STANLIB Balanced Funds“Balanced Investing in volatile markets”                       November 2010
Agenda● Balanced Investing in volatile markets● Portfolio Activity● Stock Focus    ● ArcelorMittal Investment Case● Portfo...
Balanced Investing in volatile markets
Balanced funds offer risk diversification during periods of market volatility●   A global balanced portfolio solution prov...
Balanced mandates provide diversification without unduly compromising return 1990       1991       1992       1993      19...
Various asset classes used to reduce the impact of market volatility                                                      ...
Asset allocation meeting: Decisions informed by in-house specialists                     Fixed Income           Equities  ...
Global Best Investment View Mandate:maximum & minimum asset allocations over last 3 years      Asset Class                ...
Current asset allocation (%)                The Balanced Fund                              The Balanced Cautious Fund     ...
Portfolio Activity
Market performance as at 30 September 2010 (%): Local (Rand)                             3 Month   1 Year   3 Year Equitie...
Portfolio activity: global assets     Switched bonds into equities as bond yields dropped                             Comp...
Changes in US mutual fund assets 13
Global equity portfolio regional and sector exposures             Regional Exposure vs MSCI World as at                   ...
Portfolio activity: SA assets                                                                                  Asset      ...
Current equity sector allocation (%)            Technology           Health Care             6.1       Consumer Goods     ...
Biggest over-weights and under-weights versus the SWIXTop 5 Overweight                 Fund Weight %    Benchmark Weight %...
ArcelorMittal Investment Case“Fundamentals are attractive – sentiment not so”
Key considerations  ● Buy was executed after agreement, facilitated by the DTI, was reached with Kumba  ● This agreement s...
Recent share price history                                        Kumba 13000                                     dispute ...
SA steel volumes  •     Volumes and capacity utilisation are recovering                                                   ...
Operating margin recovery      45%      40%      35%      30%      25%      20%      15%      10%      5%      0%      -5%...
Attractive valuation                                  25008.07.0                                  20006.05.0              ...
Financial forecasts                      2009a   2010e   2011e   2012e       EPS            -88.9    815    1180    1760  ...
Uncertainties  ●   Kumba iron ore dispute       ●   Referred to arbitration       ●   Worst case scenario priced-in, subst...
Portfolio Performance
Latest performance -30 September 2010 (%)                                  6 month   1 Year   5 Year      Balanced Fund   ...
Quartile Performance – It’s been a good year to dateFunds                                 3 Month     6 Month   YTD   1 Ye...
Investment Environment          &   Outlook into 2011
Investment environment – what we said at the start of the yearGlobal Outlook● Sustained economic recovery from a deep rece...
Key global macro themes for 2011● Fed continues with liquidity programme for most of 2011, but starts to ease-up     towar...
Fixed income flows into emerging market funds 32
Emerging market equity’s weight in MSCI All Countries Index   %, weight in index       15       14       13       12      ...
Key SA macro themes for 2011 ● SA consumer activity set to improve in 2011, helped by real wage increases and growth      ...
SA growth in consumer spending vs disposable income%, q/q       13       12       11          Disposable Income       10  ...
SA consumer creditR billion, month-on-month, 3-month moving average      17      16      15      14      13      12      1...
Growth in private sector fixed investment spending vs prime interest rates %y/y                                           ...
SA fixed investment spending by institutional groupIndex Q1 2003 = 100       480                                          ...
Portfolio positioning summary                                                                           Portfolio• Equitie...
Thank You
Legal NoticeInformation and ContentThe information and content (collectively information) provided herein are provided by ...
