Emperor Asset Management: PE seminar 19 November 2013

Robert Falcon ScottFund overview

November 2013Port Elizabeth Seminar

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 R280 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 – October 2013

Robert Falcon Scott

Inception 1 October 2004

Number of investors 1391

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) up to R10M

Management fee 1.2%

Performance fee 20% above the benchmark

Administrator First World Trader trading as GT247.COM

Auditor Group - BDO South Africa Inc. | Fund - PWC

Manager Tom de Lange

FSB license categorisation Category 2 (Category 2A pending) FSB license number - 22588

Fund size R334 million

Page 6

Anyone could be a statistic

Even Tom de Lange

The Retirement Conundrum

Page 7

Financial position: 2001

Meet Tom

Age/ Salary pm 42 R29,600

Car VW Jetta 3 R40,900

House / Bond R395,000 -R217,000

Cash / Debt 940 -R37,900

Investments / Pension R24,120 R1,227,000

Wealth Index / Target 0.84 1.34

Net Cash flow June 2001 -R477

Page 8

Pension is inadequate to retire early

− Need to save R15,000 extra p.m. to close the gap!

• Fantastic investment performance, but where’s the money?

• After 20 years still overdrawn 1 month’s pay

• My car (VW Jetta) is 9 years old and still not paid off

• Trigger: Swimming pool pump (June 2001)

Financial position: 2001

Meet Tom

Mar 00 Mar 01 Mar 02 Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08

Buy 2 cars cashBuy estatehouse cash

Swimmingpool pump

Page 9

The Wealth IndexCompass to Wealth

Page 10

The Wealth Index

Source: “The Millionaire Next Door”

Loser, spender

Security

Lifestyle

Financial Independence(but a race against time)

Financial Freedom(Capital preservation, but with

risks)

True Wealth(Capital growth, emotional

freedom, no risks)

WI < 0.5

WI = 1.0

WI = 1.5

WI = 2.0

WI = 3.0

WI= 4.0

Implications at retirement

Page 11

0.0

0.5

1.0

1.5

2.0

2.5

3.0

20 25 30 35 40 45 50 55 60 65

Wealth

Comfort

Security

Different Priorities, different outcomes

Age

SecurityWealth

Comfort

3.5%Cons

5.5%Balanced

7.5%Growth

Real Return &Fund Type

Wealt

h

Index

Rule of thumbAdd 0.5 every 8

years

Page 12

20 25 30 35 40 45 50 55 60 650.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Initial years & mid life crisis

Typical Outcome

Age

Wealt

h Index

Security

Lifestyle

Wealth

Typical

Page 13

20 25 30 35 40 45 50 55 60 650.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00Wealthy 23%

Comfortable 17%

Anxious 60%

Security

Lifestyle

Wealth

60% will face a retirement below the bread line…

Our wealth building research for salaried workers

Age

Wealt

h Index

Page 14

Tom: before and after the Gigabucks decision…

Age

Wealt

h Index

20 25 30 35 40 45 50 55 60 650.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Wealthy 23%

Comfortable 17%

Anxious 60%

Tom

Security

Lifestyle

Wealth

Page 15

Tom’s Financial Position: 2013

Age/ Salary pm 54 3.5x

Car VW Touareg 18x

House R2,670,000 15x

Cash No Debt 150x

Financial Capital R9,566,000 8x

Wealth Index / Target 2.60 2.06

Investment Returns (RFS) 89.9% 82.8%

Page 16

Our Strategy

Page 17

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 18

Portfolio JSE

Total Return 30.7% 13.2%

Upside Capture 108% 100%

Downside Capture 63% 100%

Positive Annual Returns 15/20 14/20

Equities only (no gearing), management fees included, no market timing

Momentum strategy (Simulated results)

Page 19

Portfolio JSE





Earnings yield and dividend yield, no gearing, no market timing

Value Strategy (Simulated)

Page 20

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 21

Portfolio JSE





CFDs (160% variable gearing), partial market timing at 50%

The RFS Fund Strategy (Simulated Results)

