Investing for “The New Normal” Jarrod Cahn Fund Manager - Credo Global Equity Fund
Investment Philosophy ▪ We believe that wealth is best created and preserved through patient and disciplined investing, with a focus on the long term ▪ We follow a value-based approach to investing ▪ We seek to invest in high quality companies that are attractively priced relative to their future business prospects ▪ We believe that the market’s short -term focus creates opportunities for those willing to concentrate on underlying business performance ▪ We view risk as permanent losses of capital and not in terms of short-term volatility 2
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Value over time 1970’s 1930’s Warren Buffet & Charlie Munger Ben Graham & David Dodd 2020 1967 2009 Start of 10 years of value underperformance Source: https://howmuch.net/articles/100-years-of-americas-top-10-companies | | Market Value ($bn) Inflation Adjusted September 2017 I Market Value ($bn) as of May 13 th , 2020 5
Defining Value at Credo ▪ A “cheap” valuation is not an absolute number ▪ Valuation should be considered relative to: • The company’s future potential • Peers • Own history • Market 6
Finding Value ▪ We believe valuation dislocations can be caused by short term events such as • Regulatory change • Political worries • Spin-offs • Changes in business cycles • Sector consolidation ▪ We look for companies where such events have not affected the long term prospects and earnings potential 7
What happened? -- MSCI World Index -34% -- VIX Index 8
The ‘New Normal’ Unprecedented changes in demand Long-lasting changes to society 9
Attributes of successful businesses in the ‘New Normal’ ▪ Ability to operate the business in the new normal • Keeping vs firing employees (e.g. IAG/British Airways) • Closing facilities vs keeping them open at reduced capacity (e.g. Disney) • Managing supply chain (e.g. Apple iPhone delays) ▪ Proactiveness in the face of severely reduced demand • Operating leverage vs Flexibility to cut certain costs completely • Skilful management team • Adapting business model ▪ Resilience throughout the downturn (however long it lasts) • Availability of resources – cash is king; credit facilities • Probability of destruction of shareholder value (equity issues, convertible debt, bankruptcy) Does this stock offer value? 10
Building our portfolio ▪ Affected in all aspects (profitability and operations) ▪ Potential for binary outcomes Risk ▪ Possible cashflow and ▪ Quality franchises balance sheet issues ▪ Business models with competitive advantage ▪ Resilient business models ▪ Temporary depressed by and balance sheets quarantine measures ▪ Stable compounding returns ▪ Positive or neutral impact from COVID-19 Reward 11
Building our portfolio Risk Reward 12
Credo Global Equity Fund Top 10 Holdings (%) Facebook Inc 5.5 Cigna Corp 5.3 Microsoft Corp 5.2 Flutter Entertainment plc 5.0 The Walt Disney Co 4.7 IG Group Holdings plc 4.4 HCA Healthcare Inc 4.2 Frontdoor Inc 4.8 Alibaba Group Holding Ltd 3.9 Becle SAB de CV 3.3 Total 45.6 (*) As at 30/04/2020 13
Sector and Currency Allocation (%) Sector Allocation* (%) Currency Allocation* (%) 2.3 7.2 9.4 3.6 20.0 17.9 Cash and Equivalents 12.7 Communication Services Consumer Discretionary 3.3 Consumer Staples 2.9 AUD Energy GBP Financials MXN 17.7 Health Care 71.5 20.6 Other (EUR, HKD, ZAR) Industrials USD Information Technology 1.7 9.4 (*) As at 30/04/2020 14
Credo Global Equity Fund Long-only equities Global exposure Large capitalisation Value bias High liquidity No derivatives, gearing or hedging 15
BCI Credo Global Equity Fund Feeder Fund 16
Herd Immunity 17
Important Notice The information and opinions expressed in this presentation have been compiled from sources believed to be reliable. This presentation is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning Credo Capital Limited (authorised and regulated by the FCA in the UK) ( Credo ) and/or its UCITS Funds referred to in this presentation. Those Funds are regarded Collective Investment Schemes in Securities ( CIS ) and should be considered as medium to long-term investments. CISs are traded at the ruling price and can engage in scrip lending and borrowing although none of the Funds do so. A schedule of fees, charges and maximum commissions for the Funds is available on request from the Manager. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. Performance for the Funds is calculated using net NAV to NAV numbers with income reinvested. Full performance calculations are available from the Manager on request. For any additional information such as MDDs, prospectus and supplements please go to www.credogroup.com. None of Credo, its directors, officers or employees accepts liability for any loss arising from the use hereof or reliance hereon or for any act or omission by any such person or makes any representations as to its accuracy and completeness. Any opinions, forecasts or estimates herein constitute a judgement as at the date of this presentation. There can be no assurance that the future results or events will be consistent with any such opinions, forecasts or estimates. Investors are warned that past performance is not necessarily a guide to future performance, income is not guaranteed, share prices may go up or down and you may not get back the original capital invested. The value of your investment may also rise or fall due to changes in tax rates and rates of exchange if different to the currency in which you measure your wealth. Companies in the Credo Group and their respective directors, members, employees and members of their families may have positions in the securities or derivatives thereof referred to in this presentation. This presentation is intended for Credo clients to whom it has been directed and should not be relied on by any other persons. No part of this presentation may be reproduced or distributed in any manner without the written permission of Credo. Prescient Management Company (RF) (Pty) Ltd is the Representative Office in South Africa for the Credo Global Equity Fund and the Credo Dynamic Fund. Boutique Collective Investments (RF) (Pty) Ltd is the Management Company for the BCI Credo Global Equity Feeder Fund. 18
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