ANGLES & PERSPECTIVES - PSG€¦ · We believe that taking a long-term view is key to successful...

ANGLES & PERSPECTIVESFIRST QUARTER 2016

Contents

We believe that taking a long-term view is key to successful investing.

1. Introduction – Greg Hopkins 1

2. Why taking a long-term view is key to successful investing – Anet Ahern 2

3. Lessons from the research paper 'Buffett’s Alpha' – Kevin Cousins 4

4. Buying with a margin of safety in fixed income – Ian Scott 7

5. The PSG Flexible Fund: equity-like returns at lower risk 10

6. Portfolio holdings at 31 March 2016 14

7. Percentage annualised performance to 31 March 2016 (net of fees) 17

8. Risk/return profile 18

9. Unit trust summary 19

10. Contact information 20

FIRST QUARTER 2016 | 1

Introduction Greg Hopkins

‘Organised common sense’ – lessons we can learn from Berkshire Hathaway Charlie Munger, Warren Buffett’s esteemed partner at Berkshire Hathaway, told an interesting anecdote a while back:

In Kevin Cousin’s article, ‘Lessons from the research paper “Buffett’s Alpha”’, we unpack some of this big-picture organised common sense and the parallels it has to our own business. This boils down to having a simple investment philosophy that makes sense and sticking to it over the long term. If you organise yourself so that you can execute on that strategy without external influences stopping you, the strategy will pay off handsomely over the decades. In fact, as Kevin points out, Berkshire Hathaway is the best performing stock in the US since 1976.

A long-term focus is fundamental to our philosophy and processThe Berkshire Hathaway case study once again shows that investing is about trying to buy low. One way of achieving this is to simply buy when securities go on sale. The challenge is that it is difficult to do so in practice, as the environment that causes low prices is often characterised by fear and uncertainty. Anet Ahern discusses why having a longer-term perspective is so important to us.

We believe that local government bonds once again offer a sufficient margin of safety One asset class that recently went on sale in South Africa is government bonds. Long-term investors in our funds will know that we avoided these securities for years as we felt that they held insufficient margins of safety. That recently changed for us. Our fixed income team gives further background on the reasons for this. We also discuss an important aspect of portfolio construction – building portfolios that will perform under different market conditions. As Lawrence Summers wrote recently in the Financial Times, we live in ‘a world that is one major adverse shock away from a global recession’. We are looking for cheap insurance against such a deflationary global shock.

Thank you for your support and enjoy the read.

* Placer mining is the mining of mineral deposits on the stream bed.

Greg is the Chief Investment Officer at PSG Asset Management and is the Co-Fund Manager of the PSG Equity, PSG Balanced and PSG Global Equity funds.

‘I’m a follower of what I call the Thomas Hunt Morgan School. Morgan was one of the great biologists in the history of the

world who figured out a lot of genetics [Morgan established that chromosomes carried the units of inheritance] with very slender resources … – first at Columbia and then at Caltech. And when

Morgan reached Caltech, he did something that was very peculiar. He banned the Friden calculator – which was the computer of that age – from the biology department. Everybody else at Caltech used the Friden calculator endlessly for all kinds of statistical correlations

and much else. Morgan banned it.

And they asked, “Why are you doing this?” He said, “I’m so located in life that I’m like a gold miner in 1848 who could just

walk along the banks of the river and pick up enormous nuggets of gold with organised common sense. And as long as I can do this, I’m not going to use scarce resources in placer mining*.”

Well, that’s the way I go at life. I think if you get the big points with organised common sense, it’s amazing the placer mining you

never have to do …’'Seeking Wisdom: From Darwin to Munger', P. Bevelin, 2007

2 |

Why taking a long-term view is key to successful investing Anet Ahern

The desire to act on short-term concerns is a basic human tendency On a recent visit to New York, I came across a quaint music shop in the West Village. It is little more than a tiny upstairs-downstairs cubbyhole. I could easily have missed it, if it weren’t for the owner, Jeff, who was polishing an old sitar in the early spring sun outside his store. Inside, there is a jumble of old instruments, comic books and vinyls, mixed with the sounds of wannabe musicians trying out instruments from the compact downstairs space. Jeff has been running this shop for 59 years in what must have been one of the fastest-changing, competitive industries and cities. He has a table set up with a kettle where you can make really bad coffee, and leaves you to browse. While vinyl has made a big comeback, I’d imagine that over the past 35 years he must have had many sleepless nights worrying about the appearance of large CD chains and eventually the increasing threat of online shopping for music and musical instruments alike. There must have been times when he strongly considered selling the shop and taking the easier way out by just going to work for someone else.

Similarly, investors may have had sleepless nights over the past year about the ability of so-called growth investments to ever show positive returns again. They may worry about how they are going to protect and grow their savings. Fund managers who apply a proven valuation-based approach have also had their investment beliefs tested. Like Jeff, these managers must have been tempted to sell out and go with the crowd by buying into what was popular and comfortable. Indexing gained popularity once more as active managers struggled to beat the narrow market indices.

Investment strategies need time to deliver optimal results Many investment gurus, experienced advisers, professionals and adverts remind us of the time it takes for a strategy to work. Yet, when the market dislocates and hits us with volatility, we become very short-term focused. We digest every bit of bad news as if our lives depended on it and we obsess over it, projecting the bad news into the future. It fuels our dinner conversation and compels us to take action. This is often unnecessary.

The following three points summarise why it’s important to take a long-term view: 1. Periodic volatility is inevitable.

If we go back in history, we find that periods of extreme volatility occur at least once a decade, as shown in Graph 1. We should therefore not be surprised when it happens, although such a reaction is only human.

2. Uncertainty creates pessimism. Pessimism creates opportunity.

Warren Buffett summarises it really well in this quote. The marvel of the investment market is that it swiftly discounts what is going on in the investment environment, and often overreacts. If you are able to take a step back and think longer term, there can be some really good investment opportunities. Recent examples of opportunities arising from pessimism in our portfolios include buying Capitec and Capitec paper during the African Bank debacle, as well as Super Group.

3. To think long term, you have to look beyond the noise – this gives you a better chance of success.

When fund managers have faced difficult markets and came through them with lessons learnt, it is not a guarantee that all their future decisions will be right. However, it will stand them in good stead when it comes to thinking more clearly and taking the emotion out of investment decision-making.

Anet has 30 years’ experience in investment and business management. After starting her career at Allan Gray in 1986, where she fulfilled various roles in trading and investment management, she worked as a portfolio manager at Syfrets, and later BoE Asset Management, where she was CIO and CEO. She also spent six years at Sanlam, where she was the CEO of Sanlam Multi Manager International, with assets totalling R100 billion in local and global mandates. Anet joined PSG Asset Management as CEO in 2013.

‘If the past, by bringing surprises, did not resemble the past previous to it (what I call the past's past), then why should our

future resemble our current past?’Nassim Nicholas Taleb, 'Fooled by Randomness:

The Hidden Role of Chance in Life and in the Markets', 2005

‘The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or

industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it

produces. It’s optimism that is the enemy of the rational buyer.’ Warren Buffett,

Berkshire Hathaway’s 1990 Chairman’s Letter


The three questions our fund managers always askOur fund managers have three questions they ask in response to the question, ‘What is going to happen to the market?’ (We however always refer to the investments we have in our clients’ portfolios and not to the market.) 1. Is the company in question likely to be around in five years’

time? This often refers to the first M of our 3 Ms investment philosophy, moat. It questions the strength of the company’s business model.

