Contents Newsflash Market Comment Other Commentators Economic Update Weekly Market Analysis... 9

Transcription

1 22 February 2016

2 Contents Contents... 2 Newsflash... 3 Market Comment... 3 Other Commentators... 4 Economic Update... 6 Weekly Market Analysis... 9 STANLIB Money Market Fund STANLIB Enhanced Yield Fund STANLIB Income Fund STANLIB Flexible Income Fund STANLIB Multi-Manager Absolute Income Fund... 11

3 Newsflash Although the rand strengthened nicely last week against the dollar by +3.2% to be slightly up now in 2016, the rand gold price is still up a sturdy +14% so far in Market Comment Markets have bounced off the bottom (Thursday 11 th February for the MSCI World Index), with the MSCI World Index up +3.5% in dollar terms last week (-7.5% so far in 2016) and markets generally up a bit today as well. Emerging markets have been cheered by a turnaround in some commodity prices and shares, with the MSCI Emerging Markets Index +4.2% last week (-6.7% in 2016). So far the Japanese Nikkei is bouncing the best, up over 7.5% from its low point (about 8% in dollar terms). The JSE ALSI had a bad Friday, -1.8%, but still closed positive on the week by +0.7% in rands, or a far more impressive +4.4% in dollars. Foreigners have continued selling our shares (another -R2.96bn last week), although they bought R0.84bn of our bonds. The JSE Mining Index is up +3.2% over the past week or so, back at its high for the year (+18.3% so far in 2016). We have seen the all-important iron ore price continue to extend its short-term uptrend, from the low of $38.30 in December to today s $48.5 (+26.7%), which is helping Kumba, Assore, Anglo American and Billiton share prices. In fact, Bloomberg television just showed the price above $50. While the dollar gold price is holding above the $1200 level, the fall in the dollar versus the euro has stalled a bit at the $1.11 level. Although the rand strengthened nicely last week against the dollar by +3.2% to be slightly up now in 2016, the rand gold price is still up a sturdy +14% so far in The rand platinum price is up just +3%; but since the end of November, it is up over 18%, close to the highs seen in The JSE Financial & Industrial Index is battling a bit, trading where it was a year ago and down around -10% from its November record high; it is only +3.8% above its 21 January low point. Of course the stronger rand is hurting the big rand hedge industrial shares that had been the mainstay of the index over the past few years (SAB Miller, Naspers, British American Tobacco, Richemont etc.). SAB is -7.5% from its record high in January. The JSE Mid-Cap Index is doing much better, +11.7% from its 21 st January low, with the JSE Small-Cap Index not far behind at +10% (the ALSI 40 Index is up just +5.4%). Meanwhile the SA Listed Property Index has bounced up by +10.6% from its 21 st January low (up over +2% last week), buoyed by the lower bond yield and stronger rand. Of course our local financial & industrial shares will be on tenterhooks this week, ahead of Wednesday s budget speech, which will probably be the most watched and analysed budget speech in modern history. Without doubt, the budget must surely have a negative impact on consumer spending, because of expected tax increases. The only question is, will it be better than expected or not? This is the last week for the 2016 tax year, with Leap Year on Friday 29 th February. Below we show a chart of the MSCI World total return Index (i.e. including dividends) in RAND terms, showing how dramatically this has risen since the end of The index is up almost +215% or +24.9% per year in rands since end 2010; that is just over 5 years. So far the uptrend looks to be intact, despite the recent -10% correction (-17% in dollars), which took it back to late October levels. Surely this annual gain must slow down quite sharply going forward, because of a lot less rand depreciation (possibly even some appreciation) and slower growth in dollar terms too.

