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Investec Global Franchise
- 1. Senate Group Investec Global Franchise Morkel Kincaid – Sales Manager Louis Niemand – Investment Director Darren Jocum – Investment Specialist March 2016
- 2. 2 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Investec Asset Management Focused on the long term, committed to South Africa Investments and Client group As at 31 December 2015 * Towers Watson “The World’s 500 Largest Asset Managers - Year end 2013”, measuring third party AUM for Investec Group Combining global perspective with local insight ● Founded in 1991 by current leadership ● Global staff complement: 870 ● Investment hubs in London, Cape Town, Hong Kong & Singapore ‒ UK: 105 investment professionals ‒ SA: 67 investment professionals ‒ USA and Asia: 6 investment professionals ● Top 100 3rd party asset manager globally* Africa Americas and Japan Asia Pacific Europe UK
- 3. 3 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Continually evolving our fund offering in line with the changing environment Offshore fund changes ● Launched Sterling versions of our flagship Global Strategic Managed & Global Franchise Funds ● Launched Global Multi-Asset Income ● Reduction in our offshore funds clean fees (via platforms) to 0.75% p.a. SA foreign unit trust – New funds ● Global Opportunity Income FOF Global Multi-Asset Income Feeder ● Global Opportunity Equity FOF Global Franchise Feeder Investec Worldwide Flexible unit trust - Launching April 2016 ● Managed by our award winning SA Equity and Balanced fund team ● Multi-asset solution that is not constrained by geographic or asset class limits
- 4. 4 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P 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) [50%] LocalInternational Diversified Income Opportunity [75%] Cautious Managed [40%] Value [100%] Equity [100%] Expected Risk (Volatility) GrowthIncome ExpectedReturn Worldwide Flexible [100%]
- 5. 5 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Consistent long-term performance As at 31 January 2016 Past performance should not be taken as a guide to the future, losses may be made. Data is not audited. Source: Morningstar, dates to 31 January 2016, NAV based, inclusive of all annual management fees but excluding any initial charges, 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. Peer Group Quartile Rankings 1 year 5 years Since Inception SA Investec Diversified Income 1 1 1 Investec Cautious Managed 1 1 1 Investec Opportunity 1 2 1 Investec Equity 1 1 1 Investec Global Strategic Managed Feeder 2 2 1 Investec Global Franchise Feeder 1 1 1 Offshore (US$) Investec (GSF) Global Multi-Asset Income 1 - 1
- 6. 6 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Relative strength in sideways to down markets Investec Opportunity – relative to sector average over the last 15 years* Past performance should not be taken as a guide to the future, losses may be made. Data is not audited. Source: Morningstar, dates to 31 December 2015, NAV based, inclusive of all annual management fees but excluding any initial charges, 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. * Data since January 2000 Competitor Basket includes managers within the same peer group. Funds are equal weighted and rebalanced monthly Meaningful participation in rising markets, but the true strength of our approach is in sideways to down markets Average rolling 12 month performance 23% 11% -2% 24% 10% -5% 20% 7% -6% -10% -5% 0% 5% 10% 15% 20% 25% 30% Sector > 10% Sector between 0% and 10% Sector < 0% Investec Opportunity R Peer group basket of funds Sector average
- 7. 7 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Rob Forsyth Head of Research Quality investment team Subject to change not necessarily with prior notification. As at February 2016 Experienced and well-resourced Kagiso Sedimo Investment Specialist Tshepang Loeto Investment Specialist Investment Specialists Ben Needham Investment Specialist Anna Farmbrough Investment Specialist Blake Hutchins Portfolio Manager Richard Ladbrook Investment Specialist Eihorere Wesigye Investment Specialist Joseph Rohm Portfolio Manager Julien Veron Investment Specialist Michael Hayward Investment Specialist Paul Vincent Investment Specialist Scott Winship Investment Specialist Abrie Pretorius Portfolio Manager Sumesh Chetty Portfolio Manager Darren Jocum Investment Specialist Yaser Surve* Investment Specialist Jade Misplon Investment Specialist Co-Heads of Quality Strategy Leaders Clyde Rossouw Global Khaya Gobodo Africa Simon Brazier UK Clyde RossouwSimon Brazier Nontle Kabanyane Product Specialist Global Investment Infrastructure Support Dealing | ESG | Risk & Performance | Implementation Product Specialists Neil Finlay Product Specialist Danielle Lavan Product Specialist Louis Niemand Investment Director
- 9. 9 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management -2% 0% 2% 4% 6% 8% 10% 12% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Global growth is very weak and uncertain Will this persist for the medium term? Source: IMF, Investec Asset Management, October 2015. Forecasts are inherently limited and should not be relied upon as an indicator of future performance. Mckinsey, Investec Asset Management Growth is slowing, deleveraging still to occur – global liquidity is becoming more constrained Growth in world nominal GDP Global debt – deleveraging still has to occur
- 10. 10 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management -5 0 5 10 15 20 25 30 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Proprietary GDP China official GDP China remains extremely unclear Is China stalling? Source: Bloomberg to 31 December 2015 China GDP, reported versus our estimated ?