2. Is the company likely to make money at some point in the next five years? This is partly a question about our second M, management. We often forget that a good management team responds better to a poor environment and often creates a more robust company for the next upturn, however mild it ends up being.

3. Given the answers to the first two questions, is the company likely to be trading at a higher price-earnings ratio at some point in the next five years? This refers to the third M, margin of safety.

If the answer to all of these three questions is ‘yes’, then our clients are very likely to get a good return from the investment. This approach considers the time period and the factors that can give us insight when we’ve done in-depth research. However, no amount of in-depth research can help predict the short term.

History provides evidence of the merits of a long-term focus Some of the most admired investment businesses have been built over 30 years or longer. When you review their histories, patches of volatility, uncertainty and hardship will be evident. Yet, the ones who stuck to their well-proven process lasted and flourished, and their clients were well served. Any long-term investment strategy will be tested over time. It is the investor who partners a long-term view with good advice and the fund manager who takes a long-term view when making investment decisions who will have the best chance of success.

At PSG Asset Management, we unashamedly take a longer-term view. It may not always be comfortable, and it is seldom popular. However, we believe it is the best way for us to look after our clients’ money.

Source: Bloomberg

Graph 1: Volatility Index (1990 - 2016)

1990 1992 1994 1996 2000 20021998 2006 20082004 2010 2012 2014 2016

5

0

10

15

20

25

30

35

40

45

50

Last

pri

ce

VIX (Volatility Index) Moving average

4 |

Warren Buffett has been immensely influential for PSG Asset ManagementFirstly, his company – Berkshire Hathaway – is an important investment in our unit trusts. Secondly, his writings in each year’s annual report (going back many decades) are a valuable source of investment wisdom and common sense.

An in-depth analysis of Berkshire Hathaway’s performance provides key insightsIn 2013, researchers affiliated with AQR Capital Management – a global asset manager that is well-known for their quantitative excellence – published a paper called 'Buffett’s Alpha'. In this paper, they did an in-depth analysis of Berkshire Hathaway’s investment performance. The researchers based their paper on a factor-based analysis, which we find ironic given the strictly bottom-up approach to stock selection consistently practised by Buffett:

AQR’s analysis confirms the uniqueness of Buffett’s track record of investment excellence when compared to other stocks and mutual funds with a history of more than 30 years. However, it also provides some important insights that may have been overlooked when evaluating how Buffett delivered these returns. Their conclusions should not be viewed as controversial. As they put it: ‘explaining Buffett’s performance with the benefit of hindsight does not diminish his outstanding accomplishment’. Their conclusions are also well supported by quotes from Buffett’s own writings.

Over the study period (1976 to end 2011), Berkshire Hathaway delivered an annual return of 19% in excess of the Treasury Bill (T-Bill) rate. (Equities generally delivered an excess return of 6.1%). This meant that $1 invested in Berkshire Hathaway in 1976 had compounded to $1 500 by 2011. In fact, the researchers comment that, if you were able to get into a time machine at the end of 2011 and went back to 1976 to select one stock, Berkshire Hathaway would be the best-performing stock out of every single US stock listed in 1976.

This spectacular historic performance is, of course, well known. In this article, we review the key findings or lessons about this performance from the 'Buffett’s Alpha' research. We also consider what it means for PSG Asset Management’s investment

process and business strategy. Finally, we reflect on what the findings mean for Berkshire Hathaway’s future performance in a post-Buffett era.

Lesson 1: quality and value must be evaluated togetherWhen the AQR researchers analysed Buffett’s stock picks, they found that his portfolio shared several general features: ‘He buys stocks that are “safe” (with low beta and low volatility), “cheap” (i.e. value stocks with low price-to-book ratios) and “high quality” (meaning stocks that are profitable, stable, growing and with high pay-out ratios).’

We know that Buffett dismisses the ability of beta or price volatility to correctly quantify investment risk. We can therefore assume that it plays no part in his decision-making. By building a portfolio of all the stocks that share the above characteristics, the researchers could recreate a portfolio that, once adjusted for leverage, generated similar returns to Berkshire Hathaway. Of course, this is done with hindsight. It does not diminish Buffett’s ability to identify what kind of companies to focus on, and to relentlessly stick to that focus over the decades.

However, contrary to public opinion of Buffett as a value investor, AQR found that safe, quality stocks have been as important as value in determining historic performance. In other words, value alone is not enough. As Buffett said:

So is Buffett a growth or a value investor?

It is clear that the ability of quality companies to generate good returns, and crucially re-invest those returns in compounding growth over long periods of time, is a vital consideration when evaluating what is an attractive price for potential investments.

Kevin has 22 years ' experience in investment management. After working at BoE Asset Management from 1993 to 2002, he co-founded Lauriston Capital, a specialist hedge fund manager. Kevin then worked as part of the hedge fund management team at Brait (now called Matrix Fund Managers) until joining PSG as an Investment Analyst in 2015.

Kevin Cousins

‘We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety. We want the business to be (1) one that we can understand, (2) with favourable long-term prospects, (3) operated by honest and

competent people, and (4) available at a very attractive price.’Berkshire Hathaway’s 1977 Annual Report

‘I can give you other personal examples of “bargain-purchase” folly but I'm sure you get the picture: It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

Charlie understood this early; I was a slow learner. But now, when buying companies or common stocks, we look for first-class

businesses accompanied by first-class management.’Berkshire Hathaway’s 1989 Annual Report

‘Many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing … In our opinion, the two

approaches are joined at the hip: growth is always a component in the calculation of value ...’

Berkshire Hathaway’s 1992 Annual Report

Lessons from the research paper Buffett’s Alpha''


PSG Asset Management’s 3 Ms are crucial to our hunt for quality on saleOur process explicitly evaluates the quality of a company. A good quality company has both a proven economic moat and excellent management. This would include a good operational track record, a history of astute capital allocation as well as respect for minority shareholders’ rights. It is an unfortunate fact that there are few quality companies. When evaluating the price that we are prepared to pay for an investment, our quality ranking is a crucial component in determining the margin of safety required.

The majority of companies in our investment universe are not quality companies. Our process then requires a much wider margin of safety (in other words, a much lower price) when investing in these companies. So why not just buy quality and sit back for the ride? Buffett again:

That said, our holy grail is 3 M companies, with a moat, good management and a margin of safety. Unearthing and investing in these rare opportunities is an exercise in patience and long-term thinking.

While there can be occasional periods of extreme risk aversion where ‘quality on sale’ is widespread (for example in 2003 and 2009), it is more common for opportunities to arise when an individual company goes through short-term difficulties. This causes investors to de-rate the business to a level that implies a permanent secular decline.

Lesson 2: seek out cheap leverage where appropriateOver the period of the AQR study (1976 to 2011), Berkshire Hathaway was leveraged an average of 1.6 times. Leverage is defined as the ratio of total assets less cash to shareholders’ equity. This gearing played an important role in Berkshire Hathaway’s investment returns. The study data shows that about 4% per year of the company’s outperformance of stocks in general can be attributed to leverage. Given that the average annual outperformance of stocks in general by Berkshire Hathaway was 13%, leverage contributes more than 30% of the excess return. Although the significant role of leverage in the delivery of exceptional returns gets little attention, we believe it is a crucial component of the company’s strategy.

