PSG flexible fund 20100930


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  • Each investment firm will have a different culture. Understanding a firm’s culture and how they think is very important to understanding how they will treat and view your money. We have an equity stake in this business, so we are owners, though we are more than that, we view ourselves as a partnership. We have a significant investment in this partnership both in terms of our time and wealth, but also in terms of our personal investment in the funds we run. We have our own money tied up in this. However, more importantly, we view the investors in our funds as partners and that creates a special set of rules that we take very seriously. We view ourselves as stewards of our clients capital , meaning we treat it exactly the same as our own. From that comes a culture of diligence – we had better understand how we apply the money entrusted to us – and that comes through diligent research in the companies that we invest in. You can expect us to keep turning over as many stones so that we can get the odds in our favour to eliminate mistakes and generate long term performance for you.
  • There is a great study which asks which factors are the most important in choosing an investment firm that will deliver great performance in the future . Those who rely on past performance to select managers will likely be disappointed: research by the Frank Russell Company shows there is a negative correlation between a manager’s past three years’ performance and the subsequent three years’ performance. What it does say, based on an exhaustive study of a large sample of US investment firms is that those companies where: Managers have a high ownership in the firm, Which have low personnel turnover, Who run small portfolios of assets and have a rigorous, bottom up approach to selecting companies will most likely generate superior returns in the future for you. Interestingly – over the past 10 years we have only had one staff member leave, and that was to move into a different career.
  • PSG flexible fund 20100930

    1. 2. PSG has a track record in value creation CAGR = 56%* R100k invested in 1995 = R60m today * - Source : PSG Annual Report, Including unbundling of Capitec and re-investment of all dividends
    2. 3. By aligning themselves with great entrepreneurs... 2 PSG Tanzanite
    3. 4. Our Culture : Partnership . Which factors have the greatest predictive power in future out-performance by an investment firm? † † - Source: Institutional or Entrepreneurial Management? An analysis of organizational factors and their effect on manager performance. By David Finstad Factors PSG Tanzanite (Pty) Ltd Equity ownership in firm  Low personnel turnover  Small portfolio sizes  Bottom-up stock selection  Value philosophy 
    4. 5. PSG Flexible Fund <ul><li>Name Change </li></ul><ul><li>On 1 September 2010 the name of the fund changed from the PSG Tanzanite Flexible Fund to the PSG Flexible Fund </li></ul><ul><li>Cosmetic change only: Fund manager and investment philosophy remains exactly the same </li></ul>
    5. 6. Simplified Product Offering Simplified product offering spanning the risk spectrum
    6. 7. PSG Flexible Fund - The Team <ul><li>Jan Mouton – Fund Manager </li></ul><ul><li>B.Acc (Stellenbosch) Cum Laude </li></ul><ul><li>Hons B.Acc (Stellenbosch) </li></ul><ul><li>CA(SA) with articles at PricewaterhouseCoopers </li></ul><ul><li>M.Phil Finance (Cambridge) </li></ul><ul><li>Director of listed PSG Group Ltd and Capevin Investments Ltd </li></ul><ul><li>Paul Bosman – Research Analyst </li></ul><ul><li>B.Comm Institutional Investments (Stellenbosch) </li></ul><ul><li>Hons B.Comm Financial Risk Management (Stellenbosch) </li></ul><ul><li>CFA Charterholder </li></ul><ul><li>Henno Vermaak – Research Analyst </li></ul><ul><li>B.Comm Actuarial Science (Stellenbosch) </li></ul><ul><li>Hons B.Comm Actuarial Science (Stellenbosch) </li></ul><ul><li>Fellow of the Faculty of Actuaries (Edinburgh) </li></ul><ul><li>CFA Charterholder </li></ul>
    7. 8. The Year to 30 Sep 2010 Sources: © 2010 Morningstar, Inc. All Rights Reserved, I-Net Bridge PSG Flexible Fund average asset allocation for the year to 30 Sep 2010: 54% domestic equity, 20% foreign equity & 26% cash PSG Flexible Fund +25.0% ZAR appr. vs. USD 7.4% Inflation (Aug) +3.5% ZAR appr. vs. EUR 13.9% All Share (incl. div) +21.1% ZAR appr. vs. GBP 9.2% Resource 20 +10.4% DJ Industrial - ZAR +2.8% Industrial 25 +26.3% FTSE 100 – ZAR -1.8% Financial 15 +19.1% DAX – ZAR -5.5% Money Market +7.2% MSCI World - ZAR -3.1% All Bond +15.3% Brent Oil - ZAR +12.6%
