COMPANY INTRODUCTION June 2020 DD MM YYYY COMPANY SNAPSHOT 33 - PowerPoint PPT Presentation

VUNANI FUND MANAGERS Presentation Title COMPANY INTRODUCTION June 2020 DD MM YYYY

COMPANY SNAPSHOT 33 staff R40.9 bn Assets under management Experienced team large investment team with diverse skills Level 1 20 years’ BEE rating experience Focused product suite in investment management with a successful track record Accolades 30% Best (SA-Domiciled) Global Multi-Asset Flexible Fund on a Risk-Adjusted Basis for 2018 – Global Equity staff share scheme 2

GROWTH IN AUM as at 31 May 2020 40,935 40,000 26,600 20,191 14,613 14,597 14,362 12,612 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 May 2020 3

INSTITUTIONAL CAPABILITIES diversified across asset class and within each asset class 4

PEER SURVEY as at 30 April 2020 Source: Alexander Forbes 5

Presentation Title VUNANI BCI GLOBAL MACRO FUND June 2020 DD MM YYYY

AGENDA ▪ Performance update ▪ Our approach to generating excess return ▪ Making sense of the world in 2020 ▪ Portfolio positioning implications ▪ currently positioning ▪ future positioning 7

VUNANI GLOBAL MACRO COMPOSITE ▪ Add value over time through investing in a portfolio of long term OBJECTIVE growth oriented stock ▪ Mitigate downside risk during times of extreme stress in both macro and financial environments BENCHMARK ▪ 80% MSCI; 15% US$ Cash; 5% STeFI APPROACH ▪ Multi Asset flexible fund ▪ Actively manage exposure to global equity opportunities ▪ Mitigate downside risk that undermines long term growth ▪ Invest in between 30 to 40 stocks that have potential to deliver long term sustainable growth 8

PERFORMANCE – 1Yr excess return of 8.6% FUND SECTOR AVERAGE 9

PERFORMANCE – 3Yr excess return of 9.3% p.a* FUND SECTOR AVERAGE data source: VFM GIPS composite compared to Global Multi Asset Flexible sector return Profile Data * calculated arithmetically 10

PERFORMANCE – SINCE INCEPTION excess return of 10.7% p.a* FUND SECTOR AVERAGE data source: VFM GIPS composite compared to data source: VFM GIPS composite compared to Global Multi Asset Flexible sector return Profile Data Global Multi Asset Flexible sector return Profile Data * calculated arithmetically 11

RISK - RETURN PROFILE 3 yrs source : GraySwan 12

RISK - RETURN PROFILE 5 yrs source : GraySwan 13

FINDING ALPHA 14

WHERE DO EXCESS RETURNS COME FROM? three sources 1 When equity markets de-risk (value & price differ) 1987 : 1992 : 1994 : 1998 : 2002 : 2008 : 2020 2 Being invested in those companies where the rate of change in earnings is positive AND increasing 3 Avoid companies where the price is declining - these are not always “cheap” 15

THE WORLD IS CHANGING very quickly 16

COMPANY MAPPING is often complex Source: Fast Company, Feb 2017 (https://www.fastcompany.com/3068474/the-real-difference-between-google-and-apple) 17

WHAT HAPPENS WHEN MARKET DE-RISK? 1987 : 1992 : 1994 : 1998 : 2002 : 2008 : 2020 JSE SWIX ALPHA Source: Vunani Fund Managers 18

BE INVESTED in those companies where the rate of change in earnings is positive AND increasing 200% SHARE RETURNS ANNUALISED BUY THESE 150% 100% 50% 0% -300% -250% -200% -150% -100% -50% 0% 50% 100% 150% 200% 250% EPS GROWTH -50% AVOID THESE -100% Source: Vunani Fund Managers 19

EARNINGS VECTOR – AMAZON understating that it’s a rate of change function…..not a statistic time dependant forecast 1200 1000 Earnings increase 800 by 41% 600 400 Earnings increase 200 by 231% 0 -200 Aug 2013 Feb 2014 Aug 2014 Feb 2015 Aug 2015 Feb 2016 Aug 2016 Feb 2017 Aug 2017 Feb 2018 Aug 2018 Amazon - EPS Source: Vunani Fund Managers 20

AMAZON – EARNINGS vs PRICE earnings up by 59%.......share price up 51% 2200 1170 2000 1045 1800 920 1600 795 1400 670 1200 545 1000 420 800 295 600 170 400 45 200 -80 Aug 2013 Feb 2014 Aug 2014 Feb 2015 Aug 2015 Feb 2016 Aug 2016 Feb 2017 Aug 2017 Feb 2018 Aug 2018 Amazon - Price Amazon - EPS 21

CONSENSUS EARNINGS – AMAZON nearly a 40% difference between high and low estimates 1 yr out 22

ALPHA GENERATION “surprisingly”, its NOT always about valuations 23

CAN EARNINGS BE FORECAST? yes…..but it is very difficult * Gleason, Johnson & Li (2006). The Earnings Forecast Accuracy, Valuation Model Use, and price target performance 24

HOW DO EARNINGS LINK TO ALPHA GENERATION? the rate of change in earnings growth is CRITICAL to alpha generation sar = size adjusted abnormal return favoured stocks assigned to the highest TP/P in the highest EPS forecast accuracy group deliver 18% higher alpha than the bottom quintile * Gleason, Johnson & Li (2006). The Earnings Forecast Accuracy, Valuation Model Use, and price target performance 25

