3. 3
the global etp inflow ytd september 2014
$190BN
global etp cumulative flow
Source: BlackRock | ETP Landscape
4. 4
global etp assets september 2014
$2.6TN
global etp assets and products
Source: BlackRock | ETP Landscape
5. south african active equity managers
how are they doing against the ALSI (SWIX)?
85% 11 out of 13
1995
63% 10 out of 16
1996
82% 14 out of 17
1997
33% 7 out of 21
1998
4% 1 out of 28
1999
23% 7 out of 31
2000
30% 19 out of 63 (40%)
2007
11% 6 out of 55 (33%)
2006
6% 3 out of 47 (13%)
2005
95% 42 out of 44 (75%)
2004
90% 38 out of 42
2003
90% 36 out of 40
2002
19% 7 out of 37
2001
51% 37 out of 73 (37%)
2008
19% 15 out of 78 (31%)
2009
38% 31 out of 82 (24%)
2010
58% 50 out of 86 (38%)
2011
19% 18 out of 97 (12%)
2012
40% 42 out of 104 (49%)
2013
?% ? out of ? (?)
2014
Data source: Morningstar
17%
of general equity managers are outperforming the SWIX over a 10 year basis;
21% are outperforming the ALSI June 2014
12. 12
international products
Tracker Product
Unit Trust
AUM
World Equity
ď
R3.8bn
North American Equity
ď
R4.6bn
UK Equity
ď
R370m
Europe (excl. UK) Equity
ď
R690m
Emerging Markets Equity
ď
R400m
Pan Africa (excl. SA Equity)
ď
R155m
April 2014
15. âPassive Investment Management, which is significantly cheaper and not demonstrably inferior to active management over the long term, is under-utilised in South Africaâ
Strengthening Retirement Savings
National Treasury - 2012
17. our philosophy
Understanding the source and nature of all risks one is exposed to provides a clearer line of sight into the extent and character of the salvageable premium on offer. The marriage between this and sound risk management practice and discipline is pivotal in reaching oneâs investment objectives.
18. 18
what is driving total return?
70's
80's
90's
2000
2010 +
market
beta
β
pure
alphaÎą
Îą
β
β
β
smart
beta
β+
β+
β+
95% of total mutual fund performance is explained by market beta + smart beta
Li & Qu; Financial Product Differentiation over the State Space in the Mutual Fund Industry (2010)
total
return
Îą
Îą
22. what is a factor?
A factor is a unique, systematic risk or theme that is common to a subset of securities on a capital market for which it is well evidenced and reasoned that a compensating return premium is available.
26. 26
price behaviour
ďthe propensity for securities to exhibit persistence in their price behaviour
What underpins the satrix momentum factor?
earnings revisions / surprises
ďanalysts / the sell side do have a significant impact on the local equity capital market
ďphilosophy | why does this factor premiums exist?
ďacademic theory is conclusive, it exists: Jegadeesh and Titman (1993), Fama and French (2008)
ďmarket systematically underestimates earnings due to the macro factor risk and then sharply rerates when confirmed by analysts and macro risks abate (Novy Marks) ⌠/ process
28. 28
stock is cheap on value screen
value investor buys
explaining momentum
momentum signal positive
momentum investor buys
momentum signal negative momentum investor sells
stock is expensive value investor sells
30. 30
return to momentum investor
explaining momentum
31. 31
style correlations (rank) | momentum factor
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
Jan 00
Jul 00
Jan 01
Jul 01
Jan 02
Jul 02
Jan 03
Jul 03
Jan 04
Jul 04
Jan 05
Jul 05
Jan 06
Jul 06
Jan 07
Jul 07
Jan 08
Jul 08
Jan 09
Jul 09
Jan 10
Jul 10
Jan 11
Jul 11
Jan 12
Jul 12
Jan 13
Jul 13
Book to Price
Log Market Cap
Volatility
Dividends to Price Ratio
Source: S&P
40. 40
ďhigh yield investment strategy
ďtop 30 stocks with the highest forward dividend yield
ďrebalance semi-annually
ďlarge cap + mid cap - property
what underpins the dividend + factor?
