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Robert Falcon ScottFund overview
14 August 2013
Page 2
Background
• Intellectual capital• FSB License• 30 years Investment Experience
Vega Capital acquired by Tom De Lange in 2004
Joined forces
Joined forces with GT247 in 2010
• Management Expertise• IT & Admin Support• World class platforms
• Extensive marketing arm• JSE Listing (Purple Capital)Rebranded
Rebranded to Emperor Asset Management in 2011
• AUM R240 MillionExpansion
Partnered with IJG Securities in 2011
• Premier brokerage house in Namibia
Page 3
Our philosophy is that the right investment solution is a marriage of science, skill and discipline, coupled with a deep and trusting client understanding. Our quantitative strategy creates long term sustainable wealth, underpinned by a high degree of effective risk management.
Robert Falcon Scott Fund
Investment Philosophy
Proprietary quantitative decision making framework
Real time access to portfolio holdings
Segregated client portfolios
Tailored gearing to meet individual risk return requirements
Stock exclusion capacity to meet specific investor preferences (e.g. Sharia compliance)
Operationally scaled to meet retail and institutional demands
Robust track record of market leading returns
Benchmark - FTSE / JSE Top 40
Page 4
Best & worst performers at 31 December 2012
Client Performance
21 122Current NAV
35.96%Return 1 year
114.0%Gearing
Worst performance
31 298Current NAV
56.32%Return 1year
163.0%Gearing
Best performance
Smaller clients by NAV
2 486 161Current NAV
38.52%Return 1 year
116.0%Gearing
Worst performance
3 457 668Current NAV
62.24%Return 1year
180.0%Gearing
Best performance
Larger clients by NAV
Page 5
Fund overview – August 2013
Robert Falcon Scott
Inception 1 October 2004
Number of investors 1298
Benchmark FTSE / JSE Top 40
Average gearing 1.12 times – Since inception (1.48 times last 3 years)
Portfolio turnover Historic = 0.7 times per annum
Redemptions 95% = T + 1 (5% = month end)
Management fee 1.2%
Performance fee 20% above the benchmark
Administrator First World Trader trading as GT247.COM
Auditor BDO South Africa Inc.
Manager Tom de Lange
FSB license categorisation Category 2 (Category 2A pending) FSB license number - 22588
Fund size R263 million
Page 6
Our Strategy
Page 7
Strategy overview
Investment Strategy
Algorithm-based quantitative strategy
Long-Short Equity
140 most liquid JSE shares utilising CFD’s with maximum 2 times leverage limits
determined by the client’s risk profile.
Momentum shares increase portfolio returns during mid/late bull markets
Value shares lower overall risk levels and outperform during
bear markets or early bull markets
Blue chips add portfolio stability and lower risk levels,
increase consistency of returns
Blue ChipsDividend & Earnings
yield rankingMomentum / Growth ranking
Strategy weighting
1 2 3
50% 20%30%
20% of funds used as margin leaving 80% of the funds held in cash generating a 4.26% yield
Cash Underpin4
Page 8
Momentum Strategy
Portfolio
JSE
Total Return 25.8% 11.0%
Alpha (% per month)
1.19% 0.00%
Beta 0.90 1.00
Upside Capture 105% 100%
Downside Capture
68% 100%
Volatility Risk 128% 100%
Page 9
Earnings yield
Value Strategy
Portfolio
JSE
Total Return 25.3% 11.0%
Alpha (% per month)
1.34% 0.00%
Beta 0.60 1.00
Upside Capture 84% 100%
Downside Capture
47% 100%
Volatility Risk 73% 100%
Page 10
Edge of the Parade
Composite Strategy
Portfolio
JSE
Total Return 27.8% 11.0%