Important to note is Berkshire Hathaway’s ability to source very cheap leverage. Firstly, an average of 36% of liabilities is related to the insurance businesses (the insurance ‘float’). The study estimates that, over the period, these cost Berkshire Hathaway an average of more than three percentage points

less than the T-Bill rate (an exceptionally low cost). In addition, Berkshire Hathaway has been an AAA-rated borrower for most of the study period, with a massive capital base. This enables bank or bond market finance at keenly priced rates. It should be understood that Berkshire Hathaway only borrowed within strict risk criteria:

Once we understand the amount of leverage Berkshire Hathaway uses, the singular focus on safe, quality stocks makes even more sense. The combination of more volatile, value-type opportunities (which are often characterised by a wide range of possible outcomes) with significant gearing could be an especially toxic combination for shareholders.

Gearing-related lessons for us at PSG Asset ManagementGearing in any company should be evaluated carefully. Our investment vehicles (primarily unit trusts) do not gear. As a result, these vehicles can make investments with a wider range of potential outcomes, should there be attractive opportunities amongst more cyclical companies. The caveat, of course, is that our quality evaluation of these companies requires us to demand a much wider margin of safety when determining an entry price for inclusion in our portfolios.

Be aware of ‘float economics’ and seek out companies that generate substantial economic value from a cheap float of capital. (A non-insurance example from our portfolios is FirstRand, where funds deposited interest-free in customers’ current accounts provide a valuable float.)

Lesson 3: secure permanent capital to align funding with a long-term investment horizonOne unwelcome consequence of leverage is an increase in the volatility of returns. Despite Berkshire Hathaway investing in safe, quality companies with a lower range of outcomes than the overall equity market, the company’s share price has displayed volatility of 24.9% over the study period, compared to 15.8% for equities in general. Berkshire Hathaway has also weathered some very substantial drawdowns. The most notable was in the 20-month period from June 1998 to February 2000. Over this period, its share price declined by 44% while the broader market gained 32%, a relative underperformance of 76%! No matter what lip service shareholders pay to long-term returns, if Berkshire Hathaway was structured as an open-ended mutual fund there is little doubt they would have lost a large proportion of their investors – at just the wrong point in the cycle for all concerned.

Berkshire Hathaway is a listed company. Shareholders that wish to exit, sell their shares on the market to other buyers, with no direct impact on the company’s pool of investable funds.

‘You can, of course, pay too much for even the best of businesses. Investors making purchases in an overheated market need to

recognise that it may often take an extended period for the value of even an outstanding company to catch up with the price they

paid.’Berkshire Hathaway’s 1998 Annual Report

‘However, we are not phobic about borrowing. We are willing to borrow an amount that we believe – on a worst case basis – will

pose no threat to Berkshire's wellbeing.’Berkshire Hathaway’s 1987 Annual Report

6 |

It is therefore effectively a permanent capital vehicle. This is the third component that is essential to their track record. Permanent capital provides the resilience necessary to weather severe drawdowns, to prevent shareholder actions affecting the investment strategy and to enable returns to compound over several decades.

A point not raised by the researchers, but that is of great importance, is that Buffett, as the largest shareholder, exercises control over Berkshire Hathaway. Even if an investment company is a permanent capital vehicle, shareholders that collectively have the voting power may well be motivated to change manager and strategy or return capital when faced with a substantial drawdown. The importance of the reputation of the manager and an alignment of interests between the manager and investors cannot be overcome by the investment structure in isolation.

Aligning clients’ timeframes with our investment horizon is crucial for PSG Asset Management Our primary investment vehicles are unit trusts. As they are open-ended, they leave us vulnerable to the risk of ill-timed subscriptions and redemptions. Simply put, this means that we could be forced to sell assets at very low prices to fund redemptions, or buy assets at elevated prices to invest subscriptions.

These risks are far more common in an equity-only strategy. In a multi asset strategy, the manager has more flexibility in positioning (for example, when shares are very attractively priced, redemptions can be financed from existing cash balances). This has the per-unit effect of raising equity exposure at a very favourable time. Similarly, subscriptions during a period of very high valuations can be kept in cash while we patiently wait for attractively priced investment opportunities.

We aim to balance the lack of permanent capital with consistent marketing and appropriate investor education. As the manager, we will try to align investors’ timeframes with our investment horizon. We believe that staying ‘on message’ throughout the cycle is essential. Importantly, we can enhance these efforts significantly in the future with appropriate fee incentives to reward our long-term investors.

We must also remain open to new products that, while meeting real client needs, can source permanent capital for us.

In conclusion: Berkshire Hathaway in a post-Buffett and Munger eraBuffett is 85; Charlie Munger (Berkshire Hathaway’s Vice Chairman) is 92. It is natural as an investor to think about management succession and what it could mean for shareholders of Berkshire Hathaway. The main risk for shareholders is if Berkshire Hathaway’s returns have been primarily driven by ‘an idiosyncratic Buffett skill’ inherent to Buffett himself, which would naturally be lost with his passing.

However, the findings of 'Buffett’s Alpha' provide good support for an investment in Berkshire Hathaway under a new management team in the future. The research shows that the company’s historic returns can be explained by consistently adhering to some relatively simple principles and factors over a very long period of time. The genius of Buffett was identifying these principles nearly 50 years ago, and consistently applying them, rather than a ‘secret sauce’ of alpha generation that can never be replicated.

Berkshire Hathaway has the structural advantages of cheap leverage (due to the insurance ‘float’ and the company’s credit rating) and permanent capital (it will never need to fire-sell investments to fund large investor redemptions). By benefitting from these structural advantages and focusing on buying high quality, safe, cheap stocks, we expect Berkshire Hathaway’s next management team to be able to continue the long tradition of delivering superior returns to shareholders.

Sources: 'Buffett’s Alpha', (A. Frazzini, D. Kabiller, L. Pedersen), Working Paper 19681, National Bureau of Economic Research, November 2013'Berkshire Hathaway letters to Shareholders 1965 - 2013' (Warren Buffett) as compiled by Max Olsen

‘Ben Graham taught me 45 years ago that in investing it is not necessary to do extraordinary things to get extraordinary results.’

Berkshire Hathaway’s 1994 Annual Report


Buying with a margin of safety in fixed income

Ian joined PSG in 2013 as Head of Fixed Income. He first joined Stanlib in 1999 as a money market dealer, from where he moved to capital markets and was then promoted to Senior Portfolio Manager – Fixed Interest.

Ian Scott

Protecting our investors against capital loss is a key element of our investment philosophy Investing with a margin of safety is a cornerstone of our investment philosophy. It is always important to protect our investors against permanent capital loss. We believe that buying with a margin of safety is non-negotiable in our role as stewards of our clients’ money. In the fixed income space, a margin of safety is defined as the spread or yield above inflation. We always want to achieve a yield above inflation (a real yield), adjusted for the level of risk. Yield can be generated in many forms, but it is important to always ask at what level of risk this is being offered.

