maintaining a balance of exposures is essential · enduring competitive advantages create...

Investec Cautious Managed Fund

Maintaining a balance of

exposures is essentialSumesh Chetty

January 2017

2 Confidential | Investec Asset Management

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Investec core fund solutions

Note: [ ] indicates maximum in equities. Offshore funds available as feeder funds

Global Strategic Managed

(USD / GBP / ZAR)

[75%]

Global Franchise

(USD / GBP / ZAR)

[100%]

Global Multi-Asset Income

(USD / ZAR)

[50%]

Lo

ca

lIn

tern

ati

on

al

Diversified

Income

Opportunity

[75%]Cautious

Managed

[40%]

Value

[100%] Equity

[100%]

Expected Risk (Volatility)

GrowthIncome

Exp

ecte

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Worldwide

Flexible

[100%]


-500%

0%

500%

1,000%

1,500%

2,000%

2,500%

1990 1995 2000 2005 2010 2015

What do we mean by Quality?

Enduring competitive advantages create resilience through market cycles

Source: Bloomberg, returns with dividends reinvested, as at 31 December 2015.

This is not a recommendation to buy, sell or hold a particular security. The companies listed are for illustrative purposes only and may or may not be held by the Investec Global Franchise Fund. No representation is

being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. Past performance is no guide to the future.

Franchise stocks have compounded shareholder wealth

at superior rates of return over the long term

Franchise stock attributes

● Hard-to-replicate competitive

advantages

● Dominant market positions

● Stable growing industries

● Low sensitivity to the economic

and market cycle

● Financially strong

● Capital light

● Highly cash generative

● Disciplined capital allocation

Total return vs. MSCI ACWI

Return p.a Return (cum.)

Nestlé 13.7% 2,365%

Colgate 13.6% 2,321%

Reckitt Benckiser 12.9% 1,998%

J&J 12.7% 1,898%

Unilever 11.1% 1,301%

MSCI ACWI 7.3% 477%


70

80

90

100

110

120

130

140

150

De

c-0

6

Feb

-07

Apr-

07

Jun-0

7

Aug-0

7

Oct-

07

De

c-0

7

Feb

-08

Apr-

08

Jun-0

8

Aug-0

8

Oct-

08

De

c-0

8

Fe

b-0

9

Apr-

09

Jun-0

9

Aug-0

9

Oct-

09

De

c-0

9

Value Quality Price Momentum Earnings Revisions

Extreme market conditions give a sense of

how different styles behave

Source: Citi Research, Investec Asset Management, Period = Jan 2007 to Dec 2009; Long-short style portfolios

● Earnings Revisions lag

Price Momentum in bull

markets, but do not

experience the same

drawdown following

inflection points

● Quality does well at

corrections, while Value

does well following

inflection points

2008 crash, 2009 recovery market inflection points

Bull Correction Recovery


Investec Opportunity Fund

Past performance should not be taken as a guide to the future, losses may be made. Data is not audited.

Source: Morningstar as at 31 December 2016. Returns are calculated on a NAV to NAV basis, net of fees, with gross income reinvested. Market indices are gross of fees

Highest and lowest returns achieved during 12 month rolling periods since inception: 31.07.05: 43.8% and 28.02.09: -15.7%

Outperformed the average of the MA High Equity sector 88% over 15 years

Reduced uncertainty in an uncertain world

Rolling 3 year returns over 15 years

0

10

20

30

40

50

Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16

Investec Opportunity A (ASISA) South African MA High Equity FTSE/JSE All Share TR ZAR


Investec Global Franchise Fund


Source: Morningstar as at 31 December 2016. Returns are calculated on a NAV to NAV basis, net of fees, with gross income reinvested, in USD. Market indices are gross of fees

Highest and lowest returns achieved during 12 month rolling periods since inception: 28.02.10: 54.4% and 28.02.09: -38.7%

Outperformed the MSCI ACWI 79% since inception

Reduced uncertainty in an uncertain world

Rolling 3 year returns – Since inception (April 2007)

-20

-10

0

10

20

30

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

Investec GSF Global Franchise A Acc EAA Fund Global Large-Cap Blend Equity MSCI ACWI NR USD



Outcome orientated approach focused on Quality investing

● Our Absolute Return philosophy:

‒ Preserving capital is paramount

‒ Outcome: stable real returns above inflation

‒ Meaningful participation in up markets; Smaller draw-downs in down markets; Lower

than average volatility

● Strong 20 year track record

‒ Globally integrated and highly experienced team

● Multi-asset strategy:

‒ All investments start with one goal: to earn a return in excess of inflation (or cash)

commensurate with risk taken

‒ Unique Fixed Income focus

‒ Emphasis on Quality stocks


Unique focus on the fixed income exposure

● We evaluate bonds relative to cash

● Inflation hedge versus cash:

