investec global franchise fund - allan grayinvestec global franchise fund past performance is not a...
TRANSCRIPT
Allan Gray Offshore Fund Provider
Investec Global
Franchise Fund
October 2019
2 Confidential | Investec Asset Management
Sello LekalakalaLondon
Rob Forsyth#
Cape Town
Michael Hayward‡†
London
Clyde Rossouw*†
Cape Town
Abrie Pretorius‡†
New York
Elias Erickson†
New York
Paul VincentLondon
Global
Matt Evans†
London
Ben Needham†
London
Fred Kerr-SmileyLondon
Simon Brazier*†
London
Anna FarmbroughLondon
Quality investment team
The investment team is subject to change without prior notification. As at July 2019. For further information on investment team and investment process, please see the Important
Information section. *Co-Head of the Quality team. †Have portfolio management responsibilities on other strategies within Quality team. ‡Alternate Portfolio Manager on Global Franchise.
#Head of Research for the Quality team. ^From September 2019
Experienced, well-resourced, globally integrated, philosophically aligned
Global Investment
Infrastructure Support
Environmental, Social and
Governance | Dealing | Risk &
Performance | Implementation
Clyde Rossouw*†
Portfolio Manager – Global Franchise
Investment Specialists
● Philosophically aligned around Quality
● Global platform enables differentiated and broad perspectives
● Average industry experience 13 years, average tenure 6 years
● Co-investment in our own strategies
Product Specialists
Neil FinlayLondon
Joe ThomasLondon
Louis NiemandCape Town
Sumesh Chetty†
Cape Town
Duane Cable†^Cape Town
Darren JocumCape Town
Mendy ZhangLondon
Charlie Dutton†
Cape Town
EM focus
Yaser Surve†
Cape TownUK focus
3 Confidential | Investec Asset Management
3 main discussion points for today
Global growth is slowing because of trade wars, do I still allocate to
global equities?
Investec Global Franchise has performed very well, is it too late to invest
now?
What are the forward looking return expectations for Investec Global
Franchise?
1.
2.
3.
4 Confidential | Investec Asset Management
1980’s 1990’s 2000The
Future
5 Confidential | Investec Asset Management
Global growth is likely to be the biggest loser
Source: OECD March 2019
Earnings revisions being revised lower
OECD GDP growth projections
6 Confidential | Investec Asset Management
Increased market uncertainty
Source: Bloomberg as at 30 June 2019. For further information on indices please see Important Information section.
“It's tough to make predictions, especially about the future” - Yogi Berra
MSCI ACWI consensus EPS estimates
$15
$20
$25
$30
$35
$40
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
2010
2011 20122013 2014
2015 2016
2017
2018 2019
2020
Investec Global Franchise –
our investment approach to
mitigating risks in a slowing
global economy
1.
8 Confidential | Investec Asset Management
Our investment approach
No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.
Even if global growth slows what matters more to us are the company
fundamentals
● Hard-to-replicate enduring competitive advantages
● Dominant market positions in stable growing
industries
● Low sensitivity to the economic and market cycle
● Financially strong and capital light
● Highly cash generative with disciplined capital
allocation
What do we look for in companies?
Attributes of Franchise stocks:
9 Confidential | Investec Asset Management
We are prepared to look very different
The portfolio may change significantly over a short period of time. For further information on indices please see Important Information section. This is not a buy, sell or hold
recommendation for any particular security. Source: Investec Asset Management, FactSet, 31 July 19. Alphabet Inc Class A and C have been aggregated into a single holding.
* Active Share is a measure of the percentage of stockholdings in a manager’s portfolio that differs from the benchmark index.