Fixed income asset prices have changed substantially over the past few years Opportunities in fixed income arise from the fact that fear and uncertainty are priced into various fixed income assets due to global, economic or political reasons. For example, if we cast our minds back three years to 2013, when global central banks were adding substantial liquidity to markets, risk premiums on bonds declined to all-time lows. As a result, the price for default and inflation risks were negligible in bond yields. At that point, we perceived bond yields to be risky, since yields were low and risks were not priced adequately. We believed the margin of safety was too small (and in some cases non-existent) to justify an allocation in our portfolios.

How has that situation changed over the last three years? Major central banks in the world continue to add liquidity to the global financial system. Yet, the pricing of fixed income assets has changed substantially, especially in emerging markets. In addition, the forces of inflation and deflation are still in the process of playing themselves out, which should continue for a number of years. This has created fear and uncertainty about the valuations of emerging market assets, which were richly valued and easily bought only three years ago. If we think of how Berkshire Hathaway’s Charlie Munger might have framed this, we can conclude that South Africans have rarely been this pessimistic about the domestic political situation since the time of our first democratic election in 1994.

Government bonds are currently attractive due to shifts in sovereign risk and inflation premiumsWhat we have witnessed is a substantial shift in the bond yield curves in various emerging markets. In South Africa, we have seen the 10-year government bond yield trade from a low of 6.5% to the current level of about 9.5%. This is due to price movements in two components that form the basis of bond valuation: the sovereign risk premium (the premium for holding South African assets) and the inflation premium (the risk that inflation may be higher than expected over the long term).

The current sovereign risk price includes a margin of safety Sovereign risk forms one part of our margin of safety in the pricing calculation for South African sovereign bonds. By applying organised common sense, one can look at how the international market prices risk for larger companies and sovereigns by looking at their credit default swap (CDS) spreads. A CDS is a form of default insurance whereby CDS purchasers insure themselves against a default. The riskier the bond, the higher the spread. If the company or sovereign does default, the purchaser receives the face value and the seller takes possession of the defaulted bond.

Graph 1 shows how South Africa re-rated from trading around the BBB band to the BB band ('junk status') in 2013, after the taper tantrums. The average CDS spread for the BB band over the last five years has been 273 basis points, while South Africa’s sovereign CDS spread is now trading at a spread in excess of 300 basis points at the time of writing.

If we compare the South African sovereign CDS spread to that of Brazil – which has already been downgraded to ‘junk status’ – we can see that Standard & Poor’s (S&P) has Brazil on a BB rating (two notches below South Africa’s current ‘investment grade’ BBB- rating) with a negative outlook. Brazil’s five-year CDS was trading at approximately 340 basis points at the time of writing.

South Africa’s five-year CDS is already trading almost 40 basis points wider than the five-year average for the BB band, which means that the CDS is trading well within the 'junk'/BB band rating. This reassures us about the margin of safety for the current sovereign risk price, even if we do get a downgrade from S&P later this year, as is being increasingly anticipated.

Local sovereign bonds offer an attractive yield and a measure of protection The landscape for South African sovereign bonds has therefore been that of a mixed picture. Given the significant sovereign default risks priced into our CDS spreads, these bonds’ yields have risen. There are fears that this may continue. Globally, most developed economies are struggling with growth and inflation, and exhibit negative yields in some of their own sovereign bonds. As long-term investors, we have an understanding of long-term economic cycles. We are aware that without developed economies pushing significant growth and inflation, South African sovereign bonds offer an attractive yield. They also offer a measure of protection if the global economy moves deeper into a deflationary-type environment.

8 |

We construct our portfolios for a range of outcomes In acknowledging that the deflationary pressure trend is growing from a global perspective, we structure our portfolios for a range of outcomes. In particular, the fixed income allocations of our funds have traditionally been conservative, earning significant real yield for our investors at relatively lower durations (interest rate risk). In implementing our investment views, we prefer to take a balanced, sensible approach in our portfolios. We aim to take advantage of the mispricing noted in our CDS spreads and sovereign bonds to provide us with protection against a deflationary environment.

We view our investments in sovereign bonds as longer-term insurance against a deflationary environment A global deflationary shock could result in a significant decrease in our sovereign yields over a short time, accumulating significant returns for investors who are appropriately positioned. In early 2015, the global economy experienced such a deflationary shock when the Brent Crude oil price fell significantly. Graph 2 illustrates how sharply the yield on the R186 (the South African 10-year government bond) fell – a drop of almost 1.40% from 8.34% in October 2014 to about 7.10% by February 2015. As a basic measure, the capital returns alone would have been roughly 10% (a duration of 7.7 at that time).

As long-term investors, we will always examine the economic cycle to identify the global forces that are driving our economy. On the back of the increased margin of safety in sovereign bonds and an increasing sense that global growth will remain slow, we have added measuredly to our holdings in sovereign bonds where we have seen market fears. We view this as long-term insurance against a deflationary environment.

As mentioned in Anet Ahern’s PSG Angle of December 2015, diversification is the only free lunch available to investors. The way in which our portfolios are structured offer this margin of safety. Over time, we have invested in attractive cash options with less interest rate risk for our clients as rates have risen. We believe that the appropriate margin of safety is now in place to allocate appropriate cash reserves in an organised way using common sense.

In South Africa, CDSs are thinly traded for corporate bonds but well traded for sovereign bonds. In the US, corporate CDSs are well traded. South Africa’s current sovereign international rating from S&P is BBB- (foreign currency), and is at risk of being downgraded to BB+. We have therefore used a proxy of the S&P US Corporate Index BB band and BBB band for average CDS spreads over the last five years.

Sources: St Louis Federal Reserve Economic Data, Bloomberg

Graph 1: South African CDS performance (2011 – 2016)

300

200

100

0

400

500

600

DEC‘12

JUN‘13

DEC‘13

JUN‘14

DEC‘15

JUN‘16

DEC ‘11

JUN‘12

SA 5-year CDS S&P/ISDA CDS US Investment Grade BBB OTR Index S&P/ISDA CDS US High Yield BB OTR Index

Average BB

DEC‘14

JUN‘15


Source: Bloomberg

Graph 2: South African 10-year government bond yields (September 2014 - March 2016)

8.5%

8.0%

7.5%

7.0%

9.0%

9.5%

10.0%

10.5%

JAN‘15

FEB‘15

MAR‘15

APR‘15

MAY‘15

JUN‘15

OCT‘14

NOV ‘14

DEC‘14

SEP‘14

JUL‘15

AUG‘15

SEP‘15

OCT‘15

NOV‘15

DEC‘15

JAN‘15

FEB‘15

MAR‘15

8.34%

7.10%

9.35%

10 |

The PSG Flexible Fund: equity-like returns at lower risk

The fund aims to deliver equity-like returns at lower levels of riskThe PSG Flexible Fund has been managed in terms of its current mandate and benchmark since 1 November 2004. Since then, the fund has aimed to provide investors with equity-like returns, but at lower levels of risk. It is therefore appropriate for investors who want near-equity returns, but with significantly less volatility. Since 2004, the PSG Flexible Fund has delivered a compounded annual return of 17.5% at a standard deviation of 9.8%. Over the same period, the FTSE/JSE All Share Index (ALSI) has produced a compounded annual return of 17.4%, but at a standard deviation of 15.6% (as shown in Table 1).

