Coronation Fund Managers Limited · JSE:CML
Coronation Fund Managers — Investor Presentation (August 2010)
76 slides from Coronation Fund Managers's investor presentation, Aug 11, 2010
Slide 1: The Income and Growth Challenge
The Income and Growth Challenge 11 August 2010
Slide 2: Agenda
Agenda The Coronation Value Proposition The Income and Growth Challenge Market and Asset Allocation Views Coronation’s Flagship Income and Growth Solutions Coronation Balanced Defensive Fund Coronation Capital Plus Fund
Slide 3: Personal Investments Fund Range
Personal Investments Fund Range
Slide 4: Our funds
Our funds Comprehensive range of local and international multi-asset and building block funds Focused on a flagship range aimed at meeting the key investment needs Available across all major platforms and supermarkets Comprehensive information on www.coronation.com Fund selection guidance Fund compa
Slide 5: Domestic Flagship Funds
Domestic Flagship Funds Investment Exposure to Objective Growth Assets 19.7% Top 20 100% 14.9% Long-term 10.0% Balanced Return (Annualised Return) Growth Avg 75% Plus Max 85% 7.0% 12.6% Capital Avg 50% Plus Max 60% Income & New Fund 4.7% Growth Balanced Avg 35% Defensive Max 40% New fund 9.6% Income
Slide 6: International Fund Range (rand-denominated)
International Fund Range (rand-denominated) Investment Exposure to Objective Growth Assets (Equity, Property and Commodities) GEM Flexible Avg 85% [ZAR] Long-term Growth (Equity Only) World Equity Avg 100% [ZAR] Return Optimum Growth Avg 75% Long-term Growth Global (Multi-asset) Managed Avg 65% [ZAR
Slide 7: International Fund Range ($-denominated UCITS)
International Fund Range ($-denominated UCITS) Investment Exposure to Objective Growth Assets (Equity, Property and Commodities) Global Emerging 100% Long-term Markets Growth (Equity Only) Global Opps Avg 75% Equity Max 85% Return Avg 50% Long-term Global Max 60% Growth Managed (Multi-asset) Avg 35%
Slide 8: Domestic Flagship Funds
Domestic Flagship Funds Value of R100,000 invested on 1 July 2001 ALSI Inflation Strat Inc R601,849 Capital+ Balanced+ Top 20 21.9%p.a. R408,074 16.7%p.a. R358,322 15.1%p.a. R274,340 11.8%p.a. Value of R100,000, invested in Coronation’s domestic growth-orientated fund since inception of Capital Plus
Slide 9: Domestic Flagship Funds
Domestic Flagship Funds 5 year Fund S.I. ranking ranking LT Growth Top 20 1st Quartile 1st Quartile (equity only) Coronation Equity 1st Quartile 1st Quartile LT Growth Balanced Plus 1st Quartile 1st Quartile (multi asset) Market Plus 1st Quartile 1st Quartile Capital Plus 1st Quartile 1st Quartile I
Slide 10: Meet the Portfolio Managers
Meet the Portfolio Managers Coronation Capital Plus and Coronation Absolute LOUIS STASSEN, BSc, BCom (Hons), CFA Louis is a founder member and former CIO of Coronation. He is a senior portfolio manager within the investment team responsible for the Absolute Investments unit which he established in 1
Slide 11: Meet the Portfolio Managers
Meet the Portfolio Managers Coronation Balanced Defensive CHARLES DE KOCK, B.Com (Hons), M.Com (Economics) Charles is a senior portfolio manager with more than 20 years’ investment experience. He plays a leadership role in the asset allocation process and is responsible for the management of a numbe
