BCI Online Session 15 th July 2020 Who we are! Incorporated on 1 st - - PowerPoint PPT Presentation

15th July 2020

BCI Online Session

Who we are!

Incorporated on 1st October 2000 as FSCA Authorised Category II Fund Manager. Centaur is a Retail Only Asset Manager with R4.6bn of Asset under Management.

Founding Principles:

• 1. Deliver exceptional performance.
• 2. With outstanding service.
• 3. And the utmost integrity.

Excellent performance due to: 2x Awards 4x Awards Awards in Recent Years1:

Disclosures: AuM as at 30 Jun20. 1Awards: 2018 Morningstar Award: Centaur BCI Flexible Fund – Best Flexible Allocation Fund ending Dec’17. 2017 Raging Bull Award: Centaur BCI Flexible Fund – Best South African Multi-Asset Flexible Fund (Risk Adjusted) 5 years ending Dec’17. 2017 Morningstar Award: Centaur BCI Flexible Fund – Best Flexible Allocation Fund ending Dec’16. 2016 Raging Bull Award: Centaur BCI Balanced Fund – Top Performing South African Multi-Asset High Equity Fund 3 years ending Dec’16. 2016 Raging Bull Award: Centaur BCI Flexible Fund – Top Performing South African Multi-Asset Flexible Fund (Risk Adjusted) 5 years ending Dec’16. 2016 Raging Bull Award: Centaur BCI Flexible Fund – Top Performing South African Multi-Asset Flexible Fund 3 years ending Dec’16. The full details and basis of the awards are available from the manager.

The Centaur BCI Flexible Funds’ performance over the decade ending Dec’19

 The Centaur BCI Flexible Fund was the 3rd best performing South African unit trust.  It was the only fund in the Top 5 not in the global category.  On a risk-adjusted basis the performance of the Centaur BCI Flexible Fund stands out with an annualised

standard deviation of 8.8% and an 11% weekly peak to trough drawdown.

#1 #2 #3 Centaur #4 #5 Annualised Return 18.8% 15.6% 15.5% 15.3% 15.2% Risk (Annualised Standard Deviation) 15.1% 16.2% 8.8% 15.0% 15.7% Sharpe Ratio (weekly) 0.82 0.56 1.01 0.58 0.55 Maximum Drawdown (weekly)

• 21.3%
• 19.1%
• 11.0%
• 18.1%
• 18.1%

Source: Morningstar, Bloomberg, at 31 Dec’19. The full details and basis of the rankings are available from the manager.

Best Performing non-Global Fund in South Africa over 10 yrs – Morningstar, at 31 Dec’19.

• 100

200 300 400 500 600 700 800 900 1 000 Jun '04 Jun '06 Jun '08 Jun '10 Jun '12 Jun '14 Jun '16 Jun '18 Jun '20 Centaur BCI Flexible Fund (Distribution Adjusted) Benchmark²

Centaur BCI Flexible Fund A Class Relative to Benchmark2

As at: 30 Jun’20 1 yr 3 yrs 5 yrs 10 yrs Inception1 CFF – A Class 1.8% 4.9% 6.0% 14.5% 15.5% CFF – C Class 2.2% 5.4% 6.6% Benchmark2 return 0.3% 4.3% 3.8% 9.3% 11.3%

#1 Ranked Flexible Fund over 10 years. – Moneymate, 30 Jun’20.

Growth of R100 investment (cumulative)

2Benchmark:

1 Dec 2004 – 2 Jul 2007: 50% ALSI (J203), 50% FINDI (J213). 3 Jul 2007 – 31 Oct 2018: 15% RESI (J258T), 65% FINDI (J250T), 20% SA Repo. Calculated over a rolling 2-year period. 1 Nov 2018 – Current: 60% JSE Capped SWIX (J433T), 20% MSCI World (M1WO), 20% SteFI. Calculated over a rolling 2-year period. Source: Maitland, Moneymate and Centaur, as at 30 Jun’20. A Class 1Inception Date: 01 December 2004. C Class 1Inception Date: 31 January

• 2015. Boutique Collective Investments (RF) (Pty) Ltd (“BCI”) is a registered Manager of the Boutique Collective Investments Scheme,

approved in terms of the Collective Investments Schemes Control Act, No 45 of 2002. Collective Investment Schemes in securities are generally medium to long term investments. The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. A schedule of fees, charges, maximum commissions, and rankings is available on request. Investment performance is for illustrative purposes only and is calculated by taking actual initial fees and ongoing fees into account for amount shown with income reinvested on reinvestment dates. Annualised return is weighted average compound growth rate over the period measured. Highest and lowest calendar year performance since inception (as at 31 May’20): High 46.7 Low -20.3.