Alpha (% per month)
1.34% 0.00%
Beta 0.80 1.00
Upside Capture 105% 100%
Downside Capture
57% 100%
Volatility Risk 100% 100%
Page 11
Resultant upside & downside capture vs. benchmark
Investment Strategy
Our investment strategy has resulted in higher upside and lower downside capture, since inception as shown alongside
Quant Strategy (148% Gearing)
Quant Strategy(No Gearing)
175.5%Last 12 m 73.8%Stock selection: Inclusion of momentum shares - 50.0%
Upside Downside
UpsideCapture
105%Gearing: Increased when market indicates strength
Market timing
1
2
3
167.4%Last 18 m 77.0%
168.5%Last 2 yrs 92.4%
Stock selection: Inclusion of value shares – 30.0% Inclusion of blue chip shares – 20.0%
Gearing: Decreased when market indicates weakness
Market timing
Inclusion of Top 140 shares
1
2
3
4
150.9Last 3 yrs 84.6%
117.9%Last 4 yrs 68.5%
125.7%Last 5 yrs 82.4%
118.3%Since inception 90.7%
DownsideCapture
57%
Page 12
An attractive risk-return profile
Risk Return MatrixO
ct-0
4
Dec-
04
Feb
-05
Jun
-05
Ap
r-0
5
Oct
-05
Feb
-06
Dec-
05
Au
g-0
5
Jun
-06
Ap
r-0
6
Oct
-06
Au
g-0
6
Feb
-07
Dec-
06
Ap
r-0
7
Dec-
07
Au
g-0
7
Oct
-07
Jun
-07
Feb
-08
Ap
r-0
8
Dec-
08
Au
g-0
8
Oct
-08
Jun
-08
Feb
-09
Ap
r-0
9
Dec-
09
Au
g-0
9
Oct
-09
Jun
-09
Feb
-10
Ap
r-1
0
Dec-
10
Au
g-1
0
Oct
-10
Jun
-10
Feb
-11
Ap
r-1
1
Dec-
11
Au
g-1
1
Oct
-11
Jun
-11
Feb
-12
Ap
r-1
2
Dec-
12
Au
g-1
2
Oct
-12
Jun
-12
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
140%
160%
180%
200%
Average since inception = 112%
Average last 3 years = 148%
Net Gearing
Ratios
Alpha (% pm)
Beta
Upside capture
Downside capture
RobertFalconScott
0.73%
0.93
118.3%
90.7%Perf
orm
ance
Rati
os
*Standard Deviation: Measures the volatility of investment returns. The higher the standard deviation, the more volatile the fund’s returns.
**Downside Standard Deviation: Measures the volatility of downside (negative) investment returns. The higher the downside standard deviation, the more susceptible the fund will be to negative returns.
Ratios
Annualised Standard Deviation*
Annual Downside StandardDeviation**
Relative Volatility Risk
Downside Volatility Risk
RobertFalconScott
21.1%
10.1%
117.9%
106.5%
FTSE / JSE
Top 40
17.9%
9.5%
100.0%
100.0%
Ris
k R
ati
os
Page 13
Downside ProtectionBubble Indicator
Market TimingCFD Put Options
Page 14
Downside Protection: Bubble Indicator
Bubble Indicator1
Market Timing2
CFD Put Options3
“The future is here. It’s not widely distributed yet” William Gibson (1948)
Oct
-04
Dec-
04
Feb
-05
Jun
-05
Ap
r-0
5
Oct
-05
Feb
-06
Dec-
05
Au
g-0
5
Jun
-06
Ap
r-0
6
Oct
-06
Au
g-0
6
Feb
-07
Dec-
06
Ap
r-0
7
Dec-
07
Au
g-0
7
Oct
-07
Jun
-07
Feb
-08
Ap
r-0
8
Dec-
08
Au
g-0
8
Oct
-08
Jun
-08
Feb
-09
Ap
r-0
9
Dec-
09
Au
g-0
9
Oct
-09
Jun
-09
Feb
-10
Ap
r-1
0
Dec-
10
Au
g-1
0
Oct
-10
Jun
-10
Feb
-11
Ap
r-1
1
Dec-
11
Au
g-1
1
Oct
-11
Jun
-11
Feb
-12
Ap
r-1
2
Dec-
12
Au
g-1
2
Oct
-12
Jun
-12
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
140%
160%
180%
200%
Average since inception = 112%
Average last 3 years = 148%
Net Gearing
Page 15
A leading market turbulence indicator
Downside Protection: Market Timing
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
2,000
20,000
200,000
Bu
bb
leFTS
E/J
SB
Top
40
Page 16
Market Strength Index & Market Valuation
Downside Protection: CFD Put Options
Page 17
Monthly and Weekly Market Strength (MSX)
Downside Protection: Market Sentiment
Page 18
Rule 18 : PE + CPI/2
Downside Protection: Market Valuation