41. 41
the dna of the fund remains true to label
fundamental view
style exposure view
0
2
4
6
8
10
12
14
Nov 2008
Nov 2009
Nov 2010
Nov 2011
Nov 2012
Rolling One Year Index Dividend Yield
RESI
INDI
FINI
PREF
SAPY
DIVI
DTOP
SIMDIF
4.8%
5.0%
4.9%
4.6%
4.7%
4.6%
ALSI
3.1%
3.2%
3.2%
2.9%
2.8%
2.9%
SIMDIF
4.8%
5.0%
5.0%
4.5%
4.8%
4.9%
ALSI
3.0%
3.1%
2.9%
2.7%
3.1%
3.1%
historic dy
forward dy
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
Jan-13
May-13
Sep-13
Jan-14
Active factor exposure relative to ALSI
Size
Momentum
Trading Activity
Market Variability
Foreign Exposure
Yield
Growth
Value
Financial Leverage
Market Sensitivity
Primary Foreign
Listing
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
Jan-13
May-13
Sep-13
Jan-14
Active factor exposure relative to SWIX
Size
Momentum
Trading Activity
Market Variability
Foreign Exposure
Yield
Growth
Value
Financial Leverage
Market Sensitivity
Primary Foreign
Listing
3/12 6/12 9/12 2/12 3/12 5/12
3/12 6/12 9/12 12/12 3/12 5/12
46. 46
DISCLOSURE OF SIMULATED DATA USED IN PERFORMANCE CHARTS AND TABLES
The performance information presented in certain charts or tables represent back tested performance based on a combination of simulated index data and actual data for the Satrix unit trusts. However, for comparison purposes and/or portfolio construction where various unit trusts were included in charts or tables, the actual unit trust returns were used.
Clients should note that simulated data is not an indication of future performance, and may differ to the actual performance.
48. 48
55%
8%
6%
5%
6%
15%
5%
Domestic Cash
Domestic Property
Domestic ILB
International Bonds
International Equity
Domestic Bonds
Domestic Equity
Divi +
Equally Weighted
Momentum
Equal
Weighted
FUND DESIGN: STRATEGIC ASSET ALLOCATION
49. 49
Smart Beta Rationale: Equity Building Block
STRATEGY
INDEX EXPLAINED
BIAS
DIVIDEND PLUS
â˘30 high dividend yielding companies within the universe of Top 40 and Mid Cap Index
â˘Expected to pay the best normal dividends over the forthcoming year
â˘Fund will have a low correlation with other indices on the JSE
Value
EQUALLY WEIGHTED
TOP 40
â˘Top 40 Equally Weighted Index represents the 40 largest, most liquid shares listed on JSE
â˘Equal weighting methodology offers a more balanced exposure to all companies
Size
MOMENTUM
â˘Momentum is a composite of price and earnings momentum as measured by analyst revisions.
â˘Fund is negatively correlated to value investing
â˘Momentum Fund designed to be:
â˘Risk Controlled;
â˘Consistent and True to Label
â˘Robust blend of price and earnings momentum styles
Momentum
50. 50
Returns to 31 December 2013 | Source: MoneyMate and SIM | Back-tested
,pro forma
-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
ALSI Balanced Equity Carve-Out
Rolling
1 Year
Balanced Equity
Carve-Out
ALSI Active
Feb 09 -29.03% -37.59% 8.56%
Oct 08 -25.82% -30.87% 5.04%
Nov 08 -23.07% -27.68% 4.61%
Relative Protection â Rolling 1 year
Equity Building Block vs ALSI
51. 51
Returns to 31 December 2013 | Source: MoneyMate and SIM | Back-tested ,pro forma
returns
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
ALSI Balanced Equity Carve-Out
CONSISTENT
Outperformance over
ALL rolling 5 year
periods
Consistent Outperformance â Rolling 5 year
Equity Building Block vs ALSI
52. Domestic
Cash
Domestic
Ilbs
International
Bonds
DIVI PLUS
Intern.
Equity
Domestic
Property
Dom.
