4 Introduction Risk profiled core solutions: Balanced and Growth Multi-asset, multi-manager, multi-currencyDiversified between local and global investments, asset class, currency, manager and styleDynamic tactical asset allocationAvailable in five currency / regional bases: USD, GBP, EUR, AUD and AsianThe Harmony range does not invest in derivatives, structured products or CDOsManaged by Momentum Global Investment Management in London
5 The Harmony fund range Harmony Asian Balanced Harmony Asian Growth Harmony US Dollar BalancedHarmony US Dollar GrowthHarmony Euro BalancedHarmony AUD GrowthHarmony Sterling BalancedHarmony Sterling Growth
6 Harmony funds structure Momentum Global Funds SICAV (Luxembourg)Harmony fund rangeAsian Balanced FundAsian Growth FundEuro Balanced FundGBP Balanced FundGBP Growth FundUSD Balanced FundUSD Growth FundAUD Growth FundPromoterMomentum Global Investment ManagementInvestment manager & global distributorMomentum Global Investment ManagementManagement companyRBS LuxembourgDepositary & administratorJP Morgan LuxembourgAuditorsPricewaterhouseCoopersSub-distributorArmytage Asset ManagementRegulatorCSSF Luxembourg
9 Who we are and why we are different Business & heritageBoutique focus and mindsetStrong 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 mindsetInvestment manager partnerships Genuinely bespoke solutions – highly attuned to client needsTrue dynamic asset allocation Use of external specialists Diversification across a wide range of asset classesDeal exclusively with institutions and intermediariesJanuary * Includes post consolidation assets.
10 Investment philosophy – core beliefs Markets are inefficientInefficiencies create valuation extremes and offer opportunitiesDynamic asset allocation will add value over timeIncreasing the investable universe will increase the opportunity setEffective use of broad range of asset classes generates better risk:return profileBlending uncorrelated assets enables true diversificationValuation is paramountReversion to the mean works in the long runWait for the ‘fat pitch’No single manager / investment house is good at everythingDynamic manager selection is essentialFocus on employing specialists to maximise opportunities
11 Risk managementAsset class selection True risk is the possibility of permanent loss of capital Best defence is buying a diverse portfolio of undervalued a setsValuation is key: Scenario testing used to stress test our valuationsManager selection Extensive operational due diligence processOnsite visits by our DD team as necessaryTransparency required to guard against style driftPosition sizing Target benchmark volatilityRisk analysed at individual contribution and total portfolio levelPosition sizes adjusted to keep within target and ensure a prudent level of diversificationLiquidity stress testing
13 Investment process: roles and responsibilities Asset Allocation Glyn Owen, Investment DirectorJames Klempster, Multi-Asset PMPeter van der Ross, Head of StrategyLynn van Coller, Head of Core StrategiesMike Allen, Chief Investment OfficerAlex Harvey, Head of Fixed IncomeAndries Kotzee, Multi-Asset PMGlobal asset allocation committeeCapital marketsforecast groupMulti-asset committeePortfolio implementationHarmony fund rangeManager Research Mike Allen, Chief Investment OfficerJohn Caulfield, Head of Alternative StrategiesAndrew Smith, Head of EquitiesAndries Kotzee, Multi-Asset PMAndrew Hardy, Senior AnalystJernej Bukovec, Senior AnalystAlex Harvey, Head of Fixed IncomeOperations Robert Rhodes, Chief Operating OfficerRisk ManagementRishi Patel, Head of Risk and Due Diligence1313
14 Asset class research Where active management works Percentage of fund managers who underperform various performance hurdlesIndex+1%+2%+4%84EfficientDomestic Bonds*6677Global Bonds6777UK Equities657175US EquitiesSemi-efficient697581Global EquitiesEuropean Equities536675596773EM Equity485765Japanese Equity75Inefficient495459Small Cap*67January (Illustrative purposes only)
15 Manager research process Buy disciplineSell disciplineAppoint ManagerSellManagerWhat we’re looking for:Sound philosophyDisciplined processProven team/implementationRobust capacity managementAlignment of interestsBusiness stabilitySell indicatorsUpgrade decisionKey individual/ team leavesPoor capacity managementInconsistent behaviourNegative corporate changeOperational issuesManagerRe-evaluationManagerEvaluationContinuous monitoringIdeaGenerationRe-evaluateUniverse
16 Using the best talent from around the world PolarMorgan StanleyiSharesOld MutualHendersonM&GRWCSchrodersThreadneedleJupiterLondonChicago:DriehausTimpaniParis:ComgestTokyo: TiburonConnecticut:Lapides AXA IMBlackRockSan Francisco:ArtisanWilmington:Marvin &PalmerNew York:American CenturyPzena MuzinichCohen & SteersArizona:INGAustinYacktmanSingapore: FirthPictetSydney: AberdeenUBS
18 Harmony Balanced fund strategic allocation October 2012
19 Harmony Growth fund strategic allocation October 2012
20 Harmony US Dollar Balanced asset allocation October 2012.
21 Harmony US Dollar Balanced currency allocation October 2012.
22 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/ †Harmony fund average percentage rank over discrete years shown.
23 Harmony US Dollar Balanced manager performance Source: Returns to 28/09/2012, Bloomberg October 2012
24 Harmony US Dollar Growth asset allocation October 2012.
25 Harmony US Dollar Growth currency allocation October 2012.
26 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/ †Harmony fund average percentage rank over discrete years shown.
