Live Ninety One webinar Insights & outlook from our portfolio managers - April 2020
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Live Ninety One webinar Insights & outlook from our portfolio managers April 2020
SA equities – opportunity or risk? Equity Fund Hannes Van Den Berg 16 April 2020
Ninety One Equity Fund
Performance
Annualised performance in ZAR
10%
Equity R Inc Comparison Index** (ASISA) South African EQ General
5%
0%
-5%
-10%
-15%
-20%
-25%
1 year 3 years p.a. 5 years p.a. 10 years p.a.
Equity R Inc -15.4% -2.0% -0.2% 8.5%
Comparison Index** -20.7% -3.7% -1.1% 7.2%
Active return 5.3% 1.7% 0.9% 1.4%
(ASISA) South African EQ General -21.4% -5.9% -3.3% 5.1%
Active return (sector) 6.0% 4.0% 3.1% 3.5%
Quartile ranking 1st 1st 1st 1st
Past performance is not a reliable indicator of future results, losses may be made.
Source: Morningstar, dates to 31 March 2020, performance figures above are based on lump sum investment, NAV based, inclusive of all annual management fees but excluding any initial charges, gross income reinvested,
fees are not applicable to market indices, where funds have an international allocation this is subject to dividend withholding tax, in South African Rand. Highest and Lowest returns are those achieved during any rolling 12
months over the period specified. Since inception (3 November 1987): Apr-06: 66.6% and Feb-09: -33.7% | ** Comparison index: At Inception = 87.5% ALSI + 12.5% MSCI ACWI pre 1/11/2017 and ALSI; Current since 15 Jun
2016 = 87.5% FTSE/JSE Capped Shareholder Weighted All Share Index TR ZAR (SWIX CAPI) + 12.5% MSCI AC World NR (ACWI).
Annualised performance is the average return per year over the period. Individual investor's performance may vary depending on actual investment dates. 3
Ninety One Equity Fund
Performance
Annualised performance in ZAR
10%
Equity A Inc Comparison Index** (ASISA) South African EQ General
5%
0%
-5%
-10%
-15%
-20%
-25%
1 year 3 years p.a. 5 years p.a. 10 years p.a.
Equity A Inc -15.8% -2.1% -0.7% 8.3%
Comparison Index** -20.7% -3.7% -1.1% 7.2%
Active return 4.9% 1.6% 0.4% 1.1%
(ASISA) South African EQ General -21.4% -5.9% -3.3% 5.1%
Active return (sector) 5.6% 3.8% 2.6% 3.2%
Quartile ranking 1st 1st 1st 1st
Past performance is not a reliable indicator of future results, losses may be made.
Source: Morningstar, dates to 31 March 2020, performance figures above are based on lump sum investment, NAV based, inclusive of all annual management fees but excluding any initial charges, gross income reinvested,
fees are not applicable to market indices, where funds have an international allocation this is subject to dividend withholding tax, in South African Rand. Highest and Lowest returns are those achieved during any rolling 12
months over the period specified. Since inception (3 November 1987): Apr-06: 65.8% and Feb-09: -34.8% | ** Comparison index: At Inception = 87.5% ALSI + 12.5% MSCI ACWI pre 1/11/2017 and ALSI; Current since 15 Jun
2016 = 87.5% FTSE/JSE Capped Shareholder Weighted All Share Index TR ZAR (SWIX CAPI) + 12.5% MSCI AC World NR (ACWI).
Annualised performance is the average return per year over the period. Individual investor's performance may vary depending on actual investment dates. 4
Mapping the coronavirus outbreak
From global synchronized growth to lockdown
Coronavirus cases per million people We can divide all countries in four categories:
‒ Under control: Rate of infection in China has
fallen rapidly, pointing to stabilization and
recovery in the region. Hong Kong with daily
cases less than 5 for the past three days.