4 Source: I-Net BFA Other Commentators US Market Analyst, Elaine Garzarelli The quants model rose to 61% (out of a maximum of 100%) from 57% due to the upgrade of the junk bond to 10- year bond yield ratio. Sentiment remains depressed in the US, judging by the number of bullish investment advisors, which is just 26.5%. The economic cycle research institute weekly leading index (ECRI) is still ranked bearish. It has been on a downtrend since late last year. This index gives an early indication of changes in the economic cycle, so the decline is indicating slower economic growth in the next 3 to 6 months. Garza is not expecting a US recession since many cities such as Miami, Atlanta and Dallas are booming, while others such as New York, Washington DC and Philadelphia are strong. Consumer sentiment remains strong, which is important for the economy, because consumers comprise twothirds of economic activity. Oil prices may stabilise as many oil rig companies are in financial trouble and may possibly go out of business. This could cause the rig count to fall, creating a bottom in oil and helping inflation steady and perhaps pick up a bit. BCA Research BCA s high-conviction view is that oil prices are making a transition from a headwind to a tailwind environment, which should see a rise in oil prices as 2016 progresses. The transition, however, could be volatile and involve many false starts. BCA still sees an equity investment backdrop that is fraught with risk, so continue to recommend selling equities into strength in rallies in the coming months as the oil price bounces - whilst retaining a neutral asset allocation towards equities. Widespread deflationary forces persist in the US, which is a problem for company earnings. Deflationary fears have caused financial shares to take a big knock around the world, because deflation raises the credit risks, the risks that loans may go sour. Also banks make less money when interest rates are negative, as in Europe and Japan. Profit margins get squeezed. Markets (which could be wrong) are increasingly of the view that long-term global growth prospects have deteriorated materially, and that policymakers have neither the will nor the tools to do much about it While accelerating wage growth, lower commodity prices, and cheaper borrowing rates are generally good news for households, they are either a mixed bag or a clear negative for many sectors on Wall Street.

5 BCA does concede that a number of forward-looking US indicators have recently perked up. The ISM manufacturing new orders-to-inventory ratio which leads the overall index and the stock market has jumped to a 13-month high. Initial unemployment claims have also reversed their recent uptrend, with the 4-week average falling to 273,250, an 8-week low. Outside the U.S., the picture is less benign, but far from dire. The bigger point is that the decline in oil prices may finally be starting to boost consumer spending in a meaningful way. Growth in emerging markets remains weak, but at least the pace of the decline seems to have moderated in trouble spots such as Brazil and Russia. Emerging markets still face many years of deleveraging, and if history is any guide, such deleveraging episodes tend to be turbulent affairs. Nevertheless, if commodity prices stabilize over the coming months as BCA s Commodity & Energy Strategy service expects this could grant many EMs a temporary reprieve. All-in-all, neither the upside nor the downside to global equities is especially large right now, warranting a neutral allocation to shares. Regionally, long-term investors should overweight cheaper markets such as Europe, Japan, and China. BCA is sceptical that the selloff in the dollar over last few weeks has much further to run. The ECB and BoJ are likely to take a hardline stance to prevent any further appreciation in their currencies. Emerging markets are also in the early stages of a multi-year deleveraging cycle, which could keep their currencies under downward pressure. As such, investors should retain a modestly positive view on the greenback. Paul Hansen Director: Retail Investing