Discovery: 25% share in Ping-An Health

 It is one of the largest health insurers in China. Insured lives over time Total premium (RMB m) generated per month

Source: Discovery Interim Results 2020. Unaudited January 2020 sales number

Exceptionally Positioned in High Growth Emerging Industry

Discovery – Hidden Value

Ping-An Health:

 6-months to Dec’19: Revenue (Renminbi) Rmb 5.3bn; Operating Margin 7.3%  16.3mil. lives at Dec'19 ~ 60% revenue growth in the first half of 2020.  Internal target Rmb 100bn of revenue which is achievable in 7 years time  Rmb 8bn operating profit at 8% margin (Discovery share Rmb 2bn).  Valued at 18x operating profit (Discovery share - $9/share).  Current Value at 8% discount rate and 70% chance of success = $4.00 (= R67).  It has fantastic business characteristics – can materially exceed expectations.

Vitality Global Wellness Programme

Source: Discovery Interim Results 2020.

Insurance and franchise partners membership Operating result Revenue Integrated API by Insurance partners

Scalable Cloud Based Business – Total Addressable Market >100mil

Discovery Breakdown of Valuation

Reported EV (Dec’19) Centaur Valuation Per Share % total Net Worth 9,704 5,062 7.70 4% Writedown Goodwill SA Health & Vitality 21,170 36,476 55.55 31% PE fwd of 14.5X SA Life & Invest 27,582 20,687 31.50 17% 25% discount Vitality Health (UK) 8,011 8,083 12.30 7% Higher disc. rate, currency benefit Vitality Life (UK) 6,717 3,352 5.10 3% Lapse, disc. rate, currency adjusted

• Adj. Embedded Value (EV)

73,184 73,660 112.15 62% Assets excluded from EV USD (‘mil) Ping An Health 2,627 44,006 67.00 37% Per earlier slide The Vitality Group 450 7,537 11.47 6% 30X operating profits Discovery ST Insurance 2,500 3.81 2% Profitable Discovery Bank & other

• 8,000
• 12.18
• 7%

Indefinite start up losses Total 118,447 182.25 100% Value ex-SA 53%

High Real Yields on Offer? Is this an opportunity

7.8% 9.4% 11.1% 11.6% 2.8% 4.4% 6.1% 6.6%

• 4%
• 2%

0% 2% 4% 6% 8% 10% 12% 14% 5 10 15 20 25 30 Yield to Maturity

Years to Maturity

SA Government Bond Yield Curve at 30 June 2020

Yield Curve 30 June 2020 Real Yield Curve (5% historic inflation)

SA Real Yields are Exceptionally High

Source: Bloomberg, at 30 Jun’20

Debt/ GDP

Debt is out of Control

Source: Bloomberg, at 30 Jun’20

82%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Mar '76 Mar '81 Mar '86 Mar '91 Mar '96 Mar '01 Mar '06 Mar '11 Mar '16 Mar '21 South Africa Debt to GDP %

Fiscal Deficit

• 400
• 350
• 300
• 250
• 200
• 150
• 100
• 50

50 Jun '04 Jun '06 Jun '08 Jun '10 Jun '12 Jun '14 Jun '16 Jun '18 Jun '20

South Africa Fiscal Deficit

12 Months cumulative (BN)

But the Fundamentals are Terrible

Source: Bloomberg, at 30 Jun’20

Inflation is the Most Probable Outcome

 The government has not been able to curb expenditure nor raise growth.  The easiest option is inflating out of debt - with 15% inflation real debt halves in 5 years.  Even with moderate inflation real wealth is decimated – people without wealth are less affected.  Multiple precedents in Africa, South America.  Protect via investing in inflation hedges: 1.

Offshore investments – the rand will weaken in line with inflation.

2.

High quality SA equities – some protection as profits follow inflation higher.

3.

Inflation linked bonds – returns linked to inflation but can you trust official inflation.

4.

Property can provide some hedge.

