investec senate group presentation

Investec Asset Management

Opportunities in a high risk and low return world

Malcolm Charles & Eudre Craven10 November 2016

2 Confidential | Investec Asset ManagementP20161020_7921554P

Confidential | Investec Asset Management

36,000

38,000

40,000

42,000

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46,000

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50,000

52,000

54,000

56,000

58,000

Dec-12

Jan-

13Fe

b-13

Mar

-13

Apr-13

May

-13

Jun-

13Ju

l-13

Aug-

13Se

p-13

Oct

-13

Nov-

13De

c-13

Jan-

14Fe

b-14

Mar

-14

Apr-14

May

-14

Jun-

14Ju

l-14

Aug-

14Se

p-14

Oct

-14

Nov-

14De

c-14

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15Fe

b-15

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-15

Apr-15

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-15

Jun-

15Ju

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Aug-

15Se

p-15

Oct

-15

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15De

c-15

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16Fe

b-16

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-16

Apr-16

May

-16

Jun-

16Ju

l-16

Aug-

16Se

p-16

Markets continue to go nowhere, but very fast

Source: Bloomberg, as at 14 September 2016

FTSE/JSE All Share Index



The Rand…Impacting returns

Source: Bloomberg as at 30 September 2016

10

11

12

13

14

15

16

17

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Flat against the US$ over 12 months

Rand / US$ exchange rate Returns from offshore equities

2015 YTD'16 1 year to 31-Aug-16

1 year to 30-Sep-16

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

-2.4%

6.6% 7.2%

12.0%

30.8%

-5.4%

19.0%

11.3%

MSCI ACWI in US$ MSCI ACWI in ZAR



10 year return expectations

Source: Bloomberg & Investec Asset Management, as at 31 August 2016*Based on an exit PE multiple range of 12 to 14 times for the JSE All Share Index; Income/Capital return split of 2.8%/1.2%-3.7% ** Income/Capital return split of 2.5%/1.8% in USD

Asset class returns are converging at lower levels

Asset class Return p.a.South African equities* 4% - 6.5%

South African bonds 9.0%

South African cash 7.0%

Offshore equities (S&P500 USD return) ** 4.3%

USD/ZAR depreciation 2.1%

SA Inflation 5.5%



Consistent long-term performance

Past performance should not be taken as a guide to the future, losses may be made. Data is not audited. Source: © Morningstar, dates to 30.09.16, Performance figures above are based on lump sum investment, NAV-NAV, net of fees, gross income reinvested, fees are not applicable to market indices, where funds have an international allocation this is subject to dividend withholding tax, in South African Rand. The performance quoted for periods before the launch of A Class is based on older R class’s performance, is adjusted for any fee differences and is for illustrative purposes only.The offshore Funds are sub-funds in the Investec Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and are approved under the CIS Control Ac

Peer Group Quartile RankingsAs at 30 September 2016

SA (ZAR)3 years to

Sep-133 years to

Sep-143 years to

Sep-153 years to

Sep-16Investec Diversified Income Fund 2 3 2 1

Investec Cautious Managed Fund 3 3 2 2

Investec Opportunity Fund 2 4 3 2

Investec Equity Fund 2 2 1 1

Investec Value Fund 4 4 4 1

Offshore (US$)Investec Global Multi-Asset Income Fund - - - 1

Investec Global Strategic Managed Fund 1 2 1 2

Investec Global Franchise Fund 1 3 2 1



Exp

ecte

d R

etur

nInvestec core fund solutions

Note: [ ] indicates maximum in equities. Offshore funds available as feeder funds

Global Strategic Managed (USD / GBP / ZAR)

[75%]

Global Franchise (USD / GBP / ZAR)

[100%]

Global Multi-Asset Income (USD / ZAR)

[40%]

Loca

lIn

tern

atio

nal

Diversified Income

Opportunity[75%]

Cautious Managed

[40%]

Value[100%] Equity

[100%]

Expected Risk (Volatility)

GrowthIncome

Exp

ecte

d R

etur

n

Worldwide Flexible[100%]

Investec Diversified Income Fund

Malcolm Charles



Investec Diversified Income FundKey benefits

A high conviction fixed income fund

● Comprehensive fixed income solution that aims to maximise income and grow capital

● Globally integrated approach, drawing on the best investment ideas from the SA and London teams

● Highly diversified portfolio that includes offshore assets, with currency hedging

● Exposure to multiple sources of uncorrelated fixed income returns reduces volatility and the risk of capital loss