Slide 12: Our Value Proposition
Our Value Proposition A culture of excellence
Slide 13: Investment Philosophy and Process
Investment Philosophy and Process One Investment Philosophy: Common DNA VALUATION driven PROPRIETARY BOTTOM BOTTOM-UP Research Investors Process LONG Time Horizon The bedrock of our Investment Philosophy
Slide 14: Creating long term wealth
Creating long term wealth Coronation Houseview Equity Coro Benchmark Alpha Equity Since 2000 18.3% 14.8% 3.5% inception* 1800 10 years 19.3% 15.1% 4.2% 1600 5 years 19.1% 16.2% 2.9% 1,673.9 18.3% p.a. 1400 3 years 5.2% 1.1% 4.1% 1200 1 year 25.4% 21.3% 4.1% 1000 1,004.3 800 14.8% p.a. 600 400 Corona
Slide 15: Valuation-driven
Valuation-driven Case study demonstrating our through the cycle valuation process An glo Am e ric a n 8 00 00 The market’s buying because the share price is The market’s selling because the share going up B uy price is going down R 72 5 7 00 00 B uy R 66 0 B uy R 61 0 6 00 00 Buy H o ld R 535 R 5 20
Slide 16: The Income and Growth Challenge
The Income and Growth Challenge or
Slide 17: Retirement planning
Retirement planning A looming crisis for most i. Expected returns are lower than historic returns Equity returns supported by above average earnings growth Bonds & property were supported by a significant structural rerating But we expect more from offshore
Slide 18: Annualised LT total returns
Annualised LT total returns all numbers up to end June 2010 Asset class historic real returns Last decade (to June 2010) versus last 110 years* 20% 15% Very strong real returns from risky assets over last 10 years: Annualised real rand returns 10% Listed property did particularly 5% well; 0% Cash &
Slide 19: All share return attribution
All share return attribution 10 years 20 years Total return 16.4% 14.5% Dividends 3.4% 3.2% Capital 13.0% 11.3% Earnings growth 11.9% 8.7% Rating 1.0% 2.4% Inflation 6.0% 7.5% Note: very strong (and unsustainable?) real earnings growth of 5.9% p.a. over last 10 years, compared to US LT trend of 2.3%
Slide 20: Listed property return attribution
Listed property return attribution 10 years 20 years Total return 23.3% 17.6% Distribution 12.1% 12.5% Capital 11.2% 5.1% Distribution growth 5.0% 4.7% Rating 5.9% 0.4% Inflation 6.0% 7.5% Note: all of the outsize returns earned over last 10 years have been due to rerating – can only happen once… BE
Slide 21: Local has been "lekker" over the past decade
Local has been “lekker” over the past decade Local assets have re- priced. Don’t extrapolate this period into perpetuity Compelling buying opportunity for local assets
Slide 22: We expect less from local assets, but more from international
We expect less from local assets, but more from international Last 10 years 10 year forecast Local equity 17.0% 10-12% Global equity 2.3% 13-15% Property 23.2% 9-10% Bonds 13.2% 8-9% Cash 10.3% 7.5-8.5% Inflation 6.8% 6%(+?) I-Net Bridge, Deutsche Bank, CFM Forecast
Slide 23: Retirement planning
Retirement planning A looming crisis for most i. Expected returns are less than achieved over past 10-20 years ii. Inflation for a retired LSM 8+ person materially > national CPI Healthcare Municipal rates/water/electricity Rising tax rates on the “haves”
Slide 24: What is your personal inflation number?