6 Economic Update 1. SA consumer inflation higher than expected in January 2016, now up at 6.2%y/y. Food inflation at 7%y/y, but inflationary pressures have also broadened. 2. SA retail sales declined in Dec, but the sector had a good Q Retail sales achieved an average growth rate of 3.3% in 2015, helped by relatively low inflation. This will change dramatically in The US leading economic index declined again in January. 4. Bank of Namibia moves interest rates in line with South Africa. 5. Botswana inflation surprises to the downside while the central bank keeps rates on hold. 1. In January 2016, SA headline CPI inflation increased by a substantial 0.8%m/m. This pushed the annual rate of consumer inflation up sharply to 6.2%, from 5.2%y/y in December. The monthly and annual increase in inflation during January was slightly higher than expected (STANLIB 6.0%y/y). Food prices, in particular, rose fairly significantly during the month, but there are also signs that inflationary pressures have broadened. Consumer inflation is still expected to move noticeably higher over the coming months, ending 2016 at an estimated 8.0%y/y. Food prices rose by a very substantial 2.0%m/m in January, pushing the annual rate of food inflation sharply higher to 7.0%y/y, up from 5.8% in December The increase in food inflation during January included a 5.2%m/m rise in fruit prices, a 4.4%m/m jump in vegetable prices, a 1.6%m/m increase in meat prices and 1.4% m/m acceleration in cereal prices. All indicators suggest that cereal inflation is going to rise very sharply over the coming months, reflecting partly the impact of the weaker Rand, but largely the impact of the current severe drought. Already cereal inflation at the agricultural level was up at 52%y/y in December 2015 according to Stats SA. Consequently, we expect food inflation to end 2016 sharply higher at around 15%y/y. (Food has a weight of 14.2% in the inflation basket). This will push overall consumer inflation above the inflation target in CPI excluding food and petrol is still within the inflation target, but has moved up to 5.9%y/y in January. Core inflation (CPI excluding food, fuel and electricity) also increased noticeably to 5.6%y/y, up from 5.2%y/y in December This increase in core inflation will worry the Reserve Bank as it suggests that the weaker Rand is starting to push inflation higher across a broader range of categories. In addition, there is a risk that inflation expectations rise as core inflation drifts higher. Services inflation was recorded higher at 6.0%y/y, while administered price inflation is up at 8.8%y/y as base effects push petrol inflation higher. The inflation rate for pensioners was recorded sharply higher at 6.3%y/y. For 2014 as a whole, SA CPI inflation averaged 6.1%, up slightly from an average of 5.8% in 2013 and 5.7% in For 2015, SA inflation averaged an impressive 4.6%. However, we are very concerned about a sharp upward trend in SA inflation during 2016, and expect inflation to average 6.7% for the year as a whole, ending 2016 at 8.0%. This expected increase in inflation is due to a combination of factors, namely unfavourable base effects, a sharp increase in food inflation as a result of drought conditions and weaker exchange rate, higher electricity and water prices, a further increase in excise duties and the fuel levy in the 2016 National Budget, and an increased pass-through impact on inflation of the weaker exchange rate. Our inflation forecast model suggests this risk of higher inflation in 2016 could manifest more noticeably in the second half of In 2015, the SA Reserve Bank became concerned about a broadening of inflationary pressure and decided to increase interest rates by a further 25bps in November. While this was partly in response to concerns about inflation, it also reflected their worry about South Africa s vulnerability to foreign capital outflows should the Federal Reserve decide to start to normalise interest rates. They followed this with a further hike of 50bps in Given our outlook for SA inflation, we think the SA Reserve Bank will continue to increase interest rates in At this stage the Repo rate is forecast to end 2016 at 7.50%.

7 2. Stats SA released the retail sales data for December 2015 today. According to this latest survey, retail sales declined during the month, falling by -0.9%m/m, in real terms (seasonally adjusted). The month-on-month sales performance was a little worse than expected, which was a decline -0.7%m/m. In comparison, the November retail sales were much better than most analysts had expected. So overall retail sales had a good fourth quarter performance, rising by 1.3%q/q. This will boost the SA GDP performance in the fourth quarter, offsetting the decline in manufacturing. Overall, the retail data suggests that although consumer activity remains somewhat subdued, consumers have been able to avoid outright recession conditions. On an annual basis, retail spending was up an impressive 4.1%y/y (real) in December 2015, but this was helped by a low base of spending in December This compares with growth of 3.8%y/y in November 2015 and an average annual growth rate of 3.3% (real) for The 12-month moving average rate of annual growth is trending at just over 3.0%, which is at the upper end of our earlier forecast range for retail sales during Clearly, the South African consumer has been helped by relatively low inflation in 2015; but this is forecast to change dramatically in We expect inflation to average 6.7% in 2016, ending 2016 at around 8%y/y. Our overall perspective on retail spending remains essentially unchanged. Firstly, it is clear that although the growth in consumer spending has slowed noticeably during the past two years, the sector remains relatively resilient, helped enormously by the fact that household income growth consistently exceeds inflation due to above inflation wage increases in key sectors of the economy. Secondly, the consumer sector has also been helped by the fact that SA inflation averaged a mere 4.6% in 2015, reaching a low of 3.9%y/y during the year. This boosted real income growth. Thirdly, there are growing concerns about the negative impact of a sharp upward move in inflation during 2016, especially in the second half of 2016, potentially higher taxes in the February 2016 budget, weakening consumer confidence, an increase in user-charges (especially electricity, and water), and somewhat higher interest rates. Together, all of these will most likely slow retail spending to below 1% growth in Lastly, the critical factor that will determine whether the retail sector experiences an outright recession in 2016 as opposed to modest growth, is the performance of the labour market. Widespread job cuts would, most likely, push consumer spending in recession, whereas if the economy can at least maintain the current level of employment this would ensure that the consumer sector can avoid a recession in The Conference Board Leading Economic Index (LEI) for the U.S. declined 0.2% in January to 123.2, following a 0.3% decrease in December and a 0.5% increase in November. The slight fall in January is driven primarily by large declines in stock prices and further weakness in initial claims for unemployment insurance. Despite the past few monthly declines, the index doesn t signal a significant increase in the risk of recession, and its six-month growth rate remains consistent with a modest economic expansion through early The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The leading, coincident, and lagging economic indexes are essentially composite averages of several individual leading, coincident, or lagging indicators. They are constructed to summarise and reveal common turning point patterns in economic data in a clearer and more convincing manner than any individual component, primarily because they smooth out some of the volatility of individual components. 4. The Bank of Namibia held its Monetary Policy Committee meeting on 17 February 2016 and decided to increase interest rates by 25 basis points to 6.75%. According to the statement released the decision was made to align interest rates within the Common Monetary Area (including South Africa, Lesotho and Swaziland). The Namibian Dollar is pegged to the South African Rand at 1:1. South Africa had increased its interest rate by 50 basis points to 6.75% in January and in order to avoid capital outflows Namibia either has to align its interest rate with the South African rate or preferably have it higher. The MPC had been concerned about the increase in instalment credit in 2015 and after hiking rates the loans have seemed to have slowed from 23.5% in February 2015 to 14.1% in December However the subsequent acceleration in other loans and advances has become a concern. By hiking rates the bank is hoping to reverse the behaviour and encourage savings.