High PE versus Low PE stocks – 25 year history

• 500

1,000 1,500 2,000 2,500

Absolute Return (base 100 1 Feb 1995)

Low Historic PE Quintile High Historic PE Quintile Universe 60 70 80 90 100 110

High PE Quintile Returns relative to Universe (base 100 1 Jan 2010)

High PE Quintile / Universe

Value Matters – But not lately

Source: Bloomberg, at 30 Jun’20 Source: Bloomberg, at 30 Jun’20

Universe: Russel 1000 excluding: Real Estate, Utilities, Oil & Gas, Financials & Basic Materials.

Nikkei in the 80’s as a Precedent

Are we in a similar situation

Source: Bloomberg, at 30 Jun’20

In 1987 the Japanese central bank supported the stock-market, the 1987 fall was a blip, the bull market continued until 31 Dec 1989. The Japanese economy and management techniques were heralded. 100 200 300 400 500 600 700 800 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 192 204 216 Nikkei 1977-95/ Nasdaq 2010-20 (base 100)

Nikkei Nasdaq

We have been here before!

 Value has been dismissed as an investment criterion – pricier stocks are outperforming.  This is consistent with momentum driven markets – the story is more important than anything.  Indexing is a momentum based strategy – as market capitalization is critical.  Contrarians get trampled by the herd!  Amazon trades on historic PE of 135X; Tesla is larger than Toyota – the implied growth and

profitability is optimistic and risk/reward poor.

 However capital light, automated business are truly exceptional – Microsoft, Facebook, Tencent.  Ride the momentum, stay in the index funds - but keep grounded and know when to change course.

Contact Details and Disclosures

Centaur Contact Details Tel: 021 685 2408 E-Mail: admin@centaur.co.za Website: www.centaur.co.za Physical address: Great Westerford Building, 240 Main Road, Rondebosch, Cape Town, 7700. Postal address: P.O. Box 35, Newlands, 7725. Centaur Asset Management (Pty) Ltd is an authorised Financial Service Provider FSP 647. Valuation takes place daily and prices can be viewed on Centaur’s website (www.centaur.co.za) or in the daily newspaper. Actual annual performance figures are available to existing investors on request. Upon request the Manager will provide the investor with portfolio quarterly investment holdings reports. Custodian Information The Standard Bank of South Africa Limited Tel: 021 441 4100 Management Company Information Boutique Collective Investments (RF) (Pty) Limited Catnia Building, Bella Rosa Office Park, Durban Road, Bellville, 7530. Tel: 021 007 1500/1/2 Fax: 086 502 5319 Email: clientservices@bcis.co.za Website: www.bcis.co.za

Boutique Collective Investments (RF) (Pty) Ltd (“BCI”) is a registered Manager of the Boutique Collective Investments Scheme, approved in terms of the Collective Investments Schemes Control Act, No 45 of 2002 and is a full member of the Association for Savings and Investment SA. Collective Investment Schemes in securities are generally medium to long term investments. The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. The Manager does not guarantee the capital or the return of a portfolio. Collective Investments are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees, charges and maximum commissions is available on request. BCI reserves the right to close and reopen certain portfolios from time to time in order to manage them more efficiently. Additional information, including application forms, annual or quarterly reports can be obtained from BCI, free of charge. Performance fees are calculated and accrued on a daily basis based upon the daily outperformance, in excess of the benchmark, multiplied by the share rate and paid over to the manager

• monthly. Performance figures quoted are from Moneymate, as at the date of this report for a lump sum investment, using NAV-NAV with income reinvested and do not take any upfront manager’s charge into account. Income distributions are declared on the ex-dividend date. Actual investment

performance will differ based on the initial fees charge applicable, the actual investment date, the date of reinvestment and dividend withholding tax. Investments in foreign securities may include additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk, foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information. Boutique Collective Investments (RF) Pty Ltd retains full legal responsibility for the third party named portfolio. Although reasonable steps have been taken to ensure the validity and accuracy of the information in this document, BCI does not accept any responsibility for any claim, damages, loss or expense, however it arises, out of or in connection with the information in this document, whether by a client, investor or intermediary. This document should not be seen as an offer to purchase any specific product and is not to be construed as advice or guidance in any form whatsoever. Investors are encouraged to obtain independent professional investment and taxation advice before investing with or in any of BCI/the Manager’s products.

Disclaimer