Anchor capital senate group 6th november 2015 - final

© 2009-2015 Anchor Capital (Pty) Ltd. | An authorised Financial Services Provider Reg No # 2009/002925/07 | FSP No # 39834

Who is Anchor Capital

• Founded 2011

• Part of listed Anchor Group (R2.2bn market cap)

• Over R20bn of assets under management and administration –

• CIS and Segregated Portfolio`s

• Local and offshore investment team (20 investment professionals)

• 3 year track record

• Offices in Sandton, Durban, Pretoria, Cape Town, London

• 70 degreed staff (7 CA(SA)’s, 12 CFA’s/CFA candidates)

David Gibb BSc Med (UCT), CA (SA), CFA

Liberty Asset Management (later Stanlib) 1994 to 2008

Head of equity research at Stanlib

Track record as unit trust manager at Stanlib Winner 2008

Micropal Award – 5 year performance Domestic EQ Industrial

Winner 2005

Raging Bull Awards - 3 year performance Global Technology

S&P Fund Award - 3 year performance Global Technology

Winner 2003

S&P Fund Award – 1 year performance Global Technology

Joined Anchor Capital in July 2012

Manager of the Anchor BCI Worldwide Flexible Fund

Peter Little

B.Com Accounting degree & CFA charter holder

18 years financial markets experience

Worked for a number for Global Investment banks in London (incl JPM,

Barclays Capital, RBS & Credit Suisse) predominantly in structuring and

derivatives roles

Transferred to New York in 2005 with Credit Suisse Asset Management to

manage various hedge fund products

Most recent role before returning to SA was Head of Fund Management for

Liquid Systematic Hedge Funds for Credit Suisse in NY

Joined Anchor Capital towards the end of 2013

Manager of the Anchor Global Capital Plus Fund


David Gibb –

Global Investment

Opportunities


US markets and China

How expensive are US stock markets?

US corporate earnings well above trend

Cyclically adjusted PE (CAPE) is very high versus history

Chinese economy is in transition

.....causing turmoil in steel markets

Source: Financial Times 28 Oct ‘15

Commodities – back to where we started

Source: Financial Times 30 Oct ‘15

Investment Opportunities

Investment philosophy

• Investment in companies with a durable competitive advantage

when? down in the business cycle

made a mistake that can be fixed

growth is underestimated

Invest for the long term

US banks – Price to book values have been hit hard

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1998 2000 2002 2004 2006 2008 2010 2012 2014

P/tBV

Source: Bloomberg – S&P Bank Index S5BankX Price to Tangible book value

Large banks continue to gain market share in the US

Share of

Assets by

Bank Type

Source: FDIC Statistics; The State and Fate of Community Banking, Lux & Greene

US banking net interest margin (NIM) at multi-decade lows

%

Source: Federal Reserve

2.50

3.00

3.50

4.00

4.50

5.00

1985 1995 2005 2015

US banks

US Bancorp

JP Morgan Chase

Wells Fargo

Adam Jones – Welsh rugby player

UK car insurance premiums have turned up

Source: Confused.com car insurance price index

Admiral is just a top-class car insurer

Source: Admiral H1 2015 results

Other opportunities

General Electric

Yum Brands

Starbucks

Pandora

Alphabet (Google)

Glaxo

Anchor BCI Worldwide Flexible Fund

Performance since inception 13 May 2013 to 31 October 2015

Unit trust ranking 5/30

1 yr

6/29

2 yrs

Peter Little –

Opportunities within global asset

allocation

Asset Allocation Positioning

• Low potential for absolute returns in fixed income

• Commodities creating tail risk rather than offering diversification

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10%

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50%

60%

Equity Fixed Income & Cash Real Estate Commodities

Asset Allocation

Range

Minimum

Current

Fixed Income

Global Quantitative Easing

• G4 Central bank balance sheets have expanded by ~ $ 6.5 trl post-GFC

• G4 Central banks have doubled their share of bond market ownership

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4

6

8

10

12

Central Bank Balance Sheets (USD trl)

UNITED STATES ($) JAPAN ($) UK ($) EU ($)

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2%

4%

6%

8%

10%

12%

14%

0

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20

30

40

50

60

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80

90

100

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Central Banks’ Ownership of Bonds