UNDERSTANDING WHERE EARNINGS COME FROM incorporating all the drivers of “G” 1 Macro / Industry drivers 3 2 Brand Proprietary value: technology: monopoly, pricing power, secrets 10X better 5 4 Power Network law: effect: position, product, price, people distribution 7 6 Economies Financial Impact: of scale: leverage ROE – G / COE - G 26

INFERRING THE EARNINGS GROWTH VECTOR and the implied rate of change 24/02/2020 INFLECTION 3w 1m 3m 6m 12m GLOBAL STOCKS AMAZON.COM INC AMZN US Equity Consumer Discretionary Stay Long + + + + + INTUITIVE SURGICAL INC ISRG US Equity Health Care Stay Long + + + + + ADVANCED MICRO DEVICES AMD UW Equity Information Technology Stay Long + + + + + MSCI INC MSCI US Equity Financials Stay Long + + + + + NVIDIA CORP NVDA US Equity Information Technology Stay Long + + + + + CHARTER COMMUNICATIONS INC-A CHTR US Equity Communication Services Stay Long + + + + + MASTERCARD INC - A MA US Equity Information Technology Stay Long + + + + + ADOBE INC ADBE US Equity Information Technology Stay Long + + + + + VISA INC-CLASS A SHARES V US Equity Information Technology Stay Long + + + + + ABBVIE INC ABBV US Equity Health Care Overweight + + + + - PAYPAL HOLDINGS INC PYPL US Equity Information Technology Overweight + + + - + CHURCH & DWIGHT CO INC CHD UN Equity Consumer Staples Overweight + + + - + MCDONALD'S CORP MCD US Equity Consumer Discretionary Overweight + + + - + WALMART INC WMT US Equity Consumer Staples Benchmark + + - + + UNILEVER NV UNA NA Equity Consumer Staples Stay underweight + + - - + DOLLAR TREE INC DLTR UW Equity Consumer Discretionary Stay underweight + + - - + BOEING CO/THE BA US Equity Industrials Stay underweight + + - - - FEDEX CORP FDX US Equity Industrials Stay underweight + + - - - NIKE INC -CL B NKE US Equity Consumer Discretionary Short term weakness + - + + + WALT DISNEY CO/THE DIS US Equity Communication Services Short term weakness + - + + + FACEBOOK INC-CLASS A FB US Equity Communication Services Short term weakness - - + + + MEDTRONIC PLC MDT US Equity Health Care Short term weakness - - + + + BOOKING HOLDINGS INC BKNG US Equity Consumer Discretionary Reduce position + - - + + UNITED PARCEL SERVICE-CL B UPS US Equity Industrials Reduce position - - - + + VERIZON COMMUNICATIONS INC VZ US Equity Communication Services Reduce position - - - + + 3M CO MMM US Equity Industrials Avoid - - - + - WELLS FARGO & CO WFC US Equity Financials Avoid + - - + - XILINX INC XLNX UW Equity Information Technology Avoid - - - - + EXXON MOBIL CORP XOM US Equity Energy Avoid - - - - - CHEVRON CORP CVX US Equity Energy Avoid - - - - - DUPONT DE NEMOURS INC DD US Equity Materials Avoid - - - - - HSBC HOLDINGS PLC HSBA LN Equity Financials Avoid + - - - - 27

MAPPING RISK for each company 28

UNPACKING THE WORLD AROUND US 29

TO INFINITY & BEYOND Q3 : 2020 ▪ why did the world change so quickly ? ▪ is QE Infinity and the $ 3tn package enough to save growth in 2020? ▪ what has the equity market discounted ? ▪ are we at risk of a further major secular decline in equity prices ? ▪ indicators we are monitoring. 30

WHAT STARTED THE DECLINE IN EQUITIES a freeze in the interbank market in the US 31

FOLLOWED BY a blow out in credit spreads in the BBB and other markets 32

ECONOMIC SURPRISE INDEX has clearly weakened Source: Ned Davis Research 33

S&P – SECTOR SPREADS very concentrated in Health, Staples, Tech & select Discret 34

S&P – TECHNICALS net positive 35

S&P – LIQUIDITY net positive 36

FUND POSITIONING 37

CURRENT MARKET DYNAMICS investors shun weak balance sheet companies opportunity in energy? 38

PORTFOLIO STRUCTURE well diversified MICROSOFT 4.71% AMAZON.COM INC 3.73% JNJ (JOHNSON & JOHNSON) 3.54% PROCTER AND GAMBLE 3.33% BARRICK GOLD CORP 3.32% ALPHABET INC - CL A 3.01% HOME DEPOT 2.97% VISA INC 2.90% THERMO FISHER SCIENTIFIC INC 2.56% MASTERCARD INC-CLASS A 2.55% NVIDIA CORP 2.53% S&P GLOBAL INC 2.52% WAL-MART STORES INC 2.49% JP MORGAN CHASE 2.48% ADOBE SYSTEMS INC 2.46% NIKE INC -CL B 2.41% APPLE INC 2.37% 39

CURRENT MAPPING comparing earnings over next two years to p:e multiple PE MULTIPLE 1Yr Fwd EPS GROWTH OVER NEXT 2Yrs 40