Page 22

For the 3 year period ending 31 December 2012

Actual RFS Fund performance vs. simulated results

RFS

Actual returns

FixedGearing

Normalised to 143%

Annualised Returns

1 Year 51.7% 49.1%

2 Years 28.1% 26.5%

3 Years 29.1% 34.3%

Upside Capture

1 Year 176% 144%

2 Years 169% 126%

3 Years 151% 135%

Downside Capture

1 Year 74% 67%

2 Years 92% 68%

3 Years 85% 71%

Average Gearing 143% 143%

We have outperformed our simulated results in 2 out of 3 years

Page 23

Downside ProtectionBubble Indicator

Market TimingCFD Put Options

Page 24

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-

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Au

g-0

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Jun

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Oct

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Feb

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Dec-

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Oct

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Jun

-07

Feb

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Dec-

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Oct

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Jun

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Feb

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Ap

r-0

9

Dec-

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Au

g-0

9

Oct

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Jun

-09

Feb

-10

Ap

r-1

0

Dec-

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Au

g-1

0

Oct

-10

Jun

-10

Feb

-11

Ap

r-1

1

Dec-

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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 25

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 26

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 = 21-22 Market Sentiment = 75% Confidence (Qtr) = 65% Confidence (Yr) = 76%

Page 27

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 28

Real Life Case Studies

Trust, Discipline and Opportunity & Risk

Page 29

Age 83 Teacher

Start/End Jun 2002 Oct 2013

Capital R35,000 R852,000

Profits Last 4 yrs R473,000

Total Return 181% 33.0% pa

Income R300 R4,311

Downside Capture 95% JSE 100%

Low Risk Profile• Security conscious• Invested only in fixed depositsInvestment solution• Lifted risk profile gradually• Fund of Hedge Funds 2002-2007• 100% Equity portfolio 2007-2010• 160% Geared CFD Portfolio 2010-2013

Investment Magic: Joan de Lange

Trust

Page 30

Age 31 Engineer

Start/End Jun 2006 Oct 2013

Capital R25,000 R3,381,000

Profits 7 years R2,015,000



Wealth Potential Age 61 R3.1G

Project Engineer, Medupi Power Station• Travelled 3x per week to Ellisras• Invested all his S&T reimbursementsOpportunistic approach to life• Moved to Ellisras to qualify for a company home

loan• Bought an empty stand, built a house• Sold house for R450,000 profit 2yrs later• Invested proceeds in CFD account

Investment Magic: Pieter Luus

Opportunity & Risk

Page 31

Age 26 Student

Start/End May 2008 Oct 2013

Capital R13,300 R665,000

Profits Last 5 yrs R378,000



Wealth Potential Age 66 R6.3G

Full time student at Pretoria University• PhD Student in Theoretical Chemistry• Has never earned a formal income yet!• Got married in August 2013Major decisions• Invested his share of car inheritance• Used 1/3rd of wedding allowance, invested 2/3rds• Has never withdrawn a cent except for wedding

rings

Investment Magic: Jurgens de Lange

Discipline

Page 32

Starting at age 30 with R100k, how long will it take to become a billionaire? What returns do you need to become a billionaire in your lifetime?

The Gigabucks League Table

Return p.a 5% 10% 15% 20% 25% 25.9

% 30% 35% 40%

Age 30 100k 100k 100k 100k 100k 100k 100k 100k 100k

Age 40 160k 260k 400k 620k 930k 1.0M 1.4M 2.0M 2.9M

Age 50 260k 670k 1.6M 3.8M 8.7M 10M 19M 40M 84M

Age 60 430k 1.7M 6.6M 24M 81M 100M 260M 810M 2.4G

Age 70 700k 4.5M 27M 147M 750M 1.0G 3.6G 16G 70G

Age 80 1.1M 12M 108M 910M 7.0G 10G 50G 330G 2T

Years (10x) 47.2 24.2 16.5 12.6 10.3 10.0 8.8 7.7 6.8

1G = 1 Gigabucks = R1 billionYears (10x) = 1/Log10(1+%Return)

Page 33

Our Track Record

Page 34

Source: Bloomberg * EAM return net of fees - The returns achieved to date are after the deduction of performance and management fees** Capital return calculation - This represents the returns without the re-investment of dividends *** Total return calculation - The total return assumes all dividends and distributions are re-invested resulting in higher return numbers

—— RFS Fund—— FTSE/JSE Top 40

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

23.0%

33.9% 34.9% 35.0%

29.8% 29.6%

20.2%

23.5%

10.3%

21.2%

14.2% 15.0%13.5% 13.9%

7.4%

14.9%

Annualized Returns – Our track record

Page 35

At October 2013

Fund Performance

ALPHA 0.76% pmBETA 0.94

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

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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-

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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