- 11. 11 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Companies that have stood the test of time Global franchise companies with trading histories of over 100 years, on average This is not a buy or sell recommendation for any particular security World leaders with established histories (1866) (1886) (1806) (1823) (1909) 3M (1902) (1930) (1901) (1852) (1898) (1715) (1909) (1938) (1847) (1801) (1896)
- 12. 12 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Investec GSF Global Franchise A Acc GIFS OE Global Large-Cap Blend Equity MSCI ACWI NR USD -10.0 -7.0 -4.0 -1.0 2.0 5.0 8.0 11.0 13.0 15.0 17.0 19.0 21.0 23.0 25.0 Risk vs. return since April 2007 Investec GSF Global Franchise Fund Attractive risk-adjusted returns Past performance should not be taken as a guide to the future, losses may be made. Data is not audited. Source: Morningstar, data to 29 February 2016, NAV based, inclusive of all management fees but excluding any initial charges, gross income reinvested, in US Dollar. * Inception is 30 April 2007. The fund performance is based on the OEIC Investec Global Select Equity Fund from 10 April 2007 which then merged into the Luxembourg-domiciled Investec GSF Global Franchise Fund on 04 July 2009. Annualisedperformance%change Annualised standard deviation
- 13. 13 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management 19.9% 10.4% -5.7% 9.0% 20.9% 5.4% -16.4% 4.7% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 42 months MSCI > 10% 20 months 0% < MSCI < 10% 33 months MSCI < 0% 95 rolling 12 months total Investec GSF Global Franchise S Acc MSCI ACWI (MSCI World pre Oct 2011) Quality companies: for reduced uncertainty in an uncertain world Past performance should not be taken as a guide to the future, losses may be made. Data is not audited. Source: Investec Asset Management, 29 February 2016. Performance is gross of fees in USD. Returns are calculated on a bid to bid basis of the S class with gross income reinvested in USD. Relevant Fund TERs have been added back. Rolling 12 month periods since inception: 30 April 2007. Average rolling 12 month performance Strong markets Moderate markets Falling markets All periods
- 14. 14 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Our local funds have benefitted from exposure to Global Franchise Investec Opportunity Fund currency exposure: ZAR (72.53); Non-ZAR (27.47) Investec Cautious Managed Fund currency exposure: ZAR (73.67); Non-ZAR (26.33) Source: Investec Asset Management as at 29 February 2016 30.8% 33.0% 3.4% 12.4% 1.8% 1.7% 2.0% 0.1% 5.6% SA Equities Offshore Equities Inflation Linked Bonds Fixed Interest Bonds SA Cash SA Property Offshore Property Offshore Cash Offshore Bonds Commodities Investec Opportunity Fund Investec Cautious Managed 11.4% 25.1% 9.0% 16.7% 5.1% 25.6% 1.4% 0.8% 2.9% 0.1% 2.1% Our offshore equity has been the largest contributor to absolute performance
- 15. 15 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management The Rand is under pressure Source: I-Net Bridge & Investec Asset Management as at 29 February 2016; Log Scale 0.4 2.8 19.6 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 USDZAR PPP Lower Limit (2SD) Upper Limit (2SD) Forecast PPP 1.07% depreciation p.a.
