund: 13 years, one manager
3 years 9 out of 58 Inception (June 1999) 3 out of 10
14.96%
11.04%
Portfolio Construction
Process
20 CONSISTENT CONSERVATIVE CONTRARIAN
Moat, Management & Margin of Safety
Local AND Global Companies
Proprietary screens, company results to find potential opportunities
Detailed analysis on potential opportunities in terms of our investment philosophy
Investment Committee determines domestic & offshore Buy List by means of majority vote
Fund managers can exercise own discretion, but use the Buy Lists as their main tool for portfolio construction. Fund managers take responsibility for their fund’s performance
PSGAM: Equity research process
Investment Universe
Idea Generation
FundamentalAnalysis
Buy List
Portfolio Construction
Philosophy
21 CONSISTENT CONSERVATIVE CONTRARIAN
MoatSome form of sustainable competitive advantage
Clear and understandable business model
Positive free cash flow, which is distributed to shareholders in the
form of dividends
ManagementManaged by individuals with proven track records
Honest and transparent financial reporting
Margin of safetyBuy shares in exceptional businesses at low valuations
PSGAM: Equity selection process
22 CONSISTENT CONSERVATIVE CONTRARIAN
Moat example: Sasol
Clear and understandable business model
Sasol owns technology used to convert coal and natural gas into liquids
OPPO
RTU
NIT
Y
23 CONSISTENT CONSERVATIVE CONTRARIAN
Moat example: Microsoft
Stable market shares with a
dominant leader = strong
historical moat
Market shares (Windows)
Some form of sustainable competitive advantage
High switching costs is like a hook into customer
24 CONSISTENT CONSERVATIVE CONTRARIAN
Management example: Berkshire
Long term value created for shareholders:• SP: +21% p.a.• NAV: +20% p.a.
$1,000 invested in 1965 is worth more than $8m today
Managed by individuals with proven track records
Margin of Safety
Value of Assets - net of debt Price0
10
20
30
40
50
60
70
80
90
100
The lower the price relative to the value of the assets/cash flow, the cheaper the business
Can you buy R1 of value for 60 cents?
26 CONSISTENT CONSERVATIVE CONTRARIAN
Margin of safety example: Berkshire
Buy shares in exceptional businesses at low valuations
100
150
200
250
300
350
400
450
500
550
600
Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
31 D
ec 9
6 =
100
Berkshire Hathaway Share Price Intrinsic Value Adj EPS
OP
PO
RT
UN
ITY
Underlying business is growing, but share price is flat
Current themes from our portfolios
28 CONSISTENT CONSERVATIVE CONTRARIAN
Core Themes from our Portfolios
OFFSHORE
DOMESTIC
MID-CAP DOMESTIC
INDUSTRIALS
LARGE-CAP INDUSTRIALS
LARGE-CAP DOMESTIC RESOURCES
29 CONSISTENT CONSERVATIVE CONTRARIAN
The battle of the brewers
VS
30 CONSISTENT CONSERVATIVE CONTRARIAN
Offshore: Margin of Safety i.e. Heineken
World’s best premium beer brand.
Big market position in fastest growing markets (Africa,
Latam, Asia).
Buy at 12.9 times earnings (SAB 25 times).
31 CONSISTENT CONSERVATIVE CONTRARIAN
Heineken versus SAB Miller
Jan-
04
May-0
4
Sep-
04
Dec-0
4
Apr-0
5
Aug-0
5
Dec-0
5
Mar-0
6
Jul-0
6
Nov-0
6
Feb-
07
Jun-
07
Oct-0
7
Jan-
08
May-0
8
Sep-
08
Dec-0
8
Apr-0
9
Aug-0
9
Nov-0
9
Mar-1
0
Jul-1
0
Oct-1
0
Feb-
11
Jun-
11
Sep-
11
Jan-
12
May-1
2 -
0.5
1.0
1.5
2.0
2.5
Heineken Pbook / SAB Miller Pbook
Sep-0
4
Jul-
05
May-0
6
Mar-
07
Jan-0
8
Nov-0
8
Sep-0
9
Jul-
10
May-1
1
Mar-
12
0.0
0.5
1.0
1.5
2.0
2.5
Heineken ROE / SAB Miller ROE
32 CONSISTENT CONSERVATIVE CONTRARIAN
JSE: A tale of two markets
May-
90
Apr-91
Mar-9
2
Feb-93
Jan-9
4
Dec-94
Nov-95
Oct
-96
Sep-97
Aug-98
Jul-9
9
Jun-0
0
May-
01
Apr-02
Mar-0
3
Feb-04
Jan-0
5
Dec-05
Nov-06
Oct
-07
Sep-08
Aug-09
Jul-1
0
Jun-1
1
May-
120.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
Mr Price / Sasol relative stock price Mr Price / Sasol relative earnings
Divergence between certain sectors driven by sentiment and not fundamentals
33 CONSISTENT CONSERVATIVE CONTRARIAN
Understanding the concept of risk?
