THE SHOPPING LIST BY GLACIER RESEARCH · THE SHOPPING LIST BY GLACIER RESEARCH - Q4 - FEBRUARY 2017 2 ... To date, the company manages more than $360 billion AUM. They are long-term

A reference guide to superior collective investment schemes in SA

T H I N K W O R L D C L A S S

THE SHOPPING LISTBY GLACIER RESEARCHFebruary 2017 - Review of Quarter 4

THE SHOPPING LIST BY GLACIER RESEARCH - Q4 - FEBRUARY 2017 2

FOREWORD

Welcome to the Glacier Research Shopping List – your reference guide to superior collective investment schemes in South Africa.

When the Glacier Research team selects funds for the Shopping List we are looking for quality fund managers who have displayed the ability to produce consistent outperformance over meaningful time periods and the ability to protect capital in adverse market conditions, relative to peers. We strive to ensure that the most objective and independent selections are made - always keeping our clients in mind. The process focusses on both quantitative and qualitative assessments – but the ultimate fund selection is tilted towards the latter. Please have a look at our fund selection process for a better understanding of what we take into account when selecting a fund.

From a South African investor’s perspective, 2016 will be remembered as another difficult year for risky assets. The JSE All Share returned 2.63%, with the SWIX managing to deliver 4.13%. Property fared somewhat better, returning 10.20% for the year. Comparing these returns to headline inflation (6.34%), only property managed to deliver positive real returns. If you invested offshore you would not have been better off. In rand terms the S&P 500 delivered -1.19%, the FTSE 100 was down 11.90%, and the Japanese Topix returned -11.08% for the year. Overall the MSCI World and MSCI ACWI were also down -5.12% and -4.81% respectively (in rand terms).

Locally, an asset class that did do well during 2016, was bonds and more specifically longer duration bonds. The Beassa 12 Year Index returned 17.43% followed by the 7-12 Year Index at 15.37% and the 3-7 Year Index that returned 13.41% for the year. Rand appreciation played a major role in investment performance during 2016. The rand reached some of its lowest levels in January 2016, only to recover strongly and appreciate around 11%, 26% and 14% against the US dollar, British pound and the euro respectively. This detracted from the performances of offshore assets, but also had a meaningful impact on rand-hedge stocks as well as listed property counters, specifically those with material UK exposure.

Last year was therefore yet another very difficult period for both local and global asset managers to navigate through. Generally those local funds that were short ‘SA Inc. stocks’ and resources and long offshore assets (impacted by rand appreciation) performed relatively poorly Conversely, funds with high exposure to fixed income instruments, resources, mid and small-caps and that were also long on the SA rand with little offshore exposure tended to outperform their peers during 2016. Last year clearly highlights the merits of fund manager diversification - selecting quality managers that perform differently in different market environments is therefore crucial.

The Glacier Research team completed 106 asset manager interviews and due diligence meetings in 2016. Our interactions with top local and global asset managers provide us with unique qualitative insights which form a large part of our fund assessment process.

New addition to the Shopping List

We are very excited to announce the addition of the Glacier Global Stock Feeder Fund to the Shopping List. The fund will feed directly into the Dodge and Cox Global Stock Fund. Dodge and Cox, established in 1930 in San Francisco, is one of the most experienced and largest money management firms in the world.

To date, the company manages more than $360 billion AUM. They are long-term investors (average stock holding of seven years) with more than 95 investment professionals supporting their investment strategy and process. On a qualitative basis, Glacier Research is firmly of the opinion that Dodge and Cox is a superior fund management firm, and that the fund should fare particularly well in difficult market conditions. Some of the key features of the manager that stand out for us are as follows:

• The size, experience and stability of the investment team The Dodge & Cox team is led by very experienced investment professionals with an average tenure of more than 20 years. The size of the team allows greater coverage and identification of investment ideas.

• The rigour of the investment process The rigour and discipline of the investment process is a highlight of the Dodge & Cox Global Stock Fund. The process is clear and defined – all stocks go through an individual analyst assessment, followed by a team-based review, and then a collective judgement- based review by the policy committee, which is composed of the most experienced investment team members.

• The independence of the firm and active employee ownership The fact that the company is completely investment focussed, independent and wholly-owned by active employees are definitely standout attributes. The team is therefore able to focus exclusively on generating the best possible returns.

We’d like to thank you for your on-going support and assure you of our commitment to meeting the investment needs of your clients. Please contact the team at any stage if you have any queries or if we can assist in any way.

Leigh KöhlerHead: Glacier Research

From a South African investor’s perspective, 2016

will be remembered as another difficult

year for risky assets.


QUARTERLY ECONOMIC AND FINANCIAL MARKET REVIEW

The South African economy rose by a disappointing 0.2% q/q in Q3 - well below market expectations for an increase of 0.6% q/q. This was largely due to a sharp decline in manufacturing activity (-3.2% q/q). Growth over the last year to end September 2016 rose by a modest 0.7%. Overall growth is expected to moderate to 0.3% in 2016, improving modestly to 1.2% in 2017 on the back of an anticipated increase in agricultural activity, lower inflation and some recovery in commodity prices. However, business and consumer confidence remains weak and the South African economy has struggled to gain momentum since the financial market crisis. Unless South Africa is able to lift domestic economic activity it continues to face the risk of further credit rating downgrades. The SARB kept the repo rate unchanged at 7% at its November meeting on the back of muted economic growth and the upside risk to inflation. South Africa’s headline inflation rose to 6.6% y/y in November after increasing to 6.4% y/y in October. This was in line with market expectations and the highest reading since February 2016. While the SARB remains concerned about the upside risk to inflation they are forecasting that it could move back into the target range in 2017 should there be a recovery in agricultural activity in 2017 and the rand remain range-bound. Over the quarter, the rand appreciated against the US dollar (-0.19%), the euro (-6.36%), the British pound (-4.6%) and the yen (-13.18%).

2016 will be remembered by events such as Brexit, Trump and Renzi. Despite this, developed market risky assets posted gains in November and December, delivering 1.48% in USD and 1.29% in ZAR for Q4 - outperforming emerging market equities which delivered -4.56% in USD and -4.74% in ZAR. With the hopes of stronger growth, rising inflation and higher interest rates, the US dollar strengthened in Q4 and capital flew out of emerging markets. US GDP exceeded market

expectations in Q3, growing 3.5% q/q opposed to the 1.4% increase in the previous quarter. This is the highest growth rate in two years. US inflation increased 1.7% y/y in November after the 1.6% increase in October. This was in line with market expectations and the highest reading since October 2014. It is largely attributed to higher energy costs. As widely expected, the Federal Reserve raised interest rates by 0.25% in December 2016. What did surprise the market is the anticipated increase in the number of interest rates hikes in 2017 from two to three. Developed market bonds (-7.07% in USD and -7.25% in ZAR) underperformed developed market property (-6.22% in USD and -6.40% in ZAR).

The ALSI outperformed emerging markets but still lost ground delivering -2.09% in ZAR and -1.9% in USD in Q4. Returns remained dispersed with mid- and small-caps delivering +1.02% and +0.58% while large-caps delivered a negative 3%. By tradable industries, SA Industrials (including dual-listed companies) was the worst performer, delivering -4.69%, followed by Resources which delivered a negative -1.20%. Industrials and Financials were the best performers delivering +5.26% and 2.89% respectively. The ALBI returned a muted +0.35% (+0.54% in USD) with the shorter end of the yield curve (1-3 Yr) performing the best (+1.42%) as foreigners were net sellers of R52bn worth of bonds in Q4 (-R26.1bn in 2016). Inflation linked bonds was the worst performing fixed interest asset class, returning -1.07%. Preference shares and cash increased +1.98% and +1.86% over the same period. Foreigners were net sellers of R28.4bn worth of equities in Q4 (-R124.8bn in 2016).

Overall growth is expected to moderate to 0.3% in 2016, improving modestly to 1.2% in 2017 on the back of an anticipated increase in agricultural activity, lower inflation and some recovery in commodity prices.


THE TEAM

Imraan Khan

Imraan holds a BCom (Finance and Economics) degree and BCom (Hons) degree specialising in Finance and Investment from the University of the Western Cape (UWC). He joined Glacier in 2011 as a Client Service Consultant from a Graduate Program in Santam. Imraan joined the Glacier Research team in November 2016.

Shawn Phillips

Shawn holds a Bcom (Hons) degree in Financial Analysis and Portfolio Management from the University of Cape Town. He also holds a BSocSci degree in Philosophy, Politics and Economics from the University of Cape Town. Shawn joined Glacier Research in January 2016.

Liesl-Mari de Jager

Liesl-Mari holds a BA (Hons) degree in Industrial Psychology (Cum Laude) and MBA (Cum Laude). She has 18 years’ financial services industry experience of which five years were spent as an equity analyst. Liesl-Mari joined Glacier in 2002 and was previously the head of Glacier Risk and Compliance, then head of Glacier Research before taking up the role as head of Client andFund Solutions.

Luke McMahon

Luke holds a BCom (Acc) degree and BCom (Hons) degree in Business Administration from the University of the Western Cape (UWC). He is completing a Masters degree in Business Management from UWC. Luke joined Glacier Research in January 2016.

Thobela Mfeti

Thobela is a BCom (Hons) (Financial Analysis and Portfolio Management) graduate from the University of Cape Town. She also holds a post-graduate Diploma in Management from the University of Cape Town and a BBA (Bachelor in Business Administration) degree from TSiBA Education and has passed CFA Level I exam. She joined Glacier in May 2013 and the Glacier Research team in October 2013.

Francis Marais

Francis is a CFA Charter holder and holds a BCom (Hons) degree in Financial Analysis from the University of Stellenbosch. He started his career at Sanlam Employee Benefits as a fund accountant and later on as a review manager. He then spent four years as the Operations and Research manager at Nostic Asset Management (Category 2 Discretionary FSP). Francis joined Glacier Research in March 2015.

Cindy Mathews-De Vries

Cindy holds a MSc (Cum Laude) degree in Computational finance, BSc (Computer science and Mathematics) degree and Associate in Management (AIM). She has 9 years’ financial services industry experience of which seven years were spent as an equity analyst. She started her career as a software developer at Tellumat and later as a quantitative analyst at Futuregrowth Asset Management. Cindy joined Glacier in January 2017.

Darren Burns

Darren is a CFA charter holder and holds a degree in Investment Management (Stellenbosch University) and a BCom (Hons) in Financial Analysis and Portfolio Management from the University of Cape Town. He has completed RE 1, 3 and 5 exams and has the relevant experience as a representative and key individual for both a Cat I and Cat II licences. Darren joined Glacier from Secure Wealth, where he worked for seven years as a director, financial advisor and analyst. He joined Glacier as a Fund and Client solutions specialist in October 2016.

Johan Louwrens

Johan holds a BCom (Hons) degree in Financial Analysis from the University of Stellenbosch, and obtained his CFA Charter in October 2015 while completing his MSc in Financial Markets and Investments (Summa Cum Laude) at SKEMA Business School (Paris Campus). He started his career as a Corporate Action Specialist at Maitland Fund Services, subsequently he worked as a Fund Accountant at Kleinwort Benson Fund Services, and later joined SunGard Financial Systems as a Product Specialist. Johan joined the Glacier Research team in November 2016.

Leigh Köhler

Leigh joined Glacier in 2003 after completing his BCom undergraduate degree in Politics, Philosophy and Economics from the University of Cape Town. He later qualified with a BCom (Hons) in Economics from UNISA. Leigh was previously the head of the Investment Administration team at Glacier before taking up the role as head of Glacier Research in 2012.

Johann-Hendrik Vlok

Jan holds a BComm degree in Investment Management as well as a Post Graduate Diploma in Financial Planning. He has completed all three CFA exams. Jan started his career as an administrator and underwriter at MUA Insurance, he joined MyWealthbook as a trader and later joined Findata Financial Services as a Para Planner. He joins the Glacier Research team in December 2016.


CONTENTS

Fund selection process

Fund Index

Glacier Research’s Guide to Portfolio Construction

Annual Returns of Asset Classes, Sectors and Categories

Multi Asset Portfolio Construction SA - Multi Asset Global Worldwide

Specialist Asset Class Building Block Portfolio Construction SA - Interest Bearing SA - Real Estate SA - Equity SA - Equity Specialist Global

User Guide (Glossary)

6

7

8

11

13

133841

43

4753556371

78



FUND SELECTION PROCESS

1INITIAL SCREENING

2QUANTITATIVE ANALYSIS

3QUALITATIVE ANALYSIS

4FINAL SELECTION

Fund size greater than R250 million

Investment Philosophy: Convincing and well-articulated investment philosophy.

Remuneration and incentive structures: Fair and aligned with the investor objectives.

Culture of co-investment: Evidence of investing alongside the clients

Investment Process: Disciplined, methodical and repeatable investment process with exceptional risk management capabilities.

Stable business: Stable group and management structures. Healthy financial position.

Passion, perspective, purpose and progress: Managers who are highly motivated and intensely competitive are more likely to be focused on excellence in performance results.

Investment Team: An investment team that has been together for a long period of time; with individuals who have relevant experience, proven investment expertise and a track record within the relevant asset class.

Focus on stewardship and long-term investing

Single managersThree-year track record of managing the fund3

Year

Performance analysis using both rolling and cumulative (static) return measures but most emphasis placed on rolling returns (useful for examining the behaviour of returns for holding periods similar to those actually experienced by investors). We look for funds that consistently display first and second quartile outperformance relative to peers over all periods where possible (1 – 10 years) with most of the emphasis placed on the longer periods.

Statistical risk measure analysis aimed at understanding the volatility of the fund – this includes standard deviation and downside deviation.

Statistical risk-return measure analysis of the fund aimed at understanding the achieved return per unit of risk taken – this includes Sharpe, Sortino, Treynor, Calmar and Information ratios.

Drawdown analysis aimed at understanding the capital preservation ability of the fund – this includes maximum drawdowns, up and down capture.

Consistency: We look for funds that consistently outperform peers across risk, risk-return and drawdown measurements and are therefore consistently ranked above peers over all periods where possible (1 – 10 years) with most of the emphasis placed on the longer periods.

Correlation analysis aimed at understanding how well the fund can be combined with others in a portfolio.

The quantitative analysis process is conducted quarterly.

The output from the research process, both quantitative and qualitative, is discussed by the Glacier Research Investment Committee to decide the final composition of the Shopping List. In line with the philosophy of long-term investing, the list of funds will remain fairly stable over time. Any changes will be highlighted in the fund/sector comment. The number of funds appearing per category will be proportionate to the size of the category.

AIM To identify funds that deliver consistent, long-term out-performance and display the ability to protect capital when markets are falling.


FUND INDEX

Funds suited for multi-asset portfolio construction

Funds suited for specialist asset class building block portfolio construction

Worldwide

Multi Asset Flexible

Foord Flexible FoF

SA - Real Estate

SA Real Estate

Catalyst SA Property

SA - Equity

Equity General

Coronation Equity Foord Equity Investec Equity Fund

Global**

Equity General

Glacier Global Stock Feeder

Investec Worldwide Equity Feeder

Old Mutual Global Equity Feeder

Nedgroup Investments Global Equity Fund (Veritas Asset Management)

Real Estate

Catalyst Global Real Estate Feeder

Passive Fund Alternatives

SA Multi Asset Low Equity

Satrix Low Equity Balanced Index #

SA Multi Asset High Equity

Satrix Balanced Index ##

SA - Multi Asset

Income

Coronation Strategic Income

Prescient Income Provider

Prudential Enhanced Income

SIM Active Income

Low Equity

Coronation Balanced Defensive*

Nedgroup Stable (Foord Asset Managers)

Prudential Inflation Plus*

SIM Inflation Plus

Medium Equity

Coronation Capital Plus*

Nedgroup Investments Opportunity Fund*(ABAX Investments)

High Equity

Allan Gray Balanced*

Coronation Balanced Plus*

Foord Balanced*

Investec Opportunity*

SIM Balanced*

Flexible

Bateleur Flexible Prescient

Laurium Flexible Prescient

PSG Flexible

Truffle Flexible

SA - Equity Specialist

Mid & Small Cap

Nedgroup Investments Entrepreneur(ABAX Investments)

Financial

Nedgroup Investments Financials (Denker Capital)

Industrial

SIM Industrial

Resources

Investec Commodity

SA - Interest Bearing

Money Market

Glacier Money Market

Nedgroup Investments Money Market (Taquanta Asset Managers)

Short Term

Old Mutual Income

Nedgroup Investments Core Income (Taquanta Asset Managers)

Stanlib Income

Variable Term

Stanlib Bond

* Regulation 28 compliant ** Glacier Global Stock Feeder Fund has been added to the Shopping List. Please see the Global Equity General category for commentary.

# Strategic Asset Allocation – Equity: 35%; Property: 5%; Nominal Bonds: 25%; ILBs: 10%; Cash: 25%. Local: 80%; Foreign: 20%

## Strategic Asset Allocation – Equity: 70%; Property: 6%; Nominal Bonds: 13%; ILBs: 6%; Cash: 5%. Local: 80%; Foreign: 20%

Global

Multi Asset High Equity

Coronation Global Managed

Investec Global Strategic Managed Feeder

Marriott Dividend Growth Prudential Dividend Maximiser PSG Equity

SIM General Equity


GLACIER RESEARCH’S GUIDE TO PORTFOLIO CONSTRUCTION

The key characteristics of this approach include:

• The use of multi-asset funds to construct the investment portfolio• The financial adviser being responsible for the strategic (long-term) asset allocation• Outsourcing of the tactical (short- to medium-term) asset allocation duties to the portfolio or asset manager• Advice risk being less of a concern for the adviser if the portfolio is structured using maximum mandated limits

The five steps involved in constructing a multi-asset fund portfolio

There are a number of approaches that can be followed when constructing investment portfolios for clients. This section focuses on arguably the two most popular approaches, namely the prudential (or multi-asset fund) approach and the building block approach.

Below, we outline the portfolio construction process of each approach, using practical examples where possible. We also highlight some of the key characteristics of each approach to assist you in selecting the best method for you and your clients.

Use the RITA or Oxford tool (or other risk profiling tool) to determine the client’s risk profile.

In this step, the adviser selects the funds for the investment portfolio. An extensive understanding of the funds in the CIS universe is extremely important when it comes to this section of the portfolio construction process to ensure a well-diversified portfolio for the client. The Shopping List and the Glacier Research team can add value and assist the adviser with this step.

When constructing multi-asset fund portfolios, it is important to note that it is not a requirement to only use funds from one ASISA category - the adviser may combine funds from different categories.

The portfolio below is an example of the construction of a moderate investment portfolio and is for illustrative purposes only.

Having constructed the portfolio, the next step is to ensure that the risk profile of the portfolio matches the risk profile of the client.

This process is illustrated in the graph on the following page (ICE risk rating).

When using the prudential or multi-asset fund approach, the adviser is also able to ensure that the portfolio does not breach certain asset class limits. This is done using the fund’s maximum mandated limits. By doing this, the adviser also eliminates potential portfolio drift and consequent advice risk at the same time.

The example below illustrates how to ensure that a moderate risk-profiled portfolio stays within its predetermined asset class limits – with a maximum equity exposure of 60%.

Having determined the client’s risk profile, the adviser can loosely match this profile to the respective ASISA categories. The two tables below illustrate the above-mentioned point.

1MULTI-ASSET FUND APPROACH

STEP 1:Determine the client’s risk profile

STEP 3: Select funds

STEP 4: Ensure risk profiles match

STEP 2:Determine the strategic asset allocation

?ASISA Category

Maximum Equity

Exposure

Maximum Property Exposure

Maximum Foreign

Exposure

SA Multi-Asset Income 10% 25% 25%

SA Multi-Asset Low Equity 40% 25% 25%

SA Multi-Asset Medium Equity 60% 25% 25%

SA Multi-Asset High Equity 75% 25% 25%

SA Multi-Asset Flexible 100% 100% 25%

Type of investorMaximum

Equity Exposure

Maximum Property Exposure

Maximum Foreign

Exposure

Conservative investor 10% 25% 25%

Cautious investor 40% 25% 25%

Moderate investor 60% 25% 25%

Moderately Aggressive investor

75% 25% 25%

Aggressive investor 100% 100% 25%

ASISA Category Moderate Portfolio

SA Multi-Asset Medium Equity Coronation Capital Plus (20%)

SA Multi-Asset Low Equity SIM Inflation Plus (20%)

SA Multi-Asset Low Equity Prudential Inflation Plus (20%)

SA Multi-Asset High Equity Allan Gray Balanced (20%)

SA Multi-Asset Medium Equity Foord Conservative (20%)


• The adviser makes the strategic asset allocation calls – the ASISA category limits can loosely be used as a proxy for strategic asset allocation.

• The tactical asset allocation calls are made by an experienced portfolio manager. This relieves the adviser of having to take a view on any particular asset class.

• Diversification is obtained across all asset classes and funds.• Investment advice risk is reduced, provided the portfolio is constructed

using maximum mandated limits.• The adviser requires an extensive understanding of the funds when

constructing a portfolio. Glacier Research can add value by providing the adviser with the necessary fund research and insights needed to construct a well-diversified portfolio for the client.

Factors to consider when choosing this approach:

Reviewing the portfolios regularly is very important. Glacier Research can add value to this step by not only providing reasons for the respective funds’ performances, but also by providing insights into their positioning, key strengths and weaknesses and their roles in the portfolio. Glacier Research is also able to provide substitute funds if required.

STEP 5: Quarterly review of the portfolio

Ensure risk profiles match (continued)

Conservative Cautious Moderate Moderately aggressive Aggressive

Fund category Fund name Max equity % in portfolio Max Equity (actual) Max foreign Max foreign (actual)

MA Medium Equity Coronation Capital Plus 60% 20% 12% 25% 5%

MA High Equity Allan Gray Balanced 75% 20% 15% 25% 5%

MA Low Equity SIM Inflation Plus 40% 20% 8% 25% 5%

MA Low Equity Prudential Inflation Plus 40% 20% 8% 25% 5%

MA Medium Equity Nedgroup Investments Opportunity 60% 20% 12% 25% 5%

100% 55% 25%

Portfolio Risk rating: 4.18Correlation Risk rating: 3.98

1 5 10

The key characteristics of this approach include:

• The use of asset class specific funds to construct the investment portfolio; and• Assuming responsibility, as the financial adviser, for both the Strategic (long-

term) and Tactical Asset Allocation (short- medium-term) of the portfolio.

The seven steps involved in constructing a building block portfolio

BUILDING BLOCK APPROACH

Use the RITA or Oxford tool (or other risk profiling tool) to determine the client’s risk profile.

STEP 1:Determine the client’s risk profile

?

Having determined the risk profile, SIM’s recommended bands (right) can be used as a guide to how much of the portfolio should be invested in each of the respective asset classes.

STEP 2:Determine the strategic asset allocation

Conservative Cautious Moderate Moderate Aggressive Aggressive

Equities (%) 0 - 20 15 - 35 30 - 50 45 - 65 60 - 75

Bonds (%) 15 - 35 15 - 35 15 - 30 10 - 25 10 - 20

Cash (%) 40 - 60 30 - 45 15 - 30 10 - 25 5 - 10

Property (%) 5 - 25 5 - 20 5 - 15 0 - 10 0 - 10

Domestic (%) 90 - 100 85 - 95 80 - 90 70 - 85 60 - 80

International (%) 0 - 10 5 - 15 10 - 20 15 - 30 20 - 40

2


• The adviser makes the strategic asset allocation calls –SIM’s recommended bands can assist with this step.

• The adviser also makes the tactical asset allocation calls – this means determining if a particular asset class is looking attractive or not and allocating accordingly.

• The adviser has to be able to allocate between the different asset classes (having an overweight position in a certain asset class, while having an underweight position in another asset class).

• The investment portfolios must be reviewed more regularly to manage portfolio drift, and indirectly, the potential advice risk.

• The adviser needs an extensive understanding of the funds included in the portfolio. Having an extensive understanding of the fund universe allows the adviser to express investment views more effectively.

To be truly effective, the building block method does require more skill, more time, and a more “hands-on” approach when it comes to the management of investment portfolios.

Factors to consider when choosing this approach:

This step is extremely important, especially when following the building block approach. If the portfolio were left unchecked over the past few years, it would have shifted from a moderate portfolio to a moderately aggressive portfolio, with the consequent advice risk implications for the adviser.

As a result, these portfolios should be reviewed on a quarterly basis and rebalanced when applicable to make sure that the risk profile of the client still matches the risk profile of the investment portfolio.

STEP 7: Quarterly review of the portfolio

In this step, the adviser needs to ensure that the underlying asset exposure of the portfolio falls within SIM’s recommended asset bands per risk profile.

Using the information from the moderate portfolio example above, the graph below shows that the underlying asset exposure in the portfolio does fall within the recommended bands as set out by SIM.

STEP 6:Ensure allocation matches asset bands

Asset Classes Actual % Reg 28 Max %

SIM Sense

Guide %

Equity 34.85% 75% 30 - 75%

Property 5.96% 25% 5 - 15%

Bonds 29.55% 100% 15 - 35%

Cash 29.64% 100% 15 - 30%

Other 0% 100% 0 - 100%

Foreign 10.97% 25% 10 - 20%

Africa 0% 5% 0 - 5%

In this step, the adviser must select the funds to be included in the portfolio and at the same time make sure that they fall within the recommended asset bands on the previous page.

The Shopping List and the Glacier Research team can add value and assist the adviser with this step.

The table below is an example of a moderate portfolio for a discretionary investment, and is for illustrative purposes only.

STEP 4: Select funds

SIM’s Recommended Asset Bands Moderate Portfolio

Fixed Interest Money Market (15% - 30%)

Glacier Money Market - 24%

Fixed Interest Bonds (15% - 30%) Stanlib Bond – 26%

Property (5% - 15%) Catalyst SA Property Equity PSG – 6%

Equity (30% - 50%) SIM General Equity Equity – 33%

Foreign (10% - 20%)

Investec Worldwide Equity Feeder – 6%

Prudential Global High Yield Bond – 5%

When following the building block approach, the financial adviser is responsible for the tactical asset allocation calls in the portfolio. This refers to the short to medium calls that are made relative to the strategic asset allocation (SIM’s recommended bands) above.

Example:If an adviser is of the opinion that local equities are expensive, an option - based on the strategic asset allocation – is to reduce local equity exposure to 30%, which is at the low end for local equity exposure for a moderate client in a discretionary investment.

At the same time the adviser may be of the opinion that local property is cheap and sees a significant amount of value in the asset class. The decision can be made to increase the exposure to 15%, which is at the high end for local property exposure in a moderate discretionary investment.

The Glacier Bull & Bear document can potentially assist in making tactical asset allocation calls in a portfolio.

STEP 3: Tactical asset allocation

STEP 5: Ensure risk profiles match

Conservative Cautious Moderate Moderately aggressive Aggressive

Portfolio Risk rating: 5.86Correlation Risk rating: 4.74

1 5 10

After constructing the portfolio, the next step is to ensure the risk profile of the portfolio matches the risk profile of the client.

This can be seen in the graph below (ICE risk rating).

THE SHOPPING LIST BY GLACIER RESEARCH - Q4 - FEBRUARY 2017 1 1

ANNUAL RETURNS OF ASSET CLASSES,SECTORS AND CATEGORIES

Asset Class Returns

2012 2013 2014 2015 2016

Property (35.88%) Foreign (52.6%) Property (26.64%) Foreign (31.05%) Bonds (15.42%)

Equity (26.68%) Equity (21.43%) Foreign (14.63%) Property (7.99%) Property (10.2%)

Foreign (22.28%) Property (8.39%) Equity (10.88%) Cash (6.46%) Cash (7.37%)

Bonds (15.95%) Cash (5.18%) Bonds (10.15%) Equity (5.13%) Equity (2.63%)

Cash (5.54%) Bonds (0.64%) Cash (5.9%) Bonds (-3.93%) Foreign (-4.34%)

Sector Returns

2012 2013 2014 2015 2016

Financials J580T (38.08%) Small Cap J202T (26.31%) Financials J580T (27.28%) Top 40 J200T (7.52%) Resources J258T (34.24%)

Industrials J520T (36.53%) Top 40 J200T (22.77%) Small Cap J202T (20.57%) Financials J580T (3.91%) Mid Cap J201T (26.89%)

Mid Cap J201T (29.48%) Industrials J520T (21.5%) Mid Cap J201T (19.62%) Small Cap J202T (-3.92%) Industrials J520T (21.55%)

Small Cap J202T (28.95%) Financials J580T (19.1%) Top 40 J200T (9.17%) Mid Cap J201T (-7.54%) Small Cap J202T (20.9%)

Top 40 J200T (26.12%) Mid Cap J201T (12.99%) Industrials J520T (6.99%) Industrials J520T (-10.07%) Financials J580T (5.44%)

Resources J258T (3.05%) Resources J258T (1.38%) Resources J258T (-14.74%) Resources J258T (-36.99%) Top 40 J200T (-1.6%)

Bond Returns

2012 2013 2014 2015 2016

12+ Years (18.74%) 1 - 3 Years (4.4%) 12+ Years (12.91%) 1 - 3 Years (4.1%) 12+ Years (17.43%)

7 - 12 Years (18.34%) 3 - 7 Years (1.45%) 7 - 12 Years (8.3%) 3 - 7 Years (0.93%) 7 - 12 Years (15.37%)

3 - 7 Years (13.62%) 7 - 12 Years (-0.21%) 3 - 7 Years (7.9%) 7 - 12 Years (-3.19%) 3 - 7 Years (13.41%)

1 - 3 Years (8.29%) 12+ Years (-0.68%) 1 - 3 Years (6.23%) 12+ Years (-7.04%) 1 - 3 Years (10.06%)


Category Returns

2012 2013 2014 2015 2016

SA - Equity - Financial (34.87%)

Global Equity General (52.17%)

Global Real Estate General (28.57%)


SA - Equity - Resources (24.57%)

SA Real Estate General (31.51%)

Global Multi Asset Flexible (43.27%)


Global Interest Bearing Short Term (30.96%)

SA - Interest Bearing Variable Term (12.79%)

SA - Equity Industrial (30.88%)


SA - Equity - Financial (22.65%) Global Equity General (29.13%) SA - Equity Mid & Small Cap

(10.69%)


Worldwide - Multi Asset Flexible (32.56%)



SA - Interest Bearing Short Term (8.31%)

SA - Equity Mid & Small Cap (27.47%)



Global Interest Bearing Variable Term (24.64%)

SA Multi Asset - Income (7.91%)

SA - Equity - General (19.98%)




SA - Interest Bearing MoneyMarket (7.55%)



SA - Equity - General (10.31%) SA - Equity Industrial (12.88%) SA Inflation (6.76%)

SA - Multi Asset - Flexible (17.8%)






SA - Equity - General (19.36%)


SA - Multi Asset High Equity (7.66%)

SA - Multi Asset Low Equity (3.59%)


SA - Equity - Financial (19.04%)


SA - Multi Asset Low Equity (7.6%) SA - Equity - Financial (3.41%)

SA - Multi Asset Medium Equity (15.78%)



SA - Multi Asset Medium Equity (7.4%) SA - Equity - General (3.12%)




















Worldwide - Multi Asset Flexible (-4.19%)



Global Interest Bearing Short Term (7.28%) SA Inflation (5.23%) SA - Equity Industrial (-6.03%)



SA Multi Asset - Income (5.88%) SA - Equity - Financial (1.04%) Global Equity General (-7.43%)

SA Inflation (5.71%)

SA Inflation (5.4%)

SA - Interest Bearing MoneyMarket (5.8%) SA - Equity - General (1.01%) Global Multi Asset Flexible

(-8.36%)





Global Interest Bearing Variable Term (-10.13%)



SA Inflation (5.31%)

SA - Interest Bearing Variable Term (-1.97%)

Global Real Estate General (-13.53%)

SA - Equity - Resources (-0.57%)

SA - Equity - Resources (0.8%)



Global Interest Bearing Short Term (-13.82%)


FUNDS SUITED FOR MULTI ASSET PORTFOLIO CONSTRUCTION


SA - MULTI ASSET - INCOME

Category Analyst: Jan Vlok

These portfolios invest in a spectrum of equity, bond, money market, or real estate markets with the primary objective of maximising income. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolio’s mandate and stated investment objective and strategy. These portfolios can have a maximum effective equity exposure (including international equity) of up to 10% and a maximum effective property exposure (including international property) of up to 25% of the market value of the portfolio. Many of the funds that were in the old Fixed Interest Varied Specialist (FIVS) category have subsequently moved to the Multi Asset Income category. All the former FIVSShopping List funds now fall under this new category. At present none of these funds intend to amend their mandates.

Shopping List selection: Coronation Strategic Income Fund, SIM Active Income Fund, Prescient Income Provider Fund, Prudential Enhanced Income Fund.

Risk-Reward: 3-Year Annualised

Time Period: 01/01/2014 to 31/12/2016

Std Dev

-2.0 1.0 4.0 7.0 10.0 13.0 16.0 19.0

0.0

3.0

6.0

9.0

12.0

15.0

18.0

Coronation Strategic Income A SIM Active Income A1 Prescient Income Provider A1

Prudential Enhanced Income A

Re

turn

Quartile Ranking

As of Date: 31/12/2016

Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile

-7.5

-5.0

-2.50.0

2.5

YTD 1 year 2 Years 3 years 5 years 7 Years

5.07.5

10.0

12.515.0



Re

turn

Risk Statistics

Time Period: 01/01/2014 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Coronation Strategic Income A

SIM Active Income A1

Prescient Income Provider A1


1.47

1.29

1.21

2.47

-0.62

-0.45

-0.14

-2.10

94.44

94.44

97.22

88.89

5.56

5.56

2.78

11.11

0.87

0.79

2.57

0.26

Returns

As of Date: 31/12/2016 Source Data: Total Return

YTD 1 year 2 Years 3 years 5 years 7 years

Coronation Strategic Income A

SIM Active Income A1

Prescient Income Provider A1


9.28 9.28

9.85 9.85

8.70 8.70

9.96 9.96

7.98

7.78

8.99

6.94

7.86

7.60

9.69

7.23

8.51

7.29

9.28

7.74

8.99

8.64

9.53

Maximum Drawdown: Monthly

Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-2.3

-2.0

-1.8

-1.5

-1.3

-1.0

-0.8

-0.5

-0.3

0.0



Rolling 2-Year Returns

Time Period: 01/08/2009 to 31/12/2016

Rolling Window: 2 Years 1 Month shift

09 12

2012

03 06 09 12

2013

03 06 09 12

2014

03 06 09 12

2015

03 06 09 12

2016

03 06 09 124.0

6.0

8.0

10.0

12.0



Re

turn


Long

Ter

m A

sset

Allo

catio

n

CORONATION STRATEGIC INCOMEFund manager Mark le Roux, Nishan Maharaj, Adrian van Pallander No of quarters 20

Benchmark 110% STeFi 3-month Index Risk Description Conservative

Role of Benchmark Agnostic Inception Date 02 July 2001

Return Focus Absolute Fund Size (Rm) R 23 660

Philosophy Fundamental, bottom up valuation driven Fee Description (retail class) Annual management fee

Glacier Risk Rating 0.96 Total Investment Charge 1.00%

The fund has a flexible mandate with no maturity limits for the securities that it invests in. It also has a flexible duration policy to protect capital during times of bond market weakness. Risky assets (property, preference shares, foreign) will be maintained at a combined maximum weight of 25% with zero exposure to equity. Exchange rate risk is also actively managed. The fund’s offshore exposure has typically been below 10% in the past.K

ey In

sigh

ts The fund will aim to provide a higher level of income than a regular money market fund while providing greater diversification. It will also add a layer of capital protection when bond markets decline in a conservative to cautious multi-asset portfolio.

Fund

Use

Coronation is a bottom-up investment house that focuses on proprietary research. Interest rate management (duration and yield curve) and security selection (credit and liquidity management) are two of the major focus areas of the fixed interest team. The fixed income portfolios are positioned with a long-term strategic market view in mind, with short-term tactical opportunities being taken when the market differs from the strategic view. The fixed interest team is headed by Nishan Maharaj and consists of 12 investment professionals. Analysts’ research responsibilities span numerous industry sectors, giving them a better perspective of the industry as a whole. Latitude is given to allow them to find opportunities that are not fashionable or short term fads. Adrian van Pallander has joined as co-portfolio manager on the Strategic Income Fund and Mark le Roux now fulfils an analyst and portfolio manager role.

Qua

litat

ive

Hig

hlig

hts

The fund delivers better drawdowns than many of its peers over rolling two- year periods. It has performed well, outperforming its peer group average over all periods longer than three months, whilst having lower volatility relative to peers over two-year rolling periods since 2009. It has also been able to outperform its benchmark over all periods above one year. The fund remains in the first and second quartiles of performance for all periods above six months. It has experienced some short-term volatility but it does have the highest exposure to local property of all the Shopping List funds.

Qua

ntita

tive

Hig

hlig

hts

The fund slightly outperformed the category average over the last quarter of 2016 with 0.08% by delivering 1.39%. Over the calendar year 2016, the fund returned 9.28%, beating the peer group average by 1.37% and its benchmark by 1.5%. The fund’s assets under management yet again grew for a consecutive quarter by a respectable 3.77% to R23.7 billion. The fund experienced some shifts in the overall asset allocation over the fourth quarter, with cash being reduced by 4% to 31% whilst SA bonds and foreign bonds were increased by 2.6% and 3% to 53.6% and 6.8%, respectively with the managers seeing opportunity in the global fixed interest market. Furthermore, the local property component was increased by 1.4% with attractive valuations in the sector emerging. The fund’s modified duration increased to 1.3 years with the addition of more fixed interest, whilst delivering a yield of 9.2%. SA bonds was the best performing asset class for the year, with the fund’s exposure to the longer end of the yield curve contributing positively to performance. The portfolio managers continue to favour preference shares as the top performing fixed income asset class for 2016 (18.8%), and maintain the current level of 3% of the fund. Foreign assets were the only minor detractor from performance due to the rand strength persisting throughout the fourth quarter.C

urre

nt P

ortfo

lio

Posi

tioni

ng

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

SA Cash SA Bonds SA Property SA Prefs SA Other International Cash International Bonds International Property


PRESCIENT INCOME PROVIDER

0.86 Guy Toms, Farzan Bayat & JP du Plessis No of quarters 9

Benchmark STeFi Call 110% Risk Description Conservative

Role of Benchmark Agnostic Inception Date 31 December 2005


Philosophy Quants valuation and risk focused Fee Description (retail class) Annual management fee


Even though the fund is benchmarked against the STeFi Call Rate, the managers’ internal targets are to outperform inflation, cash and the ALBI 1-3 index. The fund focuses heavily on capital preservation and aims to make no capital losses over any rolling three-month period. Prescient has very strong in-house quantitative and derivative capabilities. This fund is highly uncorrelated with the other Shopping List funds, which adds diversification and portfolio construction benefits. This is primarily due to the higher exposure to credit-linked notes that the fund has relative to its peers. Moreover, the fund won’t have any equity exposure and will typically have a higher offshore exposure in comparison to its Shopping List peers.

