The Search for Dividend Yield June 2017

Transcription

1 The Search for Dividend Yield June 2017

2 Introduction

3 An Introduction to CoreShares CoreShares is a leading passive investment management business in Africa with a particular focus on Smart Beta CoreShares is owned by Grindrod, RMI Investment Managers, Yellowwoods Capital and Management An approved manager of Collective Investment Schemes and an authorised Financial Services provider (Cat I & II) Full service set across ETFs, unit trusts and segregated mandates Products are utilised by multiple investor types from self directed individuals through to institutional clients. CoreShares has over retail clients Committed to low cost products, innovation, transparent portfolio construction and accurate tracking 3

4 Who owns CoreShares? Yellowwoods Yellowwoods Capital GFS Holdings & Management 25% 25% 50%

5 The Search for Dividend Yield

6 The search for dividend yield Retirees living off of their portfolios are in constant search for yield across asset classes Income can be generated through exposure to multiple asset classes depending on their income requirements Important considerations are starting yield requirements and time horizon Because of income growth an equity income strategy is an important component of total income production 6

7 Starting Yield The search for yield: Total income production, Asset classes Meet ST income needs Meet LT income needs Bonds: High starting yield (+/- 8.5%) (contractual) No yield growth Defensive assets (Low probability of long term PP protection) Listed Property: Moderate starting yield (+/- 6.5%) Moderate yield growth (+/- 7%) Growth assets (High probability of long term PP protection) Equity: Low Starting Yield (+/- 3%) High yield growth (+/- 10%) 7 Yield Growth

8 The search for yield: illustrative example (1) Because of income growth an equity income strategy is an important component of total income production increasing the probability of protecting purchasing power (1) 20, , , , , , , , , , SBK R Source: Bloomberg. 2. Assumes: investment of R 100,000.00; All income consumed no reinvestment; Equity = Standard Bank Ordinary Share, Bond Investment = R203 (8,25% COUPON)

9 Percentage A case for Dividends: US Equity market 8 UNCERTAIN Change in valuation Dividend growth (real) Dividend growth (inflation) Dividends 1 0 CERTAIN Source: Robert J. Arnott - Dividends and the Three Dwarfs Financial Analysts Journal (2003) 9

10 A case for a dividend growth strategy Dividends and dividend growth are key drivers of long term returns Dividend growers tend to be quality companies that exhibit Robust earnings (less cyclical) Less leverage Growth of absolute dividends suggests a company with financial strength and disciplined management Dividend growers are generally companies that can endure difficult market and economic environments relatively well NB: A dividend growth strategy high yield strategy 10

11 The rise of dividend growth funds To solve for the need of inflation beating income a number dividend growth funds are available in the South African General Equity category Combined these have gathered in excess of R 10 bn ZAR CoreShares believes its dividend growth strategy, Dividend Aristocrats, should be considered when allocating to a fund of this nature With three years of track record we will show the significant benefit to be had by including Dividend Aristocrats as part of your equity income strategy 11

12 Scenario: Using actual fund track records

13 Scenario: using actual fund track records 1. Find all General Equity Funds with a common objective, Dividend Income strategies 2. Establish the methodology of achieving the objective a) Simplify the methodologies 3. What is the relative performance, both income and total return 4. What do these strategies look like blended with CoreShares Dividend Aristocrats Assume no current use of dividend strategies 5. What is the performance relative to the four largest General Equity Unit Trusts, both income and total return 6. What do these funds look like blended with CoreShares Dividend Aristocrats 13

14 1. Common Objective Dividend Income: Methodology Fund A Invest in companies with high but sustainable dividend yield Also seeks value situations low relative PE ratios or discount to intrinsic value Fund B Seeks dividend yield combined with long term growth of income and capital Sound listed companies that pay dividends with potential for growth Fund C Invest in companies with highest forward dividend yield Seeks company which pay superior dividends Fund D High level of and long term growth in dividend income High quality businesses that are expected to deliver earnings growth Fund E Invest in companies with track record of providing consistent dividends Primary focus on actual cash flow as opposed to starting yield 14

15 2. Methodology Simplified Fund A Yield/Value/Quality Fund B Yield/Quality Fund C Yield/Value Fund D CoreShares Dividend Aristocrats Yield/Quality Quality/Yield 15

16 3. Relative performance: Income and return On a relative basis, the Dividend Aristocrats strategy has produced more income since inception than its peers Against a General Equity peer group of 129 funds, the Dividend Aristocrats strategy has a performance ranking of 2/129 Equity income funds Income generated Income ranking Performance 3 yrs p.a. Performance ranking Fund A R 19, % 4 Fund B R 100, % 3 Fund C R 109, % 5 Fund D R 114, % 2 CoreShares S&P Dividend Arst ETF R 124, % 1 16