Growth in Profits ( = Return on Shareholder Capital x % of Profits
reinvested)
Dividends
Rating change (Price/Earnings,
Price/Book)
Long term returns
++
+
=
34 CONSISTENT CONSERVATIVE CONTRARIAN
Understanding the concept of risk?
Mar-08 Mar-12
Dividend Yield 8% 2%
Return on Shareholder Capital 40% 47%
% of Profits reinvested 50% 30%
Long term growth rate 20% 14%
Rating (P/E = years of earnings) 7 28
Assumed sustainable rating 15 15
Potential rating gain/(loss) 114% -46%
Potential annual return (5yr Investment Horizon) 44.5% 4.8%
35 CONSISTENT CONSERVATIVE CONTRARIAN
Sasol: The risk is better priced
Jan-8
7
Jan-8
8
Jan-8
9
Jan-9
0
Jan-9
1
Jan-9
2
Jan-9
3
Jan-9
4
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2 64
640
6,400
Sasol Reported profits Sasol Average 5 yr ProfitsInvestors spend most of their time worrying about things that are
unpredictable
36 CONSISTENT CONSERVATIVE CONTRARIAN
Sasol: Rating opposite to Mr Price
May
-90
Apr-9
1
Mar
-92
Feb-
93
Jan-
94
Dec-9
4
Nov-9
5
Oct-9
6
Sep-
97
Aug-9
8
Jul-9
9
Jun-
00
May
-01
Apr-0
2
Mar
-03
Feb-
04
Jan-
05
Dec-0
5
Nov-0
6
Oct-0
7
Sep-
08
Aug-0
9
Jul-1
0
Jun-
11
May
-12
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Sasol Cyclically Adjusted P/E Mr Price Trailing P/E
37 CONSISTENT CONSERVATIVE CONTRARIAN
Jun-08 Jun-12 Dividend Yield 2% 5% Return on Shareholder Capital 23% 20% % of Profits reinvested 65% 65% Long term growth rate 15% 13% Rating (P/E = years of earnings) 26 11 Assumed sustainable rating 14 14 Potential rating gain/(loss) -46% 27% Potential annual return (5yrs) 5% 22%
Understanding the concept of risk?
38 CONSISTENT CONSERVATIVE CONTRARIAN
Sasol: A long-term value opportunity
May-
90
Mar-9
1
Jan-9
2
Nov-92
Sep-93
Jul-9
4
May-
95
Mar-9
6
Jan-9
7
Nov-97
Sep-98
Jul-9
9
May-
00
Mar-0
1
Jan-0
2
Nov-02
Sep-03
Jul-0
4
May-
05
Mar-0
6
Jan-0
7
Nov-07
Sep-08
Jul-0
9
May-
10
Mar-1
1
Jan-1
2-16
-14
-12
-10
-8
-6
-4
-2
0
2
Sasol Dividend Yield minus Mr Price Earnings Yield
39 CONSISTENT CONSERVATIVE CONTRARIAN
Platinum: Now on our radar screen
Jul-9
0
May-
91
Mar-9
2
Jan-9
3
Nov-93
Sep-94
Jul-9
5
May-
96
Mar-9
7
Jan-9
8
Nov-98
Sep-99
Jul-0
0
May-
01
Mar-0
2
Jan-0
3
Nov-03
Sep-04
Jul-0
5
May-
06
Mar-0
7
Jan-0
8
Nov-08
Sep-09
Jul-1
0
May-
11
Mar-1
20
10
20
30
40
50
60
Impala 7yr Cyclically adjusted P/E
40 CONSISTENT CONSERVATIVE CONTRARIAN
Capital flows clearly chasing yield
Mar-6
5
Dec-66
Sep-68
Jun-7
0
Mar-7
2
Dec-73
Sep-75
Jun-7
7
Mar-7
9
Dec-80
Sep-82
Jun-8
4
Mar-8
6
Dec-87
Sep-89
Jun-9
1
Mar-9
3
Dec-94
Sep-96
Jun-9
8
Mar-0
0
Dec-01
Sep-03
Jun-0
5
Mar-0
7
Dec-08
Sep-10
Jun-1
20
5
10
15
20
25
30
SA Industrial - Earnings Yield Prime Overdraft rate
Becalmed
42 CONSISTENT CONSERVATIVE CONTRARIAN
The yield-table has turned since 2009
Yield at Mar-09Total Return from
March 2009 Financial & Industrial Stocks 12.0% 151% Cash 9.5% 25% Property 9.0% 106% 10 yr Government Bonds 8.3% 45%
Current Yield
10 yr Government Bonds 7.0% Property 6.2% Financial & Industrial Stocks 5.7% Cash 5.0%
Stocks and Property had significant tailwinds from falling interest rates
This tailwind has largely disappeared
43 CONSISTENT CONSERVATIVE CONTRARIAN
Fixed Income
Take-Aways
1. In an ultra-low interest-rate environment, real returns need to be found somewhere
2. Investors are fleeing cash and need a home
3. Investors are focussing on return, and largely ignoring risk
4. Balanced Funds are currently the most desired
5. Balanced funds: offer diversification and flexibility
6. PSG Have a proven team and track-record of delivery
1. Portfolio construction is a process
2. We approach portfolio construction from a bottom-up basis, focussing on relative valuations
3. A margin of safety is currently paramount (risk over return)
4. If you are only choosing SA Co’s, you are restricting yourself to “the best of a bad bunch”
5. The tailwinds of 2009 are gone
6. Partner with an experienced balanced team
Pick PSG!
