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Investec Senate Group Presentation

This document discusses opportunities in fixed income investing in a high risk, low return environment. It provides an overview of recent market performance, including declines in global equity markets and weakness in the South African rand. The document then outlines the investment framework and objectives of the Investec Diversified Income Fund, which aims to generate consistent income while preserving capital. Specific strategies discussed include diversifying across asset classes, regions, and securities to reduce risk. Performance and attribution for the fund are presented, showing it has achieved its goals. The document concludes with the managers' views on current investment opportunities and risks.

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Investec Asset Management Opportunities in a high risk and low return world Malcolm Charles & Eudre Craven 10 November 2016
2 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management 36,000 38,000 40,000 42,000 44,000 46,000 48,000 50,000 52,000 54,000 56,000 58,000 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Markets continue to go nowhere, but very fast Source: Bloomberg, as at 14 September 2016 FTSE/JSE All Share Index
3 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management The Rand… Impacting returns Source: Bloomberg as at 30 September 2016 10 11 12 13 14 15 16 17 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Flat against the US$ over 12 months Rand / US$ exchange rate Returns from offshore equities -2.4% 6.6% 7.2% 12.0% 30.8% -5.4% 19.0% 11.3% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 2015 YTD'16 1 year to 31-Aug-16 1 year to 30-Sep-16 MSCI ACWI in US$ MSCI ACWI in ZAR
4 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management 10 year return expectations Source: Bloomberg & Investec Asset Management, as at 31 August 2016 *Based on an exit PE multiple range of 12 to 14 times for the JSE All Share Index; Income/Capital return split of 2.8%/1.2%-3.7% ** Income/Capital return split of 2.5%/1.8% in USD Asset class returns are converging at lower levels Asset class Return p.a. South African equities* 4% - 6.5% South African bonds 9.0% South African cash 7.0% Offshore equities (S&P500 USD return) ** 4.3% USD/ZAR depreciation 2.1% SA Inflation 5.5%
5 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Consistent long-term performance Past performance should not be taken as a guide to the future, losses may be made. Data is not audited. Source: © Morningstar, dates to 30.09.16, Performance figures above are based on lump sum investment, NAV-NAV, net of fees, gross income reinvested, fees are not applicable to market indices, where funds have an international allocation this is subject to dividend withholding tax, in South African Rand. The performance quoted for periods before the launch of A Class is based on older R class’s performance, is adjusted for any fee differences and is for illustrative purposes only. The offshore Funds are sub-funds in the Investec Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and are approved under the CIS Control Ac Peer Group Quartile Rankings As at 30 September 2016 SA (ZAR) 3 years to Sep-13 3 years to Sep-14 3 years to Sep-15 3 years to Sep-16 Investec Diversified Income Fund 2 3 2 1 Investec Cautious Managed Fund 3 3 2 2 Investec Opportunity Fund 2 4 3 2 Investec Equity Fund 2 2 1 1 Investec Value Fund 4 4 4 1 Offshore (US$) Investec Global Multi-Asset Income Fund - - - 1 Investec Global Strategic Managed Fund 1 2 1 2 Investec Global Franchise Fund 1 3 2 1
6 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management ExpectedReturnInvestec core fund solutions Note: [ ] indicates maximum in equities. Offshore funds available as feeder funds Global Strategic Managed (USD / GBP / ZAR) [75%] Global Franchise (USD / GBP / ZAR) [100%] Global Multi-Asset Income (USD / ZAR) [40%] LocalInternational Diversified Income Opportunity [75%] Cautious Managed [40%] Value [100%]Equity [100%] Expected Risk (Volatility) GrowthIncome ExpectedReturn Worldwide Flexible [100%]
Investec Diversified Income Fund Malcolm Charles
8 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investec Diversified Income Fund Key benefits A high conviction fixed income fund ● Comprehensive fixed income solution that aims to maximise income and grow capital ● Globally integrated approach, drawing on the best investment ideas from the SA and London teams ● Highly diversified portfolio that includes offshore assets, with currency hedging ● Exposure to multiple sources of uncorrelated fixed income returns reduces volatility and the risk of capital loss
