Investec

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Investec

  1. 1. Citywire Wealth Manager Retreat 2011<br />Special Situations investing and dealing with potential value traps<br />Alastair Mundy – Portfolio Manager Investec UK Special Situations Fund and Investec Global Special Situations Fund<br />
  2. 2. Performance<br />
  3. 3. Both Monthly & Qtr<br />Investec UK Special Situations Fund10 years <br />Update Monthly<br />Past performance should not be taken as a guide to the future and there is no guarantee that this investment will<br />make profits; losses may be made. Source: Lipper, dates to 30.09.11, NAV based, (inclusive of all annual management fees but excluding any initial charges), net of UK basic rate tax, in sterling. <br />
  4. 4. Both Monthly & Qtr<br />Investec UK Special Situations Fund Attractive 10 year risk vs. return <br />Update Quarterly<br />Funds in this quadrant have exhibited below average risk and above average returns<br />Past performance should not be taken as a guide to the future and there is no guarantee that this investment will<br />make profits; losses may be made. Source: Lipper to 30.09.11, annualised, NAV based, (inclusive of all annual management fees but excluding any initial charges), income (net of UK basic rate tax) reinvested, in sterling. Chart axes converge on IMA UK All Companies. sector averages. Performance refers to the A Acc share class.<br />
  5. 5. Both Monthly & Qtr<br />Investec UK Special Situations Fund Low correlation with other funds and high alpha over 10 years<br />Update Quarterly<br />This chart illustrates the correlation of our outperformance against the FTSE All-Share index with the outperformance of the average fund in the sector against the FTSE All-Share index, compared with the alpha of the funds.<br />It indicates that the correlation of our outperformance is very low relative to most other high alpha funds (i.e. we outperform at different times to other high alpha funds) and that we are an ideal fund to blend with other funds to create an optimal portfolio.<br />Past performance should not be taken as a guide to the future and there is no guarantee that this investment will<br />make profits; losses may be made. Lipper to 30.09.11, annualised, NAV based, (inclusive of all annual management fees but excluding any initial charges), income (net of UK basic rate tax) reinvested, in sterling. Correlation data are based on the relative returns of the funds in the IMA UK All Companies sector vs. the average fund against the FTSE All Share over the ten year period to end 30.09.11.  Chart axes converge on sector averages. Performance refers to the A Acc share class<br />
  6. 6. Update monthly <br />Lipper, Evidence<br />Investec Global Special Situations FundSince inception performance versus IMA Global Growth sector<br />Past performance should not be taken as a guide to the future and there is no guarantee that this investment will<br />make profits; losses may be made. Source: Lipper to 30.09.11, NAV based, A Acc shares, inclusive of all annual management fees but excluding any initial charges, net of UK basic rate tax, in sterling. <br />
  7. 7. Both Monthly & Qtr<br />Update Quarterly<br />Data from Jo Slater<br />Investec Global Special Situations Fund Attractive risk versus return since launch <br />Investec Global Special Situations<br />Funds in this quadrant have exhibited above average returns and below average risk<br />Past performance should not be taken as a guide to the future and there is no guarantee that this investment will<br />make profits; losses may be made. Source: Lipper to 30.09.11, annualised, NAV based, (inclusive of all annual management fees but excluding any initial charges), income (net of UK basic rate tax) reinvested, in sterling. Chart axes converge on IMA Global Growth sector averages. Performance refers to the A Acc share class.<br />
  8. 8. Both Monthly & Qtr<br />Update Quarterly<br />Data from Jo Slater<br />Investec Global Special Situations Fund Low correlation with other funds and high alpha over 3 years<br />Investec Global Special Situations<br />This chart illustrates the correlation of our outperformance against the MSCI World index with the outperformance of the average fund in the sector against the MSCI World index, compared with the alpha of the funds.<br />It indicates that the correlation of our outperformance is very low relative to most other high alpha funds (i.e. we outperform at different times to other high alpha funds) and that we are an ideal fund to blend with other funds to create an optimal portfolio.<br />mercurygdriveDeptsEQUITYUKJoSPresentationsBack up dataQuarterlyGlbl SS Scatter AlphaCorrel.xlsx<br />Past performance should not be taken as a guide to the future and there is no guarantee that this investment will<br />make profits; losses may be made. Source: Lipper. Correlation data are based on the relative returns of the funds in the IMA Global Growth sector vs. the average fund against the MSCI World over the 3 year period to 30.09.11. Alpha data are based on Jensen’s alpha and are annualised. Axes are through the average points of the data series<br />