Asset allocation is crucial to the fund meeting its objectivesThe fund has a flexible asset allocation mandate and falls into a sector that allows this flexibility. In fact, the PSG Flexible Fund has the most flexible mandate of all the PSG Asset Management funds. The fund has traditionally had a simple asset allocation. Equity exposure can vary from 0% to 100%, and up to 25% of the fund may be invested outside South Africa. Historically, the fund’s equity exposure has varied between 60% and 100%, with an average exposure of 75%.

Asset allocation is done based on opportunity. If we can find many undervalued shares, we have a higher equity exposure and a lower cash exposure. If we can find fewer opportunities, we are happy to wait patiently, during which time the fund will have a higher cash exposure.

Capital allocation is done patiently. There is not a lot of trading in the fund as we wait for opportunities to arise. Unlike a pure equity fund, which must have an equity exposure of between 75% and 100% at all times, the PSG Flexible Fund does not have this limitation.

When company valuations are high, the fund tends to have a higher level of cash, and vice versa. For example, in 2007, we began to find fewer and fewer companies that met our investment criteria. This was primarily due to the fact that high-quality, well-managed companies were not trading at a sufficient margin of safety. When these companies reached what we felt were their intrinsic values, we therefore sold them and were unable to use the proceeds of these sales effectively. At the time, the cash in the fund was at relatively high levels.

During the financial crisis of 2008, the fund was well positioned to both limit the drawdown in its value and then, as valuations became ever more attractive, to take advantage of the sale-level prices. As a result, the fund was able to buy shares in companies that had become substantially cheaper. During the crisis, the value of the ALSI fell 45.4%, while the value of the fund only fell 27.3%. Within 15 months, the fund had recovered to its pre-crisis valuation, whereas the ALSI took twice as long. By the time the ALSI recovered, the value of the fund had grown by 35% from its pre-crisis level (as shown in Graph 1).

Basic fund information:Fund name: PSG Flexible FundFund size: R7.7 billion (as at end March 2016)ASISA sector: Multi Asset – Flexible Benchmark: Inflation plus 6%Managers: Shaun le Roux and Paul Bosman

Sources: Morningstar, PSG Asset Management

Table 1: Performance of the PSG Flexible Fund since 2004

Shaun le Roux Paul Bosman

PSG Flexible Fund Sector ranking Benchmark(Inflation +6%)

Average cashholding

ALSI

Since 1 Nov ’04 17.6% 2nd out of 13 11.9% 26.4% 17.4%

10 years 15.1% 4th out of 29 12.1% 25.5% 12.1%

5 years 15.3% 12th out of 47 11.6% 28.2% 11.8%

3 years 16.1% 6th out of 52 11.6% 28.6% 11.6%

2 years 11.0% 13th out of 59 11.5% 33.5% 11.5%

1 year 5.9% 15th out of 66 13.0% 35.6% 13.0%

Volatility (5 years) 8.0% 11.3%

Positive months 72.3% 65.0%


Our experienced Equity Investment Committee helps the fund managers decide in which shares to invest PSG Asset Management has a well-established equity process. Our Equity Investment Committee consists of 10 members who are all fund managers or analysts. Since 2004, these committee members have received 10 industry awards for the funds that they have managed.

The team spends most of their time researching companies listed not only on our local exchange, but also on stock exchanges across the world. We look for companies that have a sustainable competitive advantage (a moat), are well managed and that are trading at less than we believe they are worth (a margin of safety). In many instances, we have invested where the company’s management has a large shareholding, or where a large strategic shareholder exists. We believe that when the interests of management and shareholders are aligned, management teams tend to act with a long-term focus in their mutual interests.

The outcome of our Equity Investment Committee’s research is our local and global buy lists. These lists include our best ideas, and are used by our fund managers to populate the funds that they manage. Fund managers can use their discretion when it comes to constructing portfolios, but they use the buy lists as their main tool. As a result, our funds’ holdings overlap significantly with the buy lists. Ultimately, fund managers take responsibility for their fund’s performance.

Generally, the shares in the fund do not change very often, due to the fund’s long-term focusOnce we have bought the shares in the fund, we are content to wait patiently for them to re-rate. Due to this long-term focus, the holdings in the PSG Flexible Fund do not change very frequently. We like to buy when there is fear and panic in the market and tend to be cautious during times of greed and complacency. The total valuation of the shares in the fund has always been lower than that of the ALSI, an indication of its more conservative risk profile.

The fund should continue to offer market-beating returns to investors going forward The fund is currently invested in local and global companies that we believe meet our investment criteria. These include companies such as Berkshire Hathaway, Sainsbury, Super Group, Anglo American and FirstRand that have strong brands and that are selling at bargain prices. The weighted average price-to-book ratio of the fund was at the lowest it had ever been in the first quarter of this year – even lower than it was during the financial crisis. This bodes well for the future returns of the fund and, as a result, for its investors.

At the end of the first quarter, the fund’s local equity exposure was 45.8% and was well diversified across geographies and industries.

Sources: Morningstar, PSG Asset Management

Graph 1: Performance of the PSG Flexible Fund versus the ALSI (2008 - 2010)

85

75

65

55

95

105

115

125

135

NOV‘08

FEB‘09

MAY‘09

AUG‘09

NOV‘09

AUG‘10

MAY‘08

AUG‘08

FEB‘10

MAY‘10

Ind

exed

ret

urn

: 15

May

'08

= 1

00

Fund new high - Aug '09 ALSI new high - Nov '10

PSG Flexible Fund ALSI (incl. dividends)