- 16. 16 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Limited high quality exposure within South Africa Source: Investec Asset Management as at 29 February 2016 Sector composition ALSI Investec Global Franchise Basic Materials 17.4% Avoid. High capital intensity, no pricing power Financials 21.5% ~ Typically low exposure. High leverage Consumer Goods 22.2% Quality Rich. Capital light, innovation, pricing power Consumer Services 25.0% Selected Quality niches Telecommunication 4.5% Avoid. High capital intensity, no pricing power Oil & Gas 0.0% Avoid. High capital intensity, no pricing power Industrials 5.3% ~ Selected Quality niches Health Care 3.7% Selected Quality niches Technology 0.4% Selected Quality niches 100.0%
- 17. 17 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Diversification benefits of adding Global Quality to a SA portfolio Source: Bloomberg, Investec Asset Management, 5 years as at 29 February 2016 SA Equities (FTSE/JSE All Share), Global Equities (MSCI World Index), SA Equities (JSE All Share Index) SA Balanced (AF Domestic-Only LMW). Composites assumes monthly re-balancing back to indicated weights Adding ‘Quality’ to a SA portfolio has historically reduced risk Adding ‘Quality’ to a SA Equity portfolio Adding ‘Quality’ to a SA Multi-Asset portfolio SA Equities Adding global equities (25%) to SA Equities Adding Global Franchise (25%) to SA Equities 11% 12% 13% 14% 15% 16% 17% 18% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% Returnperannum(5years) Volatility per annum (5 years) Balanced portfolio (Domestic- only) Adding 25% offshore equities (MSCI ACWI) Adding 25% Quality (Investec Global Franchise) 9% 10% 11% 12% 13% 14% 15% 16% 6.0% 6.5% 7.0% 7.5% 8.0% Returnperannum(5years) Volatility per annum (5 years)
- 18. Determining the quality of a company Darren Jocum
- 19. 19 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Apple Inc The world’s most valuable company This is not a recommendation to buy, sell or hold a particular security. The specific companies listed or discussed herein are included as representative transactions of the portfolio. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. BAT SAB BHPBilliton Naspers Richemont Steinhoff Sasol MTN Firstrand Vodacom - 100 200 300 400 500 600 Apple Inc Top 10 SA shares $'bn Market cap ($'bn)
- 20. 20 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Apple Inc Prior to 2004, Apple was a PC manufacturer This is not a recommendation to buy, sell or hold a particular security. The specific companies listed or discussed herein are included as representative transactions of the portfolio. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. Has Apple become a one-trick pony? 0% 20% 40% 60% 80% 100% FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 $'m Other Products Services iPod Macintosh iPad iPhone Apple revenue split
- 21. 21 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Apple Inc Smartphone profits Source: Canaccord Genuity This is not a recommendation to buy, sell or hold a particular security. The specific companies listed or discussed herein are included as representative transactions of the portfolio. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. Is this sustainable? ● Despite a market share of about 15%, Apple commands almost the entire global smartphone profit pool Share of global operating profit or loss
- 22. 22 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Nokia This is not a recommendation to buy, sell or hold a particular security. The specific companies listed or discussed herein are included as representative transactions of the portfolio. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.
- 23. 23 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management BlackBerry This is not a recommendation to buy, sell or hold a particular security. The specific companies listed or discussed herein are included as representative transactions of the portfolio. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. BlackBerry unit sales and market share
- 24. 24 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Apple Inc Lets put the size in context This is not a recommendation to buy, sell or hold a particular security. The specific companies listed or discussed herein are included as representative transactions of the portfolio. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. In order to grow revenue by 5%, Apple needs to add $12bn in revenue Revenue ● In 2015 Apple’s revenue was $234bn ● In 2015 Apple added more revenue than 75% of Fortune 500 companies have 0 50 100 150 200 250 Apple Inc BAT SABMiller Shoprite $'bn Revenue ($'bn) Profit ● Most profitable company in the world ● Apple’s profit = combined profits of 210 least profitable companies in the S&P500 0 10 20 30 40 50 60 70 80 Apple Inc BAT SABMiller Shoprite $'bn Operatingprofit ($'bn)Revenue ($’bn) Operating profit ($’bn)
- 25. 25 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Why we don’t own banks in Global Franchise Fund This is not a recommendation to buy, sell or hold a particular security. The specific companies listed or discussed herein are included as representative transactions of the portfolio. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. A bank’s ROA is low and needs to be geared up to achieve a satisfactory ROE -2 0 2 4 6 8 10 12 14 16 18 20 FY1989 FY1990 FY1991 FY1992 FY1993 FY1994 FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 % Barclays plc Johnson & Johnson Return on assets
- 26. 26 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Why we don’t own banks in Global Franchise Fund Banks are highly geared This is not a recommendation to buy, sell or hold a particular security. The specific companies listed or discussed herein are included as representative transactions of the portfolio. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. Banks are highly geared companies This is what you are buying as a shareholder! - 200,000 400,000 600,000 800,000 1,000,000 1,200,000 Assets Equity & liabilities GBP'mil Barclays plc: balancesheet Assets Liabilities Equity Barclays plc: balance sheet