17 Income generated (Rands) 4.Blending Dividend Aristocrats with other dividend strategies (1) A blend of any of the funds with the Dividend Aristocrats strategy improves both income and total return. Fund A Fund B Fund C Fund D Blended portfolios 140, , , , , , ,826 80, ,932 71, ,491 60,000 40,000 20,000 19, Performance (%) Source: Morningstar, assumes blended 50% CoreShares Dividend Aristocrats with other dividend income funds 17

18 5. Relative performance: Income and return On a relative basis, the Dividend Aristocrats strategy has produced more income since inception that the four largest unit trust equity funds in South Africa Against a General Equity peer group of 129 funds, the Dividend Aristocrats strategy has a performance ranking of 2/129 Equity income funds Income generated Income ranking Performance 3 yrs p.a. Performance ranking Fund A R 24, % 24/129 Fund B R 67, % 68/129 Fund C R 44, % 45/129 Fund D R 67, % 74/129 CoreShares S&P Dividend Arst ETF R 124, % 2/129 18

19 Income generated (Rands) 6. Blending Dividend Aristocrats with general equity strategies (1) A blend of any of the largest active equity funds with the Dividend Aristocrats strategy results in a significant improvement in income and total return. Fund A Fund B Fund C Fund D Blended portfolios 120, ,000 80,000 67,803 95, , , , ,000 67,241 40,000 44,523 20,000 24, Performance (%) Source: Morningstar, assumes blended 50% CoreShares Dividend Aristocrats with largest general equity funds. 19

20 The elements behind Dividend Aristocrats success

21 Gross yield composition Low Fees: Significantly lower fees mean better net yield Dividend Funds: High fees destroy otherwise high starting yields, which detracts from client outcomes 100% 2.74% 3.87% 3.79% 4.45% 3.80% 0.60% 50% 2.72% 3.41% 3.21% 3.50% 2.14% 0% 1.15% 1.24% 0.38% 0.30% Fund A Fund B Fund C Fund D Fund E Total Expense Ratio Div yield net of TER 21

22 Gross yield comparison Low Fees: Significantly lower fees mean better net yield General Equity Funds: Already starting with relatively low income yields, high fees detract income 100% 50% 3.03% 3.13% 2.80% 3.43% 3.80% 0.69% 1.07% 2.20% 2.26% 3.50% 2.34% 1.73% 0.93% 1.17% 0% 0.30% Fund A Fund B Fund C Fund D Fund E Total Expense Ratio Income yield net of TER 22

23 Income generated (Rands) Low Fees: Better net yield equals better cash flow The fees you pay matter! CoreShares Divi Arist Fund A Fund B Fund C Fund D 150, , , , , ,604 75, ,932 50,000 25,000 19, % 0.50% 1.00% 1.50% 2.00% 2.50% Fees collected 23

24 Easily replicated solutions: Does the additional cost add value? Breaking down the drivers of return Risk Factors / Risk Premia / Alternative Betas are all ways of describing the underlying building blocks of returns, Alpha Market Beta Alpha Factors Market Beta which can be accessed using 40 rules based or systematic 30 techniques Traditional Perspective Smart Beta Perspective 24

25 Conclusion The low cost and robust methodology of the CoreShares Dividend Aristocrats Fund has delivered superior outcomes of: Income production Capital growth Using the CoreShares Dividend Aristocrats Fund you can add significant value to your client s equity income solution Because of high costs the majority of active managers with an equity income strategy struggle to deliver a favourable net yield thereby significantly detracting from their primary value proposition What is new about Smart Beta is not the (investment) idea but the simple and transparent packaging. Carving out and lowering the cost of one significant component of active management. Khan & Lemmon

26 Accessing the CoreShares Dividend Aristocrats fund JSE brokers itransact (for advisers) Exchange Traded Fund Momentum Glacier Unit Trust 26

27 Dividend Aristocrats Details

28 S&P SA Dividend Aristocrats Methodology S&P uses the S&P South Africa Composite Index as a starting universe Property property companies are excluded Dividend Growth 30 companies with dividends that have increased or remained stable for at least seven consecutive years are chosen Weighting equal weighted Rebalance the index is rebalanced annually Constituent of Composite Index Property stocks removed Dividend filter Equal weighted S&P SA Dividend Aristocrats Index 28

