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Balanced fund q3 2010 report back (2)

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Balanced fund q3 2010 report back (2)

  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 2011 2
  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 STANLIB 4
  5. 5. Balanced mandates provide diversification without unduly compromising return 5 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 SA Cash 21% SA Equity 31% SA Bonds 28% SA Equity 55% SA Equity 23% SA Bonds 30% Global Equity 46% SA Bonds 29% Global Equity 51% SA Equity 61% SA Listed Prop 28% Global Bonds 61% SA Listed Prop 20% SA Listed Prop 41% SA Listed Prop 41% SA Listed Prop 50% SA Equity 41% SA Listed Prop 27% Global Bonds 45% SA Equity 32% SA Bonds 16% Global Equity 27% Global Bonds 18% Balanced 46% Balanced 13% Global Equity 25% Global Bonds 35% Global Equity 22% Global Bonds 37% SA Listed Prop 56% Global Bonds 27% Global Equity 32% SA Bonds 16% SA Bonds 18% SA Equity 25% SA Equity 47% Global Equity 33% SA Equity 19% SA Bonds 17% Balanced 17% Global Bonds 12% Balanced 26% SA Cash 16% Global Equity 36% SA Cash 11% Global Bonds 23% SA Cash 16% SA Listed Prop 21% SA Cash 18% Balanced 47% SA Bonds 19% SA Equity 29% SA Cash 12% SA Equity 16% Balanced 18% Balanced 33% Balanced 30% Balanced 13% SA Cash 12% SA Listed Prop 14% Balanced 0% Global Bonds 24% Balanced 7% SA Bonds 32% Global Equity 11% Balanced 16% Balanced 14% SA Cash 17% SA Bonds 5% Global Equity 31% SA Cash 11% Balanced 28% Balanced -6% Balanced 14% SA Bonds 15% Global Equity 23% SA Listed Prop 28% SA Cash 9% SA Listed Prop -4% SA Cash 9% SA Equity -5% SA Cash 19% Global Equity 6% Global Bonds 24% Global Bonds 5% SA Cash 15% SA Equity 10% Global Bonds 8% SA Listed Prop 4% SA Bonds 29% Global Equity 7% SA Bonds 18% SA Equity - 9% SA Cash 12% SA Cash 8% SA Bonds 11% Global Bonds 18% Global Bonds 7% Balanced -7% Global Equity 2% SA Listed Prop -11% SA Bonds 14% SA Equity -2% SA Listed Prop 18% SA Bonds -9% SA Listed Prop 13% SA Bonds 7% Balanced 7% Balanced 2% SA Cash 16% Balanced 7% SA Cash 10% Global Bonds -17% Global Equity 3% Global Equity -2% SA Cash 7% SA Cash 7% Global Equity 7% Global Equity -18% SA Bonds -1% Global Equity -17% SA Listed Prop 2% SA Listed Prop -3% SA Cash 13% SA Listed Prop -10% SA Equity 8% SA Listed Prop -10% SA Equity -4% SA Equity -10% Global Bonds -1% SA Equity 0% SA Listed Prop 8% Global Equity -43% Global Bonds -13% Global Bonds -7% Global Bonds 7% SA Bonds 5% SA Bonds 4% SA Equity -23% Global Bonds -16%
  6. 6. Various asset classes used to reduce the impact of market volatility 6 Current Exposure Domestic 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 
  7. 7. Asset allocation meeting: Decisions informed by in-house specialists Economics RESI Fixed Income (Global) Property Equities (Global) INDI FINI Balanced Team asset allocation outcome applied across all mandates Balanced Team asset allocation review and decisions SA Equity Sector Review 7 Quarterly Meetings Strategic Mandates Best Investment View Mandates
  8. 8. Global Best Investment View Mandate: maximum & minimum asset allocations over last 3 years 8 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
  9. 9. Current asset allocation (%) 9 Asset Class Fund Weight Current BM Weight SA Equities 58.9 60 SA Property 3.6 0 SA Bonds 6.1 25 SA Cash 16.7 0 Global Equity 14.4 9 Global Bonds 0 6 The Balanced Fund The Balanced Cautious Fund Total Equity Exposure is 39.6% Total Equity Exposure is 73.4% Asset Class Fund Weight Current BM Weight SA Equities 29.4 25 SA Property 4.9 5 SA Bonds 10.4 15 SA Cash 41.9 45 Global Equity 10.2 4 Global Bonds 3.9 6