Key

Insi

ghts

The fund, while offering a cash alternative, is highly uncorrelated with other more vanilla type funds in the Multi Asset Income category. The fund is exposed to unique instruments that are actively managed allowing for superior risk-adjusted returns. Furthermore, this fund can be used in a client’s portfolio in order to draw an income.

Fund

Use

Prescient follows a quantitative approach to managing money. They focus on what is priced into the markets and make decisions based on asset pricing. Risk is defined as the probability of not meeting investment objectives, which means that any positions taken in the portfolios are mathematically tested using different scenarios. The team consists of highly qualified, quantitative individuals, ranging from physicists to engineers, who have extremely strong modelling and derivative capabilities. The team has recently lost one of its members, Sanveer Hariparsad, who was a highly regarded individual within the team. Prescient is however of the opinion that his function will be easily transferred and the CIO indicated that they are in the process of looking at replacing him. A keen eye will be kept on how this transpires.Q

ualit

ativ

e H

ighl

ight

s The fund displays very low correlations (ranging from -0.03 to 0.19) against the other Shopping List funds. Although historically a more volatile fund relative to peers, the fund has recently moved into first quartile volatility and has the lowest volatility among Shopping List peers. It has also delivered the best risk-adjusted returns over the past three years and remains in the top quartile over all one- and two-year rolling periods. It has outperformed its benchmark by more than 200bps since inception, on an annual basis. The quantitative, risk-focused process that is employed to construct the portfolio also sees it deliver some of the lowest drawdowns in its category. The fund has outperformed its internal target of inflation+3% over the past 10 years, returning an annualised return of 9.53%.Q

uant

itativ

e H

ighl

ight

s

The fund delivered a modest 1.78% over the fourth quarter, outperforming the peer group average by 0.47%, but marginally underperforming its benchmark. Over the calendar year 2016 the fund returned 8.7%, 0.8% ahead of peers and 1.2% above the fund’s specific benchmark, 110% SteFI Call deposit index. Assets under management within the fund grew impressively for a consecutive quarter, increasing by 17% over the last quarter of the year to R15.7 billion. During the quarter, the fund incurred some significant changes within the portfolio, with 16% of the fund changing composition. Prominent changes include: introduction of step-up notes at 3% and forex linked paper at 2.72% of fund value and a 1% increase in cash to 1.1%, whilst exposure to corporate floating-rate notes was reduced from a third quarter 6% allocation to 0%, and finally, international exposure was trimmed 2.6% to 15.5% of total fund value. The fund’s duration was further reduced to 0.35 years from 0.4 years in the previous quarter, which is 1.41 years less than the ALBI 1-3 year index. The fund’s current yield has decreased slightly over the quarter to 9.4% but is ahead of the 3-month JIBAR rate (7.35%) & ALBI 1-3 year rate (8.05%). The portfolio managers feel that, although the market is pricing in flat rates for the next 12 months, it is overly optimistic, given the US is in a rising interest rate cycle. Consequently they see more value in floaters than fixed-rate instruments, hence the positioning of the fund. The main contributor to performance was the high credit and funding spreads whilst the appreciation of the rand detracted slightly from the performance of the currency option, which expired in December. Given that the managers feel that the rand is cheap on an inflation differential basis, and the currency option on offshore holdings has expired, the fund’s offshore currency exposure is now fully hedged.

Cur

rent

Por

tfolio

P

ositi

onin

gLo

ng T

erm

Ass

et A

lloca

tion

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Cash FRN CLN Step up Notes NCD'sFixed Paper Forex Linked Credit bonds Floating rate bonds Inflation Linked BondsSwap and Option Mkt Val Preference shares Property International Fixed Bonds


PRUDENTIAL ENHANCED INCOME

Fund manager David Knee & Roshen Harry No of quarters 9

Benchmark STeFi Composite over 36m rolling period Risk Description Cautious



Philosophy Long term, relative valuation Fee Description (retail class) Annual management fee


The fund is benchmarked against the ALBI 1-3 year index but its primary objective is to achieve cash+2%, with no capital losses over rolling one year periods as its secondary objective. Prudential employs a Strategic Asset Allocation (SAA) approach in their multi asset portfolios, which offers a different approach to portfolio construction. The SAA is derived from numerous multi-variable efficient frontier analyses with long run economic forecasts built into the models. The SAA for the Enhanced Income fund is currently: 50% to cash, 10% to inflation-linked bonds, 10% to government bonds, 5% to foreign government bonds, 15% to local corporate bonds, 5% to foreign corporate bonds, 5% to local property and 0% to local equity. The portfolio managers are also able to tactically allocate within defined limits around the SAA, with the fund being limited to 20% exposure in foreign assets.

Key

Insi

ghts

The fund will look to achieve a moderate level of capital growth whilst providing a stable level of income return. It may display higher levels of volatility in comparison to its Shopping List peers. The Strategic Asset Allocation approach should offer diversification benefits when used with other Shopping List funds, despite being highly correlated with these funds.

Fund

Use

The team consists of seven highly qualified and experienced professionals, led by David Knee, who has recently been promoted to CIO of Prudential SA following Marc Beckenstrater’s decision to join M&G in the UK to focus on Prudential’s offshore capability. The credit team leverages off the offshore team, M&G, who are based in London, to gain insights on foreign companies that issue local debt. Prudential believes that market prices are broadly efficient over the long term but can be very inefficient over the short term.

Qua

litat

ive

Hig

hlig

hts

The fund has consistently managed to outperform its benchmark since inception on an annualised basis, as well as being successful in achieving its secondary goal of not incurring negative returns over rolling 12-month periods. Although the fund has dropped into the third quartile over a two-year period, mainly due to a below average 2015, it is back in the top 10% of performers on a one-year basis, as well as in the first and second quartile for all preceding periods. This slight variation of returns is due to the fund’s higher standard deviation and drawdowns when compared to its Shopping List peers.

Qua

ntita

tive

Hig

hlig

hts

The fund underperformed its benchmark over the final quarter of 2016 but for the calendar year ending 31 December 2016, managed to beat the benchmark quite materially. Over the fourth quarter of 2016 the fund returned 1.43% compared to its benchmark return of 1.86%. Annually, the fund delivered a net return of 10.0% compared to its benchmark return of 7.37% and is consequently the best performer amongst Shopping List peers. The fund’s assets under management have increased by 1.5% over the quarter from R2.1 billion to R2.2 billion. Moreover, the fund’s composition has changed over the quarter. The fund’s exposure to SA cash was decreased by 2.31% but still remains the highest holding at 40.25%, which is 9.75% lower than the fund’s SAA. SA bonds were increased by 5.16% to 33.46%, inflation-linked bonds were decreased by 0.19% to 5.71% and the overall offshore exposure was further reduced to 15.61%, due to a 2.31% downsizing of Foreign bonds. The fund has the highest modified duration compared to its Shopping List peers, which was reduced to 2.22 years from 2.32 years as a result of the reduction in SA bond exposure. Furthermore, the fund’s underweight SA cash & inflation-linked bonds position relative to its benchmark were the major contributors to performance, while being overweight SA bonds also contributed positively. The overweight position in SA cash, from an absolute perspective, detracted from value.C

urre

nt P

ortfo

lio

Posi

tioni

ngLo

ng T

erm

Ass

et A

lloca

tion

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

SA Property SA Bonds SA Inflation Linked Bonds SA Cash SA Equity International Equity International Bonds International Cash International Property


SIM ACTIVE INCOMEFund manager Philip Liebenberg No of quarters 34

Benchmark STeFi Composite + 1% Risk Description Conservative

Role of Benchmark Agnostic Inception Date 03 November 2006


Philosophy Bottom up, pragmatic value approach Fee Description (retail class) Annual management fee

Glacier Risk Rating 0.93 Total investment charge 0.93%

The portfolio manager has an internal mandate to never include equity in the fund. He also leverages off the Sanlam Investments credit team quite heavily, as they provide a formidable competitive advantage. The fund is invested in local assets only. Barring one quarter in September 2009, the fund has never been below 60% cash and money market assets. The nature of the fund reflects Liebenberg’s conservative and cautious nature.K

ey In

sigh

ts

The fund is a money market alternative that is able to consistently add extra yield relative to cash, while providing very low levels of volatility and drawdowns. The fund delivers a very stable return profile and will not give investors any unwelcome surprises. In times of adverse market conditions, this fund will protect capital very well and is thus very suitable in a building block portfolio for regular income withdrawals.Fu

nd U

sePhilip Liebenberg is the sole portfolio manager on the fund. He does utilise the expertise and knowledge of the fixed interest team at Sanlam Investments (SI). He is a very conservative portfolio manager by nature and this will always be reflected in the funds he manages. The credit process in the fixed interest team is one of the outstanding competitive advantages for this fund and SI as a whole. The Fixed Interest Model Portfolio Group (MPG) within SI, which used to consist of Chris Hamman, Philip Liebenberg and Gerhard Cruywagen, determines the strategic direction of the fixed interest portfolios and house view. However, as from 1 August 2016, this picture will change as Hamman leaves SI and his replacement from Argon Asset Management, Mokgatla Modisha joins as Head of Fixed Interest. As from 1 July 2016, Cruywagen also leaves the MPG as he shifts his focus from retail to institutional portfolio management for the Sanlam Group. The MPG is merely there to provide guidance for the direction within fixed income assets but as the sole portfolio manager, Liebenberg, Head of Absolute Return, still maintains his ability to manage his portfolios as he sees fit.

Qua

litat

ive

Hig

hlig

hts

The fund has done well over longer periods, outperforming its benchmark over three and ten years and its category average over all periods. The fund is heavily allocated to cash and money market instruments and is one of the lowest volatility funds in the category, while delivering some of the lowest drawdowns. Although the fund consistently found itself in the second quartile of performance over two-year rolling periods it has recently moved into the top quartile whilst maintaining the lowest volatility relative to Shopping List peers. The fund has also maintained first & second quartile risk-adjusted performance over all periods whilst ensuring a smooth return profile.

Qua

ntita

tive

Hig

hlig

hts

The fund delivered 1.87% over the fourth quarter of 2016, outperforming the peer group average by 0.56% and equalling the SteFI composite return for the period. For the calendar year ending 31 December 2016 the fund returned 9.85%, compared to peer group average performance of 7.91% and benchmark performance of 8.37%, firmly consolidating in the first quartile of performance. The fund continues to be the more conservative fund relative to Shopping List peers, barely changing the asset allocation over the course of the quarter and maintaining an 84% allocation to cash and money market instruments. The other marginal change was local property being increased by 0.2% to 1.9% exposure, whilst allocation to inflation linked bonds and interest-bearing investments staying primarily unchanged. Contributors to performance over the year was SA fixed interest investments, returning 16.87% for 2016 while the large cash position slightly detracted from performance, delivering 9.8% over the year, although a good return for cash in absolute terms.

Cur

rent

Por

tfolio

Po

sitio

ning

Long

Ter

m A

sset

Allo

catio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

09

Q2 2

009

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 2

010

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 2

011

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 2

013

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 2

014

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 2

015

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 2

016

Cash and Money Market Assets Inflation Linked Bonds Interest Bearing Investments Property Equities International


SA - MULTI ASSET- LOW EQUITY


Funds in this sector display reduced volatility relative to general equity funds, with a strong focus on capital preservation and a netequity exposure (including international equity) that typically would not exceed 40% of the portfolio. Funds in this sector are mostlyfunds of funds and consequently are not considered for the Shopping List. That said, the number of single manager funds has increasedsubstantially and this sector is becoming increasingly competitive.

Shopping List selection: Coronation Balanced Defensive Fund, Nedgroup Investments Stable Fund, Prudential Inflation Plus Fund, SIM Inflation Plus Fund


Time Period: 01/01/2014 to 31/12/2016

Std Dev

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Prudential Inflation Plus A Coronation Balanced Defensive A Nedgroup Inv Stable A

SIM Inflation Plus (ASISA) South African MA Low Equity

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-5.0-2.50.02.55.07.510.012.515.017.5




Re

turn

Returns



Prudential Inflation Plus A

Coronation Balanced Defensive A

Nedgroup Inv Stable A

SIM Inflation Plus

(ASISA) South African MA Low Equity

3.61 3.61

3.90 3.90

0.38 0.38

4.69 4.69

6.10

5.98

5.76

7.77

7.96

6.91

6.80

8.01

11.72

10.47

10.19

10.36

11.57

10.69

10.44

10.00

8.588.876.445.573.59 3.59

Risk Statistics

Time Period: 01/01/2014 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Prudential Inflation Plus A

Coronation Balanced Defensive A

Nedgroup Inv Stable A

SIM Inflation Plus

(ASISA) South African MA Low Equity

4.47

3.88

4.22

2.95

3.14

-2.51

-1.66 72.22 27.78

-2.46

-4.12

-1.64

69.44

69.44

75.00

83.33

30.56

30.56

25.00

16.67

0.31

0.08

0.05

0.48

-0.04


Time Period: 01/01/2012 to 31/12/2016

2012 2014 2016-4.5

-3.8

-3.0

-2.3

-1.5

-0.8

0.0



Rolling 2 Year Returns

Time Period: 01/01/2012 to 31/12/2016


2014

01 02 03 04 05 06 07 08 09 10 11 12

2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

5.0

10.0

15.0

20.0



Re

turn


Long

Ter

m A

sset

Allo

catio

n

CORONATION BALANCED DEFENSIVEFund manager Charles de Kock & Duane Cable No of quarters 27

Benchmark Alexander Forbes 3-month (STeFI) Index +3% Risk Description Cautious

Role of Benchmark Agnostic Inception Date 01 February 2007


Philosophy Fundamental, bottom-up valuation driven Fee Description (retail class)Annual management fee with reduced

fees should the fund lose capital over any 12-month period.


Coronation has arguably one of the best research teams and broad asset class capabilities in the industry. The fund has an internal limit of maximum 40% exposure to risky assets (including total equity and property). The fund will thus at all times have a minimum of 60% allocated to fixed interest assets. Given the fund’s 40% risky asset (property and equity) exposure limit, this fund can be viewed as a less aggressive option when compared to more traditional funds in its category - where risky asset exposure can reach a maximum of 65%.K

ey In

sigh

ts

The fund is suited to a cautious portfolio with an absolute return focus and a strong emphasis on capital preservation. As the fund will not have more than 40% risky asset exposure it would blend well with a more aggressive cautious fund to temper overall portfolio volatility. This fund can be used as a core holding in a cautious risk, absolute return focussed portfolio with the aim of outperforming inflation by 2-3% over a 3+ year period.Fu

nd U

se

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 2

007

Q2 2

007

Q3 2

007

Q4 2

007

Q1 2

008

Q2 2

008

Q3 2

008

Q4 2

008

Q1 2

009

Q2 2

009

Q3 2

009

Q4 2

009

Q1 2

010

Q2 2

010

Q3 2

010

Q4 2

010

Q1 2

011

Q2 2

011

Q3 2

011

Q4 2

011

Q1 2

012

Q2 2

012

Q3 2

012

Q4 2

012

Q1 2

013

Q2 2

013

Q3 2

013

Q4 2

013

Q1 2

014

Q2 2

014

Q3 2

014

Q4 2

014

Q1 2

015

Q2 2

015

Q3 2

015

Q4 2

015

Q1 2

016

Q2 2

016

Q3 2

016

Q4 2

016

SA Equity Foreign Equity SA Property Foreign Property SA Cash SA Bonds SA Pref Shares & Other Foreign FI & Cash Foreign Pref Shares & Other

The fund is managed by Charles de Kock and Duane Cable. Charles has over 30 years of investment experience, ten of which have been spent at Coronation, while Cable is Head of SA Equity and has over ten years investment experience, spent with Coronation. Cable was announced as co-manager in August 2015. The investment team consists of three former Coronation CIOs. The culture remains one of ownership and accountability, and is client focused. Given that staff ownership is 25%, the interests of the managers and clients are well aligned. De Kock has stated that the fund has two levels of conservatism, the first being asset allocation and the second stock selection. Their asset allocation is a bottom-up valuation process and they make use of a proprietary asset allocation tool implemented in 2007. A team of key individuals determines the macro-economic variables that will be the inputs to the proprietary models used at Coronation. Key macro drivers are used as inputs, such as interest rates, inflation and also expected return. While the model will guide asset allocation decisions, each manager is responsible for the management of the funds given the risk budget of the fund. De Kock and Cable are thus responsible for the asset allocation weighting and stock selection of the fund. Proprietary research is the foundation of their investment proposition. From this platform, they construct portfolios that meet the varying risk and return objectives. All portfolios reflect the same Coronation DNA which comprises Coronation’s best investment ideas, leveraging off the same investment process. The fixed interest instruments selection is managed by the portfolio managers. They interact and leverage off the fixed interest team headed up by Mark le Roux. There is no formal house view portfolio, as flexibility is encouraged amongst portfolio managers.

Qua

litat

ive

Hig

hlig

hts

Although the fund has underperformed its benchmark over a 3-year period, it has consistently achieved the target returns over the longer term by delivering 10.5% over 5 years and 10.2% since inception. The fund has also consistently delivered better than category average three-year rolling risk-adjusted returns since inception despite displaying second quartile volatility. On a rolling three-year basis, the fund has achieved its performance objective over 70% of the time. It is important to note that virtually all the underperformance was experienced up to the three year period ending 31 August 2011. The fund has also delivered positive returns over every 12-month period since inception and maintained first or second quartile rolling three-year performance since inception.

Qua

ntita

tive

Hig

hlig

hts

The fund was down 0.36% over the last quarter of 2016, marginally underperforming the category average performance by 0.14% and just dropping to third quartile performance. For the calendar year ending December, the fund delivered 3.9%, slightly outperforming the category average of 3.65% whilst underperforming the 3-month SteFI + 3% benchmark of 10%. The most prominent changes throughout the fourth quarter was a 3.2% increase in SA bonds, proving to contribute positively to performance with it being the best performing local asset class, returning 15.42% for the year 2016. Other notable changes to asset allocation was a 1.7% increase in SA property coupled with a 1.5% decrease in SA equities. The three largest holdings in the fund remain Coronation Global funds: The Global Opportunities fund (9.90%), the Global Capital Plus fund (10.50%) and the Global Emerging Markets fund (2.10%). Individual holdings were only marginally adjusted over the quarter, with the largest position move in the fund being the increase in exposure to Growthpoint Properties from 0.80% to 1.2%. The fund’s largest detractors from performance over the quarter as well as the year was the fund’s offshore assets, primarily due to an 11.5% appreciation of the rand to the US dollar and property, returning -3% mainly due to the impact of Brexit on international property counters. Local assets, bonds and equities, were the biggest contributors to the fund’s performance over the year, delivering 11.4% & 8% respectively.

Cur

rent

Por

tfolio

Pos

ition

ing


Long

Ter

m A

sset

Allo

catio

n

NEDGROUP INVESTMENTS STABLEFund manager Foord Asset Management

(Dave Foord, Dane Schrauwen, William Fraser & Nick Balkin) No of quarters 20

Benchmark Inflation + 4% over a rolling three year period Risk Description Cautious



Philosophy Top-down, bottom-up, valuation driven approach Fee Description (retail class)Annual management fee

with 2.50% maximum performance fee


The fund’s stock selection applies an absolute overlay to Foord’s strong fundamental process, meaning stocks in the portfolio need to have a large margin of safety. The fund therefore has a low probability of capital loss, which is how Foord defines risk. The team has limited fixed interest capabilities relative to Shopping List peers. The fund will therefore look to use vanilla instruments to express their fixed income views. The relative weakness in fixed income capabilities is largely offset by Foord’s excellent equity capabilities. The fund can take on higher risky asset exposure and does not have any internal mandate limits. With the introduction of the multi-counsellor approach in 2011, key man risk has been significantly reduced.

Key

Insi

ghts

This fund can be used as a core holding in a cautious or moderate risk, absolute return focussed portfolio with the aim of outperforming inflation by 3 - 4% over a three+ year period.

Fund

Use

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q4 20

07

Q1 20

08

Q2 20

08

Q3 20

08

Q4 20

08

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Equities Property Commodities Bonds Cash Global Equities Global Bonds Global Cash Other

The fund has been managed using a multi-counsellor approach since late 2011, with Dave Foord, Dane Schrauwen, William Fraser and Nick Balkin each managing a portion of the assets and being individually accountable for that portion. Foord believes that meaningful investment returns are not earned by making incremental decisions, but that superior long-term returns are generated by identifying and taking advantage of economic cycles, and that buying at the right price is crucial. They do not take benchmarks into consideration when constructing portfolios as they are often representative of what is simply big or in vogue. Guided by asset allocation parameters, each manager is allowed flexibility in the portion of the portfolio they manage. Their asset allocation style is predominantly top-down value orientated, but incorporates bottom-up portfolio construction. All research, both on equities and fixed interest, is done in-house and portfolio managers also undertake research. They place an intrinsic valuation on the company and assess to what extent the market is pricing that valuation. Foord looks for stocks with good management teams and are willing to pay for what they deem fair value for quality businesses. The fund has relatively low turnover, which is a result of being a concentrated portfolio with a few good ideas that will only be replaced when a better opportunity arises. The fund combines a top-down macroeconomic view for asset allocation with a bottom-up analysis of stocks in portfolio construction. Foord has a dedicated offshore team in Singapore which manages the equity fund that forms part of the offshore exposure in the Foord Balanced fund.

Qua

litat

ive

Hig

hlig

hts

The fund has produced top quartile performance over longer investment periods of 4 years and more. Since inception, the fund has consistently delivered better than category average risk-adjusted returns at slightly higher volatility and has also achieved its performance objective over 90% of the time. Despite recent slight underperformance, the fund continues to deliver first & second quartile performance over three-year rolling periods since inception. The fund has been the least correlated to other funds on the Shopping List in the low equity category. The fund has, however, during the financial crisis, experienced a greater drawdown than the peer average but at a lower down percent ratio. Since inception, the fund has managed to maintain a smooth alpha-generating profile as compared to peers, which speaks to its stock selection capabilities.Q

uant

itativ

e H

ighl

ight

s

The fund was down 0.90% for the quarter, underperforming the peer group average of -0.22% and its inflation +4% benchmark. Subsequently the fund finds itself in the bottom quartile performance for the third consecutive quarter. This can be explained by their offshore exposure and majority of local equity exposure to rand hedge counters, in a year where the rand appreciated significantly against major currencies, consequently detracting from performance. Over the 2016 calendar year ending December, the fund returned 0.38% compared to a peer group average performance of 3.65% and benchmark return of 10.9%. During a year when local bonds was the best performing asset class, relative underperformance can be partly explained by underweight positions in the fixed interest space. Local equity was also a detractor from performance over the quarter, given the sizable positions in Industrial counters, which was down 4.7% for the quarter combined with underweight positions in resource counters, which again experienced a stellar year. The fund currently holds 13.9% in SA equities, with a predominant exposure to industrials, and 19.3% foreign equities to add to a total of 42.8% risky assets in the fund. There were slight changes to asset allocation over the quarter with local and foreign cash increasing by a total of 1.4%. Local equities were decreased by 0.4% and SA bonds were decreased by 1.4% over the fourth quarter, locking in some of the performance of the top-performing bond sector during 2016. The largest holding in the fund is still the R186 bond, with a 10.5% coupon, although down from 6.90% in the previous quarter, to 5.3% in Q4, followed by the NewGold ETF at 5%, down from 5.4%. Floating-rate notes continue to occupy three positions in the top 10, with a total weight of 6.9%. The fund remains conservatively positioned with a high allocation to cash (38%) and precious metals ETF holdings, to provide downside risk protection. This is the strategy of the asset managers until they are comfortable that the market presents opportunities to exploit and deploy cash in riskier assets.

Cur

rent

Por

tfolio

Pos

ition

ing


PRUDENTIAL INFLATION PLUS

Fund manager Michael Moyle, David Knee, Duncan Schwulst & Johnny Lambridis No of quarters 10

Benchmark CPI + 5% p.a. over a rolling three-year period Risk Description Cautious / Moderate

Role of Benchmark Agnostic Inception Date 01 June 2001


Philosophy Relative value Fee Description (retail class) Annual management fee


The fund is managed according to a strategic asset allocation (SAA) process which is the cornerstone of the investment process. This differs from how the other low equity funds on the Shopping List are managed. The fund has a high strategic allocation to ILBs and will thus have a higher duration relative to peers. It is also slightly more aggressive given its performance objective of CPI+5% and is a more risky option in the low equity category - but has achieved its risk benchmark 95% of the time since inception. Be cautious when combining this fund with a fund like ABSA Absolute - as both funds have a high strategic weighting to ILBs. The house has very good asset allocation, equity and fixed income capabilities and leverages off strong offshore capabilities at M&G - Prudential’s international parent company.

Key

Insi

ghts

This fund can be used in a cautious or moderate risk, absolute return focussed portfolio with the aim of outperforming inflation by 3 - 4% over a three-year+ period. This fund would complement a portfolio of extremely cautious funds and can also be used in a moderate solution given its slightly more aggressive nature and performance objective. The fund is the more aggressive option relative to Shopping List peers.Fu

nd U

se

Long

Ter

m A

sset

Allo

catio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q3 20

01Q4

2001

Q2 20

02Q3

2002

Q4 20

02Q1

2003

Q2 20

03Q3

2003

Q4 20

03Q1

2004

Q2 20

04Q3

2004

Q4 20

04Q1

2005

Q2 20

05Q3

2005

Q4 20

05Q1

2006

Q2 20

06Q3

2006

Q4 20

06Q1

2007

Q2 20

07Q3

2007

Q4 20

07Q1

2008

Q2 20

08Q3

2008

Q4 20

08Q1

2009

Q2 20

09Q3

2009

Q4 20

09Q1

2010

Q2 20

10Q3

2010

Q4 20

10Q1

2011

Q2 20

11Q3

2011

Q4 20

11Q1

2012

Q2 20

12Q3

2012

Q4 20

12Q1

2013

Q2 20

13Q3

2013

Q4 20

13Q1

2014

Q2 20

14Q3

2014

Q4 20

14Q1

2015

Q2 20

15Q3

2015

Q4 20

15Q1

2016

Q2 20

16Q3

2016

Q4 20

16

Domestic Equities Domestic Property Domestic Bonds Domestic ILBs Cash (Domestic & Offshore) International Equities International Bonds

The fund is Prudential’s flagship real return offering and has a primary performance objective of CPI + 5% p.a. over a rolling three-year periods, and secondly aims to not incur any capital losses over a rolling one-year period. This speaks to the fund’s real return focus. Prudential follows a strong value-based approach using historical and current factual information, rather than forecasting to determine the fair value of an asset class. When constructing portfolios they are always cognisant of risk. They will assess the relative value of an asset by looking at its current valuation and comparing that to its own historical valuation range and alternative assets within the investment universe. Instrument selection within each asset class is outsourced to the relevant specialist teams. The local AA team, in conjunction with Prudential’s global teams, decides on exposure to individual markets, government vs corporate bonds and currencies. Weekly meetings as well as intra-quarterly teleconferences are held, as well as a quarterly meeting in London. When constructing real return portfolios an internal long-term Strategic Asset Allocation is established. The SAA of the Prudential Inflation Plus fund is set at 26.3% ILBs, 22.5% local equity, 15% local bonds, 7.5% local property, 3.8% local cash, 12.5% foreign equity and 12.5% foreign bonds. Tactical asset allocation (TAA) calls are made relative to the SAA within a range of 0% to 10% to adjust the exposure to asset classes, and these decisions are made using valuation-based techniques. The TAA calls are made with both the fund’s risk and return objectives in mind. Once the TAA calls have been made, instruments are selected within each asset class through active stock-picking in equities, listed properties and bonds using the prudent value philosophy. The fund leverages off each specialist team for instrument selection. Marc Beckenstrater who was previously a manager on the fund, as well as CIO, will be relocating to the UK in March 2017. As of 01 July 2016 David Knee has been appointed as the CIO. He will retain his responsibilities but systematically start reallocating duties to other FI team members. Michael Moyle who was previously Head of Absolute Return will now serve as Head of Multi-Asset. These changes will be closely monitored and we are comfortable that no changes will be made to existing processes.

Qua

litat

ive

Hig

hlig

hts

Given the fund’s more aggressive performance objective, we do expect a relatively higher volatility profile when compared to peers. Over a rolling two- and three-year basis the fund has had the highest standard deviation of all the Shopping List funds. It has, however, compensated for this in performance and has produced above-category-average risk-adjusted returns over the same rolling periods. The fund also retains top-quartile or better performance over annual periods from 3-10 years and outperformed the CPI+5% benchmark by 2% since inception. The fund has been successful in reducing risk of capital loss and delivered positive returns more than 90% of the time over 12-month rolling periods. Due to its high strategic allocation to riskier assets, the fund will typically experience larger drawdowns when compared to Shopping List peers as well as the category average. This can be evidenced in the drawdown figures where the fund experienced a maximum drawdown of 8.6% against the category average of 2.7% over the 2008-2009 period, while the next lowest Shopping List fund had a maximum drawdown of 5.7%.

Qua

ntita

tive

Hig

hlig

hts

The fund shed -0.85% for the quarter, underperforming its peer group average by 0.63%. Over the calendar year 2016 the fund delivered 3.61%, which was in line with the peer group average annual performance of 3.65% and subsequently fell into the second quartile. Over a 12-month period the fund is lagging its inflation objective of 11.6%. Although this fund is more aggressive regarding asset allocation relative to its Shopping List peers, it hasn’t outperformed over the 3-12 month short term. Over the longer term of 5-7 years, the fund however still remains the top performing fund within the category and has managed to beat its inflation plus 5% benchmark meaningfully over these periods. The fund also remains in the top quartile for performance over annual periods from 3 to 10 years. On a relative basis, the fund’s underweight position in international fixed income and SA bonds added the most value, as did an underweight position in inflation-linked bonds. Overweight positioning in international cash combined with a neutral SA equity holding, detracted most from value. Over the quarter there was an increase in SA equity and bonds with 2.1% to 22.6% and 1% to 21.2% respectively, with international bonds also being increased by 1% to 6.9% of fund value. International equities and SA inflation-linked bonds were reduced by 1.8% and 1.7% to 13.5% and 20.3% respectively, whilst cash was also reduced by 0.8% to 6.3%. However, it has still been able to produce the lowest downside deviation and better capital preservation capability than the category average and Shopping list peers. The largest holding in the fund remains the Prudential Corporate Bond fund, increased by 0.2% to 6.6%. Naspers was downsized from 4.6% to 3.1%, moving the SA ILB R202 nominal bond exposure of 3.4% to the second largest holding. Relative to Shopping List peers the fund has one of the highest offshore exposure allocations at 25.3% and domestic bond exposure, which includes inflation-linked bonds, at 41.5%.

Cur

rent

Por

tfolio

Pos

ition

ing


SIM INFLATION PLUS

Fund manager Philip Liebenberg & Natasha Narsingh No of quarters 20

Benchmark CPI + 4% over a rolling three year period Risk Description Cautious

Role of Benchmark Agnostic Inception Date 01 April 1999


Philosophy Pragmatic value approach Fee Description (retail class) Annual management fee


The risk/return profile has improved immensely given the more disciplined management approach of Liebenberg and previous fund manager Gerhard Cruywagen, and there is a strong focus on investing in stocks with a large margin of safety. The equity carve-out will not be different to the house-view equity carve-out: moderate SWIX portfolio. Fixed income will be similar to the SIM Active Income fund with the only difference being the magnitude of calls. The fund is managed with a strong absolute mind-set and the managers will be very active in the derivative space. There is a strong focus on where the managers can add value, specifically fixed interest, asset allocation and derivatives.K

ey In

sigh

ts

The fund can be used in a cautious to moderate risk, absolute return focussed portfolio with the aim of outperforming inflation by 3 - 4% over a three-year period. It can also be used as a core fund in a portfolio. The fund is the most conservative option relative to Shopping List peers.Fu

nd U

se

The fund is managed by Philip Liebenberg and Natasha Narsingh with a strong absolute focus, as well as placing a great deal of emphasis on capital preservation. This ties in with the fund’s explicit risk benchmark of no negative returns over rolling 12-month periods. Investment decisions at SI are team-based with Liebenberg leveraging off SI’s house view on asset allocation. Liebenberg is responsible for the asset allocation overlay and management of the fixed interest portion of the fund. Asset allocation is directed by the Asset Allocation Model Portfolio Group (AA MPG), although the fund manager has discretion on the size of his over-/ underweights given the objective of the mandate. Fixed interest decisions are guided by the Fixed Income Model Portfolio Group (FI MPG) which will be headed up by Mokgatla Madisha as of 1 August 2016 following the departure of Chris Hamman. The fixed interest carve-out will look similar to the SIM Active Income fund, which is also managed by Liebenberg. Cruywagen is responsible for the equity selection of the fund and direction is given by the Equity Model Portfolio Group (EQ MPG). The equity carve-out of the fund will look similar to that of the “moderate SWIX” house-view portfolio. Offshore exposure is obtained through investments in CIS funds, whilst the offshore fixed income exposure is managed by BlackRock. Offshore property exposure is split between the biggest global diversified stocks and the other half is managed by Alliance Bernstein. Global cash is managed by Cameron Hume. From a risk management perspective, the managers will make use of derivatives to protect the portfolio from adverse market movements when necessary.

Qua

litat

ive

Hig

hlig

hts

On a rolling three-year basis, the fund has consistently delivered above-category-average returns since the three-year period ending 31 July 2011. It has also managed to achieve this at lower volatility (on a rolling three-year basis) than all of the Shopping List funds. Since 2009, the fund’s volatility of returns has significantly decreased and this coincides with the management changes. Although the fund is lagging its CPI+4% target over one and three years, it is ahead of the target over 5 years and well ahead of the category average. The fund has managed to remain in the top quartile for risk-adjusted return since inception as well as top quartile drawdown figures. Since January 2014 it has delivered the lowest volatility compared to Shopping List peers as well as category average and has experienced the least down periods & best risk-adjusted return figure. It is important to note that, since Philip Liebenberg and Gerhard Cruywagen took over management in April 2009, the fund has achieved its performance objective 100% of the time and over rolling one-year periods, has had no negative returns. The fund also remains in the top two quartiles for rolling three-year performance since inception.

Qua

ntita

tive

Hig

hlig

hts

The fund delivered 0.51% over the last quarter of the year, outperforming the peer group average of -0.22% but underperforming its absolute benchmark during this period. Over the calendar year ending 31 December 2016, the fund returned a modest 4.69% compared to its CPI+4% benchmark of 10.8%, although outperforming on a relative basis, beating the category average performance by 1.04%. Main contributors to the fund’s performance over the year was fixed interest, being the top performing asset class for 2016, and its positioning in SA property and ILBs further enhancing returns. The prominent detractor from fund performance was the fund’s large exposure to international assets, mainly due to strong rand performance over the year. The equity selections within the fund also slightly detracted from performance whilst the significant cash allocation of 52% contributed positively. Changes to asset allocation over the quarter included an increase in SA equities of 1.97% to 13.72% and International assets by 1.92% to 22.88%, and a significant decrease in cash and money market holdings by 4.46% to 52.14%, indicating that the portfolio managers are seeing favourable valuation emerging in the equity space. Relative to Shopping List peers the fund has the highest exposure to cash at 52.88%.

Cur

rent

Por

tfolio

Pos

ition

ing

Cur

rent

Por

tfolio

Pos

ition

ing

Long

Ter

m A

sset

Allo

catio

nC

urre

nt P

ortfo

lio P

ositi

onin

gLo

ng T

erm

Ass

et A

lloca

tion

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q1 20

12

Q4 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Equities Preference shares Property International Assets Inflation Linked Bonds

Interest Bearing 0 - 3 years Interest Bearing 3 - 7 years Interest Bearing 7 - 12 years Interest Bearing 12+ years Cash/MM


SA - MULTI ASSET - MEDIUM EQUITY

Category Analyst: Thobela Mfeti

These portfolios invest in a spectrum of investments in the equity, bond, money, or property markets. These portfolios tend to displayaverage volatility, aim for medium to long term capital growth and can have a maximum effective equity exposure (includinginternational equity) of up to 60% and a maximum effective property exposure (including international property) of up to 25% of themarket value of the portfolio. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfoliosmandate and stated investment objective and strategy.

Shopping List selection: Coronation Capital Plus Fund, Nedgroup Investments Opportunity Fund

Risk-Reward: 5 Years Annualised

Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 2.0 4.0 6.0 8.0 10.0 12.0

0.0

3.0

6.0

9.0

12.0

15.0

18.0

Coronation Capital Plus Nedgroup Inv Opportunity A (ASISA) South African MA Medium Equity

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

YTD 1 year 3 years 5 years 7 years 10 Years


Re

turn

Returns


YTD 1 year 3 years 5 years 7 years

Coronation Capital Plus

Nedgroup Inv Opportunity A

(ASISA) South African MA Medium Equity 1.54 1.54 5.98 9.80 8.19

4.27 4.27 5.65 9.89 9.49

9.64 9.64 9.59 12.99

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Coronation Capital Plus

Nedgroup Inv Opportunity A

(ASISA) South African MA Medium Equity -3.37 70.00 30.004.86

5.61 -3.51 71.67 28.33

5.47 -4.13 70.00 30.00

0.68

1.26

0.76


Time Period: 01/01/2012 to 31/12/2016

2012 2014 2016-4.5

-3.8

-3.0

-2.3

-1.5

-0.8

0.0



Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

5.0

10.0

15.0

20.0


Re

turn


Long

Ter

m A

sset

Allo

catio

n

CORONATION CAPITAL PLUSFund manager Charles de Kock & Duane Cable No of quarters 46

Benchmark CPI + 4% Risk Description Low to medium



Philosophy Fundamental, bottom-up valuation driven Fee Description (retail class) Annual management fee with reduced fees should the fund lose capital over any 24-month period.


The fund has an internal risky assets (equity and property) limit of 60%, and can therefore be viewed as a less aggressive option when compared to a more traditional fund in its category - where risky asset exposure can reach a maximum of 85% (60% equity and 25% property). The equity portion in this fund, however, is slightly more aggressive when compared to the equities in a fund such as the Coronation Balanced Defensive Fund. This fund will make use of derivatives to hedge certain currency and equity exposures. Coronation has extensive experience and capabilities across all asset classes - which is a key advantage in the management of this multi-asset fund.

Key

Insi

ghts

Due to Coronation’s extensive expertise across all asset classes, this fund can be used as a core holding in a cautious to moderate risk, absolute return focussed portfolio with the aim of outperforming inflation by 4% over a three - five year period. The fund’s dual mandate of no negative returns over any 12 month period and 4% real return will work equally well for a retiree with a slightly higher risk appetite or a discretionary investor with a slightly lower risk appetite.