Vivienne Taberer – Latam

Werner Gey van Pittius – EEMEA

SA Rates team

Subject to change not necessarily with prior notification. As at October 2016

Malcolm Charles –Rates

Peter Kent –Rates

Portfolio Management Team

Lisa MacLeod – Portfolio Manager, Money Market

Investment Specialists

Nazmeera Moola – SA Economics

André Roux – Economics

Matsidiso Mdakane – Analyst, Credit

Stephan Naidoo – Analyst, Credit

Nicholas Marshall – Analyst, Rates

Cesaire Tobias – Analyst, Rates Nathaniel Micklem – Portfolio Manager, Credit

Steven Loubser – Portfolio Manager, Credit

Simon Howie – Portfolio Manager, Credit

Global Investment Infrastructure SupportESG | Risk & Performance | Implementation

Dealing

Ntuthuzelo Magwentshu – Rates Dealer Shane Johns – FX & Money Market Dealer

Adam Furlan – Analyst, Credit & Rates

Chris Steward – Head of Financials

Bashier Omar – Portfolio Manager, Credit

Asset allocation and the appropriate investment ranges

Investment Framework



Investment Framework – defining itFind overlap between the aim, the potential asset set and our skill set

When defining neutral asset allocation and the appropriate investment ranges we need to ask ourselves:

● AIM: What are we realistically trying achieve?

● ASSETS: What is the universe of assets available to us?

● SKILL: What are our traditional strengths?

SKILLAsset allocation, duration, relative value, currency

ASSETS

Bonds, Credit, Cash, Offshore, SA property

AIM

Consistent total return Capital preservation

Investec Diversified

Income



When FI assets underperform cash, you return at least cash

When FI assets rally you participate

Investment FrameworkWhat are we realistically trying to achieve?

Downside protection with upside exposure

Cash – minimum income threshold7.00%

0%

ALBI

Diversified Income

Defining what the fund is realistically trying to do:RETURN: Provide a consistent total return in excess of cash / inflation over time:● that has some correlation to the bond market when the bond market outperforms, and

● has little correlation to the bond market when it underperforms

RISK: A capital preservation bias that avoids quarterly drawdowns, and tries to eliminate 6 monthly drawdowns completely


Income

SKILL

ASSETSAIMInvestec

Diversified Income



Investec Diversified Income FundInvestment framework combines: Aim + Assets + Skill

Source: Investec Asset Management as at March 2016

Active management within these parameters is key to success

● Exposure ranges provide a consistent framework for scaling positions to achieve objective

● Neutral allocation if we don’t have a strong view on the asset

● Active management within the ranges meets risk requirements & satisfies the capital draw-down constraints


Income

SKILL

ASSETSAIMInvestec

Diversified Income



Investment Framework – Performance Participate in the rallies, protect in the sell offs

Since 2010Source: Morningstar, Returns are calculated on a NAV to NAV basis with income reinvested, net of fees, Bloomberg to 31 August 2016

Average rolling 12m excess returns over cash

Investec Diversified Income Fund

albi > cash cash > albi all-8

-6

-4

-2

0

2

4

6

8

-60

-40

-20

0

20

40

60

albi ave competitor investec diff (bps RHS)

Regime

Exce

ss re

turn

ove

r cas

h (%

)

BPS

Performance and attribution

Reviewing the last year



South Africa: Anatomy of the sell-offCurrency and borrowing costs both hurt

Source: Investec Asset Management, Bloomberg, 10 October 2016

ZAR/US$, SA trade-weighted rand, 10-year SA bond yield & SA credit-default swap,All rebased to 100 on 15 December 2014

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr

-16

May

-16

Jun-

16

Jul-1

6

Aug

-16

Sep

-16

90

110

130

150

170

190

210ZARSANEER10-year bondSA CDS



Investec Diversified Income A 8.4% 7.6% 7.6% 8.4%STeFI-ALBI 1 - 3 years Composite 7.1% 6.4% 6.0% 6.5%

Active return 1.3% 1.2% 1.6% 1.9%(ASISA) South African IB Money Market 7.2% 6.4% 5.9% 6.0%

Active return (sector) 1.2% 1.2% 1.6% 2.3%

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

1 year 3 years p.a. 5 years p.a. Since Inception p.a.*

Investec Diversified Income A STeFI-ALBI 1 - 3 years Composite

Investec Diversified Income FundPerformance

Past performance should not be taken as a guide to the future, losses may be made. Data is not audited.

* Inception date 01 December 2009.

Source: Morningstar, dates to 30 September 2016, performance f igures above are based on lump sum investment, NAV based, inclusive of all annual management fees but excluding any initial charges, gross income reinvested, fees are not applicable to market indices, w here funds have an international allocation this is subject to dividend w ithholding tax, in South African Rand.

Annualised performance is the average return per year over the period. Individual investor's performance may vary depending on actual investment dates. Highest and Low est returns are those achieved during any single calendar year over the period specif ied.

