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1 global investment management Introduction to Harmony funds James Klempster, CFA October 2012.

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Presentation on theme: "1 global investment management Introduction to Harmony funds James Klempster, CFA October 2012."— Presentation transcript:

1 1 global investment management Introduction to Harmony funds James Klempster, CFA October 2012

2 2 Contents global investment management 1. Introduction to Harmony funds 2. Momentum Global Investment Management 3. Fund focus 4. Market update

3 3 global investment management 1. Introduction to Harmony funds

4 4 global investment management Introduction Risk profiled core solutions: Balanced and Growth Multi-asset, multi-manager, multi-currency Diversified between local and global investments, asset class, currency, manager and style Dynamic tactical asset allocation Available in five currency / regional bases: USD, GBP, EUR, AUD and Asian The Harmony range does not invest in derivatives, structured products or CDOs Managed by Momentum Global Investment Management in London

5 5 global investment management The Harmony fund range Harmony Asian Balanced Harmony Asian Growth Harmony US Dollar Balanced Harmony US Dollar Growth Harmony Euro Balanced Harmony AUD Growth Harmony Sterling Balanced Harmony Sterling Growth

6 6 global investment management Harmony funds structure Momentum Global Funds SICAV (Luxembourg) Regulator CSSF Luxembourg Investment manager & global distributor Momentum Global Investment Management Management company RBS Luxembourg Depositary & administrator JP Morgan Luxembourg Auditors PricewaterhouseCoopers Sub-distributor Armytage Asset Management Harmony fund range Asian Balanced Fund Asian Growth Fund Euro Balanced Fund GBP Balanced Fund GBP Growth Fund USD Balanced Fund USD Growth Fund AUD Growth Fund Promoter Momentum Global Investment Management

7 7 global investment management Investment manager feedback House view Weekly review Monthly factsheets Monthly viewpoint Detailed quarterly reports Harmony AUD Growth Website:

8 8 global investment management 2. Momentum Global Investment Management

9 9 global investment management Who we are and why we are different Business & heritage Boutique focus and mindset Strong corporate backing: top 40 JSE listed company Group AuM: USD41 billion, London AuM: USD4.3 billion* Investment process Highly experienced and stable team Disciplined valuation driven investment process Capital preservation mindset Investment manager partnerships Genuinely bespoke solutions – highly attuned to client needs True dynamic asset allocation Use of external specialists Diversification across a wide range of asset classes Deal exclusively with institutions and intermediaries January * Includes post consolidation assets.

10 10 global investment management Investment philosophy – core beliefs Markets are inefficient Inefficiencies create valuation extremes and offer opportunities Dynamic asset allocation will add value over time Increasing the investable universe will increase the opportunity set Effective use of broad range of asset classes generates better risk:return profile Blending uncorrelated assets enables true diversification Valuation is paramount Reversion to the mean works in the long run Wait for the ‘fat pitch’ No single manager / investment house is good at everything Dynamic manager selection is essential Focus on employing specialists to maximise opportunities

11 11 global investment management Risk management Asset class selectionTrue risk is the possibility of permanent loss of capital Best defence is buying a diverse portfolio of undervalued a sets Valuation is key: Scenario testing used to stress test our valuations Manager selectionExtensive operational due diligence process Onsite visits by our DD team as necessary Transparency required to guard against style drift Position sizingTarget benchmark volatility Risk analysed at individual contribution and total portfolio level Position sizes adjusted to keep within target and ensure a prudent level of diversification Liquidity stress testing

12 12 global investment management Investment process

13 13 global investment management Investment process: roles and responsibilities 13 Asset Allocation Glyn Owen, Investment Director James Klempster, Multi-Asset PM Peter van der Ross, Head of Strategy Lynn van Coller, Head of Core Strategies Mike Allen, Chief Investment Officer Alex Harvey, Head of Fixed Income Andries Kotzee, Multi-Asset PM Manager Research Mike Allen, Chief Investment Officer John Caulfield, Head of Alternative Strategies Andrew Smith, Head of Equities Andries Kotzee, Multi-Asset PM Andrew Hardy, Senior Analyst Jernej Bukovec, Senior Analyst Alex Harvey, Head of Fixed Income Operations Robert Rhodes, Chief Operating Officer Risk Management Rishi Patel, Head of Risk and Due Diligence Global asset allocation committee Capital markets forecast group Multi-asset committee Portfolio implementation Harmony fund range

