psg fund management

1 CONSISTENT CONSERVATIVE CONTRARIAN

Current ChallengesIn

Structuring Domestic Portfolios

Unit Trust Inflows Q2

2012242bn

Money Market

Outflows Q2 2012

R8.8bn

12/31/1948

1/3/1952

1/3/1955

1/3/1958

1/3/1961

1/3/1964

1/3/1967

1/3/1970

1/3/1973

1/3/1976

1/3/1979

1/3/1982

1/3/1985

1/3/1988

1/3/1991

1/3/1994

1/3/1997

1/3/2000

1/3/2003

1/3/2006

1/3/2009

1/3/2012

4.00%

9.00%

14.00%

19.00%

24.00%

SA Prime

SA Prime

Please sir…Can I have some

more…?

Prudential Variable Equity

Prudential (Low Equity)

Prudential (Variable Equity)

Fixed Interest (Variable

Specialist)

Who were the

winners?

Why are the

Balanced Funds

Ruling?

Structural Reasons

Relative Reasons

DiversificationWinning TeamFlexibility

The Team


Equity team

AdrianClayton

JanMouton

NeelsVan

Schaik

ShaunLe Roux

GregHopkins

HennoVermaak

PaulBosman

PhilippWörz

B.Soc Sc. (UCT), PDM (UCT), MBL

(UNISA)

B. Acc (Stell) (Cum Laude), CA

(SA),M. Phil

(Cambridge)

B.Com (Econ)

(Stell), CFA

B.Com (UCT), CA (SA), CFA

B.Com (UCT), CA (SA), CFA

B. Com (Hons)

(Stell),CFA, FFA

B.Com (Hons)

(Stell), CFA

B.Com (UNISA), B.Com (Hons) (Stell),

CFA

17 Years Investmen

t Experienc

e

10 Years Investme

nt Experienc

e

14 Years Investme

nt Experienc

e

15 Years Investmen

t Experienc

e

15 Years Investme

nt Experienc

e

4 Years Investme

nt Experienc

e

8 Years Investme

nt Experien

ce

5 Years Investme

nt Experienc

e


Risk Fund Type Fund Name

High Equity PSG Equity Fund

High EquityPSG Global Equity Fund &PSG Global Equity Feeder Fund

Moderate to High Flexible PSG Flexible Fund

Moderate Prudential PSG Balanced Fund

Moderate to Low Stable* PSG Stable Fund*

Low Income* PSG Income Fund*

Negligible Money Market PSG Money Market Fund

PSG Asset Management: Core funds

* Launched 1 September 2011


PSG Money Market

PSG Income

PSG Balanced

PSG Flexible

PSG Equity

Average Risk

Ret

urn

s

PSG Asset Management: Core funds

PSG Global Equity

PSG Stable

Philosophy


Consistent

Conservative

Contrarian

PSG Asset Management: Philosophy

- Consistently applied investment process

- Companies with a margin of safety

- Out of favour assets


PSG Balanced Fund: Managers

Adrian Clayton Neels van Schaik


PSG Balanced Fund: 13 years, one manager

3 years 9 out of 58 Inception (June 1999) 3 out of 10

14.96%

11.04%

Portfolio Construction

Process


Moat, Management & Margin of Safety

Local AND Global Companies

Proprietary screens, company results to find potential opportunities

Detailed analysis on potential opportunities in terms of our investment philosophy

Investment Committee determines domestic & offshore Buy List by means of majority vote

Fund managers can exercise own discretion, but use the Buy Lists as their main tool for portfolio construction. Fund managers take responsibility for their fund’s performance

PSGAM: Equity research process

Investment Universe

Idea Generation

FundamentalAnalysis

Buy List

Portfolio Construction

Philosophy


MoatSome form of sustainable competitive advantage

Clear and understandable business model

Positive free cash flow, which is distributed to shareholders in the

form of dividends

ManagementManaged by individuals with proven track records

Honest and transparent financial reporting

Margin of safetyBuy shares in exceptional businesses at low valuations

PSGAM: Equity selection process


Moat example: Sasol

Clear and understandable business model

Sasol owns technology used to convert coal and natural gas into liquids

OPPO

RTU

NIT

Y


Moat example: Microsoft

Stable market shares with a

dominant leader = strong

historical moat

Market shares (Windows)

Some form of sustainable competitive advantage

High switching costs is like a hook into customer


Management example: Berkshire

Long term value created for shareholders:• SP: +21% p.a.• NAV: +20% p.a.