9 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Vivienne Taberer – Latam Werner Gey van Pittius – EEMEA SA Rates team Subject to change not necessarily with prior notification. As at October 2016 Malcolm Charles – Rates Peter Kent – Rates Portfolio Management Team Lisa MacLeod – Portfolio Manager, Money Market Investment Specialists Nazmeera Moola – SA Economics André Roux – Economics Matsidiso Mdakane – Analyst, Credit Stephan Naidoo – Analyst, Credit Nicholas Marshall – Analyst, Rates Cesaire Tobias – Analyst, Rates Nathaniel Micklem – Portfolio Manager, Credit Steven Loubser – Portfolio Manager, Credit Simon Howie – Portfolio Manager, Credit Global Investment Infrastructure Support ESG | Risk & Performance | Implementation Dealing Ntuthuzelo Magwentshu – Rates Dealer Shane Johns – FX & Money Market Dealer Adam Furlan – Analyst, Credit & Rates Chris Steward – Head of Financials Bashier Omar – Portfolio Manager, Credit
Asset allocation and the appropriate investment ranges Investment Framework
11 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investment Framework – defining it Find overlap between the aim, the potential asset set and our skill set When defining neutral asset allocation and the appropriate investment ranges we need to ask ourselves: ● AIM: What are we realistically trying achieve? ● ASSETS: What is the universe of assets available to us? ● SKILL: What are our traditional strengths? SKILL Asset allocation, duration, relative value, currency ASSETS Bonds, Credit, Cash, Offshore, SA property AIM Consistent total return Capital preservation Investec Diversified Income
12 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management When FI assets underperform cash, you return at least cash When FI assets rally you participate Investment Framework What are we realistically trying to achieve? Downside protection with upside exposure Cash – minimum income threshold7.00% 0% ALBI Diversified Income Defining what the fund is realistically trying to do: RETURN: Provide a consistent total return in excess of cash / inflation over time: ● that has some correlation to the bond market when the bond market outperforms, and ● has little correlation to the bond market when it underperforms RISK: A capital preservation bias that avoids quarterly drawdowns, and tries to eliminate 6 monthly drawdowns completely Investec Diversified Income SKILL ASSETSAIM Investec Diversified Income
15 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investec Diversified Income Fund Investment framework combines: Aim + Assets + Skill Source: Investec Asset Management as at March 2016 Active management within these parameters is key to success ● Exposure ranges provide a consistent framework for scaling positions to achieve objective ● Neutral allocation if we don’t have a strong view on the asset ● Active management within the ranges meets risk requirements & satisfies the capital draw-down constraints Investec Diversified Income SKILL ASSETSAIM Investec Diversified Income
16 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investment Framework – Performance Participate in the rallies, protect in the sell offs Since 2010 Source: Morningstar, Returns are calculated on a NAV to NAV basis with income reinvested, net of fees, Bloomberg to 31 August 2016 Average rolling 12m excess returns over cash Investec Diversified Income Fund -60 -40 -20 0 20 40 60 -8 -6 -4 -2 0 2 4 6 8 albi > cash cash > albi all BPS Excessreturnovercash(%) Regime albi ave competitor investec diff (bps RHS)
Performance and attribution Reviewing the last year
18 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management South Africa: Anatomy of the sell-off Currency and borrowing costs both hurt Source: Investec Asset Management, Bloomberg, 10 October 2016 ZAR/US$, SA trade-weighted rand, 10-year SA bond yield & SA credit-default swap, All rebased to 100 on 15 December 2014 90 110 130 150 170 190 210 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 ZAR SANEER 10-year bond SA CDS
19 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investec Diversified Income A 8.4% 7.6% 7.6% 8.4% STeFI-ALBI 1 - 3 years Composite 7.1% 6.4% 6.0% 6.5% Active return 1.3% 1.2% 1.6% 1.9% (ASISA) South African IB Money Market 7.2% 6.4% 5.9% 6.0% Active return (sector) 1.2% 1.2% 1.6% 2.3% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 1 year 3 years p.a. 5 years p.a. Since Inception p.a.* Investec Diversified Income A STeFI-ALBI 1 - 3 years Composite Investec Diversified Income Fund Performance Past performance should not be taken as a guide to the future, losses may be made. Data is not audited. * Inception date 01 December 2009. Source: Morningstar, dates to 30 September 2016, performance figures above are based on lump sum investment, NAV based, inclusive of all annual management fees but excluding any initial charges, gross income reinvested, fees are not applicable to market indices, w here funds have an international allocation this is subject to dividend w ithholding tax, in South African Rand. Annualised performance is the average return per year over the period. Individual investor's performance may vary depending on actual investment dates. Highest and Low est returns are those achieved during any single calendar year over the period specified. Annualised performance in ZAR 2010 10.1% 2014 5.7% Highest and lowest calendar year returns since inception*
