PSG Asset management
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Transcript of PSG Asset management
June 2016
Page 2
“Is this in the best long term interests of our investors?”
Our Primary Role: Stewardship
Our framework for answering this question:
Think and act long term
Be prudent in deploying our clients’ assets
Have an obsessive focus on research
Page 3
Simple, comprehensive suite of products
3
PSG Money Market
PSG Diversified Income
PSG Balanced
PSG Flexible
PSG EquityPSG SA Equity
Average Risk
Retu
rns
PSG Global Equity
PSG Stable PSG Global Flexible
PSG Income
Page 4
Our team
Page 5
PSG Asset Management: Consistent long-term returns
Source : Morningstar, PSG Asset Management, January 2016* - PSG Equity : JSE All Share, PSG Flexible: CPI + 6%, PSG Balanced: CPI + 5%, PSG Stable: CPI + 3%, PSG Diversified Income: CPI+1%.
PSG Equity A PSG Flexible PSG Balanced A PSG Stable PSG Diversified Income 5.00
7.00
9.00
11.00
13.00
15.00
17.00
19.00
Since Inception returns
FundPeersBenchmark*
Annu
alise
d Re
turn
Page 6
Equity Team: Awards
2004: S&P – Sector award : Flexible sector (3 years)2004: S&P – Sector award: Growth sector (1 year)2005: Raging bull – Sector award: General Equity (3 years)2006: S&P – Sector award: General Equity (3 years)2010: Raging bull – Sector award : Flexible (3 years)2010: Raging bull – Best domestic AA Flexible fund (5 years)2011: Raging bull – Sector award: General Equity (3 years)2011: Raging bull – Best broad-based domestic Equity fund (3 years)2011: Raging bull – Best domestic AA Flexible fund (5 years)2014: Raging bull – Best domestic Multi-Asset High Equity fund (5 years)2016: Morningstar – 3rd place best fund house: larger fund range category
Page 7
Equity process
Page 8
Moat
ManagementMargin of Safety
QUALITY
PRICE
Our Equity Philosophy A simple checklist to help us identify mispriced securities
We look for high quality companies which are not overvalued
Page 9
Fund mangers can exercise own discretion, but use the Buy List as their main tool for portfolio construction. Fund managers take responsibility for their fund’s performance.
PSG Asset Management: Equity process
FUNDS
BUYLISTS
FUNDAMENTAL ANALYSIS
IDEA GENERATION
INVESTMENT UNIVERSE
PHILOSOPHY Moat, Management & Margin of Safety
Local & 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 lists by means of majority vote.
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0%
20%
40%
60%
80%
100%
120%
EquitySA Equity
Flexible
Balanced
Stable
Diversified Income
Global Equity
Global Flexible
Equi
ty E
xpos
ure
99%
92%
99%
99%
99%
99%
98%
93%
Process complianceOur funds have a significant overlap with our Buy Lists
PSG AM Internal, 31/12/2015Bubble Size = number of equity holdings
Conviction level Suggested weightBuy High 6% - 10%Buy Medium 3%-6%Buy Low 0%-3%
Overlap with Buy List
Fund Equity Holding Overlap with PSGAM Buy Lists
Page 11
Equity process applied
Page 12
The market cycleValue investing : buying with a margin of safety
Source : PSGAM, Bloomberg (12.5.2015).
