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Selected Equities: Best Long-Term Savings
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Tal Eloya Integer Asset Management
2011 - Founder and Portfolio Manager
Fidelity Investments
2008 – 2010 Portfolio Manager, Fidelity Global Financial Services Fund ($650 million AUM)
2005 – 2007 Analyst, Healthcare ($800 billion market cap)
2003 – 2005 Analyst, Industrials ($150 billion market cap)
Merrill Lynch
2001 – 2003 Equity Analyst, Technology
Education
2001 University of Chicago, Booth School of Business.MBA, concentration in Finance
1996Tel-Aviv University, School of Law – LLBSchool of Economics – Bachelor of Arts, Economics
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Tal Eloya Past Track Record
Fund/Sector Position Excess Return over Benchmark* Duration Performance Relative
to Peer Group**
Global Financials Fund Portfolio Manager 18.5% 2 years Top 10%
Healthcare Analyst 11.7% 2 years
Industrials Analyst 38.4% 2 years
Strong performance in various sectors during bear and bull markets
Beat 94% of ALL Fidelity funds while managing financial fund
Won 6 Lipper & Morningstar Awards for consistently strong risk adjusted performance
Voted number 1 Industrial analyst by Thomson Extel Survey
Long-term investment focus delivered consistent results
*Excess return defined as the return of the fund/analyst stock recommendations as an analyst minus the return of the benchmark. The excess return of global financials fund is gross of fees ( 2% per annum). Global Financials fund benchmark was MSCI Wolrd financials. Healthcare and Indistrials’ benchmark was MSCI Europe.
**Source: Morningstar Finance Sector
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Integer Track Record
Absolute Returns
June – Dec 2012 2013 2014 Jan-Oct 2015 Since Inception (June 2012)
0.2% 16.6% 10.1% 0.2% 29%
Risk parameters
Sharpe ratio 1.1x Gross exposure 65%
Standard deviation (volatility) 6.5% Cash % of NAV 35%
Maximum cumulative drawdown 4.1%
Liquid Investments % of NAV 100%
• Data presented are post all fees and expenses. • Sharpe ratio is calculated as the annualized average monthly fund return divided by the monthly standard deviation.
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Downside Protection Critical to Long Term Returns
Integer Performance Relative to S&P 500 During Months with Negative Return of S&P 500 (since inception)Monthly performance Oct-12 Jun-13 Aug-13 Jan-14 Jul-14 Sep-14 Dec-14 Jan-15 Mar-15 Jun-15 Aug-15 Sep-15 AverageInteger return (pre fees) -0.6% -0.1% -1.4% -1.6% -1.0% -1.4% 0.6% -1.3% 2.0% -3.5% -3.4% 0.3% -0.9%S&P 500 total return -1.8% -1.3% -2.9% -3.5% -1.4% -1.4% -0.3% -3.0% -1.6% -1.9% -6.0% -2.5% -2.3%Integer advantage over S&P 500 return 1.2% 1.3% 1.5% 1.9% 0.4% 0.0% 0.8% 1.7% 3.6% -1.6% 2.7% 2.8% 1.4%Integer decline as % of S&P 500 decline 40.8%
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Definitions
Investing– Growing purchasing power– Purchasing power determined by
• Capital gains + dividend/interest income• Inflation/currency devaluation
Risk– Probability of investment causing its owner a loss of purchasing power by
the end of the holding period• Assets can fluctuate greatly in price and not be risky • A non volatile asset can be very risky
Most investors don’t think this way:– Bonds viewed as safe (non volatile), despite low real returns and high risk
of permanent loss of capital
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Cash Not a Long-Term Strategy
US Dollar has lost 86% of its value since 1965 In last 50 years, almost 6% nominal annual return was required to
maintain purchasing power The purchasing power of $1million is $780,000 in five years!
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Interest Rates Tend to Stay low For Many Years Following Financial Crisis
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Bond Prices at All Times High
Return from and risks of a financial asset depend on its price
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Current Bond Yields = Declining Purchasing Power
• $10,000 invested in 10-year treasury notes at 3% yield result in a 20% decline in purchasing power over next 30 years. Main Assumptions:
• 3% annual inflation, no currency devaluation, no capital gains/losses• Purchasing power certain to decline.
2013 2018 2023 2028 2033 2038 2043$6,000$6,500$7,000$7,500$8,000$8,500$9,000$9,500
$10,000$10,500$11,000
Year
Purc
hasi
ng P
ower
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Bond Summary
Bonds
Growing purchasing power/compounding No
Inflation Protection No/partly (CPI linked)
Currency Depreciation Protection No
Valuation Expensive
Interest rate sensitivity High
Crises Protection (E.g. 2008) Low
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Selected Equities - bonds like stocks
Profits significantly higher in the future Business model remains intact Attributes:
– Excellent businesses with sustainable competitive advantages– Compounding returns – High barriers to entry– Stable/predictable industries – Low leverage– Shareholders friendly management teams
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AutoZone
S&P 500
Purchase date
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Alimentation Couche-Tard
S&P 500
Purchase date
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Colgate 14% CAGR over 30yrs Despite…
1997 Asian Crisis
2001 Internet Bubble
18% Interest Rate
1991 Recession
1994 Bond Market Crisis
2008 Great Recession
1998 Russia Collapsed
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Why Not ETF? Successful investing requires ability to stay put during crises
periods (E.g. 2008, 2001, 1998, 1997, 1994, 1991) Market a basket of all types of companies - good, average, bad,
and all types of stocks - expensive, cheap, reasonably priced Want to own only the good businesses at reasonable prices
Can you put significant portion of your wealth in ETFs? How much does it worth? What do you do if it falls 20%?