Fund

Use

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

07

Q2 20

07

Q3 20

07

Q4 20

07

Q1 20

08

Q2 20

08

Q3 20

08

Q4 20

08

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

SA Equity SA Cash SA Gov Bonds SA Corp Bonds SA IL BondsSA Pref Shares & Other SA Property Foreign Property Foreign Equity Foreign Preference ShareForeign Commodities Foreign Other Foreign FI

The fund was managed by Charles de Kock and Henk Groenewald up to August 2015. Charles has over 30 years’ investment experience, 11 of which have been spent at Coronation. Duane Cable, head of SA Equity was appointed co-manager on the Capital Plus fund alongside Charles de Kock in August 2015. Groenewald’s focus shifted to co-managing the Resources Fund and subsequently joining Gavin Joubert’s Global Emerging Markets team as an analyst. Cable previously co-managed the absolute return portfolios with Louis Stassen and Groenewald for two years and is well positioned to manage this fund. Having joined Coronation in 2006 as an investment analyst, he is well experienced. Coronation has a highly skilled and experienced investment team, consist of 3 former Coronation CIOs. The single investment process, philosophy and research platform ensures that changes made on portfolio has minimal impact on investments and clients’ experience. Coronation has developed a proprietary central research system which is available to all analysts and portfolio managers. The culture remains one of ownership and accountability that is client focused. This is evident in the fact that staff owns 25% of the holding company of the South African and international operating subsidiaries. All analysts are rotated among industries so as to become generalists in every industry and avoid developing biases. Coronation believes in conducting comprehensive research on a company rather than just analysing it and spends a vast amount of time looking at different ways of trying to understand a company and its operating environment for that extra bit of information the market may be overlooking.

Qua

litat

ive

Hig

hlig

hts

The fund has outperformed its benchmark of CPI + 4% consistently over longer, more meaningful periods. It does tend to achieve this with slightly higher levels of volatility relative to peers, but protects capital well in times of adverse market conditions. This is not a fund that will deliver massive outperformances, due to its more conservative nature. When comparing this fund to its peers in the medium equity category, one should be cognisant of the internal limit of risky assets to 60% (peers’ limit = 85%). The fund has been very consistent in implementing its dual mandate of no negative 12-month returns and CPI+4% over rolling 3-year periods. Since inception, the fund has outperformed its CPI + 4% benchmark 64% of the time while outperforming its average peers 78% of the time. On risk-adjusted returns using the Sharpe and Sortino ratios, this fund delivers lower risk-adjusted returns when compared to peers, especially its Shopping List peer.Q

uant

itativ

e H

ighl

ight

s

The fund delivered -0.50% for the quarter ending 31 December 2016. This was 0.75% ahead of its average peer which delivered -1.25% over the same period. The fund’s 3-year performance continues to lag CPI+4% over a 3-year period and this continues to be a concern. However, underperformance can be expected from time to time and it is important to consider the fund’s duel objective of real returns and no negative 12-month returns. The fund’s year-to-date performance is 4.27%. This compares very favourably with the broader JSE that only managed to deliver 2.63% over the same period, indicative of a market with benign returns. However, the fund underperformed its benchmark, which returned 10.4% over the same period. This can be attributed to the 25.8% international exposure of this fund, which returned -7.6%. This detracted from performance and was a result of the 11.5% rand strength against the US dollar over the year. The fund’s offshore hedging managed to somewhat limit the negative impact of a stronger rand, decreasing offshore exposure during times of currency weakness and increasing exposure during currency appreciation. During the quarter, the fund’s offshore exposure marginally increased in line with rand strength. Equity remains the preferred asset class to deliver inflation-beating returns, and the fund remains fully exposed offshore despite the rand strength and this hurting performance. This is based on long-term valuations and diversification benefits. During the quarter, local assets contributed to performance, while foreign assets detracted from performance on the back of continued rand strength. Both equities and local bonds contributed strongly to performance. The biggest contributors included positions in Anglo American, Exxaro and Standard Bank on the back of a strong year for resources and financials. The biggest detractors were positions in Anheuser-Busch InBev, Woolworths and Mediclinic on the back of underperformance form industrials, especially rand hedge stocks on the back of rand strength. Property also detracted from performance. This includes counters such as Intu and Capital & Counties, which are still held on the portfolio because they remain attractive over the long-term. The funds has significantly increased duration from 2.91 years in the previous quarter to 3.82 years, as they believe local bonds are attractive, given a favourable inflation outlook in the medium term. The increase in duration was a result of its 4.54% exposure to longer-dated fixed government bonds, which has increased from 1.9% in the previous quarter. Corporate bonds and inflation linkers consequently make up the bulk of the fund’s fixed income exposure. On a relative basis the fund’s duration of 3.82 years is significantly higher than its Shopping List peer, the Nedgroup Investment Opportunity Fund, which had a duration of 0.33 years as at quarter end.

Cur

rent

Por

tfolio

Pos

ition

ing


NEDGROUP INVESTMENTS OPPORTUNITY FUND

Fund manager Abax Investments (Rashaad Tayob & Omri Thomas) No of quarters 6

Benchmark Inflation + 5% over a rolling three-year period Risk Description Moderate

Role of Benchmark Agnostic Inception Date 27 June 2011


Philosophy Bottom-up, fundamental research Fee Description (retail class) Annual management fee


Abax places a large emphasis on return modelling and establishing expected returns for asset classes / securities. As inputs to this return modelling, a significant amount of emphasis is placed on sell-side research, which could potentially be seen as a possible weakness. However, the strength of Abax lies in how they use this sell-side research as well as their asset allocation and modelling abilities and portfolio implementation. Their investment process seems very effective in incorporating this research and delivering strong investment returns. With the addition of Rashaad Tayob in 2012, Dean Marks in 2013 and Dylan Oelofse in 2015, Abax has expanded their fixed income capabilities extensively and fixed income seems to have contributed positively to Abax’s ability to deliver excess returns. Abax defines risk as drawdowns and uses this as input in their portfolio optimisation process. With regard to portfolio management, Tayob will be responsible for asset allocation and, together with Dean Marks and Dylan Oelofse, also for the fixed income portion of this fund. Omri Thomas will primarily be responsible for the equity portion, as well as the structuring of any derivative positions. Abax will make use of derivative strategies to construct asymmetrical payoff profiles. The equity portion in this fund is essentially a carve-out of the Nedgroup Investments Rainmaker Fund, but with different weights, due to the difference in the return and risk mandates.

Key

Insi

ghts

This fund is an excellent choice for an investor who prefers a broad exposure to multiple asset classes, where the asset manager has the responsibility of both strategic and tactical asset allocation. This is a benchmark agnostic fund with an absolute return mindset. This fund is suitable for a client with a moderate risk profile seeking no more than 60% equity exposure (equity + property < 85%). The fund has a low correlation to its peers and this, together with its low volatility profile, will add excellent diversification benefits and lower the overall volatility profile of a portfolio.

Fund

Use

Long

Ter

m A

sset

Allo

catio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Cash Floating Rate Notes Bonds Inflation Linked Bonds Preference Shares Convertible BondsProperty Equities: Domestic Equities: International Offshore Cash Offshore Bonds

Abax’s investment philosophy is brought to fruition through a well-defined, proprietary investment process that has allowed this fund to deliver excellent risk-adjusted returns. Its absolute return mindset is clearly visible in its performance figures. The team is made up of highly experienced and well qualified individuals. Dean Marks and Dylan Oelofse have recently been added as assistant portfolio managers to help Tayob with respect to the fixed income part of the portfolio, which is a positive development. This will help build additional skills in the team as well as bring some continuity and help negate possible key man risk. The offshore capability of the team could be expanded a bit more, but the current screening methods and processes employed do make sense. The Opportunity Fund’s offshore equity exposure is gained through investing in the Abax Global Equity fund managed by Steve Minnaar. They will also buy direct offshore counters should they want an undiluted exposure to a particular stock. Minnaar is supported by Campbell Parry on the offshore research side. However, everyone in the research team has international research responsibility. This significantly adds to the team’s offshore capability. There is very little to fault in terms of investment philosophy and process and this fund is a good alternative in the multi-asset medium equity space.

Qua

litat

ive

Hig

hlig

hts

The Nedgroup Investments Opportunity Fund is a top performer in its category and has outperformed its inflation + 5% mandate over any rolling three-year period since its exception, with an exception of the recent rolling 3 year period ending December 2016, where this fund’s performance was in line with CPI+4%. The fund’s volatility has trended upwards recently, but this is in line with its peers. It has also managed to compensate the investor sufficiently for these higher levels of volatility by delivering higher returns and subsequently maintaining its superior risk adjusted returns as measured by its Sharpe ratio. The fund’s focus on downside protection has also translated into a superior Sortino ratio when compared to its peers, with its overall volatility mainly stemming from its upside performance. The volatility profile does seem to be characterised by larger than average drawdowns as opposed to a consistently high level of volatility. This indicates a susceptibility to unforeseen tail risk, and is confirmed by a consistently higher rolling VAR measure, since December 2015. On average, from December 2012, this fund captures 67% of the upside movement of the JSE All Share, and only 19% of the downside, reflecting an asymmetrical performance profile which is so important for an absolute focussed portfolio.

Qua

ntita

tive

Hig

hlig

hts

The year was characterised by abnormal macro and political events locally and internationally. This resulted in dislocations in the markets but also in opportunities. This fund managed to take advantage of some of these dislocations. The Nedgroup Investment Opportunity Fund performed relatively well over the three months ending 31 December 2016, returning -0.33% for the quarter, significantly outperforming its peers, who managed to return on average -1.25% over the same period. During the quarter, an increased allocation to equities (local and offshore) added to performance. The fund’s total equity exposure was at 55.1% (excluding property), which is close to the 60% mandated limit. Property also went up this quarter, to 7.4% from 7.1%. However, it is still below a high of 10% allocation held in the beginning of the year. Net risky assets (total equity and property) increased only fairly to 62.5% from 62.2% from the previous quarter. This was a result of unchanged property allocation and also the fund’s reduction of its offshore equity exposure to increase domestic equity exposure. The fund’s large exposure to financials, especially banking stocks, also added to performance. Avoiding Richemont, SAB, Sasol and UK property stocks also added to performance. Subsequently, the fund bought into Sasol and UK property. Active duration management and allocation to offshore denominated Eskom and Old Mutual bonds contributed to performance. The fund’s duration varied from 2.3 years at the beginning of the year to almost zero, as the managers tactically exploited market reactions to abnormal news throughout the year. Despite an increase in duration from the previous quarter, the fund has maintained a very short duration position, currently sitting at 110 days, up from 66 days as at the end of the previous quarter. The currency protection strategy, initiated in 2015, to protect some of the offshore exposure against a strengthening rand, benefited the fund in 2016. The fund’s hedging positions on single stocks also contributed to positive portfolio changes, removing the downside form counters such as Anglos, Naspers, Steinhoff, FirstRand and MTN. Detractors from performance included allocation to British American Tobacco, Mediclinic, Old Mutual and gold stocks. The fund continues to hold EuroStoxx EFTs at 8.48% to provide geared exposure in rand terms to the change in the Eurostoxx index. These had positive double digit returns compared to a -15% return of the EuroStoxx in rands. The fund, however, continues to be positioned cautiously but also in a position to take advantage of opportunities as they arise. C

urre

nt P

ortfo

lio P

ositi

onin

g


SA - MULTI ASSET - HIGH EQUITY

Category Analyst: Johan Louwrens

These portfolios invest in a spectrum of investments in the equity, bond, money, or property markets. These portfolios tend to have anincreased probability of short-term volatility, aim to maximise long term capital growth and can have a maximum effective equityexposure (including international equity) of up to 75% and a maximum effective property exposure (including international property)of up to 25% of the market value of the portfolio. The underlying risk and return objectives of individual portfolios may vary asdictated by each portfolio’s mandate and stated investment objective and strategy.

Shopping List selection: Allan Gray Balanced Fund, Coronation Balanced Plus Fund, Foord Balanced Fund, Investec Opportunity Fund, SIM Balanced Fund


Time Period: 01/01/2014 to 31/12/2016

Std Dev

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

-20.0

-10.0

0.0

10.0

20.0

Allan Gray Balanced A Coronation Balanced Plus A Foord Balanced R

SIM Balanced R Investec Opportunity R

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-15.0

-10.0

-5.0

0.0

5.0


10.0

15.0

20.0

25.0



Re

turn

Returns


YTD 1 year 3 years 5 years 10 yearsAllan Gray Balanced ACoronation Balanced Plus AFoord Balanced RSIM Balanced RInvestec Opportunity R 1.30 1.30 8.04 11.62 10.93

11.0612.789.176.31 6.3111.08

12.08 10.3812.69

6.945.956.41

5.36 5.36 9.71-1.00 -1.000.54 0.54

11.81

Risk Statistics

Time Period: 01/01/2014 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Allan Gray Balanced A

Coronation Balanced Plus A

Foord Balanced R

SIM Balanced R

Investec Opportunity R 5.69 -6.08 66.67 33.33 0.26

0.4330.5669.44-3.586.09

0.06

-0.10

-0.02

38.89

36.11

36.11

61.11

63.89

63.89

-3.79

-6.48

-5.54

5.81

6.38

7.59


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-6.8

-6.0

-5.3

-4.5

-3.8

-3.0

-2.3

-1.5

-0.8

0.0




Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

5.0

10.0

15.0

20.0


SIM Balanced R Investec Opportunity R (ASISA) South African MA High Equity

Re

turn


ALLAN GRAY BALANCED

Fund manager Duncan Artus, Andrew Lapping, Simon Raubenheimer, Ruan Stander & Jacques Plaut No of quarters 33

Benchmark ASISA SA MA High Equity category mean (excl Allan Gray Balanced Fund) Risk Description Moderate Aggressive

Role of Benchmark Agnostic Inception Date 01 October 1999


Philosophy Fundamental, bottom-up, value, contrarian approach Fee Description (retail class)Annual management fee with a

performance fee, maximum annual fee 1.50% (excl VAT)


Property is not viewed as a separate asset class at Allan Gray – as a result, property needs to compete with equities for a place in the portfolio. Historically, the fund has been able to protect capitalwell compared to some of its peers (in 2008/2009 for example). Using futures also makes it easier for Allan Gray to increase/decrease equity exposure without having to buy/sell the actual equity. The hedged equity portion of the portfolio can also limit losses if there is a market correction, but will detract from performance in rising markets. Fixed income capabilities are not as strong as Shopping List peers, and thus allocation is vanilla. This is a consequence of not finding enough attractive equity opportunities. Allan Gray has strong offshore capabilities in Orbis. The fund is considerable in size and thus manoeuvrability in terms of selling or buying sizeable positions in certain stocks is hampered.

Key

Insi

ghts

Long

Ter

m A

sset

Allo

catio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 20

03Q3

2003

Q4 20

03Q1

2004

Q2 20

04Q3

2004

Q4 20

04Q1

2005

Q2 20

05Q3

2005

Q4 20

05Q1

2006

Q2 20

06Q3

2006

Q4 20

06Q1

2007

Q2 20

07Q3

2007

Q4 20

07Q1

2008

Q2 20

08Q3

2008

Q4 20

08Q1

2009

Q2 20

09Q3

2009

Q4 20

09Q1

2010

Q2 20

10Q3

2010

Q4 20

10Q1

2011

Q2 20

11Q3

2011

Q4 20

11Q1

2012

Q2 20

12Q3

2012

Q4 20

12Q1

2013

Q2 20

13Q3

2013

Q4 20

13Q1

2014

Q2 20

14Q3

2014

Q4 20

14Q1

2015

Q2 20

15Q3

2015

Q4 20

15Q1

2016

Q2 20

16Q3

2016

Q4 20

16

SA Net Equity SA Hedged Equity SA Property SA Bonds SA MM/Cash Commodities

Offshore Net Equity Offshore Hedged Equity Offshore Property Offshore Bonds Offshore MM/Cash Africa ex-SA

The fund is managed on a multi-counsellor basis with each fund manager effectively managing a separate balanced portfolio, and thus each deciding upon the asset allocation and stock selection. Allan Gray’s investment philosophy is value-orientated, with their research efforts focused on identifying good quality assets that are priced below intrinsic value. A rigorous and disciplined process is applied and investments are usually made with a four-year view. Portfolio turnover therefore tends to be low. First and foremost on Allan Gray’s list of priorities is absolute risk. Therefore, short-term performance will sometimes be sacrificed to try and mitigate this risk. The domestic equity committee, called the Share Policy Group (SPG), makes use of a voting system in order to determine which counters appear on the ranking table. Each manager still has full discretion over which counters they buy and there is no house-view portfolio. Allan Gray follows a bottom-up equity selection process. The SPG determines the broad margins within which the portfolio managers are required to allocate assets. Asset allocation is a consequence of the availability of attractively valued equities relative to the other asset classes within the set parameters. Andrew Lapping, who co-manages the Allan Gray Money Market fund, and Sandy McGregor are responsible for managing the fixed interest portion of the fund. The offshore portion is managed by Orbis.

Following the passing of Simon Marais, Ian Liddle will be stepping down as CIO and relinquishing portfolio manager responsibilities to assume the position of chairman. Andrew Lapping has assumed the position as CIO in March 2016. These are changes that we will monitor closely, as Liddle, one of the most experienced portfolio managers, has been managing a large portion of the Balanced fund. The associate portfolio managers Ruan Stander and Jacques Plaut have been promoted to portfolio managers as of November 2015. The impact of Liddle’s departure from portfolio management on the fund and the investment team is a critical qualitative consideration that will be taken into account when assessing the Balanced Fund.

Qua

litat

ive

Hig

hlig

hts

The fund is suited for use in a portfolio with the aim of minimising drawdowns in down markets as well as a strong focus on real return. The fund’s focus on capital protection further aids to temper overall volatility in a portfolio, particularly in adverse market conditions. It can be used in a moderate or moderate aggressive risk, absolute or relative return focussed portfolio with the aim of outperforming either inflation by 5% or the category average of the SA MA High Equity category over a five to ten year period.Fu

nd U

se

The fund has delivered above category average risk-adjusted returns since 2002, but tends to lag over the shorter term. Over the same measurement period on a five-year rolling basis, the fund has experienced no negative returns. The fund has protected capital well in down markets, particularly in the period 2007 to 2009 when the market fell 40% and the average balanced fund lost 17%. Over the same period, the Allan Gray Balanced fund was down 10%. Over five-year rolling periods since inception, the fund has achieved its risk benchmark of CPI +5% 80% of the time and consistently delivered above category-average returns. The fund has also historically had the lowest volatility amongst Shopping List peers, but since the five-year period ending June 2014, the Investec Opportunity fund has had the lowest volatility. The fund has been seeing decreased alpha generation capability and this could be directly attributable to size and the fund’s ability to take meaningful positions in certain counters.Q

uant

itativ

e H

ighl

ight

s

The fund returned -1.62% for the quarter, underperforming the peer category average of -1.46%. The fund has however still managed to be one of the top performers on the Shopping List within its category, returning 6.31% for the year. Over longer periods, the fund has managed to remain in the top quartile for performance compared to its category peers, returning 12.78% per annum over 5 years. In addition to its stellar long-term absolute performance, it has managed to move into the top quartile for risk-adjusted returns at the end of 2015 on a rolling 5-year basis, as measured by the Sharpe ratio. SA equity exposure was increased slightly along with SA bonds, while SA and foreign hedged equity continued to contract. There were no other notable changes to asset class exposure within the fund. Local equity was the biggest contributor to performance for the year, with notable counters like Sasol and Standard Bank. Even with a strong showing internationally from Orbis, the contribution to performance was muted due to the appreciation of the rand.

Cur

rent

Por

tfolio

Pos

ition

ing


CORONATION BALANCED PLUS

Fund manager Karl Leinberger No of quarters 28

Benchmark Composite Benchmark (52.5% equity, 22.5% bonds, 5% cash, 20% international) Risk Description Moderate Aggressive


Return Focus Relative Fund Size (Rm) R 81 500

Philosophy Fundamental, bottom-up valuation driven approach Fee Description (retail class) Annual management fee


This fund is managed by Karl Leinberger who is also the CIO of Coronation. The house arguably has one of the best research teams in the industry and has strong capabilities in all asset classes. The size of the fund may however become an issue going forward.

Key

Insi

ghts

This fund can be used in a moderate-aggressive risk, relative return focussed portfolio with the aim of outperforming the category average of the SA MA High Equity category over a seven to ten year period.

Fund

Use

The fund is managed by Karl Leinberger. Leinberger is the current CIO and has over 16 years’ investment experience, all of which have been spent at Coronation. He is supported by one of the largest and most experienced investment teams in SA. Duane Cable was formerly a co-manager on this fund, but was announced as co-manager of Coronation Balanced Defensive and Coronation Capital Plus fund alongside Charles de Kock. The investment team consists of three former Coronation CIOs. The culture remains one of ownership and accountability and is client-focused. Given that staff ownership is 25%, the interests of the managers and clients are well aligned. Asset allocation is a bottom-up valuation process and they make use of a proprietary asset allocation tool implemented in 2007. A team of key individuals determine the macro-economic variables that will be used as inputs to the proprietary models used at Coronation. Key macro drivers are used as inputs, such as interest rates, inflation and also expected return. While the model will guide asset allocation decisions, each manager is responsible for the management of his/her funds given its risk profile. Leinberger is responsible for the asset allocation and stock selection of the fund. Coronation has developed a proprietary central research system which is available to all analysts and portfolio managers. Proprietary research is the foundation of their investment proposition. From this platform they construct portfolios that meet the various risk and return objectives. All portfolios reflect the same Coronation DNA, which comprises Coronation’s best investment ideas, leveraging off the same investment process. All portfolio managers also have analyst responsibilities. Analysts are assigned cross-sector and this provides them with the tools to ‘price-profit’ across sectors. The managers are style agnostic and take a long-term view by attempting to see through the business cycle in an attempt to identify intrinsic value. They are bottom-up investors and ignore market timing and catalysts. Fixed interest exposure is leveraged off the research by Mark le Roux’s fixed interest team. The fund’s offshore exposure is obtained through investing in a combination of Coronation’s offshore fund offerings.

Qua

litat

ive

Hig

hlig

hts

On a rolling five-year basis, the fund has delivered consistent above-category average, risk-adjusted returns since 31 July 2004, except during a brief stint from May to July 2016. The fund tends to have drawdowns greater than the category average and its peers, and over the last three years had a maximum drawdown of 5.54%, while the category average had a maximum drawdown of 4.13% over the same period. The fund also tends to have a higher volatility when compared to its Shopping List peers. Coronation as house tends to focus on longer-term periods (5 years plus) when evaluating equities, and since it has had an average exposure to equities of 66% since March 2007, it should also be judged according to this longer, more meaningful period. The fund has however had no negative returns over any five-year period since inception.Q

uant

itativ

e H

ighl

ight

s

The fund has delivered -2.64% for the last quarter, underperforming the category-average of -1.46%, bringing the total return for 2016 to 0.54%, compared to the category-average of 1.31%. Local equity detracted from returns, while international equity performed well in dollar terms, with the appreciating rand muting returns locally and detracting overall. Global equities are still preferred based on valuations, with the fund almost maximising its 25% offshore allowance. Contrary to equity, local versus international fixed income is preferred, given a favourable medium-term outlook on inflation in South Africa. This sentiment is reflected in the positive return of 0.37% provided by South African fixed income in quarter 4. Within the local equity held in the fund, a high exposure to consumer services and basic materials had a negative impact on performance, with the sectors producing -10.96% and -1.20% respectively for the quarter. Rand hedge stocks like Naspers, Steinhoff International Holdings and British American Tobacco are still held extensively, due to their management structure and diversification benefits. The strong rand has however, once again, eroded value with most of these shares performing poorly due to their currency exposure.

Cur

rent

Por

tfolio

Pos

ition

ing

Long

Ter

m A

sset

Allo

catio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

Q4

2015

Q1

2016

Q2

2016

Q3

2016

Q4

2016

SA Equity Foreign Equity Property SA Cash SA Bonds SA Pref Shares & Other Foreign FI & Cash Foreign Pref Shares & Other


Long

Ter

m A

sset

Allo

catio

n

FOORD BALANCEDFund manager Dave Foord, Daryll Owen & Dane Schrauwen No of quarters 33

Benchmark ASISA SA MA High Equity category mean (excl Foord Balanced Fund) Risk Description Moderate Aggressive

Role of Benchmark Agnostic Inception Date 01 September 2002


Philosophy Top-down, bottom-up, valuation driven approach Fee Description (retail class) Annual management fee with a performance fee


Foord is a more equity focussed house. The fund’s stock selection applies an absolute overlay to Foord’s strong fundamental process, meaning stocks in the portfolio need to have a large margin of safety. The fund therefore has a low probability of capital loss, which is how Foord defines risk. The team has limited fixed interest capabilities relative to Shopping List peers. The fund will use vanilla instruments to express their fixed income views. With the introduction of the multi-counsellor approach in 2011, key man risk has been significantly reduced.K

ey In

sigh

ts This fund can be used in a moderate aggressive risk, absolute or relative return focussed portfolio with the aim of outperforming either inflation by 5% or the category average of the SA MA High Equity category over a seven to ten year period.

Fund

Use

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 20

03Q3

2003

Q4 20

03Q1

2004

Q2 20

04Q3

2004

Q4 20

04Q1

2005

Q2 20

05Q3

2005

Q4 20

05Q1

2006

Q2 20

06Q3

2006

Q4 20

06Q1

2007

Q2 20

07Q3

2007

Q4 20

07Q1

2008

Q2 20

08Q3

2008

Q4 20

08Q1

2009

Q2 20

09Q3

2009

Q4 20

09Q1

2010

Q2 20

10Q3

2010

Q4 20

10Q1

2011

Q2 20

11Q3

2011

Q4 20

11Q1

2012

Q2 20

12Q3

2012

Q4 20

12Q1

2013

Q2 20

13Q3

2013

Q4 20

13Q1

2014

Q2 20

14Q3

2014

Q4 20

14Q1

2015

Q2 20

15Q3

2015

Q4 20

15Q1

2016

Q2 20

16Q3

2016

Q4 20

16

Domestic Equity Domestic Property Domestic Corporate Debt Domestic Government BondsDomestic Commodities Domestic Cash Foreign Equity Foreign Corporate DebtForeign Listed Property Foreign Commodities Foreign Cash

The fund has been managed using a multi-counsellor approach since late 2011, with Dave Foord, Dane Schrauwen and Daryll Owen each managing a portion of the assets. Foord believes that meaningful investment returns are not earned by making incremental decisions, but that superior long-term returns are generated by identifying and taking advantage of economic cycles, and that buying at the right price is crucial. They do not take benchmarks into consideration when constructing portfolios, as Foord believes that they are often representative of what is simply big or in vogue. Guided by asset allocation parameters, each manager is allowed flexibility in the portion of the portfolio they manage. Their asset allocation style is predominantly top-down value orientated, but incorporates bottom-up portfolio construction. Their asset allocation process is forward looking does not make use of any form of mean variance optimisation. They believe that it is possible to form a good directional view on the interest rate cycle. As opposed to larger houses, Foord does not have formalised investment committees and meetings and they cite this as being an advantage, in that they are able to reposition and implement changes within the fund quickly. They have daily meetings where markets and company specific information is discussed. The entire team also sits in close proximity to each other and this facilitates timeous and constant information sharing. All research, on both equities and fixed interest, is conducted in-house, and portfolio managers also undertake research. The analysts maintain a stock ranking table that covers all the relevant forward looking metrics across all the shares in their research universe. They place an intrinsic valuation on the company and assess to what extent the market is pricing that valuation. Foord looks for stocks with good management teams and is willing to pay for what they deem fair value for quality businesses. The fund has relatively low turnover which is a result of being a concentrated portfolio with a few good ideas that will only be replaced when a better opportunity arises. The fund combines a top-down macroeconomic view for asset allocation with a bottom-up analysis of stocks in portfolio construction. The house has limited fixed interest capabilities and will thus invest in vanilla instruments. Foord has a dedicated offshore team in Singapore which manages the equity fund that forms part of the offshore exposure in the Foord Balanced fund.

Qua

litat

ive

Hig

hlig

hts

The Foord Balanced Fund has been a consistent long-term performing fund, delivering annualised returns in excess of 12% over both five and seven years. From a quantitative performance this fund has performed well, but its performances should be considered over more meaningful periods, at least five years, as it does tend to underperform over shorter-term periods. This speaks to Foord’s philosophy of getting broader directional trends right, and being buy and hold investors with a longer-term focus.

Qua

ntita

tive

Hig

hlig

hts

The fund delivered -1.68% over the fourth quarter, dragging down its annual performance for 2016 to -1.00%. Over longer periods, and in line with the fund’s intended purpose, it has produced strong returns over 5 and 7 periods, 12.08% and 12.18% respectively. Asset class exposure changed slightly, with local equity being trimmed by 2%, local bonds decreasing by 1%, local property increasing by 1% and foreign assets remaining flat. Within the local equity allocation, large caps were reduced by 1%, offset by the increase in small cap exposure. Foreign assets weighed down on total return to the fund, while interest-bearing assets, both bonds and cash, contributed positively to overall performance. Foord believes that economic growth within South Africa is unlikely to make a dramatic recovery, with rand based enterprises’ earnings growth at risk. The portfolio remains conservatively positioned, with a focus on high quality global businesses, while government bonds exposure is as a result of high yields as opposed to capital appreciation.

Cur

rent

Por

tfolio

Pos

ition

ing


Long

Ter

m A

sset

Allo

catio

n

INVESTEC OPPORTUNITYFund manager Clyde Rossouw No of quarters 34

Benchmark CPI + 6% Risk Description Moderate Aggressive

Role of Benchmark Agnostic Inception Date 02 May 1997


Philosophy Fundamental bottom-up, valuation driven approach with a key emphasis on quality companies Fee Description (retail class) Annual management fee with a

performance fee


The Quality team leverages off the capabilities of a strong specialist team. Clyde Rossouw is very experienced in managing multi-asset portfolios. The fund will generate good alpha when markets are falling, but may struggle relative to peers when markets are buoyant and driven by high-beta stocks with little regard for quality (i.e. a momentum-driven market). The team has taken on more responsibility, relying less on outsourcing. They have their own analysts who now focus purely on the “quality” process and philosophy, covering local and global opportunities.

Key

Insi

ghts

This fund can be used in a moderate or moderate aggressive risk, absolute return focussed portfolio with the aim of outperforming inflation by 4% to 5% over a 5 to 10 year period. The absolute return focus, together with the fund’s defensive positioning, benefits a portfolio by lowering volatility, particularly in adverse markets conditions.

Fund

Use

-6%

14%

34%

54%

74%

94%

Q2

2005

Q3

2005

Q4

2005

Q1

2006

Q2

2006

Q3

2006

Q4

2006

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

Q4

2015

Q1

2016

Q2

2016

Q3

2016

Q4

2016

Foreign Assets Bonds Foreign Assets Cash / Money Market (incl FX) Foreign Assets CommoditiesForeign Assets Equities Foreign Assets Property (listed) Local Assets BondsLocal Assets Cash / Money Market (incl FX) Local Assets Commodities Local Assets EquitiesLocal Assets Property (listed)

Clyde Rossouw is head of Quality at Investec Asset Management and focuses on multi-asset, absolute return, low volatility, real return equity investing. He has managed the Opportunity strategy since 2003, having joined the firm in 1999 - initially as an asset and sector allocation strategist. The fund has a primary focus on investing in good quality companies with a secondary focus on buying them when they are attractively priced. Rossouw is responsible for the fund’s asset allocation, which is determined by following a bottom-up relative valuation approach. Asset classes are thus bought on merit while taking into account the relevant risk. Asset allocation starts with equities and the fund follows a structured and systematic process. The equity holding will usually be concentrated with low turnover. The majority of the team is based in the UK and they have added two new analysts to the Cape Town team, both of whom are relatively inexperienced. They will also leverage off the research conducted by Chris Freund’s equity team. The Quality team makes the final decision on the fixed interest portion, and, while not aligned with the Fixed Income team, they do draw on the expertise and experience of the analysts and portfolio managers of the Fixed Income team, both locally and internationally. Offshore exposure is obtained via investing in two non-retail offshore funds. Both funds are managed by the Quality team. They bolstered their offshore capability with the addition of ex-Threadneedle analysts and portfolio managers in 2014.

Qua

litat

ive

Hig

hlig

hts

The Investec Opportunity fund has delivered returns in excess of 11.0% per annum over both five and seven years. It has delivered these type of returns at lower levels of volatility when compared to its peers. These lower levels of volatility has led to excellent risk-adjusted returns as measured by its Sharpe ratio. This fund performs particularly well during times of high market volatility and periods characterised by slightly higher drawdowns.Q

uant

itativ

e H

ighl

ight

s

The fund has delivered a quarterly return of -1.58%, underperforming the category average of -1.46%. It has however managed to retain a positive one-year return of 1.30%, broadly in line with the category average of 1.31%. Foreign asset exposure has remained at the limit, with a gross exposure of around 29%, reducing the net exposure to 23.8% through the use of short foreign currency futures. Within the foreign assets, equity is still preferred, with minimal exposure to listed property. In dollar terms, offshore assets underperformed slightly. On the local side, asset class exposure has remained relatively stable, with the exception of the slight decrease in the cash holding. Domestic bonds and cash played a positive role in performance, with South Africa avoiding a sovereign credit rating downgrade and markets pricing in a more optimistic outlook on South Africa. On a relative basis, underweight positions in basic resources and media have delivered active returns, while underweight positions in technology and construction and materials have detracted. The top local equity holdings continue to show mixed results, with large exposures to Assore Ltd. and Sasol Ltd. providing handsome returns, while British American Tobacco Plc. and Mediclinic International Plc. reducing returns. Over longer, more meaningful periods, the fund still manages to perform well compared to peers in its category, outperforming the average on a 3, 5, 10 and 15 year basis.

Cur

rent

Por

tfolio

Pos

ition

ing


SIM BALANCEDFund manager Fred White & Patrice Rassou No of quarters 48

Benchmark ASISA SA Multi-Asset High Equity category mean Risk Description Moderate Aggressive

Role of Benchmark Cognisant Inception Date 01 February 1995


Philosophy Bottom-up and Top-down, pragmatic value approach Fee Description (retail class) Annual management fee with a

performance fee


This is a benchmark cognisant fund that will resemble SI’s best view of all underlying asset classes and instruments. As of June 2016, Gerhard Cruywagen has relinquished the management of the fund, with this responsibility now vesting with Fred White, who has been an integral part of the asset allocation committee. Patrice Rassou, head of equities, will now assume the role of secondary manager on the fund. Going forward, White will make use of SI’s house-view moderate SWIX portfolio, as opposed to managing equities against the institutionally focussed Alexander Forbes Large Manager Watch (LMW). From our interactions with White, it is clear that he will increase the risky asset exposure in the fund and will now aim to compete directly with the traditional large retail high equity managers, as opposed to the balanced strategy’s institutional peers. White has indicated that more focus will be placed on risk management through the use of derivatives, which is a new innovation to the existing process. He has employed a new resource, Ralph Thomas, to assist him in this regard. Our initial view is that these changes are material and that the return signature will be different to Cruywagen’s Balanced Fund going forward, however, it is also our view that most of the intended changes will be positive. White’s main responsibility will be asset allocation and managing these exposures, either by means of derivatives or physical exposures. Underlying instrument selections such as equities, fixed income, property and offshore securities will be the responsibility of the various specialist teams within the broader SI group. The fund will therefore seek to leverage off the strengths of these various specialist teams, ultimately resembling a blend of the best views of these teams. From extensive engagements with White and senior management, it is clear that the intention is to create a highly competitive fund in the retail CIS, SA multi-asset high equity space. From a return perspective, we can expect the fund to be more competitive going forward, with risk actively managed through the use of derivatives. It is comforting to know that the lead portfolio manager, White, will be substantially invested alongside clients.

Key

Insi

ghts

This fund can be used in a moderate aggressive risk, relative return focussed portfolio with the primary aim of delivering long-term capital growth for investors, while also adhering to Regulation 28 limitations. The fund is a peer agnostic fund that will add additional diversification benefits when combined with its peers.Fu

nd U

se

As of June 2016, Cruywagen no longer manages the fund and this responsibility now vests with Fred White, who has always been an integral part of the asset allocation committee. Patrice Rassou is the secondary manager and provides input on the equity selection. The Balanced Fund is the best reflection of SI’s house view. There is a strong focus on following SI’s strong pragmatic value philosophy and process. Valuations are based on a belief that long run average returns are mean reverting within asset classes. There are three key committees, or Model Portfolio Groups (MPGs), that impact the Balanced Fund. Previously, Cruywagen constructed his own equity building block, in line with the equity MPG view. Going forward, White will make use of the house view moderate SWIX portfolio. Similarly, property, bond and cash exposure is also managed by leveraging off the asset class MPGs, and allocations are made according to the mandate and portfolio construction process. The decisions have to be carried through by all managers although they are allowed some flexibility. The direction must be the same, but magnitude of the over-/underweight can differ. The incumbent manager has a more aggressive style when compared to his predecessor, aiming to achieve maximum risk-adjusted returns and deliver superior capital growth over the longer term. Due to the diversification benefits, the fund will always be close to, or at full offshore exposure. Offshore equity exposure is currently primarily gained through unit trusts, index funds or ETFs. White has indicated that more focus will be placed on risk management through the use of protection, and SI has successfully balloted for the inclusion of derivatives in the fund. Ralph Thomas has been appointed as the dedicated resource in this regard.