Greed
Fear
Intrinsic value
Page 13
Our process revisitedPast high conviction opportunities
18.57%
15.22%
Page 14
Asset allocation
Page 15
Our universe of opportunities
2015 2016High quality/blue chip SA equities are expensive
Government bonds expensive
Property expensive
Offshore equities still a good opportunity
Growing opportunity in cyclical equities
Cash is under-appreciated
A review of what we said last year and our current thinking
Page 16
Asset allocation processBased on thorough bottom-up research
Thorough bottom-up research
Fixed Income Investment CommitteeEquity Investment Committee Credit Investment Committee
Funds
Fund managers consider all opportunities on a risk-return basis
Buy lists calibrated for level of conviction
Page 17
2015 in review
• Our asset allocation has been spot on:- Maximum offshore- Very high levels of cash
• We were early into cyclical equities.• A short term drawdown in part of the portfolio does not constitute a permanent
capital loss.• We have been employing cash across the asset curve as opportunities arose in recent
months
Page 18
Example: Allocating assets
Source: PSG Asset Management Research
Objective : Buying low and selling high
Nov-04 Jul-05 Mar-06 Nov-06 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10 Nov-10 Jul-11 Mar-12 Nov-12 Jul-13 Mar-14 Nov-14 Jul-150%
20%
40%
60%
80%
100%
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
% Cash PE - Fund PE - ALSI
Asse
t allo
catio
n %
PE R
atio
Page 19
Examples of recent opportunities
Page 20
2012 2013 2013 2014 2014 2015 2015 7.50
8.50
9.50
10.50
11.50
12.50
13.50
14.50 Price Earnings ratio: Basket of cyclical stocks
Opportunities in equities: Cyclical sharesThese companies are now trading at exceptionally attractive valuations
Source: PSG Asset Management Research; Bloomberg
10 year average
Page 21
2011 2012 2013 2014 2015 17.00
19.00
21.00
23.00
25.00
27.00
Where one should be careful: Selected blue chipsP:E of a basket of blue chips: Well beyond their 10-year average
Source: PSG Asset Management Research
10 year average
22
Copyright © PSG
Property looking more attractive
Jun 05 Mar 06 Dec 06 Sep 07 Jun 08 Mar 09 Dec 09 Sep 10 Jun 11 Mar 12 Dec 12 Sep 13 Jun 14 Mar 15 Dec 15-40%
-20%
0%
20%
40%
60%
Prem/disc to NAV
Growthpoint trading at a discount to its NAV for the first time in years
Page 23
0 1 2 3 4 54.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
1Yr NCD[Y VALUE]
3Yr NCD[Y VALUE]
5Yr NCD[Y VALUE]
5.45%5.93%
6.56%
NCD Yields: Apr-2013 2016 Expected Core inflation : 5.4% NCD Yields: Dec-2015Years to Maturity
Yiel
d to
Mat
urity
An opportunity in cashSouth African Fixed rate NCDs
Page 24
Nominal Bonds are looking more attractiveRSA Nominal bonds
Source: PSG Asset Management
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.03%
4%
5%
6%
7%
8%
9%
10%
11%
R2079.3%
R1869.8%
R20910.2%
R2075.5%
R1866.4%
R2097.3%
Bond Yields: Apr-2013 2016 Expected Core inflation : 5.4% Bond Yields: Dec-2015
Years to Maturity
Yiel
d to
Mat
urity
Page 25
Our Funds
Performance
30/Apr/2016 1 Month 3 Months 6 Months 1 Year 2 Year 3 Year 5 Year 10 Year Inception
Fund Fund Size Return Rank
Coun
t Return
Rank
Count
Return Rank
Coun
t Return
Rank
Count