What is your personal inflation number? 30 June 2010
Slide 25: Retirement planning
Retirement planning A looming crisis for most i. Expected returns are less than achieved over past 10-20 years ii. Inflation for a retired LSM 8+ person materially > national CPI iii. Life expectancies are increasing Age Male Female 60 81 84 65 82 85 70 84 86 75 85 87
Slide 26: Retirement planning
Retirement planning iv. Exposure to growth assets structurally too low Only growth assets increase real value of capital Deep human aversion to losses (ST returns) Results in blind-spot for LT impact of inflation v. Leaving investors desperately vulnerable late in retirement When a client retires ag
Slide 27: Income rate & return analysis
Income rate & return analysis Income security very sensitive to return and inflation assumptions… Years before your income will start to reduce if inflation is 6% Nominal net investment return p.a. 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 2.5% 21 30 50+ 50+ 50+ 50+ Selected income rate p.a. 5.0% 11 14 19 33
Slide 28: Income rate & return analysis
Income rate & return analysis … presenting potential problems for many existing retirees Years before your income will start to reduce if inflation is 6% Nominal net investment return p.a. 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 2.5% 21 30 50+ 50+ 50+ 50+ Selected income rate p.a. Many retirees are 5.0% 11
Slide 29: Actual experience 2001 – 2010
Actual experience 2001 – 2010 Superior outcome for Capital Plus investors Income rate in 2001 3% 5% 7% 9% Capital invested in 2001 1,000,000 1,000,000 1,000,000 1,000,000 Annual income in 2001 30,000 50,000 70,000 90,000 Annual income in 2010 (effect of actual CPI) 52,381 87,301 122,221 157,142 Capi
Slide 30: The big decisions summarised
The big decisions summarised Objective: Making capital last while sustaining your standard of living The key trade-offs: Decide on a level of income high enough to fund an acceptable living standard but low enough to make this living standard sustainable Construct a portfolio that can limit the vari
Slide 31: Market Views
CORONATION ®& FUND MANAGERS Market Views
Slide 32: YTD returns
YTD returns up to 30 June 2010 Source: FT
Slide 33: The global recovery: Fears of double dip
The global recovery: Fears of double dip
Slide 34: Economic recovery … some issues
Economic recovery … some issues Global economic recovery losing a little steam Slowing job gains, weaker housing sales in USA for example Especially in Europe where fiscal tightening will hamper growth Mostly the smaller countries, but austerity in UK as well China also slowing after a very strong r
Slide 35: Growth momentum slowing at high level
Growth momentum slowing at high level. But fears of double dip exaggerated Global PMI suggest global GDP growth of about 4.5 – 5% in the second half of 2010 Source: Thomson Reuters, Credit Suisse research
Slide 36: Chinese growth levelling off
Chinese growth levelling off Source: Thomson Reuters, Credit Suisse research
Slide 37: Corporate balance sheets strong
Corporate balance sheets strong Cash on the balance sheet is at 50-year high in the US Source: Thomson Reuters, Credit Suisse research
Slide 38: Sovereign debt problems
Sovereign debt problems: Greece rescued for now but still in ICU The great recession has left most industrial developed countries in worst ever peace time fiscal shape Greece would have defaulted but for the EU/IMF rescue Rescue deals with liquidity not underlying solvency Debt restructuring still t