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1

Oct

-11

Jun

-11

Feb

-12

Ap

r-1

2

Dec-

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Au

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2

Oct

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Jun

-12

400%

350%

300%

250%

200%

150%

100%

50%

0%

450%

500%

640.0%

277.2%

Share % Weight % Move 6m

Coronation Fund Managers

9.67% 52.50%

Top Five Holdings

EOH Holdings 7.04% 64.40%

Aspen Pharmacare 6.16% 43.40%

Naspers 5.91% 56.40%

Remgro Ltd 5.47% 12.90%

16.93

16.53%

15.15%14.31%

13.41%

10.94%

9.53%

2.46%0.6% TmtFood And HealthFinancialConsumerIndustrialResourcesServicesPlatinumPut Option

Portfolio Sector Weighting

Page 36

Our simple offering to our investors

25.9%return per annum

1 2 3

<95%risk relative to JSEbased on downside

capture

10/10years with positive

returns

24.0%

85%

8/9

Page 37

What Emperor can do for You...

20 25 30 35 40 45 50 55 60 650.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00Wealthy 23%

Comfortable 17%

Anxious 60%

Security

Lifestyle

Wealth

Emperor

Age

Wealth Index

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

Page 39

Appendices

Page 40

Ranking table - return vs. benchmark

Fund Performance


Total Returns

This month

Last 12 months

Last 3 years

Last 5 years

Since inception

Last 2 years

Annualised Returns

Last 12 months

Last 2 years

Last 5 years

Since inception

Last 3 years

Rank

Investec Emerging

Companies**

5.18%

38.37%

77.81%

28.87%

260.31%

42.25%

Investec Emerging

Companies**

38.37%

19.27%

5.20%

16.81%

21.15%

3

50% FTSE/JSE Mid Cap, 50% Small Cap **

4.02%

24.82%

52.80%

38.34%

291.13%

23.82%

50% FTSE/JSE Mid Cap, 50% Small Cap**

24.82%

11.27%

6.71%

17.98%

15.18%

Robert Falcon Scott *

FTSE / JSETop 40 **

5.07% 2.72%

51.67% 22.22%

115.34% 39.20%

130.23% 32.56%

472.47% 222.78%

64.07% 21.50%

Robert Falcon Scott*

FTSE / JSETop 40 **

51.67% 22.22%

28.09% 10.23%

18.15% 5.80%

23.55% 15.26%

29.13% 11.66%

1

FTSE / JSETop 40 ***

2.81%

26.12%

51.10%

52.11%

301.61%

28.90%


26.12%

13.54%

8.75%

18.36%

14.75%

Satrix INDI**

2.46%

40.14%

87.78%

94.38%

393.05%

51.42%

Satrix INDI**

40.14%

23.05%

14.22%

21.34%

23.37%

2

JSE INDI 25 Index**

1.72%

40.48%

86.90%

96.45%

399.53%

50.80%

JSE INDI 25 Index**

40.48%

22.80%

14.46%

21.53%

23.18%

Page 41

Robert Falcon Scott vs. 60% SWIX 40% STEFI

Fund Performance


Total Returns

This month

Last 12 months

Last 3 years

Last 5 years

Since inception

Last 2 years

Annualised Returns

Last 12 months

Last 2 years

Last 5 years

Since inception

Last 3 years

Robert Falcon Scott

*

FTSE / JSETop 40 **

5.07% 2.72%

51.67% 22.22%

115.34% 39.20%

130.23% 32.56%

472.47% 222.78%

64.07% 21.50%

Robert Falcon Scott*

FTSE/ JSETop 40**

51.67% 22.22%

28.09% 10.23%

18.15% 5.80%

23.55% 15.26%

29.13% 11.66%


2.81%

26.12%

51.10%

52.11%

301.61%

28.90%


26.12%

13.54%

8.75%

18.36%

14.75%

STXSWIX**

4.04%

24.88%

46.25%

37.03%

SWIX inception May 2006 not-comparable

26.12%

STXSWIX**

24.88%

12.30%

6.50%

SWIX inception May 2006 – not comparable

13.51%

STEF**

0.43%

5.55%

19.31%

45.43%

11.58%

STEFI**

5.55%

5.63%

7.78%

6.06%

60% SWIX /40% STEFI

2.59%

15.89%

35.64%

43.29%

20.41%

60% SWIX / 40% STEFI

16.89%

9.73%

7.46%

10.70%

Page 42

CIO performance to 31 December 2012

Fund Manager’s Performance

Total Invested NAV = R6 221 348 (Not reflected in fund AUM)