‒ Inflation-linked bonds as an immediate hedge against inflation rather than cash

● Currency hedge

● To dampen overall portfolio volatility

● Not focused on benchmark-relative returns:

‒ Contribution to portfolio is more important than index outperformance

‒ Duration is an outcome


SA Bonds offer an attractive return relative to

cash in a deteriorating economic environment

Source: I-Net Bridge and Bloomberg to 16 January 2017

SA 10 Year Bond Minus Cash

-6.0

-4.0

-2.0

2.0

4.0

6.0

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17


Valuation-bias

Quality-centric

Risk-cognisant

Investec Absolute Strategies

A proven bottom-up investment process




Source: Morningstar as at 31 December 2016. Returns are calculated on a NAV to NAV basis, net of fees, with gross income reinvested. Market indices are gross of fees

*Inception date: 31 March 2006. Highest and lowest returns achieved during 12 month rolling periods since inception: 28.02.10: 23.8% and 28.02.09: -6.8%

To achieve inflation-beating returns

Rolling 36 month returns since inception*

0

5

10

15

20

25

30

Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16

Investec Cautious Managed A FTSE/JSE All Share TR ZAR CPI Lagged + 4%


After a golden decade for returns,

expectations will need to adjust

Source: Morningstar, JSE, Bloomberg, Investec Asset Management

Annualised returns: 10 years to 31 December 2016 Returns: 1 year to 31 December 2016

SA inflation

-5%

0%

5%

10%

15%

20%

SA

Lis

ted

Pro

pe

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MS

CI

Wo

rld N

R

AL

SI

AL

BI

Ca

sh

SA

MA

Hig

h E

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ity

SA

MA

Lo

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ity

-5%

0%

5%

10%

15%

20%

SA

Lis

ted

Pro

pe

rty

MS

CI

Wo

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AL

SI

AL

BI

Ca

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SA

MA

Hig

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SA

MA

Lo

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ity


2016 in review

A year of two halves

Source: Investec Asset Management, gross of fees as at 31 December 2016

● One of the most extreme in terms of volatility and style/sector rotation (Defensive

to Value/Cyclical)

● Maintaining a balance of exposures assisted the portfolio

Cautious

Managed Return

Average

weight

Contribution

to return

SA Equities 10.2% 10.3% 1.05%

Property -44.7% 2.3% -1.50%

Commodities -4.3% 1.8% -0.03%

SA Bonds 10.9% 31.8% 3.40%

SA Cash* 9.8% 25.1% 2.45%

Offshore -12.4% 23.4% -2.89%

Total 2.9%

Opportunity Return

Average

weight

Contribution

to return

SA Equities 8.1% 30.4% 2.5%

SA Property -8.7% 2.5% -0.2%

Commodities -5.9% 4.9% -0.25%

SA Bonds 13.9% 16.7% 2.1%

SA Cash 7.5% 20.1% 1.5%

Offshore -12.5% 25.6% -3.21%

Total 2.4%


The global macro environment remains

challenging

Global growth under pressure

Monetary policy

Market volatilityDebt/deleveraging

Political uncertainty


Local growth remains anaemic

Source: Bloomberg

IMF growth forecast slashed to 0.8% for 2017

High unemployment rate (%)SA GDP (annual growth rate %)

27.1

22

23

24

25

26

27

28

De

c-1

3

Feb

-14

Apr-

14

Jun-1

4

Aug-1

4

Oct-

14

De

c-1

4

Feb

-15

Apr-

15

Jun-1

5

Aug-1

5

Oct-

15

De

c-1

5

Feb

-16

Apr-

16

Jun-1

6

Aug-1

6-4

-2

0

2

4

6

8

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16


We are maintaining a balance of exposures

Source: Investec Asset Management. Investec Cautious Managed Fund currency exposure: ZAR: 79.2%; Non-ZAR: 20.8%, Investec Opportunity Fund currency exposure: ZAR: 76.3% Non-ZAR: 23.7%

Asset allocation as at 31 December 2016

30.5%

26.7%

3.1%

15.0%

15.7%

2.7%1.7%

0.5%0.03%

4.1%SA Equities

Offshore Equities

Inflation Linked Bonds

Nominal Bonds

FRN

SA Cash

SA Property

Offshore Property

Offshore Cash

Offshore Bonds

Commodities

11.8%

20.4%

8.5%

18.3%

6.7%

28.9%

2.1%

0.9% 0.8% 0.02%

1.6%

● Maximum offshore -

global quality

companies with high

barriers to entry, pricing

power and earnings

growth

● Low SA equity

exposure due to

valuation risks – but there

are opportunities

● SA Bonds still offer

value - given the lower

SA inflation outlook

● SA Cash – sweating our

assets

● Rand - neither a head or

tail wind at these levels

Investec Cautious Managed Fund Investec Opportunity Fund


Name Weight FCF Yield ROIC

Johnson & Johnson (Sudafed, Listerine, Calpol, Clean & Clear) 6.2% 5.0% 17.6%

Microsoft (Windows 10, Office365, Skype, Bing, Xbox One, Surface) 5.5% 5.1% 15.6%