Qua

litat

ive

Hig

hlig

hts

The SI Balanced Fund is a peer agnostic fund and has delivered consistently high second quartile performances. It has delivered these returns with volatility levels higher than its peers. Amongst Shopping List peers the fund experienced the greatest drawdown during the financial crisis of 2008-2009 (-24.0%, while the average balanced fund experienced -15.7%). It is important to note that this was prior to Cruywagen managing the fund. When looking at shorter-term figures it does seem that the overall volatility profile is steadily increasing. As the fund is cognisant of peers, it follows a similar volatility and drawdown profile as the category average. Given the fund’s relative focus, we expect to see drawdowns similar to its Shopping List peers and for the quarter the fund’s maximum drawdown was 1.32% while the category average was 2.35%.Q

uant

itativ

e H

ighl

ight

s

The fund ended quarter four producing -1.24%, pushing down its one year return ending 2016 to 5.36%. The fund however still managed to outperform the category average and FTSE/JSE All Share Index, with one of the highest performances compared to its Shopping List peers. Local equity exposure has been increased by approximately 3% and international exposure has been decreased by approximately 1.15%. The remainder of the other asset class exposures have been left relatively unchanged. Local equity and fixed interest both had a positive impact on return over the year, while international assets detracted from performance. On a relative basis, an overweight exposure to rand hedge Naspers, along with an overweight position in Steinhoff International Holdings detracted from returns. On an absolute basis, the biggest contributions to performance were Anglo American Plc., Bidvest Ltd. and Murray & Roberts Holdings Ltd. Local equity is still underweight within the fund, citing a high P/E as the rationale behind the weighting, compared to a more optimistic outlook on local bonds, which are over weighted. Local property and global equities are both seen as being at fair value, with a neutral outlook.C

urre

nt P

ortfo

lio

Posi

tioni

ngLo

ng T

erm

Ass

et A

lloca

tion

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q1 20

12

Q4 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Cash and Money Market Assets Inflation Linked Bonds Interest Bearing Investments Property Equities International Assets Preference Shares


SA - MULTI ASSET - FLEXIBLE


These portfolios invest in a flexible combination of investments in the equity, bond, money and property markets. The underlying risk and returnobjectives of individual portfolios may vary as dictated by each portfolio’s mandate and stated investment objective and strategy. These portfolios may be aggressively managed with assets being shifted between the various markets and asset classes to reflect changing economic and market conditions and the manager is accorded a significant degree of discretion over asset allocation to maximise total returns over the long term.

Shopping List selection: Bateleur Flexible Prescient Fund, Laurium Flexible Prescient Fund, PSG Flexible Fund, Truffle Flexible Fund


Time Period: 01/01/2014 to 31/12/2016

Std Dev

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

-20.0

-10.0

0.0

10.0

20.0

PSG Flexible Truffle MET Flexible A Bateleur Flexible Prescient A1

Laurium Flexible Prescient A1 (ASISA) South African MA Flexible

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0




Re

turn

Returns



PSG Flexible

Truffle MET Flexible A

Bateleur Flexible Prescient A1

Laurium Flexible Prescient A1

(ASISA) South African MA Flexible

17.64 17.64

-4.60 -4.60

-3.36 -3.36

-1.73 -1.73

1.40 1.40

11.47

10.09

10.83

11.86

5.69

15.68

15.01

16.01

10.37

14.07

8.89

Risk Statistics

Time Period: 01/01/2014 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

PSG Flexible

Truffle MET Flexible A

Bateleur Flexible Prescient A1

Laurium Flexible Prescient A1

(ASISA) South African MA Flexible

7.34

7.65

7.71

8.04

-6.50

-7.56

-6.60

-5.18

36.11

69.44

61.11

61.11

61.11

30.56

38.89

38.89

5.91 63.89

38.89

-5.51

0.67

0.46

0.55

0.66

-0.15


Time Period: 01/01/2012 to 31/12/2016

2012 2014 2016-8.0

-6.0

-4.0

-2.0

0.0




Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

5.0

10.0

15.0

20.0

25.0


Laurium Flexible Prescient A1 (ASISA) South African MA Flexible SA CPI + 5%

Re

turn


Long

Ter

m A

sset

Allo

catio

n

BATELEUR FLEXIBLE PRESCIENT

One of the key strengths of the Bateleur Flexible Fund has to be the fund’s very consistent returns, with very low levels of risk and drawdowns, consequently leading to excellent risk-adjusted returns. The two main portfolio managers, Kevin Williams and Charl Gouws have solid experience, and while the team is still relatively small, it is comforting to see that Bateleur is investing in their process and expanding their team. Galen Hossack has been with Bateleur since 2012 and has recently been made portfolio manager of the Bateleur Equity Fund. This will further contribute to experience and a reduction in key-man risk. They have added three additional analysts since 2014. Kevin Williams stepped down as a member of the Ranmore Fund Management investment committee and as co-portfolio manager of the Ranmore Global Equity Fund (RGEF) at the end of December 2016. This change has resulted in the Bateleur Flexible Prescient Fund commencing a process to reduce its exposure to the RGEF and at 31 January 2017 the fund exposure had reduced to 3.3% of the fund NAV. The remaining exposure will be redeemed in due course. This shift away from Ranmore Fund Managers will closely be monitored in the future. Bateleur is an equity biased house, preferring to run the flexible fund as an equity (including property) cash fund. Cash exposure is gained by investing in the Prescient Money Market fund. Bateleur combines a macro, top-down approach with its bottom-up fundamental research. They spend a fairly significant part (±30%) of their research process discussing the macro environment, and this sets them apart from the more bottom-up focussed flexible funds such as the PSG Flexible Fund and the Truffle MET Flexible Fund.

Key

Insi

ghts

The Bateleur Flexible Prescient Fund will work well in an absolute return focussed multi-asset portfolio, which seeks a real return of between 4% and 5%. It is an equity biased fund, typically moving between equity and cash depending on the availability of real-return opportunities. This fund will work well in combination with other multi-asset flexible funds such as the PSG Flexible and Truffle Flexible Fund. The fund is ideal for people seeking a slightly more aggressive real return profile but who are sensitive to capital losses, and who prefer a benchmark agnostic approach. While the fund does tend to have a higher exposure to equity than either the PSG or Truffle funds, it achieves these exposures at lower levels of systemic risk, delivering a lower risk profile overall. Consequently, this fund works well in a wide variety of portfolios, ranging from slightly conservative to more aggressive as it materially lowers overall portfolio risk.

Fund

Use

Bateleur is an owner-managed boutique investment house with a hedge fund background. Their focus on managing risk and not losing clients’ money has led them to deliver excellent risk-adjusted returns. They have a clearly defined investment philosophy with a robust investment process. Their size allows them to be nimble and to discuss and evaluate opportunities quickly as they present themselves. Bateleur has expanded its team with a new team member who joined in 2014 and two new graduates who joined at the beginning of 2016, of whom one is staying on.

Qua

litat

ive

Hig

hlig

hts

The Bateleur Flexible Fund has delivered excellent returns since its inception while taking on very little risk. This was particularly evident during 2015, a very volatile year in terms of investment performances. During this period the FTSE/JSE All Share TR Index returned 5.13%, with the Bateleur Flexible Prescient Fund returning 21% for the 12 months ending 31 December 2015. Over the last three years, the Bateleur Flexible Prescient Fund has managed to share on average 81% of the upside, and on average 29% of the downside. This type of asymmetrical return profile is exactly what a Flexible Fund should exhibit, with Bateleur having one of the most consistent and prevalent asymmetrical return profiles when compared to some of its peers. The fund has one of the lowest volatility profiles as reflected by its three-year rolling returns when compared to some of its top performing peers over the same period.

Qua

ntita

tive

Hig

hlig

hts

Over the last quarter, the fund has returned -4.30%, dragging down the year-to-date figure to -3.37%. Over longer, more meaningful periods, the fund has still performed admirably, delivering 10.84% per annum over 3 years and 16.02% per annum over 5 years. Over the course of 2016, standard deviation has picked up, but it still remains on the lower end when compared to its Shopping List peers over rolling 3-year periods. Asset allocation has remained unchanged over the quarter, and the fund has no concrete expectations on local vs. foreign assets, retaining its international exposure at 18%. Offshore exposure is however vicariously increased by holding rand hedge stocks like Steinhoff International Holdings and Naspers. The Ranmore Global Equity Fund struggled to find its feet in the final quarter of the year, detracting from overall fund performance. Value outperformed growth shares decisively, with the fund suffering due to a large exposure to Naspers. Insufficient commodity exposure hampered performance, along with real estate and consumer discretionary exposure. On the upside, financials played a positive role in performance along with some industrial exposure. The fund has been positioned according to more stock-specific choices, avoiding over-emphasis on top-down macro decisions. Compared to the fund’s historical average, the number of holdings has increased, with smaller weightings taking centre stage.C

urre

nt P

ortfo

lio

Posi

tioni

ng

Fund manager Kevin Williams No of quarters 4

Benchmark CPI + 4% Risk Description Medium to High



Philosophy Bottom-up stock picking, with a top-down macro overlay Fee Description (retail class) Performance fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Domestic Equity Offshore Equity Cash


Long

Ter

m A

sset

Allo

catio

n

LAURIUM FLEXIBLE PRESCIENTFund manager Gavin Vorwerg, Murray Winckler No of quarters 4


Role of Benchmark Some benchmark cognisance Inception Date 1 February 2013

Return Focus Absolute, with a relative bias Fund Size (Rm) R 1 600

Philosophy Bottom-up stock picking, with a top-down macro overlay Fee Description (retail class) Annual management fee

with a performance fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Africa Equity Bond Cash Equity Foreign Equity Property

The fund has an absolute return mandate, but the managers are cognisant of the broader JSE All Share Index as well as their peers. The fund is therefore slightly more relatively managed than its peers with a similar mandate. Laurium has a definite bias towards equity with exposure to other asset classes being opportunistic, or as a result of not finding sufficient opportunities in locally listed shares. Offshore exposure will be gained primarily through ETFs. Fundamental research in offshore stocks is limited to competitors of local counters, and could be included in the portfolio should they offer compelling value. The inclusion of direct offshore holdings is therefore as a result of local fundamental research as opposed to actively looking for offshore opportunities. Laurium also has some excellent African investment capabilities and, should opportunities avail themselves, they will be included in their local SA portfolios. These opportunities will be fundamentally researched. The investment team at Laurium has a strong accounting background and places a lot of emphasis on financial analysis of companies when conducting fundamental research. Furthermore the team at Laurium places a lot of emphasis on interactions with leaders in the SA business environment for idea generation and as part of their fundamental research. These interactions may be formal and informal in nature.

Key

Insi

ghts

This is an SA Multi-Asset Flexible Fund, with a bias towards equity. Other asset classes such as money market instruments, bonds and property will be opportunistically added. The fund aims to deliver a real return of 5%, however, the fund is more relatively focussed than a pure absolute type fund, with the managers trying to outperform the broader SA equity market as well as their peers. This is an ideal fund for investors that seek long-term real growth. The fund will work well in a slightly more aggressive multi-asset portfolio, especially with funds such as the Truffle Flexible Fund, which is a strictly absolute, bottom-up focussed fund which more readily invests in other asset classes.

Fund

Use

Laurium has been managing hedge and long-only funds investing across Africa since 2008, when it was founded by Murray Winckler and Gavin Vorwerg. They have had the benefit of an extended bull run, but the senior members of the investment team bring with them years of experience. The investment team has won numerous hedge fund awards, while the long-only flexible fund has delivered some impressive returns since its inception when compared to the broader FTSE/JSE All Share TR Index. Murray Winckler and Gavin Vorwerg have over 26 years and 17 years’ investment experience respectively, while Craig Sorour and Paul Robinson as the two heads of research (local and Africa respectively) have over 16 years and 11 years’ experience, respectively. The team has been relatively stable with only one analyst leaving and being replaced since the firm’s inception. The team is able to clearly articulate their philosophy and process, and based on their extensive experience, we believe this team to be of a high calibre. Laurium is well positioned to take advantage of African opportunities, should it be suitable for their SA portfolios, through their numerous African investments and experience.

Qua

litat

ive

Hig

hlig

hts

The fund’s performance over three years ending December 2016 has seen it registering a maximum drawdown of only 5.18%. Over this same period, the JSE registered a maximum drawdown of 8.33%. The fund delivered consistent first quartile returns over a rolling 3-year period. This fund has exhibited excellent, positive asymmetric returns as measured by the funds up and down capture ratios versus the FTSE/JSE All Share TR Index over rolling one-year periods since inception. It is a strong generator of excess returns. Despite the fact that the fund has an absolute return benchmark, it is managed on a more relative basis, with the team very cognisant of outperforming the JSE and also its peers. On a relative basis the fund’s volatility tends to be slightly higher than its peers, albeit significantly less than the overall market.

Qua

ntita

tive

Hig

hlig

hts

The fund has outperformed the FTSE/JSE All Share TR Index over the quarter, as well as the category average, delivering -0.15%. Over rolling 3 year periods, the fund continues to exhibit top quartile performance, and has one of the highest Sharpe ratios amongst its Shopping List peers. Over the last quarter, cash has been mobilised and invested in local equity, property and bonds, albeit marginally. Foreign equity contributed positively to performance, while the limited exposure to international bonds had a limited effect on fund returns. On the local side, cash holdings propped up fund return, while equity had a negative effect. Large exposures to rand hedge stocks, in particular Naspers, Reinet Investments and Steinhoff International was detrimental to overall fund performance. Counters which contributed positively to performance over the quarter include MTN Group Ltd., FirstRand Ltd. and Foschini Group Ltd. Exxaro Resources was added in the top 10 holdings of the fund, citing a favourable valuation. An improved global outlook, along with reasonable local valuations, has tilted the fund towards emerging markets, while equities are preferred to property and bonds. Fund currency exposure over the quarter was 45% to South Africa, 36.8% to developed markets, 8.7% to emerging markets (ex SA), 5.3% to UK and 4.2% to Africa.C

urre

nt P

ortfo

lio

Posi

tioni

ng


Long

Ter

m A

sset

Allo

catio

n

PSG FLEXIBLE

The fund will typically only be invested in either cash or equity and will not include other asset classes such as fixed income securities (longer duration bonds) or property. This is a fully flexible fund and the manager is prepared to invest a large amount of the fund in cash, should he feel that equities offer little value. Conversely, the fund may also invest up to 100% in equities as far as practically possible from a liquidity perspective and margin of safety. This is currently the largest fund in the multi asset flexible category. The fund is benchmark and peer agnostic, generating returns from specific shares that are different from its peers. As an example, this fund’s performance will typically be driven by unique counters which are different to some of its more well-known peers. The cash in this fund will be enhanced with a weighted average duration of around 164 days, mainly through the use of NCD instruments.

Key

Insi

ghts

As the name suggests, the fund offers flexibility to the manager. The manager can hold cash, should he feel equities are expensive. Holding more cash should result in less risk, but this will also lead to lower returns. This is a good option for investors that would like to take advantage of the manager’s ability to make a decision as to whether equities seem expensive or not. It can also bring a sense of dynamism to a static portfolio split between equity and fixed income, overweighting equity in times when it is deemed to be inexpensive, or overweighting fixed income instruments or cash in high risk environments. Furthermore, it is ideal to use in an absolute focussed, moderate to aggressive portfolio.

Fund

Use

The investment team, both equity and fixed income, consists of 17 members. The fund was managed by Jan Mouton until 29 February 2016. From 1 March 2016, the management of the fund was taken over by Paul Bosman and Shaun le Roux. Paul Bosman has 11 years of investment experience, is the manager of both the PSG Stable Fund and the PSG Balanced Fund, and has assisted Mouton for the last 11 years in managing the PSG Flexible Fund. Shaun is the portfolio manager of the PSG Equity Fund and has 19 years of investment experience, 16 of which have been spent with PSG. Paul brings with him multi-asset management as well as asset allocation experience, while Shaun brings with him a wealth of equity management experience, particularly when it comes to idea generation. Jan Mouton continued to function as chairman of the equity investment committee until June 2016. He has subsequently decided to focus on his personal endeavours and is no longer chairman of the equity committee. Greg Hopkins, CIO, has taken over as head of the equity committee. These changes were effective as of middle July 2016. We believe this transition was transparent and very well managed. Hence we have maintained our favourable stance on this fund. The portfolio managers and team are co-investors in this fund and therefore clients’ and the managers’ interests are aligned. The investment process is well articulated and structured to ensure that idea generation takes place effectively and that these ideas are vetted and brought to fruition in a timeous manner. The asset management arm of PSG is part of the wider PSG group and can leverage off the group’s extensive resources and experience should they need to. As a result, a culture of strong corporate governance is evident in how investment committees are structured and undertaken.

Qua

litat

ive

Hig

hlig

hts

The fund has a 15 year performance track record, one of the very few funds in the multi asset flexible category that offer such a long history. The fund has a low correlation with its peers and the category as a whole. The fund’s excess returns are generated mainly through its ability to generate alpha as opposed to the interaction between the fund and the general market, i.e. beta. The fund’s risk profile as measured by standard deviation and drawdowns improved markedly since 2008, and is one of the less risky funds in the flexible space today. The fund has delivered consistent 1st and 2nd quartile risk-adjusted returns as measured by its Sharpe, Sortino and Calmar ratios. PSG’s investment process lends itself to stock selections that are slightly more contrarian in nature than some of its peers. This, together with their tendency to move into certain mean-reverting stocks early, may lead to periods of underperformance.

Qua

ntita

tive

Hig

hlig

hts

The fund has produced excellent fourth quarter returns, 4.74%, outperforming the category average with ease. Over the entire 2016 period, the fund has excelled, producing an impressive 17.67%, beating its CPI + 6% benchmark. This trend continues over the longer term, producing 11.47% per annum over 3 years, 15.68% per annum over 5 years and 14.07% over 10 years. The composition of the fund has changed slightly, with a slight shift in local equities, decreasing to just under 50%, with local cash being increased marginally and foreign equities being trimmed. Some international holdings which contributed to the fund’s performance were counters like Berkshire Hathaway Inc., JPMorgan Chase & Co., Capital One Financial Corp. and Wells Fargo & Co. Locally, FirstRand Ltd. along with Glencore PLC contributed positively to performance. From a sector perspective, financial services and basic materials were the strongest contributors to success, while technology and consumer defensive detracted the most. The managers believe that higher quality rand hedge stocks are potentially overpriced and have therefore positioned the fund to take advantage of quality business with a margin of safety that they feel will produce satisfactory longer-term returns.C

urre

nt P

ortfo

lio

Posi

tioni

ng

Fund manager Paul Bosman & Shaun le Roux No of quarters 30




PhilosophyFundamental, bottom-up, value approach with a key focus on moat, management and margin

of safetyFee Description (retail class) Annual management fee



0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Domestic Resources Domestic Financials Domestic Industrials Domestic Real Estate Cash, Derivative & Money Market Foreign Equities Foreign Cash, Derivative, Money Market


TRUFFLE FLEXIBLE

The fund is benchmarked against the mean of the SA multi-asset flexible category, but its primary objective is to deliver absolute returns of CPI+5% over rolling three year periods. The way Truffle views risk is unique, as they place a great deal of emphasis on quantifying the possible downside of any potential investment. Should the possible downside be acceptable and the investment’s expected return is greater than CPI+5% it will be considered as a possible candidate for inclusion in the portfolio. Asset allocation is primarily a result of the bottom-up valuation process. The fund will also invest in bonds and property, with the latter, however, needing to compete with equities to justify its inclusion in the portfolio. The fund will make use of options strategies to hedge positions in the portfolio should the costs justify it. All investment team members invest alongside their clients in the most expensive fee classes and no personal trading accounts are allowed.

Key

Insi

ghts

The fund is ideal for investors that target an absolute return of at least CPI+5%. These investors are typically able to take on more risk, either to save for retirement or as part of a diversified retirement portfolio to provide longer- term capital growth. The portfolio is not Regulation 28 compliant. Flexible funds are unique in that they offer an investor the opportunity to participate in a rising market, but also the opportunity to revert to more conservative asset classes should they feel valuations are stretched. Consequently the investor does not need to share in the downside. Equity funds are constrained in this aspect as they are forced to have a minimum of 80% invested at all times in risky equities. The Truffle Flexible Fund is certainly focussed on delivering such an asymmetrical return profile, with a lot of time being spent trying to quantify the possible downside to any investment included in the portfolio. This is also a good fund to use in combination with the PSG Flexible Fund, or the Bateleur Flexible Fund which has traditionally been managed on a cash/equity basis, as the Truffle Flexible Fund will more readily include other asset classes such as property and bonds. It will also work well with a fund such as the Laurium Flexible Fund that is managed on a slightly more relative basis and has historically included a bigger exposure to risky assets.

Fund

Use

The long-only investment team is led by a highly experienced team, consisting of three portfolio managers, one fixed income specialist and five additional analysts. The named portfolio managers are Charles Booth, Ian Power and Jonathan du Toit. Charles has over 35 years’ experience and began his career at Allan Gray Investment Council in 1979. He then entered stock broking and spent the next twelve years as head of research and director at Simpson McKie Inc. (Now HSBC) and JD Anderson (now UBS). Charles joined RMB Asset Management in 1993 and left in 2008 as their CIO. He joined Truffle in 2009 to develop their traditional asset management capability. Ian Power has over 22 years’ investment experience, and began his career at RMB Asset Management in 1993. During this time Ian managed various mandates including balanced mandates and segregated aggressive equity funds, and started the RMB Mid & Small Cap Fund which he ran for three years. He was part of the asset allocation committee, head of industrials and finally head of equities. Jonathan is a qualified CA(SA) and CFA charterholder. He completed his articles at Deloitte and Touche from 2003 to 2006 and joined Allan Gray/Orbis at the end of 2006, where he was primarily responsible for global financial stocks. Jonathan joined Truffle in August 2010. Nicole Agar, a senior investment professional with 19 years of experience joined in 2015, while two additional members, Saul Miller (19 years’ experience) and SM van Garderen (25 years’ experience) also joined during the second quarter of 2016, from Argon Asset Management. The team now boasts considerable skill and expertise with a good mix between senior and junior team members. Truffle has a clearly defined fundamental, bottom-up value philosophy and a well-defined, unique investment process that places a lot of emphasis on trying to quantify the downside of a potential investment.

Qua

litat

ive

Hig

hlig

hts

The Truffle Flexible Fund continues to deliver consistent 1st quartile performances over rolling 3-year periods. Since inception it has delivered consistent first and second quartile performances. On average the fund has captured 84% of the upside on the FTSE/JSE All Share, but only 25% of the downside. This confirms the team’s unique approach to risk management and quantifying the potential downside of an individual investment. The fund’s volatility is relatively low when compared to its peers, while it has protected capital well since its inception, as measured by its drawdowns. Based on rolling one-year returns the fund has outperformed CPI+5%, 79% of the time over the last five years, while the rolling three-year returns of the fund has outperformed its CPI+5%, 100% of the time over the same period. The fund has also outperformed the JSE All Share Index, 100% of the time, since 1 November 2011, at significantly lower levels of volatility and drawdowns. Finally the fund has displayed excellent risk-adjusted returns as measured by its Calmar, Sharpe and Sortino ratios.

Qua

ntita

tive

Hig

hlig

hts

Fund manager Charles Booth, Ian Power, Jonathan Du Toit No of quarters 6


Role of Benchmark Agnostic Inception Date 1 January 2011


Philosophy Bottom-up stock picking, relative valuation process Fee Description (retail class) Annual management fee


Long

Ter

m A

sset

Allo

catio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Domestic Equity Domestic Property Domestic Fixed Income Holdings Domestic Cash Foreign Equity Foreign Fixed Income Holdings & Money Market

For the three months ending 31 December 2016, the fund underperformed (-3.73%) compared to its CPI+5% benchmark (+1.80%), the broader JSE All Share Index that delivered -2.09% and the average peer that delivered -1.26%. The fund’s short term performance figures continue to disappoint. Underperformance can mainly be attributed to a stronger local currency and the underweight exposure of the fund to basic resources that had a particularly good run over the year. The fund’s underperformance can also be attributed to its exposure to UK assets, especially UK property equity. Exposure to precious metals in the fund detracted from performance over the quarter as US equities rallied after the US election and investors were bearish on safe-haven assets. Large positions in rand-hedge stocks also significantly detracted from performance, as the rand strengthened over the quarter. In terms of asset allocation, significant movements came from domestic equity, which was reduced by 3.10% to 41.4% of the fund’s holdings, and an increase in domestic fixed income holdings (+2.00%) and local property (+1.50%) on an effective basis. Although there still remains significant exposure to UK assets in the fund, the portfolio managers were bearish on the UK over the quarter as many of these assets contributed negatively to performance. Exposure to Intu Properties Plc was reduced completely from 0.96% in Q3 2016 to 0.00% in Q4 2016. Similarly, exposure to Capital & Counties Properties was reduced by 0.78% from 0.80% in the previous quarter to 0.02% in Q4 2016. However, the portfolio managers still believe the investment case for this counter will bear fruition in three to five years. Exposure to Investec Plc was significantly reduced by 1.83% from 2.58% to 0.75%, even with it being the ninth highest contributor (+0.09%) to the fund’s performance over the quarter. The fund’s largest position was in rand-hedge counter, Naspers, at 5.09% and was the largest detractor from performance (-0.96%). Other rand-hedge counters such British American Tobacco (4.21%) and Compagnie Financiere Richmont (0.30%) detracted 0.50% and 0.06% respectively from performance.

Cur

rent

Por

tfolio

Po

sitio

ning


GLOBAL - MULTI ASSET - HIGH EQUITY

Category Analyst: Shawn Phillips

These portfolios invest in a spectrum of investments in the international equity, bond, money, or property markets. These portfolios tend to have an increased probability of short-term volatility, aim to maximise long-term capital growth and can have a maximum effective equity exposure of up to 75% and a maximum effective property exposure of up to 25% of the market value of the portfolio. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolio’s mandate and stated investment objective and strategy. Most of the funds in this newly created category were previously in the Foreign Asset Allocation Flexible category.

Shopping List selection: Coronation Global Managed FF and Investec Global Strategic Managed FF


Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 3.0 6.0 9.0 12.0 15.0 18.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

Investec Global Strategic Managed FF B Coronation Global Managed [ZAR] FF A (ASISA) Global MA High Equity

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

YTD 1 year 3 years 5 years 7 years 10 years

Investec Global Strategic Managed FF B Coronation Global Managed [ZAR] FF A

Re

turn

Returns



Investec Global Strategic Managed FF B

Coronation Global Managed [ZAR] FF A

(ASISA) Global MA High Equity

-8.34 -8.34

-4.71 -4.71

9.83

10.15

17.27

19.10

14.10

15.64

9.53

-6.69 -6.69 9.93 18.03 14.24 9.52

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Investec Global Strategic Managed FF B

Coronation Global Managed [ZAR] FF A

(ASISA) Global MA High Equity

13.18

14.16

-11.49

-12.10

68.33

71.67

31.67

28.33

0.85

0.92

12.99 -11.08 66.67 33.33 0.92


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0



Time Period: 01/01/2012 to 31/12/2016

Rolling Window: 1 Year 1 Month shift

2013

01 02 03 04 05 06 07 08 09 10 11 12

2014

01 02 03 04 05 06 07 08 09 10 11 12

2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

-20.0

0.0

20.0

40.0

60.0


Re

turn


Long

Ter

m A

sset

Allo

catio

n

CORONATION GLOBAL MANAGED

The fund is managed according to the Coronation DNA of employing a common sense, valuation-driven process of identifying mispriced assets that are trading at a discount to their long-term value. The fund is biased towards equities and primarily invests in developed economies (including the US, Europe and Japan) although the fund is also mandated to invest in emerging markets. The equity component of the Coronation Global Managed Fund also reflects Louis Stassen’s best view in the Coronation Global Select Equity Fund. In addition to this, Stassen’s team of seven members will express their high conviction views by making use of derivatives and ETFs in the Coronation Global Managed Fund. Stassen’s team will also leverage off research conducted by Gavin Joubert’s GEM (Global Emerging Markets) team should they want to increase their exposure to emerging markets. The fixed interest research is conducted by Nishaan Maharaj’s (Head of Fixed Interest and Property) team. Stassen’s team would then leverage off this research to implement their view in the fixed interest component of the CGM.

Key

Insi

ghts

The fund provides exposure to managed growth-oriented offshore multi-assets. Unlike the Investec Global Strategic Managed Fund (its Shopping List peer), this fund is a more traditional global balanced fund and is biased towards equity counters, with the remainder in cash. Meanwhile the fund is mandated to invest in bonds, cash, equity, property and commodities. The intent is to keep the parent fund fully invested offshore at all times. The fund’s exposure will be in a variety of currencies, primarily the US dollar, British pound, euro and yen. This fund is suitable for investors who are looking to add developed markets and emerging markets exposure with relatively low volatility to their portfolios .

Fund

Use

Coronation’s propriatery research is centralised, and the management of this fund leverages off a houseview and valuation-driven research process of picking stocks from a bottom-up approach. The asset allocation is determined by Coronation’s long-term risk-adjusted returns proprietary model based on underlying fundamentals. Coronation’s senior management would deliberate the asset allocation. Stassen would then implement active asset allocation to express his high convictions in the multi-asset portfolio. Regional allocation is merely a result of Coronation’s fair value rankings. Qualitative research follows after the quantitative research, where some of the potential securities are flagged by the proprietary ranking table. The portfolio leverages off Gavin Joubert’s GEM team and Nishaan Maharaj’s team. Since the team is based in South Africa, they would lean towards industries with which they are comfortable. This fund is a more traditional multi-asset fund with an inclination towards equities. However, it is worth mentioning that this fund has expanded its asset allocation offering to include gold as a hedge against global uncertainty and merger arbitrage (companies involved in corporate transactions where the deal may favour patient investors). They have also increased their exposure to alternative asset managers.

Qua

litat

ive

Hig

hlig

hts

The fund has a history that commenced post 2008’s global recession. Since inception, the Coronation Global Managed fund has consistently risen by more than the benchmark in periods where the benchmark rose (high up-capture ratio), but also fell by more than the benchmark in periods where the benchmark fell (high down-capture ratio). Until recently, the fund has consistently outperformed peers and the benchmark over rolling three-year periods based on net returns and the Sharpe ratio since inception. A similar trend was observed where the fund displayed relatively larger downside deviations over rolling three-year periods. This also speaks to the equity-biased nature of the fund relative to the Shopping List peer. The fund’s drawdowns were much more pronounced between 2010 and 2011, 2015 and in June 2016, where the fund experienced a drawdown of 12.10%.

Qua

ntita

tive

Hig

hlig

hts

Fund manager Louis Stassen and Neil Padoa No of quarters 06

Benchmark 60% MSCI All Country World Index and 40% Barclays Global Bond Aggregate Risk Description Aggressive



Philosophy Bottom-up, valuation-driven Fee Description (retail class) Annual management fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Bonds Cash Commodities Property Equities Merger Arbitrage Other

The Coronation Global Strategic Managed Feeder Fund outperformed its composite benchmark for the fourth quarter of 2016 and the year ending 31 December 2016, returning 0.62% in ZAR (1.18% in USD) and -4.71% in ZAR (7.97% in USD) respectively. The benchmark returned -3.30% in ZAR (2.76% in USD) for the fourth quarter and -7.89% in ZAR (4.37% in USD) for the year ending 31 December 2016. The fund’s robust performance over the past year can be attributed to a strong equity selection, with the fund’s equity carve-out outperforming the ACWI part of the composite benchmark, while the merger arbitrage bucket (roughly 2.60% of the portfolio) contributed positively to performance. The fund’s property exposure and its physical gold holding (used as a form of protection or diversification) detracted from performance. Moreover, the fund’s negative performance as well as the category as a whole over a one-year period (with the exception of the Allan Gray Orbis Global Fund of Funds in ZAR terms) is the result of the rand strengthening against most major currencies over the fourth quarter and the year ending 31 December 2016. Over a more meaningful period of five years, the fund has outperformed its benchmark, returning 19.10% in ZAR (7.18% in USD) while its benchmark returned 15.43% in ZAR (3.88% in USD). Moreover, equity exposure (including the merger arbitrage allocation) has decreased by 3.03% over the quarter, from 64.20% to 61.17%. The regional equity exposure has changed over the quarter as well, with equity exposure to North America decreasing slightly, from 48.32% to 46.21%, equity exposure to Europe increased marginally, from 9.31% to 10.44%, and equity exposure to Asia decreased slightly from 3.35% to 2.23%. Bond exposure has increased dramatically by 14.35%, from 5.30% to 19.65%, while cash has decreased substantially from 20.80% to 7.92%. On a stock level, the biggest contributors to the fund’s quartely performance were KKR, Apollo Global Management, Blackstone, Tempur Sealy and American Express, while TripAdvisor, Amazon and Facebook detracted from performance. Within property, some of the counters were trimmed while other property holdings such as Cromwell were added due to share weakness, with the overall exposure to property increasing from 8.20% to 9.22%. In terms of credit, exposure has been reduced to roughly 10% as the Trump rally has positively impacted credit spreads. Furthermore, the fund increased its gold exposure (2.04% of the portfolio) due to price weakness.C

urre

nt P

ortfo

lio P

ositi

onin

g


Long

Ter

m A

sset

Allo

catio

nINVESTEC

GLOBAL STRATEGIC MANAGED FEEDER

The investment approach, whereby investment ideas are generated across a wide range of traditional and non-traditional assets and strategies, is one of the key differentiators. All opportunities are assessed on the team’s three “Compelling Forces”, namely fundamentals, valuation and market price behaviour. Appropriate levels of diversification are attained by categorising assets and strategies into “growth, defensive or uncorrelated” categories based on their expected behaviour in order to ensure more robust portfolio construction. The sources of alpha are equity selection, bond selection, asset allocation, thematic positions and currency overlays. Philip Saunders, one of the co-managers, is also the head of Investec Asset Management’s global asset allocation committee. The asset allocation is based on absolute value and relative value. The benchmark is not considered for asset allocation but it is utilised to define the risk budget. Saunders has managed multi-asset mandates since 1991 and has also run total return and inflation-relative portfolios since 2003. This fund has survived both bull and bear markets.

Key

Insi

ghts

The Investec Global Strategic Managed Feeder Fund is not a typical global balanced fund and provides investors with access to broadly diversified global multi-assets which include both traditional and non-traditional (alternative) investments – private, unlisted equity, closed-ended funds and infrastructure. Both the asset allocation and currency decisions allow the Global Multi Asset team to express evolving strategic views, exploit tactical opportunities and to protect against market events. This fund also aims to provide “equity-like” returns with relatively lower volatility. The long-term strategic asset allocations are as follows: 30-75% in equity, 0-25% in cash and 15-70% in bonds. The tracking error to the reference benchmark is expected to range between 3% and 8%. Meanwhile, the fund has an outperformance target of 2% over a rolling three-year period relative to its benchmark (gross of fees). Despite the three-year outperformance target the portfolio managers encourage an even longer investment horizon of more than five years. This portfolio reduces the volatility when blended with a more equity-biased global balanced portfolio.

Fund

Use

The core global equity selection component is managed through Investec’s 4Factor Global Core Equity Strategy – comprising strategy, value, earnings and technical. The 4Factor Global Core Equity Strategy team looks for high quality stocks with attractive valuation, displaying improving operating performance and increasing investor attention. The Global Multi-Asset’s thematic selection is an expansion of the investment opportunity set. Positions can include bonds, equities and alternative asset classes, which are held on a multi-year basis. The Global Multi-Asset team has an average of 24 investment professionals based in London and three based in Cape Town. The specialist teams can broadly be classified as equities, fixed income and alternative investments teams. The team is further divided into seven specialist research groups: “Macro”, “Equities”, “Forex and Rates”, “Credit”, “Commodities”, “Property, Infrastructure and Private Equity” and lastly, “Alternative Risk Premia”. Members of the respective specialist research groups are encouraged to attend other specialist group meetings. The Global Multi-Asset team is integrated while the open-plan setting ensures that individuals can leverage off each other while being able to conduct research in a specialist and focussed manner. The nine specialist portfolio managers have extensive and relevant industry experience, with 11 years as the minimum years of relevant experience (two portfolio managers) and 33 years as the maximum. Max King has retired from Investec Asset Management, thereby relinqishing his role as co-portfolio manager as at the end of June 2016, and Iain Cunningham has joined Saunders as co-portfolio manager from September 2016. Furthermore, the managers are highly experienced investment professionals, and Saunders has been managing this fund since 2004.

Qua

litat

ive

Hig

hlig

hts

Since 2010, the Investec Global Strategic Fund has captured less of the upside (low up-capture ratio) where the benchmark performance rose, but more of the downside during periods where the benchmark fell (high down-capture ratio). Moreover, the fund experienced major drawdowns in the second half of 2008, between 2012-2014, and in June 2016 with a drawdown of 11.49%. On a rolling 3-year basis, the fund has recently lagged its benchmark, failing to outperform, which is a concern. We will be monitoring this fund closely in this regard.

Qua

ntita

tive

Hig

hlig

hts

Fund manager Phillip Saunders and Iain Cunningham No of quarters 6

Benchmark 60% MSCI AC World NR, 40% Citigroup World Government Bond Index Risk Description Aggressive


Return Focus Relative to AC MSCI World Fund Size (Rm) R 2 791

Philosophy Fundamentals, valuation and market behaviour Fee Description (retail class) Annual management fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 200

6

Q2 200

6

Q3 200

6

Q4 200

6

Q1 200

7

Q2 200

7

Q3 200

7

Q4 200

7

Q1 200

8

Q2 200

8

Q3 200

8

Q4 200

8

Q1 200

9

Q2 200

9

Q3 200

9

Q4 200

9

Q1 201

0

Q2 201

0

Q3 201

0

Q4 201

0

Q1 201

1

Q2 201

1

Q3 201

1

Q4 201

1

Q1 201

2

Q2 201

2

Q3 201

2

Q4 201

2

Q1 201

3

Q2 201

3

Q3 201

3

Q4 201

3

Q1 201

4

Q2 201

4

Q3 201

4

Q4 201

4

Q1 201

5

Q2 201

5

Q3 201

5

Q4 201

5

Q1 201

6

Q2 201

6

Q3 201

6

Q4 201

6

Equity Bonds Alternatives Cash Property Forex Multi-Asset Commodities Local Equity Local cash Local Bonds

The fund outperformed its benchmark over the fourth quarter, but underperformed over the year ending 31 December 2016, returning -1.73% in ZAR (-1.19% in USD) and -8.34% in ZAR (3.87% in USD) respectively. The benchmark returned -2.67% in ZAR (-2.12% in USD) for the fourth quarter and -6.56% in ZAR (5.87% in USD) for the year ending 31 December 2016. For the quarter, the outperformance of the benchmark was the result of a number of positions that were focussed on US reflation. In equities, the fund’s overweight position relative to its benchmark in Japanese stocks and US banks contributed positively to performance. In bonds, the fund’s underweight in duration relative to its benchmark added to performance as global bond yields moved sharply higher after the US election. Moreover, the underperformance of this fund and the global multi-asset high equity category as a whole in ZAR terms is due to the rand strengthening against most major currencies, with the rand strengthening considerably against the US dollar (-11.46%), the euro (-14.01%), the pound sterling (-25.95%) and the Japanese yen (-8.79%) over the year ending 31 December 2016. The fund has the majority of its currency exposure to the US dollar (65%) and the euro (19%), followed by smaller exposures to the pound (6.9%) and the Japanese yen (6.6%). Over a more meaningful period of five years, the fund has underperformed its benchmark, returning 17.27% in ZAR (5.54% in USD) while its benchmark returned 17.71% in ZAR (5.94% in USD). The fund’s asset allocation has changed over the quarter. Exposure to bonds has increased by 9.2%, from 31.3% to 40.5%, cash exposure has decreased by 9.3%, from 3.3% to -6% and equity exposure has decreased marginally, from 57.6% to 56.7%. Furthermore, the portfolio remains positioned for ongoing reflation in the US economy, with an overweight exposure to areas of the equity market that are more sensitive to an improvement in the US economy.

