stanib balance fund_q3_2010
TRANSCRIPT
STANLIB Balanced Funds
“Balanced Investing in volatile markets”
November 2010
Agenda
● Balanced Investing in volatile markets
● Portfolio Activity
● Stock Focus
● ArcelorMittal Investment Case
● Portfolio Performance
● Investment Environment & Outlook into 2011
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Balanced Investing in volatile markets
Balanced funds offer risk diversification during periods of market volatility● A global balanced portfolio solution provides investors with exposure to a number of asset
classes, domestic and foreign, that are positively and negatively correlated. This diversification of assets provides investors with the comfort that their exposure to risk is contained without unduly compromising return
● The key to a successful global balanced solution is to combine asset allocation expertise at the portfolio construction level along with stock selection skills at the individual asset class sub-level
● The STANLIB Balanced Franchise is responsible for asset allocation decisions. However, the underlying asset classes within each balanced portfolio are managed by specialists in their field
● Asset allocation views have both a strategic and a tactical component. The strategic component is long-term and is based largely on macro-economic forecasts and how the different asset classes will perform under various conditions
● The tactical component is shorter-term and is based on the realisation that asset prices may dislocate from their fundamentals, allowing opportunities to be exploited
● Once the asset allocation views have been formulated, the underlying asset classes are then managed by the relevant specialist. This collective outcome captures the all the extensive expertise available at STANLIB
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Balanced mandates provide diversification without unduly compromising return
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
SA Cash 21%
SA Equity 31%
SA Bonds 28%
SA Equity 55%
SA Equity 23%
SA Bonds 30%
Global Equity 46%
SA Bonds 29%
Global Equity 51%
SA Equity 61%
SA Listed Prop 28%
Global Bonds 61%
SA Listed Prop 20%
SA Listed Prop 41%
SA Listed Prop 41%
SA Listed Prop 50%
SA Equity 41%
SA Listed Prop 27%
Global Bonds 45%
SA Equity 32%
SA Bonds 16%
Global Equity 27%
Global Bonds 18%
Balanced 46%
Balanced 13%
Global Equity 25%
Global Bonds 35%
Global Equity 22%
Global Bonds 37%
SA Listed Prop 56%
Global Bonds 27%
Global Equity 32%
SA Bonds 16%
SA Bonds 18%
SA Equity 25%
SA Equity 47%
Global Equity 33%
SA Equity 19%
SA Bonds 17%
Balanced 17%
Global Bonds 12%
Balanced 26%
SA Cash 16%
Global Equity 36%
SA Cash 11%
Global Bonds 23%
SA Cash 16%
SA Listed Prop 21%
SA Cash 18%
Balanced 47%
SA Bonds 19%
SA Equity 29%
SA Cash 12%
SA Equity 16%
Balanced 18%
Balanced 33%
Balanced 30%
Balanced 13%
SA Cash 12%
SA Listed Prop 14%
Balanced 0%
Global Bonds 24%
Balanced 7%
SA Bonds 32%
Global Equity 11%
Balanced 16%
Balanced 14%
SA Cash 17%
SA Bonds
5%
Global Equity 31%
SA Cash 11%
Balanced 28%
Balanced -6%
Balanced 14%
SA Bonds 15%
Global Equity 23%
SA Listed Prop 28%
SA Cash 9%
SA Listed Prop -4%
SA Cash 9%
SA Equity -5%
SA Cash 19%
Global Equity
6%
Global Bonds 24%
Global Bonds
5%
SA Cash 15%
SA Equity 10%
Global Bonds
8%
SA Listed
Prop 4%
SA Bonds 29%
Global Equity
7%
SA Bonds 18%
SA Equity -9%
SA Cash 12%
SA Cash 8%
SA Bonds 11%
Global Bonds 18%
Global Bonds
7%
Balanced -7%
Global Equity
2%
SA Listed Prop -11%
SA Bonds 14%
SA Equity -
2%
SA Listed Prop 18%
SA Bonds -9%
SA Listed Prop 13%
SA Bonds 7%
Balanced 7%
Balanced 2%
SA Cash 16%
Balanced 7%
SA Cash 10%
Global Bonds -17%
Global Equity
3%
Global Equity
-2%
SA Cash 7%
SA Cash 7%
Global Equity
7%
Global Equity -18%
SA Bonds -1%
Global Equity -17%
SA Listed Prop 2%
SA Listed Prop -3%
SA Cash 13%
SA Listed Prop -10%
SA Equity 8%
SA Listed Prop -10%
SA Equity -4%
SA Equity -
10%
Global Bonds
-1%
SA Equity 0%
SA Listed Prop 8%