20 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Attribution for Investec Diversified Income Fund Linking performance to philosophy Our posture is currently constructively defensive ● Reduced and diversified offshore exposure relative to holdings in 1Q16 ● Extended duration on back of BREXIT ● Increased exposure to long dated bonds ● Added to local property position Source: Investec Asset Management, gross of fees to 31 August 2016 Note: figures quoted represent contribution to returns 12 months to 31 August 2016 INVDIF Total Duration 7.29 - carry 7.87 - mtm -0.58 Currency 0.48 Relative Value 1.00 - curve 0.33 - swaps 0.02 - linkers -0.10 - options 0.30 - prefs 0.29 - property 0.16 Credit 1.21 - carry 0.91 - mtm 0.30 Sub Total 10.17 Other 0.07 Total 10.25
Scorecard and investment views
22 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Developing our views – Current Scorecard These are the pertinent questions to current positioning Are the fundamentals supportive? • Inflation – surprise up or down? • How much are Treasury issuing? • Has the market understood the SARB? • Is SA growth accelerating or slowing? • Is the rand vulnerable? Is the asset cheap? • Are SA Bonds / FX / Credit / Property cheap or expensive? • EMD’s risk appetite? • Are US Treasury yields likely to rise or fall? Are investors likely to buy it? • What is the momentum? • Are foreigners expected to buy or sell? • How are domestic investors positioned? • Are there relevant seasonal factors? • Is there event risk to consider? • Is volatility on the JSE rising or falling? • Is the rand vulnerable or oversold? Strategic Tactical (less than 6 months) Bonds Credit Offshore Property ILBs
23 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Our perspectives on Brexit What does Brexit mean for the global economy and for SA? Source: I-Net Bridge as at 14 September 2016 Rates are likely to remain low 30 year treasuries 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 ● Increased economic uncertainty ● Aggressive global central bank response ● Yield should benefit at the expense of growth Bonds Credit Offshore Property ILBs
24 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Trump Presidency! What does the US election mean for the global economy and for SA? Source Bloomberg, data as at 9 November 2016 Emerging markets are likely to under perform Currency movements on 9/11/2016
25 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Politics We are destroying our credibility with global and local investors Bonds Credit Property ILBs Offshore
26 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management SA GDP growth SARB dilemma – inflation up, growth forecasts continue to slide Source: Investec Asset Management, SA Reserve Bank, 22 September 2016 SA Reserve Bank GDP forecasts SA CPI inflation & SA repo rate Bonds Credit Offshore Property ILBs 0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% May-13 Sep-13 Dec-13 Mar-14 Jul-14 Oct-14 Jan-15 May-15 Aug-15 Nov-15 Feb-16 Jun-16 Sep-16 2015 2016 2017 2018 4.5% 5.5% 6.5% 7.5% 8.5% 9.5% 10.5% 11.5% 12.5% 13.5% 14.5% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 CPI Inflation (LHS) Repo Rate (RHS)
27 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Are we heading into a recession? “Probability of Recession” indicator Source: Investec Asset Management, data as at 4 October 2016 Bonds Credit Offshore Property ILBs
28 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management South Africa sovereign outlook Unchanged… next review just round the corner South Africa sovereign rating Source: Investec Asset Management, Bloomberg, 4 October 2016 Offshore Property ILBs Bonds Credit SA ratings Foreign LT debt Local LT debt Outlook S&P BBB- BBB+ Negative Moody’s Baa2 Baa2 Negative Fitch BBB- BBB Stable R&I BBB- BBB+ Negative Dagong Global A- A- Negative
29 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management South Africa still lagging EM peers Political risk/Ratings uncertainty South Africa yields relative to peers Source: Investec Asset Management, Bloomberg, 4 October 2016 Bonds Credit Offshore Property ILBs 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16
30 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Nenegate interest bill Counting the cost Source: Investec Asset Management The next generation will continue to pay for this mis-step 0 50 100 150 200 250 300 350 400 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 R'bln Years
