Welcome to the Discovery Invest Dynamic Equity Fund Launch. Craig Sher Head of Product Development

Transcription

1 Welcome to the Discovery Invest Dynamic Equity Fund Launch Craig Sher Head of Product Development

2 Agenda Market penetration The Discovery equity range Discovery Dynamic Equity Fund

3 Number of brokers writing for Invest Source Discovery Invest

4 As and When Integration value in Rm Industry footprint and investment flows Market leader in Endowment gross flows As and When Investment Integrator savings 30.00% % % 15.00% 10.00% 5.00% 0.00% Dec 2009 Jun 2010 Dec 2010 Jun 2011 Dec 2011 Jun 2012 Dec 2012 Assets under management Split of AUM per fund type 30,000 25,000 20,000 15,000 10,000 5,000 0 Other External funds Escalator (external funds) Discovery CIS Escalator (internal funds)

6 Expected return The Discovery equity range Equity entry points through Discovery + Protected Smart passive Actively managed Offshore equity Escalator Funds CROCI Equity Global Equity Feeder - - Expected risk +

7 Expected return The Discovery equity range Equity entry points through Discovery + Protected Escalator Funds Discovery Escalator Funds Provide equity fund investors with unlimited upside potential, whilst ensuring downside protection - - Expected risk +

8 Protection Performance Discovery Escalator Funds Discovery Escalator Discovery Equity Fund 46.65% cumulative return* Guarantee 70 15/11/ /11/ /11/ /11/ /11/ /11/ % 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Escalator Funds 48.52% 46.51% 19.35% 17.80% Allan Gray Balanced Fund Allan Gray Equity Fund 36.50% 10.13% Allan Gray Orbis Global Fund of Funds 63.21% 68.30% 30.94% 35.12% Coronation Balanced Plus Fund Coronation Market Plus Fund 54.91% 50.41% 44.25% 24.05% 20.97% 16.00% Coronation Top 20 Fund Discovery Balanced Fund Discovery Equity Fund 91.20% 56.42% Discovery Flexible Property Fund 81.34% 47.73% Investec Property Equity Fund *Source: Discovery Invest, period 15 Nov 2007 to 31 January 2013

9 Expected return The Discovery equity range Equity entry points through Discovery + Protected Smart passive CROCI Escalator Funds CROCI SA Reweights the JSE Top 40 through a unique valuation process - 25% 20% 15% 10% 5% 0% 9.31% Performance as at 31 January % 14.97% 14.64% annualised 3 Months 6 Months 1 Year 3 Years - Expected risk +

10 CROCI 1 year returns to 31 January 2013 CROCI US 29.17% CROCI UK 31.92% CROCI Europe 35.59% CROCI Japan 18.25% CROCI SA 14.97% Source: Discovery Invest, one year period ending 31 January 2013, returns expressed in ZAR

11 Expected return The Discovery equity range Equity entry points through Discovery + Protected Smart passive Actively managed CROCI Escalator Funds Equity Discovery Equity Fund A value equity fund with a contrarian bias - - Expected risk +

12 Discovery Equity Fund Discovery Equity Fund s admirable performance Discovery Equity Fund Domestic Equity General JSE All Share Since inception performance Cumulative return 67.05% Cumulative outperformance of sector 20.99% Cumulative outperformance of benchmark 10.25% Discovery Equity Fund s performance per calendar year Source: Morningstar, period 30 Nov 2012 to 31 Jan % 30% 20% 10% 0% -10% -20% -30% Periods of divergence Discovery Equity FTSE/JSE All Share TR ZAR Domestic EQ General Source: Morningstar

13 Emergence of Alpha Thematic equity funds are prone to heightened investment cycles Lumpy alpha

14 Expected return The Discovery equity range Equity entry points through Discovery + Protected Smart passive Actively managed CROCI Escalator Funds Style agnostic Contrarian Discovery Dynamic Equity Fund A multi-strategy approach to deliver consistent performance - - Expected risk +

15 Emergence of Alpha Thematic equity funds are prone to heightened investment cycles Identified a need for a tighter investment cycle Lumpy alpha More stable alpha

16 Discovery Dynamic Equity Fund Actively managed Discovery Equity Fund Discovery Dynamic Equity Fund Style Contrarian Style agnostic, multi strategy Emphasis Exploits out-of-favour stocks Continuous incremental outperformance Outperforms when cheap stocks correct Performance Benchmark/Target Underperforms when expensive stocks lead markets FTSE/JSE All Share Index (ALSI) Aims to provide consistent outperformance FTSE/JSE Shareholder Weighted Index (SWIX)

17 Full suite of powerful benefits applicable Embedded protection Escalator Fund available Investment Integrator Up to a 26% upfront boost to your investment Up to 100% discount on all fees Benefits of the Discovery Classic Plans Capital Gains Tax Funder Dividends Tax Funder Retirement Tax Funder Quartile Performance Protector 100% Escalator Retirement Protector 100% Escalator Death Guarantee