What is not in the portfolio
Global Franchise
Top 10
% Overweight
vs. MSCI ACWI
MSCI ACWI
Top 10
S&P 500
Top 10
Visa 8.1 Microsoft Microsoft
Microsoft 4.7 Apple Apple
Verisign 6.1 Amazon.com Amazon.com
Moody’s 5.0 Alphabet Alphabet
Booking 4.4 Facebook Facebook
Nestlé 3.8 Johnson & Johnson Berkshire Hathaway
Johnson & Johnson 3.3 JPMorgan Chase Johnson & Johnson
Beiersdorf 3.7 Exxon Mobile JPMorgan Chase
Roche 3.3 Nestlé Exxon Mobile
Intuit 3.5 Visa Visa
High conviction, concentrated portfolio:
Currently
29stocksMSCI ACWI Top 50 Stocks
7 43
Active Share* vs MSCI ACWI
93%
Not
in Global
Franchise
IN
Global
Franchise
Not in Global Franchise
10 Confidential | Investec Asset Management
These businesses invest in order to stay
ahead
Source: FactSet, based on constituents of MSCI ACWI, as at 31 August 2018. For more information on indices, please see the important information section.
● Global Franchise has a large exposure to the sectors with the largest R&D spend
● In aggregate, Global Franchise companies vastly outspend the market as a whole
‒ For every $1 of sales, companies in the portfolio spend 4x as much on R&D and still generate far superior margins
and returns on capital
1,8%
6,6%
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
7,0%
MSCI ACWI Global Franchise
R&
D a
s a
% o
f sale
s
3.7x
more
spending
Information Technology,
34%
Consumer Discretionary,
23%
Health Care, 20%
Industrials, 12%
Materials, 4%
Telecommunication Services, 2%
Consumer Staples, 2% Energy, 2%
Financials, 1%Utilities, 0%
Real Estate, 0%
Aggregate R&D spend by sector R&D as a % of sales
11 Confidential | Investec Asset Management
We are placing more research effort for ideas
emerging from the East
Source: R&D Magazine Survey 2018; World Bank; WIPO patent report: Statistics on Worldwide Patent activity as at January 2019
Made and invented in China
Patent applications by residentsShare of total global R&D spending
12 Confidential | Investec Asset Management
Our companies are truly global generators of
profits
The portfolio may change significantly over a short period of time.
Source: Investec Asset Management, FactSet. Geographic breakdown as at 31 July 2019. Right hand charts re-weighted excluding cash and cash equivalents, data as at 20 May 2019.
Estimated revenue exposures of the companies held, re-weighted excluding cash and equivalents.
What matters is where companies generate profits, not where they are
listed
By company domicile (geographic
allocation
By underlying revenue exposure
North America, 44.0%
Europe ex UK, 21.5%
UK, 3.2%
Asia Pacific ex Japan, 18.9%
Latin America, 5.2%
Japan, 3.2%
Middle East, 2.2%
Africa, 1.7%
North America, 61.0%
Europe ex UK, 18.2%
United Kingdom, 7.8%
Emerging Markets, 2.1%
Overseas, 3.1%
Cash, 7.8%
14 Confidential | Investec Asset Management
The benefit of our approach
Past performance is not a reliable indicator of future results, losses may be made. Source: Bloomberg, returns with dividends reinvested, 30 June 2019. This is not a buy, sell or hold
recommendation for any particular security. Time period shown chosen to illustrate the long-term effect of compounding. This chart is updated annually. For further information on indices
and specific portfolio names, please see the Important Information section.