Tom de Lange

Andromeda Portfolio - Inception 01/02/09

Current NAV

Return 1 year

Return per annum

Cumulative return

2 694 441

90.6%

52.0%

429.0%

Performance

Alpha pm

Beta

Upside capture

Downside capture

Average Gearing

1.54%

1.47

193.0%

147.0%

212%

Ratios

Page 43

Corporate structure & team overview

Emperor Asset Management

Registration Number 1998/013637/06

100%

Operations5 staff

IT Development3 Staff

Almero OosthuizenChief Marketing

Officer

Gary van DykChief Financial andOperations Officer

Paul Jansen Van VuurenChief Technology

Officer

Tom de LangeChief Investment

Officer

Moonstone ComplianceCompliance officer

Hamish JamesHead of Private

Client Sales

Andrew KinseyHead of Risk

Marketing 2 Staff

Accounts3 staff

IT Support8 Staff

TC van de WaltFund Manager

Sales 8 Staff

Risk Officer 1 staff

First World Trader (Pty) Ltd

Mark Barnes - Chairman Charles Savage - CEO

Page 44

31 December 2012

Portfolio Overview

Emperor Asset Management: Model Client Portfolio31 December 2012

CFD’s Share Code Sector Strategy Date Days QtyEntry Current

Profit % Profit % Weight Norm weighting

% Move Month % Move Qty % Move 6

MonthsPrice Value Price Value

BHP Billiton Plc BIL Resources Blue Chip 30/10/2011 429 1 160 252.22 292 575 292.89 339 752 47 177 16.1% 9.83% 5.6% 4.2% 13.6% 24.6%

Coronation Fund Managers

CML Financial Momentum/Growth/Value 28/08/2011 491 11 500 21.03 241 845 39.66 456 090 214 245 88.6% 13.19% 7.5% 5.7% 27.9% 43.3%

EOH Holdings EOH Technology Growth 05/09/2011 483 7 900 23.12 182 658 37.85 299 015 116 367 63.7% 8.65% 4.9% 2.9% (2.9)% 8.1%

Kumba Iron Ore KIO Resources Momentum/Growth/

Value 22/09/2011 467 870 493.52 429 362 568.88 494 926 65 563 15.3% 14.31% 8.1% 4.6% 13.1% 3.7%

Mr Price Group MPC Consumer Momentum/Growth 01/09/2011 487 2 900 73.29 212 541 140.00 406 000 193 459 91.0% 11.74% 6.6% 5.3% 11.1% 25.1%

Remgro REM Industrial Blue Chip 15/11/2011 412 2 452 120.87 296 132 159.20 390 040 93 909 31.7% 11.28% 6.4% 6.4% 9.6% 21.1%

Shoprite Holdings SHP Food and

Health Momentum/Growth 30/10/2011 428 2 450 117.15 287 018 204.50 501 025 214 008 74.6% 14.49% 8.2% 6.5% 21.5% 35.7%

Vodacom Group VOD Technology Value 06/10/2011 452 2 450 90.73 222 289 124.00 303 800 81 512 36.7% 8.79% 5.0% 4.2% 21.4% 33.5%

Woolworths Holdings WHL Consumer Momentum/Growth 21/09/2011 467 5 500 35.44 194 920 71.00 390 500 195 580 100.3% 11.29% 6.4% 0.2% 16.8% 41.3%

SABMiller Plc SAB Consumer Momentum/Growth 01/11/2011 426 730 270.63 197 560 389.44 284 291 86 731 43.9% 8.22% 4.7% (2.9)% 7.7% 18.0%

New Gold Issuer NEWGOLD Gold & Plat Hedge 18/11/2011 410 570 129.66 73 906 137.45 78 347 4 440 6.0% 2.27% 1.3% (6.9)% (4.2)% 4.1%

Aspen Pharmacare Holdings

APN Food and Health Momentum/Growth 07/01/2012 360 2 200 99.28 218 416 169.00 371 800 153 384 70.2% 10.75% 6.1% 8.0% 18.2% 34.3%

Metair Investments MTA Consumer Momentum/Growth 06/01/2012 360 10 100 20.83 210 383 32.35 326 735 116 352 55.3% 9.45% 5.4% 8.9% 15.9% 39.1%

