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

BCI Online Session 15 th July 2020

Who we are! Incorporated on 1 st 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: Awards in Recent Years 1 : Excellent performance due to: 1. Deliver exceptional performance. 4x 2x 2. With outstanding service. 3. And the utmost integrity. Awards Awards Disclosures: AuM as at 30 Jun20. 1 Awards: 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 #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.  The Centaur BCI Flexible Fund was the 3 rd 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. Best Performing non-Global Fund in South Africa over 10 yrs – Morningstar, at 31 Dec’19 .

Centaur BCI Flexible Fund A Class Relative to Benchmark 2 1 000 As at: 30 Jun’20 1 yr 3 yrs 5 yrs 10 yrs Inception 1 900 CFF – A Class 1.8% 4.9% 6.0% 14.5% 15.5% 800 CFF – C Class 2.2% 5.4% 6.6% Growth of R100 investment (cumulative) 700 Benchmark 2 return 0.3% 4.3% 3.8% 9.3% 11.3% 600 500 400 300 200 100 - 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 2 Benchmark: Source: Maitland, Moneymate and Centaur, as at 30 Jun’20. A Class 1 Inception Date: 01 December 2004. C Class 1 Inception Date: 31 January 1 Dec 2004 – 2 Jul 2007: 50% ALSI (J203), 50% FINDI (J213). 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 3 Jul 2007 – 31 Oct 2018: 15% RESI (J258T), 65% FINDI (J250T), 20% SA Repo. Calculated over a rolling 2-year period. generally medium to long term investments. The value of participatory interests may go up or down and past performance is not necessarily 1 Nov 2018 – Current: 60% JSE Capped SWIX (J433T), 20% MSCI World (M1WO), 20% SteFI. Calculated over a rolling 2-year period. 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. # 1 Ranked Flexible Fund over 10 years. – Moneymate, 30 Jun’20.

Discovery: 25% share in Ping-An Health  It is one of the largest health insurers in China. Total premium (RMB m) generated per month Insured lives over time 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 Integrated API by Insurance and franchise Insurance partners Revenue Operating result partners membership Source: Discovery Interim Results 2020. 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 8,083 12.30 7% Higher disc. rate, currency benefit Vitality Health (UK) 8,011 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 SA Government Bond Yield Curve at 30 June 2020 14% 12% 11.6% 10% 11.1% 9.4% 8% Yield to Maturity 7.8% 6% 6.6% 6.1% 4% 4.4% 2% 2.8% 0% -2% -4% 0 5 10 15 20 25 30 Years to Maturity Source: Bloomberg, at 30 Jun’20 Yield Curve 30 June 2020 Real Yield Curve (5% historic inflation) SA Real Yields are Exceptionally High

Debt/ GDP South Africa Debt to GDP % 90% 82% 80% 70% 60% 50% 40% 30% 20% 10% 0% Mar '76 Mar '81 Mar '86 Mar '91 Mar '96 Mar '01 Mar '06 Mar '11 Mar '16 Mar '21 Source: Bloomberg, at 30 Jun’20 Debt is out of Control

Fiscal Deficit South Africa Fiscal Deficit 50 0 -50 -100 -150 -200 -250 -300 -350 -400 Jun '04 Jun '06 Jun '08 Jun '10 Jun '12 Jun '14 Jun '16 Jun '18 Jun '20 Source: Bloomberg, at 30 Jun’20 12 Months cumulative (BN) But the Fundamentals are Terrible

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: Offshore investments – the rand will weaken in line with inflation. 1. High quality SA equities – some protection as profits follow inflation higher. 2. Inflation linked bonds – returns linked to inflation but can you trust official inflation. 3. Property can provide some hedge. 4.

High PE versus Low PE stocks – 25 year history High PE Quintile Returns relative to Universe Absolute Return (base 100 1 Feb 1995) (base 100 1 Jan 2010) 2,500 110 2,000 100 1,500 90 1,000 80 500 70 - 60 Low Historic PE Quintile High Historic PE Quintile High PE Quintile / Universe Universe Source: Bloomberg, at 30 Jun’20 Source: Bloomberg, at 30 Jun’20 Universe: Russel 1000 excluding: Real Estate, Utilities, Oil & Gas, Financials & Basic Materials. Value Matters – But not lately

Nikkei in the 80’s as a Precedent Nikkei 1977-95/ Nasdaq 2010-20 (base 100) 800 700 600 500 400 300 200 100 0 0 12 24 36 48 60 72 84 96 108 120 132 144 156 168 180 192 204 216 Source: Bloomberg, at 30 Jun’20 Nikkei Nasdaq 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. Are we in a similar situation

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.