1 Nedgroup Investments Global Flexible Fund Allan Gray Workshop Robin Johnson, Head of Investments
1
Nedgroup Investments Global Flexible Fund
Allan Gray Workshop
Robin Johnson, Head of Investments
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Nedgroup Investments Global Flexible Fund
Objective:
• To provide an equity-like return over the long-term with less risk than the market while avoiding permanent
impairment of capital.
Key characteristics:
• Fully flexible, globally diversified portfolio
• Deep research (top down and bottom up) to minimize risk
• Emphasis on capital preservation
Benchmark:
• 60 % MSCI World + 30% JP Morgan Global Bond + 10% US Cash
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Nedgroup Investments Global Flexible
• Modelled on FPA Contrarian Value Strategy1
• Seek to identify absolute value opportunities across the asset classes, capital structure and geographies
• Equity
• Preference shares and convertible securities
• Credit: Corporate, high yield and distressed debt
• Treasuries
• Cash
• Targeted short selling of index futures to reduce risk
1FPA Crescent Fund is the flagship fund for the strategy. Some differences exist due to operating in different regulatory regimes:
no individual shorts, mortgages or illiquid securities
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The FPA and Nedgroup Investments Partnership
• Exclusive access to FPA’s Contrarian Value Strategy
• The Nedgroup Investments fund modelled on the FPA Crescent Fund, the flagship US-
domiciled mutual fund
• Nedgroup Investments provides two FSB approved access points:
• Nedgroup Investments Global Flexible Fund (USD, GBP: domiciled in Ireland)
• Nedgroup Investments Global Flexible Feeder Fund (ZAR: domiciled in South
Africa)
• Appointment effective 17 June 2013
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Why Nedgroup Investments appointed FPA
Independent firm, wholly owned by partners and employees
Core skill managing global flexible mandates
Demonstrated ability to invest across the capital structure
Stable and experienced team with long track record
Culture of stewardship (previously closed to new business)
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About FPA
• Based in Los Angeles, United States
• Founded in 1954 and independently owned
• Staff complement of 86 including 31 investment professionals
• Operate three core strategies with a total AUM of $29bn (as at 31 December 2016)
$1
$21
$2
$6
$-
$5
$10
$15
$20
$25
$30
$35
Assets under management ($billion)
Absolute fixed income
Small and mid cap equity
Contrarian 'Global Flexible'
Other
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Contrarian Value investment team
Steven Romick
Portfolio Manager
Research Analyst
(1993)
Mark Landecker
Portfolio Manager
Research Analyst
(2009)
Brian A. Selmo
Portfolio Manager
Director of Research
(2008)
Gregory Crouch
Research Analyst
(2012)
Andrew August
Research Analyst
(2012)
Anh-Tuan Bui
Research Analyst
(2015)
Sean Korduner
Research Analyst
(2013)
Chris Lozano
Research Analyst
(2011)
Byron Sun
Research Analyst
(2015)
Kyle Allen-Niesen
Research Analyst
(2016)
Alex Wong
Research Analyst
(2016)
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FPA Investment Philosophy
• Absolute value investors
Seek genuine bargains rather than relatively attractive securities
• Alignment of interests
We invest our money alongside yours, and act as stewards of shared capital
• Broad mandate
Invest across the capital structure, asset classes, market caps, industries, and geographies. Willing to hold cash.
• Long-term focus
Willing to accept short-term underperformance in exchange for long-term success
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FPA Investment Philosophy (contd)
• Deep research
Independent, bottom-up, fundamental research
Incorporate an understanding (sometimes limited) of the economic environment
• Volatility
If research is performed correctly, volatility creates opportunity not risk
• Downside protection
Aim to protect capital first and create long-term equity-like returns second
Cannot eliminate risk but conduct ourselves by hoping for the best but preparing for the worst
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FPA Investment Process
Source Ideas
Quality Business Universe
Value Oriented Publications
Professional Network
Screens
Sector Out of Favor
Quick Analysis
Qualitative Description
Valuation
Risk/Reward
Full Analysis
Fundamental, Bottom Up
Business
Management
Industry & Macro
Considerations
Valuation
Risk/Reward
Review & Decision
Portfolio Construction
Equity
Compounders
3:1s
Special Situations
Debt
Distressed
High Yield
Cash
Residual of Investment
Process
Portfolio management
2-4% typical size
Continuous monitoring of
fundamentals
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Independently assessed by Morningstar®
Patience sets FPA apart.