Slide 39: Sovereign debt problems: Our insights
Sovereign debt problems: Our insights Interest rates likely to stay low for long time To compensate for fiscal austerity and near term deflation risks Risk in too low for too long lets inflation genie out of bottle Globe undergoing painful adjustment but will grow, albeit below-trend Austerity measu
Slide 40: SA economy
CORONATION & FUND MANAGERS SA economy
Slide 41: South Africa: macro environment
South Africa: macro environment Growth: we stick to our view of at least 3% this year Inflation: back in target helped by strong rand and low food prices, but high wage settlements & continued pressure on administered prices concerning for longer term outlook Rand: risk appetite remains key driver I
Slide 42: SA recovery in housing
SA recovery in housing Absa House Price Index Houses of 80400m?, up to R3,1 million 00 02 04 06 08 10 —— Nominal y/y % change —— Real yly % change
Slide 43: Sign of slowdown in SA too
Sign of slowdown in SA too 65.0- 60.0- 55.0— 50.0— 47.5- 45.0- 42.5- 40.0- 37.5- 35.5- SA PURCHASING MANAGERS INDEX S/A BER Monthly 30-Sep-99 to 30-Jun-10 Aa poy +-65.0 60.0 55.0 -50.0 47.5 +-45.0 42.5 40.0 37.5 +-35.5 [2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | — S
Slide 44: Bonds
CORONATION & FUND MANAGERS Bonds
Slide 45: Inflation contribution
Inflation contribution 14 Food Transport 12 Other Total 10 8 6 4 2 0 -2 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Source: Stats SA
Slide 46: Inflation outlook
Inflation outlook 14.0 CPI 13.0 Target band . Forecast period 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Source: Stats SA, CFM forecast
Slide 47: Net government bond market funding
Net government bond market funding Rbn 160 140 Actual Budgeted 120 100 80 60 40 20 0 -20 1989/90 1991/92 1993/94 1995/96 1997/98 1999/00 2001/02 2003/04 2005/06 2007/08 2009/10 2011/12 Expect to be revised lower as revenues beat forecasts Source: National Treasury
Slide 48: Coronation's Flagship Income and Growth Solutions
Coronation’s Flagship Income and Growth Solutions Coronation Balanced Defensive Fund Coronation Capital Plus Fund
Slide 49: Coronation Balanced Defensive Fund
Coronation Balanced Defensive Fund Charles de Kock
Slide 50: Domestic Flagship Funds
Domestic Flagship Funds Investment Exposure to Objective Growth Assets 10.6% Top 20 100% 7.6% Long-term 10.5% Return (Annualised Return) Balanced Avg 75% Growth Plus Max 85% 7.4% 7.7% Capital Avg 50% Plus Max 60% Income & 4.9% Growth 9.4% Balanced Avg 35% Defensive Max 40% 2.6% 8.9% Income Strategic
Slide 51: The strategy has delivered
Coronation Balanced Defensive The strategy has delivered Growth of a R100,000 investment on 1 February 2007 140 R135.766 9.4%p.a. 135 130 Coro Balanced Defensive R124.043 125 6.5%p.a. Mean Prudential Low Equity 120 115 110 105 100 Mar-07 Apr-07 May-07 Mar-08 Apr-08 May-08 Mar-09 Apr-09 May-09 Mar-10
Slide 52: Capital protection is key
Coronation Balanced Defensive Capital protection is key Rolling 12 Month Returns & Standard Deviation 20.00% Outperformed its peers and 15.00% protected capital over all 12 month periods 10.00% 5.00% 0.00% Dec-08 Dec-09 Sep-08 Sep-09 Aug-08 Nov-08 Aug-09 Nov-09 Feb-08 Feb-09 Feb-10 Mar-08 May-08 Jul
Slide 53: Consistent Top Quartile Returns