31 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Foreign ownership of SA bond market Post BREXIT confidence waning Source: SA National Treasury, Citibank, January 2016 Source: Bloomberg, Citi Research, September 2016 Foreign ownership of SA government bonds Bonds Credit Offshore Property ILBs Non-resident net bond flows (YTD)
32 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management China’s post crisis growth response Turbo TARP is required Source: Investec Asset Management, April 2016 Chinese debt stock has grown by >$18 trillion since 2008 Bonds Credit Offshore Property ILBs
33 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Big themes for 2016/17 Caution is advised, but opportunities exist ● Stability of SA politics is crucial – maintaining investment grade status so we can get positive momentum for growth and jobs ● China growth and commodity prices will be a big driver of EM and SA sentiment ● Commodity/oil recovery leading to inflation ● Fed, ECB, BoE and BoJ policy will drive currency movements ● BREXIT and Trump?... emergence of non-tolerant political shift ● Is Deutsche Bank the canary in the coal mine of Europe? ● SA and EM’s are well placed for recovery
Portfolio positioning
35 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investec Diversified Income Fund Current positioning Source: Investec Asset Management as at 12 October 2016 * Excludes NCDs ● Diversified FX Basket ● Reduced duration relative to framework, protection helping ● Reduced property underweight ● Increasing allocation to high quality credit names Cash Bonds Credit* Property FX Alternative Low 4% 0% 45% 1% 3% Neutral 13% 24% 58% 5% 12% High 39% 40% 71% 8% 19% Current 9.2% 13.0% 63.1% 4.1% 8.4% 2.2%
36 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investec Diversified Income Fund Credit holdings as at 30 September 2016 (includes NCDs) Source: Investec Asset Management as at 30 September 2016 Weight Spread Contribution SpreadD AAA AA A BBB BB Energy 3.3% 2.01 0.1 0.1 0.0% 3.3% 0.0% 0.0% 0.0% Materials 3.1% 3.37 0.1 0.0 0.0% 0.0% 2.3% 0.9% 0.0% Industrials 1.3% 1.81 0.0 0.0 0.0% 1.1% 0.2% 0.0% 0.0% Consumer Discretionary 9.4% 1.56 0.1 0.2 5.3% 0.0% 3.8% 0.3% 0.0% Consumer Staples 0.0% - - - 0.0% 0.0% 0.0% 0.0% 0.0% Healthcare 1.5% 2.00 0.0 0.0 0.0% 0.0% 1.5% 0.0% 0.0% Bank - Senior 24.1% 0.97 0.2 0.7 0.8% 23.1% 0.0% 0.0% 0.0% Bank - Tier 2 8.1% 3.31 0.3 0.2 0.0% 6.7% 1.0% 0.0% 0.3% Consumer Finance 1.4% 5.81 0.1 0.0 0.4% 0.0% 0.0% 0.0% 0.9% Capital Markets 1.1% 0.06 0.0 0.0 1.1% 0.0% 0.0% 0.0% 0.0% Asset Backed 7.7% 1.56 0.1 0.4 7.7% 0.1% 0.0% 0.0% 0.0% Insurance 4.0% 2.12 0.1 0.1 0.2% 3.2% 0.6% 0.0% 0.0% Real Estate 5.4% 2.08 0.1 0.2 1.5% 2.7% 1.2% 0.0% 0.0% Telecommunication Services 1.5% 1.57 0.0 0.0 0.0% 1.5% 0.0% 0.0% 0.0% Utilities 4.9% 3.24 0.2 0.2 3.4% 1.4% 0.2% 0.0% 0.0% 76.7% 1.45 2.0 20.4% 42.8% 10.8% 1.2% 1.3%
Thank you www.investecassetmanagement.com
38 Confidential | Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Disclaimer All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only. Collective investment schemes (CIS) are traded at ruling prices and can engage in borrowing, up to 10% of portfolio net asset value to bridge insufficient liquidity, and scrip lending. A schedule of charges, fees and advisor fees is available on request from the Manager, Investec Fund Managers SA (RF) (Pty) Ltd which is registered under the CIS Control Act . Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. CISs are generally medium to long term investments and the manager gives no guarantee with respect to the capital or the return of the Fund. Performance shown is that of the Fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax and past performance is not necessarily a guide to the future. The value of participatory interests (units) may go down as well as up. Different classes of units apply to the fund. This portfolio may be closed in order to be managed in accordance with the mandate. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Additional information on the Fund may be obtained, free of charge, at www.investecassetmanagement.com. The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. Investec Asset Management (Pty) Ltd ("Investec") is a member of the Association for Savings and Investment SA (ASISA). The scheme trustee is FirstRand Bank Limited, PO Box 7713, Johannesburg, 2000, Tel: (011) 282 1808. In the event that specific collective investment schemes in securities(unit trust) are mentioned please refer to the relevant minimum disclosure document(MDD) in order to obtain all the necessary information in regard to that unit trust portfolio. This is the copyright of Investec and its contents may not be re-used without Investec’s prior permission. Investec Asset Management (Pty) Limited is an authorised financial services provider.

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Investec Senate Group Presentation

  • 1.
