Tactical Asset Allocation

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Tactical Asset Allocation The key to performance in multi-asset class portfolios 15 th May 2018 Ruen Naidu (Portfolio Manager) FAIS Accreditation: Ruen Naidu (RE5) is FAIS accredited External Compliance Officer Tim Howse (ecomply) tim@ecomply.co.za Tel 021 671 8162 "An investor initiative in partnership with UNEP FI and the UN Global Compact".

Tactical Asset Allocation

Asset allocation is paramount Asset class returns vary widely from year to year Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 1 2 3 4 5 6 SA Equities SA Equities US Bonds SA Equities World Equities World Equities US Cash SA Bonds SA Equities 32% 19% 30% 27% 49% 12% 35% 14% 21% SA Cash SA Bonds US Cash World Equities US Cash SA Equities US Bonds SA Cash SA Bonds 9% 15% 23% 19% 24% 11% 31% 7% 10% World Equities SA Cash World Equities SA Bonds SA Equities US Bonds World Equities SA Equities World Equities 3% 7% 11% 16% 21% 10% 30% 2% 10% SA Bonds World Equities SA Bonds US Bonds US Bonds SA Bonds SA Cash World Equities SA Cash -1% -1% 9% 10% 21% 10% 6% -7% 8% US Bonds US Bonds SA Cash SA Cash SA Cash US Cash SA Equities US Bonds US Bonds -16% -6% 6% 6% 5% 10% 5% -10% -3% US Cash US Cash SA Equities US Cash SA Bonds SA Cash SA Bonds US Cash US Cash -21% -11% 3% 5% 1% 6% -3% -11% -9% But asset allocation is the largest piece of the active management pie. Ibbotson and Kaplan (2000) 3

Strategic Asset Allocation Issues with Strategic Asset Allocation (SAA) Dynamic structure of asset classes Long-run returns and correlations change over time Passive SAA approach assumes a neutral economic cycle 4

Tactical Asset Allocation What is Tactical Asset Allocation (TAA)? TAA is a dynamic strategy that actively adjusts a portfolios strategic asset allocation in order to exploit imbalances and inefficiencies between different asset classes and sub-classes. Global Cash Value Equities Our various strategies Bonds Duration Quality Equities Bonds Credit 5

Tactical Asset Allocation Why deploy TAA strategies? Improved risk/reward profile Smoothing of business cycle effects on fund returns Increasing total amount of alpha available Providing potential to perform in both rising and falling equity markets How is TAA different from active management, ie security selection and passive management? Alpha Beta Systematic risk TAA: Produces alpha from timing systematic risk factors Passive indexing strategies: Compensates for assuming systematic risk Idiosyncratic Risk Traditional Active: Alpha from security selection 6

Tactical Asset Allocation Common TAA signals Business cycle/macro Value signals Sentiment signals Momentum/trend signals TAA implementation issues Beware data mining Clear understanding of link between exposure level and signal strength Sentiment signals Momentum/trend signals Models operating with different time horizons Model durability 7

Questions 8

FAIS Disclosures 1) The intermediary Argon Asset Management (Pty) Ltd ( ARGON ) is an authorised Financial Services Provider; FSP no. 835 Physical Address: 1st floor, Colinton House Tel: +27 21 670 6570 The Oval, 1 Oakdale Road, Fax: +27 21 671 8252 Newlands 7700 2) Representative(s) Name Qualification Experience Ruen Naidu B Bus Sc Hons (Actuarial Science) UCT 10 years ARGON has mandated the representative(s) in terms of contract(s) of employment to render the following services on its behalf: Fit and proper requirements The Representative(s) comply with the fit and proper requirements per FAIS Act. Responsibility for the Representative(s) ARGON takes full responsibility for the actions of the Representative(s) carried out in terms of the agreement concluded and has suitable guarantees in place, including professional indemnity cover, amongst others. 4) Key Individuals (responsible for the representatives): Dr Manas Bapela Mr Luyanda Joxo Mr Sello Setai CEO/CIO Deputy CEO & Head of Institutional Business Chief Operating Officer 5) Complaints handling procedure Should you have complaints regarding advice given by the representative(s) or their conduct, or any complaint relating to the services rendered by ARGON please contact the Compliance Officer in writing at the addresses supplied in section 1 or 3 above. Upon receipt of a written complaint we will provide you with an acknowledgement of receipt, within 48 hours and endeavour to resolve your complaint as soon as possible. Should there be any delays in resolving your complaint, we will advise you timeously. If your complaint is not resolved to your satisfaction you may direct it, in writing, to the Office of the Ombud for Financial Services Providers whose details are set out below. FAIS Ombud PO Box 74571 Lynwood Ridge, 0040 Telephone: +27 12 470 9080 Facsimile: +27 12 348 3447; E-mail Address: info@faisombud.co.za 3) External Compliance Officer ecomply Tim Howse Tel: +27 21 671 8162 E-mail: tim@ecomply.co.za 9

Contact details Luyanda Joxo, CFA Deputy CEO & Head of Institutional Business Jeremy Jutzen Client Relationship Officer T +27 21 670 6576 Tel +27 21 670 6592 F +27 86 674 1100 Fax +27 86 242 9958 C +27 84 701 1271 Cell +27 83 703 8523 E luyanda@argonasset.co.za E jeremy@argonasset.co.za Cape Town Office Johannesburg Office 1 st Floor, Colinton House, The Oval 7 th Floor, Fredman Towers, 13 Fredman Drive 1 Oakdale Road, Newlands, 7700 Sandton, 2146 General Tel +27 21 670 6570 www.argonassetmanagement.co.za Insurance notification We have Professional indemnity and fidelity guarantee cover in place to indemnify us against negligence, theft, fraud, errors and omissions. 10