Bonds
Now add other asset classes
53. 53
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
2005/09/01
2006/01/01
2006/05/01
2006/09/01
2007/01/01
2007/05/01
2007/09/01
2008/01/01
2008/05/01
2008/09/01
2009/01/01
2009/05/01
2009/09/01
2010/01/01
2010/05/01
2010/09/01
2011/01/01
2011/05/01
2011/09/01
2012/01/01
2012/05/01
2012/09/01
2013/01/01
2013/05/01
2013/09/01
2014/01/01
Satrix Balanced Index Fund SA - Multi Asset - High Equity
Returns to 31 December 2013 | Source: MoneyMate and SIM | Back-tested
,pro forma ret.
Average
Outperformance
of 3.1%
annualised
Rolling 3 years
CONSISTENT
Outperformance over
ALL rolling 3 year
periods
Satrix Balanced vs Average Balanced
Manager
54. 54
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2007/09/01
2007/12/01
2008/03/01
2008/06/01
2008/09/01
2008/12/01
2009/03/01
2009/06/01
2009/09/01
2009/12/01
2010/03/01
2010/06/01
2010/09/01
2010/12/01
2011/03/01
2011/06/01
2011/09/01
2011/12/01
2012/03/01
2012/06/01
2012/09/01
2012/12/01
2013/03/01
2013/06/01
2013/09/01
2013/12/01
Satrix Balanced Index Fund SA - Multi Asset - High Equity
Returns to 31 December 2013 | Source: MoneyMate and SIM | Back-tested
,pro forma ret.
Average
Outperformance of
2.8% annualised
Rolling 5 years
CONSISTENT
Outperformance over ALL
rolling 5 year periods
Satrix Balanced vs Average Balanced Manager
55. 55
Name
2013
QR
2012
QR
2011
QR
2010
QR
2009
QR
2008
QR
Satrix Balanced Index Fund
17.56%
3
24.27%
1
9.82%
1
16.15%
1
19.31%
1
-8.65%
2
Prudential Balanced Fund
24.03%
1
20.72%
1
6.64%
2
13.45%
2
18.64%
2
-10.35%
3
Cadiz Managed Flexible Fund
15.46%
3
18.96%
1
5.65%
3
17.64%
1
22.43%
1
-11.53%
3
Momentum Balanced Fund
19.09%
2
18.93%
1
6.36%
2
9.89%
4
21.61%
1
-12.21%
3
Old Mutual Balanced Fund
20.03%
2
18.12%
2
6.83%
2
12.69%
2
18.39%
2
-14.44%
4
SA - Multi Asset High Equity
18.01%
/133
15.95%
/117
5.83%
/104
11.68%
/84
15.80%
/77
-8.46%
/72
Returns to 31 December 2013 | Source: MoneyMate and SIM | Back-tested ,pro forma ret.
CONSISTENT
Outperformance of Category and BM cognisant managers
Satrix Balanced vs Benchmark Cognisant Managers
56. 56
Returns highlighted in red, the fund has underperformed Satrix Balanced
Returns to 31 December 2013 | Source: MoneyMate and SIM | Back-tested ,pro forma ret.
Calendar Year
Allan Gray Balanced
Coronation Balanced Plus
Foord
Balanced
Satrix Balanced
2003
23.29%
17.68%
13.98%
17.48%
2004
23.38%
32.01%
22.59%
26.72%
2005
36.47%
35.02%
43.75%
32.78%
2006
30.26%
30.48%
32.39%
30.87%
2007
13.24%
13.09%
10.56%
13.04%
2008
-1.82%
-8.19%
-7.23%
-8.65%
2009
13.89%
23.00%
17.05%
19.31%
2010
10.41%
15.43%
15.54%
16.15%
2011
11.83%
6.77%
9.41%
9.82%
2012
13.32%
20.07%
21.91%
24.27%
2013
23.72%
25.60%
22.01%
17.56%
Cyclicality of Returns â Calendar Year Performance
Balanced Manager Selection
57. 57
Calendar Year
Allan Gray Balanced
Coronation Balanced Plus
Foord Balanced
2003
5.81%
0.21%
-3.50%
2004
-3.35%
5.29%
-4.13%
2005
3.69%
2.24%
10.97%
2006
-0.61%
-0.39%
1.53%
2007
0.19%
0.04%
-2.49%
2008
6.83%
0.47%
1.43%
2009
-5.43%
3.69%
-2.26%
2010
-5.74%
-0.72%
-0.61%
2011
2.01%
-3.06%
-0.41%
2012
-10.94%
-4.20%
-2.36%
2013
6.16%
8.04%
4.45%
Cyclicality around investment processes causes Returns to 31 December 2013 | Source: MoneyMate and SIM | Back-tested ,pro forma ret.