    Investec Asset Management Opportunitiesin a high risk and low return world Malcolm Charles & Eudre Craven 10 November 2016
  • 2.
    2 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management 36,000 38,000 40,000 42,000 44,000 46,000 48,000 50,000 52,000 54,000 56,000 58,000 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Markets continue to go nowhere, but very fast Source: Bloomberg, as at 14 September 2016 FTSE/JSE All Share Index
  • 3.
    3 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management The Rand… Impacting returns Source: Bloomberg as at 30 September 2016 10 11 12 13 14 15 16 17 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Flat against the US$ over 12 months Rand / US$ exchange rate Returns from offshore equities -2.4% 6.6% 7.2% 12.0% 30.8% -5.4% 19.0% 11.3% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 2015 YTD'16 1 year to 31-Aug-16 1 year to 30-Sep-16 MSCI ACWI in US$ MSCI ACWI in ZAR
  • 4.
    4 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management 10 year return expectations Source: Bloomberg & Investec Asset Management, as at 31 August 2016 *Based on an exit PE multiple range of 12 to 14 times for the JSE All Share Index; Income/Capital return split of 2.8%/1.2%-3.7% ** Income/Capital return split of 2.5%/1.8% in USD Asset class returns are converging at lower levels Asset class Return p.a. South African equities* 4% - 6.5% South African bonds 9.0% South African cash 7.0% Offshore equities (S&P500 USD return) ** 4.3% USD/ZAR depreciation 2.1% SA Inflation 5.5%
  • 5.
    5 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Consistent long-term performance Past performance should not be taken as a guide to the future, losses may be made. Data is not audited. Source: © Morningstar, dates to 30.09.16, Performance figures above are based on lump sum investment, NAV-NAV, net of fees, gross income reinvested, fees are not applicable to market indices, where funds have an international allocation this is subject to dividend withholding tax, in South African Rand. The performance quoted for periods before the launch of A Class is based on older R class’s performance, is adjusted for any fee differences and is for illustrative purposes only. The offshore Funds are sub-funds in the Investec Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and are approved under the CIS Control Ac Peer Group Quartile Rankings As at 30 September 2016 SA (ZAR) 3 years to Sep-13 3 years to Sep-14 3 years to Sep-15 3 years to Sep-16 Investec Diversified Income Fund 2 3 2 1 Investec Cautious Managed Fund 3 3 2 2 Investec Opportunity Fund 2 4 3 2 Investec Equity Fund 2 2 1 1 Investec Value Fund 4 4 4 1 Offshore (US$) Investec Global Multi-Asset Income Fund - - - 1 Investec Global Strategic Managed Fund 1 2 1 2 Investec Global Franchise Fund 1 3 2 1
  • 6.
    6 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management ExpectedReturnInvestec core fund solutions Note: [ ] indicates maximum in equities. Offshore funds available as feeder funds Global Strategic Managed (USD / GBP / ZAR) [75%] Global Franchise (USD / GBP / ZAR) [100%] Global Multi-Asset Income (USD / ZAR) [40%] LocalInternational Diversified Income Opportunity [75%] Cautious Managed [40%] Value [100%]Equity [100%] Expected Risk (Volatility) GrowthIncome ExpectedReturn Worldwide Flexible [100%]
  • 7.
    Investec Diversified IncomeFund Malcolm Charles
  • 8.
    8 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investec Diversified Income Fund Key benefits A high conviction fixed income fund ● Comprehensive fixed income solution that aims to maximise income and grow capital ● Globally integrated approach, drawing on the best investment ideas from the SA and London teams ● Highly diversified portfolio that includes offshore assets, with currency hedging ● Exposure to multiple sources of uncorrelated fixed income returns reduces volatility and the risk of capital loss
  • 9.
    9 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Vivienne Taberer – Latam Werner Gey van Pittius – EEMEA SA Rates team Subject to change not necessarily with prior notification. As at October 2016 Malcolm Charles – Rates Peter Kent – Rates Portfolio Management Team Lisa MacLeod – Portfolio Manager, Money Market Investment Specialists Nazmeera Moola – SA Economics André Roux – Economics Matsidiso Mdakane – Analyst, Credit Stephan Naidoo – Analyst, Credit Nicholas Marshall – Analyst, Rates Cesaire Tobias – Analyst, Rates Nathaniel Micklem – Portfolio Manager, Credit Steven Loubser – Portfolio Manager, Credit Simon Howie – Portfolio Manager, Credit Global Investment Infrastructure Support ESG | Risk & Performance | Implementation Dealing Ntuthuzelo Magwentshu – Rates Dealer Shane Johns – FX & Money Market Dealer Adam Furlan – Analyst, Credit & Rates Chris Steward – Head of Financials Bashier Omar – Portfolio Manager, Credit
  • 10.