  9. 9. How is our investment approach different?<br />MonthlyOnly<br />PatienceLong waiting periods and long holding periods<br />ValueCommitted value investors….we will not chase new paradigms<br />ContrarianA focus solely on out of favour companies for our buy ideas<br />Bottom-upWe are stock pickers with strong risk controls<br />Market agnostic Our portfolio is constructed without reference to equity market levels<br />Downside aware We spend as much time worrying about what might go wrong as about what might go right<br />Focus on long term performance We are comfortable to struggle in the short-term and explain ourselves in the search for superior long term performance <br />Evolution and improvement A continual programme of navel-gazing<br />
  10. 10. Building a contrarian portfolio<br />Contrarian<br /> screen<br />Stock universe<br />Analyst research<br />Identifies out of favour stocks<br />Balance sheet/ Valuation/ Challenge consensus<br />Fundamental <br />research<br />UK: FTSE 350 Index<br />Global: MSCI World Index, Mkt.Cap. > $1bn<br />Stage 1<br />Stage 2<br />Risk control<br />Portfolio construction<br />Stage 3<br />
  11. 11. Contrarian screening – an illustration<br />7-year moving average (MAV)<br />CRH price relative (i.e. CRH divided by MSCI World Index level)<br />Source: Bloomberg, Investec Asset Management, June 2011<br />
  12. 12. Avoiding Value Traps<br />
  13. 13. Bad things do happen<br />History supports investing in out of favour shares <br />However, there are many examples of falling knives not recovering<br />What strategies do we employ to reduce our chances of catching these falling knives?<br />
  14. 14. 1. Play the averages<br />We are not trying to get everything right. Bad things do happen.<br />Too much fear can result in paralysis<br />
  15. 15. 2. Patience<br />Allow shares to fall significantly before purchase<br />Benefits: <br />This typically allows us to avoid buying in favour momentum stocks before they collapse...<br />...and also ensures that we can be more aware of the negatives when we are analysing the stocks<br />
  16. 16. 3. Make sure they are cheap<br />Buying fallen knives alone is not sufficient – valuation is a key requirement <br />
  17. 17. 4. Scenario testing<br />Make sure that a number of different outcomes are tested to ensure the company’s balance sheet is appropriate<br />
  18. 18. 5. Establish your circles of competence<br />We cannot hope to be experts on everything<br />Some subjects are harder than others<br />
  19. 19. 6. Watch market share moves<br />Industries which exhibit large moves in market shares of its competitors suggest that companies are more likely to implode<br />
  20. 20. 7. Consider capacity<br />Is it easy for capacity to exit the industry? Are incumbents involved in a race to the bottom?<br />Can capacity enter the industry easily and put a lid on returns?<br />
  21. 21. 8. Look for early warning signs<br />Analysts continue to focus on the P & L, but sometimes the greatest clues are in the balance sheet <br />
  22. 22. What doesn’t work for us in spotting value traps<br />Meeting management<br />They stretch the truth well and are typically very plausible <br />They cannot provide inside information<br />They really do believe conditions will improve...but belief is not always enough<br />Forecasting the future<br />Forecasting the future is very difficult and can lead to the risk of over-confidence and the refusal to consider other alternatives<br />Buy all falling knives<br />Might work...but will provide many sleepless nights<br />
  23. 23. Current Thoughts<br />
  24. 24. Update Monthly<br />Median FTSE 350 Price Earnings ratio tells a different story...<br />mercurygdriveDeptsEQUITYUKJoSPresentationsBack up dataMonthlyFTSE 350 median PE Morgan Stanley.xls<br />The median stock looks far less attractive...<br />Equities expensive<br />P/E<br />...and assumes the current level of profitability is sustainable<br />Equities cheap<br />Source: Morgan Stanley, 31.08.11<br />