(Morningstar analyst rating as at 31 May 2016)
(Morningstar rating as at 31 Dec 2016)
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Long term track record
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Demonstrated FlexibilityCrescent Fund Asset Allocation ranges, 1998-2016
Source: FPA, updated annually (31 Dec 2016)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Net Equity Hybrid Equity Credit Bonds
Gov. Bonds and Cash Net 'risk assets' Ave. 'risk' assets
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FPA Crescent: Asset allocation ranges
Source: FPA, updated quarterly (31 December 2016)
*Cash and cash equivalents includes short-dated treasuries
0%
10%
20%
30%
40%
50%
60%
70%
80%
Equity (long) Preference shares Credit bonds Cash and cash equivalents*
Range Current 12-months ago
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$100
$200
$300
$400
$500
$600
$700
$800
$900
$1 000
$1 100
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Gro
wth
of $
10
0
FPA Crescent Fund USD Global Flexible Benchmark MSCI World
Long-term track record: FPA CrescentSince inception*
Global Flexible Benchmark: 60% MSCI World, 30% JP Morgan Global Bond and 10% US$ Cash
Source: Morningstar, Nedgroup Investments. Updated quarterly (31 December 2016)
* June 1993
$1 016
$466
$428
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Long-term track recordSince inception*
Historical dataFPA Crescent, net
($)Benchmark*
Category
AverageMSCI World $
Annualised compound return 10.4% 6.4% 6.4% 6.8%
Cumulative return 916% 327% 329% 366%
Standard deviation 10.1% 9.8% 9.5% 14.8%
Sharpe ratio 0.8 0.5 0.5 0.3
Maximum drawdown -28.8% -36.9% -37.9% -54.0%
*Global Flexible Benchmark: 60% MSCI World, 30% JP Morgan Global Bond and 10% US$ Cash
Source: Morningstar. Data to 31 December 2016
* June 1993
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Five year rolling returnSince inception*
Global Flexible Benchmark: 60% MSCI World, 30% JP Morgan Global Bond and 10% US$ Cash
Source: Morningstar. Updated quarterly (31 December 2016)
* June 1993
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Five-year rolling returns vs MSCISince inception*
Source: Morningstar, Nedgroup Investments. The chart illustrates the monthly five-year rolling average returns for the
account from July 1, 1993 (the first full month of performance since inception) through December 31, 2016 compared to the
MSCI World Index. There were 223 five-year rolling average monthly periods between July 1, 1993 and December 31, 2016 .
Past performance is no guarantee of future results.
d: Jun 1993 - Jan 2015
* June 1993
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
-20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
FP
A C
res
ce
nt
MSCI World
Hit rate 67%Outperformance
Underperformance
Down Market
5yr average return below 0%
Normal Market
5yr average return 0-10%
Robust Market
5yr average return above 10%
FPA Crescent 8.7% 8.8% 12.3%
MSCI World -2.0% 4.2% 14.2%
FPA outperforms 100% of periods 92.9% of periods 16.3% of periods
(58 of 58) (79 of 85) (13 of 80)
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Drawdown analysisSince inception*
Global Flexible Benchmark: 60% MSCI World, 30% JP Morgan Global Bond and 10% US$ Cash
Source: Morningstar, Nedgroup Investments. Updated quarterly (31 December 2016)
* June 1993
-60%
-50%
-40%
-30%
-20%
-10%
0%
1993 1996 1999 2002 2005 2008 2011 2014
FPA Crescent Fund USD Global Flexible Benchmark US OE Allocation--50% to 70% Equity MSCI World
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Current Positioning
2121
Nedgroup Global Flexible Fund31 December 2016
Source: Nedgroup Investments
Cash 40.7%
Convertible bonds 0.2%
Asian Equity 1.8%UK Equity 6.0%
US Equity 43.5%
Corporate Bonds 3.5%
Emerging Markets Equity 2.0%European Equity 2.3%
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Equity revenue composition
As at 31 December 2016
Region Domicile Revenue
North America 74.7% 41.8%
South America 0.0% 1.5%
Central/Eastern Europe 7.2% 1.2%
Western/Northern Europe 14.9% 11.5%
Asia Pacific 3.2% 12.3%
Middle East/Africa 0.0% 4.9%
Uncategorised Non-US - 16.3%
Uncategorised Americas - 10.5%
2323
Top 10 holdingsNedgroup Investments Global Flexible Fund
31 December 2015
Oracle Corp 4.2%
Microsoft Corp 3.6%
Aon Corp 3.4%
United Technologies Corp 2.8%
Citigroup Inc 2.8%
American International Group 2.7%
TE Connectivity Ltd 2.3%
Alcoa Inc 2.3%
Cisco Systems Inc 2.2%
Alphabet Inc 1.9%
Total 28.1%
31 December 2016
Oracle Corp 3.6%
United Technologies Corp 3.2%
American International Group 3.2%
Citigroup Inc 3.0%
CIT Group Inc 2.9%
Aon Corp 2.7%
Bank of America Corp 2.7%
Leucadia National Corp 2.4%
Microsoft Corp 2.3%
Cisco Systems Inc 2.1%
Total 27.8%
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Thank you
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Nedgroup Investments Global Flexible Fund Aug 2013 – Dec 2016
Global Flexible Benchmark: 60% MSCI World, 30% JP Morgan Global Bond and 10% US$ Cash
Source: Morningstar, Nedgroup Investments. Net USD returns for the Global Flexible C Class
$121
$114
$124
$90
$100
$110
$120
$130
Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16
Gro
wth
of $
10
0
Nedgroup Global Flexible C Global Flexible Benchmark MSCI World
2626
Nedgroup Investments Global Flexible Fund
Periods to 31 Dec 2016Nedgroup Global
Flexible1 MSCI WorldGlobal Flexible
benchmark2
1 year 8.6% 7.5% 5.0%
2 years 3.3% 3.2% 1.4%
3 years 4.2% 3.8% 2.0%
1 Source: Morningstar. Net USD returns for the Global Flexible C Class.2 60% MSCI World, 30% JPM Global Bond, 10% US Cash. Source: Morningstar, Nedgroup Investments.