Cur

rent

Por

tfolio

Po

sitio

ning


WORLDWIDE - MULTI ASSET - FLEXIBLE


These portfolios invest in a flexible combination of investments in the equity, bond, money, or property markets. The portfolios have complete or stipulated limited flexibility in their asset allocation both between and within asset classes, countries and regions. No minimum or maximum holding applies to South African or offshore investment. These portfolios are often aggressively managed with assets being shifted between the various markets and asset classes to reflect changing economic and market conditions to maximise total returns over the long term.

Shopping List selection: Foord Flexible FoF


Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 3.0 6.0 9.0 12.0 15.0 18.0 21.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

28.0

Foord Flexible FoF R (ASISA) Wwide MA Flexible

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-22.5

-15.0

-7.50.0

7.5

YTD 1 year 2 Years 3 Years 5 Years 7 Years

15.0

22.5

30.037.5

45.052.5


Re

turn

Returns



Foord Flexible FoF R

(ASISA) Wwide MA Flexible -4.18 -4.18 7.916.58 14.26 12.16

-4.38 -4.38 7.41 8.26 16.70 16.49

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Foord Flexible FoF R

(ASISA) Wwide MA Flexible 8.96 70.00-8.15 30.00

9.67 -7.98 73.33 26.67 1.10

0.91


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-9.0

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0


Rolling 3-Year Returns

Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

5.0

10.0

15.0

20.0

25.0


Re

turn


Long

Ter

m A

sset

Allo

catio

n

FOORD FLEXIBLE FOFFund manager Dave Foord No of quarters 12

Benchmark CPI+5% Risk Description Aggressive



Philosophy Top-down, bottom-up, valuation driven approach Fee Description (retail class) Annual management fee



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 2

008

Q3 2

008

Q4 2

008

Q1 2

009

Q2 2

009

Q3 2

009

Q4 2

009

Q1 2

010

Q2 2

010

Q3 2

010

Q4 2

010

Q1 2

011

Q2 2

011

Q3 2

011

Q4 2

011

Q1 2

012

Q2 2

012

Q3 2

012

Q4 2

012

Q1 2

013

Q2 2

013

Q3 2

013

Q4 2

013

Q1 2

014

Q2 2

014

Q3 2

014

Q4 2

014

Q1 2

015

Q2 2

015

Q3 2

015

Q4 2

015

Q1 2

016

Q2 2

016

Q3 2

016

Q4 2

016

Foreign Equity Foreign Property Foreign Corp Debt Foreign Gov Bonds Foreign Commodities Foreign CashSA Equity SA Property SA Corp Debt SA Gov Bonds SA Commodities SA Cash

The portfolio is an unconstrained fund which reflects Foord Asset Management’s best investment views over all asset classes, domestic and foreign. Three Foord funds make up the Flexible FoF. The Foord International Fund and Foord Global Equity Fund deliver the offshore exposure while the Foord Absolute Return Fund is a local institutional fund that is only utilised to balance the overall portfolio of the Flexible FoF. The Foord International Feeder Fund has been closed for new investments, effective from 1 February 2016. The fund’s strategic effective asset allocation, as determined by the CIO and the investment team, has been changed with commodities up 2% to 3%, SA property up 1% to 2%, and SA bonds down to 0% from 1%. Money market allocation dropped from 14% to 10%, while SA equities and foreign assets remain at 20% and 65% respectively. The team aims to keep costs low, avoiding excess turnover, but works on an uncapped performance fee basis.

Key

Insi

ghts

The worldwide, unconstrained nature of the fund does mean that it is highly volatile at times due to its ability to invest 100% in any single asset class. The Flexible FoF would be ideal for discretionary investors who do not need to comply with the Regulation 28 limits.

Fund

Use

Foord’s asset allocation style is top-down and bottom-up portfolio construction, with a “growth at reasonable prices” approach. Dave Foord’s style of managing money is key to the success of the asset management house, looking for earnings visibility and growth. There are currently two investment teams in Foord Asset Management. The local team has 13 professionals, of which four also conduct international research. There are nine members in the offshore team, which is based in Singapore (the second biggest mutual fund industry in the world). The house has an extremely strong research team, with analysts from all over the world.

Qua

litat

ive

Hig

hlig

hts

The fund has an absolute focus and has proven itself to be one of the best performing funds in the Worldwide Multi-Asset Flexible category whilst being able to protect capital extremely well over longer periods. The fund has mostly outperformed its absolute return benchmark over a rolling three year period, whilst being able to remain far less volatile than its peers. Over the shorter term, up to 1 year, this fund struggles to outperform its benchmark. It has delivered better risk-adjusted returns than most peers over most periods and has also displayed better drawdowns than many of its peers over these periods. The fund has consistently remained within the first and second quartile of performance, with an exception of shorter term performance. As we look over longer periods, the fund’s outperformance of the benchmark and peer group average becomes larger and larger.Q

uant

itativ

e H

ighl

ight

s

The fund delivered -2.1% over the quarter, significantly underperforming its benchmark which returned 1.9%, and also underperforming its peer group average return of -1.4%. The fund’s offshore equity exposure was increased over the quarter by 0.70% to 49.5%, while foreign cash was decreased from 11.2% to 10.4%. Offshore allocation remained the largest holding at 61.5%, marginally lower compared to 61.7% in the previous quarter and the target of 62%. SA equity was increased by 3.6% to 21.6% in Q3, and subsequently reduced to 16.8% in Q4 - compared to a 22% target. This fund sold out of SA government bonds from a 3.2% position. SA listed property was also marginally increased to 2.2%. The portfolio retains its relatively conservative positioning with global equities remaining the preferred asset class, while higher cash holdings give the portfolio manager higher liquidity for more optionality. Total allocation to equity has been declining, moving from 70.4% in the previous quarter to 66.3% in Q4. Cash has been increased, especially on the local side. Total cash exposure is currently 27.8%, up from 20.2% in Q3. Local cash increased from 9% to 17.4% while foreign cash decreased from 11.20% to 10.4%. Local cash is significantly over the reduced strategic target of 10%.C

urre

nt P

ortfo

lio

Posi

tioni

ng


FUNDS SUITED FOR SPECIALIST ASSET CLASS BUILDING BLOCK PORTFOLIO

CONSTRUCTION


SA - INTEREST BEARING - MONEY MARKET

Category Analyst: Imraan Khan

These portfolios seek to maximise interest income, preserve capital and provide immediate liquidity. This is achieved by investing in money market instruments with a maturity of less than 13 months while the average maturity of the underlying assets may not exceed 120 days. The portfolios are typically characterised as short-term, highly liquid vehicles.

Shopping List selection: Glacier Money Market Fund, Nedgroup Investments Money Market Fund

Risk-Reward: 1 Year

Time Period: 01/01/2016 to 31/12/2016

Std Dev

-1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0

0.0

2.0

4.0

6.0

8.0

10.0

Glacier Money Market B Nedgroup Inv Money Market C

Re

turn

Quartile Ranking

As of Date: 31/12/2016


3.0

3.8

4.5

5.3

6.0


6.8

7.5

8.3

9.0


Re

turn

Risk Statistics

Time Period: 01/01/2016 to 31/12/2016

Std DevSharpe

Ratio

Glacier Money Market B

Nedgroup Inv Money Market C

0.11 2.31

0.11 5.03

Returns



Glacier Money Market B

Nedgroup Inv Money Market C

7.64 7.64

7.91 7.91

6.71

6.93

6.18

6.38

7.26

Investment Growth

Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016100.0

105.0

110.0

115.0

120.0

125.0

130.0

135.0

140.0



Time Period: 01/01/2012 to 31/12/2016


2013

01 02 03 04 05 06 07 08 09 10 11 12

2014

01 02 03 04 05 06 07 08 09 10 11 12

2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

5.0

6.0

7.0

8.0


Re

turn


GLACIER MONEY MARKET

The fund is a money market investment with competitive yields, with a large focus on capital security. The fund seeks to maximise interest income while preserving capital and providing immediate liquidity through investment in high quality money market instruments. The fund will only include investment grade (BBB- or better) instruments and will not include sub-ordinated debt. The fund is managed by an experienced Sanlam Investments (SI) fixed income team, with the addition of a new head of fixed interest, Mokgatla Madisha. He joins Sanlam Investments from Argon Asset Management, with 16 years’ industry experience. Furthermore, the team continues to leverage off one of the most extensive and disciplined fixed interest and credit processes in the industry. The team believes that the direction of interest rates, expressed in the form of modified duration and convexity is the single largest determinant of out-performance. Thus the emphasis placed on the direction of interest rates, embodied by modified duration and convexity, is their primary driving force in the construction of their portfolios. They take a longer term fundamental view on the market and express this view by duration management and yield curve positioning. In terms of importance the factors are ranked according to three variables namely: 1) Duration Management, 2) Credit Quality Management and 3) Yield curve positioning.

Key

Insi

ghts

The Glacier Money Market Fund is a low risk and conservative fund and can be used in a building block portfolio to reduce volatility. This fund is aimed at investors with a short-term investment horizon looking to park their cash in order to meet short-term cash flow requirements. The Glacier Money Market Fund is a well-managed fund that will offer capital protection, high levels of liquidity and protection against volatility. The fund aims to provide returns above cash. The fund achieves capital preservation through diversification across a variety of high yielding assets. The fund can be used in most risk profiled portfolios.

Fund

Use

Since inception, the fund has been managed by the Sanlam Investments (SI) Fixed Interest team. The team places a tremendous emphasis on risk management as SI follows a pragmatic value investment approach. This approach allows the managers to make rational decisions based on in-depth research thereby removing any emotional bias. The team believes that investment returns are non-linear and investment recommendations are independent of time. They place emphasis on fact and not on forecast. The team values bonds with respect to realistic expectations. The investment philosophy is contrarian by nature and follows an approach whereby bonds are bought below intrinsic value and sold above intrinsic value. The factors of the philosophy are based on exploiting fear and greed, mean reversion and time horizon. The team utilises a four-step fixed interest investment process and the four-step credit process. The fixed interest investment process involves screening, fundamental analysis, portfolio construction and risk monitoring. Within the initial screening step the investable universe is screened with both listed and unlisted normal bonds, ILBs and fixed interest derivatives. They then look at the classification of fixed interest assets according to the ratings class, industry group and maturity band, then have a decision support system for all factors in the screening process. The second step, which is the fundamental analysis, involves analysing yield curve valuation (level and curvature). The credit spreads are evaluated relative to the historical norm. Then the credit investment process occurs. In the third step of the fixed interest investment process, the portfolio construction occurs, in which the position sizes are based on valuation relative to appropriate long-run yield. Credit limits are determined by rating/ mandate. The last step involves risk monitoring which is conducted by the Fixed Interest team. The positions are then presented and debated monthly by a peer group. The monitoring is done by SI Compliance. The rigorous and experienced credit committee is a key advantage of the fund.

Qua

litat

ive

Hig

hlig

hts

The fund has a conservative mandate and the key objective of the fund is to preserve capital. This has been evident from the fund’s consistent performance in line with the benchmark, with relatively lower risk. The standard deviation of this fund was consistently below that of the benchmark based on rolling standard deviations over the long term. The Glacier Money Market Fund has consistently delivered returns that have been in line with the benchmark. However, the fund slightly underperformed its peers during 2009 and 2011.

Qua

ntita

tive

Hig

hlig

hts

The fund is invested in all maturities across the money market yield curve. The managers prefer a combination of floating rate notes in the fund, along with fixed rate negotiable certificates of deposits, holding very little cash. The cash holding was decreased from the previous quarter by 0.12% to 0.76%. Corporate credit was increased (+1.87%) in the portfolio, which still remains a significant part of the portfolio at 26.84%. According to the portfolio managers, the combination of corporate credit, negotiable certificates of deposit and floating rate notes should enhance the fund’s returns. During the fourth quarter, the portfolio manager further decreased exposure to floating rate notes by 0.53% from 49.38% to 48.85%. The funds fixed rate exposure was increased from 49.74% to 50.39%. The fund’s weighted average days to maturity decreased from 123.90 days in the third quarter to 115.41 days in the fourth quarter. The weighted average duration of the fund has decreased slightly from 84.75 days in the third quarter to 75.95 days in the fourth quarter by increasing exposure of call maturities by 1.62% from 0.18% to 1.80% and further increasing exposure to the longer end of the money market curve (6 – 12 month NCD’s) by 5.59% to 22.81%. The portfolio’s exposure to banks was reduced marginally from 61.90% to 60.33%. The portfolio manager has decreased the fund’s exposure to government instruments (including conduits) marginally by 0.73% from 9.86% to 9.13%. Exposure to parastatal credit was increase from 3.27% to 3.70%.

Cur

rent

Por

tfolio

Pos

ition

ing

Long

Ter

m A

sset

Allo

catio

n

Fund manager Donovan van den Heever and Johan Verwey No of quarters 30

Benchmark Stefi Composite Risk Description Conservative

Role of Benchmark Agnostic Inception Date 02 May 2001


Philosophy Bottom up, pragmatic value approach Fee Description (retail class) Annual management fee


-5.00%

15.00%

35.00%

55.00%

75.00%

95.00%

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Cash in Settlement Account Call Deposits Fixed deposit NCDs Accept Bills Money Market Gilts Interest Bearing Investments


NEDGROUP INVESTMENTS MONEY MARKET

Fund manager Taquanta Asset Managers No of quarters 11

Benchmark Stefi Call Deposit Risk Description Conservative

Role of Benchmark Agnostic Inception Date 01 August 2008


Philosophy Top-down, bottom-up, contrarian value Fee Description (retail class) Annual management fee


The Nedgroup Money Market Fund is part of Nedgroup’s best of breed strategic offering. The fund is managed by Taquanta Asset Managers. It has been managed by Taquanta since inception and is managed according to a team-based approach. The team consists of eight senior managers with two trainee portfolio managers. The team’s investment philosophy is to extract the liquidity risk premium embedded in money market assets via the structuring and purchasing of unique assets that will create outperformance against benchmarks over the life of the fund. Their investment strategy and process for shorter-dated fixed income money market funds are to protect these strategies as much as possible against adverse interest rate movements by investing in floating-rate instruments or converting fixed rates to floating for all assets with maturities longer than 18 months. They concentrate their efforts on managing the liquidity and spread risk in money market assets, thereby providing consistent returns above the chosen benchmark, through all interest rate cycles. The team has been instrumental in the development of step-up notes which makes up about 32.10% of the long-term asset allocation of the fund. The fund’s rating, according to Global Ratings, is AA+. The Nedgroup Money Market and Core Income Fund are managed very similarly, with the Money Market differing in terms of having a shorter duration and more liquidity with constant NAV pricing. It has an average term to maturity of 120 days, and a term to final maturity on any instrument of 13 months.

Key

Insi

ghts

The Nedgroup Money Market Fund is a low-risk fund that can be used in all risk profiled portfolios. This type of fund should specifically be used in a building-block portfolio to reduce volatility. It is aimed at investors with a short-term investment horizon who are looking to park their cash in order to meet short-term cash flow requirements. The Nedgroup Money Market will offer investors capital protection, high levels of liquidity and protection against volatility.

Fund

Use

The Taquanta team has a fervent history for managing fixed income. This team is seen as specialists in managing cash mandates on the institutional side. Loss of capital due to liquidity is seen as the key indicator of risk in the fund and the managers aim to maintain a close relationship with large clients in order to optimally manage liquidity. Senior members of the investment team are ex-treasury professionals and they leverage extensively off this skill set and experience in negotiating the structuring of instruments. The team pride themselves on using a risk continuum of enhanced cash management. They consider liquidity risk, credit risk, interest rate and price risk when managing the client’s portfolio, as the number one rule is capital preservation.

Qua

litat

ive

Hig

hlig

hts

The aim of this fund is to maximise interest income while protecting the initial capital and providing immediate liquidity to investors by investing in short-term money market instruments. Since inception, the fund has outperformed its benchmark over a rolling twelve-month period. Over the last quarter the fund has outperformed the category average, and over one year the fund has slightly underperformed the category average and thus delivered third quartile performance over both periods.

Qua

ntita

tive

Hig

hlig

hts

Long

Ter

m A

sset

Allo

catio

n

The Nedgroup Investments Money Market Fund is appropriately invested for a flat to rising interest rate cycle. Over the quarter, local money market exposure was increased by 3.15% to 88.50%, and the fund’s cash exposure was decreased by 2.81% to 8.66%. Exposure to local bonds has remained at 0% since Q3 as the portfolio manager believes bonds have delivered strong returns year-to-date and subsequently valuations have compressed. The fund continues to be largely exposed to banks with a further increase of 4.58%, from 92.24% to 96.82% in the fourth quarter. Exposure to parastatals was reduced by 1.55%, from 1.55% in the previous quarter to 0.00%. Government credit exposure (including conduits) was decreased by 3.41% from 3.87% to 0.46%. Corporate debt exposure was increased by 1.25% from 2.34% in the previous quarter to 3.59% in the fourth quarter. The fund’s weighted average days to maturity were further decreased in the fourth quarter to 110.37 days from 123.90 days in the previous quarter, showing the portfolio manager’s foresight to reduce duration risk amid heightened economic risks to local corporate and government credit. The fund’s modified duration was increased by 7.95 days from 30.54 days in the previous quarter to 38.49 days. With regard to the top ten holdings of the fund, the major movers have been Nedbank (+12.61% to 40.76%) and Standard Bank (-1.67% to 20.18%). The portfolio manager decreased exposure to ABSA by 8.75% to 3.86% and increased Investec by 3.32% to 14.42%.

Cur

rent

Por

tfolio

Po

sitio

ning

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Local Money Market Local Bonds Cash Foreign Assets


SA - INTEREST BEARING - SHORT TERM


These portfolios invest in bonds, fixed deposits and other interest earning securities which have a fixed maturity date and either have a predetermined cash flow profile or are linked to benchmark yields, but exclude any equity securities, real estate securities or cumulative preference shares. To provide relative capital stability, the weighted average modified duration of the underlying assets is limited to a maximum of two years. These portfolios are less volatile and are characterised by a regular and high level of income.

Shopping List selection: Old Mutual Income Fund, Nedgroup Investments Core Income Fund, Stanlib Income Fund

Risk-Reward: 1 Year Annualised

Time Period: 01/01/2016 to 31/12/2016

Std Dev

-1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0

0.0

3.0

6.0

9.0

12.0

15.0

18.0

Old Mutual Income R STANLIB Income R Nedgroup Inv Core Income B

(ASISA) South African IB Short Term

Re

turn

Quartile Ranking

As of Date: 31/12/2016


4.0

5.0

6.0

7.0

8.0


9.010.0

11.0

12.0

13.0

14.0



Re

turn

Risk Statistics

Time Period: 01/01/2016 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Old Mutual Income R

STANLIB Income R

Nedgroup Inv Core Income B

(ASISA) South African IB Short Term 0.20 100.00 0.00 4.82

1.38

0.29

0.15

100.00

100.00

100.00

0.00

0.00

0.00

2.03

4.53

4.34

Returns



Old Mutual Income R

STANLIB Income R

Nedgroup Inv Core Income B

(ASISA) South African IB Short Term 8.31 8.31 6.76 6.716.51 6.51

10.17 10.17

8.70 8.70

8.03 8.03

6.47

6.95

6.83

6.63 6.63

6.85 6.85

6.46 6.46

7.14

7.37

6.61

Drawdown

Time Period: 01/01/2015 to 31/12/2016

03/2015 06/2015 09/2015 12/2015 03/2016 06/2016 09/2016 12/2016-0.6

-0.5

-0.4

-0.4

-0.3

-0.2

-0.1

-0.0

0.0




Time Period: 01/01/2012 to 31/12/2016


2013

01 02 03 04 05 06 07 08 09 10 11 12

2014

01 02 03 04 05 06 07 08 09 10 11 12

2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

2.5

5.0

7.5

10.0

12.5



Re

turn


OLD MUTUAL INCOMEFund manager Wikus Furstenburg (Futuregrowth) No of quarters 52

Benchmark 20% ALBI & 80% STeFI Composite Index Risk Description Conservative

Role of Benchmark Cognisant Inception Date 22 April 1989


Philosophy Top-down, bottom-up pragmatic approach Fee Description (retail class) Annual management fee


The Old Mutual Income Fund is managed by Old Mutual’s Fixed Interest boutique, Futuregrowth Management. Futuregrowth has an active style of management, balancing a quantitative approach with qualitative portfolio construction aspects. The fund is managed by Wikus Furstenburg, who seeks to generate alpha consistently by mainly tapping into interest bearing sources. The investment philosophy is based on the premise that markets misprice assets consistently but through market timing and asset selection, value can be added. Moreover, the fund has an internal risk objective of achieving no negative quarters. The fund includes unlisted credit instruments, exposure to which is governed by the limits of the Collective Investment Schemes Control Act. These instruments are priced and rated by a specialised administration team at Futuregrowth. They are rated conservatively in comparison with listed instruments - an approach which allows them to place strict covenants on the issuers who back these unlisted instruments.

Key

Insi

ghts

The fund aims to allow diversification of portfolios in order to reduce risk and provide stable inflation, plus income. The fund can be used as a fixed income shorter duration component in a building-block portfolio. Moreover, the fund offers relatively more capital protection, especially in a rising interest rate environment as the funds in this category are allowed a maximum modified duration of up to two years. Like a money market fund, this fund can be used as a secure parking in times of adverse equity markets. Conversely, the fund aims to achieve higher returns than a money market by taking on marginally more risk as well as offering a higher regular level of income, together with capital stability.

Fund

Use

The fund is managed by Wikus Furstenberg who joined Old Mutual Investment Group in October 1999. The investment team consists of 38 investment professionals who are highly experienced. The team also leverages off Old Mutual Investments Group South Africa’s support services, which include their economic and risk research units. Futuregrowth, however, can use their discretion-through their house-view approach - for their credit risk and compliances process. The credit risk management process will typically determine the default probability of an issuer, as well as the risk pricing at the appropriate yield spread over RSA government bonds. Their detailed expertise in the credit space, as well as their broad research capabilities, has meant that the performance of the Old Mutual Income Fund ensures consistent fund returns over the long term.Q

ualit

ativ

e H

ighl

ight

s

The fund has outperformed the category average over the longer period, as well as the STeFI Composite, based on a 2-year rolling excess return. Generally, this fund would have a higher modified duration compared to its Shopping List peers, as longer duration instruments were favoured. However, over the past few quarters the fund’s modified duration has been lower as it has increased its exposure to cash and variable rate bonds as a reallocation from fixed rate bonds. The fund experienced significant drawdowns at the beginning of 2011, mid-2013, 2014 and mostly recently in 2015 with the rash removal of Finance Minister Nhlanhla. The fund was one of the few funds who did not side-pocket their ABIL exposure as they felt it would inconvenience their clients. The ABIL exposure was roughly 5% of the portfolio and with very low valuations, there is potential for upside. On a risk-adjusted basis, however, this fund has consistently delivered returns nearly in line with the category average based on two-year rolling returns over the long term.

Qua

ntita

tive

Hig

hlig

hts

The fund outperformed its benchmark in the fourth quarter of 2016, returning 2.01% compared to its benchmark return of 1.55%. Over a one-year period ending 31 December 2016, the fund outperformed its benchmark and its Shopping List peers, returning 10.17% compared to the fund’s benchmark return of 8.99%. Despite the fact that the Old Mutual Income fund performed extremely well over the past year, it is important to note that it is also the most volatile fund (measured by standard deviation) in comparison to its Shopping List peers, with an annual standard deviation of 1.38%, while the Stanlib Income fund and the Nedgroup Income fund have an annual standard deviation of 0.29% and 0.15% respectively. The fund’s assets under management have decreased marginally by 0.96% over the quarter, from R1 150 million to R1 139 million. The modified duration of the fund was decreased marginally from 0.48 years to 0.47 years. The fund’s exposure to fixed-rate bonds maturing between one and three years has increased by 4.25% over the quarter, from 9.22% to 13.47% and variable bonds have decreased by 3.30%, from 60.78% to 57.48%. The fund has a derivative position of -0.53% this quarter, which is a fixed-interest credit swap position, where the fund will pay fixed and receive floating. Moreover, the fund’s outperformance relative to its benchmark for the 12-month period to the end of December 2016 was a combined result of the large exposure to higher-yielding variable rate bonds, general credit spread accrual and a favourable revaluation of the African Bank holdings in the fund. Furthermore, the fund is conservatively positioned considering the large underweight modified duration position, a large holding of variable rate bonds, longer-dated money market instruments (26.31%) and a small exposure to short-dated inflation-linked bonds.

Cur

rent

Por

tfolio

Po

sitio

ning

Long

Ter

m A

sset

Allo

catio

n

-1%

19%

39%

59%

79%

99%

Q1 2

014

Q2 2

014

Q3 2

014

Q4 2

014

Q1 2

015

Q2 2

015

Q3 2

015

Q4 2

015

Q1 2

016

Q2 2

016

Q3 2

016

Q4 2

016

Derivatives Money Market Variable Bonds Fixed Rated Bonds 1-3yr Fixed Rated Bonds 3-7yr Fixed Rated Bonds 7-12yr Fixed Rated Bonds 12+yr CPI Linked Bonds


NEDGROUP INVESTMENTS CORE INCOME

Fund manager Taquanta Asset Managers No of quarters 12

Benchmark STeFI Composite Index Risk Description Conservative



Philosophy Top-down, bottom-up contrarian value Fee Description (retail class) Annual management fee


The Nedgroup Investment Core Income Fund is a conservatively managed fund in the SA Short Term Interest Bearing category which is evident from the shorter duration over time. The fund’s primary concern is liquidity, capital preservation and duration, therefore slightly riskier instruments may be included in the fund if they are priced correctly and if they comply with the fund’s liquidity and duration requirements. Moreover, instruments are included in the fund with the intention of holding it to maturity. The fund is managed on a team-based approach and will mainly hold longer-dated floating-rate notes, especially if longer dated instruments are included in the portfolio. These notes must also be tradable or negotiable. This reduces the level of interest rate and credit risk. Liquidity is seen as the key indicator of risk and the manager’s aim is to maintain a close relationship with large clients in order to optimally manage liquidity. Furthermore, the income fund is managed in the same manner as the Nedgroup Investments Money Market fund with the exception of taking on a bit more duration risk.

Key

Insi

ghts

This fund has an enhanced cash mandate and is relatively conservative (cash-type) in the short term interest bearing category. This mandate is, however, more flexible and the average portfolio duration will be longer than that of a traditional money market fund. The fund aims to produce returns in excess of those offered by money market funds while capital preservation and liquidity is the overriding principle. Like a money market fund, this fund can also be used to park funds when risky assets are less favourable. The fund can be used as a fixed income shorter duration component in a building block approach to constructing a multi-asset portfolio. Moreover, the fund offers relatively more capital protection, especially in a rising interest rate environment as the funds in this category are allowed a maximum modified duration of up to two years. Investors can also utilise this fund to draw income within a diversified portfolio.

Fund

Use

The team has a strong history of managing cash mandates in the institutional space. The senior members are former treasury professionals and also leverage off relationships built with debt issuers and SA bank treasuries to source and negotiate the structure of instruments. Compliance is performed both internally and externally. Fitch ratings are accorded on the basis of liquidity strategy and credit risk management. Consequently, the fund’s investible universe comprises of rated liquid instruments with a minimum credit rating of A-. The credit team is experienced and the executive management team is also part of the credit committee. This team has a consensus-based approach. The credit investment philosophy is centred on continuously mitigating default and liquidity risks through fundamental research, diversification within each debt instrument, portfolio risk management and monitoring as well as continuous engagement with management.

Qua

litat

ive

Hig

hlig

hts

This fund has consistently outperformed its benchmark over the long-term, based on 1 year rolling returns since 2008. As expected, the fund’s performance over the long term relative to peers is lower given the fund’s relatively conservative nature in its category (cash-type with short durations). The rolling standard deviation has consistently remained below that of peers and above that of the benchmark. The standard deviations shot up in 2014, when there was a write-down of African Bank, but still remained between peers and the benchmark. Moreover, the ABIL exposure was roughly 5% of the portfolio at the time of the write-down, and investors should experience a pick-up in yield once the side-pocket is paid out. Since inception, the fund only experienced relatively significant drawdowns in 2014.

Qua

ntita

tive

Hig

hlig

hts

The fund outperformed its benchmark in the fourth quarter of 2016 and over the year ending 31 December 2016, delivering returns of 1.99% and 8.04% respectively. The benchmark returned 1.86% for the fourth quarter and 7.37% for the year ending 31 December 2016. The fund has been a consistent performer since inception, and it is important for investors to realise that this fund is an enhanced cash type fund, which means it will typically deliver returns in excess of cash. As a result, this fund diplays the lowest volatility (as measured by standard deviation) in comparison to its Shopping List peers, with an annual standard deviation of 0.15%. Moreover, the fund’s assets under management have increased significantly by 35.13% over the quarter, from R15 752 million to R21 285 million. Local money market instruments account for 83.14% of the portfolio, up from 79.81% in the previous quarter, and local bonds account for 15.20% of the portfolio, down from 18.31%, while local cash accounts for 1.65%. The fund’s modified duration has increased marginally from 0.10 years to 0.11 years over the quarter. The maturity spread profile changed over the past quarter, where exposure to instruments with durations less than 13 months increased by 2.17% from 25.1% to 27.27%, while exposures to instruments with durations greater than 13 months were decreased by 2.17% from 74.90% to 72.73%. Furthermore, the fund’s exposure to negotiable certificates of deposit, deposits and floating-rate notes accounts for 88.49% of the portfolio. The portfolio continues to be highly concentrated with instruments from the top four banks, where exposure has increased slightly over the quarter from 86.50% to 87.69%.

Cur

rent

Por

tfolio

Po

sitio

ning

Long

Ter

m A

sset

Allo

catio

n

-2%

8%

18%

28%

38%

48%

58%

68%

78%

88%

98%

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Unsettled Cash Asset Pack Bank Accounts Bonds Commerical Paper

Credit Linked Notes Debenture Deposit Floating Rate Note Negiotiable Certificate of Deposit

Other Promissory Notes Stepped Notes Treasury Bill


STANLIB INCOMEFund manager Victor Mphaphuli & Henk Viljoen No of quarters 64

Benchmark STeFI Composite Index Risk Description Conservative

Role of Benchmark Cognisant Inception Date 04 April 1987


Philosophy Top-down, bottom-up valuation driven Fee Description (retail class) Annual management fee


The fund is managed on the principle that, through active management, fixed income market inefficiencies can be exploited and value can be added through bottom-up and top-down macro research and analysis. Value can be added from duration management, yield curve strategies, credit positioning and a relative value matrix. The fund takes multiple small duration bets as part of the diversification strategy. The team’s target is to outperform the benchmark by 1%-2% per annum, after fees. Meanwhile, the fund’s internal benchmark for return attribution analysis is the 1-3 year bond index. The fund historically had relative longer durations but has managed to reduce it after the 2008 financial crisis. Capital gains of instruments is incidental as returns are derived from income yields. This fund has a long track record and has lived through bull and bear markets.

Key

Insi

ghts

The fund aims to provide capital stability whilst still being able to provide investors with reasonable income, regardless of interest rate fluctuations. This fund is aimed at clients with a relatively low risk appetite. This fund can also be utilised as a fixed income shorter duration component within the building block approach to constructing a multi-asset portfolio. Moreover, the fund offers relatively more capital protection, especially in a rising interest rate environment as the funds in this category are allowed a maximum modified duration of up to two years. Like a money market fund, the fund can be used to park funds when equity markets are unstable. Investors can also utilise this fund to draw income within their diversified portfolios.

Fund

Use

There have been a few changes to the team, co-headed by Henk Viljoen and Victor Mphaphuli, which consisted of 12 members including the Stanlib Credit Partners team. The investment team now only consists of ten investment professionals. Stanlib has recently agreed to sell its shareholding of Stanlib Credit Partners, which included the transfer of the management team - Phillip Myburgh, Walter Hirzebruch and Evantha Moodley. As a result they have added Chris Li Green to their investment team, who was formerly part of the Stanlib Credit Partners team. The concerns that we had with Stanlib’s credit process has been somewhat alleviated with the appointment of a new credit analyst, Beverley Warnasuriya, who comes with 14 years of experience and the appointment of Chris Li Green as head of credit. His credit banking experience has helped generate a credit process that we are more comfortable with given the respective changes at Stanlib. Their internal credit rating per issuer (coupled with rating agency ratings) is an advantage when assessing the quality of a credit issuer. Viljoen provides support mainly within the strategic and tactical positioning, while Mphaphuli actively manages the fund. Sylvester Kobo is cross-trained across bonds and the money market. The team’s ability to produce stable and solid returns in this period indicates its extensive skill, knowledge base and proven track record. The fixed interest team manages funds across the entire maturity spectrum, doing analysis on the entire yield curve. STANLIB has one of the biggest fixed interest teams in the country.

Qua

litat

ive

Hig

hlig

hts

The fund has consistently delivered returns above that of the benchmark and sector category average over one-three-five and ten-year periods. Meanwhile, on a risk-adjusted basis, the fund delivered returns nearly in line with the sector category average, based on rolling three-year Sharpe over the long term. The fund experienced a significant drawdown in 2014, which was the result of the fund’s ABIL exposure. However, the side-pocket has been paid out, and investors should see a pick-up in yield.

Qua

ntita

tive

Hig

hlig

hts

The fund outperformed its benchmark and peers on The Shopping List in the fourth quarter of 2016, returning 2.11% compared to its benchmark’s return of 1.86%. Over a one-year period ending 31 December 2016, the fund outperformed it benchmark, delivering a net performance of 8.70% while the benchmark delivered a net performance of 7.37%. Moreover, fixed income as an asset class turned in a strong performance relative to its equity counterpart for the fourth quarter of 2016, as well as for the past year ending 31 December 2016, with the fund’s allocation to the one-to–three-year bucket and three-to-seven-year bucket of the yield curve contributing significantly to performance. The modified duration of the fund has increased over the fourth quarter, now sitting at 0.50 years compared to 0.46 years in the previous quarter. This was achieved by increasing exposure to short-term fixed-rate instruments, which was funded by the sales of floating-rate instruments and investing new cash flows in shorter-dated fixed instruments. The fund’s maturity profile has changed over the quarter. Exposure to bonds maturing between one and three years was decreased by 3.75%, from 54.61% to 50.86%, while exposure to bonds maturing between one and three years was increased by 1.75%, from 8.93% to 10.64% over the past quarter. The fund’s assets under management have increased by 5.50%, from R20 543 million to R21 664 million. Domestic cash accounts for 16.74% of the portfolio, which is up from 15.26% in the previous quarter, while 83.26% remained in domestic bonds. The majority of this bond exposure (61.50%) is short-dated bonds maturing between one and three years.

Cur

rent

Por

tfolio

Po

sitio

ning

Long

Ter

m A

sset

Allo

catio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Bonds 0-1 Year Bonds 1-3 Years Bonds 3-7 Years Bonds 7-12 Years 0-3 Months 3-6 Months

6-36 Months 12 Months + Other Cash Cash Bonds Over 12 Years


SA - INTEREST BEARING - VARIABLE TERM

Category Analyst: Luke McMahon

These portfolios invest in bonds, fixed deposits and other interest-bearing securities. The portfolios may invest in short, intermediate and long-dated securities. The composition of the underlying investments is actively managed and will change over time to reflect the manager’s assessment of interest rate trends. These portfolios offer the potential for capital growth, together with a regular and high level of income. The portfolios may not include equity securities, real estate securities or cumulative preference shares.

Shopping List selection: Stanlib Bond Fund

Risk-Reward: 1 Year Annualised

Time Period: 01/01/2016 to 31/12/2016

Std Dev

-1.0 1.0 3.0 5.0 7.0 9.0 11.0

-4.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

STANLIB Bond A (ASISA) South African IB Variable Term

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-2.0

0.0

2.04.0

6.0


8.0

10.0

12.014.0

16.018.0


Re

turn

Returns



STANLIB Bond A

(ASISA) South African IB Variable Term

16.78 16.78 6.80 9.16

12.78 12.78 6.40

7.54 7.54

8.317.04 7.04

Risk Statistics

Time Period: 01/01/2016 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

STANLIB Bond A

(ASISA) South African IB Variable Term

7.60 -1.66 66.67 33.33

6.03 -1.34 66.67 33.33

1.24

0.90


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-10.0

-8.0

-6.0

-4.0

-2.0

0.0



Time Period: 01/01/2012 to 31/12/2016


2013

01 02 03 04 05 06 07 08 09 10 11 12

2014

01 02 03 04 05 06 07 08 09 10 11 12

2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

-7.5

0.0

7.5

15.0

22.5


Re

turn


STANLIB BONDFund manager Victor Mphaphuli No of quarters 16

Benchmark BEASSA ALBI Risk Description Conservative

Role of Benchmark Agnostic Inception Date 13 March 2000


Philosophy Top-down, bottom-up valuation driven approach Fee Description (retail class) Annual management fee


The fund will tend to have a higher duration than many of its peers - therefore very close to the ALBI’s duration. This does mean that the fund will display similar characteristics to the index with regard to return and risk profile.

Key

Insi

ghts The fund seeks to deliver a stable and reliable level of income and

consists of various bond, cash and money market instruments. It can serve as the core bond component of a building block portfolio but can also be included in various types of risk-profiled portfolios.

Fund

Use

STANLIB’s fixed interest team aims to take advantage of market inefficiencies that result in mispricing. The team has been experiencing changes. Christie Goncalves, who was an assistant portfolio manager on the income funds, left the team. Sylvester Kobo, who has been trained across the fixed income team joined Victor Mphaphuli, Henk Viljoen and Robin Mulder as a portfolio manager on the bond and income funds from the money market team. Both Kate Rushton (head of credit) and Michelle Rosen (credit analyst) left the STANLIB credit team, which was a two-member team. The credit capability was absorbed by the Credit Partners team with Phillip Myburgh as the CEO. However, STANLIB recently sold their stake in Credit Partners, a business which they acquired in November 2011. The fixed interest team employed Chris Li Green from Credit Partners, a credit analyst who joined the team less than two years ago. Viljoen and Mphaphuli are co-heads of the franchise. Viljoen provides support mainly within the strategic and tactical positioning while Mphaphuli actively manages the fund. STANLIB has one of the biggest fixed interest teams in the country and therefore has a strong focus on fixed interest, which is one of their biggest profit drivers. Previously we were concerned about STANLIB’s consistent team changes and we have carefully monitored their credit capability, as credit plays a significant role in this portfolio. The team, however, has subsequently formalised its credit process and added an additional credit analyst with 18 years’ experience to the team. Furthermore, key members of this team, Viljoen and Mphaphuli, have remained the same and continue to be the drivers of strategic and tactical asset allocation.