Coronation Balanced Defensive Consistent Top Quartile Returns PERFORMANCE FOR VARIOUS PERIODS FUND PRU LOW EQUITY OUTPERFORMANCE MEAN Since Inception (unannualised) 35.8 24.0 11.8 Since Inception (annualised) 9.4 6.5 2.9 3 Years (annualised) 9.6 6.2 3.4 1 Year (annualised) 11.8 9.6 2.2 Year to date
Slide 54: Consistent Top Quartile Returns, at lower risk
Coronation Balanced Defensive Consistent Top Quartile Returns, at lower risk Balanced Defensive Prudential Low Equity Mean Annualised Return 9.4% 6.5% Annualised standard deviation 4.5% 4.8% Annualised downside deviation 0.7% 0.9% Sharpe ratio 0.0 -0.6 Sortino ratio -1.1 -3.4 Maximum Drawdown -2.6%
Slide 55: Balanced Defensive Fund Asset Allocation History
Balanced Defensive Fund Year Asset Allocation History 100 Int Cash/FI 90 SA Pref Shares 80 70 SA IL Bonds 60 SA Corp Bonds 50 SA Gov Bonds Max exposure to growth assets 40 SA Cash 30 SA Real Estate 20 Int Equities 10 SA Equity 0 Mar 07 Jun 07 Mar 08 Jun 08 Mar 09 Jun 09 Mar 10 June 10 Sep 07 Dec 07
Slide 56: Portfolio Positioning – June 2010
Coronation Balanced Defensive Portfolio Positioning – 30 June 2010 SA Cash 23.0 SA Corp Bonds 19.7 SA Equity 18.2 SA IL Bonds 15.6 Int Equity 7.3 Int Cash/FI 4.9 SA Real Estate 3.3 SA Gov Bonds 4.7 SA Pref Shares 3.4 Reg. 28 Compliant
Slide 57: Portfolio Positioning – June 2010
Coronation Balanced Defensive Portfolio Positioning – 30 June 2010 SA EQUITY TOP 10 HOLDING DIVIDEND MTN 1.7% 4.8% STD BANK 1.5% 4.4% CORONATION 1.1% 9.0% BAT 1.1% 5.6% NASPERS 1.0% 1.3% ANGLO AMERICAN 1.0% 1.8% BHP BILLITON 0.9% 3.2% SA Equity 18.2 SASOL 0.8% 4.6% RICHEMONT 0.7% 1.1% BIDVEST 0.6% 3
Slide 58: Portfolio Positioning – June 2010
Coronation Balanced Defensive Portfolio Positioning – 30 June 2010 SA PREFERENCE SHARES TOP 5 HOLDING YIELD ABSA 1.5% 7.5% INVESTEC 0.7% 8.0% SA Cash 23.0 FIRSTRAND 0.2% 7.3% PSG 0.2% 8.5% NETWORK HEALTHCARE 0.2% 8.5% SA Corp Bonds 19.7 SA INFL BOND TOP 5 HOLDING YIELD ABSA (ABCPI3) 2.9% 4.3 FIRST R
Slide 59: Coronation Capital Plus Fund
Coronation Capital Plus Fund Louis Stassen
Slide 60: Domestic Flagship Funds
Domestic Flagship Funds Investment Exposure to Objective Growth Assets 19.7% Top 20 100% 14.9% Long-term 10.0% Balanced Return (Annualised Return) Growth Avg 75% Plus Max 85% 7.0% 12.6% Capital Avg 50% Plus Max 60% Income & New Fund 4.7% Growth Balanced Avg 35% Defensive Max 40% New fund 9.3% Income
Slide 61: Historic scorecard
Historic scorecard Overall fund performance satisfactory Stock selection good, defensive nature showed in market decline Property allocation reduced too early, still consider longer term outlook risky Nominal bond position conservative, preferred to take exposure through inflation linkers Inflation
Slide 62: Capital Plus Asset Allocation History
Coronation Capital Plus Fund Asset Allocation History Max exposure to growth assets Max exposure to growth assets reduced to 60% Growth assets: SA Equity, Int Equity & SA Property
Slide 63: The strategy has delivered
Coronation Capital Plus The strategy has delivered 400 Value of R100 invested on 02 July 2001 Coronation Capital Plus R358.320 350 15.1 %p.a. Mean of Domestic AA Pru Variable Equity R305.040 300 13.3%p.a. CPIX +4% 250 R212.860 200 150 100 50 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Ma
Slide 64: The strategy has delivered
Coronation Capital Plus The strategy has delivered Performance quoted from Morningstar as at 31 July 2010 for a lump sum investment with income distributions reinvested
Slide 65: The strategy has delivered