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Global Flexible Fund: 2016 winners and losers
Source: FPA. Based on weighted contribution to the Account’s yearly performance as of December 31, 2016.
Percentage of portfolio as of December 31, 2016. Contribution is presented gross of investment management fees,
transactions costs, and Account operating expenses, which if included, would reduce the returns presented.
WinnersPerformance
Contribution % of Portfolio Losers
Performance
Contribution% of Portfolio
Bank of America Corp. 1.04% 2.68% Arconic Inc. -0.22% 1.64%
Aon Plc 0.72% 2.69% LPL Financial Holdings -0.17% 0.85%
Leucadia National Corp. 0.70% 2.38% Legg Mason Inc -0.14% 0.64%
Consol Energy Bonds (various
issues)0.70% 1.31% Interpublic Group Inc. -0.06% 0.00%
CIT Group Inc. 0.69% 2.88% Joy Global Inc. -0.05% 0.00%
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Disclaimer
Nedgroup Investments Funds PLC (the Fund) is authorised and regulated in Ireland by the Central Bank of Ireland. The Fund is authorised as a UCITS pursuant to the
European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (S.I. No. 352 of 2011) as amended from time-to-time.
This document is not intended for distribution to any person or entity who is a citizen or resident of any country or other jurisdiction where such distribution, publication or use
would be contrary to law or regulation.
Nedgroup Investment (IOM) Limited (reg no 57917C), the Investment Manager and Distributor of the Fund, is licensed by the Isle of Man Financial Services Authority.
The Fund and certain of its sub-funds are recognised in accordance with Section 264 of the Financial Services and Markets Act 2000. UK investors should read the Appendix
for UK Investors in conjunction with the Fund's Prospectus which are available from the Manager. www.nedgroupinvestments.com.
The Fund has been recognised under paragraph 1 of schedule 4 of the Collective Investment Schemes Act 2008 of the Isle of Man. Isle of Man investors are not protected by
statutory compensation arrangements in respect of the Fund.
Unit trusts are generally medium to long term investments. The value of your investment may go down as well as up. Past performance is not necessarily a guide to future
performance. Nedgroup Investments does not guarantee the performance of your investment and even if forecasts about the expected future performance are included you
will carry the investment and market risk, which includes the possibility of losing capital. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending.
Certain unit trust funds may be subject to currency fluctuations due to its international exposure. Nedgroup Investments has the right to close unit trust funds to new investors
in order to manage it more efficiently. A schedule of fees and charges and maximum commissions is available on request from Nedgroup Investments.
The annualised total return is the average return earned by an investment each year over a given time period. The figures contained in this analysis are for illustrative
purposes only and do not provide any guarantee of future returns. Nedgroup Investments shall not be liable for any loss, damage or expense, of any nature whatsoever,
which may be suffered as a result of, or attributable to, the use or reliance upon the analysis provided in this document. Performance is calculated for each fund by taking the
actual initial fees and all on-going fees into account for the amount shown, and income is reinvested on the reinvestment date. Individual investment performance may differ
as a result of initial fees, the actual investment date, the date of reinvestment and dividend withholding tax.
Please note that Nedgroup Collective Investments (RF) Proprietary Limited is not authorised to and does not provide financial advice. This presentation is of a general nature
and intended for information purposes only. It is not intended to address the circumstances of any investor and cannot be relied on as legal, tax or financial advice, either
express or implied. Whilst we have taken all reasonable steps to ensure that the information in this document is accurate and current on an ongoing basis, Nedgroup
Investments shall accept no responsibility or liability for any inaccuracies, errors or omissions relating to the information and topics covered in this presentation.