18 Expected return The Discovery equity range Equity entry points through Discovery + Protected Smart passive Actively managed Offshore equity Escalator Funds CROCI Style agnostic Contrarian Global Equity Global Contrarian - - Expected risk +

20 Presentation to Discovery Invest Grant Irvine-Smith March 2013

21 What do these three things have in common? Wine-making Baseball Politics

22 What do these three things have in common? Wine-making Baseball Politics Know nothing about wine? Don t worry all you need is weather stats Statistics beat deep pockets at selecting a winning baseball team It s a tight race! Wrong again Statistician Nate Silver correctly predicts all 50 states

23 And of course, things can get out of hand

24 The Warren Buffett Way is not the only way! Analyst Sentiment Growth Quality Profitability Low Risk Newsflow Value Momentum Relying on a single investment style is like playing a round of golf with a six iron you can get by, but you have a nagging feeling that you could have done better. Technicals

25 The greatest investor you ve never heard of? Value of $1000 invested in January 1990 Anybody know who this is? Note: 1. Medallion fund returns are net of fees. Current fees are 5% management fee and 44% performance fee

26 Discovery Dynamic Equity Investment process A disciplined process which uses fundamental input to identify Profitability Technicals quality companies trading at attractive valuations where analyst Quality Quality Momentum Technicals sentiment is improving and technicals are supportive Low Risk Value Analyst Sentiment Analyst Sentiment Value Growth News Flow A multi-strategy approach to deliver consistent performance

27 Investment philosophy 1. Delivering consistent performance requires a multi-style approach 2. Dynamic style allocation allows us to be in the right style at the right time 3. A systematic & objective decision making process avoids behavioral bias 4. Macro variables are near impossible to predict, therefore we are bottom-up stock pickers and are not reliant on a specific macro-economic view of the world 5. Managing risk is as important as estimating returns This allows us to deliver consistent performance

28 Our multi-style approach A disciplined and repeatable investment process Quality High return on equity Stable profit margins Low debt to equity Technicals Medium-term price momentum Short-term price reversal Value Low P/Es High dividend yield Low price to book Analyst Sentiment Good earnings momentum High forecast & historic growth

29 Style diversification in principle Style 1 Composite Style Style 2

30 Value investing Buy cheap companies, sell expensive ones Performance of Value Unit Trust sector vs. ALSI Pros 1. Proven strategy over the long term 2. Intuitively appealing buy low, sell high Cons 1. Typically buy too early and sell too early 2. Suffer long periods of underperformance 3. Requires extreme patience Source: Morningstar, 31 December 1991 to 31 December 2012

31 Growth investing Buy fast-growing companies Performance of Value Unit Trust sector vs. ALSI Pros 1. Can produce spectacular returns when growth is identified early and the market has an appetite for growth Cons 1. Growth is notoriously difficult to forecast Source: Morningstar, 31 December 1991 to 31 December 2012

32 Quality investing Buy blue chip companies Quality worked Quality failed SA Breweries SA Breweries relative to All Share index Pros 1. Buying good companies with strong balance sheets stable earnings. 2. Holds up well in crisis periods Cons 1. These stocks can be over-priced 2. Tend to underperform in a bull market Source: Bloomberg, Investec Asset Management

33 Does it work? Performance track record 600 We have outperformed our peers in 7 of the past 8 years. 500 Dynamic Equity Strategy General Equity Peers Performance quartile (General Equity)

34 % return Discovery Dynamic Equity Fund track record Source: Morningstar and Investec Asset Management *Since inception date: 1 April 2005 Performance is at end February 2013

35 Style diversification in practice Long run style performance of common factors A style diversified strategy is more consistent Source: Investec Asset Management, Fama/French Size Quality Value Momentum Composite Worst Drawdown 85% 61% 50% 69% 35%

36 We adapt the portfolio depending on market conditions Style allocations change dynamically Analysts Sentiment Recession Bear Market Investors are risk-averse Expansion Bull Market Investors are excited

37 Diversification of investment styles Portfolio characteristics QUALITY Strategy Benchmark Relative Return on Equity (ROE) 24.0% 19.7% higher Debt to Equity ratio comparable VALUE Strategy Benchmark Relative P/E ratio 10.7x 12.8x cheaper Dividend yield 4.8% 3.8% higher ANALYST SENTIMENT Strategy Benchmark Relative Earnings Revisions(1m) 5.0% -4.8% higher Historic Earnings Growth 6.0% 2.4% higher TECHNICALS Strategy Benchmark Relative Medium-term Momentum higher Source: UBS PAS analysis as at 31 December 2012 A disciplined process which uses fundamental input to identify quality companies trading at attractive valuations where analyst sentiment is improving and technicals are supportive

38 Macro risk is tightly controlled How would our portfolio perform (relative to benchmark) if? 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% Emerging Markets down 30% Rand Depreciation 20% SA rates up 1% ALSI down 30% Commodities up 20% Greece exits the Eurozone Discovery Dynamic Equity Discovery Equity Sensitivity analysis as at 31 December 2012: Changes in active value Source: EM Applications Ltd