Cyclicality around investment processes causes underperformance
Cyclicality of Returns â Calendar Year Performance relative to Satrix Balanced
Balanced Manager Selection
58. 58
TER Date to 31 December 2013 | Source: ASISA
Fund
TER
Current
Proposed
Allan Gray Balanced
1.71%
33.3%
25.0%
Coronation Balanced Plus
1.65%
33.3%
25.0%
Foord Balanced
1.73%
33.4%
25.0%
Satrix Balanced
0.30%
0.0%
25.0%
Estimated Portfolio TER
1.70%
1.34%
Satrix Balanced: Active/Passive Blend
59. 59
TER Date to 31 December 2013
Source: ASISA
relative to peer group
outperformance
underperformance
Balanced Composite A (Passive + Active)
Balanced Composite B (Top 3)
Multi-Asset High Equity Average
Active Return (Composite A)
Active Return (Composite B)
2003
18.09%
18.34%
17.53%
0.56%
0.81%
2004
26.17%
25.95%
28.09%
-1.92%
-2.14%
2005
36.98%
38.38%
26.76%
10.22%
11.62%
2006
31.03%
31.08%
24.39%
6.64%
6.69%
2007
12.52%
12.35%
12.48%
0.04%
-0.13%
2008
-6.46%
-5.68%
-8.58%
2.12%
2.90%
2009
18.32%
17.94%
15.77%
2.55%
2.17%
2010
14.40%
13.78%
11.44%
2.96%
2.34%
2011
9.46%
9.35%
5.71%
3.75%
3.64%
2012
19.84%
18.34%
16.01%
3.83%
2.33%
2013
22.22%
23.79%
17.72%
4.50%
6.07%
Calendar Year Analysis for Composites
60. Diversification
Lower fees
Consistency
No performance compromise
Satrix Balanced: The real value âŚ
âŚ/ Low Equity
62. 62
msci world | tracking approach
â˘index methodology
â˘The MSCI World index is a market-cap weighted index that aims to measure the equity performance of developed markets throughout the world. With 1 612 constituents, the index covers approximately 85% of the free float- adjusted market capitalization in each country (23 countries).
â˘The index is reviewed quarterlyâin February, May, August and Novemberâ with the objective of reflecting change in the underlying equity.
â˘optimisation strategy using barra risk model
â˘+/- 800 stocks and etfâs
â˘Understanding index construction rules.
â˘Monitoring & managing Corporate Actions and their effect on the portfolio.
â˘Trading and Broker network â use Barclays, CITI, Merrill's etc.
â˘Cash flows â cash flows are managed using a representative combination of I- Shares to reduce trading costs.
â˘Fund may hold up to 10% of total fund market value in I-Shares
â˘ex-ante active risk: 17 bps
63. 63
SATRIX MSCI WORLD EQUITY FEEDER FUND
â˘Management Style
â˘The fund uses optimisation, sampling and derivative instruments to track the MSCI World Index.
â˘As at August 2014, holds 862 constituents vs. 1615 in the MSCI World Index.
â˘Tracking Error
â˘Average annualised tracking error of 0.68% since inception measured over 3-year periods.
â˘Maximum annualised tracking error of 1.28% attained in July 2007.
â˘Annualised 3-year tracking error as at September 2014: 0.41%
64. LOW TRACKING ERROR IN VOLATILE MARKET CONDITIONS
Source: Morningstar, SI; updated to 30 September 2014.
