Active Investment Managers A member of the FirstRand Group.

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Active Investment Managers A member of the FirstRand Group

Transcript of Active Investment Managers A member of the FirstRand Group.

Page 1: Active Investment Managers A member of the FirstRand Group.

Active Investment Managers

A member of the FirstRand Group

Page 2: Active Investment Managers A member of the FirstRand Group.

www.ashburton.comAshburton | A part of the FirstRand Group

Veronika Pechlaner, CFA

Investment Manager, Global equities

June 2012

Equity investing today - embracing global change

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Section One

Implications of global change

3Ashburton | A part of the FirstRand Group

Equity investing today – embracing global change

Section Two

Our investment approach

Section Three

Current views

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Global connectivity increases correlations

Source: Bofa Merrill Lynch Global Research

Correlation of weekly returns between major indexes

Note; Daily data from 26-May-95 to 22-May-12 for pairwise correlation between Inverted Dollar Index, S&P GS Commodity Index, MSCI World equity index, BofA Merrill Lynch US High Yield Master II Index

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“BRICs” remain the world’s growth engine

Source: Ashburton survey of broker forecasts

Consensus estimates for regional GDP growth (%)

x3

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Developed government bonds not risk free

Source: Barclays Capital

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Government debt levels as % of GDP in developed economies

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Low yield for low risk the “new normal”?

Source: Bloomberg

1 2 3 Nominal 10yr government yields for major developed countries (%)

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Nominal equity yields close to relative highs

Source: Bloomberg

1 2 3Equity dividend yield premia over 10yr government bonds (%)

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Are long-term inflation expectations too low?

Source: Bloomberg

1 2 3Longer term US inflation expectations (Breakeven inflation rates)

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Source: Factset, Ashburton

Commodity price curves not linear

P

Q

Chinese urban population increasingly consumes

Emerging demand still to rise 1 2 3

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Source: CEIC, CRR, CSLA Research

Asian low-cost workbench to disappear

Chinese labour force aging Yoy wage inflation to continue

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Higher inflation a politically acceptable route

Source: ECB, Eurostat, Berenberg projections

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Note: Actual and Announced as per 22. May 2012

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Preservation of capital or purchasing power?

August 13, 1979: Business Week proclaims “The Death of Equities”

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Source: Merrill Lynch

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Look for inflation protected yields in equities

Source: Bloomberg

+30%

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Section Two

Our investment approach

Section One Section Three

Current views

Implications of global change

Equity investing today – embracing global change

Ashburton | A part of the FirstRand Group 15

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Global equity offering

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Actively managed, benchmark unconstrained

Diversified across regions incl. emerging exposure

Philosophy: identify companies well-positioned in attractive industries that benefit from global structural change

Process: consistent theme-led investment process with relative value based stock selection. “Thematic” GARP (growth at reasonable price) underpinned by quality (sustainably growing dividends).

Portfolio construction: combination of (i) medium-term thematic exposure; (ii) global relative investment opportunities

Relative return approach: aim to outperform MSCI World equity benchmark on 3-year rolling basis

Tracking error: 5-10%

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Global equity philosophy

Benefit from structural change globally through diversified portfolio of equities in developed & emerging markets

Top-down roadmap driven by global macro- and fundamental industry trends

Bottom-up stock selection aims to exploit mispricing of value and growth opportunities in attractive industries

Approach allows for relative investment opportunities taking into account positioning in the industry, management quality and relative valuation

Acknowledge importance of sustainably growing dividends as component of total return over time

“Even the best management will find it difficult

to perform if the macro-environment or industry

is presenting disproportionate headwinds to its business.”

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Top down thematic views

GARP based bottom up analysis

Global equity investment process

Asset Allocation team & External industry experts

Management contact & External research input

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Source: Ashburton

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Global equity strategic roadmap

Recovering West

Evolving Themes

Integrated

E&P

Oil services

Clean & Green

Energy DeleveragingInnovationEmerging growth

Technology

Bio sciences

Consumer & Lifestyle

Commodities

Infrastructure & Real estate

Financial services

Stable Demand

Deleveraging consumer

Fundamental industry trends

Macro induced

Source: Ashburton

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In-house analytical tools to assess relative value

Qualitative profiling: Global industry positioning, management quality

Screening model: Ranks large universe of equities in each global sector according to a number of fundamental criteria

Quality (Profitability/capital efficiency/cash conversion/balance sheet) Growth (EPS growth) Value (P/B and earnings yield) Analyst earnings revisions (EPS change, Up/down revisions)

Cash return (CROCI) framework: In-depth stock analysis complemented by dividend yield and balance sheet considerations

Current valuation upside implied by forward excess cash returns Sustainable improvement of excess cash returns over time

Technical indicators to refine final investment decisions

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Portfolio construction

Source: Ashburton

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Medium-term themeApple (Technological innovation)

Source: Factset

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Examples

Rationale: May 2011

Global leadership with strong mobile product offering with iPhone and iPad

Global rollout plans into China and product launches of iPhone 4S and ipad 3 expected for next 12 months

Risks associated with Steve Job’s health assumed to be widely discounted

Potential for earnings upside paired with reasonable valuation, strong balance sheet and potential for introduction of dividend

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Medium-term themeDuerr (Emerging market automation exposure)