Fund -27.3%ALSI -45.4%

12 |

Notes


Notes

14 |

Portfolio holdings as at 31 March 2016

Top 10 equitiesImperial Holdings Ltd

Glencore plc

FirstRand Ltd

Old Mutual plc

Discovery Holdings Ltd

Nedbank Group Ltd

Microsoft Corp

Grindrod Ltd

Reunert Ltd

Capital One Financial Corp

Asset allocation

PSG Equity Fund

• Resources 12%

• Financials 25%

• Industrials 38%

• Domestic cash 1%

• Foreign equity 24%

Total 100%

Top 10 equitiesBerkshire Hathaway Inc

J Sainsbury plc

FirstRand Ltd

Imperial Holdings Ltd

Glencore plc

Capitec Bank Holdings Ltd

Old Mutual plc

Super Group Ltd

Coronation Fund Managers


Asset allocation

PSG Flexible Fund

• Resources 5%

• Financials 18%

• Industrials 23%



Total 100%


FirstRand Ltd

Old Mutual Ltd


Super Group Ltd

Brookfield Asset Management Inc

J Sainsbury plc

Microsoft Corp

Reunert Ltd


Asset allocation

PSG Balanced Fund

• Resources 5%

• Financials 16%

• Industrials 18%


• Domestic bonds 17%


Total 100%

Performance

'15'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14100

200

300

400

500

600

700

PSG Flexible Inflation +6%

'16

Performance

0

200

400

600

800

1000

1200

1400

PSG Equity FTSE/JSE All Share TR ZAR

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

Performance

PSG Balanced Inflation +5%

0

200

400

600

800

1000

1200

'00 '02 '04 '06 '08 '10 '12 '14 '16




FirstRand Ltd


Old Mutual plc

Top 5 issuer exposuresAbsa Bank Ltd

FirstRand Bank Ltd

Standard Bank of SA Ltd

Republic of South Africa

Nedbank Group Ltd

Asset allocation

PSG Stable Fund

• Resources 1%

• Financials 7%

• Industrials 10%




• Foreign cash 1%

Total 100%


Old Mutual plc

Markel Corp

Microsoft Corp

FirstRand Ltd

Top 5 issuer exposuresAbsa Bank Ltd


Nedbank Group Ltd


FirstRand Bank Ltd

Asset allocation

PSG Diversified Income Fund

• Domestic equity 4%




Total 100%

Top 10 bond exposuresAbsa Bank Ltd


Nedbank Group Limited

FirstRand Bank Ltd


Capitec Bank Holdings Ltd


Bidvest Group Ltd

The Thekwini Fund (RF) Ltd

MMI Group Ltd

Asset allocation

PSG Income Fund

• Fixed rate notes 29%

• Floating rate notes 64%

• Cash and NCDs 7%

Total 100%

Performance

0

20

40

60

80

100

120

140

160

PSG Stable Inflation +3%

'11 '12 '13 '14 '15 '16

Performance

50

100

150

200

250

'15'06 '07 '08 '09 '10 '11 '12 '13 '14

PSG Diversified Income Inflation +1%

'16

Performance

PSG Income STeFI Composite ZAR

60

120

80

100

140

'11 '12 '13 '14 '15 '16

16 |

Performance

PSG Global Flexible Sub-Fund US Inflation +6% USD

0

20

40

60

80

100

120

140

Top 10 issuer exposuresNedbank Group Ltd

FirstRand Bank Ltd


Absa Bank Ltd


Investec Bank Ltd

Capitec Bank Ltd

Transnet Soc Ltd

Mercedes-Benz South Africa Ltd

Land and Agricultural Development Bank of SA

Asset allocation

PSG Money Market Fund

• Linked NCDs/Fixed rate notes 23%

• Step rate note 9%

• NCDs 55%

• Corporate paper 1%

• Call 3%

• Bill 9%

Total 100%



J Sainsbury plc


Microsoft Corp

Cisco Systems Inc

Softbank Corp

Colfax Corp

JP Morgan Chase & Co

Markel Corp

Regional allocation

PSG Global Equity Sub-Fund

• US 56%

• Europe 5%

• UK 17%

• Asia 12%

• Canada 7%

• Singapore 2%

• Cash 1%

Total 100%



J Sainsbury plc


Microsoft Corp

Softbank Corp

Colfax Corp

Cisco Systems Inc

JP Morgan Chase & Co

Markel Corp

Regional allocation

PSG Global Flexible Sub-Fund

• US 52%

• Europe 5%

• UK 15%

• Asia 11%

• Canada 7%

• Singapore 1%

• Cash 9%

Total 100%

Performance

0

100

200

300

400

PSG Money Market Fund (ASISA) South African IBMoney Market (Benchmark)

'00 '02 '04 '06 '08 '10 '12 '14 '16

Performance

PSG Global Equity Sub-Fund MSCI World Free NR USD Index

60

120

80

100

140

160

180

200

'10 '11 '12 '13 '14 '15 '16 '13 '14 '15 '16


Percentage annualised performance to 31 March 2016 (net of fees)

Source: 2016 Morningstar Inc. All rights reserved as at end of March 2016.Annualised performance shows longer-term performance rescaled to a one-year period. Annualised performance is the average return per year over the period.Past performance is not necessarily a guide to future performance.

International funds

1 Year 2 Years 3 Years 5 Years 10 Years Inception Inception date

PSG Global Equity Sub-Fund A -12.37 -6.56 0.67 0.83 2.47 23/07/2010

MSCI World NR USD Index -3.44 1.18 6.82 6.51 9.30

PSG Global Flexible Sub-Fund A -8.66 -4.34 1.42 1.96 02/01/2013

US Inflation +6% 7.01 6.49 6.71 6.93

Local funds

1 Year 2 Years 3 Years 5 Years 10 Years Inception Inception date

PSG Equity Fund A -3.60 4.98 13.95 14.85 11.81 18.95 01/03/2002

FTSE/JSE All Share Index 3.16 7.74 12.78 13.56 13.11 15.24

PSG Flexible Fund A 5.92 10.97 16.09 15.31 15.10 17.55 01/11/2004

Inflation +6% 13.00 11.47 11.63 11.77 12.12 11.88

PSG Balanced Fund A 4.46 9.62 12.99 13.47 11.12 14.94 01/06/1999

Inflation +5% 11.98 10.44 10.61 10.75 11.31 10.63

PSG Stable Fund A 6.36 8.08 8.94 10.55 13/09/2011

Inflation +3% 9.98 8.44 8.61 8.61

PSG Diversified Income Fund A 7.66 7.49 7.40 7.65 7.85 07/04/2006

Inflation +1% 7.98 6.44 6.60 6.75 7.33

PSG Income Fund A 6.93 6.81 6.16 6.01 01/09/2011

STeFI Composite 6.60 6.36 6.01 5.82

PSG Money Market Fund A 6.61 6.38 5.95 5.69 7.26 8.63 19/10/1998

South African Interest Bearing Money Market Mean 6.59 6.32 5.94 5.71 7.26 8.62

PSG Global Equity Feeder Fund A 5.85 9.81 16.73 15.68 03/05/2011

MSCI World Free NR USD Index (in ZAR) 17.16 19.63 25.01 24.59

PSG Global Flexible Feeder Fund A 10.09 12.80 19.19 10/04/2013

US Inflation +6% (in ZAR) 29.84 25.92 26.40

18 |

Risk

/ret

urn

prof

ileAnticipated long-term real returns

PSG

Div

ersi

fied

Inco

me

PSG

Sta

ble

PSG

Bal

ance

d

PSG

Fle

xib

le

PSG

Eq

uit

yPS

G G

lob

al E

qu

ity

PSG

Glo

bal

Fle

xib

le

PSG

Inco

me

PSG

Mo

ney

Mar

ket

Ave

rag

e ri

sk


Uni

t tr

ust

sum

mar

y So

uth

Afr

ican

po

rtfo

lios

Ran

d-d

eno

min

ated

off

sho

re

PSG

Equ

ity F

und

PSG

Fle

xibl

e Fu

ndPS

G B

alan

ced

Fund

PSG

Sta

ble

Fund

PSG

Div

ersi

fied

Inco

me

Fund

PSG

Inco

me

Fund

PSG

Mon

ey M

arke

t Fu

ndPS

G G

loba

l Equ

ity

Feed

er F

und

PSG

Glo

bal F

lexi

ble

Fe

eder

Fun

d

Fund

cat

egor

y

(ASI

SA c

lass

ifica

tion)

Sout

h A

fric

an -

Equ

ity

- G

ener

alSo

uth

Afr

ican

- M

ulti

Ass

et -

Fle

xibl

eSo

uth

Afr

ican

- M

ulti

Ass

et -

Hig

h Eq

uity

Sout

h A

fric

an -

Mul

ti A

sset

- L

ow E

quity

Sout

h A

fric

an

- M

ulti

Ass

et-

Inco

me

Sout

h A

fric

an -

Inte

rest

Be

arin

g -

Shor

t-te

rmSo

uth

Afr

ican

- In

tere

st

Bear

ing

- M

oney

M

arke

t

Glo

bal -

Equ

ity -

G

ener

alG

loba

l - M

ulti

Ass

et -

Fl

exib

le

Inve

stm

ent

obje

ctiv

ePr

ovid

e lo

ng-t

erm

ca

pita

l gro

wth

and

de

liver

a h

ighe

r ra

te

of r

etur

n th

an t

hat

of t

he S

outh

Afr

ican

eq

uity

mar

ket

with

in a

n ac

cept

able

ris

k pr

ofile

.