- 27. 27 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Stock example: VISA (US, since 1958) Brand: Visa Source: Visa and Bloomberg, as of 31 October 2015. This is not a recommendation to buy, sell or hold a particular security. The specific companies listed or discussed herein are included as representative transactions of the portfolio. No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided. ● Largest payment processing network globally ● High barriers to entry; unrivalled scale across consumers, merchants and banks ● Strong industry trends as 85% of the world’s transactions are still conducted with cash and cheques ● Growth in e-commerce is another driver of top line growth ● Visa has reached agreement to buy Visa Europe, a move which further enhances its dominant position in the payments industry Sector Information Technology Established In 1958 Market cap US$ 131.9bn Number of employees 9,500 Dividend yield 0.6% VISA stock price performance 0 10 20 30 40 50 60 70 80 90 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 USD
- 28. 28 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Visa Global Franchise Portfolio Quality Operating margin 61% 23% EBITDA margin 65% 28% Cashflow margin 33% 16% ROIC 68% 20% Capex: Sales 4% 6% Growth FCF growth (7yr historic) 85% 9% Sales growth (7yr historic) 15% 6% EPS growth (7yr historic) 32% 11% 0% 10% 20% 30% 40% 50% 60% 2006 2007 2008 2009 2010 2011 2012 Visa MasterCard American Express Discover JCB Diners Club Top holdings Visa Source: Investec Asset Management, Bloomberg, FactSet, Company Reports, June 2014 ● The card payment landscape provides many investment opportunities ● Visa and MasterCard are some of the best and provide growth and quality in excess of our portfolio ● Currently, Visa provides the better exposure to the card payment landscape for our process: ‒ Dominance in the US and emerging markets (50% market share vs. MasterCard at 32%) provides pricing power should it wish to compete on price ‒ Superior capital allocation to MasterCard ‒ Low capital intensity relative to American Express and Discover ‒ Superior valuation using a DCF methodology Gross dollar volume ex cash by network
- 29. 29 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management 6% 15% 25% 27% 27% 15% 21% 26% 29% 30% 31% 32% 20% 19% 21% 24% 24% 24% 24% 64% 58% 47% 32% 22% 19% 16% 0% 20% 40% 60% 80% 100% 1990 1995 2000 2005 2010 2011 2012 Debit Credit Cash Checks 3.3 2.6 2.2 1.9 1.7 1.1 1 0.8 0.8 0.4 0 0.5 1 1.5 2 2.5 3 3.5 US Canada UK Brazil South Korea Japan Spain France Turkey Russia Top holdings Visa Source: Investec Asset Management, JP Morgan, June 2014 ● Visa provides exposure to the rapid growth in card payment utilisation ● The convenience and reduced security risk of cards has led to their rise as the dominant payment medium ● Under penetration in many developed economies (Germany and Japan) and most emerging economies creates a strong growth trajectory ● Coupled with the rise of ecommerce and the associated mobile platforms has potential to provide growth in excess of our portfolio Payment medium wallet share Bank cards per capita
- 30. 30 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Conclusions Looking ahead to 20/20 Reduced uncertainty in an uncertain world ● Looking ahead, the macro environment is very unstable and uncertain ● Quality, franchise companies have been less vulnerable to volatility and uncertainty, enabling them to grow profits sustainably over 100 years, on average! ● This has compounded shareholder wealth at superior rates of return over the long term, outperforming through multiple cycles ● Adding ‘Quality’ to a SA portfolio has historically reduced risk ● With limited Quality exposure in South Africa, investing in Global Franchise, either directly or indirectly via Investec Opportunity and Cautious Managed Funds, has clear return and diversification benefits for a SA investor ● The weak Rand has not been the only driver of positive returns for a SA investor in Global Franchise - the Fund has generated positive alpha in USD
- 32. 32 Investec GSF Global Franchise Fund Confidential | Investec Asset Management P20160314_502P Confidential | Investec Asset Management Disclaimer Collective investment schemes (CIS) generally medium to long term investments and the manager gives no guarantee with respect to the capital or the return of the Fund. CIS are traded at ruling prices and can engage in scrip lending. A schedule of charges, fees and advisor fees is available on request from the manager. 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 and past performance is not necessarily a guide to the future. Different classes of units apply to the fund and the information presented is for the most expensive class. Excessive withdrawals from the portfolio may place it under liquidity pressures and in such circumstances the processing of redemptions will deferred if this amounts to more than 10% of the Fund. Fund valuations and transaction cut-off time are 16h00 SA time each business day. Performance figures above are based on lump sum investments, using NAV to NAV figures net of fees with gross income reinvested, in US Dollars. 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. A higher ongoing charges figure (OCF), equivalent to total expense ratio, does not necessarily imply a poor return, nor does a low OCF imply a good return. Where portfolios invest in the participatory interests of foreign collective investment schemes, including Investec’s foreign funds, these may levy additional charges which are included in the relevant OCF. The ratio does not include transaction costs. The current OCF cannot be regarded as an indication of the future OCFs. Fund prices are published each business day in selected media. Additional information on the Fund may be obtained, free of charge, at www.investecassetmanagement.com. The portfolio is a sub-fund in the Investec Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and is approved under the CIS Control Act. This is the copyright of Investec and its contents may not be re-used without Investec’s prior permission.