Global Equity -43%
Global Bonds -13%
Global Bonds
-7%
Global Bonds
7%
SA Bonds 5%
SA Bonds 4%
SA Equity -
23%
Global Bonds -16%
Various asset classes used to reduce the impact of market volatility
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Current Exposure
Domestic listed equity
Domestic listed property
Domestic bonds - government and corporate (credit)
Domestic cash
Global listed equity
Global listed property
Global bonds - government and corporate (credit)
Global cash
Derivatives
Asset allocation meeting: Decisions informed by in-house specialists
Economics
RESI
Fixed Income(Global)
PropertyEquities (Global)
INDI FINI
Balanced Team asset allocation outcome applied across all
mandates
Balanced Team asset allocation review
and decisions
SA Equity Sector Review
7Quarterly Meetings
Strategic Mandates
Best Investment
View Mandates
Global Best Investment View Mandate:maximum & minimum asset allocations over last 3 years
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Asset Class Max Min
SA Equities 69 54.2
SA Listed Property 5.4 1.9
SA Bonds 18.4 2.4
SA Cash 15 2.2
Global Equity 15.9 0.9
Global Bonds 7.1 0.0
Global Cash 8.9 0.0
Current asset allocation (%)
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Asset Class
Fund Weight
Current
BM Weight
SA Equities 58.9 60
SA Property 3.6 0
SA Bonds 6.1 25
SA Cash 16.7 0
Global Equity 14.4 9
Global Bonds 0 6
The Balanced Fund The Balanced Cautious Fund
Total Equity Exposure is 39.6%
Total Equity Exposure is 73.4%
Asset Class
Fund Weight
Current
BM Weight
SA Equities 29.4 25
SA Property 4.9 5
SA Bonds 10.4 15
SA Cash 41.9 45
Global Equity 10.2 4
Global Bonds 3.9 6
Portfolio Activity
Market performance as at 30 September 2010 (%):
Local (Rand) 3 Month 1 Year 3 Year
Equities: SWIX 14.3 21.8 4.2
Listed Property: SAPY 13.7 30.8 10.9
Bonds: ALBI 8.0 15.3 10.1
Cash: STEFI Comp Index 1.7 7.2 9.6
Global (US Dollar)
Equity: MSCI World Index 13.8 6.8 -8.3
Bonds: Barclays Global Aggregate Index 7.3 6.1 7.4
11
Portfolio activity: global assetsSwitched bonds into equities as bond yields dropped
12
Asset Class %30
June30 Sep
Global Equity 70.9 100.0
Global Bonds 29.1 0.0
Global Cash
0.0 0.0
Jan
-60
May-6
1S
ep
-62
Jan
-64
May-6
5S
ep
-66
Jan
-68
May-6
9S
ep
-70
Jan
-72
May-7
3S
ep
-74
Jan
-76
May-7
7S
ep
-78
Jan
-80
May-8
1S
ep
-82
Jan
-84
May-8
5S
ep
-86
Jan
-88
May-8
9S
ep
-90
Jan
-92
May-9
3S
ep
-94
Jan
-96
May-9
7S
ep
-98
Jan
-00
May-0
1S
ep
-02
Jan
-04
May-0
5S
ep
-06
Jan
-08
May-0
9S
ep
-10
0
2
4
6
8
10
12
14
16
18
Comparison of S&P 500 Dividend Yield and 10-Year Treasury Yield
10-Year Treasury Billl S&P 500 Dividend Yield
yie
ld (
%)
Changes in US mutual fund assets
13
Global equity portfolio regional and sector exposures
14
Europe ex UK
United Kingdom
North America
Japan
Asia ex Japan
Cash
Emerging Markets
-10% -5% 0% 5% 10% 15% 20% 25%
Regional Exposure vs MSCI World as at 30 September 2010
Financials
Services
Cash
Industrials
Consumers
Technology
-20% -15% -10% -5% 0% 5% 10% 15%
Sector Positioning vs MSCI World as at 30 September 2010
Portfolio activity: SA assets
● Increased the duration of the bonds to a neutral ALBI
● Bought the long end (greater than 12 years) of the curve by
switching short dated bonds
● Reduced exposure to bonds as yields dropped
● Continued foreign demand for bonds
● Improving inflation data increased the possibility of further rate
cuts
● Proceeds from bonds into cash – favorable risk adjusted
return
● Marginal buyers of equity – remain overweight
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Asset Class %
30 June 30 Sep
SA Equity 69.7 69.3
SA Prop 4.2 4.2
SA Bonds 11.0 7.0
SA Cash 15.1 19.4
Current equity sector allocation (%)
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Financials
Basic Materials
Consumer Services
Telecommu-nications
Oil & Gas
Industrials
Consumer Goods
Health Care
Technology
0 5 10 15 20 25
23.5
19.6
13.5
12.9
8.2
8.2
8.0
6.1
Biggest over-weights and under-weights versus the SWIX