8 What would also be a concern for the central bank is increasing prices. Inflation in Namibia came in unexpectedly high for January Prices in the country rose by 5.3% y/y in the month up from 3.7% and 3.31% in December and November 2015 respectively. Most of the increase was as a result of the housing, water, electricity and gas categories as well as the low base effects from lower fuel prices wearing off. Housing is the biggest portion of the CPI basket in Namibia and sharp upward movements in it will have a negative effect on the overall headline figure. With the severe drought and currency weakness, price pressures are expected to continue in 2016 for Namibia. With this in mind the central bank is expected to continue increasing interest rates especially considering South Africa is also expected to continue to raise rates this year. 5. The inflation rate in Botswana rose by only 2.7% in January 2016 from 3.1% and 2.9% in December and November 2015 respectively. This is the lowest that inflation has ever been in Botswana. Food inflation was the only component that moved meaningfully higher and that only registered an increase of 1.17% for the month from 0.73% in December. Transport prices fell even further by 6% in the month. The lower inflation rate will give the central bank some space to maintain the loose monetary policy. What could explain the lower inflation rate (even though the region is experiencing higher rates) is that the Botswana Pula has been strengthening against the South African Rand. Botswana imports most of its goods from South Africa so a stronger Pula keeps the price of imported goods lower. This was evident in the imported inflation number for Botswana which was -0.3% in January from 0% in the previous month. The Monetary Policy Committee (MPC) of the Bank of Botswana met on 17 February 2016 and decided to keep rates on hold at 6%. This was after it cut rates by 50 basis points in In its communique the MPC mentioned that it expects inflation to remain within the 3 6% target range in the medium term. What will help is the continued strength of the Pula against the Rand and lower domestic demand. However the likely increase in government levies and drought in the region do remain a threat to this argument with food prices expected to increase. Another concern is the slowing economy. GDP is expected to have expanded by 1.2% in the 12 months to September 2015 from 4.1% in the 12 months to September Mining had contracted by 11.8% in the 2015 period reflecting the pressure stemming from lower commodity prices. The bank is expected to keep rates at current levels in the first quarter in order to try and provide some stimulus to the economy. Contraction in the mining sector does remain a concern especially considering there might be some spill over effects into the non-mining sector. Please follow our regular economic updates on Kevin Lings, Laura Jones & Kganya Kgare (STANLIB Economics Team)