Franchise stocks
have compounded
shareholder wealth
at superior rates of
return over the
long term
The power of compounding
37,969
30,589
20,758
8,210
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1990 1995 2000 2005 2010 2015
Growth of $1,000 since 1990: select Franchise stocks vs. MSCI ACWI
Return p.a
Nestlé 13.6%
J&J 12.7%
Unilever 11.2%
MSCI ACWI 7.6%
15 Confidential | Investec Asset Management
16,0%
8,0%
-4,3%
7,7%
19,7%
5,4%
-13,2%
6,0%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
63 monthsMSCI > 10%
27 months0% < MSCI < 10%
44 monthsMSCI < 0%
134 rolling 12 monthstotal
Investec Global Franchise A Acc MSCI ACWI (MSCI World pre Oct 2011)
Our track record shows we perform well in
sideways and down markets
Past performance is not a reliable indicator of future results, losses may be made. Source: Investec Asset Management, 31 July 2019. Performance is net of fees (NAV based, including
ongoing charges, excluding initial charges), gross income reinvested, in USD. If the share class currency differs from the investor's home currency, returns may increase or decrease as a
result of currency fluctuations. Rolling 12 month periods since inception: 30 April 2007. For further information on indices, please see the Important Information section.
Average rolling 12 month performance
Strong markets Moderate markets Falling markets All periods
Investec Global Franchise
has performed very well,
is it too late to invest now?
2.
17 Confidential | Investec Asset Management
1 year 3 years p.a. 5 years p.a. 10 years p.a. Since Inception p.a.*
Investec Global Franchise I Acc 8.2% 11.4% 9.5% 11.4% 7.9%
MSCI AC World NR** -0.3% 9.2% 5.5% 8.6% 4.3%
Active return 8.5% 2.2% 4.0% 2.8% 3.6%
Quartile ranking 1 1 1 1 1
Investec Global Franchise Fund
Past performance is not a reliable indicator of future results, losses may be made. Source: Morningstar, 31 August 2019. Performance is net of fees (NAV based, including ongoing
charges, excluding initial charges), gross income reinvested, in USD. If the share class currency differs from the investor’s home currency, returns may increase or decrease as a result of
currency fluctuations. *Inception date: 10 April 2007. The performance is based on the OEIC Investec Global Select Equity Fund from 10 April 2007 which merged into the Luxembourg-
domiciled Investec Global Franchise Fund on 4 July 2009. **Comparison index: At inception = MSCI World NR; Current since 1 October 2011 = MSCI AC World NR. Highest and lowest
returns achieved during a rolling 12 month period since inception: Feb-10: 55.4% and Feb-09: -38.6%. For further information on indices, please see the important information section.
Performance
193.6
127.5
-50%
0%
50%
100%
150%
200%
250%
Aug-09 Aug-11 Aug-13 Aug-15 Aug-17 Aug-19
Investec Global Franchise I AccMSCI AC World NR**
Cumulative performance in USDAnnual performance in USD36.8
6.8 8.4
15.816.4
4.4 9.2
0.9
24.9
-3.6
30.0
11.8
-5.9
16.122.8
4.2
-2.4
7.9
24.0
-9.4
-20%
-10%
0%
10%
20%
30%
40%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Investec Global Franchise I AccMSCI AC World NR**
18 Confidential | Investec Asset Management
Despite the strong performance, valuations
still remain attractive
The portfolio may change significantly over a short period of time.
Source: FactSet, Investec Asset Management, 31 August 2019. The above reflects the portfolio characteristics reweighted excluding cash and cash equivalents.
* Comparative index has changed to MSCI AC World Index from 1 October 2011. FCF Yield calculation excludes companies classified in the Banks Industry Group according to GICS.
For further information on indices, please see the Important Information section.
August 2018 August 2019
Investec Global Franchise Fund Benchmark*
19 Confidential | Investec Asset Management
Our returns are driven by earnings growth, not
re-rating
Source: Investec Asset Management to 31 December 2018, 5 year period ending December 2018
5 year return breakdown for Investec Global Franchise Fund and MSCI ACWI
11,2%
2,4%
0,8%
-0,3%
1,6%
2,6%
-0,5%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Global Franchise MSCI ACWI Index
EPS Growth Re-rating Dividends FX
13.1%
4.8%
20 Confidential | Investec Asset Management
Consumer staples is now less than 30% of
your fund
The portfolio may change significantly over a short period of time.
Source: Investec Asset Management, FactSet, 31 July 2019.
