1

Nedgroup Investments Fund Global Equity

June 2017

Rob Johnson, CFA

Head of Investments

2

G7 CPI + 6–10% p.a. over a 5 year rolling period

Protect and grow clients capital in real terms

Leads to an absolute mindset rather than relative thinking

Objectives of the strategy

Outperform MSCI World over a similar time period

3 3

Rolling five year annualised performance

Returns shown for VGFF USD A total return, Inception 31 July 2001 to 31 May 2017. MSCI World Index net dividends reinvested

Source: Morningstar Direct

The above figures refer to past performance and past performance is not a reliable indicator of future results

What to expect

-10

-5

0

5

10

15

20

25

-10 -5 0 5 10 15 20 25

Ve

rita

s G

lob

al

Fo

cu

s

MSCI World Index NR USD

71% success rate

4

25- 40 portfolio

Themes

Proprietary insights

Quantitive screening

Idea generation

Research

Valuation/timing

In-depth fundamental

analysis

Universe list

250 stocks

Step 1:

Identify good quality

companies

Step 2:

Remain patient to

buy at the right entry

point

Portfolio construction

4000 stocks

If right entry point

not available,

remain in cash

Veritas Global Real Return investment process

Typically seek an IRR of 15% on entry and not relative value to index/sector

5

1. Intrinsic value achieved

2. Sell where there is a ‘thesis breach’

• Concentrated approach facilitates this

• Stock removed from Universe List

3. When fully invested, sell one company to buy another, with a higher IRR

IRR = 15% 100

50

Time (years) 0 5

Price at which we would sell over the 5 years

Sell discipline

6

U.S. (S&P 500) Global (MSCI ACWI)

Price/Earnings

(median)

Price/Sales

(median)

Price/Book

(median)

Price/Earnings

(median)

Price/Sales

(median)

Price/Book

(median)

March 31, 2000 18.9 1.4 2.9 16.2 1.0 1.9

September 30, 2007 18.2 1.7 3.1 17.8 1.7 2.6

March 31, 2017 21.1 2.5 3.3 18.6 1.9 2.1

Stock valuations are historically high

Valuations at most recent market peaks vs. March 2017

Source: Bloomberg, MSCI. Data as of March 31, 2017. Represents trailing twelve months data for Price/Earnings and Price/Sales.

Forward 12-month P/E for the S&P 500 is 17.7, 5-year average 15.3, 10-year average 14.0 Source: Earnings Insight – Factset. June 16, 2017

7

Investors being pushed to take more risk

Source: Callan Associates, Wall Street Journal. June 1, 2016.

The returns ‘on offer’ from the supply side

have forced investors to take additional risk

in order to equal ‘expected returns’

8

What about earnings?

• Q2 2017, the estimated earnings growth rate for the S&P 500 is 6.5%.

• Nine sectors are expected to report earnings growth for the quarter, led by the Energy sector

• Revisions: On March 31, the estimated earnings growth rate for Q2 2017 was 8.7%

• Guidance: For Q2 2017, 76 S&P 500 companies have issued negative EPS guidance and 37 S&P

500 companies has issued positive EPS guidance

• Health Care sector: 10 companies issued positive EPS guidance for the second quarter. Highest

number for sector since FactSet began tracking EPS guidance in 2006. 5-year average for the

sector is 3.

• Five of these 10 companies are in the Health Care Equipment & Supplies industry. This industry is

projected to report the highest earnings growth (10%) of the six industries in this sector.

Source: Earnings Insight – Factset. June 16, 2017

9

Date

Prospective

5-year IRR of

Universe

MSCI annualised

5-year return (USD)

VGFF annualised

5-year return (USD) Cash position

Sept 2007 – Sept 2012 3% -2.1% 4.0% 20%

Mar 2009 – Mar 2014 17% 18.3% 18.7% 4%

Dec 2016 – Dec 2021(e) 4% ? ? 13%

Valuations stretched

Returns shown for VGFF A Class

Source: Veritas Asset Management LLP, MSCI

The above figures refer to past performance and past performance is not a reliable indicator of future results

Value disciplined. Only invest when attractive real returns achievable

10

New purchases

• Check Point Software

• Cerner Corp.

• Thermo Fisher Scientific

• DONG Energy

Complete sales

• Varian Medical Systems

• Time Warner Cable

• Halliburton

• SES

• COPASA

• Julius Baer

• Worley Parsons

• MTN Group

• Edenred

Activity – 1 Year to 31 May 2017

11

Who are they?