9 Weekly Market Analysis Currencies/ Indices/ Commodities Friday s Close 19/02/16 Weekly Move (%) YTD (%) Indices *MSCI World US Dollar *MSCI World Rand *MSCI Emerging Market US Dollar *MSCI Emerging Market Rand All Share Index US Dollar All Share Index Rand All Bond Index Listed Property J Currencies US Dollar/Rand Euro/Rand Sterling/Rand Euro/US Dollar Commodities Oil Brent Crude Spot Price ($/bl) Gold Price $/oz Platinum Price S/oz Source: I-Net Bridge * MSCI - Morgan Stanley Capital International

10 Rates These rates are expressed in nominal and effective terms and should be used for indication purposes ONLY. STANLIB Money Market Fund Nominal: Effective: 6.95% per annum 7.20% per annum STANLIB is required to quote an effective rate which is based upon a seven-day rolling average yield for Money Market Portfolios. The above quoted yield is calculated using an annualised seven-day rolling average as at 21 February This seven- day rolling average yield may marginally differ from the actual daily distribution and should not be used for interest calculation purposes. We however, are most happy to supply you with the daily distribution rate on request, one day in arrears. The price of each participatory interest (unit) is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. STANLIB Enhanced Yield Fund Effective Yield: 7.32% STANLIB is required to quote a current yield for Income Portfolios. This is an effective yield. The above quoted yield will vary from day to day and is a current yield as at 19 February The net (after fees) yield on the portfolio will be published daily in the major newspapers together with the all-in NAV price (includes the accrual for dividends and interest). This yield is a snapshot yield that reflects the weighted average running yield of all the underlying holdings of the portfolio. Monthly distributions will consist of dividends and interest. Interest will also be exempt from tax to the extent that investor s are able to make use of the applicable interest exemption as currently allowed by the Income Tax Act. The portfolio s underlying investments will determine the split between dividends and interest. STANLIB Income Fund Effective Yield: 7.93% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 19 February 2016.

11 STANLIB Extra Income Fund Effective Yield: 7.54% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. The above quoted yield will vary from day to day and is a current yield as at 19 February STANLIB Flexible Income Fund Effective Yield: 7.74% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 19 February STANLIB Multi-Manager Absolute Income Fund Effective Yield: 6.19% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 19 February 2016.

12 Glossary of terminology Bonds A bond is an interest-bearing debt instrument, traditionally issued by governments as part of their budget funding sources, and now also issued by local authorities (municipalities), parastatals (Eskom) and companies. Bonds issued by the central government are often called gilts. Bond issuers pay interest (called the coupon ) to the bondholder every 6 months. The price/value of a bond has an inverse relationship to the prevailing interest rate, so if the interest rate goes up, the value goes down, and vice versa. Bonds/gilts generally have a lower risk than shares because the holder of a gilt has the security of knowing that the gilt will be repaid in full by government or semi-government authorities at a specific time in the future. An investment in this type of asset should be viewed with a 3 to 6 year horizon. Cash Collective Investments Compound Interest Dividend Yields Dividends Earnings per share An investment in cash usually refers to a savings or fixed-deposit account with a bank, or to a money market investment. Cash is generally regarded as the safest investment. Whilst it is theoretically possible to make a capital loss investing in cash, it is highly unlikely. An investment in this type of asset should be viewed with a 1 to 3 year horizon. Collective investments are investments in which investors funds are pooled and managed by professional managers. Investing in shares has traditionally yielded unrivalled returns, offering investors the opportunity to build real wealth. Yet, the large amounts of money required to purchase these shares is often out of reach of smaller investors. The pooling of investors funds makes collective investments the ideal option, providing cost effective access to the world s stock markets. This is why investing in collective investments has become so popular the world over and is considered a sound financial move by most investors. Compound interest refers to the interest earned on interest that was earned earlier and credited to the capital amount. For example, if you deposit R1 000 in a bank account at 10% and interest is calculated annually; your balance will be R1 100 at the end of the first year and R1 210 at the end of the second year. That extra R10, which was earned on the interest from the first year, is the result of compound interest ("interest on interest"). Interest can also be compounded on a monthly, quarterly, half-yearly or other basis. The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. The higher the yield, the more money you will get back on your investment. When you buy equities offered by a company, you are effectively buying a portion of the company. Dividends are an investor s share of a company s profits, given to him or her as a part-owner of the company. Earnings per share is a measure of how much money the company has available for distribution to shareholders. A company s earnings per share is a good indication of its profitability and is generally considered to be the most important variable in determining a company s share price.