  25. 25. ...especially as corporate profitability is high<br />US profit share of US GDP*<br />Mean reversion could come through increases in: labour costs, interest costs, tax rates, capital expenditure and raw materials<br />Corporate profitability high<br />Corporate profitability low<br />*Post-Tax with IVA CCAA adj<br />Source: BEA, Nomura Strategy research, February 2011, relates to US market and consensus estimates<br />
  26. 26. Appendix<br />
  27. 27. The Investec Contrarian Strategy is all about‘doing something different’.We employ a disciplined investment strategy, going against the herd to make long-term investments in cheap, out-of-favour companies with good balance sheets<br />The result is an equity strategy that has delivered alpha with relatively low volatility and relatively low correlation<br />Investment philosophy<br />MonthlyOnly<br />
  28. 28. Global Contrarian screen<br />Stage 1<br />Stage 2<br />Stage 3<br />Source: Factset, as at 30.06.11<br />For illustrative purposes only. This is not a buy or sell recommendation for any particular stock.<br />
  29. 29. Both Monthly & Qtr<br />Investec UK Special Situations Fund Portfolio breakdown<br />Update Monthly<br />We have US Dollar and Euro hedges in place equivalent to 5.5% and 11.2% of the portfolio, respectively<br />Portfolio concentration: top 10 = 48.0%, top 20 = 68.1%, top 30 =78.3%<br />The portfolio may change significantly over a short period of time.<br />This is not a buy or sell recommendation for any particular security.Source: Investec Asset Management, data as at 30.09.11<br />
  30. 30. Both Monthly & Qtr<br />Investec UK Special Situations FundActive positions as at 30 September 2011<br />Update Monthly<br />Top 10 underweight positions<br />Top 15 overweight positions<br />The portfolio may change significantly over a short period of time. This is not a buy or sell recommendation for any particular stock. Data as at 30.09.11. Source: Investec Asset Management<br />*Index is FTSE All Share<br />
  31. 31. Investec Global Special Situations Fund Top 20 equity holdings<br />Source: Factset, 30.09.11. Weighting in Mediobanca is net of a -1.23% short position in AssicurazioniGenerali (the gross weighting in Mediobanca is 2.68%).<br />
  32. 32. Update Quarterly<br />Investec Global Special Situations FundActive sector allocation as at 30 September 2011<br />Data providedJo Slater<br />Active sector allocation<br />The portfolio may change significantly over a short period of time.<br />Source: Factset, 30.09.11.<br />
  33. 33. A highly experienced and motivated investment team<br />UK Special Sits<br />
  34. 34. Important information<br />Both Monthly & Qtr<br />This document is not for general public distribution. If you are a private investor and receive it as part of a general circulation, please contact us. <br />The information discusses general market activity or industry trends and should not be construed as investment advice. The economic and market forecasts presented herein reflect our judgment as at the date shown and are subject to change without notice. These forecasts will be affected by changes in interest rates, general market conditions and other political, social and economic developments. There can be no assurance that these forecasts will be achieved. Investors are not certain to make profits; losses may be made.<br />The information contained in this document is believed to be reliable but may be inaccurate or incomplete. Any opinions stated are honestly held but are not guaranteed and should not be relied upon.<br />This communication is provided for general information only. It is not an invitation to make an investment nor does it constitute an offer for sale and is not a buy, sell or hold recommendation for any particular investment.<br />In the U.S., this communication should only be read by institutional investors, professional financial advisers and, at their exclusive discretion, their eligible clients, but must not be distributed to U.S. persons.<br />In Australia, this document is provided for general information only to wholesale clients (as defined in the Corporations Act 2001). It is not an invitation to make an investment nor does it constitute an offer for sale.<br />Outside the U.S., telephone calls may be recorded for training and quality assurance purposes. Issued by Investec Asset Management Ltd (IAM), October 2011. IAM is authorised and regulated by the Financial Services Authority.<br />

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