14 14 global investment management Asset class research Where active management works Percentage of fund managers who underperform various performance hurdles January (Illustrative purposes only) Index +1%+2% +4% Domestic Bonds* Global Bonds EM Equity Japanese Equity UK Equities US Equities Global Equities European Equities Small Cap* Efficient Semi-efficient Inefficient

15 15 global investment management Manager research process Buy discipline Sell discipline Continuous monitoring What we’re looking for: Sound philosophy Disciplined process Proven team/implementation Robust capacity management Alignment of interests Business stability Sell indicators Upgrade decision Key individual/ team leaves Poor capacity management Inconsistent behaviour Negative corporate change Operational issues Manager Evaluation Manager Re-evaluation Idea Generation Appoint Manager Sell Manager Re-evaluate Universe

16 16 global investment management Using the best talent from around the world Chicago: Driehaus Timpani Austin Yacktman New York: American Century Pzena Muzinich Cohen & Steers Polar Morgan Stanley iShares Old Mutual Henderson M&G RWC Schroders Threadneedle Jupiter London Paris: Comgest Singapore: Firth Pictet Tokyo: Tiburon Connecticut: Lapides AXA IM BlackRock Wilmington: Marvin & Palmer Sydney: Aberdeen UBS San Francisco: Artisan Arizona: ING

17 17 global investment management 3. Fund focus

18 18 global investment management Harmony Balanced fund strategic allocation October 2012

19 19 global investment management Harmony Growth fund strategic allocation October 2012

20 20 global investment management Harmony US Dollar Balanced asset allocation October 2012.

21 21 global investment management Harmony US Dollar Balanced currency allocation October 2012.

22 22 global investment management Harmony US Dollar Balanced performance Source: Lipper Hindsight, Momentum Global Investment Management, October Past performance is not indicative of future returns. *30/06/2005 to 30/12/2005. †Harmony fund average percentage rank over discrete years shown.

23 23 global investment management Harmony US Dollar Balanced manager performance Source: Returns to 28/09/2012, Bloomberg October 2012

24 24 global investment management Harmony US Dollar Growth asset allocation October 2012.

25 25 global investment management Harmony US Dollar Growth currency allocation October 2012.

26 26 global investment management Harmony US Dollar Growth performance Source: Lipper Hindsight, Momentum Global Investment Management, October Past performance is not indicative of future returns. *30/06/2005 to 30/12/2005. †Harmony fund average percentage rank over discrete years shown.

27 27 global investment management Harmony US Dollar Growth manager performance Source: Returns to 28/09/2012, Bloomberg October 2012

28 28 global investment management Harmony Asian Growth asset allocation October 2012.

29 29 global investment management Harmony Asian Growth currency allocation October 2012.

30 30 global investment management Harmony Asian Growth performance Source: Lipper Hindsight, Momentum Global Investment Management, October Past performance is not indicative of future returns. *30/11/2006 to 29/12/2006. †Harmony fund average percentage rank over discrete years shown.

31 31 global investment management Harmony Asian Growth manager performance Source: Returns to 28/09/2012, Bloomberg October 2012

32 32 global investment management Harmony three year performance vs. peers Source: Lipper Hindsight, October Past performance is not indicative of future returns

33 33 global investment management 4. Market update

34 34 global investment management This century has been bad for equity investing…… Source: Returns to 05/10/2012. Bloomberg, October %

35 35 global investment management ……but not for government bonds Source: Bloomberg, October 2012

36 36 global investment management Asset class returns YTD 2012, Local currency terms Source: Bloomberg, Returns to 28/09/2012, October 2012

37 37 global investment management MSCI World since January 2008 Source: Bloomberg, October 2012

38 38 global investment management 10 year government bond yield since January 2008 Source: Bloomberg, October 2012

39 39 global investment management Map of the markets YTD Source: Bloomberg, Returns from 30/12/ /10/2012, October 2012

40 40 global investment management Asset class returns 2012 YTD Source: Lipper, Returns to 05/10/2012, October 2012

41 41 global investment management Asset class returns 2012 YTD Source: Lipper, Returns to 05/10/2012, October 2012

42 42 global investment management Asset class returns 2012 YTD Source: Lipper, Returns to 05/10/2012, October 2012

43 43 global investment management 10 year government bond spreads vs. Germany Source: Bloomberg, October 2012

44 44 global investment management German vs. Spanish 10 yr government bond yields Source: Bloomberg, October 2012 January 2000 to date

45 45 global investment management Performance of Chinese stock market vs. S&P500 Source: Bloomberg, October 2012

