STANLIB Research Franchise Brochure
01 Our belief Our franchise model
02 Overview The Research Team
03 Investment philosophy Objective of research framework
04 Investment risk management
05 Broader risk management Environmental, social and governance factors
06 Sector funds
07 Contact details
08 Appendices Appendix 1: Investment Team collaboration Appendix 2: Research Team structure Appendix 3: Team profiles
STANLIB Focused Investing
STANLIB is a leading asset management company in South Africa, with assets under management and administration of R560 billion* (USD46 billion) for over 437 000 retail and institutional clients across the African continent. We have a physical presence in seven African countries and are able to leverage from a wider Standard Bank Group Africa footprint. STANLIB – Focused Investing
Our Belief There is no ‘one size fits all’ investment solution for clients. Diverse clients need diverse investment outcomes. We therefore look at investments through many lenses and from many angles - this gives us an in-depth understanding of an ever changing investment landscape. Our investment model thus houses multiple focused units with unique philosophies, which cater for diverse client needs.
These specialist investment teams deal with market changes with agility and speed, as they are supported by dedicated research, trade, implementation, risk management and compliance teams. Our Multi-Specialist Franchise Model truly reflects the complex investment world we operate in and echoes our desire to deliver tailored solutions for diverse clients. Result – A broad investment offering designed to deliver our investment promise to clients.
Our Franchise Model The STANLIB investment team consists of Franchises made up of specialist teams of investment professionals. They manage clients’ assets in their area of expertise, namely: fixed interest, property, equities, multi-asset allocation, multi-management and alternatives.
*As at 30 June 2015
The Power of Focus and the Strength of Diversity STANLIB - Built to meet the ever-evolving needs of our clients
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Overview STANLIB has a centralised research approach. We have a full team of analysts providing proprietary research to the franchises at STANLIB. This ensures a consistent application of the research process and provides confidence to the robustness of the outcomes.
Growth
Absolute Return
Value 3rd Party
Life
Alternative
Multi-Asset
Research
Research Fixed Interest
Pan Africa Property
Credit Unlisted Credit
Equity Unlisted
Listed
The Research Team Henry Munzara Head of Research Franchise BA(Hons) Economics
Henry Munzara, who is supported by a team of analysts, heads the Research Franchise up. In addition to the Financial, Industrial and Resources sectors, the team’s research covers economics and investment strategies.
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Investment Philosophy
Our research framework consists of four pillars, namely valuation, stewardship, economic moat and uncertainty rating:
We believe that markets are inefficient due to behavioural biases, which causes discrepancies to occur between a business’ fundamental value and its market price We believe that a strategy of purchasing quality companies at attractive valuations outperform the broader market over time.
Economic moat / quality
Valuation/DCF and 4 year IRR
We use a disciplined framework focusing on rational and objective analysis to identify these opportunities and guard against falling victim to behavioral biases.
Objective of research framework
Uncertainty rating/risk
ЉЉ The research process focuses on rational and objective analysis to determine the fundamental value of a share ЉЉ We focus on operating performance through a business cycle to ensure that we are not trapped into extrapolating current trends into the future ЉЉ Our approach looks to back long-term winners Share price
Sell territory
Fundamental value
Stewardship / governance
Each of the four pillars is described below..
Economic moat Economic moat is defined as a sustainable competitive advantage that a company has over its peers. An economic moat allows a company to produce returns greater than the cost of capital and has a positive impact on valuation.
Stewardship Buy territory
The quality of a company’s management and governance structures are key determinants in how a company performs. We assess the quality of management and governance structures through a detailed questionnaire dealing with: ЉЉ Accounting transparency ЉЉ Board independence ЉЉ Ownership and management incentives ЉЉ Strategy and execution; and ЉЉ Commitment to social and environmental issues
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Stewardship provides a holistic view of the impact of management and the board on all stakeholders. The questionnaire includes King III and UN Principles of Responsible Investing (PRI) considerations and is reviewed periodically to ensure that it remains relevant.
Valuation Discounted cash flow (DCF) models are used in conjunction with other valuation techniques to determine the fair value of each company. This is followed by a calculation of what the annualised return expectation is for an investment, over a four year period. In forecasting earnings and performance metrics for companies, analysts test for reasonableness in their assumptions, by referencing long run returns generated by companies.
Uncertainty rating Predicting future earnings is made more difficult when a company has a history of producing volatile earnings or is expected to produce volatile earnings in the future. Therefore, a company that has a stable and consistent approach to renewing corporate value would provide greater predictability with regard to its fair value. The uncertainty rating therefore allows us to consider the margin of safety that we require for an investment in a share.
