March 2017
Northstar Asset Management Investment forum
Northstar Asset Management – Key differentiators Northstar focuses on two activities: Independent research → Generating returns Quantifying bet sizes
→ Managing risk
We understand the importance of managing risk and have solved the mystery of integrating fundamental research into a quantitative portfolio construction framework
SLIDE 2
Independent research → Generating returns Local Equity Attribution (vs Jalsh Index) 2016 Total Local Equity STANDARD BANK GROUP LIMITED RAUBEX GROUP BIDVEST GROUP LIMITED SASOL LIMITED DATATEC LIMITED A E C I LIMITED GROUP FIVE LIMITED NETCARE LIMITED COMPAGNIE FINANCIERE RICHMONT SA METROFILE HOLDINGS LIMITED NEDBANK GROUP LIMITED FIRSTRAND LIMITED BARCLAYS AFRICA GROUP LIMITED GRINDROD LIMITED NASPERS LIMITED MR PRICE GROUP LIMITED SUPER GROUP LIMITED BID CORPORATION LIMITED ASPEN PHARMACARE HLDS LIMITED ASTRAL FOODS LIMITED ANHEUSER-BUSCH INBEV SA/N REINET INVESTMENTS SCA BRAIT S.A. REMGRO LIMITED BRIMSTONE INVESTMENT CORP LTD N WOOLWORTHS HOLDINGS LIMITED INVESTEC PLC SUN INTERNATIONAL LIMITED BRITISH AMERICAN TOBACCO PLC OLD MUTUAL PLC
-100
SLIDE 3
Global Attribution (vs MSCI World in ZAR) 2016 Total Global Equity UNION PACIFIC CORP BERKSHIRE HATHAWAY B MICROSOFT CORP CISCO SYSTEMS
SHINHAN FINANCIAL GROUP-ADR ING GROUP CVA
66.7% hit rate
62.5% hit rate
SAP AG SPONSORED ADR FLOWSERVE CORP CAPITAL ONE FINANCIAL MARKEL CORP JD.COM INC-ADR APPLE INC. ISHARES CORE EURO STOXX 50 JPMORGAN CHASE & CO ROCHE HOLDINGS LTD-SPONS ADR
GILEAD SCIENCES INC
-50
0
50
100
150
200
250
-60
-40
-20
0
20
40
60
80
100
120
Quantifying bet sizes → Managing risk Limiting downside relative to the All Share Index
Enhancing upside relative to the All Share Index
Attribution per company - 2016
0,0%
3,0%
2,5%
-0,5%
2,0%
Attribution
-1,0%
Attribution
Attribution per company - 2016
Northstar: -4.1% All Share Index: -7.1%
-1,5%
Northstar: 8.6% All Share Index: 8.0%
1,5%
1,0% -2,0%
0,5%
-2,5%
0,0% 1
2
3
4
5
6
7
8
9
Lowest 10 negative attributors Northstar local companies All Share Index companies
SLIDE 4
10
11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Top 20 positive attributors Northstar local companies All Share Index companies
Relationship between fund size and investment performance in SA Fund return vs. maximum drawdown vs. fund size (at start of period) Jan 2007 to Jan 2017 20% 18% 16%
• No significant relationship between fund size and returns • No significant relationship between fund size and drawdown • Funds with lower drawdowns have tended to deliver better overall returns
Fund return
14% 12% 10% 8% 6% 4% 2% 0% -60%
SLIDE 5
-50%
-40% -30% Fund maximum drawdown
-20%
-10%
SA large cap industrials have outperformed over the last 10 years Price returns 450 400 We would argue that dual listings and rand weakness have played into the hands of large cap industrial stocks
350
Indexed to 100
300 250 200
150 100 50 0 Dec 06
Dec 07
Dec 08
Dec 09 INDI25
SLIDE 6
Dec 10 Top40
Dec 11 Mid Cap
Dec 12 Small Cap
Dec 13
Dec 14
Dec 15
Dec 16
Large cap industrials enjoy high liquidity Return vs. Daily Value Traded (10 years to Feb 2017) 40% CLS MRP
30% AVI SPP REM
Return (%)
20%
APN
SHP
WHL
BVT
10%
TFG
SNH TBS
TRU MTN
NTC
0%
PIK
NPN
SA Industrial 25 Index average traded value & return , 378 , 18,1%
CFR
IPL
-10% • •
-20%
Large cap liquid industrial shares have been the area of outperformance Large managers have been invested in these counters through skill and necessity and have consequently been rewarded