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Stanib balance fund_q3_2010

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Stanib balance fund_q3_2010

  1. 1. STANLIB Balanced Funds“Balanced Investing in volatile markets” November 2010
  2. 2. Agenda● Balanced Investing in volatile markets● Portfolio Activity● Stock Focus ● ArcelorMittal Investment Case● Portfolio Performance● Investment Environment & Outlook into 20112
  3. 3. Balanced Investing in volatile markets
  4. 4. Balanced funds offer risk diversification during periods of market volatility● A global balanced portfolio solution provides investors with exposure to a number of asset classes, domestic and foreign, that are positively and negatively correlated. This diversification of assets provides investors with the comfort that their exposure to risk is contained without unduly compromising return● The key to a successful global balanced solution is to combine asset allocation expertise at the portfolio construction level along with stock selection skills at the individual asset class sub-level● The STANLIB Balanced Franchise is responsible for asset allocation decisions. However, the underlying asset classes within each balanced portfolio are managed by specialists in their field● Asset allocation views have both a strategic and a tactical component. The strategic component is long-term and is based largely on macro-economic forecasts and how the different asset classes will perform under various conditions● The tactical component is shorter-term and is based on the realisation that asset prices may dislocate from their fundamentals, allowing opportunities to be exploited● Once the asset allocation views have been formulated, the underlying asset classes are then managed by the relevant specialist. This collective outcome captures the all the extensive expertise available at STANLIB4
  5. 5. Balanced mandates provide diversification without unduly compromising return 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Global Global SA Listed Global SA Listed SA Listed SA Listed SA Listed SA Listed GlobalSA Cash SA Equity SA Bonds SA Equity SA Equity SA Bonds SA Bonds SA Equity SA Equity SA Equity Equity Equity Prop Bonds Prop Prop Prop Prop Prop Bonds 21% 31% 28% 55% 23% 30% 29% 61% 41% 32% 46% 51% 28% 61% 20% 41% 41% 50% 27% 45% Global Global Global Global Global SA Listed Global Global GlobalSA Bonds Balanced Balanced Global SA Bonds SA Bonds SA Equity SA Equity SA Equity SA Bonds Balanced Equity Bonds Equity Bonds Equity Prop Bonds Equity Equity 16% 46% 13% Bonds 37% 16% 18% 25% 47% 19% 17% 17% 27% 18% 25% 35% 22% 56% 27% 32% 33% Global Global Global SA Listed Balanced SA Cash SA Cash SA Cash SA Cash Balanced SA Bonds SA Equity SA Cash SA Equity Balanced Balanced Balanced Balanced SA Cash SA Listed Bonds Equity Bonds Prop 26% 16% 11% 16% 18% 47% 19% 29% 12% 16% 18% 33% 30% 13% 12% Prop 14% 12% 36% 23% 21% Global Global Global Global SA Listed SA ListedBalanced Balanced SA Bonds Balanced Balanced SA Cash SA Bonds SA Cash Balanced Balanced Balanced SA Bonds SA Cash SA Cash Bonds Equity Equity Equity Prop Prop 0% 7% 32% 16% 14% 17% 5% 11% 28% -6% 14% 15% 9% 9% 24% 11% 31% 23% 28% -4% Global Global Global Global Global Global Global GlobalSA Equity SA Cash SA Cash SA Equity SA Listed SA Bonds SA Bonds SA Equity - SA Cash SA Cash SA Bonds Balanced Equity Bonds Bonds Bonds Equity Bonds Bonds Equity -5% 19% 15% 10% Prop 4% 29% 18% 9% 12% 8% 11% -7% 6% 24% 5% 8% 7% 18% 7% 2%SA Listed SA Listed SA Listed Global Global Global Global Global SA Bonds SA Equity SA Bonds SA Bonds Balanced Balanced SA Cash Balanced SA Cash SA Cash SA Cash SA Bonds Prop Prop Prop Bonds Equity Equity Equity Equity 14% -2% -9% 7% 7% 2% 16% 7% 10% 7% 7% -1% -11% 18% 13% -17% 3% -2% 7% -18% Global SA Listed SA Listed SA Listed SA Listed Global SA Listed Global Global Global Global Global SA Cash SA Equity SA Equity SA Equity SA Equity SA Bonds SA Bonds SA Equity Equity Prop Prop Prop Prop Bonds Prop Equity Bonds Bonds Bonds Bonds 13% 8% -4% -10% 0% 5% 4% -23% -17% 2% -3% -10% -10% -1% 8% -43% -13% -7% 7% -16% 5