Combining the four pillars The process of integrating the four research pillars to compile a research view is set out in the schematic below. The output is a risk-adjusted rating.
Moat
Stewardship
Company forecasts and valuation
Uncertainty and star rating
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Economic inputs
Investment risk management The approach to investment risk at STANLIB is proactive, which means being prepared for unlikely events and learning from market crises. This applies to both market and nonmarket risks such as counterparty, operational, leverage and liquidity. Risk is the responsibility of the portfolio manager and is integrated into the investment team’s decision-making process. Each franchise is responsible for the monitoring and measuring of investment risks and the implementation of internal risk controls consistent with their risk appetite, investment philosophy and process. The oversight for investment risk is the responsibility of the Portfolio Analytics, Risk and Implementation Team and for operational risk, the responsibility of the STANLIB Compliance Team. These oversight functions ensure independence, clear accountability and enable portfolio managers to improve their investment process. The risk management framework is aligned with the investment objectives and investment horizon, and tackles multiple aspects of risk, as opposed to being limited to a single measure such as tracking error. Furthermore, an effective, integrated risk framework measures, monitors and manages exposures to economic and fundamental drivers of risk and return across asset classes in order to avoid the overexposure to any one risk factor.
Portfolio Analytics, Risk and Implementation The Portfolio Analytics, Risk and Implementation Team (PARI) at STANLIB provides an oversight function via a consistent and unbiased process for evaluating investment risks for each franchise. The objective of the PARI Team is to verify that portfolio managers are investing in line with their investment philosophy and within risk limits. The team monitors and manages the following investments risks: ЉЉ Credit ЉЉ Liquidity ЉЉ Derivatives ЉЉ Market concentration; and ЉЉ Investment risk
The objective of the team is to quantify, decompose, evaluate and communicate both benchmark and peerrelative risk and return. In order to achieve these objectives, the PARI Team: ЉЉ Makes all investment risks transparent to the franchises ЉЉ Identifies and communicates to senior management all risks that may lead to extreme performance; and ЉЉ Identifies each franchise’s strengths and weaknesses via detailed performance and attribution analysis This function complements the STANLIB compliance function, which is responsible for ensuring that the franchises operate within client-specified guidelines and regulatory limits. There are three components to STANLIB’s risk management framework: Љ Љ Risk measurement: the team does not only consider aggregate portfolio risk such as volatility or tracking error, which rely on individual volatilities and correlations of asset classes and managers. Volatility, tracking error and correlations capture the overall risk of the portfolio but do not distinguish between the sources of risk, which may include market risk, sector risk, credit risk and interest rate risk etc. ЉЉ Risk monitoring: enables the team to monitor changes in the sources of risk on a regular and timely basis. Portfolio decomposition plays an important role in stress testing. The sources of risk are stressed by the team to assess the impact on the portfolio. Risk is managed for normal times but the team are cognisant of and aim to be prepared for extreme events ЉЉ Risk-adjusted investment management: this function aligns the investment decision-making process with the risk management. It suggests ways in which portfolio managers can adjust their portfolios in response to expected changes in risk These three components of the robust risk management framework are essential. Risk measurement means having the right tools to measure risk accurately. Risk monitoring means observing the risk measures on a regular and timely basis. Risk-adjusted investment management means using the information from the measurement and monitoring of risks in order to ensure that the portfolio management process is aligned with expectations of risk and risk tolerance. Moreover, each component is interdependent
and should be aligned with our clients’ investment objectives. This interconnectedness is essential for a robust risk management framework at STANLIB and for the investment process to be fully aligned and integrated.
Broader risk management Compliance and investment risk management are the cornerstones of our business. To this end, we have robust risk management, compliance and governance structures. Our highly experienced Middle Office consists of Compliance, Legal, and Risk Management, which provide systems and processes to ensure that mandate compliance is monitored. In addition to the portfolio monitoring tools mentioned above, we use the STATPRO system to measure our performance relative to benchmarks and indices, where appropriate. STATPRO is also used for performance attribution. Risk management is effected through appropriate diversification across sectors and counters and ensuring that investment sizes are within limits. We have made provision for IT and business recovery facilities including office space. Our robust systems are designed to ensure that our organisation operates efficiently at all times. Insurance policies for professional indemnity as well as directors’ and officers’ liability are in place, through Standard Bank Insurance Brokers (Pty) Ltd.