Return Rank
Coun
t Return
Rank
Count
Return Rank Count Return
Rank
Count
Date Return Rank
Coun
t
Core Funds
PSG Equity A R 2 163 277 363 3.70 18 159 18.80 11 156 4.14 22 151 -4.44 111 143 5.20 77 126 16.04 12 110 15.16 15 84 11.94 21 53 01-Mar-02 19.13 2 36
PSG Equity A BM (JSE All Share TR) - 1.70 8.89 -0.18 0.21 7.24 14.37 13.44 12.83 01-Mar-02 15.28
PSG SA Equity D R 40 292 319 4.55 8 160 21.84 3 157 2.87 26 152 -8.37 134 144 3.28 94 127 - - - - - - - - - 01-Nov-13 7.51 68 117
PSG SA Equity D BM (SWIX TR) - 1.25 9.74 1.28 -0.35 9.78 - - - 01-Nov-13 11.37
PSG Flexible R 7 615 315 059 1.63 13 70 12.57 4 68 6.60 5 68 5.24 10 67 10.31 14 59 17.07 6 53 15.25 11 47 15.18 3 30 01-Nov-04 17.58 2 13
PSG Flexible BM (CPI+6%) - 1.32 2.97 4.47 12.28 11.18 11.48 11.67 12.16 01-Nov-04 11.92
PSG Balanced A R 5 172 291 174 0.79 61 173 9.19 9 163 3.73 19 154 2.81 73 143 8.84 39 114 13.69 13 97 13.48 22 75 11.04 13 41 01-Jun-99 14.92 3 10
PSG Balanced A BM (CPI+5%) - 1.13 4.04 5.92 11.26 10.16 10.46 10.65 11.34 01-Jun-99 10.65
PSG Stable A R 2 544 335 177 0.91 19 139 5.12 8 135 4.03 6 128 5.95 31 122 7.92 50 98 9.22 41 90 - - - - - - 13-Sep-11 10.57 40 78
PSG Stable BM (CPI+3%) - 0.98 3.59 4.97 9.26 8.16 8.46 8.65 - 13-Sep-11 8.68
PSG Diversified Income R 974 356 979 0.46 64 79 2.10 54 79 3.70 20 78 7.40 22 71 7.35 20 64 7.46 8 54 7.62 12 40 7.86 9 22 11-Apr-06 7.84 9 22
PSG Diversified Income BM (CPI+1%) - 0.83 3.14 4.01 7.26 6.15 6.45 6.65 7.33 11-Apr-06 7.36
PSG Income E R 92 673 338 0.72 11 32 2.12 8 32 3.76 7 32 7.41 9 32 7.18 3 30 - - - - - - - - - 03-Sep-13 6.98 2 29
PSG Income E BM (STeFI Composite) - 0.57 1.70 3.36 6.67 6.43 - - - 03-Sep-13 6.17
PSG Money Market A R 5 716 089 637 0.57 21 27 1.70 22 27 3.38 20 27 6.68 18 27 6.45 10 26 6.01 11 25 5.72 14 24 7.26 7 17 01-Nov-98 8.62 3 6
PSG Money Market A BM (ASISA SA IB MM) - 0.59 1.75 3.41 6.68 6.38 6.01 5.75 7.27 01-Nov-98 8.61
PSG Money Market B R 5 716 089 637 0.61 6 28 1.80 6 28 3.58 3 28 7.10 1 28 6.86 1 27 6.41 1 26 6.10 1 25 - - - 03-Jan-11 6.09 1 25
PSG Money Market A BM (ASISA SA IB MM) - 0.59 1.75 3.41 6.68 6.38 6.01 5.75 7.27 01-Nov-98 8.61
PSG Global Equity USD $ 11 162 656 3.33 32 687 16.63 13 683 1.29 77 666 -12.41 570 627 -6.08 471 536 1.40 360 473 0.62 285 381 - - - 23-Jul-10 3.02 321 351
PSG Global Equity BM (MSCI World Free NR) - 1.58 7.67 -1.05 -4.16 1.45 6.27 5.96 - 23-Jul-10 9.46
PSG Global Equity FF A R 104 621 673 -0.43 7 44 5.51 2 43 3.42 9 40 4.06 34 38 8.46 29 31 16.98 23 26 - - - - - - 05-May-11 15.30 20 21
PSG Global Equity FF BM (MSCI World Free NR) - -2.06 -3.97 1.63 13.63 17.72 23.74 - - 04-May-11 23.63
PSG Global Flexible USD A $ 109 446 692 3.32 12 136 16.24 5 134 2.86 12 127 -8.32 79 114 -3.61 70 94 2.19 18 80 - - - - - - 02-Jan-13 2.92 22 77
PSG Global Flexible A USD Acc BM (USCPI+6%) - 0.90 2.12 3.03 6.84 6.39 6.76 - - 02-Jan-13 7.04
PSG Global Flexible FF A R 557 388 407 -0.52 2 24 4.36 2 24 4.79 5 22 8.80 16 18 11.63 13 16 18.31 6 15 - - - - - - 10-Apr-13 18.43 8 15
PSG Global Flexible FF A BM (USCPI+6%) - -2.72 -8.92 5.83 26.68 23.44 24.31 - - 10-Apr-13 24.48
Data Source: MorningStar Direct 1st Quartile
Peer Group Ranking for Offshore in USD 2nd Quartile