  6. 6. Various asset classes used to reduce the impact of market volatility Current ExposureDomestic listed equity Domestic listed property Domestic bonds - government and corporate (credit) Domestic cash Global listed equity Global listed property Global bonds - government and corporate (credit) Global cash Derivatives 6
  7. 7. Asset allocation meeting: Decisions informed by in-house specialists Fixed Income Equities Economics Property (Global) (Global) Balanced Team asset Balanced Team asset allocation review allocation outcome and decisions applied across all mandates SA Equity Sector Review Best Strategic Investment Mandates View RESI INDI FINI Mandates 7 Quarterly Meetings
  8. 8. Global Best Investment View Mandate:maximum & minimum asset allocations over last 3 years Asset Class Max Min SA Equities 69 54.2 SA Listed Property 5.4 1.9 SA Bonds 18.4 2.4 SA Cash 15 2.2 Global Equity 15.9 0.9 Global Bonds 7.1 0.0 Global Cash 8.9 0.0 8
  9. 9. Current asset allocation (%) The Balanced Fund The Balanced Cautious Fund Fund BM Asset Fund BM Asset Weight Weight Class Weight Weight Class Current Current SA Equities 58.9 60 Total Equity SA Equities 29.4 25 Total Equity Exposure is 73.4% Exposure is 39.6% SA SA Property 3.6 0 Property 4.9 5 SA Bonds 6.1 25 SA Bonds 10.4 15 SA Cash 16.7 0 SA Cash 41.9 45 Global Global 14.4 9 10.2 4 Equity Equity Global Global 0 6 3.9 6 Bonds Bonds 9
  10. 10. Portfolio Activity
  11. 11. Market performance as at 30 September 2010 (%): Local (Rand) 3 Month 1 Year 3 Year Equities: SWIX 14.3 21.8 4.2 Listed Property: SAPY 13.7 30.8 10.9 Bonds: ALBI 8.0 15.3 10.1 Cash: STEFI Comp Index 1.7 7.2 9.6 Global (US Dollar) Equity: MSCI World Index 13.8 6.8 -8.3 Bonds: Barclays Global Aggregate Index 7.3 6.1 7.4 11
  12. 12. Portfolio activity: global assets Switched bonds into equities as bond yields dropped Comparison of S&P 500 Dividend Yield and 10-Year Treasury Yield 18 16 14 12 Asset Class % 30 June 30 Sepyield (%) 10 8 Global Equity 70.9 100.0 6 4 Global Bonds 29.1 0.0 2 0 Global 0.0 0.0 Cash Jan-60 Jan-64 Jan-68 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 10-Year Treasury Billl S&P 500 Dividend Yield 12
  13. 13. Changes in US mutual fund assets 13
  14. 14. Global equity portfolio regional and sector exposures Regional Exposure vs MSCI World as at Sector Positioning vs MSCI World as at 30 September 2010 30 September 2010Emerging Markets Technology Cash Consumers Asia ex Japan Industrials Japan Cash North America Services United Kingdom Europe ex UK Financials -10% -5% 0% 5% 10% 15% 20% 25% -20% -15% -10% -5% 0% 5% 10% 15% 14
  15. 15. Portfolio activity: SA assets Asset 30 June 30 Sep● Increased the duration of the bonds to a neutral ALBI Class % ● Bought the long end (greater than 12 years) of the curve by switching short dated bonds SA Equity 69.7 69.3● Reduced exposure to bonds as yields dropped SA Prop 4.2 4.2 ● Continued foreign demand for bonds ● Improving inflation data increased the possibility of further rate cuts SA Bonds 11.0 7.0● Proceeds from bonds into cash – favorable risk adjusted return SA Cash 15.1 19.4● Marginal buyers of equity – remain overweight 15
  16. 16. Current equity sector allocation (%) Technology Health Care 6.1 Consumer Goods 8.0 Industrials 8.2 Oil & Gas 8.2 Telecommunications 12.9 Consumer Services 13.5 Basic Materials 19.6 Financials 23.5 0 5 10 15 20 25 16
  17. 17. Biggest over-weights and under-weights versus the SWIXTop 5 Overweight Fund Weight % Benchmark Weight %Investec Ltd 4.2 1.0Sasol 8.2 5.4Woolworths Holdings 3.6 0.8ArcelorMittal South Africa Ltd 3.4 0.7Massmart Holdings 3.8 1.1Top 5 Underweight Fund Weight % Benchmark Weight %Naspers - 3.7Anglo Platinum - 2.5Shoprite - 1.9Remgro - 1.9Standard Bank Group 3.3 4.8 17
  18. 18. ArcelorMittal Investment Case“Fundamentals are attractive – sentiment not so”