-30% -40%
-
200
400
600
800
1 000
1 200
1 400
1 600
Daily value traded (R'm) SA stocks (Large, Mid & Small Cap) SLIDE 7
INDI25 Index stocks
Average
1 800
2 000
2 200
In SA most stocks have under-performed the large cap industrials over the last decade Relative price returns – Top 40, Mid & Small cap stocks vs. Large cap industrials 1,4 • •
1,2
The Top 40, Mid & Small cap indices have underperformed the Large cap industrial index over the last decade … however that trend has reversed over the last year This reversal complicates the investment landscape for large managers
1
0,8
0,6
0,4 Dec 2006
Dec 2007
Dec 2008
Dec 2009
Dec 2010
Top40 vs. INDI25 SLIDE 8
Dec 2011 Mid Cap vs. INDI25
Dec 2012
Dec 2013
Small Cap vs. INDI25
Dec 2014
Dec 2015
Dec 2016
Small caps outperform large caps 600 • •
500
Globally small companies outperform large companies Assuming the same occurs in South Africa, a natural advantage exists for smaller specialist managers vs. very large managers
400
300
200
100
0 Dec 98
Dec 00
Dec 02
Dec 04
Dec 06
MSCI World Small Cap TR SLIDE 9
Dec 08
Dec 10
MSCI World Large Cap TR
Dec 12
Dec 14
Dec 16
Much easier for small managers to reposition Days to trade out of Top10 holdings (5% of daily trade) 300 265
Small managers can reposition much quicker than large managers
250
205
Days
200 149
150 118 104
97
100 69
67
66
50 21 2
6
SOL NPN
SBK BGA
3
8
2
2
BTI OML
OML BTI
REI SOL
2
2
10
7
INP INP
SAP SAP
0 NPN SNH
Top 10 holdings R40bn fund
SLIDE 10
R1.2bn fund
REM AGL
NED BIL
Alpha creator - ING Group o ING has gone through significant restructuring initiatives over the past 5 years becoming today a robust and simplified banking group o Management has several levers to drive performance over the next 3 years. The group has guided for improvements in NIM, better efficiencies from the implementation of a “direct bank” strategy and cost cutting initiatives and loan expansion from significant cross selling opportunities in Benelux o ING’s capital position is sound and the group has resumed paying dividend in Dec 2014 after having suspended distributions in 2009 o Valuation is compelling
Capital Position
Banking Channels - Europe (% of interactions)
20%
100%
18%
80%
16%
14,8%
14,4%
14%
12,3%
12% 9,3%
10% 8%
13,5% 13,1%
14,5% 60%
11,7% 40%
10,2%
20%
7,6%
6%
0% FY 2006
FY 2008
FY 2010
FY 2012
FY 2014
2005
Tier I Capital
Branch
Management ✓ SLIDE 11
2010
Industry
Mobile
ATM
Competitive Advantage
Valuation
✓
✓
2015F Digital
Other
Alpha detractor – Sun International o Management has cornered the business by adding excessive debt
R 200
1400
R 180
1200
R 160 1000
R 140
R 120
800
R 100 600
R 80 R 60
400
R 40 200
R 20 R0 1999
0 2001
2003
2005
2007
Sun International share price SLIDE 12
2009
2011
Net Debt To Shareholders Equity
2013
2015
Questions
“Long term exposure to quality assets where value exceeds price”
The information contained in this presentation is of a general nature and is not intended to address the circumstances of any particular person. The information herein does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe for or purchase any specific product and is not to be construed as advice or guidance in any form whatsoever. We do not claim to act in any way as an advisor and you should not act upon this information without appropriate professional advice. Northstar Asset Management (Pty) Ltd is an authorised financial services provider.