‒ First wave peaked: Italy, Spain and Germany
‒ First wave not peaked yet: US, UK, France and
Coronavirus new infections per million people most of other EM countries
‒ Facing second wave: Asia, Japan and
Singapore, is starting to see a second wave of
Infections. This highlights the broad risks
around re-opening.
Material economic weakness likely in Q1 and Q2,
with some spill-over into Q3
Source: MinackAdvisors, 27 March 2020 5
Structural impact of the virus
Similar to 9/11, it will change the way we think and live
Longer-term thoughts post Covid-19:
‒ Social distancing will largely fade, people are
social animals. Expect more online everything,
greater aversion to crowded places
‒ Personal vs. public transportation
‒ The speed, breadth, and depth of the COVID-19
crash should further raise investor caution,
increasing savings rates and risk premia
‒ Companies will focus on building resilience,
diversifying supply chains, reducing leverage and
improving liquidity
2010s 2020s
Wealth Health
Capitalists Workers
Low taxes High taxes
Leverage Savings
Buybacks Capex
Source: BofA Global Investment Strategy, Morgan Stanley, JPMorgan 6
Looks like a buying opportunity?
The FTSE/JSE All Share Index JSE All Share 12-month forward PE multiple in single
digits!
65000
20
60000
18
55000
50000
16
45000 14
7 year low
40000 12
35000 10
30000 8
25000 6
20000 4
Mar-2 0
Mar-11
Mar-12
Mar-18
Mar-13
Mar-14
Mar-17
Mar-10
Mar-15
Mar-16
Mar-19
Dec-13
Dec-16
Dec-19
Dec-10
Dec-07
Mar-13
Mar-16
Mar-19
Mar-07
Mar-10
Sep-11
Sep-14
Jun-15
Sep-17
Jun-18
Sep-05
Sep-08
Jun-12
Jun-06
Jun-09
Repricing of assets greatly improves long-
term expected returns on equities and
credit, while worsening returns on
government debt
Source: Bloomberg to 31 March 2020 7
But be careful – significant uncertainty remains
8
Expect deep negative growth in the first half of the year Eurozone PMI indicates an economic crash Expect a plunge in US GDP in Q1 & Q2 Source: Gavekal Research, March 2020 9
2020: Global data is going to look very bad A war between tough macro, weak company results and global stimulus Source: IMF, April 2020 10
Shock or recession? Growth will recover to trend toward the fourth quarter Global industrial production versus trend Global real GDP growth expectations resetting The unknown pathway in terms of infections and deaths has stymied economic activity and, with it, longer-term investment decisions Source: WilmotML Soucre: JPMorgan research, April 2020 11
A much more rapid monetary response than the GFC experience
Pace of Federal Reserve balance sheet expansion Summary of key stimulus measures to date
(% of GDP)
$3,000,000
$2,767,367
Monetary
$2,500,000 17.2% Fiscal
8.2%
$2,000,000
40.5%
21.2%
$1,500,000 33.1%
$1,000,000
$1,001,065
15.2%
$500,000
4.7% (total) 3.1% (total)
$0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Eurozone US UK Japan China
GFC. Week 0 = 10 Sep 08 Covid19. Week 0 = 11 Mar 20
Source: Bloomberg, NY Fed Statement issued Monday 21 March. 12The rand has behaved as one would expect under such circumstances
USD-ZAR exchange rate Trade weighted ZAR vs terms of trade
19 35 120
18.0124
18
17
30
16 100
Trade weighted nominal exchange rate
15
14 25
13 80
12
Terms of trade
11 20
10 60
Jan-20
Mar-18
Mar-19
May-18
May-19
Jul-19
Nov-19
Mar-20
Jan-18
Jul-18
Nov-18
Jan-19
Sep-18
Sep-19
15
40
10
20
5
0 0
Feb-17
Jan-20
Feb-10
Mar-14
May-15
Jul-09
Apr-11
Nov-11
Jun-12
Jan-13
Aug-13
Oct-14
Jul-16
Dec-15
Apr-18
Nov-18
Jun-19
Dec-08
Sep-10
Sep-17
Terms of Trade Trade Weighted Nominal Exchange Rate
Although volatile…
This is not a buy or sell recommendation of any particular security. The portfolio may change significantly over a short space of time.