Page 19
Probability of Positive Return
Downside Protection: Risk Matrix
ValuationQuarter 13 14 15 16 17 18 19 20 21 22 23 Avg90% 100% 100% 97% 87% 80% 75% 70% 65% 61% 57% 52% 77%80% 100% 100% 100% 91% 84% 79% 74% 69% 65% 60% 56% 80%70% 100% 100% 100% 95% 88% 83% 78% 73% 69% 64% 60% 83%60% 100% 100% 100% 98% 91% 86% 81% 77% 72% 68% 63% 85%50% 100% 100% 100% 100% 93% 88% 83% 78% 74% 69% 65% 86%40% 100% 100% 100% 95% 88% 83% 78% 74% 69% 65% 60% 83%35% 100% 100% 98% 88% 81% 76% 71% 66% 62% 57% 53% 77%30% 100% 100% 86% 76% 70% 64% 59% 55% 50% 46% 42% 68%25% 100% 89% 74% 64% 57% 51% 47% 42% 38% 33% 29% 57%20% 98% 78% 63% 53% 46% 41% 36% 31% 27% 23% 18% 47%10% 89% 69% 54% 44% 37% 31% 27% 22% 18% 13% 9% 37%Avg 99% 94% 88% 81% 74% 69% 64% 59% 55% 50% 46% 70.9%
Year 13 14 15 16 17 18 19 20 21 22 23 Avg90% 100% 100% 100% 100% 100% 100% 89% 73% 69% 66% 63% 87%80% 100% 100% 100% 100% 100% 100% 95% 79% 75% 72% 69% 90%70% 100% 100% 100% 100% 100% 100% 100% 85% 81% 78% 75% 93%60% 100% 100% 100% 100% 100% 100% 100% 91% 87% 84% 81% 95%50% 100% 100% 100% 100% 100% 100% 100% 97% 92% 89% 87% 97%40% 100% 100% 100% 100% 100% 100% 100% 92% 88% 85% 82% 95%35% 100% 100% 100% 100% 100% 100% 87% 71% 67% 64% 61% 86%30% 100% 100% 100% 100% 100% 90% 53% 37% 33% 30% 27% 70%25% 99% 96% 93% 90% 86% 71% 34% 18% 14% 11% 8% 56%20% 95% 92% 89% 86% 82% 68% 30% 14% 10% 7% 4% 53%10% 99% 96% 93% 90% 86% 71% 34% 18% 14% 11% 8% 56%Avg 99% 99% 98% 97% 96% 91% 75% 61% 57% 54% 52% 79.9%
Sentiment
Sentiment
Valuation = 18.5 Market Sentiment = 60% Confidence (Qtr) = 85% Confidence (Yr) = 100%
Page 20
− You pay a monthly premium and in return the insurer has an obligation to pay for the repair of your car in the event of an accident or loss. The more expensive the car, the more reckless the driver the higher the premium, Understood!
− In order to reduce your premium you can elect to accept a higher excess value (first loss), which in the result means in the event of an accident you pay the first loss and the insurer picks up the rest. Nice and simple!
• But what has this got to do with put options…. Well everything really. A put option is essentially a protective instrument, insurance if you like, against an event that will result in the depreciated value of a financial asset.
• Ok so we understand that it works in a similar manner to car insurance…
Lets compare a put option with something similar that we all understand…
Downside Protection: Put Options 101
Page 21
1. Well quite simply we want to protect your portfolio
2. From a change in market conditions
3. That results in a strong downward move
4. Which greatly depreciates the value of the shares that you hold!
5. But we do not want to cap your portfolio's potential to continue to produce positive, above market returns
6. We just want to ensure your portfolio has some protection in case markets fall dramatically
Lets look at what we are trying to protect:
Downside Protection: Put Options 101
Page 22
1. The FTSE / ALSI Top 40 Index is the fund benchmark, it is also the most traded futures index in South Africa, as a result it is the best security to provide protection for your portfolio. i.e. a put option on the ALSI Top 40 Future
2. Buying full protection, or being fully hedged where R1 of portfolio loss is offset by R1 of put option cover, for 12 months can cost the investor up
to 10% or 12% of their portfolio value. That’s too expensive and therefore not effective.