3rd Quartile
4th Quartile
Light Blue - Monitored Closely
Dark Blue - Appropriate measurement period
Page 27
PSG Equity FundSector Allocation - Bias for mispriced quality, very attractively priced
COMPANY % PSG EQUITY
IMPERIAL HOLDINGS 7.50%GLENCORE PLC 7.43%
FIRSTRAND LIMITED 5.80%OLD MUTUAL PLC 5.46%
DISCOVERY HLDS LTD 4.96%GRINDROD LIMITED 3.92%
HUDACO INDUSTRIES 3.49%SOFTBANK CORP 3.41%
REUNERT LIMITED 3.18%CAPITAL ONE FIN CORP 3.17%
In 2016 we have reduced our exposure to global equities in favour of SA financials
There is little long-term risk in holding companies which offer: • Strong competitive positions• Proven aligned management • A margin of safety
10 Largest Equity Holdings
Page 28
PSG Flexible FundSector Allocation
COMPANY % PSG EQUITY
BERKSHIRE HATHAWAY 7.59%
SAINSBURY J PLC 5.00%
FIRSTRAND LIMITED 4.22%
IMPERIAL HOLDINGS 4.07%
CAPITEC BANK HOLDINGS LTD 3.17%
OLD MUTUAL PLC 2.92%
GLENCORE PLC 2.91%
DISCOVERY HLDS LTD 2.59%
SUPER GROUP LIMITED 2.53%
GRINDROD LIMITED 2.37%
10 Largest Equity Holdings
% PSG EQUITY
Cash, Bond, Derivative & Money Market 30.51%
Non Equity Holdings
Page 29
PSG Balanced FundSector Allocation
There is little long-term risk in holding companies which offer: • Strong competitive positions• Proven aligned management • A margin of safety
COMPANY % PSG BALANCED
FIRSTRAND LIMITED 3.76%
IMPERIAL HOLDINGS 3.56%
OLD MUTUAL PLC 3.35%
SUPER GROUP LIMITED 3.03%
REUNERT LIMITED 2.76%
DISCOVERY HLDS LTD 2.69%
CAPITEC BANK HOLDINGS LTD 2.23%
GLENCORE PLC 1.78%
NEDBANK GROUP LTD 1.57%
GROUP FIVE LIMITED 1.50%
10 Largest Equity Holdings
% PSG BALANCED
Bonds: + 7yrs 6.81%Bonds: 3-7yrs 6.96%Bonds: 1-3yrs 3.63%
Cash Instruments: 3-7yrs 6.09%Cash Instruments: 1-3yrs 2.67%
Cash, Bond, Derivative & Money Market <1yrs 10.49%
Non Equity Holdings
Page 30
PSG Stable FundSector Allocation
COMPANY % PSG BALANCED
BERKSHIRE HATHAWAY INC-CL B 2.40%
BROOKFIELD ASSET MANAGE-CL A 1.84%
FIRSTRAND LIMITED 1.77%
IMPERIAL HOLDINGS 1.73%
OLD MUTUAL PLC 1.61%
SAINSBURY J PLC 1.54%
COLFAX CORP 1.48%
SUPER GROUP LIMITED 1.47%
DISCOVERY HLDS LTD 1.39%
MICROSOFT CORP 1.37%
10 Largest Equity Holdings
% PSG BALANCED
Bonds: + 7yrs 8.35%Bonds: 3-7yrs 7.21%Bonds: 1-3yrs 4.43%
Cash Instruments: 3-7yrs 12.98%Cash Instruments: 1-3yrs 18.53%
Cash, Bond, Derivative & Money Market <1yrs 13.15%
Non Equity Holdings
Page 31
Comments on Portfolio Positioning
• Bottom up stock selection• Bias for quality• Quality equities have been in very high demand and prices are high• Distressed pricing in cyclical businesses, even good businesses• We tend to be early• We expect very good long term returns from our equity portfolios
Page 32
Conclusion
Page 33
Conclusion
The context of the market backdrop is important:
• A long bull market in global equities• Majority of shares are sharply down from their recent highs.• Elevated valuations remain for quality defensives. We think they are overpriced.• Cyclical businesses have got very cheap.• We have been buyers of out-of-favour stocks that are mispriced:
• Mining & construction: Glencore, Anglo, Group 5.• Cyclical SA inc businesses: Imperial, Reunert, Super Group.• Financials: US and SA banks, Old Mutual, Discovery.
