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Collective Investment Scheme The shop windows of asset managers

Collective Investment Scheme The shop windows of asset managers. Zee Snyman Senior Investment Analyst Plexus Asset Management. 25 January 2007. AGENDA. Background on collective investments Single-manager vs multi-manager Manager research – attributes of a successful manager

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Collective Investment Scheme The shop windows of asset managers

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  1. Collective Investment Scheme The shop windows of asset managers Zee SnymanSenior Investment AnalystPlexus Asset Management 25 January 2007

  2. AGENDA • Background on collective investments • Single-manager vs multi-manager • Manager research – attributes of a successful manager • Plexus manager research process

  3. Manager Research Investment Committee Global Portfolio Plexus Mauldin Alternative Investments QUALIFICATIONS, BACKGROUND AND EXPERIENCE • B Bus Science. Finance, CFA • 6 years’ experience. • Advisory services – Innofin, subsidiary of Sanlam. • Distribution support & manager research at Sanlam Multi-Managers. • 1,5 years with Plexus. Areas of responsibilities

  4. PLEXUS GROUP: PROFILE • Plexus group of companies established 12 years ago • Multi-manager; investment consultant; rating agency; and stockbroker • Independent – owned by directors, management and staff • Licensed by South African Financial Services Board (FSB) (x 5) • Products: • Traditional and alternative • Domestic (South Africa) and offshore • Retail and institutional • Total assets under management/advice: R7,5 billion (11 000 investors) • Staff members: 26 full-time; 4 part-time

  5. Collective Investment Schemes

  6. WHAT IS A COLLECTIVE INVESTMENT? • A trust based scheme that comprises a pool asset managed by an investment manager. • Previously known as unit trust funds. • A cost effective means for ordinary investors to invest in the stock exchange and other financial assets. Pooling is the basic concept behind collective investments – the money of thousand of individual investors, who share a common objective, is pooled together to form a CIS portfolio.

  7. CLASSIFICATION OF COLLECTIVE INVESTMENTS

  8. RISK/RETURN PROFILE From: 2003/01/01 To: 2007/01/16 Source: MoneyMate

  9. SA ENVIRONMENT: LOCAL MANAGERS Local Funds – 31 December 2006 Source: ACI Quarterly Statistics • More funds than unit funds than shares on the FTSE/JSE • Absolute Return Funds • Explosion of white-labelled funds • Single managers boutique managers • Broker funds of funds

  10. SA ENVIRONMENT: FOREIGN MANAGERS Source: ACI Quarterly Statistics FCIS – 31 December 2006

  11. Single Manager vs Multi-Manager

  12. THE MULTI-MANAGER CONCEPT While a Decathlon Champion is very proficient in each event, the result in any event cannot match the achievements of the specialist.

  13. BEST MANAGERS IN VARIOUS CATEGORIES

  14. Manager research

  15. SA MANAGER LANDSCAPE

  16. Most performance research support claims of smaller active housesproducing more consistent excess returns Performance study – Canadian Investment Review, Spring 2005* 17 factors tested; 4 identified as being statistically significant in explaining an investment manager’s performance: Ownership Low personnel turnover Number of counters Bottom-up The 1st 3 factors are more closely aligned with boutique type investment firms WHAT DOES THE RESEARCH SAY? * Institutional or Entrepreneurial Management? An analysis of organisational factors and their effect on manager performance. By David Finstad. Canadian Investment Review, Spring 2005.

  17. Does size matter? Institutional Manager vs Boutique

  18. Impact of asset growth on Active Managers portfolio universe becomes increasingly restricted mid and small cap shares can no longer contribute to return finite number of good investment ideas finite amount of cash that can be successfully invested with them cash > Optimal = Bubbles or price support OR own unsellable quantities. Liquidity of equity positions across all clients becomes a significant risk SIZE & ACTIVE MANAGEMENT

  19. SIZE & SHRINKING PORTFOLIO UNIVERSE Small manager universe Large manager universe Source: FTSE/JSE Free Float Index (159 Companies as at 31.08.2005)

  20. ALLAN GRAY

  21. RELATIVE PERFORMANCE Monthly & 12-month rolling data Source: Profile Media monthly returns

  22. Value style bias Contrarian philosophy ALLAN GRAY – INVESTMENT PHILOSOPHY Source: Plexus Due Diligence October 2005

  23. ALLAN GRAY- AUM Source: Plexus Due Diligence

  24. ALLAN GRAY – RETAIL ASSETS R33 billion X 5 % position = R1,65 billion R1,65 billion / 15% = R11 billion Therefore: There are only 60 companies that Allan Gray can take a position of more than 5% in without owning the more than 15% of the company.

  25. ALLAN GRAY EQUITY FUND

  26. ALLAN GRAY – TOP 10 HOLDINGS Smallest share in Top 10: R39 billion R33 billion Equity retail assets with a similar holding 70% of portfolio in Top 10 Holding

  27. SECTOR CORRELATIONS Start Point End Point

  28. PLEXUS MANAGERS

  29. WHAT ARE WE LOOKING FOR? • Managers with a distinctive and proven investment process. • Managers with high conviction. • Managers with individual styles, that will complement add value to existing managers within our portfolio.

  30. PLEXMIC PROCESS: MANAGER SELECTION Investable universe Quantitative Statistical Qualitative Due diligence Best management company and fund consistency Mandate, fund size, asset allocation, investment style, etc Performance, standard deviation, alpha, beta, rankings, etc Investment process, houseview, team work, support systems Factsheets, marketing material and specific requests to managers Specific visits to management companies, questionnaires and interviews Plexus Domestic Survey and Plexus Offshore Survey Monthly portfolio analysis and ranking tables Focus Broad Broad Focused Specific

  31. QUALITATIVE QUESTIONNAIRE • House • Business structure • People • House-view process • Fund specific • Management • Risk • Fees

  32. PLEXUS QUALITATIVE ASSESSMENT Quality of people Source: Plexus Research Platform (PRP)

  33. PLEXUS QUALITATIVE ASSESSMENT Overall assessment Source: Plexus Research Platform (PRP)

  34. Conclusion

  35. CONCLUSION • Collective investments are a cost-effective way for investors to gain exposure to equity and fixed interest markets. • There is a myriad of funds available to investors and multi- managers fill the space of selecting the best managers for the job. • In the world of equity management size can play an important role. • Choosing the right manager is about having a clear understanding of their investment processes and where they fit into a portfolio.

  36. QUESTIONS?

  37. INDEPENDENT INSIGHT IN AN UNCERTAIN WORLD Plexus is a licensed Financial Services Provider No. 609

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