G4 Balance Sheets (USD) Global Bond Markets

% Owned (RHS)

Source: Bloomberg, Anchor Capital Source: Bloomberg, BIS, Anchor Capital

Low Yields & Inflation Expectations

• With low yields small movements in the yield curve can easily generate negative total returns in LT treasuries

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3.50

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7.00

8.00

9.00

US Rates & Inflation

US 10 Year Yield US CPI (RHS)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

US CPI expectation

Source: Bloomberg, Anchor Capital


Fixed Income Diversification Benefits

-100%

-80%

-60%

-40%

-20%

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40%

60%

80%

100%

Correlations

S&P 500 v US 10YSource: Bloomberg, Anchor Capital

Fixed Income Opportunities

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4.0

6.0

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3.5

4.0

4.5

5.0

Barclays High Yield Bond Index

SPREAD (RHS) PRICE



Fixed Income Opportunities

Sector % End Wgt Tot Rtn 1M Tot Rtn 2M Tot Rtn QTD Tot Rtn 6M Tot Rtn YTD Tot Rtn 1Y Tot Rtn 2Y Tot Rtn 3Y

SPDR BARCLAYS HIGH YIELD BOND ETF 100% -3% -5% -6% -6% -4% -5% 2% 8%

Communications 21% -4% -5% -4% -6% -3% -2% 6% 12%

Consumer, Non-cyclical 17% -2% -2% -1% -1% 2% 4% 12% 19%

Energy 14% -6% -13% -18% -19% -17% -27% -22% -19%

Consumer, Cyclical 14% -2% -2% -1% -1% 1% 3% 8% 16%

Financial 9% -1% -1% -1% -1% 2% 3% 11% 18%

Industrial 8% -2% -4% -4% -4% -1% -1% 6% 12%

Technology 6% 0% -1% -1% -2% 1% 2% 12% 21%

Basic Materials 6% -5% -7% -12% -13% -11% -14% -8% -2%

Utilities 3% -3% -4% -4% -4% -1% 1% 8% 11%

Diversified 1% -2% -2% -1% 1% 7% 3% 15% 26%

SECTOR TOTAL RETURN

Name % End Wgt Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15

SPDR BARCLAYS HIGH YIELD BOND ETF 100% 6.8% 6.8% 6.3% 6.6% 6.3% 6.4% 6.8% 7.0% 7.5% 8.3%

Utilities 3% 5.9% 5.9% 5.6% 5.8% 5.7% 5.6% 6.0% 6.1% 6.6% 7.3%

Technology 6% 6.5% 6.4% 6.1% 6.1% 6.2% 6.3% 6.7% 6.8% 6.8% 7.1%

Industrial 8% 6.7% 6.7% 6.2% 6.4% 6.4% 6.2% 6.7% 6.8% 7.4% 8.0%

Financial 9% 5.3% 5.1% 4.8% 5.1% 5.1% 5.0% 5.4% 5.4% 5.6% 5.9%

Energy 14% 9.4% 9.6% 8.6% 9.4% 8.5% 8.6% 9.1% 10.3% 12.3% 13.6%

Diversified 1% 8.7% 8.5% 7.0% 7.1% 6.9% 6.8% 7.2% 6.9% 7.1% 7.7%

Consumer, Non-cyclical 17% 6.2% 6.0% 5.8% 5.9% 5.3% 5.9% 6.0% 6.0% 6.3% 6.7%

Consumer, Cyclical 14% 6.6% 6.5% 5.9% 6.0% 5.9% 5.8% 6.2% 6.1% 6.3% 6.7%

Communications 21% 6.3% 6.2% 5.9% 6.1% 6.0% 6.2% 6.6% 6.5% 6.8% 7.9%

Basic Materials 6% 7.0% 7.1% 6.6% 7.1% 7.1% 6.8% 7.4% 8.4% 8.9% 10.4%

SECTOR YIELD

• Oil & more recently materials are at the centre of the HY sell of

Global Consumer

Global Consumption

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80%

Consumption % GDP

CHINA Consumption % GDP

US Consumption % GDP

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14 000

16 000

18 000

Consumption ($ bln)