SLIDE 13
Sentio is a Latin word meaning “To hold a view or a strong opinion” 15
• Founded 2007 - We have a solid 10 year track record, tested through GFC in 2008, we can compete with the best • Affiliate of RMI Group – best of both worlds. Ownership: 82% management/ staff; 18% RMI; staff ownership means “skin in the game” • AuM – cR14bn; 97% of AuM in long-only, the balance in HF. Approx. R1.5bn in unit trusts; continued strong inflows
• We have a world class process that integrates deep stock analysis with robust risk management • Globally competitive - significant local and global market experience integrated into the process • 10 years of successful investment in the best Systems and people – World class systems and fast growing team; developing talent • Outsourced non-core activities: Independent Administration (Maitland) & Compliance (ICS) • Retail Offering: Sanlam Select Optimised Equity, Sanlam Select Absolute, Sentio SCI HIKMA Shari’ah Equity, Sentio SCI HIKMA Balanced
As a client you get institutional robustness, agility of boutique manager, best of breed process
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Humility + discipline = outperformance Our core competency is in VALUING ASSETS and PRICING RISK - Deep INTEGRATION of Stock Picking and Risk Management We are STYLE AGNOSTIC investors - We invest in Value, Growth, Quality and Risk assets as long as they are cheap We believe in running a DISCIPLINED PROCESS to achieve consistent Alpha over time - Our CULTURE is difficult to replicate – our process, people, systems and methodologies are unique Our focus is on the QUALITY OF RISK we take to ensure returns are sustainable and repeatable over time - Because all returns are not born equal!
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’ Boutique managers must use size to their advantage! Globally, smaller managers outperform larger managers over time… Even though locally the average boutique manager has not outperformed the average large manager, there has been large variability in boutique performance – don’t focus on the average… Thus, there are clear opportunities within Boutiques to positively differentiate yourself versus larger managers. The biggest advantage is the smaller size of boutiques versus large managers. This makes boutiques more nimble and flexible in order to express views relative to the peer group. Like diversification, smaller size is like a “Free Lunch”, which can allow sustainable outperformance. However, you have to use it properly and effectively Good boutiques can use their size to generate sustainable risk-adjusted outperformance of their larger counterparts. FOCUS ON MANAGERS THAT USE SIZE TO THEIR ADVANTAGE
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Active Management Value Add
Function Of
Return (Alpha)
Risk (Tracking Error)
• Active Management Value Add • Should be: Risk adjusted performance…which is • Information Ratio (Alpha / Tracking Error)
• Alpha – Excess performance above benchmark • Tracking Error – Risk manager takes relative to benchmark.
19
Manager Skill Active Management Value Add
Constraints
Portfolio Construction Efficiency
Function Of Transfer Coefficient
• Manager Skill – Ability to pick stocks. Disciplined Investment Philosophy and process
• Constraints – How much active skill is WASTED OR DILUTED? Size of manager – LARGER managers at a distinct DISADVANTAGE. Long only constraint, Mandate constraints, Structure of market, etc. • Portfolio Construction Efficiency – Breadth of portfolio and Risk Management.
20
• Fund Size plays a significant role in reducing active skill transfer into active portfolios. • Large funds can squander over 50% of manager skill!
21
Differentiated source of Alpha
• Sentio takes meaningful positions in Mid-cap/Small Caps which we confident will be the large caps of the future. • 40% OF ALPHA CAME FROM SMALL AND MID CAPS, which will be difficult to replicate for large managers.
22
1. Take meaningful positions in smaller companies that can become the large caps of the future – MAJOR DRIVER OF ALPHA 2. Adjust the portfolio more quickly to take account of major macro shifts – MARKETS ARE DYNAMIC, INVESTORS SHOULD BE TOO 3. Speed of execution for high conviction investment ideas – we can action a risk or opportunity and execute much faster than a large manager
4. Consistency of idea generation and tighter culture of investing – higher conviction of ideas is possible
23
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This document is confidential, contents are the property of Sentio Capital •The information does not constitute an offer, solicitation or recommendation for the purchase or sale of any investment, investment vehicles, securities or other financial instruments nor does the information constitute advice or an expression of our view as to whether a particular security or financial instrument is appropriate for you and meets your financial objectives. All information in this document are the property of Sentio Capital Management (Pty) Ltd (“Sentio Capital”) and receipt of it does not transfer ownership to anyone. All information is intended for the use of the recipient and no distribution is permitted.