  19. 19. Key considerations ● Buy was executed after agreement, facilitated by the DTI, was reached with Kumba ● This agreement stabilised iron ore input costs and sustainability of Saldanha Steel ● Correlated to SA economic recovery and GDFI The certainties The uncertainties ● Steel economics ● Kumba iron ore dispute ● Prices ● ICT acquisition ● Volumes ● BEE deal ● Costs ● ZISCO acquisition ● Cash flow adequacy ● Competition Commission fines ● Valuations 19
  20. 20. Recent share price history Kumba 13000 dispute over Sishen Mine 12000 11000 Reintroduced 10000 stock into portfolio at 2% overweight Portfolio holding 9000 reduced to zero. 8000 7000 20
  21. 21. SA steel volumes • Volumes and capacity utilisation are recovering Transportation Automotive1800 100% 2% 6%1600 90% Pipe and tube Construction 80% 14% 25%1400 70%1200 60% Packaging1000 6% Converters 50% Machinery 9% 800 8% 40% 600 Furniture and 30% appliances Service centres 400 20% 2% 21% 200 10% Energy, mining and chemicals 0 0% 7% Export sales Domestic sales Domestic sales % total 21
  22. 22. Operating margin recovery 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% 22
  23. 23. Attractive valuation 25008.07.0 20006.05.0 15004.0 10003.02.0 5001.00.0 0 EV / EBITDA (CY2010) EV / ton (US$) 23
  24. 24. Financial forecasts 2009a 2010e 2011e 2012e EPS -88.9 815 1180 1760 EPS growth % 1017 45 49.2 PE -93.4 10.2 7 4.7 DPS 0 300 400 600 DPS growth % 33 50 DY % 0 3.6 4.8 7.2 NAV cps 5180 5100 5300 5500 FreeCFps 730 795 1250 1836 RoE % -1.4 12.4 17.8 21.1 24
  25. 25. Uncertainties ● Kumba iron ore dispute ● Referred to arbitration ● Worst case scenario priced-in, substantial upside potential ● ICT acquisition & BEE deal ● Previously announced structure under review ● Subject to mining rights clarification ● Alternatives could emerge ● Risk to fair value muted ● ZISCO bid ● Long-term synergies marketing and raw material sourcing ● Competition Commission fines ● ACL is co-operating fully ● Partially provided for and cash on hand 25
  26. 26. Portfolio Performance
  27. 27. Latest performance -30 September 2010 (%) 6 month 1 Year 5 Year Balanced Fund 4.8 16.4 11.5 Peer Group Quartile 1st 1st 2nd Balanced Cautious Fund 4.7 12.1 na Peer Group Quartile 2nd 1st na 27
  28. 28. Quartile Performance – It’s been a good year to dateFunds 3 Month 6 Month YTD 1 Year 3 Year 5 Year Risk ProfiledSTANLIB Conservative FoF 2nd 1st 1st 1st 2nd 2ndSTANLIB Moderately Conservative FoF 1st 1st 1st 1st 4th 1stSTANLIB Moderate FoF 1st 1st 1st 1st 3rd 3rdSTANLIB Moderately Aggressive FoF 1st 1st 1st 1st 4th 3rdSTANLIB Aggressive FoF 1st 2nd 1st 1st 4th 3rd BalancedSTANLIB Balanced Cautious 1st 2nd 1st 1st - -STANLIB Balanced 1st 1st 1st 1st 4th 3rd 28
  29. 29. Investment Environment & Outlook into 2011
  30. 30. Investment environment – what we said at the start of the yearGlobal Outlook● Sustained economic recovery from a deep recession ● Synchronised global growth ● Continued monetary and fiscal policy stimulus● Sustained global liquidity SA Outlook● Economic recovery to gain momentum, saw moderate GDP acceleration in Q3 2009● Export volumes to continue to rise ● Inflation contained within the target range ● Rates to remain on hold well into 2010● Supportive Rand factors to continue until at least June 2010 30
  31. 31. Key global macro themes for 2011● Fed continues with liquidity programme for most of 2011, but starts to ease-up towards year-end leading to a sell-off in global bonds. Fiscal austerity programmes to continue● Some re-balancing of global capital flows, investors looking for under-valued assets in developed markets. Emerging market currencies weaken, but not collapse● Longer-term growth differential between emerging and developed economies becomes more entrenched despite the re-balancing of global flows● M&A activity increases more noticeably in 2011, helped by the low cost of capital● Commodity prices supported by supply constraints and solid demand from emerging economies.31