Source: Ninety One as at 1 April 2020 13South Africa key Macroeconomic Drivers We were vulnerable going into the crisis and lockdown GDP growth year on year – production side Household consumption breakdown Phase 1: Lockdown, “flatten the curve” Phase 2: Gradual unlock of the economy and schools Phase 3: How does the landscape look post the crisis… Source: StatsSA, Bloomberg, Ninety One, data as at April 2020 14
Oil price overview – YTD, impact and outlook Not all crude created equal Source: Ninety One, Bloomberg, 3 April 2020 15
Earnings revisions profile across industries
Resources have a robust profile, while defensives and banks offer opportunities
Average earnings revisions by sector Average earnings revisions of the general and
(Jan 2019 = 100) platinum miners (Jan 2019 = 100)
110 750
105
650
100
550
95
450
90
350
85
250
80
75 150
70 50
Feb-19
Jan-20
Feb-19
Jan-20
Feb-20
Apr-20
Apr-20
Mar-19
Mar-19
May-19
Oct-19
Feb-20
Jan-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Oct-19
Nov-19
Mar-20
Mar-20
Jan-19
Apr-19
Jun-19
Jul-19
Aug-19
Nov-19
Dec-19
Dec-19
Sep-19
Sep-19
Food retailers General Retailers Food producers
Hospitals BTI Banks General miners Platinum Gold miners
Insurance
Avoid those that might fall over, reset earnings base and growth
expectations – what’s in the price…?
Source: Bloomberg, Ninety One, data as at 14 April 2020 16There are investment opportunities even in these conditions
SA retailer performance year to date Defensive & foreign earners vs Capped SWIX
120 120
110 110
100 100
90 90
80 80
70 70
60 60
50 President declares national 50
state of disaster
40 40
07-Jan-20
04-Feb-20
21-Jan-20
28-Jan-20
14-Jan-20
11-Feb-20
18-Feb-20
25-Feb-20
03-Mar-20
10-Mar-20
17-Mar-20
24-Mar-20
31-Mar-20
31-Dec-19
24-Mar-20
31-Dec-19
03-Mar-20
10-Mar-20
07-Jan-20
14-Jan-20
21-Jan-20
28-Jan-20
18-Feb-20
04-Feb-20
11-Feb-20
17-Mar-20
31-Mar-20
25-Feb-20
Shoprite Pick n Pay Spar Woolworths British American Tobacco Naspers Capped SWIX
Truworths Foschini Mr Price Pepkor
Source: Bloomberg and Ninety One, data as at 1 April 2020 17There are investment opportunities even in these conditions Tencent: China Entertainment industry Weekly time spent on Tencent games within top 50 Music subs revenue YoY accelerating Source: MorganStanley 18
Ninety One Equity Fund
Top ten holdings as at 31 March 2020
SA holdings % of fund Foreign holdings % of fund
Naspers 12.1 Microsoft 1.7
Prosus 4.9 Amazon 1.2
British American Tobacco 4.2 Alphabet 1.1
BHP 3.7 Samsung 1.0
Anglo American 3.3 Telepresence 0.9
FirstRand Bank 3.0 Chemed 0.7
Sanlam 2.6 UnitedHealth 0.7
Impala Platinum 2.4 Facebook 0.6
Sibanye Stillwater 2.0 Sany Heavy Industry 0.6
Gold Fields 1.8 Keysight Technologies 0.6
Total 40.0% Total 9.1%
Offshore equities 29.2%
69.2%
Source: Ninety One 19Risk management of macroeconomic sensitivities
Ensure no large unintended embedded macro risks
Active returns vs Capped SWIX for various macro outcomes
ALSI up 10% 0.4%
0.1%
Emerging markets up 10% 0.9%
0.2%
World equity Market up 10% 0.4%
0.1%
Rand Strengthens 10% vs USD 0.8%
0.0%
Dollar strengthens 10% vs EUR -1.4%
-0.5%
SA short term rates down 1% 0.5% 31-Dec-19
0.2%
0.8% 31-Mar-20
SA 10-year bond yield down 1%
0.3%
US 10-year Treasury yield up 0.5% -1.2%
-1.2%
$ Base Metals down 10% -0.5%
0.0%
$ Gold spot down 10% -2.1%
-1.1%
$ PGM down 10% -1.5%
-0.4%
-3% -2% -1% 0% 1% 2% 3%
General Equity: portfolio response relative to Capped SWIX
Implicit risks reflected in our bottom up stock selection
Source: Ninety One, EMA as at 31 March 2020 20Stress testing palladium and Rhodium deficit outlook There remains an underpin to the commodity prices in this new world outlook Palladium surplus/(deficit) in 2020 3E PGM surplus/(deficit) in 2020 X-axis: Change in SA supply (% growth YoY) X-axis: Change in SA supply (% growth YoY) Y-axis: Change in global auto sales (% growth YoY) Y-axis: Change in global auto sales (% growth YoY) Source: IHS Markit, Morgan Stanley research, April 2020 Source: Morgan Stanley research, April 2020 21