Source: Factset

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Examples

Rationale: Nov 2011

German listed industrial midcap with global business mix

Globally leading supplier of high-tech car paint coating cabines

Exposure to emerging markets and positioned to benefit from increased need for automation given labour inflation

Following growth scare in summer of 2011 stock traded on 7x forward P/E despite outlook for stronger than expected order growth outlook

Strong management backed by family owners

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Relative investment opportunity: ABI vs. global peers (US exposure at European multiples)

Source: Factset

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Examples

Rationale: May 2011

Globally leading brewer with strong brands (Budweiser, Bud Light, Stella Artois, Beck’s), listed in Europe

Market leadership in US and Brazil with c. 70% of business from these two regions (vs. 11% exposure to Western Europe)

Leadership position allows for superior pricing power

Global leader status allows for consolidation opportunities and growing dividend potential

Relative valuation vs. staples in other regions attractive

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Section Three

Current views

Section One Section Two

Our investment approach

Implications of global change

Equity investing today – embracing global change

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Global equity strategy views

Valuations support positive view on global equities medium-term, notwithstanding short-term volatility

Earnings-momentum crucial from here

Risks have not changed, but focus and timeline evolving European debt crisis Chinese growth US fiscal deficit Oil price shock

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Expected returns favour equities & credit

*Assumes equity Earnings Yield is a reasonable representation of expected real return on equity; G4=weighted average of US, Japan, EU, UK; Cash and bond composites averaged by nominal GDP; Corporate yields deflated by 5yr market implied inflation rates (BarCap indices)

**EM govt local = GDP weighted average of real yields on 2020-2023 inflation-linked bonds in Brazil, Mexico, Korea, SA, Turkey, Poland, Thailand, Colombia.The EM US$ aggregate includes the same set of countries ex-Thailand.

Source: Bloomberg, Barclays Capital, MSCI, Ashburton

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Valuations in some regions getting attractive

Historic range = 20-year to June 1, 2012Note: Diamond indicates current value relative to High/Low and Interquartile rangeSource: Factset, Ashburton

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Earnings-momentum crucial from here

Source: Factset, Bloomberg, Ashburton

Consensus EPS growth (LHS) and implied forward PE/Growth ratio (RHS)

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Chinese tightening cycle over for now

Source: Bloomberg

China relative performance indexed vs. interest rates (%)

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Source: MSCI, Ashburton

We favour Emerging over Western exposure

Global equity positioning: Regions

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Macro outlook to remain in focus

Recovering West

Evolving Themes

Integrated

E&P

Oil services

Clean & Green

Energy DeleveragingInnovationEmerging growth

Technology

Bio sciences

Consumer & Lifestyle

Commodities

Infrastructure & Real estate

Financial services

Stable Demand

Deleveraging consumer

Relative value analysis • Oil price• Vehicle miles• Nuclear (Japan)• Shale gas• Rig count • Day rates

• Loan growth• China property• Macau/HK retail• Swiss watch

exports• Shipping data

• Tablet demand• Semiconductor

cycle

• Credit market• Austerity programs• US unemployment & housing• US manufacturing “renaissance”

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Source: Ashburton

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Appendix

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Portfolio risk management tools

Market risk: Active management of cash levels and ability to use futures to reduce equity exposure to below 80% of the portfolio (in extraordinary circumstances)

Active risk to benchmark: Tracking error of 5-10% for relative equity mandates reflecting top-down thematic approach

Drawdown risk: Close monitoring of (relative) stop loss situations (15% absolute loss and/or relative underperformance vs. benchmark)

Liquidity risk: Minimum liquidity requirement with positions not to exceed a third of their average daily trading volumes

Monthly fund review meetings: Review by MD and CIO of risk adjusted performance, active positioning, drawdown situations & liquidity risk

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DISCLAIMER – OFFSHORE ISLANDS

Ashburton (Jersey) Limited and Ashburton Fund Managers Limited are referred to in this context as ‘Ashburton’. This document does not constitute an offer or solicitation to any person in any jurisdiction in which Ashburton is not authorised or permitted to communicate with potential investors, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this document, and should be satisfied in doing so that there is no breach of local legislation or regulation. The information is intended solely for use by Ashburton clients or prospective clients, and should not be reproduced or distributed except via original recipients acting as professional intermediaries. This document is not for distribution in the United States.

Prospective investors should inform themselves and if need be take appropriate advice regarding applicable legal, taxation and exchange control regulations in countries of their citizenship, residence or domicile which may be relevant to the acquisition, holding, transfer, redemption or disposal of any investments herein solicited.

Any opinions expressed herein are those at the date this material is issued. Data, models and other statistics are sourced from our own records, unless otherwise stated herein. Ashburton believes that the information contained is from reliable sources, but we do not guarantee the relevance, accuracy or completeness thereof. Unless otherwise provided under Jersey law, Ashburton does not accept liability for irrelevant, inaccurate or incomplete information contained, or for the correctness of opinions expressed.

We caution that the value of investments and the income derived, may fluctuate and it is possible that an investor may incur losses, including a loss of the principal invested. Past performance is not generally indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.

Ashburton (Jersey) Limited (Company Registration No. 26087) and Ashburton Fund Managers Limited (Company Registration No. 48200) are regulated by the Jersey Financial Services Commission and have their registered offices at 17 Hilary Street, St

Helier, Jersey JE4 8SJ.