    Asset allocation andthe appropriate investment ranges Investment Framework
  • 11.
    11 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investment Framework – defining it Find overlap between the aim, the potential asset set and our skill set When defining neutral asset allocation and the appropriate investment ranges we need to ask ourselves: ● AIM: What are we realistically trying achieve? ● ASSETS: What is the universe of assets available to us? ● SKILL: What are our traditional strengths? SKILL Asset allocation, duration, relative value, currency ASSETS Bonds, Credit, Cash, Offshore, SA property AIM Consistent total return Capital preservation Investec Diversified Income
  • 12.
    12 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management When FI assets underperform cash, you return at least cash When FI assets rally you participate Investment Framework What are we realistically trying to achieve? Downside protection with upside exposure Cash – minimum income threshold7.00% 0% ALBI Diversified Income Defining what the fund is realistically trying to do: RETURN: Provide a consistent total return in excess of cash / inflation over time: ● that has some correlation to the bond market when the bond market outperforms, and ● has little correlation to the bond market when it underperforms RISK: A capital preservation bias that avoids quarterly drawdowns, and tries to eliminate 6 monthly drawdowns completely Investec Diversified Income SKILL ASSETSAIM Investec Diversified Income
  • 13.
    15 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investec Diversified Income Fund Investment framework combines: Aim + Assets + Skill Source: Investec Asset Management as at March 2016 Active management within these parameters is key to success ● Exposure ranges provide a consistent framework for scaling positions to achieve objective ● Neutral allocation if we don’t have a strong view on the asset ● Active management within the ranges meets risk requirements & satisfies the capital draw-down constraints Investec Diversified Income SKILL ASSETSAIM Investec Diversified Income
  • 14.
    16 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investment Framework – Performance Participate in the rallies, protect in the sell offs Since 2010 Source: Morningstar, Returns are calculated on a NAV to NAV basis with income reinvested, net of fees, Bloomberg to 31 August 2016 Average rolling 12m excess returns over cash Investec Diversified Income Fund -60 -40 -20 0 20 40 60 -8 -6 -4 -2 0 2 4 6 8 albi > cash cash > albi all BPS Excessreturnovercash(%) Regime albi ave competitor investec diff (bps RHS)
  • 15.
  • 16.
    18 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management South Africa: Anatomy of the sell-off Currency and borrowing costs both hurt Source: Investec Asset Management, Bloomberg, 10 October 2016 ZAR/US$, SA trade-weighted rand, 10-year SA bond yield & SA credit-default swap, All rebased to 100 on 15 December 2014 90 110 130 150 170 190 210 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 ZAR SANEER 10-year bond SA CDS
  • 17.
    19 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investec Diversified Income A 8.4% 7.6% 7.6% 8.4% STeFI-ALBI 1 - 3 years Composite 7.1% 6.4% 6.0% 6.5% Active return 1.3% 1.2% 1.6% 1.9% (ASISA) South African IB Money Market 7.2% 6.4% 5.9% 6.0% Active return (sector) 1.2% 1.2% 1.6% 2.3% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 1 year 3 years p.a. 5 years p.a. Since Inception p.a.* Investec Diversified Income A STeFI-ALBI 1 - 3 years Composite Investec Diversified Income Fund Performance Past performance should not be taken as a guide to the future, losses may be made. Data is not audited. * Inception date 01 December 2009. Source: Morningstar, dates to 30 September 2016, performance figures above are based on lump sum investment, NAV based, inclusive of all annual management fees but excluding any initial charges, gross income reinvested, fees are not applicable to market indices, w here funds have an international allocation this is subject to dividend w ithholding tax, in South African Rand. Annualised performance is the average return per year over the period. Individual investor's performance may vary depending on actual investment dates. Highest and Low est returns are those achieved during any single calendar year over the period specified. Annualised performance in ZAR 2010 10.1% 2014 5.7% Highest and lowest calendar year returns since inception*
  • 18.
