Absolute return by Peter van der Ross

1. STANLIB Absolute Plus Fund
Peter van der Ross

2. 2
When investing…
“Imagine you’re driving a car with a dark windshield
You have side windows and side mirrors
and your trusty rear-view mirror!
But that’s it; side or back are the only ways you can see.
And you’ll know if you hit anything.
Now decide how much to step on the gas.”
- Anonymous

3. 3
Yes, it really is that uncertain out there…
0
50
100
150
200
250
300
350
Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19
Global Economic Policy Uncertainty Index
Source: Bloomberg

4. 4
Two ways to handle uncertainty
Run Embrace
UNCERTAINTY

5. 5
Preparation + opportunity = success
Source: CartoonStock.com

6. So how do we prepare?

7. 7

8. 8
Build a strong team and process
ANALYSIS VS EMOTIONS
Loss aversion
Confirmation bias
Herding
Chasing past performance

9. 9
Manage downside so we never have to get greedy
1000%
800%
600%
400%
200%
0%
-200%
-10% -20% -30% -40% -50% -60% -70% -80% -90%
RequiredGaintoBreak-Even
Loss Incurred
Loss incurred vs. required return to break-even
Loss Incurred
Required Gain
to Break-Even
900%
400%
233%
150%
100%
67%43%25%11%
-90%-80%-70%-60%-50%-40%-30%
-20%-10%

10. 10
Have a framework to assess markets
VALUATIONS
ECONOMICS
LIQUIDITY
SENTIMENT
MOMENTUM
VOLATILITY
Source: CartoonStock.com

11. 11
Embrace opportunities, manage downside
Source: STANLIB Absolute Return Strategies
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
01-Jan-16
29-Jan-16
26-Feb-16
25-Mar-16
22-Apr-16
20-May-16
17-Jun-16
15-Jul-16
12-Aug-16
09-Sep-16
07-Oct-16
04-Nov-16
02-Dec-16
30-Dec-16
27-Jan-17
24-Feb-17
24-Mar-17
21-Apr-17
19-May-17
16-Jun-17
14-Jul-17
11-Aug-17
08-Sep-17
06-Oct-17
03-Nov-17
01-Dec-17
29-Dec-17
26-Jan-18
23-Feb-18
23-Mar-18
19-Apr-18
18-May-18
15-Jun-18
13-Jul-18
10-Aug-18
07-Sep-18
05-Oct-18
02-Nov-18
30-Nov-18
28-Dec-18
SA Equity SA Property Offshore Equity
Offshore Property SA Cash & MM Offshore Cash & MM
SA Bonds US Treasuries SA Inflation-Linkers

12. 12
Embrace opportunities, manage downside
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
01-Jan-16
29-Jan-16
26-Feb-16
25-Mar-16
22-Apr-16
20-May-16
17-Jun-16
15-Jul-16
12-Aug-16
09-Sep-16
07-Oct-16
04-Nov-16
02-Dec-16
30-Dec-16
27-Jan-17
24-Feb-17
24-Mar-17
21-Apr-17
19-May-17
16-Jun-17
14-Jul-17
11-Aug-17
08-Sep-17
06-Oct-17
03-Nov-17
01-Dec-17
29-Dec-17
26-Jan-18
23-Feb-18
23-Mar-18
19-Apr-18
18-May-18
15-Jun-18
13-Jul-18
10-Aug-18
07-Sep-18
05-Oct-18
02-Nov-18
30-Nov-18
28-Dec-18
SA Equity SA Property Offshore Equity
Offshore Property SA Cash & MM Offshore Cash & MM
SA Bonds US Treasuries SA Inflation-Linkers
Source: STANLIB Absolute Return Strategies

13. 13
Embrace opportunities, manage downside
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
01-Jan-16
29-Jan-16
26-Feb-16
25-Mar-16
22-Apr-16
20-May-16
17-Jun-16
15-Jul-16
12-Aug-16
09-Sep-16
07-Oct-16
04-Nov-16
02-Dec-16
30-Dec-16
27-Jan-17
24-Feb-17
24-Mar-17
21-Apr-17
19-May-17
16-Jun-17
14-Jul-17
11-Aug-17
08-Sep-17
06-Oct-17
03-Nov-17
01-Dec-17
29-Dec-17
26-Jan-18
23-Feb-18
23-Mar-18
19-Apr-18
18-May-18
15-Jun-18
13-Jul-18
10-Aug-18
07-Sep-18
05-Oct-18
02-Nov-18
30-Nov-18
28-Dec-18
SA Equity SA Property Offshore Equity
Offshore Property SA Cash & MM Offshore Cash & MM
SA Bonds US Treasuries SA Inflation-Linkers
Source: STANLIB Absolute Return Strategies

14. 14
Performance: active downside management pays
Source: Morningstar STANLIB Fund Research
-5,0
0,0
5,0
10,0
15,0
20,0
25,0
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18
Cumulativereturn(%)
STANLIB Absolute Plus B1
ASISA South African MA High Equity
ASISA South African MA Medium Equity

