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Think Efficient. Realise...
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Connect with Select Second Quarter House View Think Efficient. Realise potential. April 2013
Transcript of Think Efficient. Realise...
Connect with Select Second Quarter House View
Think Efficient. Realise potential.
April 2013
AGENDA
1. Introduction to Efficient Select Team
2. Value Proposition
3. Macro Backdrop – House View
4. Asset Allocation
Agenda
Efficient Select
Quality Investing
Proven Track Record Client Centric
Trusted Brand
Think Efficient. Realise potential Think Efficient. Realise Potential.
Value Proposition
EFFICIENT SELECT TEAM
Stuart Sinclair Portfolio Manager Qualification: BCom, Investment Management, Honours in Economics Years experience: 5
Robert Enslin Portfolio Manager Qualification: BCom Honours in Financial
Analysis
Years experience: 6
Marius Van Wyk Portfolio Manager
Qualification: B.Eng., MSc Eng.
Years experience: 4
Masego Mbaakanyi
Research Analyst Qualification: BCom
Economics and Finance
Years experience: 2
Riaan Gerber
Research Analyst Qualification: Bcom
CFP®
Years experience: 5
Ryan McCaughey Research Analyst Qualification: BCom. Honours in Financial
analysis
Years experience: 2
Niklas von Maltzahn
Research Analyst Qualification: BBusSc
(Hons) Actuarial Science and Quantitative Finance
Years experience: 1
Callan Williamson
Dealer Qualification: BBusSci
Finance
Years experience: 1
Investment Team
Efficient Select
Nolan Wapenaar Head of Fixed Income, PM Qualification: CA(SA), MCom Years experience: 12
Luis Levy Managing Director, PM Qualification: BCom, CFA Years experience: 15
Brendan Vadas Chief Investment Officer, PM Qualification: CFA, CAA ATPL, FAA MEI Years experience: 8
Raging Bull Award in 2012, 2011 Efficient Worldwide Flexible Fund - Worldwide - Asset Allocation - Flexible Funds Sector - Top Performer on 5 year risk adjusted returns
Raging Bull Award in 2006 - Domestic - Asset Allocation - Flexible Funds Sector - 3 Year period
Standard & Poor’s Award in 2008 Best Smaller Group in 2008 Worldwide - Asset Allocation - Flexible Funds Sector 1 Year period
Standard & Poor’s Award in 2005 Domestic - Asset Allocation - Flexible - Funds Sector 1 Year period
Investment Success
Awards
Efficient Select
Macro backdrop
AGENDA Macro Backdrop
Efficient Select
Q1 salient points:
• Global growth still below trend (new normal)
• Loose monetary policy continues to support global economic recovery (excessive liquidity)
• This results in: Unsustainably low yields driving unsustainably high asset valuations
• Demand driven inflation continues to be muted – consumer demand still not there
BUT consumer confidence showing signs of improvement in the US
- US housing starts and unemployment rate on a positive trend
Once inflation returns and monetary policies can afford to be less accommodative (2 years)
We believe we will see the beginning of the “Great Normalisation”
QUALITY INVESTMENT PHILOSOPHY QUALITY INVESTMENT PHILOSOPHY Accommodative Monetary Policy
Efficient Select
QUALITY INVESTMENT PHILOSOPHY QUALITY INVESTMENT PHILOSOPHY All time low interest rates
Efficient Select
Efficient Select
USA
QUALITY INVESTMENT PHILOSOPHY QUALITY INVESTMENT PHILOSOPHY History doesn’t lie
Efficient Select
Long-term history of Bonds and Equities
US10Y Yield
S&P500 30 YEAR Bond Bull Run – yields at all time artificial lows
Equities At All Time Highs – elevated by low yields
QUALITY INVESTMENT PHILOSOPHY QUALITY INVESTMENT PHILOSOPHY Equities cheap or Bonds expensive
Efficient Select
SOURCE: FACTSET DATA
Unsustainable
breakdown in
relationship – due to
liquidity injections
Bubble building…
US10Y Yield S&P500
LISTED GROUP STRUCTURE Equity markets on life support
Efficient Select
Record FED bond purchasing programs have driven equity markets
Fed balance sheet
S&P500
QUALITY INVESTMENT PHILOSOPHY QUALITY INVESTMENT PHILOSOPHY Stock market disconnect with business confidence
Efficient Select
SOURCE: FACTSET DATA
Business confidence…
Business confidence
S&P500
QUALITY INVESTMENT PHILOSOPHY QUALITY INVESTMENT PHILOSOPHY Consumer Confidence
Efficient Select
Deleveraging by US consumer
• Occurred at a rapid rate since the recession
• With incomes remaining flat deleveraging is
achieved by cutting spend
• Demand for goods and services is therefore
down
• Companies struggle to deliver organic revenue
growth
LACK OF INFLATION…
SOURCE: THEBE STOCKBROKNG – HENRY FLINT
LISTED GROUP STRUCTURE What will drive inflation?
