march 2017 northstar asset...

Northstar Asset Management

March 2017

Investment forum

Northstar Asset Management – Key differentiators

Northstar focuses on two activities:

Independent research → Generating returns

Quantifying bet sizes → Managing risk

We understand the importance of managing risk and have solved the mystery of integrating fundamental research into a quantitative portfolio construction framework

Independent research → Generating returns

-100 -50 0 50 100 150 200 250

OLD MUTUAL PLCBRITISH AMERICAN TOBACCO PLC

SUN INTERNATIONAL LIMITEDINVESTEC PLC

WOOLWORTHS HOLDINGS LIMITEDBRIMSTONE INVESTMENT CORP LTD N

REMGRO LIMITEDBRAIT S.A.

REINET INVESTMENTS SCAANHEUSER-BUSCH INBEV SA/N

ASTRAL FOODS LIMITEDASPEN PHARMACARE HLDS LIMITED

BID CORPORATION LIMITEDSUPER GROUP LIMITED

MR PRICE GROUP LIMITEDNASPERS LIMITED

GRINDROD LIMITEDBARCLAYS AFRICA GROUP LIMITED

FIRSTRAND LIMITEDNEDBANK GROUP LIMITED

METROFILE HOLDINGS LIMITEDCOMPAGNIE FINANCIERE RICHMONT SA

NETCARE LIMITEDGROUP FIVE LIMITED

A E C I LIMITEDDATATEC LIMITED

SASOL LIMITEDBIDVEST GROUP LIMITED

RAUBEX GROUPSTANDARD BANK GROUP LIMITED

Total Local Equity

Local Equity Attribution (vs Jalsh Index)2016

-60 -40 -20 0 20 40 60 80 100 120

GILEAD SCIENCES INC

ROCHE HOLDINGS LTD-SPONS ADR

JPMORGAN CHASE & CO

ISHARES CORE EURO STOXX 50

APPLE INC.

JD.COM INC-ADR

MARKEL CORP

CAPITAL ONE FINANCIAL

FLOWSERVE CORP

SAP AG SPONSORED ADR

ING GROUP CVA

SHINHAN FINANCIAL GROUP-ADR

CISCO SYSTEMS

MICROSOFT CORP

BERKSHIRE HATHAWAY B

UNION PACIFIC CORP

Total Global Equity

Global Attribution (vs MSCI World in ZAR)2016

62.5% hit rate

66.7% hit rate

Quantifying bet sizes → Managing risk

-2,5%

-2,0%

-1,5%

-1,0%

-0,5%

0,0%

1 2 3 4 5 6 7 8 9 10

Att

rib

uti

on

Lowest 10 negative attributors

Attribution per company - 2016

Northstar local companies All Share Index companies

Northstar: -4.1%All Share Index: -7.1%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Att

rib

uti

on

Top 20 positive attributors

Attribution per company - 2016

Northstar local companies All Share Index companies

Northstar: 8.6%All Share Index: 8.0%

Limiting downside relative to the All Share Index Enhancing upside relative to the All Share Index

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-60% -50% -40% -30% -20% -10%

Fun

d r

etu

rn

Fund maximum drawdown

Fund return vs. maximum drawdown vs. fund size (at start of period)Jan 2007 to Jan 2017

Relationship between fund size and investment performance in SA

• No significant relationship between fund size and returns• No significant relationship between fund size and drawdown• Funds with lower drawdowns have tended to deliver better overall returns

SA large cap industrials have outperformed over the last 10 years

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Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16

Ind

exe

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o 1

00

Price returns

INDI25 Top40 Mid Cap Small Cap

We would argue that dual listings and rand weakness have played into the hands of large

cap industrial stocks

Large cap industrials enjoy high liquidity

WHLAVI

BVT

IPL

SNH

MTN

TRU

REM

SPP

TFG

APN

TBS

PIK

NTC

SHP

MRP

CLS

CFRNPNSA Industrial 25 Index average traded value &

return , 378 , 18,1%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

- 200 400 600 800 1 000 1 200 1 400 1 600 1 800 2 000 2 200

Ret

urn

(%

)

Daily value traded (R'm)

Return vs. Daily Value Traded (10 years to Feb 2017)

SA stocks (Large, Mid & Small Cap) INDI25 Index stocks Average

• Large cap liquid industrial shares have been the area of outperformance• Large managers have been invested in these counters through skill and

necessity and have consequently been rewarded

In SA most stocks have under-performed the large cap industrials over the last decade

0,4

0,6

0,8

1

1,2

1,4

Dec 2006 Dec 2007 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016

Relative price returns – Top 40, Mid & Small cap stocks vs. Large cap industrials

Top40 vs. INDI25 Mid Cap vs. INDI25 Small Cap vs. INDI25

• The Top 40, Mid & Small cap indices have underperformed the Large cap industrial index over the last decade … however that trend has reversed over the last year

• This reversal complicates the investment landscape for large managers

Small caps outperform large caps

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600

Dec 98 Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10 Dec 12 Dec 14 Dec 16