Coronation Capital Plus The strategy has delivered PERFORMANCE FOR VARIOUS PERIODS FUND PRU VARIABLE OUTPERFORMANCE EQUITY MEAN Since Inception (unannualised) 259.0 213.9 45.1 Since Inception (annualised) 15.1 13.4 1.7 5 Years (annualised) 12.6 10.9 1.6 3 Years (annualised) 7.9 3.8 4.1 1 Year (annua
Slide 66: The strategy has delivered
Coronation Capital Plus The strategy has delivered Capital Plus Fund Balanced Medium ALSI Equity Mean Annualised Return 14.8% 13.9% 15.9% Annualised std dev 7.9% 10.1% 19.3% Annualised downside deviation 4.2% 5.6% 11.8% Sharpe 0.7 0.5 0.3 Sortino 1.3 0.8 0.6 Correlation 0.9 0.8 Max Drawdown -8.3% -2
Slide 67: Portfolio Positioning – June 2010
Coronation Capital Plus Portfolio Positioning – 30 June 2010 SA IL Bonds 15.2 SA Corp Bonds 15.0 Growth SA Equity 34.6 SA Cash 5.7 Income Assets Assets 53.8 Int Equity 15.9 SA Pref Shares 46 5.0 (Max 60) SA Real Estate 3.3 Int Cash/FI 4.1 SA Gov Bonds 1.0 Reg. 28 Compliant
Slide 68: Portfolio Positioning – June 2010
Coronation Capital Plus Portfolio Positioning – 30 June 2010 SA EQUITY TOP 10 HOLDING DIV MTN 3.4% 4.8% REMGRO 2.7% 2.5% TIGER BRANDS 2.1% 4.4% NASPERS 2.0% 1.3% ANGLO AMERICAN 1.9% 1.8% SPAR 1.9% 4.9% STANDARD BANK 1.7% 4.4% VODACOM 1.6% 5.6% SA Equity 34.6 BAT 1.2% 5.6% NEDBANK 0.9% 4.8% Int Equit
Slide 69: Portfolio Positioning – June 2010
Coronation Capital Plus Fund Portfolio Positioning – 30 June 2010 SA IL BONDS TOP 5 HOLDING YIELD STANDARD BANK(SBSI10) 3.1% 3.9% STANDARD BANK (SBSI11) 2.3% 3.9% FIRST RAND BANK (FRBI23) 2.0% 4.0% SA IL Bonds 15.2 ABSA (ABCPI3) 1.6% 4.3% R 210 1.6% 3.1% SA Corp Bonds 15.0 SA CORP BONDS TOP 5 HOLDIN
Slide 70: Coronation Absolute Fund: Superior Returns
Coronation Absolute Fund Superior Returns 400 Cumulative Return Since Inception 350 362.78 Coro Absolute Fund 18.3 %p.a. 300 Mean of Pru Var Eqt 279.15 14.3%p.a. CPIX + 6% 250 202.38 200 150 100 50 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-
Slide 71: Superior Returns at lower than market risk
Coronation Absolute Fund Superior Returns at lower than market risk Coro Pru Variable ALSI Absolute Equity Mean Fund Annualised return 18.3% 14.3% 18.6% Annualised standard deviation 10.8% 9.3% 18.7% Downside deviation 6.9% 5.1% 10.8% Sharpe 0.9 0.6 0.5 Sortino 1.3 1.0 0.9 Correlation 0.9 0.8 Max dr
Slide 72: Absolute Fund Portfolio Positioning
Coronation Absolute Fund Portfolio Positioning – 30 June 2010 SA IL Bonds 8.6 SA Cash 5.9 SA Equity 53.9 SA Corp Bonds 4.6 Growth Int Equity 19.4 Income Assets SA Gov Bonds 1.2 Assets 22 78 SA Real Estate 2.6 Int Cash/FI (Max100%) 0.9 Int Real Estate 2.1 SA Pref 0.8 Shares/Other Reg. 28 Compliant
Slide 73: Conclusion
Conclusion The income & growth challenge will get more taxing, not less Keep drawdown rates low and growth asset exposure high Adding alpha and minimising costs remain important Our income & growth solutions have delivered beyond expectations Capital Plus delivered 8.5% real p.a. since 2001 and offe
Slide 74: Questions?
CORONATION & FUND MANAGERS QUESTIONS?
Slide 75: Disclaimer
Disclaimer Coronation Asset Management (Pty.) Ltd. is an Authorised Financial Service Provider. The content of this presentation and any information provided may be of a general nature and may not be based on any analysis of the investment objectives, financial situation or particular needs of the c
Slide 76: Thank you
CORONATION & FUND MANAGERS THANK YOU
Coronation Fund Managers — Investor Presentation (August 2010) on 6ix