$1,000 invested in 1965 is worth more than $8m today

Managed by individuals with proven track records

Margin of Safety

Value of Assets - net of debt Price0

10

20

30

40

50

60

70

80

90

100

The lower the price relative to the value of the assets/cash flow, the cheaper the business

Can you buy R1 of value for 60 cents?


Margin of safety example: Berkshire

Buy shares in exceptional businesses at low valuations

100

150

200

250

300

350

400

450

500

550

600

Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11

31 D

ec 9

6 =

100

Berkshire Hathaway Share Price Intrinsic Value Adj EPS

OP

PO

RT

UN

ITY

Underlying business is growing, but share price is flat

Current themes from our portfolios


Core Themes from our Portfolios

OFFSHORE

DOMESTIC

MID-CAP DOMESTIC

INDUSTRIALS

LARGE-CAP INDUSTRIALS

LARGE-CAP DOMESTIC RESOURCES


The battle of the brewers

VS


Offshore: Margin of Safety i.e. Heineken

World’s best premium beer brand.

Big market position in fastest growing markets (Africa,

Latam, Asia).

Buy at 12.9 times earnings (SAB 25 times).


Heineken versus SAB Miller

Jan-

04

May-0

4

Sep-

04

Dec-0

4

Apr-0

5

Aug-0

5

Dec-0

5

Mar-0

6

Jul-0

6

Nov-0

6

Feb-

07

Jun-

07

Oct-0

7

Jan-

08

May-0

8

Sep-

08

Dec-0

8

Apr-0

9

Aug-0

9

Nov-0

9

Mar-1

0

Jul-1

0

Oct-1

0

Feb-

11

Jun-

11

Sep-

11

Jan-

12

May-1

2 -

0.5

1.0

1.5

2.0

2.5

Heineken Pbook / SAB Miller Pbook

Sep-0

4

Jul-

05

May-0

6

Mar-

07

Jan-0

8

Nov-0

8

Sep-0

9

Jul-

10

May-1

1

Mar-

12

0.0

0.5

1.0

1.5

2.0

2.5

Heineken ROE / SAB Miller ROE


JSE: A tale of two markets

May-

90

Apr-91

Mar-9

2

Feb-93

Jan-9

4

Dec-94

Nov-95

Oct

-96

Sep-97

Aug-98

Jul-9

9

Jun-0

0

May-

01

Apr-02

Mar-0

3

Feb-04

Jan-0

5

Dec-05

Nov-06

Oct

-07

Sep-08

Aug-09

Jul-1

0

Jun-1

1

May-

120.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

Mr Price / Sasol relative stock price Mr Price / Sasol relative earnings

Divergence between certain sectors driven by sentiment and not fundamentals


Understanding the concept of risk?

Growth in Profits ( = Return on Shareholder Capital x % of Profits

reinvested)

Dividends

Rating change (Price/Earnings,

Price/Book)

Long term returns

++

+

=



Mar-08 Mar-12

Dividend Yield 8% 2%

Return on Shareholder Capital 40% 47%

% of Profits reinvested 50% 30%

Long term growth rate 20% 14%

Rating (P/E = years of earnings) 7 28

Assumed sustainable rating 15 15

Potential rating gain/(loss) 114% -46%

Potential annual return (5yr Investment Horizon) 44.5% 4.8%


Sasol: The risk is better priced

Jan-8

7

Jan-8

8

Jan-8

9

Jan-9

0

Jan-9

1

Jan-9

2

Jan-9

3

Jan-9

4

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2 64

640

6,400

Sasol Reported profits Sasol Average 5 yr ProfitsInvestors spend most of their time worrying about things that are

unpredictable


Sasol: Rating opposite to Mr Price

May

-90

Apr-9

1

Mar

-92

Feb-

93

Jan-

94

Dec-9

4

Nov-9

5

Oct-9

6

Sep-

97

Aug-9

8

Jul-9

9

Jun-

00

May

-01

Apr-0

2

Mar

-03

Feb-

04

Jan-

05

Dec-0

5

Nov-0

6

Oct-0

7

Sep-

08

Aug-0

9

Jul-1

0

Jun-

11

May

-12

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Sasol Cyclically Adjusted P/E Mr Price Trailing P/E