29 CoreShares Dividend Aristocrats Historic Performance 15.0% Historic performance period ending 30 April 2017 (1) 12.8% 13.6% 10.0% 8.5% 8.5% 5.0% 4.5% 3.0% 3.0% 3.2% 3.3% 5.2% 5.3% 2.4% 2.9% 4.1% 5.4% 0.0% 1 Month Year-to-Date 6 Month 1 Year 3 Years CoreShares Dividend Aristocrats S&P SA Dividend Aristocrats TR Index FTSE/JSE Top 40 TR Index Standard Deviation (2) Upside Downside Participation (3) 18.0% 100% 17.0% 16.8% 16.9% 17.0% 50% 80% 16.0% 0% 15.0% CoreShares Dividend Aristocrats S&P SA Dividend Aristocrats TR Index FTSE/JSE Top 40 TR Index -50% -100% -71% Source: I-Net and S&P as at April 2017, Company MDDs (1) Past performance is not an indication of future performance. Index performance is not an indication of unit trust performance. (2) Calculated over a 3 year period ending 30 April 2017 (3) Based on daily returns over the period September 2008 April Past performance is not an indication of future performance

30 S&P Dividend Aristocrats Historic Index Performance Historic performance period ending 30 April 2017 (1) 20.0% 15.0% 10.0% 5.0% 0.0% 17.6% 13.6% 10.8% 11.6% 8.0% 8.7% 2.9% 4.1% 5.4% 3.2% 1 Year 3 Years 5 Years 7 Years Since Inception S&P SA Dividend Aristocrats TR Index FTSE/JSE Top40 TR Index 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Standard Deviation (2) Upside Downside Participation (3) 16.0% S&P SA Dividend Aristocrats TR Index 20.9% FTSE/JSE Top40 TR Index Source: I-Net and S&P as at April 2017, Company MDDs (1) Past performance is not an indication of future performance. Index performance is not an indication of unit trust performance. (2) Calculated over a 3 year period ending 30 April 2017 (3) Based on daily returns over the period September 2008 April Past performance is not an indication of future performance 80% 40% 0% -40% -80% 65% -57%

31 Dividend Aristocrats Sector Composition and Constituents Sector Weightings Fund Constituents Financials 44.0% Consumer Discretionary 20.0% Consumer Staples 16.5% Industrials 6.8% Health Care 6.0% Information Technology 3.5% Telecommunication 3.2% 0.0% 20.0% 40.0% 60.0% AVI LIMITED BRIT AMERICAN TOBACCO BIDVEST GROUP LTD CAPITEC BANK HOLDING DISTELL GROUP LTD DISCOVERY HOLDINGS LTD EOH HOLDINGS FIRSTRAND LIMITED HUDACO INDUSTRIES INVESTEC LIMITED JSE LTD LEWIS GROUP LTD MEDICLINIC INTERNATIONAL PLC MMI HOLDINGS LIMITED MR PRICE GROUP LTD MTN GROUP LTD NEDBANK GROUP LTD NASPERS LTD NETCARE LIMITED OLD MUTUAL PLC REMGRO LIMITED RMB HOLDINGS LIMITED STANDARD BANK GROUP LTD SHOPRITE HOLDINGS LTD SANLAM LIMITED SANTAM LIMITED SPAR GROUP THE FOSCHINI GROUP LTD TRUWORTHS INT LTD WOOLWORTHS HLDS LTD Source: S&P

32 Annexure

33 CoreShares Personnel CoreShares Bridge FM Gareth Stobie BComm, PG Dip: Finance, Banking and Investment Management, MBA CoreShares Managing Director 13 years experience Previously Head of Capital Markets Leago Lentsoane B.Comm FRM, CAIA, JSE RPE Previous Nedbank Capital 8 years Joined CoreShares in 2017 Gregory Heyman Level II Candidate in the CFA Program, B.Comm (Hons) - Business Finance Joined CoreShares in 2015 Yaron Zimbler, CA, CFA CFA Charter holder, BComm (Hons), CA(SA) Joined GBL in 2006 Previous: Grant Thornton GBL Corporate finance Chris Rule, CFA CFA Charter holder, BComm (Hons) - Financial Analysis Joined CoreShares in 2011 Emelia Maharaj, CA CA (SA), BComm, PG Dip: Accounting Previous: Standard Bank, PWC Joined CoreShares in 2016 Mxolisi Siwundla B.Comm (Hons) Investments, Passed CFA Level 1 Joined CoreShares in 2017 previous Nedgroup Investments 2 years Clare Williamson BComm Business Management Compliance Practitioner (CPrac) Professional designation Joined GBL in 2008 GBL compliance Paul Stewart Head: Fund Management BBA (Economics, Finance) Joined Plexus in yrs financial services experience Andrew Dowse Level II Candidate in the CFA Program, BComm (Hons) Financial Analysis & Portfolio Management Joined GrAM in 2013 Previous: Insinger de Beaufort BNP Paribas Ryan Massey BComm Risk Management JSE Registered Securities Trader Joined GrAM in 2015 Previous: Grindrod Bank CoreShares market maker 33

