1. “We only allocate capital to those
investments which offer true value
and a rare combination of highly
commendable attributes”
PSG FLEXIBLE FUND & FLEXIBLE INVESTING
2. CONSISTENT CONSERVATIVE
CONTRARIAN
PSG has a track record in value creation
CAGR = 56%*
R100k invested in 1995 = R60m today
* - Source : PSG Annual Report, Including unbundling of Capitec and re-investment of all dividends
4. CONSISTENT CONSERVATIVE
CONTRARIAN
Our Culture : Partnership
4
.
Factors PSG Tanzanite (Pty) Ltd
Equity ownership in firm
Low personnel turnover
Small portfolio sizes
Bottom-up stock selection
Value philosophy
Which factors have the greatest predictive power in
future out-performance by an investment firm?†
†
- Source: Institutional or Entrepreneurial Management? An analysis of organizational factors and their effect
on manager performance. By David Finstad
5. CONSISTENT CONSERVATIVE
CONTRARIAN
PSG Flexible Fund
Name Change
• On 1 September 2010 the name of the fund
changed from the PSG Tanzanite Flexible
Fund to the PSG Flexible Fund
• Cosmetic change only: Fund manager and
investment philosophy remains exactly the
same
5
7. CONSISTENT CONSERVATIVE
CONTRARIAN
PSG Flexible Fund - The Team
Jan Mouton – Fund Manager
• B.Acc (Stellenbosch) Cum Laude
• Hons B.Acc (Stellenbosch)
• CA(SA) with articles at PricewaterhouseCoopers
• M.Phil Finance (Cambridge)
• Director of listed PSG Group Ltd and Capevin Investments Ltd
Paul Bosman – Research Analyst
• B.Comm Institutional Investments (Stellenbosch)
• Hons B.Comm Financial Risk Management (Stellenbosch)
• CFA Charterholder
Henno Vermaak – Research Analyst
• B.Comm Actuarial Science (Stellenbosch)
• Hons B.Comm Actuarial Science (Stellenbosch)
• Fellow of the Faculty of Actuaries (Edinburgh)
• CFA Charterholder
7
9. CONSISTENT CONSERVATIVE
CONTRARIAN
PSG Flexible Fund
• Regulated unit trust – easy to understand
• Flexible asset allocation mandate
– Equity exposure can vary between 0% to 100%
– Able to invest up to 20% directly offshore
• Asset allocation is done based on
opportunity:
– If we can find many undervalued shares, we have a
higher equity exposure and lower cash exposure
• Benchmark: The fund aims to achieve high
returns (inflation + 6% after fees) while
maintaining relatively low levels of risk
– Since 1 Jan 1966 the JSE All Share Index (incl.
dividends) returned inflation + 7.7% before fees
9
10. CONSISTENT CONSERVATIVE
CONTRARIAN
Benefits of a Flexible Mandate
10
Over the five years to 30 Sep 2010 the PSG Flexible Fund
outperformed the average of the Domestic Equity General
sector whilst taking much lower risk
• The fund is in the Domestic Asset
Allocation Flexible category, the domestic
category with the least constraints
– Fewer constraints = wider opportunities = higher
potential return
– Provides diversification across equity, property,
offshore (max 20%), bonds and money market
– Lower risk compared to equity-only funds
• If used properly, a flexible mandate results
in higher returns at lower levels of risk
12. CONSISTENT CONSERVATIVE
CONTRARIAN
Investment Philosophy
• The core of our philosophy is to buy shares
in exceptional businesses at low valuations
• Characteristics of exceptional businesses
– Managed by individuals with proven track records
– 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
– Honest and transparent financial reporting
• If we are unable to find exceptional
businesses trading at low valuations, we
patiently wait in money market instruments
12
13. CONSISTENT CONSERVATIVE
CONTRARIAN
Fund Statistics – 30 Sep 10
• PSG Flexible Fund managed since 1 Nov 04
• Fund size grew from R3m to R683m
• Annualised performance to 30 Sep 10, including income:
Fund Inflation+6% JSE ALSI
• Volatility (5 years): 11.6% (JSE ALSI = 19.1%)
13
5 years 16.0%pa 12.9%pa 14.9%pa
4 years 13.6%pa 13.4%pa 10.1%pa
3 years 11.9%pa 13.8%pa 2.3%pa
2 years 17.9%pa 10.9%pa 14.2%pa
1 year 25.0%pa 9.5%pa 21.1%pa
Over the 5 years to 30 Sep 10, the fund outperformed its
benchmark and the JSE All Share Index whilst taking much
lower risk. Average cash exposure for the 5 years to 30
Sep 10 was 23.0%.
15. CONSISTENT CONSERVATIVE
CONTRARIAN
Risk vs. Return
15
The blue line joins the risk-free Govt Bond (bottom left) with the
JSE ALSI (top right) – funds positioned above this line added
value by delivering higher returns given the risk taken
Source: PSG Tanzanite Research, Morningstar
16. CONSISTENT CONSERVATIVE
CONTRARIAN
Return & Asset Allocation
16
We buy when there is fear and panic - our equity exposure
increased to almost 100% in Mar 09, but has reduced over
the past year as equity valuations recovered
Source: PSG Tanzanite Research
17. CONSISTENT CONSERVATIVE
CONTRARIAN
Fund vs. JSE All Share Index
17
The PSG Flexible Fund is 31% above its May 2008 high,
whereas the JSE ALSI needs to increase by a further 5% to
reach a new high
Source: PSG Tanzanite Research
18. CONSISTENT CONSERVATIVE
CONTRARIAN
Price Earnings Ratio (“PE”) = 13.8
18
Growth in underlying earnings per unit was 13.1%pa vs.
growth of Fund at 19.1%pa. Despite the strong rand, earnings
in rand is showing growth again
Source: PSG Tanzanite Research
19. CONSISTENT CONSERVATIVE
CONTRARIAN
Price to Book Ratio = 1.8
19
Average price to book is 1.7 - similar to current levels.