3. However, by accepting the first 10% loss (excess), the premium can be reduced to between 3% and 5%.
How do we get the best protection at the right price?
Downside Protection: Put Options 101
Page 23
Up to 8x protection
Downside Protection: CFD Put Options on Alsi40
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
32,000
34,000
DEC08P JSE
Page 24
At July 2013
Fund Performance
ALPHA 0.73% pmBETA 0.93
Robert Falcon Scott
FTSE/ JSE Top 40
Oct
-04
Dec-
04
Feb
-05
Jun
-05
Ap
r-0
5
Oct
-05
Feb
-06
Dec-
05
Au
g-0
5
Jun
-06
Ap
r-0
6
Oct
-06
Au
g-0
6
Feb
-07
Dec-
06
Ap
r-0
7
Dec-
07
Au
g-0
7
Oct
-07
Jun
-07
Feb
-08
Ap
r-0
8
Dec-
08
Au
g-0
8
Oct
-08
Jun
-08
Feb
-09
Ap
r-0
9
Dec-
09
Au
g-0
9
Oct
-09
Jun
-09
Feb
-10
Ap
r-1
0
Dec-
10
Au
g-1
0
Oct
-10
Jun
-10
Feb
-11
Ap
r-1
1
Dec-
11
Au
g-1
1
Oct
-11
Jun
-11
Feb
-12
Ap
r-1
2
Dec-
12
Au
g-1
2
Oct
-12
Jun
-12
400%
350%
300%
250%
200%
150%
100%
50%
0%
450%
500%
546.0%
222.78%
Share % Weight % Move 6m
Coronation Fund Managers
8.53% 49.40%
Top Five Holdings
Naspers 5.72% 42.70%
EOH Holdings 5.62% 43.60%
Remgro 5.56% 15.70%
Kumba Iron Ore 5.31% -27.30%
TmtFood And HealthFinancialConsumerIndustrialResourcesServicesPlatinumPut Option
Portfolio Sector Weighting
Page 25
Fund differentiators
Robert Falcon Scott
Hedge Fund Comparison Robert Falcon Scott Hedge Fund Industry
Source: Novare - South African Hedge Fund Survey
Segregated portfolio En-commandite partnership Debenture structure53.7% 37.2%Fund structure
Track record 8 years > 4 years < 4 years70% 30%Overv
iew
Retail, corporate structures, HNW FOF HNW, PF. LF66.3% 28.1%Current investor type
Redemption period 95% = T + 1 (5% = month end) 30 days 60 to 90 days72.5% 25.8%
1.2% 1.0% 1.5% to 2.0%69.4% 25.3%Management fees
Performance fees (Above the benchmark) 20% 20.0% 15.0% to 20.0%91.9% 7.6%
FTSE / JSE Top 40 Cash No hurdle73.6% 14.9%Hurdle rate
Fee crystallisation 20% Monthly 80% accrued Annually Quarterly, 6-monthly44.7% 53.5%
Invest
ors
& F
ess
Exponential smoothed accrual Upon payment of performance fee Annually74.8% 17.0%Performance fee hurdle reset
Client administration, reporting & fund valuation In-house & outsourced Outsourced In-house & Outsourced62.1% 33.4%
Daily real-time Daily Weekly, Monthly37.7% 59.6%Frequency of NAV reporting
Mandate compliance monitoring In-house In-house & Outsourced In-house63.2% 20.8%
In-house In-house & Outsourced In-house63.4% 25.4%Portfolio risk monitoring
Prime brokers One One None81.6% 15.6%
Opera
tion
s
Daily real-time Actual holdings daily Actual holdings monthly59.9% 30.6%Portfolio holdings transparency
Trading activity – portfolio turnover per annum 0.7 times Less than 1 times 2 to 10 times29.1% 58.6%
Liquidation of underlying assets 1 to 5 days 1 day 5 to 30 days41.4% 48.1%Port
folio
h
old
ings
&
trad
ing
act
ivit
y
Block BThe Offices of Hyde ParkStrouthos Place (off 2nd Rd)Hyde Park, 2196
e [email protected] +27 (0)87 940 6121w www.emperor.co.za
Thank you
Emperor Asset management is a division of First World Trader, an authorised financial services provider, FSP 22588