Index Investing Core and Satellite Approach to Portfolio - PowerPoint PPT Presentation

Index Investing

Core and Satellite Approach to Portfolio Construction Active approach Core-Satellite approach Index approach Combines best of both worlds � Seeks market returns � Seeks to outperform � Lower cost � Higher cost � Low manager risk � Higher manager risk Index core � Long-term focus � Shorter term focus � Higher potential tax � Lower potential tax efficiency efficiency Active Satellites 2 Source: Vanguard

Index investing: The basic principles

What is an index? What is Beta? 4

Costs erode investment return The parable of the Gotrocks… John Bogle 5

Investment Return Versus Market Return Source: John Bogle's Keynote Speech – The Money Show - What's Ahead for Stocks and Bonds - And How to Earn Your Fair Share, May 15, 2006

Weighted Average Return of the Market for Any Given Period < 0.3% 1% + ACTIVE PASSIVE LOSER WINNER

Markets are Efficient…? Efficient market hypothesis Eugene Fama, noble prize winner in Economics 8

The CoreShares Top50

CoreShares Top50 Overview Description Measures the performance of the 50 largest companies by float-adjusted market capitalisation No. of Constituents 52 Average daily value traded of at least R50m for the 3months prior to rebalancing reference Liquidity date Buffer Rule Current constituents remain in the index if they are ranked among the top 55 companies Modified market capitalisation, where no single company weighs more than 10% of the index Weighting Method at each rebalancing Rebalancing Frequency Quarterly 13 May 2015 ETF Launch Date Ticker: CTOP50 Fee 0.2% (ex Vat) 10

S&P South Africa 50 Index Historic Performance Historic performance period ending 30 June 2015 (1) 25.0% 19.8% 19.4% 18.6% 18.0% 20.0% 15.0% 10.0% 5.0% 3.4% 5.0% 0.0% 1 Year 3 Years 5 Years S&P South Africa 50 TR Index FTSE/JSE Top 40 (J200T) Annual Standard Deviation (2) 14.0% 12.6% 12.1% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% S&P South Africa 50 FTSE/JSE Top 40 (J200T) Source: I-Net and S&P as at June (1) Past performance is not an indication of future performance. Index performance is not an indication of ETF performance. 11 (2) Calculated over a 5 year period ending 30 June 2015

S&P South Africa 50 Index, Sector Composition and Constituents Sector Weightings Fund Constituents Anglo American Plc Investec Plc Resilient Prp Inc Fd Consumer Disc. 26.6% Anglogold Ashanti Imperial Holdings RMB Holdings Limited Aspen Pharmacare Hld Intu Properties Plc RMI Holdings Financials 23.8% AVI Limited Life Healthcare Grp Hldgs SABmiller Plc Brait S.A. Mediclinic Intnl Ltd Sappi Limited Barclays Africa Group Ltd MMI Holdings Limited Standard Bk Grp Ltd Materials 17.5% BHP Billiton Plc Mondi Limited Steinhoff Int Hlds Brit America Tobaco Mondi Plc Shoprite Hlds Ltd Consumer Staples 15.4% Bidvest Group Ltd Mr Price Group Ltd Sanlam Limited Capital & Counties Props MTN Group Limited Sasol Limited Telecommunication 7.4% Com Finance Richmont Sa Nedbank Group Ltd Spar Group Coronation Fund Man Nampak Limited Tiger Brands Limited Discovery Hlds Ltd Naspers Limited The Foschini Group Ltd Health Care 4.0% Firstrand Limited Netcare Limited Telkom Sa Soc Limited Gold Fields Limited Old Mutual Plc Truworths Int Ltd Energy 3.8% Growthpoint Redefine Prop Ltd Vodacom Group Impala Platinum Remgro Limited Woolworths Hlds Ltd Investec Limited Industrials 1.5% 0.0% 10.0% 20.0% 30.0% 12

Smart Beta

What if we use other variables (other than size) to construct and index? 14

What Really Drives Returns? 100 Alpha Breaking down the drivers of Alpha 90 return Factors 80 � Risk Factors / Risk Premia / 70 Alternative Betas are all ways 60 of describing the underlying 50 Market Beta Market Beta building blocks of returns, 40 which can be accessed using 30 rules based or systematic 20 techniques 10 0 Traditional Perspective Smart Beta Perspective Source: Goldman Sachs 15 For illustrative purposes only

Why Has Smart Beta Investing Attracted so Much Attention Smart beta investing appeals to investors seeking: ✓ � Deeper diversification ✓ � Improvements in portfolio risk-adjusted returns ✓ � To implement views and timing across exposures/factors/risk premia ✓ � Customised solutions built around existing portfolios ✓ � Transparency and liquidity ✓ � Cost efficiency Source: Goldman Sachs 16

Equities Allocation Co-movement with the overall Market equity market (beta) Companies with high and Relatively cheap stocks Quality Value sustainable profitability outperform expensive ones outperform Return Drivers of Equity Markets Low risk stocks tend to Small cap stocks tend to outperform high risk stocks Size Volatility outperform large cap stocks over the long term Capture of trends and Momentum patterns in the market Source: Goldman Sachs 17 For illustrative purposes only

