Batseta Seminar. Understanding risk April 2016

Transcription

1 Batseta Seminar Understanding risk April 2016

2 $350bn Global ETP cumulative flow The global ETP inflow 2015 Source: BlackRock ETP Landscape

3 The global ETP inflow by asset class & exposure 2015

4 The SATRIX experience The SATRIX experience International, 21.3% R53.4bn March 2016 Vanilla, 47.0% Sector, 6.8% R45.0bn December 2014 Smart Beta, 24.9% R39.5bn December 2013 International, 25.2% International, 30.3% Vanilla, 49.1% Vanilla, 50.1% Sector, 6.2% Smart Beta, 19.6% Sector, 7.0% Smart Beta, 12.6%

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7 Market cap weighted index smart beta enhanced index And yet they are all called PASSIVE

8 Let s take these points off the table

9 % Minimum Average Maximum Active Passive 0.97 Source: Morning Star Direct & Satrix to 31 January 2015

10 Passive outperforming Active outperforming 1 year 3 years 5 years 10 years 44% 73% 83% 88% % of active managers underperforming the Shareholder Weighted All Share index Based on the ASISA SA General Equity sector of funds dated to 31 January 2016 Source: Morning Star Direct & Satrix

11 Passive outperforming Active outperforming 1 year 3 years 5 years 10 years 13% 35% 58% 85% % of active managers underperforming the FTSE/JSE Property Index Based on the ASISA SA General Equity sector of funds dated to 31 January 2016 Source: Morning Star Direct & Satrix

12 Source: Morning Star Direct & Satrix to 31 January %

13 Important considerations ALSI, CAPI, SWIX Mar-04 Mar-05 Mar-06 Mar-07 Absolute Volatility Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 SWIX ALSI Two additional independent factors Less concentration Consistently lower volatility and tail risk 6% 5% 4% 3% 2% 1% 0% Herfindahl-Hirschmann Index Portfolio Diversification Index ALSI SWIX CAPI ALSI SWIX

14 Passive grows up smart beta What is driving total return? total return pure alpha α α smart beta β+ α β+ β+ α market beta β β β β 70's 80's 90's % of total mutual fund performance is explained by market beta + smart beta Li & Qu; Financial Product Differentiation over the State Space in the Mutual Fund Industry (2010)

15 Return based style analysis Manager A

16 Passive outperforming Active outperforming 1 year 3 years 5 years 10 years 75% 91% 100% 100% % of active managers underperforming the Momentum index Based on the ASISA SA General Equity sector of funds dated to 31 January Fees applied of 60bps plus VAT Source: Morning Star Direct & Satrix

17 Smart Beta Rationale: Equity Building Block STRATEGY INDEX EXPLAINED BIAS DIVIDEND PLUS 30 high dividend yielding companies within the universe of Top 40 and Mid Cap Index Expected to pay the best normal dividends over the forthcoming year Fund will have a low correlation with other indices on the JSE Value EQUALLY WEIGHTED TOP 40 MOMENTUM Top 40 Equally Weighted Index represents the 40 largest, most liquid shares listed on JSE Equal weighting methodology offers a more balanced exposure to all companies Momentum is a composite of price and earnings momentum as measured by analyst revisions. Fund is negatively correlated to value investing Momentum Fund designed to be: Risk Controlled; Consistent and True to Label Robust blend of price and earnings momentum styles Size Momentum

18 Which factors work in South Africa Momentum Earnings Revision Quality Yield (Value) Source: Satrix, MSCI, IBES, Factset, and J.P. Morgan, S&P

19 The smarter beta within passive Providing diverse returns for portfolio construction US Market Value Momentum Low Vol Economic Boom 8.56% 5.35% 10.68% -4.10% Flat Economy 12.36% 5.36% 7.40% -1.30% Economic Recession % 14.65% 8.32% 21.12% Period: 1932 to 2013 Source: Institutional Investor - Can smart beta really outsmart the market

20 harvesting factors harvesting factors while the idea is active the implementation is passive

21 How do we combine factors? Strategic allocations to premia True equality or parity in how investors are exposed. Contribution to absolute and relative risk are balanced. Two defensive factors are balanced by two offensive factors or themes.

22 The Satrix advantage Growing business in established investment core Most experienced team in the market Only player objective on ETF UT Segregated Portfolio Construction and Risk Management Market understanding and relationship World class systems, dealing & compliance Representation on FTSE/JSE advisory committee Leverage off top fundamental team Driven by passion

23 The Satrix competitive advantage Portfolio Construction & Risk Management Is the index / factor s performance predictable, reliable and robust? Do they understanding the drivers of risk and return? How do I combine this into my current portfolio construct? Does the investment manager have a track record of success? Am I hedging out the undesired tilt and creating / enhancing the desired tilt? Most experienced team in the market Does the team understand index construction principles and implementation? Has the team built a robust process from which the successful extraction of quality is likely? Can they track the index as close as possible i.e. limit implementation shortfall. Does the team allow for human liberties? Is the process followed in a strict and disciplined manner? World class systems, dealing and compliance Is the governance and compliance culture sound? Can they handle the turnover requirements of the strategy? How extensive is the broker network? Is the process supported by a sound systems environment? Market understanding and relationships Is the index methodology and research transparent? Is it unique? Is the brand stable, well known and of good repute? Are the fees competitive?

24 Thank you

25 Disclaimer Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium- to long-term investments. Please note that past performances are not necessarily an accurate determination of future performances, and that the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available from the Manager, Satrix Managers (RF) (Pty) Ltd, a registered and approved Manager in Collective Investment Schemes in Securities. Additional information of the proposed investment, including brochures, application forms and annual or quarterly reports, can be obtained from the Manager, free of charge. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in the portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of the portfolio and the investor will differ depending on the initial fees applicable, the actual investment date, and the date of reinvestment of income as well as dividend withholding tax. Forward pricing is used. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The performance of the portfolio depends on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-div date. Lump sum investment performances are quoted. The portfolio may invest in other unit trust portfolios which levy their own fees, and may result is a higher fee structure for our portfolio. All the portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No 45 of 2002 ( CISCA ). International investments or investments in foreign securities could be accompanied by 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. The Manager has the right to close any portfolios to new investors to manage them more efficiently in accordance with their mandates. The portfolio management of all the portfolios is outsourced to financial services providers authorized in terms of the Financial Advisory and Intermediary Services Act, Standard Chartered Bank is the appointed trustee of the Satrix Managers Scheme.