Ach

ieve

sup

erio

r m

ediu

m-

to lo

ng-t

erm

ca

pita

l gro

wth

thr

ough

ex

posu

re t

o se

lect

ed

sect

ors

of t

he e

quity

, bo

nd a

nd m

oney

m

arke

ts.

Prov

ide

long

-ter

m

capi

tal g

row

th a

nd

a re

ason

able

leve

l of

inco

me.

Gen

erat

e a

retu

rn o

f C

PI+

3% o

ver

a ro

lling

3-

year

per

iod

afte

r co

sts,

whi

le a

imin

g to

ach

ieve

cap

ital

appr

ecia

tion

with

lo

w v

olat

ility

and

low

co

rrel

atio

n to

equ

ity

mar

kets

thr

ough

all

mar

ket

cycl

es.

Pres

erve

cap

ital a

nd

max

imis

e in

com

e re

turn

s.

Max

imis

e in

com

e an

d pr

eser

ve c

apita

l whi

le

achi

evin

g lo

ng-t

erm

ca

pita

l app

reci

atio

n as

inte

rest

rat

e cy

cles

al

low

.

Prov

ide

capi

tal s

ecur

ity,

a st

eady

inco

me

yiel

d an

d hi

gh li

quid

ity.

Out

perf

orm

the

av

erag

e of

the

wor

ld’s

equi

ty m

arke

ts, a

s re

pres

ente

d by

the

M

SCI W

orld

Fre

e N

R U

SD In

dex

(in Z

AR)

.

Ach

ieve

sup

erio

r m

ediu

m-

to lo

ng-t

erm

ca

pita

l gro

wth

thr

ough

ex

posu

re t

o se

lect

ed

sect

ors

of t

he g

loba

l eq

uity

, bon

d an

d m

oney

mar

kets

.

Benc

hmar

kFT

SE/J

SE A

ll Sh

are

Inde

x af

ter

cost

sIn

flatio

n +

6%In

flatio

n +

5%In

flatio

n +

3% o

ver

rolli

ng 3

-yea

r pe

riod

afte

r co

sts

Infla

tion

+1%

STeF

I Com

posi

teSo

uth

Afr

ican

- In

tere

st

Bear

ing

- M

oney

M

arke

t m

ean

MSC

I Wor

ld F

ree

NR

USD

Inde

x (in

ZA

R)U

S In

flatio

n +

6%

Risk

rat

ing

Hig

hM

oder

ate

- H

igh

Mod

erat

e -

Hig

hM

oder

ate

Low

- M

oder

ate

Low

- M

oder

ate

Low

Hig

hM

oder

ate

- H

igh

Tim

e ho

rizon

5 ye

ar +

3 ye

ar +

3 ye

ar +

2 ye

ar +

24 m

onth

s1

year

+1

mon

th +

4 ye

ar +

4 ye

ar +

The

Fund

is s

uita

ble

for

Inve

stor

s w

ho:

• Se

ek a

n eq

uity

-fo

cuse

d po

rtfo

lio

that

has

out

stan

ding

gr

owth

pot

entia

l

• A

im t

o m

axim

ise

pote

ntia

l ret

urns

w

ithin

an

acce

ptab

le

risk

profi

le

• Fo

cus

on a

long

-ter

m

inve

stm

ent

horiz

on

Inve

stor

s w

ho:

• Se

ek e

xpos

ure

to t

he

equi

ty m

arke

t bu

t w

ith m

anag

ed r

isk

leve

ls

• A

im t

o bu

ild w

ealth

• Fo

cus

on a

med

ium

- to

long

-ter

m

inve

stm

ent

horiz

on

Inve

stor

s w

ho:

• W

ould

pre

fer

the

fund

man

ager

to

mak

e th

e as

set

allo

catio

n de

cisi

ons

• A

im t

o bu

ild w

ealth

w

ithin

a m

oder

ate

risk

inve

stm

ent

Inve

stor

s w

ho:

• H

ave

a lo

w r

isk

appe

tite

but

requ

ire

capi

tal g

row

th in

rea

l te

rms

• Fo

cus

on a

sho

rt-

to m

ediu

m-t

erm

in

vest

men

t ho

rizon

Inve

stor

s w

ho:

• H

ave

a lo

w r

isk

appe

tite

and

an

inco

me

requ

irem

ent

• W

ant

to e

arn

an

inco

me,

but

nee

d to

tr

y an

d be

at in

flatio

n

• Fo

cus

on a

sho

rt-

to m

ediu

m-t

erm

in

vest

men

t ho

rizon

Inve

stor

s w

ho:

• H

ave

a lo

w r

isk

appe

tite

with

an

inco

me

requ

irem

ent

• Fo

cus

on a

sho

rt-

to m

ediu

m-t

erm

in

vest

men

t ho

rizon

Inve

stor

s w

ho:

• Se

ek c

apita

l sta

bilit

y,

inte

rest

inco

me

and

high

liqu

idity

thr

ough

a

low

- ris

k in

vest

men

t

• N

eed

an in

terim

in

vest

men

t ve

hicl

e or

‘par

king

bay

’ for

su

rplu

s fu

nds

• Fo

cus

on a

sho

rt-

to m

ediu

m-t

erm

in

vest

men

t ho

rizon

Inve

stor

s w

ho:

• Se

ek a

n eq

uity

-fo

cuse

d po

rtfo

lio

that

has

out

stan

ding

gr

owth

pot

entia

l

• A

im t

o m

axim

ise

pote

ntia

l ret

urns

w

ithin

a m

oder

ate

risk

inve

stm

ent

• Fo

cus

on a

long

-ter

m

inve

stm

ent

horiz

on

Inve

stor

s w

ho:

• W

ant

a m

anag

ed

solu

tion

in o

ffsh

ore

mar

kets

• W

ant

to d

iver

sify

the

ir ho

ldin

gs a

cros

s th

e w

orld

• Fo

cus

on a

med

ium

- to

long

-ter

m

inve

stm

ent

horiz

on

Net

equ

ity e

xpos

ure

100%

0% -

100

%0%

- 7

5%0%

- 4

0%0%

- 1

0%0%

0%10

0%40

% -

75%

Inco

me

dist

ribut

ion

Bi-a

nnua

llyBi

-ann

ually

Bi-a

nnua

llyBi

-ann

ually

Qua

rter

lyQ

uart

erly

Mon

thly

Ann

ually

Ann

ually

Min

imum

inve

stm

ent

R2 0

00 lu

mp

sum

, or

R250

mon

thly

deb

it or

der

R2 0

00 lu

mp

sum

, or

R250

mon

thly

deb

it or

der

R2 0

00 lu

mp

sum

, or

R250

mon

thly

deb

it or

der

R2 0

00 lu

mp

sum

, or

R250

mon

thly

deb

it or

der

R2 0

00 lu

mp

sum

, or

R250

mon

thly

deb

it or

der

R2 0

00 lu

mp

sum

, or

R250

mon

thly

deb

it or

der

R25

000

lum

p su

mR2

000

lum

p su

mR2

000

lum

p su

m

Fees

(inc

l. VA

T)A

nnua

l man

agem

ent

fee:

Cla

ss A

: 1.7

1%C

lass

B: 1

.14%

+

22.8

%of

out

perf

orm

ance

of

benc

hmar

k

Ann

ual m

anag

emen

t fe

e:C

lass

A: 1

.14%

+

7.98

%of

out

perf

orm

ance

of

high

wat

erm

ark

Ann

ual m

anag

emen

t fe

e:C

lass

A: 1

.71%

Cla

ss B

: 1.1

4% +

7.