MSCI World Small Cap TR MSCI World Large Cap TR

• Globally small companies outperform large companies• Assuming the same occurs in South Africa, a natural advantage

exists for smaller specialist managers vs. very large managers

Much easier for small managers to reposition

69

104

21

67

205

265

118

66

149

97

2 6 3 8 2 2 2 210 7

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SOL NPN SBK BGA NPN SNH BTI OML OML BTI REI SOL REM AGL NED BIL INP INP SAP SAP

Day

s

Top 10 holdings

Days to trade out of Top10 holdings (5% of daily trade)

R40bn fund R1.2bn fund

Small managers can reposition much quicker than large managers

Alpha creator - ING Group

o ING has gone through significant restructuring initiatives over the past 5 years becoming today a robust and simplified banking groupo Management has several levers to drive performance over the next 3 years. The group has guided for improvements in NIM, better efficiencies from the

implementation of a “direct bank” strategy and cost cutting initiatives and loan expansion from significant cross selling opportunities in Beneluxo ING’s capital position is sound and the group has resumed paying dividend in Dec 2014 after having suspended distributions in 2009

o Valuation is compelling

Management Industry Competitive Advantage Valuation

✓ ✓ ✓

7,6%

14,8%

9,3%10,2%

12,3%11,7%

14,4%13,5% 13,1%

14,5%

6%

8%

10%

12%

14%

16%

18%

20%

FY 2006 FY 2008 FY 2010 FY 2012 FY 2014

Capital Position

Tier I Capital

0%

20%

40%

60%

80%

100%

2005 2010 2015F

Banking Channels - Europe (% of interactions)

Branch Mobile ATM Digital Other

Alpha detractor – Sun International

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R 0

R 20

R 40

R 60

R 80

R 100

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1999 2001 2003 2005 2007 2009 2011 2013 2015

Sun International share price Net Debt To Shareholders Equity

o Management has cornered the business by adding excessive debt

“Long term exposure to quality assets

where value exceeds price”

Questions

The information contained in this presentation is of a general nature and is not intended to address the circumstances of any particular person. The information herein does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe for or purchase any specific product and is not to be construed as advice or guidance in any form whatsoever. We do not claim to act in any way as an advisor and you should not act upon this information without appropriate professional advice.

Northstar Asset Management (Pty) Ltd is an authorised financial services provider.

Sentio is a Latin word meaning “To hold a view or a strong opinion”

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• Founded 2007 - We have a solid 10 year track record, tested through GFC in 2008, we can compete with the best

• Affiliate of RMI Group – best of both worlds. Ownership: 82% management/ staff; 18% RMI; staff ownership means “skin in the

game”

• AuM – cR14bn; 97% of AuM in long-only, the balance in HF. Approx. R1.5bn in unit trusts; continued strong inflows

• We have a world class process that integrates deep stock analysis with robust risk management

• Globally competitive - significant local and global market experience integrated into the process

• 10 years of successful investment in the best Systems and people – World class systems and fast growing team; developing talent

• Outsourced non-core activities: Independent Administration (Maitland) & Compliance (ICS)

• Retail Offering: Sanlam Select Optimised Equity, Sanlam Select Absolute, Sentio SCI HIKMA Shari’ah Equity, Sentio SCI HIKMA

Balanced

As a client you get institutional robustness, agility of boutique manager, best of breed process16

Our core competency is in VALUING ASSETS and PRICING RISK

- Deep INTEGRATION of Stock Picking and Risk Management

We are STYLE AGNOSTIC investors

- We invest in Value, Growth, Quality and Risk assets as long as they are cheap

We believe in running a DISCIPLINED PROCESS to achieve consistent Alpha over time

- Our CULTURE is difficult to replicate – our process, people, systems and methodologies are unique

Our focus is on the QUALITY OF RISK we take to ensure returns are sustainable and repeatable over time

- Because all returns are not born equal!

Humility + discipline = outperformance

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Globally, smaller managers outperform larger managers over time…

Even though locally the average boutique manager has not outperformed the average large manager, there has been largevariability in boutique performance – don’t focus on the average…

Thus, there are clear opportunities within Boutiques to positively differentiate yourself versus larger managers.

The biggest advantage is the smaller size of boutiques versus large managers. This makes boutiques more nimble and flexiblein order to express views relative to the peer group.

Like diversification, smaller size is like a “Free Lunch”, which can allow sustainable outperformance. However, you have touse it properly and effectively

Good boutiques can use their size to generate sustainable risk-adjusted outperformance of their larger counterparts.

FOCUS ON MANAGERS THAT USE SIZE TO THEIR ADVANTAGE

’Boutique managers must use size to their advantage!

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• Active Management Value Add

• Should be: Risk adjusted performance…which is

• Information Ratio (Alpha / Tracking Error)

• Alpha – Excess performance above benchmark

• Tracking Error – Risk manager takes relative to benchmark.

Active Management Value Add

Return(Alpha)

Risk(Tracking Error)Function Of

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• Manager Skill – Ability to pick stocks. Disciplined Investment Philosophy and process

• Constraints – How much active skill is WASTED OR DILUTED?