• We continue to see good opportunity within the global universe: Microsoft, Softbank.• We do not expect rand weakness to support returns to the same extent going forward. • We will be buyers of quality on the JSE when the margin of safety returns.• Our portfolios are extremely attractively priced: in both relative and absolute terms.
Page 35
Disclaimer
Disclaimer: Collective Investment Schemes in Securities (CIS) are generally medium to long-term investments. The value of participatory interests (units) or the investment may go down as well as up and past performance is not a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and script lending. Fluctuations or movements in the exchange rates may cause the value of underlying international investments to go up or down. Where foreign securities are included in a portfolio, the portfolio is exposed to risks such as potential constraints on liquidity and the repatriation of funds; macroeconomic, political, foreign exchange, tax, settlement and potential limitations on the availability of market information. The portfolios may be capped at any time in order for them to be managed in accordance with their mandate. Fees and Performance: Prices are published daily and available on the website www.psg.co.za and in the daily newspapers. A schedule of fees and charges and maximum commissions is available on request from PSG Collective Investments Limited. Commission and incentives may be paid and, if so, are included in the overall costs. Forward pricing is used. Different classes of Participatory Interest can apply to these portfolios and are subject to different fees, charges and possibly dividend withholding tax and will thus have differing performances. Performance is calculated for the portfolio and individual investor performance may differ as a result thereof. All performance data for a lump sum, net of fees, include income and assumes reinvestment of income on a NAV-NAV basis. Source of performance: Figures quoted are from Morningstar Inc. Additional information: Additional information is available free of charge on the website and may include publications, brochures, application forms and annual reports. Company details: PSG Collective Investments Limited is registered as a CIS Manager with the Financial Services Board, and a member of the Association of Savings and Investments South Africa (ASISA) through its holdings company PSG Konsult Limited. The management of the portfolios is delegated to PSG Asset Management (Pty) Ltd, an authorized Financial Services Provider under the Financial Advisory and Intermediary Services Act 2002, FSP no 29524. PSG Asset Management (Pty) Ltd and PSG Collective Investments Limited are subsidiaries of PSG Group Limited. Money Market: The PSG Money Market Fund maintains a constant price and targeted at a constant value. The quoted yield is calculated by annualizing the average 7 day yield. A money market portfolio is not a bank deposit account. Excessive withdrawals from the portfolio may place the portfolio under liquidity pressures and in such circumstances a process of ring-fencing of withdrawal instructions and managed payouts over time may be followed. The total return to the investor is made up of interest received and any gain or loss made on any particular instrument. In most cases the return will merely have the effect of increasing or decreasing the daily yield but in the case of abnormal losses it can have the effect of reducing the capital value of the portfolio. Trustee: The Standard Bank of South Africa Limited, Main Tower, Standard Bank Centre, 2 Hertzog Boulevard, Cape Town, 8001. Tel: 021 401 2443. Email: [email protected]. Conflict of Interest Disclosure: The Fund may from time to time invest in a portfolio managed by a related party. PSG Collective Investments Limited or the Fund Manager may negotiate a discount in fees charged by the underlying portfolio. All discounts negotiated are re-invested in the Fund for the benefit of the investor. Neither PSG Collective Investments Limited nor PSG Asset Management retains any portion of such discount for their own accounts. The Fund Manager may use the brokerage services of a related party, PSG Securities Ltd. PSG Collective Investments Limited does not provide any guarantee either with respect to the capital or the return of the portfolio and can be contacted on 0800 600 168 or e-mail, [email protected]