Qua

litat

ive

Hig

hlig

hts

This fund’s return profile has improved, having been a first and second quartile performer over meaningful periods. However, over the one-year rolling return performance, it has struggled to beat the benchmark. In calendar year returns, the fund displays third and fourth quartile returns for 2013, 2014 and 2015. The fund’s maturity profile is very close to that of the ALBI, with a yield in line and sometimes higher than that of its benchmark. This results in the fund displaying higher volatility when compared to the benchmark and peers. The fund’s standard deviations have been consistently higher than that of its benchmark when looking at three-year rolling figures. The fund does move in line with the ALBI more than other funds in its category and this will add a level of predictability to a portfolio, providing a stable level of growth. The fund’s modified duration is high and tracks that of the ALBI.

Qua

ntita

tive

Hig

hlig

hts

During the fourth quarter of 2016, the size of the Stanlib Bond Fund increased from R3.3 billion to R3.7 billion due to new inflows into the portfolio as bond yields looked cheaper after the sell-off experienced, following the correction in the US bond market. Despite this, the fund has marginally underperformed its benchmark over certain shorter and longer periods. The performance of the fund over the quarter was 0.77% compared to the benchmark ALBI which returned 0.32%. The fund’s duration was decreased to 7.16 years from 7.20 years, compared to the ALBI’s duration which was marginally trimmed from 7.40 years to 7.20 years. Most of this duration came from the 12+ years maturity bucket, as this bucket constitutes 61% of the ALBI. Relative to its benchmark, the fund is underweight in government bonds (57.45% compared to 95.67%). This contributed 11.52% to the fund’s outperformance and 2.51% in terms of relative returns. Credit remains a significant component of the fund’s asset allocation and remains overweight at 39.20%. It contributed 6.16% to the fund’s outperformance and a marginal 0.09% to relative returns. Exposure to government bonds decreased from 60.97% to 57.45%; exposure to medium-to-long-term bonds (3-12 years) decreased from 32.24% to 30.94%; while exposure to longer-term bonds (12+ years) increased from 58.11% to 61.39%, slightly overweight compared to its benchmark which had 60.89% exposure.C

urre

nt P

ortfo

lio

Posi

tioni

ngLo

ng T

erm

Ass

et A

lloca

tion

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 2

009

Q2 2

009

Q3 2

009

Q4 2

009

Q1 2

010

Q2 2

010

Q3 2

010

Q4 2

010

Q1 2

011

Q2 2

011

Q3 2

011

Q4 2

011

Q1 2

012

Q2 2

012

Q3 2

012

Q4 2

012

Q1 2

013

Q2 2

013

Q3 2

013

Q4 2

013

Q1 2

014

Q2 2

014

Q3 2

014

Q4 2

014

Q1 2

015

Q2 2

015

Q3 2

015

Q4 2

015

Q1 2

016

Q2 2

016

Q3 2

016

Q4 2

016

Bonds 0-1 Year Bonds 1-3 Years Bonds 3-7 Years Bonds 7-12 Years Bonds Over 12 Years Other Bonds Other Cash Cash


SA - REAL ESTATE - GENERAL


These portfolios invest in listed property shares, collective investment schemes in property and property loan stock and real estate investment trusts. The objective of these portfolios is to provide high levels of income and long-term capital appreciation. These portfolios invest at least 80% of their market value in shares listed in the FTSE / JSE Real Estate industry group or a similar sector of an international stock exchange and may include other high-yielding securities from time to time. Up to 10% of a portfolio may be invested in shares outside the defined sectors in companies that conduct similar business activities as those in the defined sectors.

Shopping List selection: Catalyst SA Property Equity Prescient Fund


Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 3.0 6.0 9.0 12.0 15.0 18.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Catalyst SA Property Equity Prescient A (ASISA) South African RE General

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-10.0

-5.0

0.0

5.0

10.0

YTD 1 year 3 years 5 years 7 Years 10 Years

15.0

20.0

25.0

30.0


Re

turn

Returns


YTD 1 year 3 years 5 years 7 Years 10 Years

Catalyst SA Property Equity Prescient A

(ASISA) South African RE General

8.85 8.85 16.69 15.7218.31 18.31

5.78 5.78 13.62 13.8816.07 16.07

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Catalyst SA Property Equity Prescient A

(ASISA) South African RE General

14.18 -13.70 70.00 30.00 0.86

12.58 -12.15 68.33 31.67 0.79


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0



Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

10.0

15.0

20.0

25.0

30.0


Re

turn


Long

Ter

m A

sset

Allo

catio

nCATALYST SA

PROPERTY EQUITY PRESCIENTFund manager Zayd Sulaiman No of quarters 42

Benchmark FTSE/JSE SA Listed Property Index (J253) Risk Description Aggressive

Role of Benchmark Cognisant Inception Date 01 February 2005

Return Focus Relative Fund Size (Rm) R1 118

Philosophy Long-term, valuation-driven with an emphasis on risk-adjusted returns Fee Description (retail class) Annual management fee with a

performance fee 1.14% + 2% (capped)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 20

07

Q3 20

07

Q4 20

07

Q1 20

08

Q2 20

08

Q3 20

08

Q4 20

08

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Retail Office Industrial Other Cash

The team is solely focused on the property sector - therefore not distracted by any other asset classes. The fund is actively managed relative to the SA Listed Property benchmark. The portfolio managers are able to take larger active positions relative to the benchmark. This is mainly due to the relatively small size of the fund when compared to the size of the property sector. They focus on total returns (income plus capital) rather than only income. K

ey In

sigh

ts

The fund provides exposure to the SA Listed property index, making active allocations relative to the benchmark. The fund focuses on total return and is able to invest in the entire sector. The fund would add a stable level of income whilst providing capital appreciation to a risk-profiled multi-asset or building block portfolio that is looking to add exposure to local property. On a look-through basis, if you are of the opinion that there is not enough exposure to property in a portfolio, this fund can be used to fill that void.

Fund

Use

Catalyst has a highly experienced, 10-member investment team whose sole focus is the property sector. Most members of this team are property specialists who have gained their experience in the direct property market. The local team has recently expanded with the inclusion of Nomathibana Matshoba, a former portfolio manager at Coronation Fund Managers. Paul Duncan and Zayd Sulaiman, both directors in the company, previously managed the SA Property Equity fund. As from 1 July 2016, Sulaiman has been appointed as the sole portfolio manager on the fund while Duncan will focus on the hedge fund portfolios. The team will still follow the same process for research and portfolio construction. All research is done in-house, with no sell-side research being utilised. They have an extremely in-depth research process that focusses on two key areas: Trends that impact real estate markets and pricing, and trends that impact real estate markets for vacancy forecasts. The analysts aim to identify risk-adjusted returns and value opportunities. Their core competency is in the commercial property market. Key investment members have direct ownership, with 31.3% of the company owned by staff. Catalyst is totally independent in that they have no alliance or affiliation to any banks, insurance companies, etc.

Qua

litat

ive

Hig

hlig

hts

The fund has consistently beaten its benchmark over most periods in risk-adjusted returns and has been in the top two quartiles throughout. The portfolio is highly correlated with the SA Listed Property Index and does experience drawdowns similar to its benchmark. This is primarily due to the small number of shares currently in the benchmark, now 21 counters. The fund can be more volatile than many of its peers as larger active positions, relative to the benchmark, are taken at times. It has been able to consistently reward this extra level of risk, providing higher risk-adjusted returns than the benchmark and many of its benchmark cognisant peers. It has also been able to achieve higher levels of alpha over all periods, speaking to the investment team’s active return of investment. The risk/reward profile over all periods has been very good, with the fund being able to deliver higher levels of return than its peers for the same level of volatility. This can be seen over all significant periods.

Qua

ntita

tive

Hig

hlig

hts

The fund delivered 0.80% for the quarter, significantly underperforming the SAPY index which delivered 1.26% for the quarter. The fund’s exposure to industrial REITs significantly increased from 15.5% to 19.12%. Exposure to retail was also marginally up. Exposure to office REITs was significantly reduced from 23% to 20.83% over the quarter. Overweight positions in Stor-age, Indlu and Octodec, which outperformed the benchmark, contributed to performance. Underweight positions to Resilient and Fortress B continued to contributed positively again this quarter. Also, an underweight position to Stenprop, which underperformed the benchmark, contributed to performance. On the other end, overweight allocations to Sinus, Capco and Rockcastle detracted from performance. Continued underweight positions in Rebosis and Investec Property Fund, which outperformed the benchmark, hurt performance. Underweight position to MAS also detracted from performance. The manager remains concerned about the macro operating environment South Africa and believes volatility in capital markets poses risks in the short term. The manager believes that over the longer term, real estate fundamentals will drive performance. C

urre

nt P

ortfo

lio

Posi

tioni

ng


SA - EQUITY - GENERAL


Funds in the SA Equity General category invest in selected shares across all economic groups and industry sectors of the JSE Securities Exchange South Africa, as well as across the range of large, mid and smaller cap shares. These portfolios do not subscribe to a particular theme or value or growth investment style. The portfolios in this category offer medium-to long-term capital growth as their primary investment objective. Equity portfolios invest a minimum of 80% in equities at all times. However, a minimum of 80% of the equity portfolio must, at all times, be invested in the JSE Securities Exchange South Africa sector/s as defined by the category, and a maximum of 25% of the equity portfolio may be invested outside the defined JSE Securities Exchange South Africa sectors provided that these investments comply fully with the category definition. Glacier Research split the category into four groups, based on specific observable focuses and characteristics, with the aim of providing retail investors with adequate choice and diversification while maintaining the high conviction in the selected funds. The four groups are 1) Dividend focussed - focussed on stocks providing a steady and/or growing dividend yield, 2) Benchmark cognisant – managed relative to a benchmark or to a specific maximum level of tracking error, 3) Concentration – more highly convicted portfolios with a smaller number of stocks in the portfolio or portfolios concentrated in a particular style and 4) Core - funds which do not necessarily fall into one of the other categories and are often considered style agnostic. These groups are of course not always mutually exclusive, but provide a good way to categorise funds based on certain distinguishing characteristics.

Shopping List selection: Coronation Equity Fund (Core), Foord Equity Fund (Core), Investec Equity Fund(Concentration), Marriott Dividend Growth (Dividend Focussed), Prudential Dividend Maximiser Fund (Dividend Focussed), PSG Equity Fund (Concentration), SIM General Equity Fund (Benchmark Cognisant)


Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 3.0 6.0 9.0 12.0 15.0

0.0

3.0

6.0

9.0

12.0

15.0

18.0

21.0

Coronation Equity A SIM General Equity A Foord Equity R

PSG Equity A Prudential Dividend Maximiser A Marriott Dividend Growth R

Investec Equity A ASISA South African EQ General

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-20.0-10.00.010.020.0


30.0

40.050.060.070.0




Re

turn

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Coronation Equity A

SIM General Equity A

Foord Equity R

PSG Equity A

Prudential Dividend Maximiser A

Marriott Dividend Growth R

Investec Equity A

ASISA South African EQ General 9.05 -10.51 60.00 40.00 0.48

0.79

0.71

30.00

36.67

70.00

63.33

-9.05

-9.45

10.79

10.69

0.75

0.95

0.84

0.67

0.72

35.00

30.00

35.00

38.33

36.67

65.00

70.00

65.00

61.67

63.33

-6.66

-19.57

-9.25

-8.34

-10.64

9.63

11.47

10.02

9.88

11.07

Returns

As of Date: 31/12/2016 Source Data: Total ReturnYTD 1 year 3 years 5 years 7 years 10 Years

Coronation Equity ASIM General Equity AFoord Equity RPSG Equity APrudential Dividend Maximiser AMarriott Dividend Growth RInvestec Equity AASISA South African EQ General 3.07 3.07 4.72 10.5110.46 10.46

13.1014.22

14.58 14.5813.69 13.69

9.527.88

0.73 0.731.82 1.82

12.6315.8515.0912.5913.61

13.34 13.3417.04 17.0414.52 14.5212.73 12.7314.11 14.11

6.1610.205.855.205.62

1.39 1.3925.12 25.12

2.18 2.180.81 0.813.81 3.81


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-20.0

-17.5

-15.0

-12.5

-10.0

-7.5

-5.0

-2.5

0.0




Rolling 3 year Returns

Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

0.0

10.0

20.0

30.0




Re

turn


Long

Ter

m A

sset

Allo

catio

n

CORONATION EQUITY

As from 1 October 2015 this fund can include offshore investments and is no longer an SA-only equity fund. Coronation has shown some very specific stock picking skills, deriving most of their outperformance when markets are down, but giving very little of this outperformance back when markets are running. It is therefore better at protecting capital, but also shares more in returns when the markets are running, compared to some of its peers. Very few managers have managed to accomplish this. The fund is slightly less concentrated than its peers on the Shopping list. From 1 March 2016, Sarah-Jane Alexander has been added as co-manager on the Coronation Equity Fund. Sarah-Jane’s current responsibility is to contribute mainly to idea generation and increasing the level of debate when it comes to deciding which equities should be included in the fund. The ultimate decision making is however still Leinberger’s sole responsibility. Currently, Alexander manages a paper portfolio. The idea is that in time, the management of the portfolio will move to a multi-councillor approach, where Alexander will manage a portion of the actual portfolio, as opposed to a simulated version.K

ey In

sigh

ts

The fund can ideally be used as a core equity fund for an investor that is following a building block approach who seeks capital growth over a time horizon of five years and longer. Investors in this fund should have a higher tolerance for risk and may experience negative returns over shorter periods of time. This fund includes offshore holdings and therefore provides investors with additional protection in times of rand weakness, and exposure to international markets.

Fund

Use

The fund was managed by Karl Leinberger and Duane Cable up to August 2015. Leinberger is the current CIO and has over 16 years’ investment experience, all of which have been spent at Coronation. Cable has been removed as co-manager to focus on his responsibilities as co-manager on the Balanced Plus, Capital Plus and Balanced Defensive Funds. Coronation has a highly skilled and experienced investment team. This, together with their single investment process, philosophy and research platform, will ensure that these changes have a minimal impact on investments. The investment team consists of three former Coronation CIOs. Coronation has developed a proprietary central research system which is available to all analysts and portfolio. The culture remains one of ownership and accountability that is client focused. This is evident by the fact that staff owns 25% of the holding company of the South African and international operating subsidiaries. All analysts are rotated among industries so as to become generalists and avoid developing biases. Coronation believes in conducting comprehensive research on a company rather than just analysing it. This leads them to spend a vast amount of time looking at different ways of trying to understand a company and its operating environment for that extra bit of information the market may be overlooking.

Qua

litat

ive

Hig

hlig

hts

The fund has delivered consistent first and second quartile five-year rolling returns over the period October 2009 to December 2016. The fund has also delivered consistent first and second quartile performances over rolling seven-year periods over the last 15 years. Over the last 10 years, the fund has produced an annualised return of 11.95% compared to the FTSE/JSE All Shares performance of 10.50%. It is more volatile when measured by standard deviation and compared to some of its peers and the category-average. The fund is a good protector of capital and suffered drawdowns during 2008 and 2009 that were less than the ALSI and the average of its peers. On a risk-adjusted basis, the fund has delivered consistent first and second quartile performances as measured by its Sharpe, Sortino and Calmar ratios.Q

uant

itativ

e H

ighl

ight

s

Fund manager Karl Leinberger, Sarah-Jane Alexander No of quarters 24

Benchmark Composite: 87.5% SA Equity, 12.5% International Equity Risk Description High



Philosophy Fundamental, bottom-up valuation driven approach Fee Description (retail class)

Annual management with performance fee and reduced fees should the fund lose capital

over any 60-month period.


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Q3

2004

Q4

2004

Q1

2005

Q2

2005

Q3

2005

Q4

2005

Q1

2006

Q2

2006

Q3

2006

Q4

2006

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

Q4

2015

Q1

2016

Q2

2016

Q3

2016

Q4

2016

Financials Industrials Resources Cash Preference Shares Commodities Offshore Equities Offshore Cash

Over the last quarter, the fund has managed to produce a return of -2.81%, underperforming the FTSE/JSE All Share and the category average. Year to date however, it has still managed to outperform both the FTSE/JSE All Share and the category average, returning 3.81% compared to 2.63% and 3.07% respectively. As stated by Coronation’s philosophy, it is important to view returns over longer, more meaningful periods. With that in mind, the fund has managed to produce an annualised return of 14.11% over the last five years, compared to the category average of 10.46%. The overweight exposure to consumer goods detracted from performance, along with the underweight exposure to listed real estate. Telecommunications and financials had a positive effect on overall performance, with weights similar to those of the benchmark, showcasing superior stock selection. Rand hedge stocks are still seen as worthwhile investments, due to valuations and the geographical diversification of income streams. Large portfolio weights have been assigned to Naspers, Steinhoff International Holdings and British American Tobacco. For the most part however, these shares have been poor performers over the quarter. MTN and Standard Bank Group Ltd. have contributed positively to performance over the quarter, with exposure of around 4.8% and 3.4% respectively. International assets are still at their maximum exposure of 25%, with high conviction shares being invested in. These counters include the likes of Blackstone, KKR, Apollo, Kroton and Vostok Nafta. With this large exposure to rand hedge stock and international assets, further rand appreciation could detract from fund performance over the short term.

Cur

rent

Por

tfolio

Po

sitio

ning


FOORD EQUITYFund manager Nick Balkin, Brian Davey and Dane

Schrauwen No of quarters 16

Benchmark FTSE/JSE All Share Index total return Risk Description High



Philosophy Top-down, bottom-up, valuation (value & Garp) driven approach Fee Description (retail class) Annual management with a performance fee


The fund is managed using a multi-counsellor approach. Each manager takes full responsibility for portfolio construction and is responsible for their own risk management. Foord does not believe in committees, but rather that investment ideas should be discussed on an ongoing basis. Foord places emphasis on getting broader directional macro themes right and within those themes, buying companies that trade below their value as determined by future cash flows. Foord combines both a top-down and bottom-up valuation approach. It is a high conviction portfolio with very little portfolio turnover as Foord is of the opinion that if they buy the right companies at the right price, they will rarely have to sell. They are therefore considered to be buy-and-hold managers. When comparing the holdings of the Foord Equity Fund to its peers, its holdings vary greatly. Foord has managed to achieve superior risk-adjusted returns compared to these peers, which indicate good stock-picking abilities.

Key

Insi

ghts

The fund is a high conviction SA-only equity fund, with a maximum number of holdings typically less than 45. It is a style and benchmark agnostic fund that employs a pragmatic view to purchasing shares. This fund will work well with funds like the Prudential Dividend Maximiser Fund that is more benchmark cognisant but also more dividend focused. The fund’s return profile is consistent with lower risk funds, resulting in good risk-adjusted returns. This fund will work well in a building block approach as a core equity holding.

Fund

Use

The fund is managed through a multi-counsellor approach, limiting the risk of “group think” and leading to specific stock ideas being included in the portfolio. The team does not believe in committees, preferring to stay small and engage on an ongoing basis as opposed to a scheduled basis. As an investment house, Foord has now been in existence for almost 35 years. It has one of the longest and best track records in the industry, while preferring to keep a lower profile and following a smaller and more nimble approach. The SA team consists of 13 members, with the team in Singapore totalling six members. Foord believes that investment activity is ultimately a long-term process, they are therefore buy and hold investors. They avoid benchmarks, place emphasis on diversification and look to identify short-term mispricing so that over the longer term the fundamental value will start to crystallise.Q

ualit

ativ

e H

ighl

ight

s

The fund has delivered consistent 1st quartile excess returns and alpha, together with relatively low volatility over rolling five-year periods since 1 October 2009. Consequently it has excellent risk-adjusted returns. It protects capital well on the downside. The fund has delivered good excess returns over both five and seven years. These excess returns have been achieved through higher alpha generation and generally lower beta, when compared to its peers. The fund has delivered some of the best risk-adjusted returns as per its Calmar, Sharpe and Sortino ratios. The fund can exhibit some volatility over shorter periods, but this should be viewed in light of its process which is to deliver superior returns over longer periods of time. This also speaks to part of the fund’s investment philosophy of being buy and hold investors. On a quantitative basis there are very few peers that screen as well as the Foord Equity Fund, especially over longer-term periods.

Qua

ntita

tive

Hig

hlig

hts

Long

Ter

m A

sset

Allo

catio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q3 20

02Q4

2002

Q1 20

03Q2

2003

Q3 20

03Q4

2003

Q1 20

04Q2

2004

Q3 20

04Q4

2004

Q1 20

05Q2

2005

Q3 20

05Q4

2005

Q1 20

06Q2

2006

Q3 20

06Q4

2006

Q1 20

07Q2

2007

Q3 20

07Q4

2007

Q1 20

08Q2

2008

Q3 20

08Q4

2008

Q1 20

09Q2

2009

Q3 20

09Q4

2009

Q1 20

10Q2

2010

Q3 20

10Q4

2010

Q1 20

11Q2

2011

Q3 20

11Q4

2011

Q1 20

12Q2

2012

Q3 20

12Q4

2012

Q1 20

13Q2

2013

Q3 20

13Q4

2013

Q1 20

14Q2

2014

Q3 20

14Q4

2014

Q1 20

15Q2

2015

Q3 20

15Q4

2015

Q1 20

16Q2

2016

Q3 20

16Q4

2016

Basic materials Consumer goods Consumer services Equity derivatives Equity other

Financials Futures control account Healthcare Industrials Money market

Property Technology Telecommunications

Over the fourth quarter, the fund had lacklustre performance, returning -2.53%, weighing down its annual performance figure of 2.18%. Compared to its Shopping List peers, it produced a median performance, in addition to marginally underperforming the category average. Over longer, more meaningful periods however, the fund still produces top performance, with returns of 14.52% and 15.09% per annum over 5 and 7 years periods. Equity exposure has been trimmed marginally by 1%, property exposure has been increased by 1%, commodity exposure has gained 2% and cash was reduced by 2%. Within equities, the capitalisation exposure has remained unchanged, with large caps still underweight compared to the FTSE/JSE All Share Index, while mid and small caps were marginally overweight. Detractors from returns include rand hedge stocks like British American Tobacco Plc., Naspers Ltd. and Steinhoff International Holdings, while FirstRand Ltd. contributed positively to performance. South African economic growth is expected to remain stifled, with rand based companies potentially suffering as a result. Offshore focused businesses will be preferred within the fund, with weak longer term currency expectations. Over the quarter, commodity exposure was increased by adding a gold ETF to the portfolio.

Cur

rent

Por

tfolio

P

ositi

onin

g


INVESTEC EQUITYFund manager Rhynhardt Roodt, Chris Freund No of quarters 2

Benchmark 87.5% FTSE/JSE All Share Index + 12.5% MSCI AC World NR Risk Description High

Role of Benchmark Some benchmark consideration Inception Date 02 November 1987


Philosophy Bottom-up, top-down earnings revision Fee Description (retail class) Annual management and performance fees


The Investec Equity Fund’s philosophy and process of focussing on earnings revisions is a definite differentiator and strength. Earnings revision as an investment strategy has been shown to offer very low correlation to other, more well-known investment strategies such as value (-0.33), quality (-0.03), growth (0.25), low risk (0.13) and price momentum (0.58, these figures were based on the correlations of monthly returns from January 1997 to August 2015). The equity team’s philosophy is easy to implement and repeat, but not easily copied, with Investec enjoying a competitive advantage in implementing this specific strategy. An additional strength would be Investec’s global investment infrastructure support in terms of global investment research and idea generation, dealing, ESG, risk and performance measurement, as well as implementation. The investment team is highly qualified and experienced with a lot of breadth as well as depth, however this team is responsible for a number of different mandates (Investec Institutional Balanced mandate, Discovery Cautious Balanced, Discovery Moderate Balanced, Discovery Balanced and Discovery Worldwide Best Ideas, Investec Worldwide Flexible Fund). This is a significant number of mandates, and could detract focus from the Investec Equity Fund. The fund started investing in foreign listed equities and will primarily leverage off the Investec 4Factor research capabilities. This team offers a slightly different investment philosophy, focusing on four factors (value, growth, quality and sentiment) and may consequently dilute the strong diversification benefits of a pure earnings revision type strategy. It is however important to note that the inclusion of any offshore holdings will be done on a complementary basis as opposed to merely investing in offshore funds. This should mitigate the risk of dilution of diversification benefits and could even enhance it. This is a concentrated, higher conviction portfolio with typically 28 to 35 stocks locally and 65 to 75 shares offshore. Portfolio turnover is relatively high at 80%. The fund is managed on a multi-counsellor approach with Freund & Roodt roughly managing equal parts. Roodt has been promoted to co-head of the 4Factor team, and his offshore influence will now become more pronounced. Grant Irvine-Smith is primarily responsible for the quantitative side of the research and portfolio construction as well as the attribution process. From a trading perspective the team is able to see on an ex-ante basis the impact of trades on their risk parameters as opposed to an ex-post basis.

Key

Insi

ghts

The Investec Equity Fund would work well in a well-diversified building block approach as part of a portfolio’s exposure to equity. The fund aims to deliver consistent outperformance, as opposed to lumpy, style cognisant type funds. It is a concentrated portfolio, with high conviction ideas, and could therefore be used in combination with passive equity funds or more diversified benchmark cognisant type funds as a satellite portfolio. Alternatively it will work well in combination with other actively managed equity funds. The fund includes exposure to foreign listed equities. The fund’s unique investment philosophy and process of focussing on earnings revisions is a clear differentiator and consequently it can work equally well in combination with slightly more style cognisant, actively managed funds such as PSG or style agnostic funds such as Foord and Fairtree, although past results seem to indicate it works better with slightly more style specific funds. The fund is not entirely benchmark agnostic, with a specific tracking error limit and volatility targets and therefore will also work well with funds that are completely benchmark agnostic. Ultimately this is a well-managed, high quality equity fund that offers excellent diversification benefits from a portfolio construction perspective. This fund will have higher active risk than pure benchmark cognisant funds, but lower active risk than pure benchmark agnostic funds, offering a good alternative between these two styles of management.

Fund

Use

Qualitatively this is a very strong team, with ample resources to draw upon. The team has been managing assets together for a significant period of time, first on the institutional side with the balanced mandates, and from 1 November 2012 to include the retail general equity mandate. Investec has done a lot to change the underlying structures in their investment team, so that the analysts are now able to focus on a single investment philosophy as opposed to conducting research for different managers with different philosophies. Senior investment team members are required to invest alongside their clients, further aligning their interests with those of their clients. Additionally, investment team members’ calls are continuously monitored. Those team members whose investment calls are consistently more accurate enjoy higher weightings when it comes to their decisions in the overall investment process. This fund offers something unique in the way it is constructed and would be a good candidate to include with other equity funds as part of a broader equity exposure in a client’s portfolio. The fund successfully blends a very quantitative, scientific approach with a strong fundamental approach to investments.Q

ualit

ativ

e H

ighl

ight

s

The fund’s excess returns exhibit very low correlations with some of its more well-known peers in the general equity space, offering good diversification benefits. The fund’s beta over the last three years has tended to be relatively high, but with a relatively lower R2 value, indicating that less of the variability of the returns are explained by the movement in the FTSE/JSE All Share. From a style perspective, the fund tends to exhibit high sensitivity to growth, but positive sensitivities to the four main styles, i.e. value, growth, quality and momentum. The fund will typically target a tracking error range of between 3% to 5%, therefore taking some active risk and compensating the investor sufficiently as is evidenced by its relatively high information ratio. The fund has exhibited lower volatility levels than its peers and displayed very low drawdowns during periods of market distress. Consequently the fund displays excellent risk-adjusted returns.

Qua

ntita

tive

Hig

hlig

hts

Long

Ter

m A

sset

Allo

catio

n

0%10%20%30%40%50%60%70%80%90%

100%

Q1

2006

Q2

2006

Q3

2006

Q4

2006

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

Q4

2015

Q1

2016

Q2

2016

Q3

2016

Q4

2016

Additional Basic Materials Consumer Goods Consumer Services Financials Health Care

Industrials Oil & Gas Other Technology Telecommunications

The fund returned -2.18% in the last quarter, outperforming the category average of -2.36% and marginally underperforming the FTSE/JSE All Share Index, -2.09%. The overweight exposure to the food and beverage sector, along with an underweight exposure to the media sector yielded a positive return to the portfolio, while a large overweight exposure to personal and household goods detracted from return relative to the benchmark. In the fourth quarter, contributions to performance include an underweight position in Naspers, along with overweight positions in Tiger Brands Ltd. and FirstRand Ltd. Active positions detracting from performance include British American Tobacco Plc. and Steinhoff International Holdings. Commodity counters continued to perform well, with overweight exposures to Glencore and South32 contributing to overall fund performance. MTN’s relative underweight dragged on performance with the share price rebounding after poor performance over the last year and a half. The offshore exposure of the fund has remained relatively stable over the last quarter, increasing from 12.8% to 13.15%. Some of the largest positions within the fund are rand hedge stocks which include Naspers, British American Tobacco and Steinhoff International Holdings. These counters could potentially have a negative impact on performance going forward if the rand were to strengthen.

Cur

rent

Por

tfolio

P

ositi

onin

g


MARRIOTT DIVIDEND GROWTHFund manager Simon Pearse, Neil Nothard & Duggan Matthews No of quarters 2

Benchmark Dividend yield of the Financial and Industrial Index Risk Description High

Role of Benchmark Agnostic Inception Date 01 August 1988


Philosophy Income focused, with a particular emphasis on sustainable and growing income streams Fee Description (retail class) Annual management


Marriott employs a highly process-driven approach to income investing. The fund is managed on a committee basis with two of its members being independent of the investment research process. While the benchmark does exclude resource stocks, the fund may invest in resource counters, should these counters be able to tick all the boxes their investment process requires. The fund is characterised by low portfolio turnover. From a style perspective, the fund is slightly biased towards quality counters, as one would expect, given their investment philosophy and process. The fund is highly concentrated but also includes foreign equities. The fund’s underlying holdings exhibit little similarities to peers and offer good diversification benefits.

Key

Insi

ghts

The fund can be used in conjunction with other equity funds as part of a larger portfolio’s equity allocation. The fund is suitable for investors with a long-term investment horizon. The fund’s strong focus on higher dividend yielding equities makes it an ideal candidate for inclusion in portfolios responsible for generating income, especially post-retirement type products. The fund’s rigorous screening criteria may sometimes lead to a concentrated portfolio, and this, together with low correlations to other funds, makes this an ideal fund to use when building a well-diversified portfolio. The fund offers offshore exposure and is not a SA only general equity fund.

Fund

Use

Marriott as an investment house has a specific investment philosophy, preferring to focus on the selection of securities that produce reliable income streams, which are ideally growing, and to purchase these income streams at appropriate prices. They have been very successful in implementing and staying true to their philosophy. Essentially their investment philosophy is easy to understand and implement, however, their dedication to their philosophy and their success in implementing this particular strategy has been a major differentiator when compared to other investment houses implementing the same type of philosophy. The team has been relatively stable, with 5 members of the investment team having worked together in excess of 10 years. Marriott has also successfully established a stable analyst team, ensuring the sustainability of the entire investment team. Portfolio construction decisions are ultimately made by the three senior members of the investment team, Simon Pearse, Neil Nothard and Duggan Matthews. Of the three, only Matthews has exclusive investment management responsibilities, with Pearse being CEO and Nothard having the additional responsibility of being COO. Pearse and Nothard are therefore not actively involved in investment research, and take portfolio construction decisions based on research presented to them. This leads to a certain degree of objectivity and the management of inherent analyst biases.

Qua

litat

ive

Hig

hlig

hts

The Marriott Dividend Growth fund has been a consistent first and second quartile performer over all meaningful periods. It has consistently outperformed the broader FTSE/JSE All Share Index. It has managed to deliver good absolute and relative returns at much lower levels of risk, as measured by standard deviation, with its 5-year rolling standard deviation consistently being lower than the average equity fund in the SA General Equity Space. Since 2000, the fund has maintained a healthy dividend yield. Consequently over this period the dividend yield on this fund has never been lower than 2.24%. During the 2008 / 2009 financial crises the FTSE/JSE All Share had a maximum drawdown of 40% and the average equity fund had a maximum drawdown of 37%, while this particular fund had a drawdown of only 26%. This fund has therefore proven to that it can protect capital well during times of adverse market movements. From a risk-adjusted performance perspective, the fund continues to exhibit first and second quartile performances, as measured by its Sharpe, Sortino, Calmar and Information Ratios over 5-year rolling periods. It has exhibited strong absolute and relative performances at lower levels of volatility and protects capital well.

Qua

ntita

tive

Hig

hlig

hts

Long

Ter

m A

sset

Allo

catio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

07

Q2 20

07

Q3 20

07

Q4 20

07

Q1 20

08

Q2 20

08

Q3 20

08

Q4 20

08

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

14

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Oil & Gas Consumer Services Consumer Goods Health care Basic Industries General Industrials Financials Telecommunications Retail Real Estate Foreign Equities Mining RSA Money Market (Cash)

The Marriott Dividend Growth Fund has delivered -4.00% over the quarter, underperforming the FTSE/JSE All Share Index, which managed a return of -2.09%. As at year end, the fund had a dividend yield of 2.80% after fees. Over longer, more meaningful periods, the fund continues to deliver above-average returns, outperforming not only its category average, but also the FTSE/JSE All Share Index. Over the quarter, asset and sector exposure remained largely unchanged. The financial sector was the largest contributor to performance, with Standard Bank producing not only price return, but also a strong dividend yield, and FirstRand Ltd. contributing 0.77%. Telecommunications detracted marginally, with exposure to Vodafone Group Plc., it does however still deliver a strong dividend yield. Real estate dented returns, with a large holding in Hammerson Plc. The largest detractor was however consumer staples, with a substantial exposure to rand hedge British American Tobacco Plc. struggling to gain traction.

Cur

rent

Por

tfolio

P

ositi

onin

g


Long

Ter

m A

sset

Allo

catio

n

PRUDENTIAL DIVIDEND MAXIMISERFund manager Ross Biggs & Rehana Khan No of quarters 45

Benchmark ASISA South African - Equity - GeneralCategory Mean Risk Description High

Role of Benchmark Cognisant Inception Date 02 August 1999


Philosophy Benchmark cognisant, value investors Fee Description (retail class) Annual management fee awith a performance fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

08

Q2 20

08

Q3 20

08

Q4 20

08

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

International Cash South Africa Cash International Fixed Income International Equity Derivatives Basic Materials Consumer Goods

Consumer Services Financials Oil & Gas Health Care Industrials Technology Listed Property

The portfolio is constructed by keeping the mean of the general equity category in mind and overweighting or underweighting certain positions based on Prudential’s view of a stock’s fundamental value. Higher conviction stocks will be under or overweighed by 3% to 4%, while lower conviction stocks will differ from the benchmark by 1% to 1.5% respectively. The difference between the Prudential Dividend Maximiser and the Prudential General Equity Fund is the focus on higher dividend yielding stocks and sustainably growing those dividends. The Dividend Maximiser Fund will also tolerate a higher tracking error. The tracking error may go up to 8%, but in general this is closer to 4%. The fund’s offshore exposure is gained by primarily investing in unit trusts or index trackers, which provides more liquidity and flexibility in terms of moving into and out of positions. The fund’s offshore exposure will typically be different to that of the Prudential Equity Fund, which is limited to 15%.

Key

Insi

ghts

From a portfolio construction and financial planning perspective this fund would work well as a core equity holding in a building block approach that is focussed on low active risk. The fund has a higher offshore exposure when compared to the Prudential Equity Fund, limited to 25%, and is biased towards value and higher dividend yielding stocks. The investment term for this specific fund is medium to longer term. It will blend well with more actively managed, specialist SA only funds such as the Nedgroup Investments Entrepreneur Fund, that is focussed on small/mid-cap stocks and completely benchmark agnostic. Additionally, this fund will also work well with the Foord Equity Fund in a well-diversified building block portfolio. This fund can also be added to a portfolio to reduce overall risk while ensuring consistent performance.

Fund

Use

Prudential Portfolio Managers is a South African company held by M&G Investments, a global investment management firm, part of the bigger Prudential PLC group incorporating various other companies. Prudential leverages off M&G’s global strategic and tactical asset allocation abilities. Two members of the asset allocation committee attend an asset allocation meeting in London every quarter. The Prudential Dividend Maximiser is managed by Ross Biggs and Rehana Khan with a combined industry experience of 24 years, all of which were spent at Prudential. Previously, Marc Beckenstrater, previous Prudential CIO, used to be a co-manager on this fund. After Marc’s departure, Rehana Khan was made co-manager. Prudential has a very process-driven approach to portfolio construction. This approach, together with its benchmark cognisant philosophy, will mitigate the risks of change in portfolio manager. Biggs and Khan have 50/50 responsibility in the decision making process and should they fundamentally disagree on a position weight, a neutral, benchmark weight will be reverted to and adjusted as new information becomes available. They are further supported by an extensive in-house analyst team, as well as the broader M&G Investments group. They have a relative valuation philosophy, choosing to compare different equity holdings’ expected returns with their historical expected returns, and also with their peers’ expected returns. Prudential uses a clearly defined investment philosophy and process, focussing on its strengths of strategic and tactical asset allocation capabilities on a relative basis.

Qua

litat

ive

Hig

hlig

hts

This specific fund had some of the lowest drawdowns during the 2008/2009 financial crisis. It is characterised by relatively low volatility with good capital protection, as per its five-year rolling return figures since July 2009. Over seven-year rolling return periods the fund has delivered consistent first quartile performances. When measured against the performance of the JSE All Share, there are periods of low excess return, and in some instances, negative excess returns. When compared to the Prudential Equity Fund, this fund will exhibit a higher tracking error. The fund will typically be fully invested in offshore equities, which is limited to 25%, and could therefore be expected to outperform the Prudential Equity Fund during bouts of rand depreciation or offshore market rallies. The fund will typically be characterised by lower levels of volatility and drawdowns, with the fund’s return profile being slightly more tempered but consistent, as opposed to delivering high, but lumpy alpha. The fund has a slightly higher dividend yield compared to some of its peers, however fees are deducted from dividends as opposed to underlying capital. As a result, actual distribution yields may be lower when compared to peers that choose to deduct fees from capital and not its dividend distributions.