98%

of o

utpe

rfor

man

ce o

f hi

gh w

ater

mar

k

Ann

ual m

anag

emen

t fe

e:C

lass

A: 1

.71%

Ann

ual m

anag

emen

t fe

e:C

lass

A: 1

.14%

Ann

ual m

anag

emen

t fe

e:C

lass

A: 0

.74%

Ann

ual m

anag

emen

t fe

e:C

lass

A: 0

.57%

Cla

ss B

: 0.1

7%

Ann

ual m

anag

emen

t fe

e:C

lass

A: 0

.86%

Ann

ual m

anag

emen

t fe

e:C

lass

A: 0

.86%

Cla

ss B

: 0.2

9%

Com

plia

nce

with

Pr

uden

tial I

nves

tmen

t G

uide

lines

(Reg

ulat

ion

28)

No

No

Yes

Yes

Yes

No

Yes

No

No

For

full

disc

losu

re o

n al

l cos

ts a

nd f

ees

plea

se r

efer

to

the

Min

imum

Dis

clos

ure

Doc

umen

ts o

n ou

r w

ebsi

te.

20 |

PSG Asset Management unit trusts

Local unit trusts0800 600 [email protected] Offshore unit trusts0800 600 [email protected] General enquiries+27 (21) 799 [email protected]

Websiteswww.psg.co.za/asset-managementwww.psgkglobal.com

Cape Town office

Physical addressFirst Floor, PSG House Alphen ParkConstantia Main Road Constantia, Western Cape

Postal addressPrivate Bag X3 Constantia, 7848

Switchboard+27 (21) 799 8000

Guernsey office

Address11 New StreetSt Peter Port Guernsey, GY1 2PF

Switchboard+44 1481 726034

Client servicesSA Toll Free 0800 600 168

Malta Office

AddressUnit G02SmartCity MaltaRicasoli, Kakara SCM 1001Malta

Telephone+35 6218 07586

Contact information


Disclaimer: Collective Investment Schemes in Securities (CIS) are generally medium- to long-term investments. The value of participatory interests (units) or the investment may go down as well as up and past performance is not a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and script lending. Fluctuations or movements in the exchange rates may cause the value of underlying international investments to go up or down. Where foreign securities are included in a portfolio, the portfolio is exposed to risks such as potential constraints on liquidity and the repatriation of funds, macroeconomic, political, foreign exchange, tax, settlement and potential limitations on the availability of market information. The portfolios may be capped at any time in order for them to be managed in accordance with their mandate. Excessive withdrawals from the fund may place the fund under liquidity pressure and, in certain circumstances a process of ring-fencing withdrawal instructions may be followed. The fund may borrow up to 10% of the market value to bridge insufficient liquidity. Fees and performance: Prices are published daily and available on the website www.psg.co.za and in the daily newspapers. A schedule of fees and charges and maximum commissions is available on request from PSG Collective Investments (RF) Limited. Commission and incentives may be paid and, if so, are included in the overall costs. Forward pricing is used. Different classes of Participatory Interest can apply to these portfolios and are subject to different fees, charges and possibly dividend withholding tax and will thus have differing performances. Performance is calculated for the portfolio and individual investor performance may differ as a result thereof. All performance data for a lump sum, net of fees, include income and assumes reinvestment of income on a NAV-NAV basis. Source of performance: Figures quoted are from Morningstar Inc. Cut-off times: The cut-off time for processing investment transactions is 14h30 daily, with the exception of the PSG Money Market Fund, which is 11h00. Additional information: Additional information is available free of charge on the website and may include publications, brochures, application forms and annual reports. Company details: PSG Collective Investments (RF) Limited is registered as a CIS Manager with the Financial Services Board, and a member of the Association of Savings and Investments South Africa (ASISA) through its holdings company PSG Konsult Limited. The management of the portfolios is delegated to PSG Asset Management (Pty) Ltd, an authorized Financial Services Provider under the Financial Advisory and Intermediary Services Act 2002, FSP no 29524. PSG Asset Management (Pty) Ltd and PSG Collective Investments (RF) Limited are subsidiaries of PSG Group Limited. Money Market: The PSG Money Market Fund maintains a constant price and targeted at a constant value. The quoted yield is calculated by annualising the average 7-day yield. A money market portfolio is not a bank deposit account. Excessive withdrawals from the portfolio may place the portfolio under liquidity pressures and in such circumstances a process of ring-fencing of withdrawal instructions and managed payouts over time may be followed. The total return to the investor is made up of interest received and any gain or loss made on any particular instrument. In most cases the return will merely have the effect of increasing or decreasing the daily yield but in the case of abnormal losses it can have the effect of reducing the capital value of the portfolio. Fund of Funds: A Fund of Funds portfolio only invests in portfolios of other collective investment schemes, which levy their own charges, which could result in a higher fee structure for Fund of Funds portfolios. Feeder Funds: A Feeder Fund is a portfolio which, apart from assets in liquid form, invests in a single portfolio of a collective investment scheme, which levies its own charges and which could result in a higher fee structure for the feeder fund.

Trustee: The Standard Bank of South Africa Limited, Main Tower, Standard Bank Centre, 2 Hertzog Boulevard, Cape Town, 8001. Tel: 021 401 2443. Email: [email protected]. Conflict of Interest Disclosure: The Fund may from time to time invest in a portfolio managed by a related party. PSG Collective Investments (RF) Limited or the Fund Manager may negotiate a discount in fees charged by the underlying portfolio. All discounts negotiated are re-invested in the Fund for the benefit of the investor. Neither PSG Collective Investments (RF) Limited nor PSG Asset Management retains any portion of such discount for their own accounts. The Fund Manager may use the brokerage services of a related party, PSG Securities Ltd.

PSG Collective Investments (RF) Limited does not provide any guarantee either with respect to the capital or the return of the portfolio and can be contacted on 0800 600 168 or on e-mail at [email protected].

© 2016 PSG Asset Management Holdings (Pty) Limited

The information and content of this publication is provided by PSG as general information about its products. The information does not constitute any advice and we recommend that you consult with a qualified financial adviser before making investment decisions. For further information on the funds and full disclosure of costs and fees please refer to the Minimum Disclosure Documents on our website.

ANGLES & PERSPECTIVES - PSG€¦ · We believe that taking a long-term view is key to successful...

Documents

Transcript of ANGLES & PERSPECTIVES - PSG€¦ · We believe that taking a long-term view is key to successful...