34 Contacts Gareth Stobie Telephone: +27 (0) Fax: +27 (0) Chris Rule Telephone: +27 (0) Fax: +27 (0) Emelia Maharaj Telephone: +27 (0) Fax: +27 (0) Gregory Heyman Telephone: +27 (0) Fax: +27 (0)

35 CoreShares Timeline 2007 PTXSPY Listed (owned by Resilient) 2011 PTXTEN Listed (owned by Resilient) 2012 Grindrod Bank lists PREFEX 2013 Grindrod buys Proptrax Manco from Resilient (PTXSPY & PTXTEN) renamed GTrax PREFEX converts to CIS format and named PREFTRAX 2014 Listed 2 smart beta ETFs DIVTRX and LVLTRX S&P relationship forged 2015 Name change to CoreShares Amalgamation with Betta Beta Listed Top50 ETF RMI and Yellowwoods become shareholders 2016 Appointed portfolio manager of Investment Solutions multi-asset portfolios Amalgamation with Betta Beta became effective (8 ETFs on JSE) ETFs listed on 3 African exchanges Launched 4 unit trusts (3 smart beta) Listed CoreShares S&P500 ETF and CoreShares S&P Global Property ETF on the JSE 2017 Launched CoreShares online Established exclusive relationship with ERI ScientificBeta 35

36 Why Core Shares? We believe in the Core and Satellite approach to portfolio construction An opportunity exists for clients to combine both active and passive thereby harnessing the best of both worlds Active approach Core-Satellite approach Index approach Combines best of both worlds Seeks to outperform Higher cost Higher manager risk Shorter term focus Lower potential tax efficiency Index core Seeks market returns Lower cost Low manager risk Long-term focus Higher potential tax efficiency Active Satellites 36

37 Why CoreShares? Best of breed index selection to achieve the best possible outcome for its clients Engages with leading international index providers to ensure best index practice Strong corporate shareholding and infrastructure alignment with Grindrod Bank Competitive pricing, quality staff and systems CoreShares is a focused passive only brand 37

38 Smart Beta, new era of index investing Passive Smart Beta Active Market return Low Cost Transparent Rules based Deeper diversification. Outcomes orientated. Better risk adjusted returns. Active management Best of both worlds 38

39 Current CoreShares Range of Unit Trusts Fund Name Category Fee 1 CoreShares S&P SA Top 50 Tracker Fund SA General Equity 0.20% CoreShares S&P SA Dividend Aristocrat Tracker Fund SA General Equity 0.40% CoreShares S&P SA Low Volatility Tracker Fund SA General Equity 0.40% CoreShares Property Top Ten Tracker Fund SA Real Estate 0.425% (1) In order to reach a target TER CoreShares subsidises fixed and variable costs 39

40 Disclaimer CoreShares Index Tracker Managers (RF) (Pty) Ltd ( the Manager ), Registration number 2006/006498/07, is a company incorporated in South Africa acting as a manager of collective investments schemes in securities in terms of Section 42 of the Collective Investments Schemes Control Act and is supervised by the Financial Services Board. The registered address of the Manager is 5 Arundel Close, Kingsmead Office Park, Durban, The Trustee and Custodian is Société Générale Johannesburg Branch. The Investment Management of the portfolios is outsourced to CoreShares Asset Management (Pty) Ltd, an authorised financial services provider, FSP Client administration is outsourced to Maitland Group South Africa Limited, Tel: ; Address: Maitland House 1, River Park, Gloucester Road, Mowbray, 7700, Cape Town. Trustee and custodian: Société Générale Johannesburg Branch Telephone Address: 160 Jan Smuts Avenue, Rosebank. This document and any other information supplied in connection with CoreShares is not advice as defined and/or contemplated in terms of the Financial Advisory and Intermediary Services Act and, therefore, investors are encouraged to obtain their own independent advice prior to buying participatory interests in CIS portfolios issued by the Manager. Collective investment schemes are generally medium to long-term investments. The value of participatory interests or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from the manager. There are no performance fees charged in the portfolio. Commission and incentives may be paid and if so, would be included in the overall costs. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. A higher TER / TC does not necessarily imply a poor return, nor does a low TER / TC imply a good return. The current TER may not necessarily be an accurate indication of future TER / TC s. The portfolio may be closed to new investments at any time in order to be managed in accordance with its mandate. 40