10X S&P 500 ETF Units ZAR · JSE:CSP500
10X S&P 500 ETF Units ZAR — Momentum Investment Consulting — Investor Presentation (October 2021)
35 slides from 10X S&P 500 ETF Units ZAR's investor presentation, Oct 11, 2021
Slide 1: Insights & Answers: Blending active & passive allocations in a portfolio
INSIGHTS & ANSWERS: Blending active & passive allocations in a portfolio Florbela Yates Head: MIC
Slide 2: Overview
Overview • Definitions • Explanations o What it is o Different markets and different approaches • Global and local trends • Applicability in Portfolio Construction • Some actual examples • An Optimal Investment strategy Page | 2
Slide 3: Active versus Passive: Alpha
Active versus Passive Alpha = outperformance / excess return • Active refers to taking positions relative to a benchmark • Skilled managers can add alpha relative to a benchmark • Typically 1% to 2% p.a. • Not always the same managers • Charge active fees
Slide 4: Active versus Passive: Beta
Active versus Passive Beta = measures the movement of the market as a whole • Passive = opposite of active • Positioning equivalent to a BM • Defining what you are measuring is important • What is the appropriate index? • How well is the index replicated?
Slide 5: Active versus Passive: Not mutually exclusive
Active versus Passive Not mutually exclusive • They are not mutually exclusive • Some asset classes or markets lend themselves towards one or another • Choosing to go passive, is an ACTIVE decision
Slide 6: And then there is Smart Beta
And then there is Smart Beta The best of both worlds
Slide 7: What is Smart Beta Investing?
What is Smart Beta Investing? • Different names provide insight o Active Quant Investing • Active versus passive index tracking • Quantitative data and techniques (e.g. risk management) o Factor Investing • Investors get rewarded for being exposed to factors • Factors backed by a huge and growing bo
Slide 8: What is Smart Beta Investing?
What is Smart Beta Investing? • Main Qualities o Positioned between trackers and traditional funds o Inputs => objective data rather than subjective fundamental information • Objective data Figures from financial statements • Subjective information Outlook based on macro economic forecasts o Decisio
Slide 9: Differences Between Approaches
Differences Between Approaches • Single factor or multi factor portfolios o Trending, Value or Quality – a single factors o Multi factor • Bottom up – each share is individually viewed through multiple style lenses • Top down – blending of various single style portfolios • Tracking a smart beta benc
Slide 10: Global and SA trackers in powerful growth trend
Global and SA trackers in powerful growth trend • USA Mutual Fund & ETF cumulative flows – massive switch from active to passive • SA total tracker industry growing at 18% p.a. – CIS market (UTs & ETFs) growing at 27% p.a. Source: Investment Company Institute website Source: Satrix estimates, meet t
Slide 11: Equity strategies spectrum
Equity strategies spectrum Passive Smart Beta Systematic Active Beat risk- Beat risk- Beat risk- Match market Objective adjusted market adjusted market adjusted market returns return return return Cost 0-30 bps 0-60 bps 0-100 bps 0-150 bps Active risk ~0% ~5-10% ~5-20% ~5-20% Turnover ~5% ~30-60% ~3
Slide 12: Passive
Passive iShares MSCI Japan You want passive when: 90% • You want exposure to a 80% certain region, sector or industry 70% • You don’t want any 60% surprises 50% • You don’t think there is any active opportunity 40% in the market 30% • You want to pay very 20% low fees 10% You don’t want it when: 0%
Slide 13: Smart beta
Smart beta iShares MSCI World Multifactor 120% You want smart beta when: • You want a diversified 100% exposure to rewarded factors, with little stock-specific risk 80% • You want to outperform over the long run 60% • You want transparency • You want a specific factor or thematic exposure 40% You do
Slide 14: Systematic
Systematic Robeco Enhanced Index Equity 300% You want systematic when: • You want a diversified 250% exposure to rewarded factors with little stock- 200% specific risk • You want to outperform over the long run 150% • You want to complement stock-picking strategies 100% • You want a specific factor
Slide 15: Active
Active Contrarius Global Equity 600% You want active when: • You believe there are hidden opportunities in 500% the market • You find a good manager 400% to do so • You want stock selection 300% risk • You want to complement systematic strategies 200% You don’t want it when: 100% • You are mindful a
Slide 16: Global smart beta – phenomenal growth
Global smart beta – phenomenal growth Massive growth of around attractive 20% p.a. in the last 7 years, other sources estimate even higher figures 1400 Global factor ETF’s AUM exceeded $1.2 trillion last year 1200 1000 800 600 400 200 0 2013 2014 2015 2016 2017 2018 2019 2020 Sources: Morningstar an
Slide 17: Differences Between Markets
Differences Between Markets • Global v. Local o Globally thousands of shares to choose from, in SA less then 100 liquid stocks o Local portfolios hold smaller numbers of shares o More weight per individual counter => more skill required • Risk management • Data scrubbing • Basic understanding of fun
Slide 18: South African smart beta CIS growth
South African smart beta CIS growth AUM now at R15bn compared to R380bn of sector, number of funds grew from 5 to 25 SA General Equity UT Assets SA Smart Beta UT Assets (R'bn) 450 20 400 350 Growing at 11% p.a. Growing at 31% p.a. 15 300 250 10 200 150 100 5 50 0 0 Jun-11 Jun-14 Jun-17 Jun-20 Jun-11
Slide 19: What is behind this fast growth?