AVI AVI Food and Health Momentum/Growth 08/05/2012 238 5 500 49.35 271 425 59.95 329 725 58 300 21.5% 9.54% 5.4% 3.8% 0.3% 19.9%

British American Tobacco

BTI Industrial Blue Chip 14/08/2012 139 720 445.74 320 933 428.22 308 318 (12 614) (3.9)% 8.92% 5.1% (8.0)% 0.8% (2.2)%

Naspers NPN Technology Momentum/Growth 18/11/2012 44 870 542.55 472 019 543.20 472 584 566 0.1% 13.47% 7.7% (1.1)% (0.1)% (0.1)%

Assore ASR Resources Momentum 11/12/2012 21 870 386.92 336 620 407.40 354 438 17 818 5.3% 10.25% 5.8% 5.0% 5.0% 5.0%

Total Investment 360 4 460

5916 107

386 1 646 795 36.9% 176.63% 100.0% 5.7% 18.0% 31.2%

CFD’s held on average for 360 days

Sum of weighting is 176.6% which is a proxy for the gearing

Page 45

31 December 2012

Portfolio Statement

Emperor Asset Management: Investment StatementModel Client 31/12/2012

Summary of Investment

Market Value 3 457 668.19 Opening balance (30/11/2012) 3 271 638.47

Investment 2 191 443.44 Deposits -

Profit / Loss 1 266 224.75 Subtotal 3 271 638.47

Dividend Yield 7.61% Dividends Received 26 941.73

Interest Yield 4.52% Interest Received 8 449.84

Total Yield 10.78% Capital Movement 174 520.36

Management Expense Ratio 5.95% Management Fee *excl VAT) (3 477.46)

Performance and Risk Actual Target 4 yrs Performance Fee (excl VAT) (13 887.45)

Return per annum 41.08% 20.00% Brokerage (6 517.30)