Jun-08 Jun-12 Dividend Yield 2% 5% Return on Shareholder Capital 23% 20% % of Profits reinvested 65% 65% Long term growth rate 15% 13% Rating (P/E = years of earnings) 26 11 Assumed sustainable rating 14 14 Potential rating gain/(loss) -46% 27% Potential annual return (5yrs) 5% 22%



Sasol: A long-term value opportunity

May-

90

Mar-9

1

Jan-9

2

Nov-92

Sep-93

Jul-9

4

May-

95

Mar-9

6

Jan-9

7

Nov-97

Sep-98

Jul-9

9

May-

00

Mar-0

1

Jan-0

2

Nov-02

Sep-03

Jul-0

4

May-

05

Mar-0

6

Jan-0

7

Nov-07

Sep-08

Jul-0

9

May-

10

Mar-1

1

Jan-1

2-16

-14

-12

-10

-8

-6

-4

-2

0

2

Sasol Dividend Yield minus Mr Price Earnings Yield


Platinum: Now on our radar screen

Jul-9

0

May-

91

Mar-9

2

Jan-9

3

Nov-93

Sep-94

Jul-9

5

May-

96

Mar-9

7

Jan-9

8

Nov-98

Sep-99

Jul-0

0

May-

01

Mar-0

2

Jan-0

3

Nov-03

Sep-04

Jul-0

5

May-

06

Mar-0

7

Jan-0

8

Nov-08

Sep-09

Jul-1

0

May-

11

Mar-1

20

10

20

30

40

50

60

Impala 7yr Cyclically adjusted P/E


Capital flows clearly chasing yield

Mar-6

5

Dec-66

Sep-68

Jun-7

0

Mar-7

2

Dec-73

Sep-75

Jun-7

7

Mar-7

9

Dec-80

Sep-82

Jun-8

4

Mar-8

6

Dec-87

Sep-89

Jun-9

1

Mar-9

3

Dec-94

Sep-96

Jun-9

8

Mar-0

0

Dec-01

Sep-03

Jun-0

5

Mar-0

7

Dec-08

Sep-10

Jun-1

20

5

10

15

20

25

30

SA Industrial - Earnings Yield Prime Overdraft rate

Becalmed


The yield-table has turned since 2009

Yield at Mar-09Total Return from

March 2009 Financial & Industrial Stocks 12.0% 151% Cash 9.5% 25% Property 9.0% 106% 10 yr Government Bonds 8.3% 45%

Current Yield

10 yr Government Bonds 7.0% Property 6.2% Financial & Industrial Stocks 5.7% Cash 5.0%

Stocks and Property had significant tailwinds from falling interest rates

This tailwind has largely disappeared


Fixed Income

Take-Aways

1. In an ultra-low interest-rate environment, real returns need to be found somewhere

2. Investors are fleeing cash and need a home

3. Investors are focussing on return, and largely ignoring risk

4. Balanced Funds are currently the most desired

5. Balanced funds: offer diversification and flexibility

6. PSG Have a proven team and track-record of delivery

1. Portfolio construction is a process

2. We approach portfolio construction from a bottom-up basis, focussing on relative valuations

3. A margin of safety is currently paramount (risk over return)

4. If you are only choosing SA Co’s, you are restricting yourself to “the best of a bad bunch”

5. The tailwinds of 2009 are gone

6. Partner with an experienced balanced team

Pick PSG!