Visa (Visa) 5.1% 3.2% 15.4%

Nestlé (Gerber, Nescafé, Maggi, Nespresso, Purina) 5.1% 3.9% 14.2%

Roche Holding (Rituxan, Avastin, Herceptin) 4.6% 7.2% 27.3%

Reckitt Benckiser (Nurofen, Finish, Vanish, Dettol, Strepsils) 4.4% 4.1% 25.6%

Moody's (Moody's Investors Service, Moody's Analytics) 4.0% 5.6% 35.8%

Philip Morris International (Marlboro, L&M, Benson & Hedges) 3.7% 4.8% 64.4%

Verisign (.com, .net) 3.5% 8.3% 282.7%

Japan Tobacco (Camel, Winston, Mild Seven, B&H) 3.5% 1.5% 15.6%

45.6% 4.9% 51.4%

Offshore equities are our preferred asset class

Investec Global Franchise Fund

This is not a buy, sell or hold recommendation for any particular security. The portfolio may change significantly over a short period of time.

Source: FactSet, 31 December 2016. Financial metrics are based on blended forward and trailing financial data according to individual constituent company fiscal year ends.

An attractive mix of Value and Growth

A concentrated portfolio

Update: Monthly GSF GF

Top 10 holdings

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Top 10 holdings (% of fund)

Source: Investec Asset Management as at 31 December 2016

SA equity %

British American Tobacco 1.7%

Santam 1.4%

Sasol 1.2%

Steinhoff 1.0%

Capevin 0.9%

Assore 0.9%

Richemont 0.9%

Sappi 0.8%

JSE 0.6%

Standard Bank 0.6%

Total 10.0%

Total holdings %

RSA Bonds Jan-30 8% 6.0%

RSA Bonds Feb-31 7% 4.5%

RSA Bonds Dec-26 10.5% 2.2%

Growthpoint FRN May-21 2.0%

British American Tobacco 1.7%

Newgold Issuer 1.6%

FirstRand Bank FRN Mar-25 1.6%

Santam 1.4%

Capital and Counties 1.3%

Sasol 1.2%

Total 23.5%


A balance of exposures is required

In an uncertain world a combination of styles is essential in

a client portfolio

● Balance of exposures is required to protect against the multitude of risk events

● We hold select resources, where balance sheets are robust

● Local bonds are offering attractive real returns

● Equity indices, locally and globally, still pose risk

● The best security is in quality companies with high barriers to entry and pricing

power

Thank you

www.investecassetmanagement.com


Disclaimer

All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport

to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a

particular situation. We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or

completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information

subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only.

Collective investment schemes (CIS) are traded at ruling prices and can engage in borrowing, up to 10% of portfolio net asset value to bridge insufficient liquidity, and scrip lending. A

schedule of charges, fees and advisor fees is available on request from the Manager, Investec Fund Managers SA (RF) (Pty) Ltd which is registered under the CIS Control Act . Additional

advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. CISs are generally medium to long term investments and the manager gives no guarantee

with respect to the capital or the return of the Fund. Performance shown is that of the Fund and individual investor performance may differ as a result of initial fees, actual investment date,

date of any subsequent reinvestment and any dividend withholding tax and past performance is not necessarily a guide to the future. Different classes of units apply to the fund. This

portfolio may be closed in order to be managed in accordance with the mandate. Fluctuations or movements in exchange rates may cause the value of underlying international investments

to go up or down. Additional information on the Fund may be obtained, free of charge, at www.investecassetmanagement.com. The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860

500 100. Investec Asset Management (Pty) Ltd ("Investec") is a member of the Association for Savings and Investment SA (ASISA). The scheme trustee is FirstRand Bank Limited, PO

Box 7713, Johannesburg, 2000, Tel: (011) 282 1808.

Investec Global Franchise fund is a sub –fund in the Investec Global Strategy fund,49 avenue J.F Kennedy, L-1885 Luxembourg, Grand Duchy of Luxembourg and is approved under the

CIS control act

In the event that specific collective investment schemes in securities (unit trust) are mentioned please refer to the relevant minimum disclosure document (MDD) in order to obtain all the

necessary information in regard to that unit trust portfolio.

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maintaining a balance of exposures is essential · enduring competitive advantages create...

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