46 46 global investment management Performance of Gold, Copper and Oil Source: Bloomberg, October 2012

47 47 global investment management Currencies vs. USD Source: Bloomberg, October 2012

48 48 global investment management Performance of currencies vs. USD YTD 2012 Source: Bloomberg, Returns to 05/10/2012, October 2012

49 49 global investment management 2. Market outlook

50 50 global investment management Critical issues Sustainability of growth in the US Structural slowdown in China – or hard landing? European imbalances Central bank pump pricing vs. global deleveraging

51 51 global investment management Source: JPMorgan, October 2012 Clear slowdown in global growth

52 52 global investment management Economy has slowed: US leading economic indicators Source: Bloomberg, October 2012

53 53 global investment management US consumer confidence Source: Bloomberg, October 2012

54 54 global investment management US economic momentum is reasonable – but unemployment remains high US labour market Source: Figures to 28/09/2012, Bloomberg, October 2012

55 55 global investment management US construction: the only way is up? Source: Bloomberg, October 2012

56 56 global investment management US housing starts over the last 12 months Source: Bloomberg, October 2012

57 57 global investment management Fiscal cliff: will need to be tackled after November Source: Bloomberg, October 2012 US budget deficits

58 58 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. US fiscal deficit as % of GDP Source : Deutsche bank, GFD. October 2012.

59 59 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. Budget deficits larger in the US than in peripheral Europe Source: Deutsche bank. October Greece, Ireland, Italy, Portugal and Spain: GDP- weighted fiscal balance US Budget deficit as a % of GDP %

60 60 global investment management China is landing Source: Bloomberg, October 2012 GDP and industrial production

61 61 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. Major macro indicators continue to disappoint Source: Bloomberg, October Chinese money supply (% yoy)Chinese PMI: new orders Level

62 62 global investment management Export sector flatlining Source: Bloomberg, October 2012 Chinese global exports (Real $)

63 63 global investment management Imports slowing Source: SocGen October 2012 Chinese global imports (Real $) Imports % YOY

64 64 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. China’s slowing growth: structural or cyclical? Source: Factset. October China Real GDP y/y % change %

65 65 global investment management The European crisis is not simply debt Source: IMF, 2012 estimates. Budget deficit to GDP Current account balance -2.2% -2.4% 5.2% -0.8% -1.9% -4.6% -1.7% -8.0% 1.0% -8.5% -4.2% -4.5% -2.1% -6.0% -7.4% -7.2%

66 66 global investment management Unit labour costs since the launch of the euro Source: Bloomberg, October 2012

67 67 global investment management Currencies vs. the Deutschemark Source: Bloomberg, October 2012

68 68 global investment management German Labour reform accelerated growth- can Italy? Source: Bloomberg, October 2012

69 69 global investment management The European stress / intervention cycle Don’t underestimate the political will to preserve the Eurozone Inflate, stagnate or default Austerity / growth European bail out of banks Issue of Eurobonds ECB – LTRO / OMT / rate cut Fiscal union

70 70 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. Central government debt burden 1900 to advanced and emerging economies Source: Reinhart (2010), Reinhart and Rogoff (2009 and 2011), sources cited therein and the authors %

71 71 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. Total debt to GDP for developed economies Source: Deutsche Bank, Haver. October 2012.

72 72 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. Debt composition varies widely Source: Bloomberg, October 2012.

73 73 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. Short term interest rates over past 10 years Source: MGIM, Bloomberg. October 2012 US, UK, Japan and Europe %

74 74 When entering a table, please remove all colours and lines and insert horizontal lines in between the cells. Please change font to Arial, size12pt. Please change headings inside the table to the red option in your theme colour palette (r220, g41, b31) and select the bold text option. Please use the heading and source text blocks provided. global investment management The world is not normal: UK base rate 1694 to today Source: Deutsche Bank, GFD. October 2012.

75 75 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. The world is not normal: Swiss government bond yields Source: Bloomberg, MGIM. October 2012.

76 76 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. The world is not normal: 10 year government bond yields Source: Bloomberg, MGIM. October2012.

77 77 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. The world is not normal: US 10 year yield since 1790 Source: Deutsche Bank, GFD, Bloomberg Finance LLp. October 2012.