Environmental, social and governance factors STANLIB is committed to and is a signatory of the United Nations Principles for Responsible Investing (UNPRI). In addition, we manage assets in accordance with the Code for Responsible Investing in South Africa (CRISA). The work done with respect to the full implementation of these principles includes, but is not limited to, continuous monitoring of corporate governance and reputation risk, assessment of health and safety as well as environmental practices and shareholder activism.
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Sector funds The Research Franchise houses the management of sector funds – Resources, Industrials and Financials- as well as a combined sector neutral fund.
Resources Investments are made primarily in mining, mining financial, metals, minerals, energy, commodity and related securities. The securities included consist of ordinary shares, as well as non-equity securities and preference shares. The STANLIB Resources Team leverages their strong material sciences background in applying a top down thematic approach to identifying global trends in commodities demand and supply. Fundamentally driven valuation is then applied per company with an emphasis being placed on volume and cost analysis.
Industrials The securities included consist of ordinary shares from the industrial sectors of approved exchanges and when appropriate, other securities (including non-equity securities and preference shares). We may also invest in other similar collective investment schemes. The Industrial category comprises far more sectors and companies than mining and financial areas. Approximately 50% of all shares listed on the JSE are industrial companies and they make up about 35% of the market cap.
Financials Investments consist of ordinary shares of companies whose business operations involve the provision of insurance, banking, brokerage or other financial services and when appropriate, other securities (including fixed income securities, approved securities, liquid assets, loan stock, preference shares, debenture stock, debenture bonds and unsecured notes, amongst others). A top-down sector approach is applied across the sector. Key macroeconomic factors include the rand and interest rates; and their impact on life, bank and property shares. Fundamental company analysis is applied on a per company basis. The sector comprises many of the country’s largest companies such as the big four banks, life and property companies.
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Contact details Should you have any questions about the content of this document, please contact us. Jerry Mnisi Head of Institutional Distribution +27 (0)11 448 5197
[email protected] Brendan Howie Senior Client Fund Manager +27 (0)11 448 6585
[email protected] Gareth Connellan Senior Client Fund Manager +27 (0)11 448 6294
[email protected] Letshego Rankin Senior Client Fund Manager +27 (0)11 448 6902
[email protected] Len Jordaan Client Fund Manager +27 (0)11 448 5143
[email protected] Bongiwe Khumalo Client Fund Manager +27 (0)11 448 6590
[email protected] Cindy Inacio Client Fund Manager +27 (0)11 448 6035
[email protected] Erdmuth Moremi Client Fund Manager +27 (0)11 448 6158
[email protected]
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Appendices Appendix 1: Investment Team collaboration Cooperation and collaboration are very important to our research and investment processes. In order to leverage the expansive talent within our franchises, we have a schedule of regular meetings to foster debate and share insights. Daily
Investment team meeting
ЉЉ Summary of global financial markets and discuss economic developments of the previous week ЉЉ Discussions both at a company and sector level
Monthly
Economics/investment strategy discussion
ЉЉ Discussion around key macro-economic variables/ forecasts as well as any interesting themes that impact different asset classes (equity/ bonds/ cash/ alternatives)
Bi-monthly
Interest rate meeting
ЉЉ Consistent with the MPC meetings of the Reserve Bank, we use this meeting to identify future interest rate movements’ or trends
Bond and property sector reviews
ЉЉ We use this meeting to discuss our views on the two asset classes and ascertain if there are any trends that are also relevant in the equity space
Tactical asset allocation
ЉЉ An asset class meeting to debate and decide where our preferences lie between the different asset classes
Credit Committee
ЉЉ A governance meeting to asses our credit exposures
Quarterly
In addition to the schedule above, each franchise has its own collaboration tools, which may include meetings, informal discussions and other engagements.
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Henry Munzara Head of Research Franchise BA(Hons)
Lebogang Molebatsi Financials
BCom(Hons), CA (SA)
Gcina Betela Financials BSc(Hons)
Theo Botha
Jeff Tshikhudo
Industrials
BCom(Hons), CFA
Fred Teeling-Smith
Kevin Lings
Resources
Economist
BSc(Hons) Mech Eng, MBA (Finance), CFA
Ndina Rabali
Industrials
MSc (Mech Eng), BCom(Hons), CA (SA)
BCom(Hons)
Vaughan Henkel Investment Strategist BSc, CFA
Kganya Kgara
Resources MSc
Emerging Markets Economist
BCom(Hons)
Theresa Heath Industrials
BA(Hons), CFA
Damon Buss Industrials
BEcon(Hons)
Jessica Brown Industrials
BCom(Hons), CFA
Appendix 2:
Research Team structure Depth and experience at our clients’ disposal 9
Appendix 3: Team profiles Henry Munzara- BA(Hons) Head of Research Franchise Industry experience - 16 years Henry joined STANLIB early in 2007 as Head of Absolute Return Strategy Funds. In January 2013 he took on his current role as the Head of the Research Franchise. Henry’s prior experience was as an Industrial Analyst with Old Mutual Asset Management, with primary responsibility for analysing the Luxury Goods, Tobacco and Diversified Industrial sectors; and previously with Investec Securities, where he also covered Diversified Industrials. Before immigrating to South Africa in 1999, Henry worked for Bard Asset Management in Zimbabwe, doing equity analysis in the Financial and Industrial sectors.