CoreShares Equity Smart Beta Range

CoreShares Divtrax Overview Measures performance of constituents that have increased or maintained stable dividends for Description the last 5 consecutive years Index Benchmark S&P South Africa Dividend Aristocrats Index No. of Constituents 26 TER 0.38% Average daily value traded of at least R5m for the 3months prior to rebalancing reference Liquidity date (1) Minimum no. of constituents: 20 Diversification Property stocks excluded from index Weighting Method Equal weighted with constituents re-weighted every quarter Rebalancing Frequency Annually in July 14 April 2014 ETF Launch Date Ticker: DIVTRX 19

S&P Dividend Aristocrats Index Historic Performance Historic performance period ending 30 June 2015 (1) 30.0% 26.5% 25.0% 21.5% 22.4% 22.2% 20.2% 19.4% 18.0% 20.0% 13.2% 15.0% 9.9% 9.4% 10.0% 3.4% 3.0% 5.0% 0.0% 1 Year 3 Years 5 Years FTSE/JSE Top 40 (J200T) S&P South Africa Dividend FTSE/JSE SWIX (J400T) FTSE/JSE Dividend Plus Aristocrats Index Index (J259T) Annual Standard Deviation (2) 14.0% 12.6% 11.8% 11.3% 10.7% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% S&P South Africa Dividend FTSE/JSE SWIX JTSE/JSE Top 40 FTSE/JSE Dividend Plus Index Aristocrats Index Source: I-Net and S&P as at June (1) Past performance is not an indication of future performance. Index performance is not an indication of ETF performance. 20 (2) Calculated over a 5 year period ending 30 June 2015

CoreShares Divtrax Historic Performance Source: I-Net July 2015 100 105 110 115 120 125 130 135 140 90 95 Apr-14 CoreShares DivTrax Apr-14 May-14 May-14 Jun-14 Jun-14 Jul-14 FTSE/JSE SWIX (J400) Jul-14 Aug-14 Aug-14 Sep-14 Sep-14 21 Sep-14 Oct-14 Oct-14 FTSE/JSE Top 40 (J200) Nov-14 Nov-14 Dec-14 Dec-14 Jan-15 Jan-15 Feb-15 Feb-15 FTSE/JSE Dividend Plus Index (J259) Mar-15 Mar-15 Mar-15 Apr-15 Apr-15 May-15 May-15 Jun-15 Jun-15 Jul-15

CoreShares Divtrax Sector Composition and Constituents Sector Weightings Fund Constituents AVI Limited MTN Group Limited Financials 29.2% Brit America Tobacco Naspers Limited Coronation Netcare Limited Consumer Staples 20.5% Capitec Bank Holding Standard Bk Grp Ltd Distell Group Ltd Shoprite Hlds Ltd Consumer Disc. 19.7% Discovery Hlds Ltd Sanlam Limited EOH Holdings Santam Limited Industrials 11.7% Invicta Holdings Ltd Spar Group JSE Ltd The Foschini Group Ltd Telecommunication 8.0% Lewis Group Ltd Trencor Limited Mediclinic Intnl Ltd Truworths Int Ltd Health Care 6.9% MMI Holdings Limited Vodacom Group Information Tech Mr Price Group Ltd Wilson Bayly Holmes 4.0% 0.0% 10.0% 20.0% 30.0% 40.0% Source: S&P 22

CoreShares LowVoltrax Overview Measures the performance of the least volatile stocks where volatility is defined as the Description standard deviation of the security’s daily price returns over the prior year Index Benchmark S&P South Africa Low Volatility Index No. of Constituents 40 TER 0.40% Average daily value traded of at least R10m for the 3months prior to rebalancing reference Liquidity date (1) Constituents are weighted relative to the inverse of their volatility, with the least volatile Weighting Method stocks receiving the highest weights Rebalancing Frequency Quarterly 14 April 2014 ETF Launch Date Ticker: LVLTRX 23

S&P Low Volatility Index Historic Performance Historic performance period ending 30 June 2015 (1) 25.0% 22.1% 22.5% 21.5% 20.2% 19.4% 20.0% 18.0% 15.6% 15.0% 9.4% 10.0% 3.4% 5.0% 0.0% 1 Year 3 Years 5 Years S&P South Africa Low Volatility Index FTSE/JSE SWIX (J400T) FTSE/JSE Top 40 (J200T) Annual Standard Deviation (2) 14.0% 12.6% 11.8% 12.0% 10.0% 8.9% 8.0% 6.0% 4.0% 2.0% 0.0% S&P South Africa Low Volatility Index FTSE/JSE SWIX (J400T) FTSE/JSE Top 40 (J200T) Source: I-Net and S&P as at June (1) Past performance is not an indication of future performance. Index performance is not an indication of ETF performance. 24 (2) Calculated over a 5 year period ending 30 June 2015