78 78 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. Quantitative easing: Bank of England balance sheet as a % of GDP Source: Deutsche bank. October 2012.,

79 79 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. The UK recovery is weaker than in the great depression Source: Deutsche Bank. September %

80 80 global investment management When entering a graph or chart please change font size to Arial 12pt. Please use the heading and source text blocks provided. Tail risk of extreme events are not insignificant US fiscal cliff Chinese ‘recession’ Eurozone disintegration Journey into the unknown – monetary easing

81 81 global investment management Equity market valuations Source: Bloomberg, Statistics to 05/010/2012. October 2012 *current year estimate

82 82 global investment management MSCI World P/E ratio since 1995 Source: Bloomberg, October 2012

83 83 global investment management MSCI World price to book since 1995 Source: Bloomberg, October 2012

84 84 global investment management Tail wind of EM re-valuation now behind us Source: Bloomberg, October 2012 MSCI World PB vs. MSCI GEM PB

85 85 global investment management Investment conclusion ‘New normal’ is now the consensus Deleveraging and rebalancing set to continue for years US – growth risk in 2013 China – structural slowdown underway Europe – stress / intervention cycle to continue Policy risks are high Further monetary loosening is certain Crisis presents an extraordinary valuation opportunity

86 86 global investment management Implications for portfolio construction Subdued growthlow return expectations Continued deleveraging and tight credit financial strength is critical High tail riskshigh volatility Cyclical move down in commodities has further to run Deflation protection in safe haven bonds Income generating assets important safe dividend equities corporate bonds emerging market bonds Focus on: Diversification by asset class Quality defensive equities Inflation not today’s problem – but might be the end game Exploit tactical opportunities Focus on: Diversification by asset class Quality defensive equities Inflation not today’s problem – but might be the end game Exploit tactical opportunities

87 87 global investment management Disclaimer Momentum Global Investment Management is the trading name for Momentum Global Investment Management Limited. This document does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorised or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this document, and should be satisfied in doing so that there is no breach of local legislation or regulation. The information is intended solely for use by our clients or prospective clients, and should not be reproduced or distributed except via original recipients acting as professional intermediaries. This document is not for distribution in the United States. Prospective investors should inform themselves and if need be take appropriate advice regarding applicable legal, taxation and exchange control regulations in countries of their citizenship, residence or domicile which may be relevant to the acquisition, holding, transfer, redemption or disposal of any investments herein solicited. Any opinions expressed herein are those at the date this material is issued. Data, models and other statistics are sourced from our own records, unless otherwise stated herein. We believe that the information contained is from reliable sources, but we do not guarantee the relevance, accuracy or completeness thereof. Unless otherwise provided under UK law, Momentum Global Investment Management does not accept liability for irrelevant, inaccurate or incomplete information contained, or for the correctness of opinions expressed. We caution that the value of investments in discretionary accounts, and the income derived, may fluctuate and it is possible that an investor may incur losses, including a loss of the principal invested. Past performance is not generally indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Our investment mandates in alternative strategies and hedge funds permit us to invest in unregulated funds that may be highly volatile. Although alternative strategies funds will seek to follow a wide diversification policy, these funds may be subject to sudden and/or large falls in value. The illiquid nature of the underlying funds is such that alternative strategies funds deal infrequently and require longer notice periods for redemptions. These Investments are therefore not readily realisable. If an alternative strategies fund fails to perform, it may not be possible to realise the investment without further loss in value. These unregulated funds may engage in the short selling of securities or may use a greater degree of gearing than is permitted for regulated funds (including the ability to borrow for a leverage strategy). A relatively small price movement may result in a disproportionately large movement in the investment value. The purpose of gearing is to achieve higher returns associated with larger investment exposures, but has concomitant exposure to loss if positive performance is not achieved. Reliable information about the value of an investment in an alternative strategies fund may not be available (other than at the fund’s infrequent valuation points). Under our multi-management arrangements, we selectively appoint underlying sub-investment managers and funds to actively manage underlying asset holdings in the pursuit of achieving mandated performance objectives. Annual investment management fees are payable both to the multimanager and the manager of the underlying assets at rates contained in the offering documents of the relevant portfolios (and may involve performance fees where expressly indicated therein). Momentum Global Investment Management Limited (Company Registration No ) registered office at 20 Gracechurch Street, London EC3V 0BG. Momentum Global Investment Management Limited is authorised and regulated by the Financial Services Authority in the United Kingdom, and is an authorised Financial Services Provider pursuant to the Financial Advisory and Intermediary Services Act 37 of 2002 in South Africa. © Momentum Global Investment Management Limited 2012

88 88 global investment management Contact: Lucy Richardson Marketing Manager Momentum Global Investment Management T:


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