    20 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Attribution for Investec Diversified Income Fund Linking performance to philosophy Our posture is currently constructively defensive ● Reduced and diversified offshore exposure relative to holdings in 1Q16 ● Extended duration on back of BREXIT ● Increased exposure to long dated bonds ● Added to local property position Source: Investec Asset Management, gross of fees to 31 August 2016 Note: figures quoted represent contribution to returns 12 months to 31 August 2016 INVDIF Total Duration 7.29 - carry 7.87 - mtm -0.58 Currency 0.48 Relative Value 1.00 - curve 0.33 - swaps 0.02 - linkers -0.10 - options 0.30 - prefs 0.29 - property 0.16 Credit 1.21 - carry 0.91 - mtm 0.30 Sub Total 10.17 Other 0.07 Total 10.25
  • 19.
  • 20.
    22 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Developing our views – Current Scorecard These are the pertinent questions to current positioning Are the fundamentals supportive? • Inflation – surprise up or down? • How much are Treasury issuing? • Has the market understood the SARB? • Is SA growth accelerating or slowing? • Is the rand vulnerable? Is the asset cheap? • Are SA Bonds / FX / Credit / Property cheap or expensive? • EMD’s risk appetite? • Are US Treasury yields likely to rise or fall? Are investors likely to buy it? • What is the momentum? • Are foreigners expected to buy or sell? • How are domestic investors positioned? • Are there relevant seasonal factors? • Is there event risk to consider? • Is volatility on the JSE rising or falling? • Is the rand vulnerable or oversold? Strategic Tactical (less than 6 months) Bonds Credit Offshore Property ILBs
  • 21.
    23 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Our perspectives on Brexit What does Brexit mean for the global economy and for SA? Source: I-Net Bridge as at 14 September 2016 Rates are likely to remain low 30 year treasuries 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 ● Increased economic uncertainty ● Aggressive global central bank response ● Yield should benefit at the expense of growth Bonds Credit Offshore Property ILBs
  • 22.
    24 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Trump Presidency! What does the US election mean for the global economy and for SA? Source Bloomberg, data as at 9 November 2016 Emerging markets are likely to under perform Currency movements on 9/11/2016
  • 23.
    25 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Politics We are destroying our credibility with global and local investors Bonds Credit Property ILBs Offshore
  • 24.
    26 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management SA GDP growth SARB dilemma – inflation up, growth forecasts continue to slide Source: Investec Asset Management, SA Reserve Bank, 22 September 2016 SA Reserve Bank GDP forecasts SA CPI inflation & SA repo rate Bonds Credit Offshore Property ILBs 0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% May-13 Sep-13 Dec-13 Mar-14 Jul-14 Oct-14 Jan-15 May-15 Aug-15 Nov-15 Feb-16 Jun-16 Sep-16 2015 2016 2017 2018 4.5% 5.5% 6.5% 7.5% 8.5% 9.5% 10.5% 11.5% 12.5% 13.5% 14.5% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 CPI Inflation (LHS) Repo Rate (RHS)
  • 25.
    27 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Are we heading into a recession? “Probability of Recession” indicator Source: Investec Asset Management, data as at 4 October 2016 Bonds Credit Offshore Property ILBs
  • 26.
    28 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management South Africa sovereign outlook Unchanged… next review just round the corner South Africa sovereign rating Source: Investec Asset Management, Bloomberg, 4 October 2016 Offshore Property ILBs Bonds Credit SA ratings Foreign LT debt Local LT debt Outlook S&P BBB- BBB+ Negative Moody’s Baa2 Baa2 Negative Fitch BBB- BBB Stable R&I BBB- BBB+ Negative Dagong Global A- A- Negative
  • 27.
    29 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management South Africa still lagging EM peers Political risk/Ratings uncertainty South Africa yields relative to peers Source: Investec Asset Management, Bloomberg, 4 October 2016 Bonds Credit Offshore Property ILBs 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16
  • 28.
    30 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Nenegate interest bill Counting the cost Source: Investec Asset Management The next generation will continue to pay for this mis-step 0 50 100 150 200 250 300 350 400 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 R'bln Years
  • 29.
    31 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Foreign ownership of SA bond market Post BREXIT confidence waning Source: SA National Treasury, Citibank, January 2016 Source: Bloomberg, Citi Research, September 2016 Foreign ownership of SA government bonds Bonds Credit Offshore Property ILBs Non-resident net bond flows (YTD)
  • 30.
    32 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management China’s post crisis growth response Turbo TARP is required Source: Investec Asset Management, April 2016 Chinese debt stock has grown by >$18 trillion since 2008 Bonds Credit Offshore Property ILBs
  • 31.