Qua

ntita

tive

Hig

hlig

hts

The fund’s performance over the quarter remained relatively flat, returning -0.05%, versus the FTSE/JSE All Share Index which delivered -2.09% and the category average which delivered -2.36% over the same period. On a relative basis, this performance makes it one of the top performing funds against its Shopping List peers. Over a one year period, it had a positive return of 1.39%, underperforming both the FTSE/JSE All Share Index and the category average, which produced 2.36% and 3.07% respectively. Foreign equity has been trimmed by approximately 3% compared to international cash holdings which have increased by approximately the same amount. On the local side, cash has been decreased by approximately 0.5%, and local equity has remained largely unchanged. With the second largest weight in the portfolio, the iShares MSCI ACWI ETF managed to contribute positively to performance, along with an overweight position in the Sanlam Global Financial Fund, and an underweight exposure to rand hedge giant Naspers Ltd. Positions detracting from performance include underweight positions in Sasol Ltd. and Anglo American Plc. Within the fund, British American Tobacco will take preference to more unfavourable counters like Steinhoff International Holdings. In the mining sector, specialised resources will remain underweight, with a preference towards diversified miners. Financials remain favourable, despite the potential for future sovereign downgrades.C

urre

nt P

ortfo

lio

Posi

tioni

ng


Long

Ter

m A

sset

Allo

catio

n

PSG EQUITYFund manager Shaun le Roux & Greg Hopkins No of quarters 11

Benchmark FTSE/JSE All Share Index after fees Risk Description High

Role of Benchmark Agnostic Inception Date 31 December 1997


PhilosophyFundamental, bottom-up, value approach with a key focus on moat management and margin

of safetyFee Description (retail class) Annual management fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Domestic Resources Domestic Financials Domestic IndustrialsDomestic Real Estate Cash, Derivative & Money Market Foreign EquitiesForeign Cash, Derivative, Money Market

This is a high conviction fund with a strong emphasis on margin of safety, by avoiding shares that are deemed to be too expensive. Over the last two years the fund has managed to generate consistent top quartile performance without the likes of counters that enjoy high weights in the index, therefore it is uncorrelated to most of its peers. The fact that top quartile performances were realised with such an uncorrelated portfolio, attests to PSG’s stock-picking ability and global exposure. The fund is managed on a more concentrated basis with an average holding of around 50 stocks, including both local and offshore listed counters. PSG is a process-driven investment house. Their disciplined investment process means that they may enter into positions early and consequently may exhibit higher drawdowns and volatility over shorter periods of time.

Key

Insi

ghts

The PSG Equity Fund will work well by combining it with other specialist funds such as small-mid cap funds or dividend specific funds to form an investor’s combined equity exposure. Alternatively, it will work well when combined with a more benchmark cognisant type fund, such as the Prudential Equity or SIM General Equity fund. It will therefore work well as a building block fund that contains both local and offshore exposure. This fund will typically fulfil the role of the alpha generator in a building block portfolio. It is not suitable for an SA only portfolio.

Fund

Use

The investment team, both equity and fixed income, consists of 16 members. Shaun le Roux, the fund manager, has been responsible for managing this fund since 2002, and has over 18 years’ investment experience, 16 of which have been gained at PSG itself. Greg Hopkins, CIO, has recently been added as co-manager on this fund. Greg brings with him an additional 17 years’ experience. The fund manager and team are co-investors in this fund and therefore the interests of clients and the managers are aligned. The investment process is well articulated and structured to ensure that idea generation takes place effectively and that these ideas are vetted and brought to fruition in a timeous manner. The asset management arm of PSG is part of the wider PSG group and can leverage off the group’s extensive resources and experience should they need to. As a result, a culture of strong corporate governance is evident in how investment committee meetings are structured and undertaken.

Qua

litat

ive

Hig

hlig

hts

The fund has delivered consistent first and second quartile performances over rolling five-year periods since 2013 to December 2016. As with other PSG funds, the excess returns are primarily delivered through the generation of alpha as opposed to beta, which may detract from performance in instances where the SA equity markets run very hard. Compared to the FTSE/JSE All Share Index this fund has a very low R2, which indicates that, on a relative basis, the ALSI explains less of the variation of returns of the PSG Equity Fund. It exhibits good risk-adjusted performance figures compared to peers. It has managed to outperform its benchmark over all meaningful periods. The fund has a low correlation based on total returns as well as excess returns when compared to its peers and consequently will offer excellent diversification benefits. The fund’s performance is primarily driven by the manager’s stock picking ability as opposed to favouring any particular style, such as value, growth, quality or momentum. Q

uant

itativ

e H

ighl

ight

s

As in the previous quarter, the PSG Equity Fund continued its strong rally, producing 7.29% in the fourth quarter. This brings the total return for the year to 25.12% in 2016, adding to its impressive long term track record of 18.18% per annum over 15 years. This performance does however come at a price, with a maximum drawdown of 19.57%, compared to the category average of 10.51%. Its standard deviation is also on the high side at 14.87%, compared to the category average of 12.49%. This is however compensated for on the up side, with the fund having one of the highest Sharpe ratios compared to the category average and its Shopping List peers. The asset allocation of the fund has shifted slightly, with an increase in both local and foreign cash holdings. Foreign equity exposure was also trimmed slightly by about 3.5% to around 21%, while local equity has remained relatively flat at 75%. Amongst sectors, resources were decreased, while financials increased. The biggest contributors to performance over the quarter was basic materials, financial services and industrials on a relative basis. The shift from defensive to cyclical stocks has rewarded the fund, with a future focus on higher quality businesses in SA and abroad. The fund is still well positioned to take advantage of low P/E and P/B ratios.

Cur

rent

Por

tfolio

Pos

ition

ing


Long

Ter

m A

sset

Allo

catio

n

SIM GENERAL EQUITY Fund manager Patrice Rassou No of quarters 36

Benchmark FTSE/JSE All Share Index Risk Description High

Role of Benchmark Cognisant Inception Date 26 June 1967


Philosophy Bottom-up pragmatic value Fee Description (retail class) Annual management fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Cash and Money Market Assets Oil & Gas Basic Materials IndustrialsConsumer Goods Health Care Consumer Services TelecommunicationsFinancials Technology Real Estate AdditionalInternational Interest Rate Securities International Equity International Property

The fund’s offshore exposure is limited to 25%. Actual offshore exposure has however been less than 5% since 2010, and since 2013 this average has steadily increased to around 8.0%. Offshore exposure is a by-product of being unable to find opportunities locally. Because the team is cognisant of peers (the majority invest locally only), they will not invest the maximum of 25% offshore. When constructing the portfolio the team takes into account its peers as a starting point and is therefore peer cognisant. Average benchmark positions are considered to be neutral positions. If there is much uncertainty surrounding a stock and they cannot value a stock with certainty, they will hold the neutral position. This would be indicative of being risk-averse. Based on the perceived risks involved as determined by valuation, a stock can either be underweight relative to the benchmark or have a zero percentage weight. This will depend on the size of the position in the benchmark. However, those stocks with a large position in the benchmark will be underweight while those with smaller positions can be left out altogether. This fund will not look significantly different from peers.

Key

Insi

ghts

The fund is a benchmark cognisant fund, and would work well for an investor who is uncomfortable with a manager taking too much active risk, and investing heavily outside of the benchmark. From a portfolio construction and financial planning perspective, this fund would work well as a core equity holding in a building block approach that is focussed on low active risk, is peer cognisant and has small offshore exposure. The investment term for this specific fund is medium to longer term.

Fund

Use

The fund is managed by Patrice Rassou who is supported by a team of 11 other analysts. The fund employs a bottom-up pragmatic valuation process. It will take its peers into account when constructing its portfolio and overweight those counters that are identified as being undervalued and less risky, and underweight those counters deemed to be overvalued and more risky on a fundamental valuation basis. This process allows for more time to be spent on actual bottom-up valuation as less time is spent on trying to screen for possible investment ideas and the investable environment. It is however a more constrained approach and would not necessarily be reflective of the managers’ best ideas.Q

ualit

ativ

e H

ighl

ight

s The fund has a low tracking error compared to its benchmark. If active risk is taken, the fund compensates the investor sufficiently as measured through a higher than average information ratio. The standard deviation of this fund’s outperformance relative to its benchmark is relatively low, as one would expect. A further interesting characteristic is that when comparing this fund’s performance to that of its peer category average, the fund not only outperform its benchmark in times when the benchmark is down, but it also outperforms the category average in times when the benchmark is positive. The investor should therefore get more of the upside, with less of the downside. This fund has been a very consistent long-term performer, delivering consistent alpha as opposed to significant, lumpier alpha.Q

uant

itativ

e H

ighl

ight

s

The SIM General Equity Fund delivered a poor performance of -3.38% over the quarter, compared to the broader JSE All Share performance of -2.09% and its peers that delivered -2.31% over the same period. However, over longer, more meaningful periods the fund continues to deliver consistent first and second quartile performances, delivering consistent benchmark outperformance over these periods. From a benchmark perspective, the fund has compensated investors well for any active risk taken. In terms of asset allocation, the fund continues to have significant exposure to basic materials at 25.63%. This is up from the previous quarter (24.20%), and is also the highest amongst its Shopping List peers. Over the quarter, exposure to both financials and industrials was increased by 1.70% and 1.37% respectively. International assets were sitting at 5.26%, with the largest holding being in the Sanlam FOUR Stable Equity fund which comprises 1.39% of the SIM General Equity fund. Key contributors to performance include Compagnie Fin Richemont (+1.09%), Sappi (+0.47%), Northam Platinum (+0.37%), as well as local banking stocks, Barclays Group Africa (+0.29%) and Standard Bank Group (+0.28%). The industrial sector came under severe pressure, down close to 5%, as the rand strengthened against major European currencies, which weighed on dual-listed stocks. Key detractors include British American Tobacco (-0.39%), Anheuser-Busch Inbev SA (-0.29%), BHP Billiton Plc (-0.68%) and the fund’s largest holding, Naspers (-0.24%). Other counters that detracted from performance were certain UK listed stocks such as Old Mutual Plc (-0.40%), Investec Plc (-0.17%), Capital & Counties Prop. Plc (-0.06%) and resources counters, Anglo American (-0.69%), Sibanye Gold (-0.47%) and Anglogold Ashanti (-0.29%). Sanlam Investments have identified that cyclicals have been sold off and are looking attractive. This includes financial stocks and domestic retailers. However, they believe the local environment remains challenged with low economic growth, meaning that earnings growth is likely to be subdued in the coming year, with a lot of this discounted in the price. As at 31 December 2016 the fund had a Price-to-Earnings (PE) ratio of 13.66X and a Price-to-Book (PB) ratio of 1.74. C

urre

nt P

ortfo

lio P

ositi

onin

g


SA - EQUITY - MID & SMALL CAP


These portfolios invest in established smaller companies as well as in emerging companies. New investment by the portfolios is restricted to fledgling, small and mid-cap shares only and at least 80% of the portfolio will be invested in fledgling, small and mid-cap shares at all times. Due to both the nature and focus of these portfolios, they may be more volatile than funds that are diversified across the broader market.

Shopping List selection: Nedgroup Investments Entrepreneur Fund


Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

Nedgroup Inv Entrepreneur R (ASISA) South African EQ Mid/Small Cap

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-10.0

-5.0

0.0

5.0

10.0

YTD 1 year 2 Years 3 Years 5 Years 7 Years 10 Years

15.0

20.0


Re

turn

Returns


YTD 1 year 2 years 3 years 5 Years 7 Years 10 Years

Nedgroup Inv Entrepreneur R

(ASISA) South African EQ Mid/Small Cap

8.39 8.39 11.19 18.68 18.68 18.95 13.62

6.64 13.17 13.17 13.31 8.9210.69 10.69

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Nedgroup Inv Entrepreneur R

(ASISA) South African EQ Mid/Small Cap

9.16

8.19

-7.78

-8.94 68.33

68.33

31.67

31.67 1.37

0.86


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-9.0

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0



Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

0.0

7.5

15.0

22.5

30.0


Re

turn


Long

Ter

m A

sset

Allo

catio

nNEDGROUP

INVESTMENTS ENTREPRENEUR

Abax typically conducts research on about 140 stocks listed on the JSE. A ranking table is compiled from which stocks are chosen for all Abax funds with an equity mandate. Stocks on this ranking table that fall into the small and mid-cap range are then available for inclusion in the fund. Portfolios are compiled on a complete benchmark and peer agnostic basis, with the primary goal for the portfolio manager being to find companies that are relatively cheap with relatively better growth prospects. The fund may hold some large-cap stocks from time to time, gained from unbundling; however, it is not permitted to trade in these securities and they may only be sold. The fund has a large cap bias and therefore has a low tolerance for risk compared to peers. Identifying companies with high levels of cash is an important part of Abax’s process, resulting in investment in companies with high levels of cash on their balance sheet. However, this fund holds a small illiquid position in MetroFile but Abax believes that this is a strong and stable company. Credibility of management is of high importance and meeting with management is believed to add value to the decision process.

Key

Insi

ghts

This fund is ideal for an investor who follows a building-block approach to portfolio construction and who wishes to gain exposure to small-/mid-cap stocks by combining it with a focussed large-cap manager. It has a lower correlation with the JSE All Share and hence offers good diversification benefits from a portfolio construction perspective. Small caps have consistently outperformed the JSE All Share over longer periods of time but at increased qualitative risks. The Nedgroup Investments Fund has consistently outperformed its peers in this sector and is an ideal choice should an investor want exposure to smaller and mid-cap stocks. This fund would work well with funds such as the Coronation Top 20 Fund or more benchmark cognisant type funds such as the SIM General Equity Fund and the Prudential Equity or Dividend Maximiser Fund, bearing in mind that it offers no offshore exposure.

Fund

Use

The fund has been managed by Anthony Sedgwick since 2006. Anthony has over 20 years’ investment experience, managing small-cap stocks since the 1990s and has been with Abax since 2003. The portfolio manager leverages off Abax’s larger equity team. It is a very stable team with very low staff turnover. All staff members are also shareholders in ABAX and therefore have a vested interest in building a sustainable, profitable business for the long term. Staff is also encouraged to co-invest alongside investors in the products that they manage. Abax concluded and announced an agreement with Affiliated Managers Group (AMG), a NYSE listed US investment firm, to acquire a 25% equity stake in Abax. The AMG model is to partner with high-quality boutique investment management firms (including Veritas, the managers of the Nedgroup Investments Global Equity fund). They have established a reputation for providing each affiliated firm with complete independence and operational autonomy. As part of the transaction, the four senior partners at Abax, Anthony Sedgwick, Marius van Rooyen, Omri Thomas, and Steve Minnaar, have agreed to long-term commitments with the firm (10-year employment contracts) while the other four Investment managers have signed five-year contracts.ABAX’s investment philosophy is primarily focussed on identifying those companies whose future earnings potential is mispriced by the market. This approach has been applied consistently over the past 12 years. The investment process is well defined – they focus extensively on relative performance evaluation and combine sell-side research with their own proprietary analysis and modelling.

Qua

litat

ive

Hig

hlig

hts

The Nedgroup Investments Entrepreneur Fund exhibits performance and risk figures that are consistently better than its category average and peers, with an exception of the past two quarters. Over the past 10 years, the fund has managed consistent first and second quartile performance. Over a rolling five-year return period, the fund has outperformed on both excess returns and its ability to deliver alpha. This was achieved at volatility levels similar to peers. The fund does not have the lowest standard deviation in the category but not the worst either. Outperformance was such that, on a risk-adjusted basis as measured by its Sharpe and Sortino ratios, the fund managed to deliver superior results when compared to its peers. It captures more upside and less downside compared to peers and has one of the lowest down capture ratios; therefore, when markets are down, the fund is down less compared to its peers and the category average. However, the fund’s up-market capture ratio has deteriorated in the short term when compared to peers in the category as it no longer captures most of the overall performance in up-markets relative to the JSE Small-cap index. Over the longer term however, it still maintains the highest up-market capture ratio which illustrates the manager’s ability to outperform. This fund has an attractive drawdown profile which can be attributed to its bias to larger cap stocks in the medium and small cap category.Q

uant

itativ

e H

ighl

ight

s

Fund manager Anthony Sedgwick of Abax Investments No of quarters 16

Benchmark ASISA Category Average Risk Description High



Philosophy Relative value with a strong focus on forecasting earnings growth Fee Description (retail class) Annual management fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 200

6

Q2 200

6

Q3 200

6

Q4 200

6

Q1 200

7

Q2 200

7

Q3 200

7

Q4 200

7

Q1 200

8

Q2 200

8

Q3 200

8

Q4 200

8

Q1 200

9

Q2 200

9

Q3 200

9

Q4 200

9

Q1 201

0

Q2 201

0

Q3 201

0

Q4 201

0

Q1 201

1

Q2 201

1

Q3 201

1

Q4 201

1

Q1 201

2

Q2 201

2

Q3 201

2

Q4 201

2

Q1 201

3

Q2 201

3

Q3 201

3

Q4 201

3

Q1 201

4

Q2 201

4

Q3 201

4

Q4 201

4

Q1 201

5

Q2 201

5

Q3 201

5

Q4 201

5

Q1 201

6

Q2 201

6

Q3 201

6

Q4 201

6

Basic Materials Industrials Consumer Goods HealthCare Consumer ServicesFinancials Technology Cash Preference Shares CommoditiesListed Securities Telecommunications Additional Local Unlisted Securities Other

The quarterly performance of the fund (-0.78%) was well below its benchmark (+2.38%) and on an annual basis the fund returned 7.8% compared to the benchmark performance of 10.7%. The underperformance is exacerbated when compared to the JSE Small-cap index which returned 21% on an annual basis. In terms of sector allocation, the fund increased its exposure to basic materials (+1.49%), industrials (+0.21%) and cash (+4.46%). The fund was largely underweight in its exposure to gold and platinum producers throughout the year, which detracted from performance; and held a relatively overweight exposure to select rand-hedge stocks which – although for the most part had a very successful financial year – were undermined by the strength of the rand during 2016. Exposures to healthcare (-1.71%), consumer services (-3.22%) and technology (-0.38%) were notably reduced over the quarter. Cash levels in money market instruments were increased by 4.46% this quarter, while cash kept in the Nedgroup Investment Corporate Money Market Fund was marginally reduced (-0.59%). The fund’s biggest exposure continues to be in financials at 27.57%, down from 27.69%, and consumer industrials at 22.78%, up from 22.57%. The biggest financial holdings include Reinet Investments at 6.22%, down from 6.87%. This position detracted 0.76% from quarterly performance. Exposure to JSE Ltd, another financial stock, was increased from 4.33% to 4.51% which contributed 0.13% to the fund’s return over the quarter. As at the end of December 2016 the fund’s weighted Price-to-Earnings (P/E), dividend yield and Price-to-Book (PB) ratios were 11.2X, 3.8% and 1.9X respectively.C

urre

nt P

ortfo

lio

Posi

tioni

ng


SA - EQUITY - FINANCIAL

Category Analyst: Imraan Khan

These portfolios invest at least 80% of their market value in shares listed in the FTSE/JSE Financials industry group or in a similar sector of an international stock exchange. Up to 10% of a portfolio may be invested in shares outside the defined sectors, in companies that conduct similar business activities as those in the defined sectors. Due to both the nature and focus of these portfolios they may be more volatile than portfolios that are diversified across a wider range of FTSE/JSE industry groups.

Shopping List selection: Nedgroup Investments Financials Fund


Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 3.0 6.0 9.0 12.0 15.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

28.0

Nedgroup Inv Financials R (ASISA) South African EQ Financial

Re

turn

Quartile Ranking

As of Date: 31/12/2016


2.0

4.0

6.08.0

10.012.0

14.0

16.018.0

20.022.0



Re

turn

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Nedgroup Inv Financials R

(ASISA) South African EQ Financial -16.92

11.54

12.55 65.00

-11.84

35.00

70.00 30.00 1.32

0.75

Returns


YTD 1 year 3 years 5 years 7years 10 years

Nedgroup Inv Financials R

(ASISA) South African EQ Financial

12.93 12.93

3.25 3.25 8.57

14.41

15.49 14.23

21.30

10.86

19.56 14.44


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-18.0

-16.0

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0



Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

0.0

7.5

15.0

22.5

30.0


Re

turn


NEDGROUP INVESTMENTS FINANCIALS

The Nedgroup Financials fund is part of the Nedgroup’s best of breed strategic offering. The fund was initially managed by Debbie Tredoux from Quaystone. SIM Global was launched in February 2004, and it was from September 2004 that Kooyman took over the management of this fund. SIM Global and SIM Unconstrained have recently announced a merger between the two businesses. The new entity is called Denker Capital. Kooyman has over 26 years’ investment experience and has been managing the fund for over 11 years. He is responsible for all investment decisions and the portfolio construction of the fund, and is fervently experienced in selecting local and global financial stocks. The team has spent 11 years building a platform and research team that has a strong ownership culture. The investment team consists of 15 members. The team consists of four global equity analysts and two research assistants. Catherina du Toit resigned from the business at the end of December 2014 and her responsibilities were distributed within the team with some responsibilities falling back on Kooyman himself. The team has continued to strengthen its financial research team by adding Barry de Kock (joined February 2015) and Ben Kooyman (appointed on a contractual basis since November 2014). The team is mostly responsible for the global financial stocks, while Kooyman is responsible for the South African financial stocks.

Key

Insi

ghts

This is an equity specialist fund and can be used by investors looking to take a view on the financial sector. This fund can also be used in numerous risk-profiled portfolios - although it is vital for the investor to be cognisant of the risk exposure when exposed to a single sector. A key differentiating factor of this fund is its exposure to offshore, leveraging off the Sanlam Global Financial fund. Investors should therefore be cognisant that this is not an SA-only financials fund.

Fund

Use

The fund is benchmark agnostic and relies on a bottom-up research process focusing on valuations. Denker Capital believes that markets are inefficient and that prices over time reflect the intrinsic value of the business. The team looks for companies that have a track record of generating shareholder value, which allows for compounding, a good risk-adjusted return on equity, considerable evidence of a turnaround, and trading at a value below their intrinsic value. Travelling frequently allows Kooyman to perform detailed fundamental analysis on foreign-based companies to ensure the qualitative factors remain high. He is not reluctant to include foreign holdings and small caps in order to exploit market mispricing.Q

ualit

ativ

e H

ighl

ight

s

The fund produced a return of +2.88% for the quarter, compared to the category average of -1.34%. It produced first quartile performance over the quarter. On an annual basis the fund produced a return of 2.58%, which is approximately 6.13% ahead of peers, as the category average return was -3.55%. Over the same period it produced top quartile performance relative to peers. On a rolling five-year basis the performance of the fund has consistently been above the category average. This return has been achieved at higher volatility to the category average over the same rolling period due to the fund’s foreign exposure. The fund’s maximum drawdown since inception was 46.35%, while the category average was 41.58% - occurring during the financial crisis. However, in the last year the fund’s maximum drawdown has decreased substantially to 11.84% while the category average was 16.92%. The fund’s standard deviation on a rolling three-year basis for the period of five years has consistently been lower than the category average and consistently generated alpha above its peers over all periods.

Qua

ntita

tive

Hig

hlig

hts

Fund manager Kokkie Kooyman (Denker Capital) No of quarters 28

Benchmark ASISA South African Equity Financial Risk Description Aggressive


Return Focus Relative Fund Size (Rm) R 533

Philosophy Fundamental bottom-up valuation driven approach Fee Description (retail class) Annual management fee


Long

Ter

m A

sset

Allo

catio

n

-5.00%

5.00%

15.00%

25.00%

35.00%

45.00%

55.00%

65.00%

75.00%

85.00%

95.00%

Q2 20

04

Q3 20

04

Q4 20

04

Q1 20

05

Q2 20

05

Q3 20

05

Q4 20

05

Q1 20

06

Q2 20

06

Q3 20

06

Q4 20

06

Q1 20

07

Q2 20

07

Q3 20

07

Q4 20

07

Q1 20

08

Q2 20

08

Q3 20

08

Q4 20

08

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4201

6

Cash and Interest Bearing Industrials Consumer Services Banks Insurance

Financial Services Real Estate Investment Instrument Equity Unit Trust/Foreign Insurance Foreign Financial Services/CIS

Foreign Banks Foreign Cash Total

The fund produced a return of 5.00% for the quarter, compared to the category average of 4.13%. It therefore produced first quartile performance over the quarter. On an annual basis, the fund produced a return of 12.93%, which is approximately 5.49% ahead of peers, as the category average return was 7.44%. The South African financials sector was impacted by two main events, which were the excessive fall in the rand in December 2015 which set the scene for an 11% gain in 2016 against the dollar and Brexit, which saw the pound record a decline of 26% against the rand. The fund continued its strong performance, outperforming both the Financials Index (3.25%) and the ALSI (5.79%) handsomely over all periods. The Nedgroup Investments Financials Fund’s good performance was due to their focus on franchise quality, low weighting to insurers (+22%), and 41% exposure to banks. During the year the fund increased investment in banks to 45% and reduced insurers further to 17% while gradually increasing PSG during the year from 1.6% to 4.9%. A share that performed particularly well for the fund was Transaction Capital, but the holding was substantially reduced after its strong post results rally which made it fairly expensive. The MSCI Global Financial Index returned 7.28% while the Sanlam Global Financial Fund performed well in comparison: +20.3% in US$ (+9% in rand).With regard to the sector allocation of the fund: during the fourth quarter the portfolio manager reduced exposure to the insurance sector by 1.57% from 18.35% to 16.79%. The bank exposure was reduced slightly by 0.70% from 30.85% in quarter three to 30.15% in quarter fourth due to banks being oversold as a result of market-overreaction. Exposure to financial services was increased by 1.19% from 30.41% to 31.60% due to increased exposure to specialist financial service providers that have delivered strong organic earnings and dividend growth. Diversified financial stocks such as Investec and Brait performed differently over the fourth quarter adding 0.50% and detracting -0.26% respectively with exposure to Investec further being increased by 0.08%. On an individual security level, the fourth quarter saw minor adjustments to certain stock positions: Investec (+0.60%), Standard Bank (-1.66%), Sanlam (+0.96%), Old Mutual (-0.98%) and FirstRand (+0.09%). A few of the fund’s large holdings like FirstRand, Nedbank and Transaction Capital performed particularly well over the quarter.C

urre

nt P

ortfo

lio P

ositi

onin

g


SA - EQUITY - INDUSTRIAL


These portfolios invest at least 80% of their market value in industrial shares listed on the Johannesburg Stock Exchange or in a similar sector of an international stock exchange. Industrial shares include all companies listed on the JSE other than those shares listed in the FTSE / JSE Oil & Gas, Basic Materials, and Financials industry groups.

Shopping List selection: SIM Industrial Fund


Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 2.0 4.0 6.0 8.0 10.0 12.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

SIM Industrial R (ASISA) South African EQ Industrial

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-9.2

1.8

12.9

23.9

35.0



Re

turn

Returns



SIM Industrial R

(ASISA) South African EQ Industrial -6.16 -6.16 7.32 16.51 16.43 13.29

15.8319.8020.1610.20-8.09 -8.09

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

SIM Industrial R

(ASISA) South African EQ Industrial 9.68 68.33-11.50 31.67 1.08

1.3628.3371.67-10.3010.36


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0



Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

0.0

10.0

20.0

30.0

40.0


Re

turn


Long

Ter

m A

sset

Allo

catio

n

SIM INDUSTRIALFund manager Andrew Kingston, Marlo Scholtz No of quarters 44

Benchmark FTSE/JSE Industrial Index (J257) Risk Description Aggressive

Role of Benchmark Cognisant Inception Date 03 August 1966


Philosophy Bottom-up, pragmatic value Fee Description (retail class) Annual management fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Health Care Consumer Services Consumer Goods Industrials Technology Basic Materials

Telecommunications Financials Cash Additional International Assets

The team will be biased towards mid-cap stocks, which is a function of the size of the majority of the counters in the sector. The SIM Industrial Fund is therefore concerned with liquidity, the benchmark and its peers. The fund is the only one in the Industrial category that utilises offshore investments.

Key

Insi

ghts The fund provides industrial equity exposure to a building block

portfolio looking to get exposure to the industrial sector. This would then need to be actively managed in order to avoid the risk of being over or underexposed to industrials. This type of specialist fund can be included in numerous types of risk profiled portfolios.Fu

nd U

se

Andrew Kingston and Marlo Scholtz have co-managed the fund for four to five years now. Kingston has over 15 years of experience in the industrial sector and Scholtz has over 10 years’ industry experience. SI’s pragmatic value investment style is reflected in this fund as the managers believe that long run real returns revert to the mean. The portfolio managers are supported by six equity analysts and the small cap team. The spread between the current price and the intrinsic value of a share will determine opportunities and the level of conviction through the weight of the holding. SI has a highly qualified and experienced team. The senior team members have been with SI for a significant period of time, which speaks to the stability of the investment team.Q

ualit

ativ

e H

ighl

ight

s

The fund has consistently outperformed the category sector average over three, five and ten year periods. The fund captures more of the upside and less of the downside than its peers. It exhibits high levels of excess returns. The fund has a high correlation with its peers and the category as a whole, which makes sense considering that there are only five funds in this specialist category. The fund can display higher levels of volatility in general than its peers, with slightly higher drawdowns.

Qua

ntita

tive

Hig

hlig

hts

The fund underperformed its benchmark and the category average in the fourth quarter of 2016 and over the year ending 31 December 2016, delivering returns of -7.13% and -8.09% respectively. The benchmark returned -4.69% for the fourth quarter and -6.55% for the year ending 31 December 2016. The fund was active over the quarter, adding to British American Tobacco, Steinhoff and Datatec. Three shares were introduced into the portfolio, including the likes of Mr Price, Barloworld and recently listed Dis-Chem, while Bidvest, Anheuser-Busch Inbev, Richemont, Woolworths, Pick n Pay and City Lodge were among some of the counters that were trimmed over the quarter. Moreover, share positions were trimmed on good performance, while share positions were added after some share weakness. The fund’s entire holdings in Foschini group was sold outright. The top ten holdings account for 71.31% of the portfolio, in comparison to 73.46% in the previous quarter. The average portfolio weight for the first twelve months ending December 2016 to some of the top ten counters can be described as follows: to Naspers, the biggest holding, the average exposure was 23.88%, compared to its benchmark average weight of 22.67%; to BTI group, the average exposure was 10.89%, compared to its benchmark average weight of 6.34%; to Steinhoff, the average exposure was 7.64%, compared to its benchmark average weight of 5.18%; and to Richemont, the average exposure was 6.74%, compared to its benchmark average weight of 11.56%. The largest average overweight positions for the quarter are BTI group (4.55%), Curro (3.59%) and Pick n Pay (3.56%). The largest average underweight positions for the quarter are SABMiller (13.43%) and Richemont (4.82%). The fund’s sector exposure composition has changed over the quarter. The fund has increased its exposure to the technology sector from 4.44% to 5.81%, while it decreased its exposure to the consumer services sector from 44.17% to 43.02% and its exposure to consumer goods from 35.42% to 35.30%. Furthermore, the funds relatively poor performance over the quarter and the past year can be attributed to the poor performance of the funds rand hedge stocks as well as a result of its sector exposure. Consumer goods and consumer services which accounts for roughly 78.32% of the portfolio turned in a very poor performance over the past year, returning -11.96% and -3.57% respectively.C

urre

nt P

ortfo

lio P

ositi

onin

g


SA - EQUITY - RESOURCES


These portfolios invest at least 80% of their market value in shares listed in the FTSE/JSE Oil & Gas and Basic Materials industry groups or in a similar sector of an international stock exchange. Up to 10% of a portfolio may be invested in shares outside the defined sectors in companies that conduct similar business activities as those in the defined sectors. Due to both the nature and focus of these portfolios, they may be more volatile than portfolios that are diversified across a wider range of FTSE / JSE industry groups.

Shopping List selection: Investec Commodity Fund


Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 10.0 20.0 30.0 40.0 50.0

-10.0

-7.0

-4.0

-1.0

2.0

5.0

8.0

Investec Commodity R (ASISA) South African EQ Resources

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-7.5

0.0

7.515.0

22.5


30.0

37.5

45.052.5

60.067.5


Re

turn

Returns



Investec Commodity R

(ASISA) South African EQ Resources

41.91 41.91 2.82

1.6824.54 24.54 1.05 1.054.72

6.494.84 4.84

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Investec Commodity R

(ASISA) South African EQ Resources

21.13 -36.35 46.67 53.33 -0.06

-31.9718.92 50.00 50.00 -0.27


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-40.0

-35.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0



Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

-10.0

-5.0

0.0

5.0

10.0


Re

turn


Long

Ter

m A

sset

Allo

catio

n

INVESTEC COMMODITYFund manager Daniel Sacks and Hanré Rossouw No of quarters 42

Benchmark FTSE/JSE Resources 10 Risk Description Aggressive


Return Focus Relative Fund Size (Rm) R 439

Philosophy Relative value with earnings revision focus Fee Description (retail class) Annual management fee


0

10

20

30

40

50

60

70

80

90

100

Q3 20

01Q4

2001

Q2 20

02Q3

2002

Q4 20

02Q1

2003

Q2 20

03Q3

2003

Q4 20

03Q1

2004

Q2 20

04Q3

2004

Q4 20

04Q1

2005

Q2 20

05Q3

2005

Q4 20

05Q1

2006

Q2 20

06Q3

2006

Q4 20

06Q1

2007

Q2 20

07Q3

2007

Q4 20

07Q1

2008

Q2 20

08Q3

2008

Q4 20

08Q1

2009

Q2 20

09Q3

2009

Q4 20

09Q1

2010

Q2 20

10Q3

2010

Q4 20

10Q1

2011

Q2 20

11Q3

2011

Q4 20

11Q1

2012

Q2 20

12Q3

2012

Q4 20

12Q1

2013

Q2 20

13Q3

2013

Q4 20

13Q1

2014

Q2 20

14Q3

2014

Q4 20

14Q1

2015

Q2 20

15Q3

2015

Q4 20

15Q1

2016

Q2 20

16Q3

2016

Q4 20

16

Additional Basic Materials Consumer Goods Consumer Services Financials Industrials Oil & Gas Other

The fund’s strategy places emphasis on finding reasonably valued stocks (in relative terms) where expectations of future profits are being revised upwards. Earnings revision is a key variable to constructing this fund. At the onset of the investment process, a view is taken on the prospects of all commodity prices. Bottom-up valuation allows the team to identify companies with strong corporate strategies and quality of operations. The fund managers display little attachment to stocks if they feel the earning potential of a particular equity is deteriorating, despite its current valuation.

Key

Insi

ghts

The Investec Commodity Fund is a resource specialist-equity fund. It can be utilised as a resource component in a building-block approach to constructing a diversified equity model portfolio which also looks to express a view on the industrial sector. Resource counters include mining, minerals, energy, natural resources and other commodity stocks. The fund can also be used to construct various other risk profiled model portfolios. However, it is important to be cognisant of the risks associated with an investment’s exposure to a single sector.Fu

nd U

se

Daniel Sacks has been managing the fund since 2002 while Hanré Rossouw joined as co-manager in 2013. Hanré covers precious metals, frontier and emerging market resources within the Investec Commodities and Resources team. Prior to joining Investec in 2013, Hanré was the Chief Financial Officer of Xstrata Alloys overseeing Xstrata PLC’s chrome and platinum interests in South Africa. Sacks’ strong economic background may be seen as an added advantage in the valuation process. The combination of expertise in investment banking, economics, and commodity industry and portfolio management enables the team to take advantage of unique investment opportunities. The investment team also leverages off the strong investment capabilities of the Investec Equity team. Core valuation measures are calculated and the output from the valuation model is used to identify future upgrades or downgrades in earnings.

Qua

litat

ive

Hig

hlig

hts

The fund has consistently outperformed its benchmark on a risk-adjusted basis over the long term, based on five-year rolling excess returns and alpha. The fund has also delivered consistent long-term risk-adjusted returns above those of peers based on a five-year rolling peer group average Sharpe ratio. The fund experienced larger drawdowns compared to peers, more so between 2008 and 2013. These drawdowns were, however, still better than the benchmark. The fund also offers the lowest downside risk over the long and medium term amongst all its peers, which is significant due to the volatility associated with the resources and commodities sector.

Qua

ntita

tive

Hig

hlig

hts

Over the quarter, the portfolio (-1.08%) was on par with the performance of the Resources 10 benchmark (-1.08%). The portfolio (+41.91%) however significantly outperformed the benchmark (+30.88%) on an annual basis. With a strong run in commodities over the quarter, the fund’s exposure to general mining was increased by 9.96%, from 41.03% in the third quarter to 50.99% in the fourth quarter. The portfolio managers continued to see value in the industrial metals sector and added further exposure by increasing the fund’s holding in this sector to 2.71% from 2.02% over the quarter. The tilt toward general mining-related resources over the quarter resulted in a further reduction in exposure to forestry and paper (-0.37%), gold mining (-7.86%) and platinum and precious metals (-4.60%) over the quarter. Exposure to chemicals was relatively unchanged (+0.48%) from 14.85% to 15.33% in quarter four. The portfolio remained underweight (-2.53%) in the gold mining sector relative to its benchmark, but overweight (+5.64%) in the platinum and precious metals sector. On a security level, overweight exposure to Anglo American Platinum (+0.91%), Impala Platinum Holdings (+4.50%) and Sibanye Gold (+2.24%) dragged on returns as gold and platinum prices drifted lower on the back of renewed US dollar strength. The largest active overweight positions were in South32 (+5.58%) and Glencore Xstrata (+5.28%) which had relative returns of 0.20% and 0.75% respectively. Merafe Resources, with an active overweight position of 4.27%, had the largest relative return (+2.17%) in the entire portfolio. Following that, was the portfolio’s underweight exposure to Gold Fields (-3.19%) and to Anglogold Ashanti (-2.66%), which yielded a relative return contribution of 1.45% and 1.02% respectively. Meanwhile, the largest underweight positions remained BHP Billiton (-23.07%) and Mondi Ltd (-7.83%), which had relative returns of -1.56% and +0.19% respectively. During the quarter, Sacks and Rossouw sold shares where they believed forecasted earnings per share (EPS) were below market consensus and purchased those above, resulting in the fund becoming less defensively positioned. The managers prefer general and platinum-mining companies and have reduced exposure to rand-hedge companies as a result of the strengthening rand. They also reduced exposure to gold counters (Sibanye Gold and Harmony Gold Mining) due to the gold price experiencing pressure which has detracted from the earnings potential of gold miners. Diversified mining businesses with better quality assets and commodity price exposure are still favoured by the portfolio managers. They have also favoured the industrial metals sector by adding further exposure through Arcelormittal South Africa Ltd (2.71%) which is an off-benchmark call that has contributed 0.88% to the fund’s outperformance. In terms of actual commodities, the managers prefer precious metals as well as base metals which feed more into consumer products, over bulk materials such as iron ore and coal which are predominantly used in the construction and power sectors. The managers continue to position the portfolio based on their earnings forecasts relative to consensus expectations.

Cur

rent

Por

tfolio

Pos

ition

ing

THE SHOPPING LIST BY GLACIER RESEARCH - Q4 - FEBRUARY 2017 7 1

GLOBAL - EQUITY - GENERAL


These portfolios invest in selected shares from equity markets across the globe. They do not subscribe to a particular theme or investment style and will be invested across all market sectors, as well as across the range of large, mid and smaller cap shares. The portfolios offer medium-to long-term growth as their primary investment objective. A minimum of 80% of the market value of the portfolio is invested in equities.

