BCI Global Investment Conference 2019 Identifying unique ......4 Confidential | Investec Asset...

BCI Global InvestmentConference 2019

Identifying unique investment opportunities whilst managing the tension between conviction and riskHannes van den Berg20 May 2019

2 Confidential | Investec Asset ManagementP20190424_8547735P

Behavioural biases

Warren Buffet: “Fearful when

others are greedy and

greedy when others are

fearful”

How can they be exploited?


Behavioural biasesHow can they be exploited?

Earnings revisions

Stock priceHerding

Anchoring

DYNAMICS

BIAS TRENDS APPROACH


Autocorrelation in earnings revisions evident

Source: Bloomberg, Thomson Reuters, Investec Asset Management

Autocorrelation has not been arbitraged away: behavioural bias is persistent

1995 - 2005

2005 - 2015


Active managers exploit inefficient markets Behavioural errors a primary reason for mispricings ● Markets are inefficient due to

behavioural errors made by investors● These behavioural errors can be exploited

within a disciplined, evidence-based process

● The best alpha opportunities are where expected future profits are being revised upwards and trading at reasonable valuations

● A combination of sophisticated screening and rigorous bottom-up fundamental analysis delivers the best results

The investor’s chief problem –and even his worst enemy – is likely to be himself

Benjamin Graham

Bottom-up Fundamental

Research

FundamentalStock

Screen

High Conviction

Ideas


Earnings revisions drive share prices and positioning

This is not a buy or sell recommendation of any particular security; Source: Bloomberg, 31 January 2019. *Investec Equity composite relative to Capped SWIX

Increased exposure as revisions bottomed

Anglo American active weight*Anglo American share price and earnings forecasts

1,4

1,6

1,8

2,0

2,2

2,4

2,6

2,8

12

14

16

18

20

22

24

26

Dec

-16

Feb-

17

Apr-1

7

Jun-

17

Aug-

17

Oct

-17

Dec

-17

Feb-

18

Apr-1

8

Jun-

18

Aug-

18

Oct

-18

Dec

-18

Con

sens

us E

arni

ngs

per s

hare

Angl

o Am

eric

an s

hare

pric

e

AGL share price(USD, LHS)Consensus EPSFY'18 (USD, RHS)

-2%

-1%

0%

1%

2%

3%

4%

5%

Dec

-16

Feb-

17

Apr-1

7

Jun-

17

Aug-

17

Oct

-17

Dec

-17

Feb-

18

Apr-1

8

Jun-

18

Aug-

18

Oct

-18

Dec

-18


Earnings revisions profile across industries

This is not a buy or sell recommendation of any particular security; Source: Bloomberg, Investec Asset Management as at 13 February 2019

Resources sector has the strongest profile Average earnings revisions by sector (Jan 2017 = 100)

Average earnings revisions of the general miners (Jan 2017 = 100)

80

100

120

140

160

180

200

220

240

Jan-

17

Mar

-17

May

-17

Jul-1

7

Sep-

17

Nov

-17

Jan-

18

Mar

-18

May

-18

Jul-1

8

Sep-

18

Nov

-18

Jan-

19

Ave AGL, BIL, ARI, GLN

6065707580859095

100105110

Jan-

17

Mar

-17

May

-17

Jul-1

7

Sep-

17

Nov

-17

Jan-

18

Mar

-18

May

-18

Jul-1

8

Sep-

18

Nov

-18

Jan-

19

SA in

c ea

rnin

gs re

visi

ons

Ave SHP, PIK, SPPAve MRP, WHL, TFG


Investment processDisciplined, repeatable, evidence-based

Portfolio construction

High conviction, risk aware

Manage portfolio integrity

Active risk/reward management

Idea generation

Complementary, team-based inputs


Investment team harnesses technology

For further information on investment process, please see the Important information section.

Integrating the skills of humans and technology

Judgement

and intuition

A mile wide, but an inch deep – systematic and objective

QUANTITATIVE RESEARCH FUNDAMENTAL RESEARCH

An inch wide, but a mile deep – bottom-up fundamental research

FUNDAMENTAL OVERSIGHTRISK MANAGEMENT & PORTFOLIO CONSTRUCTION

Processing large amounts of information fast

Providing oversight on investment process efficacy and implementation

Spee

d an

d ob

ject

ivity Active

Management


Portfolio construction using proprietary tools

Source: Investec Asset Management as at 31 July 2018

We can see the impact potential trades will have on the portfolio in terms of:● Return● Risk● Tracking error● Liquidity● Transfer coefficient

Vital for more predictable outcomes, less volatile performance


Philosophy — unique philosophy

Upward earnings revisions at reasonable value

Process — humans harnessing technology

Active stock selection, portfolio construction and risk management

Purpose — deliver consistent returns

Over the long term on a benchmark and peer-relative basis

Investec Equity Fund

Past performance is not a reliable indicator of future results, losses may be made.

In a nutshell

Thank you

www.investecassetmanagement.com


Important information

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. This is not a recommendation to buy, sell or hold any particular security.

Collective investment scheme funds are generally medium to long term investments and the manager, Investec Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up. Funds are traded at ruling prices and can engage in borrowing and scrip lending. The fund may borrow up to 10% of its market value to bridge insufficient liquidity. A schedule of charges, fees and advisor fees is available on request from the manager which is registered under the Collective Investment Schemes Control Act. Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. 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. There are different fee classes of units on the fund and the information presented is for the most expensive class. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Where the fund invests in the units of foreign collective investment schemes, these may levy additional charges which are included in the relevant TER. Additional information on the funds may be obtained, free of charge, at www.investecassetmanagement.com. Investec Asset Management (Pty) Ltd (“Investec”) is an authorised financial services provider and a member of the Association for Savings and Investment SA (ASISA).

Investment Team: There is no assurance that the persons referenced herein will continue to be involved with investing for this Fund, or that other persons not identified herein will become involved with investing assets for the Manager or assets of the Fund at any time without notice.

Investment Process: Any description or information regarding investment process or strategies is provided for illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at the discretion of the manager without notice. References to specific investments, strategies or investment vehicles are for illustrative purposes only and should not be relied upon as a recommendation to purchase or sell such investments or to engage in any particular strategy. Portfolio data is expected to change and there is no assurance that the actual portfolio will remain as described herein. There is no assurance that the investments presented will be available in the future at the levels presented, with the same characteristics or be available at all. Past performance is no guarantee of future results and has no bearing upon the ability of Manager to construct the illustrative portfolio and implement its investment strategy or investment objective.

In the event that specific funds are mentioned please refer to the relevant minimum disclosure document in order to obtain all the necessary information in regard to that fund.

This presentation is the copyright of Investec and its contents may not be re-used without Investec’s prior permission.

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