Efficient Select
SOURCE: BAML
SOURCE: FACTSET DATA
• An increase in housing starts, and
• A decrease in unemployment rate
• Will increase spending power
• Increase demand = INFLATION
Two key driver’s of Inflation
Unemployment Rate
Target rate of 6.5%
(2014-2015)
Housing Starts
LISTED GROUP STRUCTURE How do we see it playing out...
Efficient Select
Until unemployment hits 6.5% (2 years)
Yields remain at all-time lows
Supportive of all asset classes
Search for yield continues
Consumer demand and Inflation return
Quantitative easing to continue…
Retraction of quantitative easing
Yields normalise
Exodus of capital from emerging markets
The Great Normalisation
Efficient Select
Europe
LISTED GROUP STRUCTURE The Euro Situation…Unity their only hope
Efficient Select
Managed by…
Their only hope…FISCAL UNITY
Troika Individual peripheral politicians
Tension
Constant Issues…
LISTED GROUP STRUCTURE Tail-risk removed
Efficient Select
SOURCE: FACTSET DATA
Bond yields &
currency have
bottomed out
EZ Bond Yield
USD/EUR
LISTED GROUP STRUCTURE Inflation Risks
Efficient Select
SOURCE: FACTSET
An increase in inflation poses risks to loose monetary policy
LISTED GROUP STRUCTURE Change in country model
Efficient Select
SOURCE: FACTSET
GDP correlated with Fixed Urban Investment
GDP
Urban Fixed
Investment
LISTED GROUP STRUCTURE Rest of Asia is still the key!
Efficient Select
SOURCE: FACTSET
Rest of ASIA is largest Export Partner
Rest of ASIA is largest Import Partner
Efficient Select
RSA
LISTED GROUP STRUCTURE Rising tide lifts all ships
Efficient Select
SOURCE: FACTSET
The search for Emerging Market Yield
Brazil (green), Mexico (Dark Grey),
Turkey (Grey) and SA (Purple)
10Y Bond Yields
LISTED GROUP STRUCTURE Household Wealth dropping in line with GDP
Efficient Select
SOURCE: THEBE STOCKBROKNG – HENRY FLINT
LISTED GROUP STRUCTURE CA being funded by Foreign Flows
Efficient Select
• Record foreign inflows funding has softened
the effect of the current account deficit
• Downside risk to rand if foreigners withdraw
flows
SOURCE: THEBE STOCKBROKNG – HENRY FLINT
Relationship between;
• Government, Labour & Private Sector
will be key in determining state of Financial
& Current Account & therefore the rand!