Sector breakdown since inceptionSector breakdown
Information Technology,
35.5%
Consumer Staples, 23.8%
Health Care, 10.9%
Financials, 13.6%
Communication Services, 1.8%
Consumer Discretionary,
5.3%
Industrials, 1.3% Cash,
7.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Apr-
07
Apr-
08
Apr-
09
Apr-
10
Apr-
11
Apr-
12
Apr-
13
Apr-
14
Apr-
15
Apr-
16
Apr-
17
Apr-
18
Apr-
19
Information Technology Consumer Staples
Health Care Communication Services
Consumer Discretionary Financials
Industrials
21 Confidential | Investec Asset Management
We remain active and continue to make
changes to your fund
No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.
Source: Investec Asset Management, July 2019. This is not a buy, sell or hold recommendation for any particular security. For further information on specific portfolio names, please see
the Important information section.
12 month portfolio activity highlights
Buys
ASML (add)
Booking Holdings (add)
Charles Schwab (add)
Beiersdorf (add)
Visa (add)
Philip Morris International (add)
Sells
GlaxoSmithKline (exit)
Japan Tobacco (exit)
PayPal (exit)
22 Confidential | Investec Asset Management
Savings gap, disintermediation of credit
Fintech and Payments
Internet of Things, Artificial Intelligence
Travel disruption and consolidation
Cloud and Cybersecurity
Longevity and Healthcare
Beauty and personal care
Themes that excite us in your fund
This is not a buy, sell or hold recommendation for any particular security.
Source: FactSet, based on constituents of MSCI ACWI, as at 31 December 2018. For more information on indices, please see the important information section
Portfolio themes supporting enduring business models
Our forward looking
return expectations for
Investec Global Franchise
3.
24 Confidential | Investec Asset Management
Top 10 offshore equities as a % of offshore Weight
FCF
Yield ROIC
FCF
conversion
5-yr av.
Visa (Visa) 9.1% 3.1% 21.5% 112.6%
Microsoft (Windows 10, Office365, Skype, Xbox One, Surface) 7.0% 3.7% 21.1% 136.5%
Verisign (.com, .net) 6.2% 2.9% 153.3% 141.5%
Moody's (Moody's Investors Service, Moody's Analytics) 5.6% 3.7% 26.7% 114.4%
Booking (Booking.com, Kayak.com, Rentalcars.com) 5.3% 5.8% 25.3% 139.0%
Nestlé (Gerber, Nescafé, Maggi, Nespresso, Purina) 4.6% 3.9% 13.8% 109.1%
Philip Morris International (Marlboro, L&M, Benson & Hedges) 3.9% 5.7% 60.4% 101.8%
Intuit (QuickBooks, TurboTax, ProConnect) 3.9% 3.0% 44.0% 158.4%
Johnson & Johnson (Sudafed, Listerine, Calpol, Clean & Clear) 3.8% 5.6% 20.7% 127.1%
Beiersdorf (Nivea, Elastoplast, La Prairie, tesa) 3.6% 2.6% 14.5% 86.6%
Total as a % of offshore 53.0% 4.0% 40.1% 122.7%
Investec Global Franchise Fund
This is not a buy, sell or hold recommendation for any particular security. The portfolio may change significantly over a short period of time.
Source: FactSet, 31 July 2019. Financial metrics are based on blended forward and trailing financial data according to individual constituent company fiscal year ends.
For further information on specific portfolio names, please see the Important Information section.
An attractive mix of Value and Growth
A concentrated portfolio
25 Confidential | Investec Asset Management
Investec Global Franchise Fund
Past performance is not a reliable indicator of future results, losses may be made.
Sources: Investec Asset Management and FactSet, 31 July 2019. Re-weighted excluding cash and equivalents showing metrics of the constituent companies, since inception. Based on a
pooled vehicle within the strategy and is not available at the composite level. * FCF CAGR means compound annual growth rate of free cashflow.