  32. 32. Fixed income flows into emerging market funds 32
  33. 33. Emerging market equity’s weight in MSCI All Countries Index %, weight in index 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 33
  34. 34. Key SA macro themes for 2011 ● SA consumer activity set to improve in 2011, helped by real wage increases and growth in consumer credit ● Inflation and interest rates expected to drift sideways for most of 2011, but concerns about food inflation on the rise. ● Fixed investment spending expected to remain subdued for most of 2011 except for some public sector projects. A pick-up in private sector investment is a theme for 2012 ● SA policy debate remains a focus, including nationalisation, inflation targeting, Rand strength, land claims, NHI. Don’t except much actual change ● Rand remains well supported over the coming months, but the factors supporting the Rand should slowly dissipate in 2011 34
  35. 35. SA growth in consumer spending vs disposable income%, q/q 13 12 11 Disposable Income 10 9 8 7 Consumer spending 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Debt servicing costs at historical lows 35
  36. 36. SA consumer creditR billion, month-on-month, 3-month moving average 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 2006 2007 2008 2009 2010 36
  37. 37. Growth in private sector fixed investment spending vs prime interest rates %y/y % 20 5 18 16 7 Private sector investment (lhs) 14 9 12 10 11 8 6 13 4 15 2 0 17 -2 -4 19 -6 -8 Prime interest rates (rhs) 21 -10 23 -12 -14 25 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Current level of interest rates should result in 37 more investment spending into 2012
  38. 38. SA fixed investment spending by institutional groupIndex Q1 2003 = 100 480 Public corporations 440 400 360 320 280 240 General government 200 160 Private sector 120 80 2003 2004 2005 2006 2007 2008 2009 2010 38
  39. 39. Portfolio positioning summary Portfolio• Equities remain our preferred asset class Asset Class Weight % Benchmark Weight % Current • Notably global equities SA Equities 58.9 60• We have down-weight bonds SA Property 3.6 0 • Bearish on global bonds SA Bonds 6.1 25• Retained SA listed property as a fixed interest proxy – SA Cash 16.7 0 distribution growth and stable bond yields Global 14.4 9 Equities• 12 month cash return of 6.4% favorable relative to bonds Global 0.0 6 Bonds 39
  40. 40. Thank You
  41. 41. Legal NoticeInformation and ContentThe information and content (collectively information) provided herein are provided by STANLIB Asset Management (“STANLIBAM”) asgeneral information for information purposes only. STANLIB does not guarantee the suitability or potential value of any information orparticular investment source. Any information herein is not intended nor does it constitute financial, tax, legal, investment, or otheradvice. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Adviser. Nothingcontained herein constitutes a solicitation, recommendation, endorsement or offer by STANLIBAM.CopyrightThe information provided herein are the possession of STANLIBAM and are protected by copyright and intellectual property laws. Theinformation may not be reproduced or distributed without the explicit consent of STANLIBAM.DisclaimerSTANLIB has taken care to ensure that all information provided herein is true and accurate. STANLIB will therefore not be held responsiblefor any inaccuracies in the information herein. STANLIBAM shall not be responsible and disclaims all loss, liability or expense of any naturewhatsoever which may be attributable (directly, indirectly or consequentially) to the use of the information provided.STANLIB Asset Management LimitedRegistration No: 1969/002753/06. A Financial Services Provider licensed under the Financial Advisory and Intermediary Services Act, 37 of2002. FSP license No: 719.41
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