47 CONSISTENT CONSERVATIVE CONTRARIAN
What you can expect from PSG
Consistent application of our philosophy and process
Outstanding long-term performance
Forgoing short-term “performance” to achieve our long-term
objectives
Honest and transparent communication
Co-investing with our unit holders
Performance
49 CONSISTENT CONSERVATIVE CONTRARIAN
PSG Equity Fund: 10 years, one manager
15.08%
19.3% 3 years 23 out of 80 Inception (March 2002) 4 out of 34
50 CONSISTENT CONSERVATIVE CONTRARIAN
2004 2005 2006 2007 2008 2009 2010 201180
105
130
155
180
205
230
255
280
305
330
355
380
Inflation + 6% PSG Flexible Fund
PSG Flexible Fund: 8 years, one manager
17.34%
16.4%
3 years 5 out of 56 Inception (Nov 2004) 3 out of 20
51 CONSISTENT CONSERVATIVE CONTRARIAN
PSG Stable Fund: Brief introduction
Key features
Fund manager Paul Bosman
Benchmark Inflation + 3% over rolling 3-year period
Maximum equity exposure 40%
Maximum offshore exposure 25%
52 CONSISTENT CONSERVATIVE CONTRARIAN
PSG Balanced Fund: 13 years, one manager
3 years 9 out of 58 Inception (June 1999) 3 out of 10
14.96%
11.04%
Relatives
54 CONSISTENT CONSERVATIVE CONTRARIAN
PSG Balanced Fund: Relative Performance GLOBAL BALANCED MANDATE - BEST INVESTMENT VIEW (Reg. 28 Compliant) GROSS ANNUAL RETURNS FOR THREE YEARS ENDING 31 MARCH 2012
Rank MANAGER % Return (p.a.) Rank
% Std Dev (Risk)
PSG Asset Management Balanced 20.80 1 6.34 2 Coronation 20.36 2 8.12 8 Foord Asset Management 19.90 3 8.13 9 Investec Asset Management 19.74 4 8.41 10 Prudential Global Balanced 19.39 5 9.57 18 Stanlib AM 18.79 6 9.07 17 SIM Global Unique 18.63 7 8.88 16 Investment Solutions (Performer) 18.52 8 7.64 5 Investment Solutions (Spectrum) 18.36 9 7.96 7 OMIGSA Macro Strategy 17.62 10 8.87 15 OMIGSA (Profile Balanced) 17.38 11 8.53 13 Cadiz Global Balanced 17.27 12 8.52 12 SYmmETRY Paragon 17.27 13 7.82 6 Momentum Balanced 17.00 14 8.86 14 RE:CM 16.81 15 5.86 1 Oasis 16.30 16 7.56 4 Momentum AM Global Balanced 16.24 17 8.50 11 Allan Gray 15.58 18 6.83 3 Sources: Alexander Forbes Asset Consultants, PSG AM Research
55 CONSISTENT CONSERVATIVE CONTRARIAN
PSG Balanced Fund: Risk vs. Return
5 5.5 6 6.5 7 7.5 8 8.5 9 9.5 1015
16
17
18
19
20
21PSG Balanced Fund Coronation
Foord Investec Asset Management
Prudential Global Balanced
Stanlib AM
SIM Global Unique
Investment Solutions (Performer)
Investment Solutions (Spectrum) OMIGSA Macro
StrategyOMIGSA (Profile Balanced)
Cadiz Global Balanced
SYmmETRY Paragon
Momentum BalancedRE:CM
OasisMomentum AM Global
BalancedAllan Gray
Risk vs Return Scatterplot - Global BIV3 Years ended 31 March 2012
Risk (p.a.) (standard deviation)
Retu
rn (
p.a
.)
Partner with PSGPreserve & Grow
57 CONSISTENT CONSERVATIVE CONTRARIAN
Questions?
58 CONSISTENT CONSERVATIVE CONTRARIAN
Disclaimer
Collective Investment Schemes in Securities (Unit Trusts) are generally medium to long-term investments. The value of participatory interests (units) may go down as well as up and past performance is not a guide to future performance. Collective Investment Schemes are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from PSG Collective Investments Limited. Commissions and incentives may be paid and if so, are included in the overall costs. Forward pricing is used. PSG Collective Investments Limited is a member of the Association for Savings and Investment South Africa (ASISA).
The funds may from time to time invest in another fund managed by a related party, or in shares issued by entities within the same group of companies as PSG Collective Investments. A process is in place to ensure the same selection criteria is applied when selecting the underlying funds or shares.
The information contained in this presentation is of a general nature and is not intended to address the circumstances of any particular person. We do not purport to act in any way as an advisor and you should not act upon this information without appropriate professional advice. PSG Asset Management (Pty) Ltd is an authorised financial services provider.
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