• Largest offshore wind developer in the world with over 25% of the total global installed capacity. Also owns largest

utility business in Denmark (power distribution and supply) and an oil and gas production business (N.Sea). 50%

owned by Danish government

Revenues: Denmark: 32% UK: 40% Germany: 17% Norway: 11%

EBIT: Wind Power: 68% Bioenergy/Thermal: 1% Distribution: 8% Oil/Gas: 22%

Thesis

• Intrinsic Value based on cash flow from existing pipeline of wind gains with subsidies locked in.

• Since awards been made costs have fallen substantially resulting in higher NPV of projects won. Farm – gains on

average completed at higher premium than forecast.

• Scale & expertise reflected in lowest cost operator.

• Dong operate in ‘higher value’ markets of UK, Germany (less commoditised).

• Oil and Gas business likely to be sold and possibly for higher value than expected.

• Not priced in opportunity in US/Taiwan which could be significant.

• IV: €350

DONG Energy

12

Year Project Name € / kw Unit Capex Auction price € /

Mwh Equity IRR%

2014 Walney Ext 3,690 168 27.4%

2015 Race Bank 3,321 141 23.5%

2016 Borssele 1 & 2 2,150 73 13.9%

Falling costs have been / will be key

• Capex: Increasing turbine height and rotor diameter has meant capacity increased 2.5X since 2000.

Turbine generates 8MW today. Could be 14MW by 2024 (vs 3.6MW in 2013).

• OpEx: Advances in operating/maintenance technology and size of turbine. Cost per MW for future projects

declined 50% since IPO projections made in 2016.

• Load factors: Improvements in site design/spacing - risen from just over 30% to just under 40% and

forecast to rise further.

40% fall

DONG Energy

Source: Veritas Analysis

13

Cerner

Who are Cerner?

• Leading provider of clinical, financial and management information software and related services to 20,000 healthcare facilities

worldwide including hospitals, laboratories, radiology clinics, surgery centres, retail pharmacies etc. Global footprint (30 countries), but

the US remains their most important market accounting for 88% of sales. In US, primarily focused on the hospital market.

Thesis

Structural driver in the US

• Need to control healthcare spending is resulting in the shift in incentives from fee for service towards value based reimbursement.

Impossible without adequate clinical and financial information systems to support these novel payment models.

Opportunity to own

• Government stimulus driven adoption of electronic health records (EHRs) clearly benefited Cerner along with the rest of the healthcare

IT industry since 2009. 96% of hospitals now have an EHR system in place, clear slowdown in organic growth for industry and Cerner.

Core business

• Continue to grow at a mid-single digit rate. Cerner to sell additional clinical solutions to their clients and expect to see active EHR

replacement market where EHR systems are no longer fit for purpose. E.g. Over 25% of the market with McKesson’s Horizon platform

and Meditech

• Hospital consolidation and the acquisition of physician practices are also driving the replacement market as hospital systems look to

operate their facilities on a single platform. Cerner systems are used by 18 of the 30 largest US health systems.

Source: Veritas Analysis

14

Cerner

New growth areas:

• Revenue cycle management

• IT works

• Population health

• International

Source: Veritas Analysis

Hypothetical Example:

• $10m hospital booking =

• $2m licenced software – (immediate)

• $4m professional service – (9 month – 2 years)

• $4m hosting – (~7 years)

• $300k support & maintenance (annual)

Predictability:

• Large installed base:

• Significant switching cost

• 70%+ revenues reoccurring

• R&D spend maintains leading edge

• Backlog of future earnings

15 15

Portfolio overview

As at 31 May 2017

Concentrated portfolio of 29 holdings

Top Ten Holdings %

Charter Communications Inc 6.75%

Comcast Corp Class A 6.57%

Safran SA 4.67%

UnitedHealth Group Inc 4.59%

Airbus Group NV 4.52%

Allergan Plc 3.95%

Oracle Corp 3.92%

American Express Co 3.92%

Rolls-Royce Holdings Plc 3.50%

Capita Group Plc 3.32%

Total 46%

16 16

Portfolio overview

As at 31 May 2017

0%

5%

10%

15%

20%

25%

17

• Alphabet

• Baidu.com

• Check Point

• Oracle

Big data / mobility

• United Health

• CVS Health

• Express Scripts

• Cerner

• Thermo Fisher Scientific

• Dentsply Sirona

• Sonic Healthcare

• Waters Corporation

• Baxter International

Value based healthcare

• Safran

• Rolls Royce

• Airbus

Aerospace

• Comcast

• Charter Communications

• London Stock Exchange

• Aena

Infrastructure / networks

• Distinct growth drivers

• Barriers protect future cash generation

• High level of recurring revenue

Characteristics

Portfolio positioning

18

Fund Performance

Source: Nedgroup Investments, Morningstar

Excess return of 2.5% p.a. from Oct 1st, 2010 to June 22nd, 2017

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