Growth in underlying NAV per unit was 17.2%pa, slightly
behind growth of Fund at 19.1%pa.
Source: PSG Tanzanite Research
20. CONSISTENT CONSERVATIVE
CONTRARIAN
Asset Allocation – 30 Sep 10
Resources 9.3% AGL & SOL
Financials 11.1% No large banks
Industrials 26.3%
Property 3.5% None local, only CSO
Domestic equity 50.2%
Resources 0.2%
Financials 8.2% Mostly Berkshire Hathaway
Industrials 9.2% Includes BTI
Property 1.3%
Foreign equity 18.9%
Domestic cash 30.6%
Foreign cash 0.3%
100.0%
20
Including domestic listed rand hedge shares, our
effective rand hedge exposure is 41.2%
TotalEquity=69.1%
22. CONSISTENT CONSERVATIVE
CONTRARIAN
Top 10 Holdings – 30 Sep 10
30 Sep 10 30 Sep 09
1. Steinhoff Int Holdings Ltd 9.1% 9.9%
2. Capitec Bank Holdings Ltd 8.1% 7.1%
3. Berkshire Hathaway Inc 6.9% 7.9%
4. Sasol Ltd 6.6% 1.2%
5. BAT Plc 4.8% 4.2%
6. Capital Shopping Centres Group Plc 3.5% 2.7%
7. Anglo American Plc 2.7% 4.3%
8. CIC Holdings Ltd 2.5% 1.9%
9. EOH Holdings Ltd 2.3% 1.3%
10. SABMiller Plc 2.3% 4.7%
Total – Top 10 48.7%
Total – Top 20 62.7%
22
We are long term investors, not traders. Top 10 different to
that of JSE All Share Index.
23. CONSISTENT CONSERVATIVE
CONTRARIAN
Breakdown of Returns
23
Good contribution from Capitec, Steinhoff, CIC, SABMiller,
Anglo & Shoprite. Disappointing contribution from Liberty
International & Berkshire Hathaway (ZAR appreciation).
Source: PSG Tanzanite Research
24. CONSISTENT CONSERVATIVE
CONTRARIAN
Alignment of Interests
• In 24 out of the 33 shares that we hold we are partners
with a large strategic shareholder
• Examples included in our top 10 holdings:
Shareholder Stake
Steinhoff Steinhoff/Directors 17%
Capitec Bank PSG/Le Roux/Directors 57%
Berkshire Hathaway Warren Buffett 24%
Capital Shopping Centres Gordon Family 15%
CIC Paladin 49%
EOH Asher Bohbot/Directors 9%
SABMiller Altria/Santo Domingo 42%
• As management are shareholders, interests are aligned -
management is focussed on long term sustainability
• Via the PSG Flexible Fund you are co-invested with these
strategic shareholders24
25. CONSISTENT CONSERVATIVE
CONTRARIAN
Summary - One Stop Solution
• The PSG Flexible Fund aims to be a one stop solution
– Global brands at bargain prices - price to book of 1.8
– Positioned defensively – equity exposure of 69% (including
41% rand hedge)
– Diversification across country and industry → reduces risk
• Suitable for investors who
– Have a medium- to long-term investment horizon
– Wish to have exposure to the equity market but with
managed risk levels
– Wish to build or preserve wealth
• The fund manager and team are co-investors
25
One of the biggest comforts of flying is that the pilot is
also on board…
26. CONSISTENT CONSERVATIVE
CONTRARIAN
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).
26
Hinweis der Redaktion
Each investment firm will have a different culture.
Understanding a firm’s culture and how they think is very important to understanding how they will treat and view your money.
We have an equity stake in this business, so we are owners, though we are more than that, we view ourselves as a partnership.
We have a significant investment in this partnership both in terms of our time and wealth, but also in terms of our personal investment in the funds we run.
We have our own money tied up in this.
However, more importantly, we view the investors in our funds as partners and that creates a special set of rules that we take very seriously.
We view ourselves as stewards of our clients capital , meaning we treat it exactly the same as our own.
From that comes a culture of diligence – we had better understand how we apply the money entrusted to us – and that comes through diligent research in the companies that we invest in. You can expect us to keep turning over as many stones so that we can get the odds in our favour to eliminate mistakes and generate long term performance for you.
There is a great study which asks which factors are the most important in choosing an investment firm that will deliver great performance in the future .
Those who rely on past performance to select managers will likely be disappointed: research by the Frank Russell Company shows there is a negative correlation between a manager’s past three years’ performance and the subsequent three years’ performance.
What it does say, based on an exhaustive study of a large sample of US investment firms is that those companies where:
Managers have a high ownership in the firm,
Which have low personnel turnover,
Who run small portfolios of assets and have a rigorous, bottom up approach to selecting companies
will most likely generate superior returns in the future for you.
Interestingly – over the past 10 years we have only had one staff member leave, and that was to move into a different career.