    33 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Big themes for 2016/17 Caution is advised, but opportunities exist ● Stability of SA politics is crucial – maintaining investment grade status so we can get positive momentum for growth and jobs ● China growth and commodity prices will be a big driver of EM and SA sentiment ● Commodity/oil recovery leading to inflation ● Fed, ECB, BoE and BoJ policy will drive currency movements ● BREXIT and Trump?... emergence of non-tolerant political shift ● Is Deutsche Bank the canary in the coal mine of Europe? ● SA and EM’s are well placed for recovery
  • 32.
  • 33.
    35 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investec Diversified Income Fund Current positioning Source: Investec Asset Management as at 12 October 2016 * Excludes NCDs ● Diversified FX Basket ● Reduced duration relative to framework, protection helping ● Reduced property underweight ● Increasing allocation to high quality credit names Cash Bonds Credit* Property FX Alternative Low 4% 0% 45% 1% 3% Neutral 13% 24% 58% 5% 12% High 39% 40% 71% 8% 19% Current 9.2% 13.0% 63.1% 4.1% 8.4% 2.2%
  • 34.
    36 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Investec Diversified Income Fund Credit holdings as at 30 September 2016 (includes NCDs) Source: Investec Asset Management as at 30 September 2016 Weight Spread Contribution SpreadD AAA AA A BBB BB Energy 3.3% 2.01 0.1 0.1 0.0% 3.3% 0.0% 0.0% 0.0% Materials 3.1% 3.37 0.1 0.0 0.0% 0.0% 2.3% 0.9% 0.0% Industrials 1.3% 1.81 0.0 0.0 0.0% 1.1% 0.2% 0.0% 0.0% Consumer Discretionary 9.4% 1.56 0.1 0.2 5.3% 0.0% 3.8% 0.3% 0.0% Consumer Staples 0.0% - - - 0.0% 0.0% 0.0% 0.0% 0.0% Healthcare 1.5% 2.00 0.0 0.0 0.0% 0.0% 1.5% 0.0% 0.0% Bank - Senior 24.1% 0.97 0.2 0.7 0.8% 23.1% 0.0% 0.0% 0.0% Bank - Tier 2 8.1% 3.31 0.3 0.2 0.0% 6.7% 1.0% 0.0% 0.3% Consumer Finance 1.4% 5.81 0.1 0.0 0.4% 0.0% 0.0% 0.0% 0.9% Capital Markets 1.1% 0.06 0.0 0.0 1.1% 0.0% 0.0% 0.0% 0.0% Asset Backed 7.7% 1.56 0.1 0.4 7.7% 0.1% 0.0% 0.0% 0.0% Insurance 4.0% 2.12 0.1 0.1 0.2% 3.2% 0.6% 0.0% 0.0% Real Estate 5.4% 2.08 0.1 0.2 1.5% 2.7% 1.2% 0.0% 0.0% Telecommunication Services 1.5% 1.57 0.0 0.0 0.0% 1.5% 0.0% 0.0% 0.0% Utilities 4.9% 3.24 0.2 0.2 3.4% 1.4% 0.2% 0.0% 0.0% 76.7% 1.45 2.0 20.4% 42.8% 10.8% 1.2% 1.3%
  • 35.
  • 36.
    38 Confidential |Investec Asset Management P20161020_7921554P Confidential | Investec Asset Management Disclaimer All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only. Collective investment schemes (CIS) are traded at ruling prices and can engage in borrowing, up to 10% of portfolio net asset value to bridge insufficient liquidity, and scrip lending. A schedule of charges, fees and advisor fees is available on request from the Manager, Investec Fund Managers SA (RF) (Pty) Ltd which is registered under the CIS Control Act . Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. CISs are generally medium to long term investments and the manager gives no guarantee with respect to the capital or the return of the Fund. Performance shown is that of the Fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax and past performance is not necessarily a guide to the future. The value of participatory interests (units) may go down as well as up. Different classes of units apply to the fund. This portfolio may be closed in order to be managed in accordance with the mandate. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Additional information on the Fund may be obtained, free of charge, at www.investecassetmanagement.com. The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. Investec Asset Management (Pty) Ltd ("Investec") is a member of the Association for Savings and Investment SA (ASISA). The scheme trustee is FirstRand Bank Limited, PO Box 7713, Johannesburg, 2000, Tel: (011) 282 1808. In the event that specific collective investment schemes in securities(unit trust) are mentioned please refer to the relevant minimum disclosure document(MDD) in order to obtain all the necessary information in regard to that unit trust portfolio. This is the copyright of Investec and its contents may not be re-used without Investec’s prior permission. Investec Asset Management (Pty) Limited is an authorised financial services provider.