Annualised performance in ZAR

ZAR Investec Diversified Income Fund F000005KGU

2010 10.1% 2014 5.7%Highest and lowest calendar year returns since inception*



Attribution for Investec Diversified Income FundLinking performance to philosophy

Our posture is currently constructively defensive

● Reduced and diversified offshore exposure relative to holdings in 1Q16

● Extended duration on back of BREXIT

● Increased exposure to long dated bonds

● Added to local property position

Source: Investec Asset Management, gross of fees to 31 August 2016Note: figures quoted represent contribution to returns

12 months to 31 August 2016INVDIF Total

Duration 7.29 - carry 7.87 - mtm -0.58

Currency 0.48

Relative Value 1.00 - curve 0.33 - swaps 0.02 - linkers -0.10 - options 0.30 - prefs 0.29 - property 0.16

Credit 1.21 - carry 0.91 - mtm 0.30

Sub Total 10.17

Other 0.07

Total 10.25

Scorecard and investment views



Developing our views – Current ScorecardThese are the pertinent questions to current positioning

Are the fundamentals supportive?

• Inflation – surprise up or down?• How much are Treasury issuing?• Has the market understood the

SARB? • Is SA growth accelerating or

slowing?• Is the rand vulnerable?

Is the asset cheap?

• Are SA Bonds / FX / Credit / Property cheap or expensive?

• EMD’s risk appetite?• Are US Treasury yields likely to rise

or fall?

Are investors likely to buy it?

• What is the momentum?• Are foreigners expected to buy or

sell?• How are domestic investors

positioned? • Are there relevant seasonal factors?• Is there event risk to consider?• Is volatility on the JSE rising or

falling?• Is the rand vulnerable or oversold?

Strategic Tactical (less than 6 months)

Bonds Credit OffshoreProperty

ILBs



Our perspectives on BrexitWhat does Brexit mean for the global economy and for SA?

Source: I-Net Bridge as at 14 September 2016

Rates are likely to remain

low

30 year treasuries

Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-161.5

2.0

2.5

3.0

3.5

4.0

4.5

● Increased economic uncertainty ● Aggressive global central bank response● Yield should benefit at the expense of growth


ILBs



Trump Presidency!What does the US election mean for the global economy and for SA?

Source Bloomberg, data as at 9 November 2016

Emerging markets are likely to under perform

Currency movements on 9/11/2016



PoliticsWe are destroying our credibility with global and local investors

Bonds CreditProperty

ILBsOffshore



SA GDP growthSARB dilemma – inflation up, growth forecasts continue to slide

Source: Investec Asset Management, SA Reserve Bank, 22 September 2016

SA Reserve Bank GDP forecasts SA CPI inflation & SA repo rate


ILBs

0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

May

-13

Sep-

13

Dec

-13

Mar

-14

Jul-1

4

Oct

-14

Jan-

15

May

-15

Aug-

15

Nov

-15

Feb-

16

Jun-

16

Sep-

16

2015 2016 2017 2018

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

4.5%

5.5%

6.5%

7.5%

8.5%

9.5%

10.5%

11.5%

12.5%

13.5%

14.5%CPI Inflation (LHS)Repo Rate (RHS)



Are we heading into a recession?“Probability of Recession” indicator

Source: Investec Asset Management, data as at 4 October 2016


ILBs



South Africa sovereign outlookUnchanged… next review just round the corner

South Africa sovereign rating


OffshoreProperty

ILBsBonds Credit

SA ratingsForeign LT

debt Local LT debt OutlookS&P BBB- BBB+ Negative

Moody’s Baa2 Baa2 Negative

Fitch BBB- BBB Stable

R&I BBB- BBB+ Negative

Dagong Global A- A- Negative



South Africa still lagging EM peersPolitical risk/Ratings uncertainty

South Africa yields relative to peers



ILBs

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5A

pr-1

1

Aug

-11

Dec

-11

Apr

-12

Aug

-12

Dec

-12

Apr

-13

Aug

-13

Dec

-13

Apr

-14

Aug

-14

Dec

-14

Apr

-15

Aug

-15

Dec

-15

Apr

-16

Aug

-16



Nenegate interest billCounting the cost

Source: Investec Asset Management

The next generation will continue to pay for this mis-step

0

50

100

150

200

250

300

350

400

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

R'b

ln

Years



Foreign ownership of SA bond marketPost BREXIT confidence waning

Source: SA National Treasury, Citibank, January 2016 Source: Bloomberg, Citi Research, September 2016

Foreign ownership of SA government bonds


ILBs

Non-resident net bond flows (YTD)



China’s post crisis growth responseTurbo TARP is required

Source: Investec Asset Management, April 2016

Chinese debt stock has grown by >$18 trillion since 2008


ILBs



Big themes for 2016/17

Caution is advised, but opportunities exist

● Stability of SA politics is crucial – maintaining investment grade status so we can get positive momentum for growth and jobs

● China growth and commodity prices will be a big driver of EM and SA sentiment

● Commodity/oil recovery leading to inflation

● Fed, ECB, BoE and BoJ policy will drive currency movements

● BREXIT and Trump?... emergence of non-tolerant political shift

● Is Deutsche Bank the canary in the coal mine of Europe?