Vaughan Henkel – BSc, CFA Investment Strategist Industry experience - 14 years Vaughan joined STANLIB in 2013 as an Investment Strategist from RMB Morgan Stanley, where he had been Head of Research and South Africa Strategist. He held full responsibility for local asset allocation, equity selection and thematic and quantitative research. Prior to this, Vaughan performed a similar role in Strategy as Director of Research at JP Morgan. In his role at STANLIB, he produces a cohesive view of all assets across all the franchises, by combining asset and sector allocation views with the research performed within the different franchises. Vaughan has extensive analysis experience in the Telecoms sector. Vaughan holds a BSc in Electronic and Electrical Engineering from Wits University, and completed Wits Business School’s Management Advancement Programme. He is also a CFA charter holder and a member of the CFA Institute.
Kevin Lings – BCom(Hons) Economist Industry experience - 24 years Kevin joined then-Liberty Asset Management as an Economics Analyst in 2001. He is currently responsible for domestic and global economic research and forecasts within STANLIB as well as providing input into the asset allocation processes, Fixed Income, Property and Equity franchises. He joined LIBAM from JP Morgan Chase, where he was a member of their macroeconomic research team, providing economic research and analysis to the broader asset management industry in South Africa. Prior professional experience was built as a Senior Economist within the Nedcor group. Kevin has an honours degree in Economics from Wits University, specialising in international and public sector finance. He is a widely sought-after media commentator, and has had a number of journal articles published, internationally as well as locally. He is a past winner of the Old Mutual Applied Mathematics competition. From the mid-1990s to mid-2000s, Kevin lectured economics, part-time at Wits Business School.
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Theo Botha – BCom(Hons), CFA Industrials Research Industry experience - 22 years Theo is a highly experienced industry professional who currently heads the Industrial Team, with direct research responsibility for the Luxury Goods, Food Manufacturing, Hospitals and Pharmaceutical sectors. He also manages the Industrial, Nationbuilder and Sci-Tech unit trusts, together with other industrial-specific mandate funds for the Liberty group. Prior to joining then-Liberty Asset Management as a Research Sector Head in 1999, Theo had spent nine years with UAL/ NIB Asset Management in various research and fund management positions. Theo completed his BCom Honours degree in 1989, majoring in Investment Management, and he has been a CFA charter holder since 1994.
Lebogang Molebatsi – BCom(Hons), CA (SA) Financials Research Industry experience - 11 years Lebogang joined STANLIB in 2006 and has built specialised expertise and experience as a Financial Services Analyst in the Financials Team. He has headed the Financials Research unit since 2010 He completed his articles and qualified as a chartered accountant in 2006, joining KPMG’s Business Performance Services division as a senior consultant advising on BEE transactions.
Gcina Betela – BSc(Hons) Financials Research Industry experience - 9 years Gcina joined STANLIB in 2015 from Liberty where he worked as an Actuarial Specialist. He also gained valuable experience working as an Actuarial Specialist for ABSA Life Risk and Capital Management and Alexander Forbes Financial Services. Gcina’s qualifications include a BSc(Hons) Actuarial Science from the University of the Witwatersrand.
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Theresa Heath - BA (Hons), CFA Industrials Industry experience - 9 years As an Equity Analyst, Theresa covers the General Retail, Food Retail and Tobacco sectors within the Industrials Team. She has extensive research experience in Luxury Goods and Global Transport. She joined STANLIB in 2010, having spent six years with Newton Asset Management in London, as both a Global Research Analyst and Assistant Portfolio Manager. Theresa holds a BA(Hons) from Rhodes University in Grahamstown and is a CFA charter holder.