Limited diversification benefits Need 15 positions to get most benefit
Low cost is secondary What matters is total return post fees on overall portfolio
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Integer’s equity portfolio (as of September 30th,
2015)*
S&P 500 (long-term average)
Business quality Excellent Average
Return on capital employed 21% Less than 10%
Price earnings ratio 15x 14x
Net debt to EBITDA Very low Average
Why Not ETF?
Why compromising and buying the average instead of peaking jewels?
* These ratios are based on our 2016 estimates. Free cash flow yield, net debt to EBITDA and return on capital employed exclude our investments in financial companies, as these ratios are not appropriate measures for these type of companies.
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Why Not ETF (Cont.)?
Don’t try to get market return/beat the market.
Own a diversified portfolio of strong businesses that will deliver decent return for years to come.
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Summary
Selected Equities Bonds
Growing purchasing power/Compounding Yes No
Compounding Effect Yes No
Inflation Protection Yes No/Partly (CPI linked)
Currency Depreciation Risk Low High
Crisis Protection (E.g. 2008) Low Low
Interest Rate sensitivity Low High
Valuation Reasonable Expensive
Principal protection High High
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Why Investing With Us
Integer Asset Management Alternatives
Fund Manager Tal Eloya You don’t know them
Managers savings invested Alongside yours ???
Investment Approach Long-term winners Market return/asset categories
Time Horizon 3 years plus Short-term
Risk of permanent loss of capital Limited High
Safety and Transparency Own the assets directly ???
Leverage/illiquid positions No ???
Fees and fund expenses Performance driven, minimal expenses ???
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Managed Account Details
Assets owned by the Investor
Daily NAV
Subscription/Redemption: Daily
Fund expenses close to zero
Full transparency
Efficient tax structure
Prime Brokers:
– Interactive Brokers
– Bank Leumi
– Bank Poalim
Management fee:
– Up to $2mn: 1.5% plus VAT
– $2mn - $4mn: 1.25% plus VAT
– Above $4mn: 1% plus VAT
Incentive fee: 17% plus VAT
Hurdle rate: 2 years US government bond + management fee
High water mark
Lock up/Gates: No
Subscription/Redemption fee: No
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Disclaimer
This document is not intended as an offer or a solicitation for the purchase or sale of any, securities, or other financial instruments (hereinafter: "Financial Instruments"). This document is not intended to provide basis for any evaluation of Financial Instruments discussed herein. In particular, information in this document regarding any issue of Financial Instruments should be regarded as indicative, preliminary and or for illustrative purposes only, and evaluation of any such Financial Instruments should be made solely on the basis of the relevant Investment Management Agreement the relevant Supplements, when available. This document and any information enclosed within the document contain restricted, privileged and confidential information and are therefore intended for distribution to authorized persons only. If you are not the intended recipient of this document, you must not disseminate, modify, copy/plagiarize or take action in reliance upon it, unless permitted by Integer Asset Management (I.A.M) Limited. None of the materials provided on this file may be used, reproduced or transmitted, in any form or by any means whatsoever, including but not limited to electronically, mechanically, by way of recording or by the use of any information storage and retrieval system, without written permission from Integer Asset Management (I.A.M) Limited
With respect to the present document and/or its attached materials, neither Integer Asset Management (I.A.M) Limited nor any of its employees or representatives, makes any warranty or representation, whether express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information disclosed. Neither Integer Asset Management (I.A.M) Limited nor any of its employees or representatives assumes or accepts any liability and/or responsibility whatsoever caused by any action taken in reliance upon this document. The recipient of this document must consult the Investment Management Agreement and the relevant Supplements for all details regarding the offering and a complete disclosure of the risks involved. The information enclosed is not intended to constitute legal, tax or accounting advice. The recipient of this document is urged to discuss the risks involved with the business described in this document and/or its attached materials with a legal advisor and tax advisor. Integer Asset Management (I.A.M) Limited assumes that all users understand risks involved in the business described in this document and/or its attached materials. All rights reserved.
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Appendix
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Coupon Unlikely to Cover Reported Inflation
• US inflation ranged 2%-6% over last 60 years• US 10 years government bond yield 1.6% (post 25% tax)• US corporate bond yield 2.5% (post tax)**source: Bloomberg US Corporate Bond Index October 2015.
Reported USA Inflation
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Reported Inflation Understates ‘True’ Inflation
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Crisis Protection – Bonds not Better Than Selected Stocks
Nestle versus iShares iBoxx $ Investment Grade Corporate Bond Fund
Nestle
Investment Grade Bonds