● SA and EM’s are well placed for recovery

Portfolio positioning



Investec Diversified Income FundCurrent positioning

Source: Investec Asset Management as at 12 October 2016* Excludes NCDs

● Diversified FX Basket

● Reduced duration relative to framework, protection helping

● Reduced property underweight

● Increasing allocation to high quality credit names

Cash Bonds Credit* Property FX AlternativeLow 4% 0% 45% 1% 3% Neutral 13% 24% 58% 5% 12% High 39% 40% 71% 8% 19% Current 9.2% 13.0% 63.1% 4.1% 8.4% 2.2%



Investec Diversified Income FundCredit holdings as at 30 September 2016 (includes NCDs)

Source: Investec Asset Management as at 30 September 2016

Weight Spread Contribution SpreadD

AAA AA A BBB BB

Energy 3.3% 2.01 0.1 0.1 0.0% 3.3% 0.0% 0.0% 0.0%Materials 3.1% 3.37 0.1 0.0 0.0% 0.0% 2.3% 0.9% 0.0%Industrials 1.3% 1.81 0.0 0.0 0.0% 1.1% 0.2% 0.0% 0.0%Consumer Discretionary 9.4% 1.56 0.1 0.2 5.3% 0.0% 3.8% 0.3% 0.0%Consumer Staples 0.0% - - - 0.0% 0.0% 0.0% 0.0% 0.0%Healthcare 1.5% 2.00 0.0 0.0 0.0% 0.0% 1.5% 0.0% 0.0%Bank - Senior 24.1% 0.97 0.2 0.7 0.8% 23.1% 0.0% 0.0% 0.0%Bank - Tier 2 8.1% 3.31 0.3 0.2 0.0% 6.7% 1.0% 0.0% 0.3%Consumer Finance 1.4% 5.81 0.1 0.0 0.4% 0.0% 0.0% 0.0% 0.9%Capital Markets 1.1% 0.06 0.0 0.0 1.1% 0.0% 0.0% 0.0% 0.0%Asset Backed 7.7% 1.56 0.1 0.4 7.7% 0.1% 0.0% 0.0% 0.0%Insurance 4.0% 2.12 0.1 0.1 0.2% 3.2% 0.6% 0.0% 0.0%Real Estate 5.4% 2.08 0.1 0.2 1.5% 2.7% 1.2% 0.0% 0.0%Telecommunication Services 1.5% 1.57 0.0 0.0 0.0% 1.5% 0.0% 0.0% 0.0%Utilities 4.9% 3.24 0.2 0.2 3.4% 1.4% 0.2% 0.0% 0.0%

76.7% 1.45 2.0 20.4% 42.8% 10.8% 1.2% 1.3%

Thank you

www.investecassetmanagement.com



Disclaimer

All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only.

Collective investment schemes (CIS) are traded at ruling prices and can engage in borrowing, up to 10% of portfolio net asset value to bridge insufficient liquidity, and scrip lending. A schedule of charges, fees and advisor fees is available on request from the Manager, Investec Fund Managers SA (RF) (Pty) Ltd which is registered under the CIS Control Act . Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. CISs are generally medium to long term investments and the manager gives no guarantee with respect to the capital or the return of the Fund. Performance shown is that of the Fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax and past performance is not necessarily a guide to the future. The value of participatory interests (units) may go down as well as up. Different classes of units apply to the fund. This portfolio may be closed in order to be managed in accordance with the mandate. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Additional information on the Fund may be obtained, free of charge, at www.investecassetmanagement.com. The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. Investec Asset Management (Pty) Ltd ("Investec") is a member of the Association for Savings and Investment SA (ASISA). The scheme trustee is FirstRand Bank Limited, PO Box 7713, Johannesburg, 2000, Tel: (011) 282 1808.

In the event that specific collective investment schemes in securities(unit trust) are mentioned please refer to the relevant minimum disclosure document(MDD) in order to obtain all the necessary information in regard to that unit trust portfolio.

This is the copyright of Investec and its contents may not be re-used without Investec’s prior permission.

Investec Asset Management (Pty) Limited is an authorised financial services provider.

http://www.investecassetmanagement.com/

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