CONTACTS: Traugott von Czettritz u. N (TC) +27 11 880 6080
[email protected]
Lee Privat de Garilhe +27 11 880 1994
[email protected]
Sentio Capital Management Pty (Ltd) Ltd is an Authorised Financial Service Provider. For more details on out Conflicts of Interests Policy and our Compliance Officer please visit our website: www.sentio-capital.com
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Perpetua Investment Managers 2017 Investment Forum Delphine Govender Chief Investment Officer
Perpetua is an authentic boutique investment firm Defining boutique characteristic
Perpetua
Owner-managed
Specialised, differentiated and focused
Key investment professionals have strong pedigree
Passionate about investing and continuous refinement
Defining and defined investment approach
Genuinely active: benchmark agnostic and nimble
Key points about the firm Location
Based in Cape Town, satellite office in Johannesburg
Ownership
100% owner-managed*; independently operated
Inception date
1 October 2012 commenced managing assets
AUM
AUM R7,4bn at 1 February 2017
Transformation Status
BEE Level 1 Contributor; currently 100% black owned and managed
Team size
21 employees; 10 in investment team (+95 years experience)
Administration
Outsource agreement with Maitland Fund Services
Compliance
Outsource agreement with Compli-serve
Unit Trust Distribution
Co-branded agreement with MET Collective Investments
Mandates
SA Domestic equity ; SA Domestic balanced; Global balanced
*In September 2015, Perpetua Investment Managers (PIM) concluded an agreement granting an option to Rand Merchant Insurance Investment Managers Group (RMI IMG) to purchase up to 25% of the equity in PIM.
Perpetua’s performance formula 1.
Fundamentally undervalued assets
2.
Multiple value-oriented investment theses applied
3.
Long- term investment horizon
4.
Rigorous, fundamental and proprietary bottom-up research
5.
Experienced, skilled and generalist investment team
6.
Explicit pre and post investment risk assessment at share level
7.
Minimise permanent risk of loss and understand importance of position sizes
+
+
+ +
+
+
= PREDICTABLE INVESTMENT PERFORMANCE
Perpetua’s TRUE VALUE continuum is unique Earnings Visibility
Higher
Momentum Market direction matters most
Growth Visible earnings growth key driver of price
• Exploit multiple value-based theses
Relative Value
Recognised growth and Quality stocks reasonably priced Higher
Company inexpensive vs. own history and/or market
Lower
Value
Valuation
Valuation
GARP/QARP
• Do not restrict universe based only on attributes
Assets undervalued in the “whole”
Unrecognised Growth Likely growth not being priced in
Deep Value Mean-reversion on earnings Earnings Visibility
Lower
Perpetua invests only along the TRUE VALUE continuum: we stop short of paying for future optionality discounted into the price.
• Not contrarian in the extreme
Differentiation potential of a smaller manager 180
Number of shares a manager can own to 3% based on AUM level 166
165
163
160
147
Number of shares
140
112
120
97
100
80
80
71 60
60
51
42
40
33
20 0 3
5
10
20
50
70
100
150
200
250
SA Equities under management R'bn
Note: Restricted fund ownership in a company’s issued shared at 20%, whilst still maintaining that stock position at 3% of fund.
300
400
Value Alpha Non-Value Alpha CSV
Oct-16
Jul-16
Apr-16
Jan-16
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Apr-05
Jan-05
Oct-04
Jul-04
Apr-04
Jan-04
Oct-03
Jul-03
Apr-03
Jan-03
Differentiation potential of a specialised manager Mid Cap Value Funds & Large Cap Non-Value Funds Rolling 12 Month Outperformance vs. Cross-Sectional Volatility (CSV)
40,00% 15,00%
30,00% 14,00%
20,00% 13,00%
10,00% 12,00%
0,00% 11,00%
-10,00% 10,00%
-20,00% 9,00%
-30,00% 8,00%
-40,00% 7,00%
Thank you
[email protected]