Investment Level 176.60% 130.00% Expenses -

Alpha (Outperformance) %pm 1.73% >0.30% Net Profit 186 029.72

Beta Risk Factor 1.28 1.10 – 1.20 Subtotal 3 271 638.47

Volatility Risk Factor 175.00% 105% - 135% Withdrawals -

Upside Capture 143.00% >100% Closing balance (31/12/2012) 3 457 668.19

Downside Capture 88.00% <95%

Performance Summary Initial Investment Date 2011/08/01

Period Date Profit Exposure Total Return Benchmark

Last Month 2012/12/01 186 029.72 176.0% 5.69% 2.72%

Last Quarter 2012/10/01 526 859.90 177.1% 17.98% 10.40%

Last 6 Months 2012/07/01 821 789.63 178.8% 31.18% 17.40%

Last Year 2012/01/01 1 326 705.39 180.0% 62.24% 22.22%

Last 2 Years 2011/06/01 1 457 668.19 164.7% 72.61% 18.86%

Since Inception 2011/06/01 1 457 668.19 164.7% 72.61% 18.86%

Page 46

Bull Markets, 14 observances in 28 years

Weekly MSX Analysis

Date HiJSE

HighMSXW@ High

MSXM@ High

JSELevel

MSXMLevel

JSETrough

DateLow

MSXW Trough

MSXMTrough

DD Total DD Level

23/08/89

2,842 86 88 2,338 73 2,338 16/10/89 15.5 61 -18% 0%

14/08/90

3,232 61 47 2,717 43 2,547 15/11/90 17.0 26 -21% -6%

17/11/94

5,942 74 80 5,163 67 5,054 31/01/95 16.3 40 -15% -2%

22/04/96

7,070 69 78 6,421 36 6,421 21/08/96 19.3 29 -9% 0%

15/10/96

7,073 64 45 6,615 46 6,384 17/12/96 10.8 34 -10% -3%

22/10/97

7,420 62 54 6,007 47 5,597 12/01/98 6.6 25 -25% -7%

21/05/01

9,565 77 66 7,381 68 7,381 21/09/01 18.9 61 -23% 0%

22/05/02

11,653 82 67 8,871 54 8,871 05/08/02 13.5 51 -24% 0%

03/03/04

11,179 81 93 9,748 84 9,748 18/05/04 18.9 57 -13% 0%

11/05/06

22,094 89 96 18,415 94 18,380 13/06/06 2.6 51 -17% 0%

13/07/07

29,962 66 93 26,904 82 25,985 17/08/07 9.8 60 -13% -3%

21/02/11

32,807 60 81 30,194 75 30,194 15/03/11 14.7 69 -8% 0%

13/07/11

32,310 55 42 28,391 33 28,391 08/08/11 6.8 30 -12% 0%

31/05/13

42,016 57 65 38,075 60 38,075 24/06/13 20.4 60 -9% 0%

Page 47

Robert Falcon Scott

Historic monthly data

Historic Monthly Returns

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecCumulati

ve

2004 1.1% 12.0% 6.3% 20.4%

2005 (1.0)% 4.3% (7.7)% (3.9)% 0.1% 0.3% 4.6% 2.6% 5.6% (7.6)% 3.1% 4.4% 3.5%

2006 15.6% (2.2)% 7.5% 3.0% (5.5)% (2.3)% (2.1)% 6.9% 1.4% 4.2% 4.1% 5.4% 40.1%

2007 4.0% 4.8% 13.0% 9.9% 7.0% (5.4)% 0.9% (7.0)% 6.4% 6.6% (2.3)% (0.1)% 42.4%

2008 (2.7)% 16.7% (7.5)% 6.6% 15.5% (7.4)% (13.6)% 1.7% (13.2)% (7.1)% (2.6)% 3.4% (14.5)%

2009 (0.9)% (5.8)% 1.4% 0.9% 5.9% (1.5)% 8.3% 2.8% 1.5% 5.2% (1.9)% 7.9% 25.1%

2010 (3.0)% 2.2% 7.6% 2.0% (5.5)% (4.2)% 12.8% (5.3)% 13.6% 4.1% (0.7)% 6.1% 31.2%

2011 (7.4)% 3.8% 2.3% 5.2% (5.2)% (0.0)% 0.8% 1.2% (7.4)% 12.6% 4.3% (3.3)% 8.2%

2012 9.3% 5.8% 1.6% 4.8% (6.7)% 4.8% 6.2% 2.4% 0.2% 7.0% 2.8% 5.1% 51.7%

2013 1.1% (1.9)% 2.5% (2.2)% 14.4% (4.4)%

Average Monthly Gearing

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year

2004 93.7 137.2 173.0 134.7

2005 185.7 168.4 141.5 23.3 28.0 35.8 71.4 92.1 113.3 7.36 75.7 101.8 84.0

2006 137.9 94.7 104.4 123.5 123.0 114.0 74.7 92.4 77.3 97.3 95.0 77.4 101.1

2007 104.4 101.7 99.9 92.9 83.3 83.2 102.3 82.9 85.3 56.3 72.1 72.8 86.4

2008 33.4 128.2 108.6 111.9 102.8 94.0 76.8 128.4 80.8 51.1 58.3 75.2 87.5

2009 80.3 83.4 68.6 75.6 88.8 92.8 99.4 104.9 145.8 148.8 110.5 146.5 103.8

2010 121.0 130.6 131.9 133.8 129.0 132.6 137.5 138.8 136.4 134.8 136.7 139.7 133.6

2011 144.1 148.2 156.1 146.5 144.1 137.7 142.7 149.4 139.0 152.6 152.6 144.8 146.5

2012 153.5 152.5 152.7 149.9 146.8 144.5 147.6 143.8 147.0 148.9 147.2 145.1 148.3

2013 151% 152% 152% 156% 156% 159%

Page 48

Market timing in practice (with lessons from hindsight)

Portfolio Overview

• Monthly MSX is at 80 after strong rallies since the low in May 2012. The MSX has deep in the green zone (> 60%). Implication: Normal sentiment of a strong bull market.

• The PE is currently at 15.27 and inflation at 5.7%. Valuation (Rule 18) stands at 18.12 (Neutral).

• Output of market timing gearing model: Sentiment (+100%) + Valuation (+6%) = 106% of standard gearing.

• Interpretation: A benign investment climate calling for slightly above average risk taking.

158%Oct’0

7

110%Dec’07

20%May’08

20%Aug’08

180%Feb’09

200%Jun’09

155%Jul’10

165%Dec’10 130%

Jul’11

200%Dec’10

195%Aug’12

170%Jan’13

160%Jun’06

160%Dec’09

Gearing levels implied by Market timing model (Standard gearing 160%)

Market timing model implemented

Page 49

From initial investment to redemption

Flow of funds

Account opening • Strict client take on procedures are adhered to.• Once all the required account opening documents (i.e. Mandate, risk disclosure,

contact information sheet, risk questionnaire, Intermediary disclosure sheet and FICA requirements) are received, an account is opened for each client in GT247.COM each with a unique 5 digit account number.