39 Discovery Dynamic Equity Top ten active holdings

40 Offshore component is managed in a consistent way

41 British American Tobacco A great value creator Historic EPS & DPS Return on Invested Capital 25, , , , , FY1999 FY2001 FY2003 FY2005 FY2007 FY2009 FY2011 DPS EPS 0 FY2007 FY2008 FY2009 FY2010 FY2011 Current BTI S&P 500 Defensive counter that should provide protection in falling markets Solid rand-based earning revisions with forecasts looking very achievable for the next number of years BAT has delivered compound earnings growth of 12% and dividend growth of 14% Limited working capital requirements leads to very high ROIC Source: Bloomberg, Investec Asset Management

42 African Bank Deep discount to fair value PE ratings based to 100 Dividend Yield Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Abil General Retailers Banks FY2010 FY2011 FY2012 Current FY2013 E FY2014 E African Bank All Share Index Heavily derated over recent period and now trading at deep discount to fair value Earnings momentum has been negative, but can argue that this has been priced in No regulatory bombs dropped by the NCR, or the Banking Council/Finance Ministry after respective investigations into the industry Balance sheet should be able to support and maintain the attractive dividend yield Source: Bloomberg, Investec Asset Management

43 Mediclinic Improving Sentiment Earnings Estimates Broker Sentiment 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 EPS-Mar-14 % BUY % HOLD % SELL Solid earnings revisions and strong price momentum Improving broker sentiment on the back of strong operational earnings 18 months of strong earnings growth thanks to the refinance of Swiss debt Good Rand Hedge Source: Bloomberg, Investec Asset Management

44 EPS Price Coronation Fund Managers Strong Momentum, highly attractive dividend yield Earnings Estimates Dividend Yield Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 EPS SEP-14 EPS Sep-13 Price Solid Earnings Revisions and strong Price Momentum Further Earnings upgrades IAM estimates are 12% ahead of consensus to September 2013 Attractive dividend yield both historic and estimated dividend yield double that of the market CY2009 CY2010 CY2011 CY2012 Current CY2013 E CY2014 E All Share Index Coronation Fund Managers Ltd Source: Bloomberg, Investec Asset Management

45 Ultimately we need both human judgment and technology Would you prefer an intercontinental flight with A) Only pilots B) Only computers C) Both

46 The human judgment Co-Chief Investment Officers John McNab, Domenico Ferrini Head of Frontier & Emerging Markets Chris Derksen Strategy Leaders, Dynamic Equity Grant Irvine-Smith Portfolio Manager Industry: 13 years Chanel Stuart-Findlay Investment Analyst Industry: 9 years Integrated Common Research Platform 25 investment analysts, 10 years average industry experience George Ssali Investment Analyst Industry: 5 years Chris Steward Rob Forsyth Bradley George Angelique de Rauville Head of Research & Industrials Sector Head Resources Sector Head Property Sector Head Financials Sector Head Industry: 13 years Industry: 18 years Industry: 17 years Industry: 15 years As at January 2013

47 The technology Infrastructure Fundamental Text box Text box data: INET, Reuters, Bloomberg Pricing Text data: box INET, Bloomberg Text box Macro Text data: box Bloomberg Text box Proprietary mapping & quality control Relational database: ~3 million rows ~300 data items Forecast Text data: box IBES, I-Net, Text box IAM Risk model Text data: box Barra Text box Alpha research Daily factor calculation Back testing, cost modeling, factor analysis Various statistical platforms and tools Implementation Portfolio construction Portfolio monitors Risk management

48 Discovery Dynamic Equity Fund Delivering consistent results To invest successfully over a lifetime does not require a stratospheric IQ, unusual insights or inside information. What's needed is a sound intellectual framework for making wise decisions and the ability to keep emotions from corroding that framework. Ben Graham 1949

49 Thank you

50 Appendix

51 Discovery Dynamic Equity team Committed, experienced and highly qualified Grant Irvine-Smith, Portfolio Manager Qualifications: CFA, MBA, BScEng (Civil) Investment industry experience: 12 years 2000: Investec Asset Management Investment Process, Risk Management and Quantitative Products 1994: Murray and Roberts Section Engineer Chanel Stuart-Findlay, Investment Analyst Qualifications: MSc (Financial Maths), BCom. Hons(Comp Sc.) (Cum Laude), BCom (Maths, Comp. Sc., Economics) Investment industry experience: 8 years 2007: Investec Asset Management Investment Analyst, Portfolio Modelling and Implementation George Ssali, Investment Analyst Qualifications: M.Fin. (INSEAD), BSc. Eng. (Electrical) (Summa cum laude) Investment industry experience: 5 years 2012: Investec Asset Management Investment Analyst, systematic stock-selection modelling and implementation. 2008: Macquarie Securities, SA Head of SA Quantitative research, fundamental strategy and stock-specific research

52 Everyone is a value manager these days! Source: Collective Insight Summer 2013

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