  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 12 Asset Class % 30 June 30 Sep Global Equity 70.9 100.0 Global Bonds 29.1 0.0 Global Cash 0.0 0.0 0 2 4 6 8 10 12 14 16 18 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 yield(%) Comparison of S&P 500 Dividend Yield and 10-Year Treasury Yield 10-Year Treasury Billl S&P 500 Dividend Yield
  13. 13. Changes in US mutual fund assets 13
  14. 14. Global equity portfolio regional and sector exposures 14 -10% -5% 0% 5% 10% 15% 20% 25% Europe ex UK United Kingdom North America Japan Asia ex Japan Cash Emerging Markets Regional Exposure vs MSCI World as at 30 September 2010 -20% -15% -10% -5% 0% 5% 10% 15% Financials Services Cash Industrials Consumers Technology Sector Positioning vs MSCI World as at 30 September 2010
  15. 15. Portfolio activity: SA assets ● Increased the duration of the bonds to a neutral ALBI ● Bought the long end (greater than 12 years) of the curve by switching short dated bonds ● Reduced exposure to bonds as yields dropped ● Continued foreign demand for bonds ● Improving inflation data increased the possibility of further rate cuts ● Proceeds from bonds into cash – favorable risk adjusted return ● Marginal buyers of equity – remain overweight 15 Asset Class % 30 June 30 Sep SA Equity 69.7 69.3 SA Prop 4.2 4.2 SA Bonds 11.0 7.0 SA Cash 15.1 19.4
  16. 16. Current equity sector allocation (%) 16 23.5 19.6 13.5 12.9 8.2 8.2 8.0 6.1 0 5 10 15 20 25 Financials Basic Materials Consumer Services Telecommunica tions Oil & Gas Industrials Consumer Goods Health Care Technology
  17. 17. Biggest over-weights and under-weights versus the SWIX 17 Top 5 Overweight Fund Weight % Benchmark Weight % Investec Ltd 4.2 1.0 Sasol 8.2 5.4 Woolworths Holdings 3.6 0.8 ArcelorMittal South Africa Ltd 3.4 0.7 Massmart Holdings 3.8 1.1 Top 5 Underweight Fund Weight % Benchmark Weight % Naspers - 3.7 Anglo Platinum - 2.5 Shoprite - 1.9 Remgro - 1.9 Standard Bank Group 3.3 4.8
  18. 18. ArcelorMittal Investment Case “Fundamentals are attractive – sentiment not so”
  19. 19. 19 The certainties ● Steel economics ● Prices ● Volumes ● Costs ● Cash flow adequacy ● Valuations 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 uncertainties ● Kumba iron ore dispute ● ICT acquisition ● BEE deal ● ZISCO acquisition ● Competition Commission fines
  20. 20. 7000 8000 9000 10000 11000 12000 13000 Recent share price history 20 Portfolio holding reduced to zero. Kumba dispute over Sishen Mine Reintroduced stock into portfolio at 2% overweight
  21. 21. 21 SA steel volumes • Volumes and capacity utilisation are recovering 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 200 400 600 800 1000 1200 1400 1600 1800 Export sales Domestic sales Domestic sales % total Construction 25% Converters 9% Service centres 21% Energy, mining and chemicals 7% Furniture and appliances 2% Machinery 8% Packaging 6% Pipe and tube 14% Transportation 2% Automotive 6%
  22. 22. 22 Operating margin recovery -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
  23. 23. 23 Attractive valuation 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 0 500 1000 1500 2000 2500 EV / EBITDA (CY2010) EV / ton (US$)
  24. 24. 24 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 Financial forecasts
  25. 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
  26. 26. Portfolio Performance
  27. 27. Latest performance -30 September 2010 (%) 27 Balanced Fund Peer Group Quartile Balanced Cautious Fund Peer Group Quartile 6 month 4.8 1st 4.7 2nd 1 Year 16.4 1st 12.1 1st 5 Year 11.5 2nd na na