• Depending on the underlying execution of the EAM strategy (either equities or CFD’s) the clients will deposit their funds either with one of GT247.COM’s 5 underlying trust accounts held at the major banks or with Prime Broker trust accounts.

• Both GT247.COM and Prime Broker check these trust accounts daily and allocate client funds to their respective trading account numbers.

Funds transfer – Initial deposit• CFD strategy: If the client requires the leveraged CFD fund strategy the funds are

deposited into one of GT247.COM’s 5 trust accounts held at the major banks. GT247.COM staff review these bank accounts on a daily basis and allocate the clients deposits to their accounts. The clients portfolio is traded on deposit date plus 1 business day starting by leveraging the portfolio from 0.5 times leverage to the clients preferred risk profile. Portfolios only reach the preferred or maximum leveraged level by phasing trades in on a monthly basis for a period of 4-6 months.

• Equity strategy: If the client requests the EAM equity fund strategy the funds are deposited into Prime Brokers underlying trust account, whose staff will review the trust accounts daily and allocate their funds to their respective client accounts prior to execution at EAM discretion.

Funds transfer - Withdrawal• Clients can request a withdrawal of funds, at any time, by sending an email

together with their account details to [email protected]. All positions will be closed out at closure request date T+0.

• EAM = 95% T + 1, the remainder at month end after apportionment for performance and management fees.

• Prime Broker = T + 5

Client requests withdrawal

Position closed T + 0 Position closed T + 0

95% Payment = T + 1

100% Payment = T + 5

Final 5% = Month end

Wit

hdra

wal

Client Funds

CFD Strategy Equities Strategy

Trust accounts at major banks

Trust accounts

Allocated to individuals

GT247.COM account according to unique

client account numbers created

Allocated to individuals

Prime Broker created account number

Execution results in:

Contract OwnershipDe-materialised

Scrip

Init

ial in

vest

ment

Prime Broker

Page 50

Dividend yield

Value Strategy

Portfolio

JSE


Alpha (% per month)

1.44% 0.00%

Beta 0.53 1.00


Downside Capture

34% 100%

Volatility Risk 70% 100%

Page 51

How safe is it really?

Money Market Investment

Money Market 100% 50% 0%

Emperor 0% 50% 100%

MM Return (12m call) 5.6% 5.6% 5.6%

EAM Total Return 24.0% 24.0% 24.0%

EAM Dividend Yield 6.0% 6.0% 6.0%

EAM Interest Yield 4.5% 4.5% 4.5%

Total Return Before Tax 5.6% 14.8% 24.0%

Total Income 5.6% 8.1% 10.5%

Taxable Income 5.6% 5.1% 4.5%

Marginal Tax Rate 35% 35% 35%

Income After Tax 3.7% 6.3% 8.9%

Capital Growth 0.0% 6.8% 13.5%

Inflation (Namibia CPI) 6.3% 6.3% 6.3%

Real Capital Growth p.a. -5.9% 0.4% 6.8%

Capital Value 10 years 54% 104% 193%

Capital Value 20 years 29% 109% 371%

Put Option ProtectionJuly 2013

www.emperor.co.za

Page 53

− Definition: An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.

− Description: A put becomes more valuable as the price of the underlying stock depreciates relative to the strike price. For example, if you have one Mar 08 Taser 10 put, you have the right to sell 100 shares of Taser at $10 until March 2008 (usually the third Friday of the month). If shares of Taser fall to $5 and you exercise the option, you can purchase 100 shares of Taser for $5 in the market and sell the shares to the option's writer for $10 each, which means you make $500 (100 x ($10-$5)) on the put option. Note that the maximum amount of potential profit in this example ignores the premium paid to obtain the put option.

• Armed with this information lets bring it back to our world…

Lets Start with a technical review and look at how Investopedia.com defines and describes a put option:

Put Options 101

Page 54

− 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… Short term car insurance:

Put Options 101

Page 55

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:

Put Options 101

Page 56

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?

Put Options 101

Page 57

You will note that there are 2 new securities in your portfolio, reflecting the implementation of the put option:

1. The first security is the Alsi P1 18 June 2014 (expiry) 33800 (strike) instrument and as at 31 July 2013 is priced at 1352c

− This is the put option itself and as the name suggests it is based on the ALSI Top 40 index

− This contract: Will increase in value as the ALSI Top 40 moves downwards and below the

33800 strike. Will decrease in value as the ALSI moves upwards, further and further above

the 33800 strike.