US Consumption Chinese Consumption

Source: Bloomberg, Anchor Capital Source: Bloomberg, Anchor Capital

• Chinese consumption is growing fast but has a long way to go before it can take the baton from the US consumer

US Household Wealth

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199

9

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US Median Home Sale Prices

Existing Home Sales Prices

Median Home Sales Price (Real)

Max Home Sales Price (Real)

6061626364656667686970

200

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Home Ownership %

• Median real US home sale prices are 17% below pre-GFC peak



US Household Wealth

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9

Home Sales

New Home Sales (mil) Existing Home Sales

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Future Homes

New Home Starts (mil) Permits Issued (mil)

• Trend is good but well below pre-crisis levels


US Household Wealth

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12

US BANK DELINQUENCY RATES

RESIDENTIAL MORT COMMERCIAL MORT CREDIT CARD OTHER CONSUMER C&I LOANS

• Residential mortgage debt is the only major type of US debt that hasn’t recovered to pre-GFC levels


Chinese Consumer

• China GDP/Capita growing at 16% p.a. (US = 2% p.a.) over last 10 years

• Urbanisation rate is still on 55% (OECD = 80%)

-

10 000

20 000

30 000

40 000

50 000

60 000

GDP per Capita

$GDP Per Capita (US) $GDP Per Capita (Japan)

$GDP Per Capita (Korea) $GDP Per Capita (China)

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60%

Chinese Urban Population


Chinese Consumer

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

China Old vs New (Revenue Growth)

China Consumer Discretionary China Consumer Discretionary (ex-Auto)

China Real Estate China Industrials

China Real Estate (Trend)Source: Bloomberg, Anchor Capital

China Old vs New (Revenue Growth)

Consumer

Discretionary Consumer Discretionary

(ex-auto) Real

Estate Industrials

Annualised (10 Years) 19.3% 14.7% 19.2% 13.4%

2015 H1 3.7% 3.4% 92.9% -12.9%

2014 6.0% 3.6% 16.9% -4.5%

2013 14.1% 13.1% 21.2% 10.8%

Chinese Consumer

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100%

200%

300%

400%

500%

600%

700%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Consumer Discretionary Revenue Growth US vs China

US Consumer Discretionary US Consumer Discretionary (ex-Auto)

China Consumer Discretionary China Consumer Discretionary (ex-Auto)

Consumer Discretionary Consumer Discretionary (ex-auto)

US China US China

Annualised (10 Years) 3.1% 19.3% 1.7% 14.7%

2015 H1 3.6% 3.7% -1.4% 3.4%

2014 4.6% 6.0% 3.7% 3.6%

2013 5.8% 14.1% 5.0% 13.1%


Chinese Consumer

China Consumer Discretionary - SHCOMP vs China New Mega-Companies (Revenue Growth)

Alibaba Ctrip Baidu Tencent Consumer

Discretionary

Consumer

Discretionary

(ex-auto)

ANNUALISED 10Y 43% 74% 54% 19.3% 14.7%

H1 2015 35% 47% 36% 20% 3.7% 3.4%

2014 44% 35% 54% 31% 6.0% 3.6%

2013 59% 33% 43% 38% 14.1% 13.1%

Positioning

Asset Allocation Positioning

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10%

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40%

50%

60%

Equity Fixed Income & Cash Real Estate Commodities

Asset Allocation

Range

Minimum

Current

RISK/RETURN UNIVERSE

HIGH

MEDIUM

LOW

2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5%

COLLECTIVE INVESTMENT SCHEMESRisk

Targeted return

WORLDWIDEFLEXIBLE

EQUITY

SA EQUITY

MANAGED

FLEXIBLE INCOME

GLOBAL EQUITY

GLOBAL CAPITAL

PLUS

BCI UNIT TRUSTS

OFFSHORE

PRODUCTS

KEY

ASTORIA

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representations or warranties in respect of this report or its content and will not be liable for any loss or damage of any nature arising from this report, the

content thereof, your reliance thereon its unauthorised use or any electronic viruses associated therewith. This report is proprietary to Anchor Capital

(Pty) Ltd and you may not copy or distribute the report without the prior written consent of the authors.


Thank you

Investor Relations

Anchor capital senate group 6th november 2015 - final