  28. 28. Quartile Performance – It’s been a good year to date 28 Funds 3 Month 6 Month YTD 1 Year 3 Year 5 Year Risk Profiled STANLIB Conservative FoF 2nd 1st 1st 1st 2nd 2nd STANLIB Moderately Conservative FoF 1st 1st 1st 1st 4th 1st STANLIB Moderate FoF 1st 1st 1st 1st 3rd 3rd STANLIB Moderately Aggressive FoF 1st 1st 1st 1st 4th 3rd STANLIB Aggressive FoF 1st 2nd 1st 1st 4th 3rd Balanced STANLIB Balanced Cautious 1st 2nd 1st 1st - - STANLIB Balanced 1st 1st 1st 1st 4th 3rd
  29. 29. Investment Environment & Outlook into 2011
  30. 30. 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 Global Outlook ● Sustained economic recovery from a deep recession  ● Synchronised global growth  ● Continued monetary and fiscal policy stimulus ● Sustained global liquidity  Investment environment – what we said at the start of the year
  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. 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 %, weight in index Emerging market equity’s weight in MSCI All Countries Index 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 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 %, q/q Consumer spending Disposable Income Debt servicing costs at historical lows 35
  36. 36. R billion, month-on-month, 3-month moving average SA consumer credit -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 2006 2007 2008 2009 2010 36
  37. 37. -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 5 7 9 11 13 15 17 19 21 23 25 %y/y Current level of interest rates should result in more investment spending into 2012 % Private sector investment (lhs) Prime interest rates (rhs) Growth in private sector fixed investment spending vs prime interest rates 37
  38. 38. 80 120 160 200 240 280 320 360 400 440 480 2003 2004 2005 2006 2007 2008 2009 2010 Index Q1 2003 = 100 Private sector General government SA fixed investment spending by institutional group Public corporations 38
  39. 39. Portfolio positioning summary 39 • Equities remain our preferred asset class • Notably global equities • We have down-weight bonds • Bearish on global bonds • Retained SA listed property as a fixed interest proxy – distribution growth and stable bond yields • 12 month cash return of 6.4% favorable relative to bonds Asset Class Portfolio Weight % Current Benchmark Weight % SA Equities 58.9 60 SA Property 3.6 0 SA Bonds 6.1 25 SA Cash 16.7 0 Global Equities 14.4 9 Global Bonds 0.0 6
  40. 40. Thank You
  41. 41. Legal Notice Information and Content The information and content (collectively 'information') provided herein are provided by STANLIB Asset Management (“STANLIBAM”) as general information for information purposes only. STANLIB does not guarantee the suitability or potential value of any information or particular investment source. Any information herein is not intended nor does it constitute financial, tax, legal, investment, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Adviser. Nothing contained herein constitutes a solicitation, recommendation, endorsement or offer by STANLIBAM. Copyright The information provided herein are the possession of STANLIBAM and are protected by copyright and intellectual property laws. The information may not be reproduced or distributed without the explicit consent of STANLIBAM. Disclaimer STANLIB has taken care to ensure that all information provided herein is true and accurate. STANLIB will therefore not be held responsible for any inaccuracies in the information herein. STANLIBAM shall not be responsible and disclaims all loss, liability or expense of any nature whatsoever which may be attributable (directly, indirectly or consequentially) to the use of the information provided. STANLIB Asset Management Limited Registration No: 1969/002753/06. A Financial Services Provider licensed under the Financial Advisory and Intermediary Services Act, 37 of 2002. FSP license No: 719. 41

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