Outlook
Market looks attractive on anything more than a 12-month view
‒ Global monetary policy is maximum stimulus
“all in.” No liquidity crisis, markets functioning
‒ How long will the coming severe 2020
recession be?
‒ US is a big worry: peak virus cases only
expected mid/late April 2020
‒ Global fiscal policy still needed to partially
mitigate the profits crisis coming
‒ SA equity valuations very attractive on
medium-term view
22Thank you www.ninetyone.com
Important information
All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not
purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough
examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security.
Collective investment scheme funds are generally medium to long term investments and the manager, Ninety One Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect
to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up.
Funds are traded at ruling prices and can engage in borrowing and scrip lending. The fund may borrow up to 10% of its market value to bridge insufficient liquidity. A schedule of
charges, fees and advisor fees is available on request from the manager which is registered under the Collective Investment Schemes Control Act. Additional advisor fees may be
paid and if so, are subject to the relevant FAIS disclosure requirements. Performance shown is that of the fund and individual investor performance may differ as a result of initial fees,
actual investment date, date of any subsequent reinvestment and any dividend withholding tax. There are different fee classes of units on the fund and the information presented is
for the most expensive class. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Where the fund invests in
the units of foreign collective investment schemes, these may levy additional charges which are included in the relevant TER. Additional information on the funds may be obtained,
free of charge, at www.ninetyone.com. Ninety One SA (Pty) Ltd (“Ninety One SA”) is an authorised financial services provider and a member of the Association for Savings and
Investment SA (ASISA).
Investment Team: There is no assurance that the persons referenced herein will continue to be involved with investing for this Fund, or that other persons not identified herein will
become involved with investing assets for the Manager or assets of the Fund at any time without notice.
Investment Process: Any description or information regarding investment process or strategies is provided for illustrative purposes only, may not be fully indicative of any present or
future investments and may be changed at the discretion of the manager without notice. References to specific investments, strategies or investment vehicles are for illustrative
purposes only and should not be relied upon as a recommendation to purchase or sell such investments or to engage in any particular strategy. Portfolio data is expected to change
and there is no assurance that the actual portfolio will remain as described herein. There is no assurance that the investments presented will be available in the future at the levels
presented, with the same characteristics or be available at all. Past performance is no guarantee of future results and has no bearing upon the ability of Manager to construct the
illustrative portfolio and implement its investment strategy or investment objective.
In the event that specific funds are mentioned please refer to the relevant minimum disclosure document in order to obtain all the necessary information in regard to that fund.
This presentation is the copyright of Ninety One SA and its contents may not be re-used without Ninety One SA’s prior permission.
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