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Top 5 Overweight Fund Weight % Benchmark Weight %
Investec Ltd 4.2 1.0
Sasol 8.2 5.4
Woolworths Holdings 3.6 0.8
ArcelorMittal South Africa Ltd 3.4 0.7
Massmart Holdings 3.8 1.1
Top 5 Underweight Fund Weight % Benchmark Weight %
Naspers - 3.7
Anglo Platinum - 2.5
Shoprite - 1.9
Remgro - 1.9
Standard Bank Group 3.3 4.8
ArcelorMittal Investment Case
“Fundamentals are attractive – sentiment not so”
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The certainties
● Steel economics
● Prices
● Volumes
● Costs
● Cash flow adequacy
● Valuations
Key considerations
● Buy was executed after agreement, facilitated by the DTI, was reached with
Kumba
● This agreement stabilised iron ore input costs and sustainability of Saldanha
Steel
● Correlated to SA economic recovery and GDFI
The uncertainties
● Kumba iron ore dispute
● ICT acquisition
● BEE deal
● ZISCO acquisition
● Competition Commission fines
2009
/06/
22
2009
/07/
04
2009
/07/
16
2009
/07/
28
2009
/08/
09
2009
/08/
21
2009
/09/
02
2009
/09/
14
2009
/09/
26
2009
/10/
08
2009
/10/
20
2009
/11/
01
2009
/11/
13
2009
/11/
25
2009
/12/
07
2009
/12/
19
2009
/12/
31
2010
/01/
12
2010
/01/
24
2010
/02/
05
2010
/02/
17
2010
/03/
01
2010
/03/
13
2010
/03/
25
2010
/04/
06
2010
/04/
18
2010
/04/
30
2010
/05/
12
2010
/05/
24
2010
/06/
05
2010
/06/
17
2010
/06/
29
2010
/07/
11
2010
/07/
23
2010
/08/
04
2010
/08/
16
2010
/08/
28
2010
/09/
09
2010
/09/
21
2010
/10/
037000
8000
9000
10000
11000
12000
13000
Recent share price history
20
Portfolio holding
reduced to zero.
Kumba dispute over Sishen Mine
Reintroduced stock into portfolio at
2% overweight
21
SA steel volumes
• Volumes and capacity utilisation are recovering
1Q02
4Q02
3Q03
2Q04
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
E
4Q11
E
3Q12
E
2Q13
E
1Q14
E
4Q14
E0
200
400
600
800
1000
1200
1400
1600
1800
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Export sales Domestic sales Domestic sales % total
Con-struction
25%
Converters9%
Service centres21%
Energy, mining and chemicals
7%
Furniture and ap-pliances
2%
Machinery8%
Packaging6%
Pipe and tube14%
Transportation2% Automotive
6%
22
Operating margin recovery
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
E
1Q11
E
3Q11
E
1Q12
E
3Q12
E-10%
0%
10%
20%
30%
40%
50%
23
Attractive valuation
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
AK Ste
el
Nucor
Seve
rsta
l
US St
eel
Arcel
orMitt
al S
A
Tern
ium
Arcel
orMitt
al
Evra
z
Stee
l Dyn
amics
JFE
Avera
geSA
IL
Posc
o
Nippo
n
Gerda
uTa
ta
0
500
1000
1500
2000
2500
EV / EBITDA (CY2010)
EV / ton (US$)
24
2009a 2010e 2011e 2012e
EPS -88.9 815 1180 1760
EPS growth % 1017 45 49.2
PE -93.4 10.2 7 4.7
DPS 0 300 400 600
DPS growth % 33 50
DY % 0 3.6 4.8 7.2
NAV cps 5180 5100 5300 5500
FreeCFps 730 795 1250 1836
RoE % -1.4 12.4 17.8 21.1
Financial forecasts
25
Uncertainties
● Kumba iron ore dispute
● Referred to arbitration
● Worst case scenario priced-in, substantial upside potential
● ICT acquisition & BEE deal
● Previously announced structure under review
● Subject to mining rights clarification
● Alternatives could emerge
● Risk to fair value muted
● ZISCO bid
● Long-term synergies marketing and raw material sourcing
● Competition Commission fines
● ACL is co-operating fully
● Partially provided for and cash on hand
Portfolio Performance
Latest performance -30 September 2010 (%)
27
Balanced Fund
Peer Group Quartile
Balanced Cautious Fund
Peer Group Quartile
6 month
4.8
1st
4.7
2nd
1 Year
16.4
1st
12.1
1st
5 Year
11.5
2nd
na
na
Quartile Performance – It’s been a good year to date
28
Funds 3 Month 6 Month YTD 1 Year 3 Year 5 Year
Risk Profiled
STANLIB Conservative FoF 2nd 1st 1st 1st 2nd 2nd
STANLIB Moderately Conservative FoF 1st 1st 1st 1st 4th 1st
STANLIB Moderate FoF 1st 1st 1st 1st 3rd 3rd
STANLIB Moderately Aggressive FoF 1st 1st 1st 1st 4th 3rd
STANLIB Aggressive FoF 1st 2nd 1st 1st 4th 3rd
Balanced