What you can expect from PSG

Consistent application of our philosophy and process

Outstanding long-term performance

Forgoing short-term “performance” to achieve our long-term

objectives

Honest and transparent communication

Co-investing with our unit holders

Performance


PSG Equity Fund: 10 years, one manager

15.08%

19.3% 3 years 23 out of 80 Inception (March 2002) 4 out of 34


2004 2005 2006 2007 2008 2009 2010 201180

105

130

155

180

205

230

255

280

305

330

355

380

Inflation + 6% PSG Flexible Fund

PSG Flexible Fund: 8 years, one manager

17.34%

16.4%

3 years 5 out of 56 Inception (Nov 2004) 3 out of 20


PSG Stable Fund: Brief introduction

Key features

Fund manager Paul Bosman

Benchmark Inflation + 3% over rolling 3-year period

Maximum equity exposure 40%

Maximum offshore exposure 25%


PSG Balanced Fund: 13 years, one manager

3 years 9 out of 58 Inception (June 1999) 3 out of 10

14.96%

11.04%

Relatives


PSG Balanced Fund: Relative Performance GLOBAL BALANCED MANDATE - BEST INVESTMENT VIEW (Reg. 28 Compliant) GROSS ANNUAL RETURNS FOR THREE YEARS ENDING 31 MARCH 2012

Rank MANAGER % Return (p.a.) Rank

% Std Dev (Risk)

PSG Asset Management Balanced 20.80 1 6.34 2 Coronation 20.36 2 8.12 8 Foord Asset Management 19.90 3 8.13 9 Investec Asset Management 19.74 4 8.41 10 Prudential Global Balanced 19.39 5 9.57 18 Stanlib AM 18.79 6 9.07 17 SIM Global Unique 18.63 7 8.88 16 Investment Solutions (Performer) 18.52 8 7.64 5 Investment Solutions (Spectrum) 18.36 9 7.96 7 OMIGSA Macro Strategy 17.62 10 8.87 15 OMIGSA (Profile Balanced) 17.38 11 8.53 13 Cadiz Global Balanced 17.27 12 8.52 12 SYmmETRY Paragon 17.27 13 7.82 6 Momentum Balanced 17.00 14 8.86 14 RE:CM 16.81 15 5.86 1 Oasis 16.30 16 7.56 4 Momentum AM Global Balanced 16.24 17 8.50 11 Allan Gray 15.58 18 6.83 3 Sources: Alexander Forbes Asset Consultants, PSG AM Research


PSG Balanced Fund: Risk vs. Return

5 5.5 6 6.5 7 7.5 8 8.5 9 9.5 1015

16

17

18

19

20

21PSG Balanced Fund Coronation

Foord Investec Asset Management

Prudential Global Balanced

Stanlib AM

SIM Global Unique

Investment Solutions (Performer)

Investment Solutions (Spectrum) OMIGSA Macro

StrategyOMIGSA (Profile Balanced)

Cadiz Global Balanced

SYmmETRY Paragon

Momentum BalancedRE:CM

OasisMomentum AM Global

BalancedAllan Gray

Risk vs Return Scatterplot - Global BIV3 Years ended 31 March 2012

Risk (p.a.) (standard deviation)

Retu

rn (

p.a

.)

Partner with PSGPreserve & Grow


Questions?


Disclaimer

Collective Investment Schemes in Securities (Unit Trusts) are generally medium to long-term investments. The value of participatory interests (units) may go down as well as up and past performance is not a guide to future performance. Collective Investment Schemes are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from PSG Collective Investments Limited. Commissions and incentives may be paid and if so, are included in the overall costs. Forward pricing is used. PSG Collective Investments Limited is a member of the Association for Savings and Investment South Africa (ASISA).

The funds may from time to time invest in another fund managed by a related party, or in shares issued by entities within the same group of companies as PSG Collective Investments. A process is in place to ensure the same selection criteria is applied when selecting the underlying funds or shares.

The information contained in this presentation is of a general nature and is not intended to address the circumstances of any particular person. We do not purport to act in any way as an advisor and you should not act upon this information without appropriate professional advice. PSG Asset Management (Pty) Ltd is an authorised financial services provider.

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