What is behind this fast growth? • Low fees – especially when returns are low • Lower risk – especially in a volatile times • Great performance relative to the average peer • Robust portfolio construction tool - using trackers alongside active funds Page | 19
Slide 20: Drivers of growth – attractive fees
FY1 Drivers of growth – attractive fees 2,5% 2,01% 2,0% 1,5% 1,30% 0,99% 1,0% 0,57%0,67% 0,54%0,63% 0,59% 0,5% 0,30% 0,0% Index Tracker Funds Smart Beta Funds Traditional Funds 10th percentile Median 90th percentile Sources: Morningstar, Momentum Investments CIS disclosures Collective investments ar
Slide 21: Slide 20 FY1
Slide 20 FY1 Florbela Yates, 2021/10/11
Slide 22: Lower risk in volatile times
Lower risk in volatile times • Two types of equity market risks: – Common factor (e.g. market risk) • Known unknowns – Specific (stock selection risk) • Unknown unknowns • Traditional “active” funds exposed to both risks – Trackers take zero specific risk • Tough markets – high cross-sectional volat
Slide 23: Drivers of growth – pleasing returns
Drivers of growth – pleasing returns General Equity UT sector versus the ALSI Time Period 1 Year 3 Years 5 Years 10 Years ALSI Return 33.20% 7.57% 9.21% 10.73% (annualised) Number of Funds in GE 164 147 114 62 category Number of Funds that 11 20 12 8 outperformed (7%) (14%) (11%) (13%) (% outperform
Slide 24: Drivers of growth – pleasing returns
Drivers of growth – pleasing returns Five top-quartile smart beta funds over three years to June 2021 12% 11,1% 10% 8,4% 8,2% 8,1% 8,1% 8% 6% 5,5% 4% 2% 0% Momentum Sygnia DIVI Momentum Satrix Divi STANLIB Peer group Trending Index Fund Value Equity Plus Index Enhanced average Equity Fund Fund Fund
Slide 25: Drivers of growth – risk reduction
Drivers of growth – risk reduction Opportunities for diversification Quality 1% Momentum 19% Multi-factor Value 58% 22% Sources: Morningstar, Momentum Investments CIS disclosures Collective investments are generally medium- to long-term investments. The value of participatory interests may go down a
Slide 26: Applicability in OBI portfolio construction
Applicability in OBI portfolio construction Page | 25
Slide 27: Constructing our Local Equity Building Block
Constructing our Local Equity Building Block • Choosing an appropriate benchmark • Capped SWIX Index • Investment time horizon • From an advice perspective: Long-term (7 years +) • From a performance perspective: Rolling 3 years • Performance Target • Capped SWIX +1% (net of investment fees) over 3
Slide 28: Constructing our Local Equity Building Block
Constructing our Local Equity Building Block Fund TIC Momentum Core Equity Fund 0.78% Aylett Equity Prescient Fund 1.33% BlueAlpha BCI Equity Fund 1.09% Fairtree Equity Prescient 1.40% Fund Foord Equity Fund 0.26% Page | 27
Slide 29: Momentum Core Equity Fund
Momentum Core Equity Fund Investment returns to August 2021 since launch on 4 April 2017, ranked 26th out of 124 general equity CISs 50% 30% 10% -10% -30% Apr-2017 Apr-2018 Apr-2019 Apr-2020 Apr-2021 Momentum Core Equity Fund (44.84% ) FTSE/JSE Capped Swix All Share (28.1% ) Sources: Morningstar, Mo
Slide 30: Low fees attractive when returns are low
Low fees attractive when returns are low • From Dec 2013 to Dec 2020 (7 years) – Equities 4,8% p.a. – Inflation 4,8% p.a. – Cash 6,8% p.a. • General Equity UT management fees – Mom Cap Swix Tracker 46 bps p.a. – Median peer 115 bps p.a. • Compounding effect of lower fees over many years has a materi
Slide 31: Multi-factor
Multi-factor After diversification: Alpha still >4% with less than HALF the risk! Parameter Trending Value Quality Multi factor Average alpha p.a. 5.8% 5.2% 6.0% 4.2% Tracking error 7.0% 7.4% 7.9% 3.8% Information ratio 83% 70% 77% 111% Worst 12 months lag -12% -17% -11% -5% Source: Momentum Investm
Slide 32: Constructing our Offshore Equity Building Block
Constructing our Offshore Equity Building Block Fund TIC Coreshares MSCI ACWI FoFs 0.49% Satrix MSCI World Equity FF 0.44% Coronation Global EM 1.38% Flexible Fund Page | 31
Slide 33: In Summary
In Summary • Fees alone aren’t a reason for using passive • It needs to make sense in terms of what you are trying to achieve • From a performance objective • Relative to your chosen benchmark • Should increase predictability • Add to diversification • And contribute to risk management process • The
Slide 34: Client service and contact details
Client service: +27 (0)12 671 8911 Website: momentum.co.za Email: MIC.emailus@momentum.co.za PO Box 7400 Centurion 0046
Slide 35: Disclaimers
Disclaimers Momentum Investment Consulting (Pty) Ltd is an authorised financial services provider (FSP32726) in terms of the Financial Advisory and Intermediary Services Act, 37 of 2002 (FAIS Act), as may be amended and/or replaced from time to time and a part of Momentum Metropolitan Holdings Limit
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