STANLIB Balanced Cautious 1st 2nd 1st 1st - -
STANLIB Balanced 1st 1st 1st 1st 4th 3rd
Investment Environment&
Outlook into 2011
SA Outlook
● Economic recovery to gain momentum, saw moderate GDP acceleration in Q3 2009
● Export volumes to continue to rise
● Inflation contained within the target range
● Rates to remain on hold well into 2010
● Supportive Rand factors to continue until at least June 2010
`
30
Global Outlook
● Sustained economic recovery from a deep recession
● Synchronised global growth
● Continued monetary and fiscal policy stimulus
● Sustained global liquidity
Investment environment – what we said at the start of the year
Key global macro themes for 2011
● Fed continues with liquidity programme for most of 2011, but starts to ease-up towards year-end leading to a sell-off in global bonds. Fiscal austerity programmes to continue
● Some re-balancing of global capital flows, investors looking for under-valued assets in developed markets. Emerging market currencies weaken, but not collapse
● Longer-term growth differential between emerging and developed economies becomes more entrenched despite the re-balancing of global flows
● M&A activity increases more noticeably in 2011, helped by the low cost of capital
● Commodity prices supported by supply constraints and solid demand from emerging economies.
31
Fixed income flows into emerging market funds
32
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
%, weight in index
Emerging market equity’s weight in MSCI All Countries Index
33
Key SA macro themes for 2011
● SA consumer activity set to improve in 2011, helped by real wage increases and growth in consumer credit
● Inflation and interest rates expected to drift sideways for most of 2011, but concerns about food inflation on the rise.
● Fixed investment spending expected to remain subdued for most of 2011 except for some public sector projects. A pick-up in private sector investment is a theme for 2012
● SA policy debate remains a focus, including nationalisation, inflation targeting, Rand strength, land claims, NHI. Don’t except much actual change
● Rand remains well supported over the coming months, but the factors supporting the Rand should slowly dissipate in 2011
34
SA growth in consumer spending vs disposable income
-8-7-6-5-4-3-2-10123456789
10111213
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
%, q/q
Consumer spending
Disposable Income
Debt servicing costs at historical lows35
R billion, month-on-month, 3-month moving average
SA consumer credit
-2-10123456789
1011121314151617
2006 2007 2008 2009 2010
36
-14-12-10-8-6-4-202468
101214161820
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
20105
7
9
11
13
15
17
19
21
23
25
%y/y
Current level of interest rates should result in
more investment spending into 2012
%
Private sector investment (lhs)
Prime interest rates (rhs)
Growth in private sector fixed investment spending vs prime interest rates
37
80
120
160
200
240
280
320
360
400
440
480
2003
2004
2005
2006
2007
2008
2009
2010
Index Q1 2003 = 100
Private sector
General government
SA fixed investment spending by institutional group
Public corporations
38
Portfolio positioning summary
39
• Equities remain our preferred asset class
• Notably global equities
• We have down-weight bonds
• Bearish on global bonds
• Retained SA listed property as a fixed interest proxy – distribution growth and stable bond yields
• 12 month cash return of 6.4% favorable relative to bonds
Asset Class
Portfolio Weight
%Current
Benchmark
Weight %
SA Equities 58.9 60
SA Property 3.6 0
SA Bonds 6.1 25
SA Cash 16.7 0
Global Equities 14.4 9
Global Bonds 0.0 6
Thank You
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STANLIB Asset Management LimitedRegistration No: 1969/002753/06. A Financial Services Provider licensed under the Financial Advisory and Intermediary Services Act, 37 of 2002. FSP license No: 719.
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