0%
5%
10%
15%
20%
25%
30%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
Jul 07
Sep 07
Nov 07
Jan 08
Mar 08
May 08
Jul 08
Sep 08
Nov 08
Jan 09
Mar 09
May 09
Jul 09
Sep 09
Nov 09
Jan 10
Mar 10
May 10
Jul 10
Sep 10
Nov 10
Jan 11
Mar 11
May 11
Jul 11
Sep 11
Nov 11
Jan 12
Mar 12
May 12
Jul 12
Sep 12
Nov 12
Jan 13
Mar 13
May 13
Jul 13
Sep 13
Nov 13
Jan 14
Mar 14
May 14
Jul 14
Sep 14
Volatility of MSCI World Index
3 Year Tracking Error (annualised)
Sanlam World Equity Tracker
MSCI World Index (USD)
65. 65
annualised performance
portfolio
benchmark
excess
3 months
-2.1%
-2.2%
0.1%
ytd
4.1%
3.9%
0.2%
1 year
12.4%
12.2%
0.2%
3 years
17.8%
17.9%
-0.1%
5 years
10.7%
10.9%
-0.1%
msci portfolio performance (usd) | sep 2014
Performance figures are provided by Sanlam International Investments.
All fund figures are gross of investment management fees and reported in USD.
1y attribution
â˘aggregate residual effect +24bps
â˘allocation -7bps, selection +54bps, market timing -2bps, currency -11bps
â˘return adjustment -10bps
â˘trading effect -1bps
66. 66
PERFORMANCE CONSISTENTLY ABOVE THE AVE GLOBAL GENERAL EQUITY MANAGER IN SA
Source: Morningstar, SI; updated September 2014.
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Jun 07
Aug 07
Oct 07
Dec 07
Feb 08
Apr 08
Jun 08
Aug 08
Oct 08
Dec 08
Feb 09
Apr 09
Jun 09
Aug 09
Oct 09
Dec 09
Feb 10
Apr 10
Jun 10
Aug 10
Oct 10
Dec 10
Feb 11
Apr 11
Jun 11
Aug 11
Oct 11
Dec 11
Feb 12
Apr 12
Jun 12
Aug 12
Oct 12
Dec 12
Feb 13
Apr 13
Jun 13
Aug 13
Oct 13
Dec 13
Feb 14
Apr 14
Jun 14
Aug 14
5-Year Rolling Return
25th Percentile
50th Percentile
75th Percentile
90th Percentile
Satrix MSCI World Equity Index Feeder Fund
68. 68
ďhow will we define benchmarks in future?
ďhow is my risk budget defined?
ďhow do I want to spend my risk budget?
ďwhat is the risk character of my active versus passive blend?
ďam I happy with my intended and unintended risk / style factor exposures?
portfolio construction | philosophy
Active Process
ďorganisation and people
ďphilosophy and process
ďis the manager skilful?
ďIs the âalphaâ signature âsignificantâ and âpredictableâ given varying environments?
ďpricing, turnover and transaction costs
âPassiveâ Process
ďcoverage
ďinvestability and liquidity
ďpricing, turnover and transaction cost
ďindex construction rules
69. 69
process | lets apply the logic | momentum & div+
âmy risk budget is defined in the relative space and tracking error is important. I would like to consider different combinations of the two factors and understand how my tracking error is spent.â
3.89
2.35
1.46
1.05
0.41
-0.16
0
0
0.5
1.43
1.97
3.04
5.29
7.17
-1
0
1
2
3
4
5
6
7
8
100 /
0
75 /
25
65 /
35
60 /
40
50 /
50
25 /
75
0 /
100
tracking error (ex- ante)
momentum weight / div+ weight variations
active risk (tracking error) contribution
ex ante
Div+
Mom
âŚthen add other portfolio construction process pillars
1) + targeted active risk level (+ vanilla passive)
2) + factor / risk diagnostic
3) + active manager skill
4) + fundamental and qualitative value
70. 70
The SATRIX Advantage
Most experienced team in the market
Only player objective on ETF | UT | Segregated
Portfolio Construction and Risk Management
Growing business in established investment core
Market understanding and relationship
World class systems, dealing & compliance
Representation on FTSE/JSE advisory committee
Driven by passion
Leverage off top fundamental team