27 Harmony US Dollar Growth manager performance Source: Returns to 28/09/2012, Bloomberg October 2012
28 Harmony Asian Growth asset allocation October 2012.
29 Harmony Asian Growth currency allocation October 2012.
30 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/ †Harmony fund average percentage rank over discrete years shown.
31 Harmony Asian Growth manager performance Source: Returns to 28/09/2012, Bloomberg October 2012
32 Harmony three year performance vs. peers Source: Lipper Hindsight, October Past performance is not indicative of future returns
50 Critical issues Sustainability of growth in the US Structural slowdown in China – or hard landing?European imbalancesCentral bank pump pricing vs. global deleveraging
51 Clear slowdown in global growth Source: JPMorgan, October 2012
52 Economy has slowed: US leading economic indicators Source: Bloomberg, October 2012
53 US consumer confidence Source: Bloomberg, October 2012
54 US economic momentum is reasonable – but unemployment remains high US labour marketSource: Figures to 28/09/2012, Bloomberg, October 2012
55 US construction: the only way is up? Source: Bloomberg, October 2012
56 US housing starts over the last 12 months Source: Bloomberg, October 2012
57 Fiscal cliff: will need to be tackled after November US budget deficitsSource: Bloomberg, October 2012
58 US fiscal deficit as % of GDP 1791 -2011 Source : Deutsche bank, GFD. October 2012.
59 Budget deficits larger in the US than in peripheral Europe Budget deficit as a % of GDP%Greece, Ireland, Italy, Portugal and Spain: GDP- weighted fiscal balanceUSSource: Deutsche bank. October 2012.
60 China is landing GDP and industrial production Source: Bloomberg, October 2012
61 Major macro indicators continue to disappoint Chinese PMI: new ordersChinese money supply (% yoy)LevelSource: Bloomberg, October 2012.
62 Export sector flatlining Chinese global exports (Real $)Source: Bloomberg, October 2012
63 Imports slowing Chinese global imports (Real $) Imports % YOY Source: SocGen October 2012
64 China’s slowing growth: structural or cyclical? China Real GDP y/y % change%Source: Factset. October 2012.
65 The European crisis is not simply debt 1.0%-8.5%-1.7%-8.0%Current account balance5.2%-0.8%Budget deficit to GDP-1.9%-4.6%-7.4%-7.2%-4.2%-4.5%-2.1%-6.0%-2.2%-2.4%Source: IMF, 2012 estimates.
66 Unit labour costs since the launch of the euro Source: Bloomberg, October 2012
67 Currencies vs. the Deutschemark Source: Bloomberg, October 2012
68 German Labour reform accelerated growth- can Italy? Source: Bloomberg, October 2012
69 The European stress / intervention cycle Don’t underestimate the political will to preserve the EurozoneInflate, stagnate or defaultAusterity / growthEuropean bail out of banksIssue of EurobondsECB – LTRO / OMT / rate cutFiscal union
70 Central government debt burden 1900 to 2011 - advanced and emerging economies %Source: Reinhart (2010), Reinhart and Rogoff (2009 and 2011), sources cited therein and the authors
71 Total debt to GDP for developed economies 1990 - 2012 Source: Deutsche Bank, Haver. October 2012.
72 Debt composition varies widely Source: Bloomberg, October 2012.
73 Short term interest rates over past 10 years US, UK, Japan and Europe%Source: MGIM, Bloomberg. October 2012
74 The world is not normal: UK base rate 1694 to today Source: Deutsche Bank, GFD. October 2012.
75 The world is not normal: Swiss government bond yields Source: Bloomberg, MGIM. October 2012.
76 The world is not normal: 10 year government bond yields Source: Bloomberg, MGIM. October2012.
77 The world is not normal: US 10 year yield since 1790 Source: Deutsche Bank, GFD, Bloomberg Finance LLp. October 2012.
78 Quantitative easing: Bank of England balance sheet as a % of GDP Source: Deutsche bank. October 2012.,
79 The UK recovery is weaker than in the great depression %Source: Deutsche Bank. September 2012.
80 Tail risk of extreme events are not insignificant US fiscal cliffChinese ‘recession’Eurozone disintegrationJourney into the unknown – monetary easing
81 Equity market valuations *current year estimateSource: Bloomberg, Statistics to 05/010/2012. October 2012
82 MSCI World P/E ratio since 1995 Source: Bloomberg, October 2012
83 MSCI World price to book since 1995 Source: Bloomberg, October 2012
84 Tail wind of EM re-valuation now behind us MSCI World PB vs. MSCI GEM PBSource: Bloomberg, October 2012
85 Investment conclusion ‘New normal’ is now the consensusDeleveraging and rebalancing set to continue for yearsUS – growth risk in China – structural slowdown underway Europe – stress / intervention cycle to continuePolicy risks are highFurther monetary loosening is certainCrisis presents an extraordinary valuation opportunity
86 Implications for portfolio construction Subdued growth low return expectationsContinued deleveraging and tight credit financial strength is criticalHigh tail risks high volatilityCyclical move down in commodities has further to runDeflation protection in safe haven bondsIncome generating assets importantsafe dividend equitiescorporate bondsemerging market bondsFocus on:Diversification by asset classQuality defensive equitiesInflation not today’s problem – but might be the end gameExploit tactical opportunities