LISTED GROUP STRUCTURE Rand in a league of its own
Efficient Select
Market Exchange Rates
Change % vs. US Dollar
3 Aug 12 - 20 Mar 13 02 Jan 13 - 20 Mar 13
Thailand 8.1 Thailand 4.0
Mexico 5.7 Brazil 2.8
Euro 4.3 Mexico 2.4
Russia 2.9 Chile 0.4
Czech Republic 2.6 China 0.3
China 2.6 Australia -1.3
Brazil 2.2 Euro -1.9
Chile 1.9 Turkey -2.3
Poland 1.6 Singapore -2.5
South Korea 1.2 Russia -2.6
Taiwan 0.5 Taiwan -2.6
Singapore -0.8 Argentina -3.4
Australia -1.1 Czech Republic -4.3
Turkey -1.3 South Korea -4.7
Britain -3.0 Poland -4.7
Hungary -5.3 Hungary -6.8
Argentina -9.9 Britain -7.8
South Africa -12.2 Japan -8.6
Japan -17.8 South Africa -8.7
Source:Bloomberg & Econometrix
LISTED GROUP STRUCTURE Negative real rates
Efficient Select
SOURCE: Factset
SA not looking attractive anymore relative to 2010/11 and other BRICS
RISK AND REWARD – 3 Years Offshore Stocks – offering value
Efficient Select
Company Name Share price EPS PE
01/01/2000 31/03/2013 % Change 01/01/2000 31/03/2013 % Change 01/01/2000 31/03/2013
Microsoft 58.38 28.61 -51.0% 0.71 2.00 181.7% 82.2 14.3
Target 36.72 68.45 86.4% 1.02 4.49 340.2% 36.0 15.2
IBM 107.88 213.30 97.7% 4.12 14.37 248.8% 26.2 14.8
GlaxoSmithKline 17.50 15.39 -12.1% 0.47 0.93 98.9% 37.5 16.6
Offshore Stock Valuation
Company Name Share price EPS PE
01/01/2000 31/03/2013 % Change 01/01/2000 31/03/2013 % Change 01/01/2000 31/03/2013
Woolworths 3.79 70.60 1764.4% 0.30 2.69 806.4% 12.7 26.2
Sanlam 8.61 47.18 448.1% 1.41 2.93 107.9% 6.1 16.1
Aspen 4.28 190.99 4367.4% 0.19 6.10 3131.1% 22.7 31.3
Domestic Stock Valuation
RISK AND REWARD – 3 Years Local stocks – losing appeal
Efficient Select
LISTED GROUP STRUCTURE Asset Class Returns
Efficient Select
RISK AND REWARD – 3 Years The offshore attraction
Efficient Select
“Asset Allocation explains 93.6% of investment returns”
(Ibbotson-Kaplan)
Why do we like offshore equities? - SA stocks had an excellent last decade
- Valuation – more attractive - Quality large cap companies exposed to global economy - US stocks preferred = the cleanest of the dirtiest shirts
• Improving unemployment rate • Improving housing market
- Diversification – more options to choose from (global peers) - Profits from a weakening rand – KEY!!
- SA economy facing structural headwinds = bad for SA stocks
LISTED GROUP STRUCTURE Asset Allocations and Forecast Returns
Efficient Select
SOURCE: EFFICENT SELECT NOTE: amounts in brackets are our internal forecasted returns for 2013
NEGATIVE STABLE
NEGATIVE STABLE
STABLE POSITIVE
POSITIVE
Local Assets
Equity (6.6%) X
Property (12.5%) X
Bonds (6.5%) X
Cash (4.8%) X
Offshore Assets
Equity X (17.5%)
Property (13%) X
Bonds (4%) X
Cash X (4%)
RISK AND REWARD – 3 Years Equity Fund
Efficient Select
“Asset Allocation explains 93.6% of investment returns”
(Ibbotson-Kaplan)
RISK AND REWARD – 3 Years World Wide Flexible Fund
Efficient Select
AGENDA
Contact us:
15th Floor Triangle House 22 Riebeek Street Cape Town 8001 South Africa
Tel: +27 (21) 410 6000 Fax: +27 (21) 410 6093
Email: [email protected]
www.efselect.co.za Efficient Select @efselect
Contact Details
Efficient Select
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