Will be valued daily in your mark to market statement

Bringing this back to your portfolio mark to market statement

Put Options 101

Page 58

2. The second security is the Alsi X 18 June 2014 33800 instrument and as at 31 July 2013 is priced at 9316c

− This instrument has no economic value, therefore it will not result in any financial outcomes i.e. no commission, profit or loss, financing income nor fees etc.

− The purpose of the instrument is to correctly record the negative nominal value of the protection afforded by the put option contract, so that we can correctly record your effective level of gearing.

− The nominal value of this contract: Will increase as the ALSI Top40 moves downwards and below 33800 strike. Will decrease in value as the ALSI moves upwards, further and further above

the 33800 strike.

Will be valued daily in your mark to market statement

Put Options 101

Page 59

• The ALSI put option trade was done on SAFEX on the 19th July 2013 and was booked to client accounts on 31st July 2013. The reason for the delay between the trade and booking was purely to ensure that the portfolio accounting systems correctly recorded the instrument daily economics.

• Emperor Asset Management will adjust the amount of protection according to market conditions. During high confidence periods we will reduce the amount of protection and gradually increase it as the confidence levels deteriorate so as to reach 100% protection at confidence levels of 60% and lower

• Any further increase or reduction in protection will be traded and reported on the same day as traded.

• The current value of the put option in your portfolio is about 1% of your total portfolio exposure which provides roughly 20% cover against your total exposure.

Additional Disclosure:

Put Options 101

Page 60

Put Options - Mark to Market explanation

The ALSI X has no value and only reduces the Net Exposure of the portfolio. Thus there is zero P&L effect, Brokerage and funding.

Reflects the amount of protection that the put option is providing.

Total value of the Premium

The option contracts and resultant premiums were bought 2 weeks ago at a price of 1938. We however only allocated the premium to clients account on the 30th of July to thoroughly test the instrument in the trading systems.

Page 61

Put Option Appendices

Page 62

Momentum Strategy, with no Put Option, 160% Gearing

Fund JSE

Annualised Return

37.8% -1.0%

Alpha %pm 3.07% 0.00%

Beta 1.05 1.00


Downside Capture

94% 100%

Max Drawdown -48% -46%

Max Gearing 225% -

Page 63

5% premium weight, 160% Gearing

Momentum Strategy, with Put Option

Fund JSE

Annualised Return

72.9% -1.0%

Alpha %pm 4.80% 0.00%

Beta 0.34 1.00


Downside Capture

-2% 100%

Max Drawdown -24% -46%

Max Gearing 197% -

Page 64

Put Option Exercised – Market event

Key Assumptions

• R10 000 NAV invested at beginning of FY 2013• Option contract (100% cover) taken at 7.5% below current market prices

• Cost of cover at 5% of NAV (R500 total cost of premium)

• Market begins downward trend on week 26 losing 42.87% form a high of 15% positive returns

• The strike (insurance event) is triggered on week 30

Metrics

• Strike price ( Excess for cover) = (7.5 %)

• Premium paid for cover = (5.0 %) (R500)

• Performance if no cover in place = (27.49 %)

• Performance with cover in place = (12.50 %) as a result of the option (insurance) being paid 14.99%

In the result – If there is market crash the maximum loss will be limited to 12.5% (5% premium and the 7.5% excess)

Assumes perfect market conditions prevail with 100% correlation with the option

(12.50 %)

(27.49 %)

14.99 %

Page 65

Put Option Exercised – No Market event

Key Assumptions

• R10 000 NAV invested at beginning of FY 2013• Option contract (100% cover) taken at 7.5% below current market prices

• Cost of cover at 5% of NAV (R500 total cost of premium)

• Market begins downward trend on week 26 losing 42.87% form a high of 15% positive returns

• The strike (insurance event) is triggered on week 30

Metrics

• Strike price ( Excess for cover) = (7.5 %)

• Premium paid for cover = (5.0 %) (R500)

• Performance if no cover in place = 27.70%

• Performance with cover in place = 22.70%

In the result – If there is market crash the maximum loss will be limited to 12.5% (5% premium and the 7.5% excess)

Assumes perfect market conditions prevail with 100% correlation with the option

(5.00 %)

27.70 %

22.70 %

Economy & Finance

Emperor Asset Management: PE seminar 19 November 2013