Shopping List selection: Glacier Global Stock Feeder Fund, Investec Worldwide Equity Feeder Fund, Nedgroup Investments Global Equity Feeder Fund, Old Mutual Global Equity


Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 3.0 6.0 9.0 12.0 15.0 18.0 21.0

0.0

10.0

20.0

30.0

40.0

Investec Worldwide Equity FF B Nedgroup Inv Global Equity FF A Old Mutual Global Equity A

Glacier Global Stock FF (ASISA) Global EQ General

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-15.0-10.0-5.00.05.010.015.020.025.0


30.0



Re

turn

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Investec Worldwide Equity FF BNedgroup Inv Global Equity FF AOld Mutual Global Equity AGlacier Global Stock FF(ASISA) Global EQ General

13.86 70.00 30.00-8.9714.30 -12.79 65.00 35.00

15.2914.5215.11

-13.59-14.76-13.66

65.0070.0070.00

35.0030.0030.00

0.810.961.351.28

0.92

Returns


YTD 1 year 3 years 5 years 7 Years

Investec Worldwide Equity FF B

Nedgroup Inv Global Equity FF A

Old Mutual Global Equity A

Glacier Global Stock FF

(ASISA) Global EQ General

2.34 2.34 13.20 23.81 23.81

-7.43 -7.43 10.17 19.27 19.27

-12.26 -12.26

-9.07 -9.07

-5.10 -5.10

8.16

13.06

14.50

18.55 18.55

20.02 20.02

26.42 26.42


Time Period: 01/01/2012 to 31/12/2016

2012 2014 2016-15.0

-12.5

-10.0

-7.5

-5.0

-2.5

0.0




Time Period: 01/01/2010 to 31/12/2016


2013

01 02 03 04 05 06 07 08 09 10 11 12

2014

01 02 03 04 05 06 07 08 09 10 11 12

2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

-20.0

0.0

20.0

40.0

60.0



Re

turn


Long

Ter

m A

sset

Allo

catio

nGLACIER

GLOBAL STOCK FEEDERFund manager Dodge & Cox Investments No of quarters 1

Benchmark MSCI World Risk Description Aggressive


Return Focus Relative Fund Size (Rm) _

Philosophy Bottom-up, valuation based Fee Description (retail class) Annual management fee

Glacier Risk Rating 9.99 Total Investment Charge 1.60% (pro-forma)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q4 20

16

Q3 20

16

Q2 20

16

Q1 20

16

Q4 20

15

Q3 20

15

Q2 20

15

Q1 20

15

Q4 20

14

Q3 20

14

Q2 20

14

Q1 20

14

Q4 20

13

Q3 20

13

Q2 20

13

Q1 20

13

Q4 20

12

Q3 20

12

Q2 20

12

Q1 20

12

Q4 20

11

Q3 20

11

Q2 20

11

Q1 20

11

Q4 20

10

Q3 20

10

Financials Consumer Discretionary Information Technology Health Care Energy Industrials

Materials Telecommunication Services Real Estate Consumer Staples Utilities Cash

The Glacier Global Stock Feeder Fund is a rand-denominated fund and invests directly into the Dodge & Cox Global Stock Fund (USD Class). Dodge & Cox is one of the most experienced and largest money management firms in the world. The three qualitative factors that stand out, are 1) the size, experience and stability of the investment team, 2) the rigour of the investment process, and 3) independence of the firm and active employee ownership. The fund is managed on an absolute basis, targeting superior long-term returns. Although the benchmark is the MSCI World Index, the fund typically tends to have significant emerging markets exposure relative to the benchmark, which speaks to their absolute focus. The fund is moderately concentrated, typically holding around 80-90 stocks in the portfolio. The fund will, under normal circumstances, consist of at least 40% non-US securities.

Key

Insi

ghts

The Glacier Global Stock Feeder Fund is suitable for investors seeking absolute return focussed global equity exposure across both developed and emerging markets. The fund can be used to achieve additional global exposure in a multi-asset portfolio or as the global equity carve-out in a building-block portfolio.Fu

nd U

seDodge & Cox was established in 1930. The team is led by very experienced investment professionals with an average tenure of more than 20 years. The investment team consists of more than 70 individuals. The size of the team allows for greater coverage and identification of investment ideas. To ensure that all ideas are shared and discussed, Dodge & Cox have created sector committees where analysts are given the opportunity to present their best ideas – these ideas are then ‘escalated’ to policy committees by sector committee leaders, who are senior investment team members themselves. Decision-making at Dodge & Cox is ultimately the responsibility of five policy committee teams. The rigour and discipline of the investment process is definitely a qualitative highlight of the Global Stock Fund. The process is clear and defined – all stocks go through an individual analyst assessment, then a team-based review (sector committee meetings) and then a collective judgement-based review (policy committee) by the most experienced investment team members. The fact that the company is completely investment focussed, independent and wholly owned by active employees only is definitely a standout attribute. The team therefore only focusses on generating the best possible returns and is not distracted by having to focus on fund inflows or generating performance fees.

Qua

litat

ive

Hig

hlig

hts

*Please note that the returns highlighted below reflect the performance and risk metrics of the Dodge & Cox Global Stock Fund, translated into rand-denominated figures. The Glacier Global Stock Feeder Fund will aim to be fully invested in the fund, within the allowed CICSA constraints.

The fund has managed to beat its benchmark on an annualised basis since inception, 1 December 2009. The fund has also managed to produce returns in excess of the category average, consequently maintaining top quartile performance for annualised performance since inception. On a rolling 5-year basis, the fund has maintained top quartile performance since inception, with the exception of second quartile performance during the period between January and July 2011. Although the fund had larger drawdowns and volatility in its earlier years, it has compensated for this by maintaining top quartile risk-adjusted performance on both an annualised and rolling 5-year basis since inception. The fund has, for the 5-year period ending 31 December 2016, managed to produce the lowest drawdowns and volatility amongst Shopping List peers. During a year when most international rand-denominated funds produced negative returns, the fund has managed to produce positive returns for 2016, attesting to the suitability of the fund, even in adverse circumstances, as a rand-denominated global equity fund.

Qua

ntita

tive

Hig

hlig

hts

*Please note that the positioning highlighted below reflects the performance and asset allocation of the Dodge & Cox Global Stock Fund, translated into rand-denominated figures. The Glacier Global Stock Feeder Fund will aim to be fully invested in the fund, within the allowed CICSA constraints.

The fund delivered 6.24% over the fourth quarter, significantly outperforming the MSCI World Index (1.29%) by 4.95% and the category average (-0.16%) by 6.4%. Over the calendar year 2016, the fund returned 3.08% compared to the benchmark performance of -5.12% and peer group average of -7.81%. The fund was the top performer among Shopping List peers over both the quarter and the calendar year. The most prominent detractor from performance was the appreciation of the rand, which strengthened considerably over the course of 2016. Other major detractors from quarterly and annual relative performance were stock picks in the consumer discretionary media sector, which include Naspers (-15%) & Grupo Televisa (-19%) and being overweight in health care (the worst performing sector for 2016) as well as Saipem & Credit Suisse, being down 49% & 38% respectively. A strong performance in US banks added to superior performance, with stock picks Goldman Sachs and Bank of America adding 49% and 41% over the quarter respectively. Key contributors to the superior performance achieved over 2016 were strong returns in emerging markets, especially Brazillian stocks including Petrobras (+110%) & Itau Unibanco (+53%) as well as overweighting financials and stock picks within the IT sector. It is important to note that the same factors that drove the superior absolute and relative performance in 2016, drove the slight underperformance in 2015, attesting to the long-term nature of the fund, and the fund being grounded in its underlying philosophy. Consequently there weren’t material changes in sector allocation over the quarter, but financials were increased by 1.8% to 27.2%, and consumer discretionary was trimmed by 2.2% to 19.1%. Regarding regional changes over the quarter, the composition remained fairly stable, with US exposure being cut by 1.3% to 49.4% and Asia Pacific exposure increased, to 9% being the only notable changes. The portfolio managers believe that attractive opportunities will present themselves going forward, although valuations have increased, especially in the US, explaining the reduction in equities by 0.6% over the quarter leading to a 3.2% cash exposure. The fund is well positioned for the longer term in this regard by having a forward PE of 14.5 times compared to the benchmark PE of 16.3 times.

Cur

rent

Por

tfolio

Pos

ition

ing


Long

Ter

m A

sset

Allo

catio

nINVESTEC

WORLDWIDE EQUITY FEEDERFund manager Global 4Factor Team No of quarters 50

Benchmark MSCI AC World NR Index Risk Description Aggressive

Role of Benchmark Cognisant Inception Date 01 March 1995


Philosophy Bottom-up research, Style agnostic Fee Description (retail class) Annual management fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 20

06

Q3 20

06

Q4 20

06

Q1 20

07

Q2 20

07

Q3 20

07

Q4 20

07

Q1 20

08

Q2 20

08

Q3 20

08

Q4 20

08

Q1 20

09

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Basic Materials Consumer Goods Consumer Services Financials Health Care Industrials Oil & Gas Other Technology Telecommunications Utilities

The Investec Worldwide Equity Feeder Fund is more benchmark cognisant when compared to its Shopping List peer. They conduct a rigid quantitative screening model and therefore may miss out on good investment opportunities where the scoring falls below the required 11. There is a big focus on quantitative screening/models to model risk. The fund targets a maximum tracking error of 7% against its benchmark.K

ey In

sigh

ts

The Investec Worldwide Equity Feeder Fund is suitable for building block portfolios - for offshore equity exposure - if the investor is looking for more of a benchmark-cognisant, relative focused global equity carve-out. The fund can be used in numerous risk-profiled portfolios.

Fund

Use

The fund feeds directly into the Investec Worldwide Equity Fund managed by the Global 4Factor team led by James Hand. Up until 30 November 2015 it fed into the Investec GSF Global Equity Fund. Both funds follow the same philosophy and process, but the Investec Worldwide Equity fund focusses on larger, more tradeable stocks. It is also a more concentrated portfolio with approximately 80 securities compared to the historical average of 100-120 securities held in the Investec Global Equity Fund, resulting in a marginally higher return target (increased from 2-3% to 3%), without materially increasing risk. The team comprises eight other strategy leaders, 12 global analysts and two members in the analytics team. Each analyst is responsible for share selection within each of the super-sectors globally and the analytics team is responsible for maintaining the 4Factor quantitative screening model. The 4Factor strategy employed is based on the premise that over time, share prices are driven by four key attributes: strategy, value, earnings and technical. Strategy aims to identify companies that create wealth for their shareholders by increasing cash flows. Value focuses on companies which are trading at a discount relative to their fair value. Earnings revisions, specifically upward revisions, coupled with investors’ over-/under-reaction to new information, are an indication that this positive trend will continue. When looking at the technical, specific attention is paid to trends regarding sentiment towards a share, i.e. share price trends. These four factors combine the best of traditional and behavioural finance theory. They follow an extremely structured investment process. They use their proprietary stock-scoring tool that applies the four factors in order to identify high quality companies with attractive valuation, improving operating performance and a rising share price relative to the market. Each factor is given a possible score of four and a share can thus score a maximum of 16. Shares with a score above 11 are considered as potential ideas for inclusion and further researched. After initial screening, the highly-skilled analysts are responsible for the qualitative and fundamental research on the stocks selected and have the final say in the portfolio construction. There is careful consideration given to the risk each stock will bring to the entire portfolio. Diversification is achieved by looking at correlations and the beta of the portfolio. A very strong sell discipline is maintained and once a stock reaches fundamental value or the score falls below 10, a meeting is held to discuss the investment case. The default is to sell; however, PM’s will have the final decision. Following a broader company trend of investment teams becoming globally integrated, the SA Equity & Multi-Asset (SAE&MA) team has become part of the Global 4Factor team. Consequently, former co-head of SAE&MA, Rhynhardt Roodt, has been promoted to co-head and co-portfolio manager of the 4Factor team. This development is not expected to result in any changes seeing as these team leaders have been working closely together for a number of years, but a keen eye will be kept on how it plays out. In light of the addition, James Hand will relinquish his role as co-head and assume a role in the CIO office focussing on research but on a reduced time basis.

Qua

litat

ive

Hig

hlig

hts

The fund has consistently delivered above average five-year rolling returns since the five-year period ending mid-2004 with slightly higher volatility than peers. The added volatility has been compensated for, in that the fund has managed to deliver above-category-average risk-adjusted returns over the same period. Over longer periods the fund has also achieved this with observing lower drawdowns than peers. During the financial crisis the fund experienced slightly lower drawdowns (-34.6%) than both the category average (-35.5%) and the MSCI ACWI (-35.5%). The fund has for periods longer than five years managed to outperform the category average and has beaten the MSCI World Index since inception of the fund.

Qua

ntita

tive

Hig

hlig

hts

The fund returned -2.22% over the last quarter of 2016, underperforming the peer group average of -0.16%. This translated into third quartile performance for the quarter. Over the calendar year, the fund delivered -11.5%, coming in at 3.69% below the category average and 6.7% behind the benchmark performance. The most prevalent factor contributing to the negative returns over the quarter and the year was the strengthening of the rand against major currencies, especially the dollar at 11.5%. Both the fund’s sector allocation and the majority of within-sector stock selections detracted from relative performance. On a sector level, the underweight to banks detracted most from fourth quarter performance. The within-sector calls in materials, the automotive space and consumer services contributed positively to performance, but was outweighed by selection within real estate, capital goods & the insurance industry, all significantly detracting from performance. On a stock specific level, key contributors to performance include a number of the fund’s financial stocks such as Citigroup Inc., SunTrust Banks & Bank of New York, with mining giant Rio Tinto the top contributor over the quarter. Negative contributors include healthcare such as Zimmer Biomet, Japanese telecommunications company KDDI and entertainment stock Activision Blizzard, cumulatively contributing -1.16% over the quarter. The most prominent changes in sector exposure during the last quarter was a 3.4% increase in financials to 20.6% as well as downsizing in healthcare and consumer goods, decreased by 2.1% & 2.2% respectively. The fund’s favour towards emerging market stocks, making up 6.3% of holdings, differentiates it from Shopping List peers. Emerging markets, however, experienced a wobbly quarter due to US interest and Trump concerns, slightly detracting from performance, whilst over the year it contributed positively to relative performance with the MSCI EM outperforming developed markets for the first time since 2010.

Cur

rent

Por

tfolio

Pos

ition

ing


Long

Ter

m A

sset

Allo

catio

nNEDGROUP

GLOBAL EQUITY FEEDERFund manager Veritas Asset Management LLP No of quarters 10

Benchmark ASISA Global Equity General mean Risk Description Aggressive



PhilosophyStyle agnostic. Top-down, bottom-up, val-uation driven approach with a big focus on

quality and absolute returns.Fee Description (retail class) Annual management fee of feeder is 0%;

fee charged in the offshore fund


This is a very concentrated portfolio that will typically hold between 25 and 40 stocks. The managers follow a strong absolute return mindset - absolute and not relative valuations are considered. This fund can also have a large allocation to cash (tactical holding of 20% max) if the portfolio manager can’t find enough attractive investment opportunities – this also speaks to their absolute return focus – they will not just be fully invested because it’s an equity fund. They follow a very structured investment process that screens out stocks with a market cap less than $3bn. Relative to the Investec fund which only screens out below $1bn, this fund may miss out on some investment opportunities in the small-cap space. Global equity mandates are one of the key strategies that the company focusses on and comprises 95% of AUM. Managers’ interests are aligned in that they invest in their own funds alongside clients.

Key

Insi

ghts

The Nedgroup Global Equity Feeder Fund is suitable for building block portfolios - for offshore equity exposure - if the investor is looking for more of a concentrated absolute return focus global equity carve-out. The fund primarily invests in developed market equity, with little emerging market exposure. The fund can thus be used in numerous risk-profiled portfolios seeking global developed market exposure.Fu

nd U

se

Veritas was established in 2003 with a philosophy which focuses on real returns. Veritas focuses on two strategies only: Global Equity and Asian Equity mandates. They align their interest as owners in partnership with their clients by investing in their funds alongside them and on the same terms, i.e. the same fee classes. Andy Headley, the fund manager, is ultimately responsible for the global strategy. The co-manager is Charles Richardson. There are six career analysts who focus on specific sectors. Theme generation drives the majority of their stock ideas. Themes, more often than not, have a macroeconomic backdrop. So it is fair to say that the idea generation process is a combination of top-down and bottom-up factors. However, stock selection ultimately drives performance attribution. They follow a very structured investment process with the aim of identifying quality companies, i.e. companies with competitive advantage coupled with high barriers to entry, cash generative abilities and a business model that is not easy to replicate. Ideas are generated by identifying themes, using proprietary insights and quantitative screening. The valuation process focuses on the company’s ability to generate cash for shareholders. These cash flows are modelled and discounted at a constant rate of 10% so that a value (Internal Rate of Return) of the company over a five-year investment horizon is established. Their aim is to buy stocks that generate a 15% total return (IRR) over that time frame. Protection of capital is of primary importance to Veritas when constructing portfolios. Portfolios are constructed independently of benchmark (no tracking error target) or peers. This results in a concentrated portfolio of between 25-40 stocks with any individual counter carrying a maximum weight of 8%, any sector a maximum of 30% and any regional exposure is kept to a maximum of 40%. A strict sell discipline is maintained and a share will be sold when there is either a qualitative thesis breach or it reaches its five-year intrinsic value, or the transitional terminal value (terminal value discounted at 7%) is reached during the five-year time horizon.

Qua

litat

ive

Hig

hlig

hts

Since the five-year period starting early 2008, the fund has delivered above-average returns whilst it has managed to beat its benchmark over all periods longer than 2 years. The fund has historically had higher volatility than its Shopping List peer but has managed to achieve lower volatility on a rolling five-year basis since the end of 2008 and this has resulted in better-than-category-average risk-adjusted returns. During the 2008-2009 period, the fund experienced greater drawdowns (-39.5%) than both the category average (-35.5%) and the MSCI ACWI (-35.5%), but over the last three years has managed lower down-period percentage and drawdowns. The fund has boasted with first quartile performance over rolling five-year periods since early 2015 and posted the lowest quartile average drawdowns since mid 2014.Q

uant

itativ

e H

ighl

ight

s

The fund returned -1.55% over the last quarter of 2016, underperforming the peer group average by 1.39%. The annual performance in 2016 came in at -9.07%, which was 1.26% below the category average performance. The most prominent driver of the ZAR fund’s performance was the strengthening of the rand throughout 2016, which appreciated 11.5% against the dollar. In USD terms, the fund managed to return 1% over 2016 which was below benchmark performance of 3.1% but above the category average of -0.2%. From a regional perspective, the fund’s slight underweight to US equity detracted from relative performance, compounded by a large average cash holding of 14.9%, creating some cash drag in the portfolio, although being downsized by 5.4%. Other prominent changes in sector allocation over the quarter was a decrease in healthcare of 2.12%, although it still has the largest sector exposure within the fund at 19.88%, and a 3.5% increase in technology stocks to now be the second largest allocation at 19.62%. These sector overweight exposures contributed negatively to performance, with healthcare, the worst performing sector for the year, returning -4.8% over the quarter and -14.8% for the year, whilst technology stocks delivered 0.7% over the quarter and the year. However, selection within healthcare, headed by a 4.6% allocation to United health (returning 14.6% over the quarter), contributed positively to performance and attests to the stock-picking ability of the fund. Overweight exposure to industrials, increased by 1.61% to 15.37% over the quarter, contributed negatively to fourth quarter performance, industrial constituents returning -5.2% over the period. Although the fund is still managed very conservatively and the managers feel that valuations are high, positions in high quality businesses at good valuations was added over the quarter and are expected to deliver over the longer term.

Cur

rent

Por

tfolio

Pos

ition

ing

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Consumer Services Cyclical Consumer Goods / Services Energy FinancialsHealthcare Industrials Non-cyclical consumer goods / services TechnologyTelecommunications Services Utilities Cash


Long

Ter

m A

sset

Allo

catio

nOLD MUTUAL

GLOBAL EQUITY FEEDERFund manager Ian Heslop, Amadeo Alentorn & Mike Servant No of quarters 2

Benchmark MSCI AC World NR Index Risk Description Aggressive

Role of Benchmark Cognisant Inception Date 17 May 1995


Philosophy Quantitative valuation driven Fee Description (retail class) Annual management fee


This team has a unique systematic approach to managing this fund. All research efforts by the team are focused on enhancing the model used to select stocks and rebalance the portfolio. The fund has previously had up to 40% of the exposure in off-benchmark stocks with a maximum holding in each of these stocks of up to 0.5%. Off-benchmark stocks are chosen from the same regions and countries that the benchmark positions come from. The fund exhibits on average an 88% similarity with its benchmark from a sector perspective. The fund’s investment process is built around 5 key factors, (1) Dynamic valuation /quality, (2) Sustainable growth, (3) Analyst sentiment, (4) Company management and (5) Market dynamics. Key to weighting these different factors in determining a score on a security level is determining the market environment, i.e. the risk environment and market sentiment. The fund is very active, characterised by a high weekly turnover. Trading is however managed as part of their model and costs on a very conservative basis. The fund’s unique process has positioned it ideally to take advantage and compete with a proliferation of high frequency and algorithm trading strategies.

Key

Insi

ghts

The Old Mutual Global Equity fund is suitable for investors seeking a broad-based, diversified exposure to developed global market equities. The fund is ideal for investors with a long-term time horizon who are able to stomach short-term volatility and drawdowns. The fund can be used as a single, stand-alone fund offering global equity exposure as part of a wider diversified portfolio or it can be used in conjunction with other global equity managers. Managers that follow a more concentrated fundamental approach or pure top-down macro approach would work equally well in conjunction with this fund.

Fund

Use

The Old Mutual Global Equity Fund is managed by the Old Mutual Global Investor’s Global Equity Team. Ian Heslop has been managing the fund since 2004 supported by 2 other fund managers, Amadeo Alentorn and Mike Servent. The team leverages off external research provided by an academic advisory board who are experts in the accounting, mathematics and statistics fields of study. All investment ideas are generated within the team; however, the academic board will do the preliminary research, present on current investment topics and produce reports of interest to the team to evolve their ideas. This assists the team to gauge different views on how markets misprice, and to identify stocks that are mispriced. Exposure to benchmark stocks are weighted and have stock, sector and country limits. The four major regions that the fund is spread across are plotted on a risk (realised volatility and unpredictability of the future) versus sentiment (pessimism or optimism) graph on a daily basis. This is so that current conditions and outlooks are incorporated into the model at all times. There are five criteria which cover quantitative and qualitative measures: dynamic valuation, sustainable growth, analyst sentiment, company management and market dynamics. These five stock selection criteria are combined to produce a single balanced forecasted return for each stock in the universe. Stock return forecasts are used in an optimisation process to construct the most efficient portfolio. Stock selection weights are driven by styles which dominate under current market conditions. Ultimately the model will produce a portfolio which is not concentrated, resulting in lower volatility, smoother long term returns and good diversification.

Qua

litat

ive

Hig

hlig

hts

Since inception, on a rolling 3-year basis, the fund has not always given returns in excess of its benchmark. However, since the 3-year period ending Dec 2010 it has consistently outperformed its benchmark and the category average. This has translated into benchmark superior performance over all annual periods. Consequently, the fund is the top-performing fund within the category over 3, 5, 7 & 15 years, indicating the consistent long-term performance over different cycles. It has also typically displayed a higher volatility profile, as measured by standard deviation, than the category average. Despite the higher volatility, this has translated into higher risk-adjusted returns over the majority of 3-year rolling periods and over the past 5 years relative to Shopping List peers, indicating that the fund compensates investors well for the increased levels of volatility. The fund may experience higher levels of volatility and drawdown over shorter periods of time; however, it is over longer periods where the fund’s quantitative performance characteristics really starts to look impressive. The fund has consequently posted top quartile risk-adjusted returns since mid 2012. Over the last five years, value as a style explained the majority of the fund’s return, characterised by both a high correlation as well as R2, and high sensitivity as measured by beta.

Qua

ntita

tive

Hig

hlig

hts

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

Consumer Discretionary Consumer Staples Health Care Materials Real Estate Industrials Energy Telecommunication Services Utilities Information Technology Financials Cash

The fund delivered a staggering 3.93% over the quarter compared to the category average of -0.16% in ZAR terms. Over the 12-month period ending December, the fund is down 4.28%; however, it is better off than the category average performance of -7.81%. Over the fourth quarter and over 2016, the fund managed to outperform its benchmark, the MSCI World Index, by 3.31% and 2.19% respectively. Over longer periods the fund continues to impress relative to the benchmark, comfortably outperforming over 3-7 years. The outperformance of the fund was driven by positive stock selection within and across sectors, particularly stock picks within the healthcare and financial sectors. From a factor perspective, the largest contributor to quarterly performance was dynamic valuation, predominately driven by increased risk appetite, and sustainable growth which isolates high quality growth companies. Over the course of the year however, sustainable growth detracted slightly, whilst the company management component – which identifies quality teams with a strong decision-making history – and analyst sentiment – being successful in identifying micro-level arbitrage opportunities – contributed positively to returns. The fund’s highest geographical exposure is towards North America (US and Canada) at 60.2%, followed by Europe with a 16.4% exposure. Liquid assets increased by 0.7% to account for 4.5% as at the end of the fourth quarter. From a sector perspective the fund is overweight financials, information technology and industrials, while underweight consumer staples, consumer discretionary, healthcare and telecommunications when compared to its benchmark. On an absolute basis, however, the single biggest sector exposure has shifted to financials (23.28%), followed by information technology at 17.59%. The fund is continuing to position for a low volatility market environment in Asia and Europe, given no intention from central bankers to halt expansionary policies. However, they feel that North America is an exception to this trend with the prevailing divergent monetary & fiscal policies, i.e. increased federal investment combined with the tightening interest cycle, elevating volatility levels. Sentiment has consequently favoured equities with the emergence of inflation & growth in the US, reflected by the current fund positioning.C

urre

nt P

ortfo

lio P

ositi

onin

g


GLOBAL - REAL ESTATE - GENERAL


These portfolios invest in listed property shares, collective investment schemes in property and property loan stock and real estate investment trusts. The objective of these portfolios is to provide high levels of income and long-term capital appreciation. These portfolios invest at least 80% of the market value of the portfolio in real estate shares and may include other high yielding securities from time to time. Up to 10% of a portfolio may be invested in shares outside the defined sectors in companies that conduct similar business activities as those in the defined sectors.

Shopping List selection: Catalyst Global Real Estate Prescient Feeder Fund


Time Period: 01/01/2012 to 31/12/2016

Std Dev

0.0 3.0 6.0 9.0 12.0 15.0 18.0

0.0

4.0

8.0

12.0

16.0

20.0

24.0

Catalyst Glbl Real Estate Prescient FF A (ASISA) Global RE General

Re

turn

Quartile Ranking

As of Date: 31/12/2016


-20.0

-15.0

-10.0

-5.0

0.0

YTD 1 year 2 years 3 years 5 Years

5.0

10.0

15.0

20.0


Re

turn

Returns


YTD 1 year 2 Years 3 years 5 Years

Catalyst Glbl Real Estate Prescient FF A

(ASISA) Global RE General

-14.36 -14.36 8.41 16.19 19.44

-13.59 -13.59 18.507.13 13.85

Risk Statistics

Time Period: 01/01/2012 to 31/12/2016

Std DevMax

Drawdown(monthly)

UpPeriod

Percent

DownPeriod

Percent

SharpeRatio

Catalyst Glbl Real Estate Prescient FF A

(ASISA) Global RE General

14.76 -19.54 65.00 35.00 0.90

13.44 66.67-17.71 33.33 0.92


Time Period: 01/01/2012 to 31/12/2016

2012 2013 2014 2015 2016-20.0

-17.5

-15.0

-12.5

-10.0

-7.5

-5.0

-2.5

0.0



Time Period: 01/01/2012 to 31/12/2016


2015

01 02 03 04 05 06 07 08 09 10 11 12

2016

01 02 03 04 05 06 07 08 09 10 11 12

7.5

15.0

22.5

30.0

37.5


Re

turn


Long

Ter

m A

sset

Allo

catio

n

The fund underperformed its benchmark, but outperformed the category average for the fourth quarter of 2016, returning -7.59% in ZAR (-7.08% in USD) while its benchmark returned -6.14% in ZAR (-5.61% in USD). For the year ending 31 December 2016, the fund underperformed its benchmark and the category average, returning -14.36% in ZAR (-2.96% in USD) while its benchmark returned -7.57% in ZAR (4.74% in USD). Moreover, the recent underperformance of this fund as well as the underperformance of this category as a whole was due to the rand strengthening against most major currencies, with the rand strengthening considerably against the US dollar (-11.46%) and the euro (-14.01%) over the past year ending 31 December 2016. The fund has the majority of its currency exposure to the US dollar (66.33%), followed by the euro (9.72%). Over a more meaningful period of five years, the Catalyst Global Property fund has underperformed its benchmark, but outperformed the category average, returning 19.44% in ZAR (7.49% in USD) while its benchmark returned 22.03% in ZAR (9.82% in USD). Due to the fact that the fund is a feeder fund, an important factor impacting a South African investor is the rand/dollar exchange rate, which leads to greater volatility. Over the fourth quarter of 2016, assets under management have decreased by 12.60% from R1 262 million to R1 103 million. The fund’s overweight allocation to Hong Kong contributed negatively to regional performance, while its underweight allocation to Japan contributed positively to regional performance. The fund’s single biggest geographical exposure is to North America, currently sitting at 67.48%, marginally up from 67.47% in the previous quarter. Its second biggest geographical exposure is to Europe (excluding UK) at 11.47%, down from 12.16% in the previous quarter. The retail sector is preferred at 30.85%, up from 30.29% in the previous quarter, indicating that consumers in the developed world and their buying power will have a potentially big influence on fund performance. The fund is fairly well-diversified, however, industrial and office, residential and speciality sectors account for 18.03% (down from 18.85%), 21.27% (down from 23.58%) and 12.11% (up from 12.07%) respectively. On a stock level, the fund’s overweight allocation to Mitsui Fudosan, Essex Property Trust, Diamondrock, Mitsubishi Estate, and AvalonBay Communities and their underweight allocation to HCP contributed to positive stock performance. Furthermore, the fund’s overweight allocation to Simon Property Group, ADO Properties, and LEG Immobilien and their underweight allocation to Host Hotels and Resorts contributed to negative stock performance.

Cur

rent

Por

tfolio

Pos

ition

ing

CATALYST GLOBAL REAL ESTATE FEEDER

Fund manager Andre Stadler & Jamie Boyes No of quarters 14

Benchmark FTSE EPRA/NAREIT Developed Rental Index Net Total Retu Risk Description High

Role of Benchmark Cognisant Inception Date 01 September 2009


Philosophy Long-term, valuation-driven with an emphasis on risk-adjusted returns Fee Description (retail class) Annual management fee


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 20

09

Q3 20

09

Q4 20

09

Q1 20

10

Q2 20

10

Q3 20

10

Q4 20

10

Q1 20

11

Q2 20

11

Q3 20

11

Q4 20

11

Q1 20

12

Q2 20

12

Q3 20

12

Q4 20

12

Q1 20

13

Q2 20

13

Q3 20

13

Q4 20

13

Q1 20

14

Q2 20

14

Q3 20

14

Q4 20

14

Q1 20

15

Q2 20

15

Q3 20

15

Q4 20

15

Q1 20

16

Q2 20

16

Q3 20

16

Q4 20

16

Diversified Hotels Industrial Office Residential Retail Healthcare Speciality Cash

The fund has a preference for real estate investing companies that derive at least 70% of their income from rent as opposed to real estate developers. It therefore takes very little development risk. The fund places an emphasis on more developed markets as is evident by the adoption of its new benchmark the FTSE EPRA/NAREIT Developed Rental Index Net Total Return, which consists of stocks in the following regions: United States, Canada, United Kingdom, Europe, Japan, Hong Kong, Singapore, Australia and New Zealand. Catalyst has a very strong team, and is a property-only investment house. Its approach is therefore very specific and focussed.

Key

Insi

ghts

This fund is ideal for clients wishing to gain exposure to global developed real estate, with a focus on investments that generate the majority of their income from rent. It is a benchmark cognisant fund with active positions not exceeding 5%, although the manager does not target a specific tracking error. This fund is diversified over wide geographical regions. The investment term should be at least 3 years. Currency risk is not necessarily always hedged and investors should be aware of this as its performance in rand may display some increased volatility. This fund can be used in either a hybrid risk-profiled multi-asset portfolio or as a building block, in those instances where the investor requires a minimum percentage exposure to offshore property.

Fund

Use

The investment team comprises six individuals who are all property experts. Prior experience of the team includes the physical management of properties as well as the management of unlisted property portfolios. Great care is taken to understand property portfolios, with physical site visits a common part of the investment process. The fund is managed by Andre Stadler, who has 22 years’ industry experience and is also the head of the investment committee at Catalyst. He is further supported on the global fund by Jamie Boyes (Co-manager and responsible for North-America and Europe), Paul Duncan (Asia) and three other analysts. The team’s investment philosophy is very clear and focused, preferring to focus on developed markets and investments that derive at least 70% of their income from rent. Their investment process is derived from years of experience and is consistently implemented across all investments.

Qua

litat

ive

Hig

hlig

hts

The fund is a consistent top performer over five years and three years, with the recent underperformance dampening the one-year figure as a result of rand strength. The fund has reflected volatility that is slightly higher than its peers, since inception. Looking at rolling periods, the fund captures more upside when compared to the category average and peers. The fund has, however, changed its benchmark during 2015, with effect from 1 April 2015, which significantly altered its underlying holdings and could explain some of its current underperformance of the benchmark in US dollars.

Qua

ntita

tive

Hig

hlig

hts

USER GUIDE

Performance & Quartile Rank

The quartile ranking table below includes both the total return and the associated quartile ranking for the specified period. Each marker represents a fund’s return and quartile ranking.

Asset Allocation

Quartile Ranking

As of Date: 31/03/2015

9.89.08.37.56.86.05.34.53.83.0

YTD

Old Mutual Income R Nedgroup Inv Core Income RSTANLIB Income R

1 year 3 years 5 years 10 years

Ret

urn


The asset/sector allocation of the fund is indicated for funds that have exposure to different asset classes/sectors (e.g. Flexible, Equity General). “Current” indicates the latest allocation as at 31 December 2015. The previous quarter’s allocation is shown as 1Q ago and asset allocation goes back three quarters.

Fund Size (Rm)

The market value of assets under management at time of going to print.

Glacier Consistency Rating

The Glacier Consistency Rating is an indication of the number of consecutive times a fund has appeared on the Shopping List. Should a fund be removed from the list and subsequently reinstated, the consistency history will no longer be applicable.

12 Month Yield (%)

This figure refers to the yield of the fund for the previous year. It is calculated by dividing the total distributions for the past year by the fund price at the beginning of the period. This gives an indication of the yield received by an investor for the previous one-year period. One must remember that annual managment company fees (as indicated by the TER) are deducted before distributions are paid and therefore the yield may be lower than expected. This is especially applicable in the case of funds with performance fees.

Modified Duration

Duration is a useful measure of the sensitivity of a bond or income fund to changes in interest rates. For example, if a fund has a modified duration of 3.5 years, for every 1% drop in interest rate, the capital portion of the fund will grow by 3.5% and vice versa.

Total Investment Charge (TIC)

Total Investment charge is the sum of Total Expense Ratio (TER) and Transaction Costs (TC) (TER+TC).

TER

TER indicates the percentage of the Net Asset Value (NAV) that was paid as expenses within the fund. This includes performance fees charged by the fund manager. It is also valuable when comparing fees on funds of funds as it includes the fees of the underlying funds. As far as possible, the latest available TER is indicated.

TC

TC is the cost incurred in the buying and selling administration of the fund and impacts on the fund’s returns.

Risk Analysis

A risk rating of between 0 and 10 has been assigned to every fund, illustrating the level of risk associated with the fund. The table indicates the corresponding risk level for each rating.

0 – 2 conservative 2 – 4 cautious 4 – 6 moderate 6 – 8 moderately aggressive 8 – 10 aggressive

In determining the risk rating for each fund we use downside volatility, variability of returns and sector/asset class risk of the fund over one-, three- and five-year periods, where available.

Downside volatility, measured by downside deviation, measures the variation of the fund’s return below the risk-free rate of return.Variability of returns, measured by annualised standard deviation, measures the variation of a fund’s returns around its mean.Sector/Asset class risk, measured by a classification from one to ten calculated for each collective investment sector, measures the underlying risk associated with investing in different sectors.

Maximum Drawdown The maximum monthly drawdown in the period is given. This indicates the maximum monthly capital loss experienced within the time period used.

Positive/Negative Months

This indicates the number of monthly periods during which the fund generated a positive/negative return.

Sharpe Ratio

This indicates the excess return generated per unit of risk. A fund’s Sharpe ratio should be compared to that of its peers – a higher ratio means the fund generated higher risk-adjusted returns. This could be due to either higher returns or lower volatility, or a combination of the two.

Rolling Returns Chart

Rolling one-year/three-year returns are shown to illustrate the performance of funds over moving periods (to remove end-point bias). Each point on the chart represents the fund’s one-year/three-year return up to that point. Monthly data points were used for the past 5 years.

Investor Risk Profiles

A conservative investor requires stable investment growth or a high level of income. The primary investment goal is capital protection. This investor may require access to the investment within three years.

A cautious investor requires stable growth in his/her investment and is uncomfortable when investment values decline. The investor may require a moderate level of income and is likely to have an investment horizon of at least three years. The primary investment goal is capital protection.

A moderate investor invests for the longer term (at least five years) and requires no income. The investor can tolerate fluctuations in the value of his or her investments from time to time. The primary investment goal is capital growth.

A moderately aggressive investor invests for the long term (at least seven years) and requires no income. Typically, this investor is prepared to accept more risk than a moderate investor, but does not want full exposure to equities. The primary investment goal is capital growth.

An aggressive investor invests for the long term (at least ten years) and seeks the highest possible growth. Typically, the investor is prepared to accept substantial fluctuation in the value of his or her investment. The primary investment goal is long-term capital growth.

Source: Morningstar Direct

GLACIER FINANCIAL SOLUTIONS (PTY) LTD IS A LICENSED FINANCIAL SERVICES PROVIDER

Contact Glacier ResearchThis document is intended for use by intermediaries. It is importatnt to bear in mind that any investment has some risk. For more information visit our website at www.glacier.co.za or contact our Communication Center on:

Tel: +27 21 917 9603Fax: +27 21 947 9210Email: [email protected]

Documents

THE SHOPPING LIST BY GLACIER RESEARCH · THE SHOPPING LIST BY GLACIER RESEARCH - Q4 - FEBRUARY 2017 2 ... To date, the company manages more than $360 billion AUM. They are long-term