    8. 9. PSG Flexible Fund <ul><li>Regulated unit trust – easy to understand </li></ul><ul><li>Flexible asset allocation mandate </li></ul><ul><ul><li>Equity exposure can vary between 0% to 100% </li></ul></ul><ul><ul><li>Able to invest up to 20% directly offshore </li></ul></ul><ul><li>Asset allocation is done based on opportunity: </li></ul><ul><ul><li>If we can find many undervalued shares, we have a higher equity exposure and lower cash exposure </li></ul></ul><ul><li>Benchmark: The fund aims to achieve high returns (inflation + 6% after fees) while maintaining relatively low levels of risk </li></ul><ul><ul><li>Since 1 Jan 1966 the JSE All Share Index (incl. dividends) returned inflation + 7.7% before fees </li></ul></ul>
    9. 10. Benefits of a Flexible Mandate Over the five years to 30 Sep 2010 the PSG Flexible Fund outperformed the average of the Domestic Equity General sector whilst taking much lower risk <ul><li>The fund is in the Domestic Asset Allocation Flexible category, the domestic category with the least constraints </li></ul><ul><ul><li>Fewer constraints = wider opportunities = higher potential return </li></ul></ul><ul><ul><li>Provides diversification across equity, property, offshore (max 20%), bonds and money market </li></ul></ul><ul><ul><li>Lower risk compared to equity-only funds </li></ul></ul><ul><li>If used properly, a flexible mandate results in higher returns at lower levels of risk </li></ul>
    10. 11. Benefits of a Flexible Mandate A flexible mandate can help you navigate difficult markets Source: I-Net
    11. 12. Investment Philosophy <ul><li>The core of our philosophy is to buy shares in exceptional businesses at low valuations </li></ul><ul><li>Characteristics of exceptional businesses </li></ul><ul><ul><li>Managed by individuals with proven track records </li></ul></ul><ul><ul><li>Some form of sustainable competitive advantage </li></ul></ul><ul><ul><li>Clear and understandable business model </li></ul></ul><ul><ul><li>Positive free cash flow, which is distributed to shareholders in the form of dividends </li></ul></ul><ul><ul><li>Honest and transparent financial reporting </li></ul></ul><ul><li>If we are unable to find exceptional businesses trading at low valuations, we patiently wait in money market instruments </li></ul>
    12. 13. Fund Statistics – 30 Sep 10 <ul><li>PSG Flexible Fund managed since 1 Nov 04 </li></ul><ul><li>Fund size grew from R3m to R683m </li></ul><ul><li>Annualised performance to 30 Sep 10, including income: </li></ul><ul><li> Fund Inflation+6% JSE ALSI </li></ul><ul><li>Volatility (5 years): 11.6% (JSE ALSI = 19.1%) </li></ul>Over the 5 years to 30 Sep 10, the fund outperformed its benchmark and the JSE All Share Index whilst taking much lower risk. Average cash exposure for the 5 years to 30 Sep 10 was 23.0%. 5 years 16.0%pa 12.9%pa 14.9%pa 4 years 13.6%pa 13.4%pa 10.1%pa 3 years 11.9%pa 13.8%pa 2.3%pa 2 years 17.9%pa 10.9%pa 14.2%pa 1 year 25.0%pa 9.5%pa 21.1%pa
    13. 14. Relative Rankings <ul><li>Rankings in the Domestic Asset Allocation Flexible sector as at 30 Sep 10: </li></ul><ul><li> Return Rank </li></ul><ul><li>1 year 25.0% 4 th out of 55 funds </li></ul><ul><li>2 years 17.9%pa 3 rd out of 51 funds </li></ul><ul><li>3 years 11.9%pa 1 st out of 46 funds </li></ul><ul><li>5 years 16.0%pa 3 rd out of 28 funds </li></ul><ul><li>Over 5 years the fund had the 2 nd best Sharpe Ratio out of 28 funds. Sharpe Ratio measures return per unit of risk (volatility) and is useful in comparing funds in different risk categories </li></ul>Source: © 2010 Morningstar, Inc. All Rights Reserved Over 3 years the fund is ranked 2 nd out of all 494 funds
    14. 15. Risk vs. Return The blue line joins the risk-free Govt Bond (bottom left) with the JSE ALSI (top right) – funds positioned above this line added value by delivering higher returns given the risk taken Source: PSG Tanzanite Research, Morningstar
    15. 16. Return & Asset Allocation We buy when there is fear and panic - our equity exposure increased to almost 100% in Mar 09, but has reduced over the past year as equity valuations recovered Source: PSG Tanzanite Research
    16. 17. Fund vs. JSE All Share Index The PSG Flexible Fund is 31% above its May 2008 high, whereas the JSE ALSI needs to increase by a further 5% to reach a new high Source: PSG Tanzanite Research