Size of manager – LARGER managers at a distinct DISADVANTAGE.

Long only constraint, Mandate constraints, Structure of market, etc.

• Portfolio Construction Efficiency – Breadth of portfolio and Risk Management.

Active Management Value Add

Manager Skill ConstraintsPortfolio Construction

EfficiencyFunction Of

Transfer Coefficient

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• Fund Size plays a significant role in reducing active skill transfer into active portfolios.

• Large funds can squander over 50% of manager skill!21

• Sentio takes meaningful positions in Mid-cap/Small Caps which we confident will be the large caps of the future.

• 40% OF ALPHA CAME FROM SMALL AND MID CAPS, which will be difficult to replicate for large managers.

Differentiated

source of Alpha

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1. Take meaningful positions in smaller companies that can become the large caps of the future – MAJOR DRIVER OF ALPHA

2. Adjust the portfolio more quickly to take account of major macro shifts – MARKETS ARE DYNAMIC, INVESTORS SHOULDBE TOO

3. Speed of execution for high conviction investment ideas – we can action a risk or opportunity and execute much fasterthan a large manager

4. Consistency of idea generation and tighter culture of investing – higher conviction of ideas is possible

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This document is confidential, contents are the property of Sentio Capital

•The information does not constitute an offer, solicitation or recommendation for the purchase or sale of any investment, investment vehicles,securities or other financial instruments nor does the information constitute advice or an expression of our view as to whether a particularsecurity or financial instrument is appropriate for you and meets your financial objectives. All information in this document are the property ofSentio Capital Management (Pty) Ltd (“Sentio Capital”) and receipt of it does not transfer ownership to anyone. All information is intended forthe use of the recipient and no distribution is permitted.

CONTACTS:

Traugott von Czettritz u. N (TC)+27 11 880 [email protected]

Lee Privat de Garilhe +27 11 880 [email protected]

Sentio Capital Management Pty (Ltd) Ltd is an Authorised Financial Service Provider.For more details on out Conflicts of Interests Policy and our Compliance Officer

please visit our website: www.sentio-capital.com

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mailto:[email protected]

mailto:[email protected]

http://www.sentio-capital.com/

Perpetua Investment Managers2017 Investment Forum

Delphine GovenderChief Investment Officer

Perpetua is an authentic boutique investment firm

Defining boutique characteristic Perpetua

Owner-managed

Specialised, differentiated and focused

Key investment professionals have strong pedigree

Passionate about investing and continuous refinement

Defining and defined investment approach

Genuinely active: benchmark agnostic and nimble

Key points about the firmLocation Based in Cape Town, satellite office in Johannesburg

Ownership 100% owner-managed*; independently operated

Inception date 1 October 2012 commenced managing assets

AUM AUM R7,4bn at 1 February 2017

Transformation Status BEE Level 1 Contributor; currently 100% black owned and managed

Team size 21 employees; 10 in investment team (+95 years experience)

Administration Outsource agreement with Maitland Fund Services

Compliance Outsource agreement with Compli-serve

Unit Trust Distribution Co-branded agreement with MET Collective Investments

Mandates SA Domestic equity ; SA Domestic balanced; Global balanced

*In September 2015, Perpetua Investment Managers (PIM) concluded an agreement granting an option to Rand Merchant Insurance Investment Managers Group (RMI IMG) to purchase up to 25% of the equity in PIM.

Perpetua’s performance formula

1. Fundamentally undervalued assets

2. Multiple value-oriented investment theses applied

3. Long- term investment horizon

4. Rigorous, fundamental and proprietary bottom-up research

5. Experienced, skilled and generalist investment team

6. Explicit pre and post investment risk assessment at share level

7. Minimise permanent risk of loss and understand importance of position sizes

PREDICTABLE INVESTMENT PERFORMANCE

+

+

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=

Perpetua’s TRUE VALUE continuum is unique

MomentumMarket direction matters most

Earnings Visibility

Earnings Visibility

Va

lua

tio

n

Va

lua

tion

Higher

Lower

Lower

Higher

Deep ValueMean-reversion on earnings

ValueAssets undervalued in the “whole”

Relative ValueCompany inexpensive vs. own history and/or market

GARP/QARPRecognised growth and Quality stocks reasonably priced

GrowthVisible earnings growth key driver of price

Unrecognised GrowthLikely growth not being priced in

Perpetua invests only along the TRUE VALUE continuum: we stop short of paying for future optionality discounted into the price.

• Exploit multiple value-based theses

• Do not restrict universe based only on attributes

• Not contrarian in the extreme

Differentiation potential of a smaller manager

166 165 163

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SA Equities under management R'bn

Note: Restricted fund ownership in a company’s issued shared at 20%, whilst still maintaining that stock position at 3% of fund.

Number of shares a manager can own to 3% based on AUM level

Differentiation potential of a specialised manager

7,00%

8,00%

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Mid Cap Value Funds & Large Cap Non-Value Funds Rolling 12 Month Outperformance vs. Cross-Sectional Volatility (CSV)

Value Alpha Non-Value Alpha CSV

Thank [email protected]

march 2017 northstar asset...

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