15. 16
Markets on a knife edge
...the bad news
QUANTITATIVE
TIGHTENING
GROWTH
SLOWING
TRADE WARS
UNEMPLOY-
MENT
US YIELD
CURVE

16. 17
Is quantitative tightening hurting?
QUANTITATIVE
TIGHTENING
GROWTH
SLOWING
TRADE WARS
UNEMPLOY-
MENT
US YIELD
CURVE

17. 18
Growth is slowing rapidly; is the Fed trying to catch a falling
knife?
QUANTITATIVE
TIGHTENING
GROWTH
SLOWING
TRADE WARS
UNEMPLOY-
MENT
US YIELD
CURVE
-80
-60
-40
-20
0
20
40
60
80
30
35
40
45
50
55
60
65
70
Dec-…
Jul-95
Feb-…
Sep-…
Apr-97
Nov-…
Jun-98
Jan-99
Aug-…
Mar-…
Oct-00
May…
Dec-…
Jul-02
Feb-…
Sep-…
Apr-04
Nov-…
Jun-05
Jan-06
Aug-…
Mar-…
Oct-07
May…
Dec-…
Jul-09
Feb-…
Sep-…
Apr-11
Nov-…
Jun-12
Jan-13
Aug-…
Mar-…
Oct-14
May…
Dec-…
Jul-16
Feb-…
Sep-…
Apr-18
Nov-…
US Manufacturing PMI China New Export Orders PMI South Korea Exports YOY
Source: STANLIB Absolute Return Strategies

18. 19
Trade wars: shaky global trade = shaky global earnings
QUANTITATIVE
TIGHTENING
GROWTH
SLOWING
TRADE WARS
UNEMPLOY-
MENT
US YIELD
CURVE
-1
-0,8
-0,6
-0,4
-0,2
0
0,2
0,4
0,6
0,8
1
-50
-40
-30
-20
-10
0
10
20
30
40
50
Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-15 Dec-18
South Korea Exports YOY MSCI World EPS YOY (Trailing, RHS)
Source: STANLIB Absolute Return Strategies

19. 20
QUANTITATIVE
TIGHTENING
GROWTH
SLOWING
TRADE WARS
UNEMPLOY-
MENT
US YIELD
CURVE
Unemployment: growth cycles tend to end, not start,
from here
0
2
4
6
8
10
12
14
Dec-80
Oct-81
Aug-82
Jun-83
Apr-84
Feb-85
Dec-85
Oct-86
Aug-87
Jun-88
Apr-89
Feb-90
Dec-90
Oct-91
Aug-92
Jun-93
Apr-94
Feb-95
Dec-95
Oct-96
Aug-97
Jun-98
Apr-99
Feb-00
Dec-00
Oct-01
Aug-02
Jun-03
Apr-04
Feb-05
Dec-05
Oct-06
Aug-07
Jun-08
Apr-09
Feb-10
Dec-10
Oct-11
Aug-12
Jun-13
Apr-14
Feb-15
Dec-15
Oct-16
Aug-17
Jun-18
US Germany
Source: STANLIB Absolute Return Strategies

20. 21
US yield curves: it’s getting late in the party. Care for
a last dance?
QUANTITATIVE
TIGHTENING
GROWTH
SLOWING
TRADE WARS
UNEMPLOY-
MENT
US YIELD
CURVE
(1)
-
1
2
3
4
5
Mar-87 Mar-90 Mar-93 Mar-96 Mar-99 Mar-02 Mar-05 Mar-08 Mar-11 Mar-14 Mar-17
US 5-2 curve US 10-2 curve US 30-2 curve
US 10-5 curve US 30-5 curve US 30-10 curve
Source: STANLIB Absolute Return Strategies

21. 22
Markets on a knife edge
...the good news
VALUATION
WEAKER
DOLLAR?
MONETARY
POLICY

22. 23
Equity valuations are average to cheap: forward PE’s
VALUATION
WEAKER
DOLLAR?
MONETARY
POLICY
0
5
10
15
20
25
30
Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16 Jan-19
US Europe EM SA (ALSI)
Source: STANLIB Absolute Return Strategies

23. 24
Positioning (and price action) suggest the Dollar will
weaken
VALUATION
WEAKER
DOLLAR?
MONETARY
POLICY
65
70
75
80
85
90
95
100
105
-50
-40
-30
-20
-10
0
10
20
30
40
50
Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18
Net USD long positions Dollar Index (RHS)
Source: STANLIB Absolute Return Strategies

24. 25

25. 26
No inflation pressures: the Fed can afford to wait and
see
VALUATION
WEAKER
DOLLAR?
MONETARY
POLICY
-2
-1
0
1
2
3
4
5
6
Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Dec-18
2yrs 5yrs 10yrs 20yrs Fed Funds rate
Source: STANLIB Absolute Return Strategies

26. 27
China has started stimulating and has room to do
more
VALUATION
WEAKER
DOLLAR?
MONETARY
POLICY
0
5
10
15
20
25
30
Feb-99 Feb-02 Feb-05 Feb-08 Feb-11 Feb-14 Feb-17
China M2 YOY% China Deposit Reserve Ratio

27. 28