    17. 18. Price Earnings Ratio (“PE”) = 13.8 Growth in underlying earnings per unit was 13.1%pa vs. growth of Fund at 19.1%pa. Despite the strong rand, earnings in rand is showing growth again Source: PSG Tanzanite Research
    18. 19. Price to Book Ratio = 1.8 Average price to book is 1.7 - similar to current levels. Growth in underlying NAV per unit was 17.2%pa, slightly behind growth of Fund at 19.1%pa. Source: PSG Tanzanite Research
    19. 20. Asset Allocation – 30 Sep 10 <ul><ul><ul><li>Resources 9.3% AGL & SOL </li></ul></ul></ul><ul><ul><ul><li>Financials 11.1% No large banks </li></ul></ul></ul><ul><ul><ul><li>Industrials 26.3% </li></ul></ul></ul><ul><ul><ul><li>Property 3.5% None local, only CSO </li></ul></ul></ul><ul><ul><li>Domestic equity 50.2% </li></ul></ul><ul><ul><li>Resources 0.2% </li></ul></ul><ul><ul><li>Financials 8.2% Mostly Berkshire Hathaway </li></ul></ul><ul><ul><li>Industrials 9.2% Includes BTI </li></ul></ul><ul><ul><li>Property 1.3% </li></ul></ul><ul><ul><li>Foreign equity 18.9% </li></ul></ul><ul><ul><li>Domestic cash 30.6% </li></ul></ul><ul><ul><li>Foreign cash 0.3% </li></ul></ul><ul><ul><li> 100.0% </li></ul></ul>Including domestic listed rand hedge shares, our effective rand hedge exposure is 41.2% Total Equity = 69.1%
    20. 21. The Fund’s Exposures – Strong Stable Businesses
    21. 22. Top 10 Holdings – 30 Sep 10 <ul><li> 30 Sep 10 30 Sep 09 </li></ul><ul><li>1. Steinhoff Int Holdings Ltd 9.1% 9.9% </li></ul><ul><li>2. Capitec Bank Holdings Ltd 8.1% 7.1% </li></ul><ul><li>3. Berkshire Hathaway Inc 6.9% 7.9% </li></ul><ul><li>4. Sasol Ltd 6.6% 1.2% </li></ul><ul><li>5. BAT Plc 4.8% 4.2% </li></ul><ul><li>6. Capital Shopping Centres Group Plc 3.5% 2.7% </li></ul><ul><li>7. Anglo American Plc 2.7% 4.3% </li></ul><ul><li>8. CIC Holdings Ltd 2.5% 1.9% </li></ul><ul><li>9. EOH Holdings Ltd 2.3% 1.3% </li></ul><ul><li>10. SABMiller Plc 2.3% 4.7% </li></ul><ul><li>Total – Top 10 48.7% </li></ul><ul><li>Total – Top 20 62.7% </li></ul>We are long term investors, not traders. Top 10 different to that of JSE All Share Index.
    22. 23. Breakdown of Returns Good contribution from Capitec, Steinhoff, CIC, SABMiller, Anglo & Shoprite. Disappointing contribution from Liberty International & Berkshire Hathaway (ZAR appreciation). Source: PSG Tanzanite Research
    23. 24. Alignment of Interests <ul><li>In 24 out of the 33 shares that we hold we are partners with a large strategic shareholder </li></ul><ul><li>Examples included in our top 10 holdings: </li></ul><ul><li>Shareholder Stake </li></ul><ul><li>Steinhoff Steinhoff/Directors 17% </li></ul><ul><li>Capitec Bank PSG/Le Roux/Directors 57% </li></ul><ul><li>Berkshire Hathaway Warren Buffett 24% </li></ul><ul><li>Capital Shopping Centres Gordon Family 15% </li></ul><ul><li>CIC Paladin 49% </li></ul><ul><li>EOH Asher Bohbot/Directors 9% </li></ul><ul><li>SABMiller Altria/Santo Domingo 42% </li></ul><ul><li>As management are shareholders, interests are aligned - management is focussed on long term sustainability </li></ul><ul><li>Via the PSG Flexible Fund you are co-invested with these strategic shareholders </li></ul>
    24. 25. Summary - One Stop Solution <ul><li>The PSG Flexible Fund aims to be a one stop solution </li></ul><ul><ul><li>Global brands at bargain prices - price to book of 1.8 </li></ul></ul><ul><ul><li>Positioned defensively – equity exposure of 69% (including 41% rand hedge) </li></ul></ul><ul><ul><li>Diversification across country and industry -> reduces risk </li></ul></ul><ul><li>Suitable for investors who </li></ul><ul><ul><li>Have a medium- to long-term investment horizon </li></ul></ul><ul><ul><li>Wish to have exposure to the equity market but with managed risk levels </li></ul></ul><ul><ul><li>Wish to build or preserve wealth </li></ul></ul><ul><li>The fund manager and team are co-investors </li></ul>One of the biggest comforts of flying is that the pilot is also on board…
    25. 26. Disclaimer <ul><li>Collective Investment Schemes in Securities (Unit Trusts) are generally medium to long-term investments. The value of participatory interests (units) may go down as well as up and past performance is not a guide to future performance. Collective Investment Schemes are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from PSG Collective Investments Limited. Commissions and incentives may be paid and if so, are included in the overall costs. Forward pricing is used. PSG Collective Investments Limited is a member of the Association for Savings and Investment South Africa (ASISA). </li></ul>