Jessica Brownhill – BCom(Hons) Industrials Industry experience - 4 years Jessica started her career at STANLIB as a Performance and Attribution Analyst, concentrating on the performance measurement and attribution of institutional portfolios. She gained valuable experience in understanding the performance drivers of securities, portfolios and indices. She also gained a thorough understanding of risk and return meansures as well as portfolio and benchmark structures. Jessica now forms part of the Research Team, as an Analyst in the Industrials Team. Jessica holds a BCom in Finance from the University of Johannesburg and a BCom(Hons) in Investment Management from the University of Pretoria. She has passed Level III of the CFA Program.
Damon Buss – BEcon(Hons) Industrials Industry experience - 6 years Damon joined the Research Team in 2011 as an Equity Analyst covering small caps and assisting with the portfolio administration of the Value Franchise funds. He subsequently moved into the Industrials Team, adding coverage of the Travel and Leisure sector to his continuing responsibilities in respect of small cap stocks. Damon first joined STANLIB in 2009 as an Investment Business Manager. He played a significant role in optimising the investment team’s operational environment, managing their costs and developing and executing various strategic projects. Following a Bachelor of Economics degree with Honours from Rhodes University, Damon joined Liberty Life in 2007 through their Graduate Development Programme. His early experience was built on conducting a number of strategic projects and reviews on behalf of senior executives and the Board of Directors, as well as assisting with investor relations.
Ndinavhushavhelo Rabali – MSc (cum laude) Resources Industry experience - 9 years Ndina has been an Equity Research Analyst with STANLIB since 2008, initially in the Financials sector and more recently, in Resources. He entered the financial services industry in 2004, and his experience has centred around portfolio management and research in the listed equities space – including as a Quantitative Analyst for Rand Merchant Bank; and previously as a trainee Portfolio Manager with Investec Private Client Securities. Ndina graduated cum laude with a Master’s degree in Financial Mathematics from the North-West University. 12
Jeff Tshikhudo – BSc(Hons), MBA, CFA Resources Industry experience - 5 years Jeff joined STANLIB in 2012 having previously trained as an Investment Analyst with Allan Gray, where he analysed a broad range of companies. He worked at Pioneer Natural Resources in the US between 2002 and 2009, where he fulfilled numerous roles in the engineering field before being promoted to Manager of Economic Evaluations. His work assisted top management to identify growth strategies and opportunities, including analysis of the group’s mergers and acquisitions activity. Jeff holds a BSc Honours degree in Mechanical Engineering with distinction from the University of Cape Town and went on to complete his MBA at Southern Methodist University in Dallas in 2007. He is also a CFA charter holder.
Fred Teeling Smith – BCom(Hons), MSc, CA(SA) Industrials Industry experience - 16 years Since joining STANLIB in 2009, Fred has been a key member of the Industrials Research Team, where his responsibilities as an analyst have been expanded to now include coverage of the Telcos, Beverage, Media and IT sectors Fred previously spent a dozen years with Standard Corporate and Merchant Bank, most of which were in their Corporate Finance Division, advising a diverse group of client companies on a wide range of corporate activities. Later he was appointed as a Senior Investment Banker responsible for key client relationships and also spent a year in the bank’s Global Advisory Team. Fred holds a Master’s degree in Mechanical Engineering and went on to qualify as a chartered accountant, training with Deloitte.
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Legal Notices Information and Content The information and content (collectively ‘information’) provided herein are provided by STANLIB Asset Management (“STANLIBAM”) as general information for information purposes only. STANLIB does not guarantee the suitability or potential value of any information or particular investment source. Any information herein is not intended nor does it constitute financial, tax, legal, investment, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Adviser. Nothing contained herein constitutes a solicitation, recommendation, endorsement or offer by STANLIBAM.
Copyright The information provided herein is the possession of STANLIBAM and are protected by copyright and intellectual property laws. The information may not be reproduced or distributed without the explicit consent of STANLIBAM.
Disclaimer STANLIB has taken care to ensure that all information provided herein is true and accurate. STANLIB will therefore not be held responsible for any inaccuracies in the information herein. STANLIBAM shall not be responsible and disclaims all loss, liability or expense of any nature whatsoever which may be attributable (directly, indirectly or consequentially) to the use of the information provided.
STANLIB Asset Management Limited Registration No: 1969/002753/06. A Financial Services Provider licensed under the Financial Advisory and Intermediary Services Act, 37 of 2002. FSP license No: 719. Document relevant as of 17 April 2015 Compliance number: DR2919
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STANLIB Asset Management Limited | Reg. No. 1969/002753/06 | Authorised FSP in terms of the FAIS Act, 2002 (Licence No. 26/10/719)
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