Our business are not indebted and are growing at an attractive rate
What is important to us…
Low debtAttractive growth rates
-1x
0x
1x
2x
3x
4x
5x
6x
Apr 07 Apr 08 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Apr 19
Investec Global Franchise portfolio constituents
MSCI ACWI**
0%
2%
4%
6%
8%
10%
12%
14%
16%
Apr 07 Apr 08 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Apr 19
Investec Global Franchise portfolio constituents 7yr FCF CAGR*
26 Confidential | Investec Asset Management
3 main conclusion points for today
Global growth is slowing, do I still allocate to global equities?
Investec Global Franchise has performed very well, is it too late to invest
now?
What are the forward looking return expectations for Investec Global
Franchise?
1.
2.
3.
Thank you
www.investecassetmanagement.com
28 Confidential | Investec Asset Management
Disclaimer
All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport
to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a
particular situation. This is not a recommendation to buy, sell or hold any particular security.
The value of this investment, and any income generated from it, can go down as well as up and will be affected by changes in interest rates, exchange rates, general market conditions and
other political, social and economic developments, as well as by specific matters relating to the assets in which it invests. The Fund’s investment objective will not necessarily be achieved
and there is no guarantee that these investments will make profits; losses may be made. This Fund may not be appropriate for investors who plan to withdraw their money within the short
to medium term. Performance shown is that of the Fund and individual investor’s performance may differ as a result of initial fees, actual investment date, date of any subsequent
reinvestment and any dividend withholding tax. All the information contained in this communication is believed to be reliable but may be inaccurate or incomplete. Any opinions stated are
honestly held but are not guaranteed and should not be relied upon. This is not a buy, sell or hold recommendation for any particular security. It is not an invitation to make an investment
nor does it constitute an offer for sale. Before making an investment, please read the Prospectus and Key Investor Information Document, which sets out the fund specific risks and is
available from Investec Asset Management. The portfolio may change significantly over a short period of time. The Fund is traded at the ruling price and can engage in borrowing and scrip
lending and may be closed in order to be managed in accordance with the mandate. The fund may borrow up to 10% of its market value to bridge insufficient liquidity. The Fund is a sub-
fund of the Investec Global Strategy Fund, which is a UCITS organised as a Société d’Investissement à Capital Variable under the law of Luxembourg. For further information on the Fund
including application forms and a schedule of fees and commissions, please contact Investec Asset Management. Fund prices and English language copies of the Prospectus, Report &
Accounts and Articles of Incorporation and local language copies of the Key Investor Information Documents may be obtained from our website and free of charge from the following
country specific contacts: Luxembourg – Investec Global Strategy Fund, 49 avenue J.F. Kennedy, L-1855 Luxembourg. In South Africa, Investec Asset Management is an authorised
financial services provider. The sub-funds offered for public sale in South Africa are approved under the South African Collective Investment Schemes Control Act.
Investment Team: There is no assurance that the persons referenced herein will continue to be involved with investing for this Fund, or that other persons not identified herein will become
involved with investing assets for the Manager or assets of the Fund at any time without notice.
Investment Process: Any description or information regarding investment process or strategies is provided for illustrative purposes only, may not be fully indicative of any present or future
investments and may be changed at the discretion of the manager without notice. References to specific investments, strategies or investment vehicles are for illustrative purposes only
and should not be relied upon as a recommendation to purchase or sell such investments or to engage in any particular strategy. Portfolio data is expected to change and there is no
assurance that the actual portfolio will remain as described herein. There is no assurance that the investments presented will be available in the future at the levels presented, with the
same characteristics or be available at all. Past performance is no guarantee of future results and has no bearing upon the ability of Manager to construct the illustrative portfolio and
implement its investment strategy or investment objective.
In the event that specific funds are mentioned please refer to the relevant minimum disclosure document in order to obtain all the necessary information in regard to that fund.
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