11. Equity team
Adrian Jan Neels Shaun Greg Henno Paul Philipp
Clayton Mouton Van Schaik Le Roux Hopkins Vermaak Bosman Wörz
B. Acc (Stell) B.Com
B.Soc Sc.
(Cum Laude), B. Com (Hons) (UNISA),
(UCT), PDM B.Com (Econ) B.Com (UCT), B.Com (UCT), B.Com (Hons)
CA (SA), (Stell),CFA, B.Com (Hons)
(UCT), MBL (Stell), CFA CA (SA), CFA CA (SA), CFA (Stell), CFA
M. Phil FFA (Stell),
(UNISA)
(Cambridge) CFA
17 Years 10 Years 14 Years 15 Years 15 Years 4 Years 8 Years 5 Years
Investment Investment Investment Investment Investment Investment Investment Investment
Experience Experience Experience Experience Experience Experience Experience Experience
11 CONSISTENT CONSERVATIVE CONTRARIAN
12. PSG Asset Management: Core funds
Risk Fund Type Fund Name
High Equity PSG Equity Fund
PSG Global Equity Fund &
High Equity
PSG Global Equity Feeder Fund
Moderate to
Flexible PSG Flexible Fund
High
Moderate Prudential PSG Balanced Fund
Moderate to
Stable* PSG Stable Fund*
Low
Low Income* PSG Income Fund*
Negligible Money Market PSG Money Market Fund
* Launched 1 September 2011
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13. PSG Asset Management: Core funds
PSG Equity
PSG Flexible
PSG Balanced
PSG Global
PSG Stable
Equity
Returns
PSG Income
PSG Money Market
Average Risk
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15. PSG Asset Management: Philosophy
Consistent - Consistently applied investment process
Conservative - Companies with a margin of safety
Contrarian - Out of favour assets
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16. PSG Balanced Fund: Managers
Adrian Clayton Neels van Schaik
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17. PSG Balanced Fund: 13 years, one manager
3 years 9 out of 58 14.96%
Inception (June 1999) 3 out of 10
11.04%
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20. PSGAM: Equity research process
Philosophy Moat, Management & Margin of Safety
Investment Local AND Global Companies
Universe
Proprietary screens, company results to find
Idea Generation potential opportunities
Fundamental Detailed analysis on potential opportunities in
Analysis terms of our investment philosophy
Buy Investment Committee determines domestic &
List offshore Buy List by means of majority vote
Fund managers can exercise own discretion, but
Portfolio
use the Buy Lists as their main tool for portfolio
Construction
construction. Fund managers take responsibility
for their fund’s performance
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21. PSGAM: Equity selection process
Moat
Some form of sustainable competitive advantage
Clear and understandable business model
Positive free cash flow, which is distributed to shareholders in the
form of dividends
Management
Managed by individuals with proven track records
Honest and transparent financial reporting
Margin of safety
Buy shares in exceptional businesses at low valuations
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22. Moat example: Sasol
Clear and understandable business model
OPPORTUNITY
Sasol owns technology used to convert coal and natural gas into liquids
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23. Moat example: Microsoft
Some form of sustainable competitive advantage
Market shares (Windows)
Stable market
shares with a
dominant leader
= strong
historical moat
High switching costs is like a hook into customer
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24. Management example: Berkshire
Managed by individuals with proven track records
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
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25. Margin of Safety
100
90
The lower the
80
price relative to
70 the value of the
assets/cash
60 flow, the
cheaper the
50
business
40
30
20
10
0
Value of Assets - net of debt Price
Can you buy R1 of value for 60 cents?
26. Margin of safety example: Berkshire
Buy shares in exceptional businesses at low valuations
Berkshire Hathaway Share Price Intrinsic Value Adj EPS
600
550
500
OPPORTUNITY
450
31 Dec 96 = 100
400
350
300
250
200
150
100
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
Underlying business is growing, but share price is flat
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29. The battle of the brewers
VS
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30. 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).
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31. Heineken versus SAB Miller
2.5
2.0
1.5
2.5
1.0
0.5
2.0
0.0
Jan-08
Jul-05
Jul-10
Mar-07
Mar-12
Sep-04
Nov-08
Sep-09
May-06
May-11
1.5
Heineken ROE / SAB Miller ROE
1.0
0.5
-
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Heineken Pbook / SAB Miller Pbook
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32. JSE: A tale of two markets
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Feb-91
Feb-94
Feb-97
Feb-00
Feb-03
Feb-06
Feb-09
Feb-12
Aug-92
Aug-95
Aug-98
Aug-01
Aug-04
Aug-07
Aug-10
May-08
May-90
May-93
May-96
May-99
May-02
May-05
Nov-00
Nov-91
Nov-94
Nov-97
Nov-03
Nov-06
Nov-09
Nov-12
May-11
Mr Price / Sasol relative stock price Mr Price / Sasol relative earnings
Divergence between certain sectors driven by sentiment and not fundamentals
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33. Understanding the concept of risk?
Growth in Profits ( = Return on Shareholder
Capital x % of Profits reinvested)
+ +
Rating change
Dividends
+ (Price/Earnings, Pri
ce/Book)
33 CONSISTENT CONSERVATIVE CONTRARIAN
=
Long term returns
34. Understanding the concept of risk?
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%
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35. Sasol: The risk is better priced
8,192
4,096
2,048
1,024
512
256
128
64
Jan-02
Jan-87
Jan-92
Jan-97
Jan-07
Jan-12
Mar-06
Mar-91
Mar-96
Mar-01
Jul-89
Jul-94
Jul-99
Jul-04
Jul-09
Sep-88
Sep-93
Sep-98
Sep-03
Sep-08
May-90
May-95
May-00
May-05
May-10
Mar-11
Nov-87
Nov-92
Nov-97
Nov-02
Nov-07
Nov-12
Sasol Reported profits Sasol Average 5 yr Profits
Investors spend most of their time worrying about things that are unpredictable
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42. The yield-table has turned since 2009
Total Return from
Yield at Mar-09
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
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45. Take-Aways
1. In an ultra-low interest-rate 1. Portfolio construction is a
environment, real returns process
need to be found somewhere 2. We approach portfolio
2. Investors are fleeing cash and construction from a bottom-up
need a home basis, focussing on relative
3. Investors are focussing on valuations
return, and largely ignoring 3. A margin of safety is currently
risk paramount (risk over return)
4. Balanced Funds are currently 4. If you are only choosing SA
the most desired Co’s, you are restricting
5. Balanced funds: offer yourself to “the best of a bad
diversification and flexibility bunch”
6. PSG Have a proven team and 5. The tailwinds of 2009 are
track-record of delivery gone
6. Partner with an experienced
balanced team
47. 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
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49. PSG Equity Fund: 10 years, one manager
3 years 23 out of 80 19.3%
Inception (March 2002) 4 out of 34
15.08%
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50. PSG Flexible Fund: 8 years, one manager
380
17.34%
355
330
3 years 5 out of 56
305 Inception (Nov 2004) 3 out of 20
280
16.4%
255
230
205
180
155
130
105
80
2004 2005 2006 2007 2008 2009 2010 2011
Inflation + 6% PSG Flexible Fund
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51. 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%
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52. PSG Balanced Fund: 13 years, one manager
3 years 9 out of 58 14.96%
Inception (June 1999) 3 out of 10
11.04%
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58. 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.
58 CONSISTENT CONSERVATIVE CONTRARIAN