13 Equity Financial Markets Fixed Interest Funds Gross Domestic Product (GDP) Growth Funds Industrial Funds Investment Portfolio JSE Securities Exchange Price to earnings ratio Property Resources and Basic Industries Funds A share represents an institution/individual s ownership in a listed company and is the vehicle through which they are able to share in the profits made by that company. As the company grows, and the expectation of improved profits increases, the market price of the share will increase and this translates into a capital gain for the shareholder. Similarly, negative sentiment about the company will result in the share price falling. Shares/equities are usually considered to have the potential for the highest return of all the investment classes, but with a higher level of risk i.e. share investments have the most volatile returns over the short term. An investment in this type of asset should be viewed with a 7 to 10 year horizon. Financial markets are the institutional arrangements and conventions that exist for the issue and trading of financial instruments. Fixed interest funds invest in bonds, fixed-interest and money market instruments. Interest income is a feature of these funds and, in general, capital should remain stable. The Gross Domestic Product measures the total volume of goods and services produced in the economy. Therefore, the percentage change in the GDP from year to year reflects the country's annual economic growth rate. Growth funds seek maximum capital appreciation by investing in rapidly growing companies across all sectors of the JSE. Growth companies are those whose profits are in a strong upward trend, or are expected to grow strongly, and which normally trade at a higher-thanaverage price/earnings ratio. Industrial funds invest in selected industrial companies listed on the JSE, but excluding all companies listed in the resources and financial economic groups. An investment portfolio is a collection of securities owned by an individual or institution (such as a collective investment scheme). A funds portfolio may include a combination of financial instruments such as bonds, equities, money market securities, etc. The theory is that the investments should be spread over a range of options in order to diversify and spread risk. The primary role of the JSE Securities Exchange is to provide a market where securities can be freely traded under regulated procedures. Price to earnings ratio or p: e ratio is calculated by dividing the price per share by the earnings per share. This ratio provides a better indication of the value of a share, than the market price alone. For example, all things being equal, a R10 share with a P/E of 75 is much more expensive than a R100 share with a P/E of 20. Property has some attributes of shares and some attributes of bonds. Property yields are normally stable and predictable because they comprise many contractual leases. These leases generate rental income that is passed through to investors. Property share prices however fluctuate with supply and demand and are counter cyclical to the interest rate cycle. Property is an excellent inflation hedge as rentals escalate with inflation, ensuring distribution growth, and property values escalate with inflation ensuring net asset value growth. This ensures real returns over the long term. These funds seek capital appreciation by investing in the shares of companies whose main business operations involve the exploration, mining, distribution and processing of metals, minerals, energy, chemicals, forestry and other natural resources, or where at least 50 percent of their earnings are derived from such business activities, and excludes service providers to these companies.

14 Smaller Companies Funds Value Funds Growth Funds Smaller Companies Funds seek maximum capital appreciation by investing in both established smaller companies and emerging companies. At least 75 percent of the fund must be invested in small- to mid-cap shares which fall outside of the top 40 JSE-listed companies by market capitalisation. These funds aim to deliver medium- to long-term capital appreciation by investing in value shares with low price/earnings ratios and shares which trade at a discount to their net asset value. Growth funds seek maximum capital appreciation by investing in rapidly growing companies across all sectors of the JSE. Growth companies are those whose profits are in a strong upward trend, or are expected to grow strongly, and which normally trade at a higher-thanaverage price/earnings ratio. Sources: Unit Trust and Collective Investments (September 2007), The Financial Sector Charter Council, Personal Finance (30 November 2002), Introduction to Financial Markets, Personal Finance, Quarter , Investopedia ( and The South African Financial Planning Handbook 2004.

15 Disclaimer The price of each unit of a domestic money market portfolio is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. An investment in the participations of a CIS in securities is not the same as a deposit with a banking institution. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from STANLIB Collective Investments Ltd (the Manager). Commission and incentives may be paid and if so, would be included in the overall costs. A fund of funds is a portfolio that invests in portfolios of collective investment schemes, which levy their own charges, which could result in a higher fee structure for these portfolios. Forward pricing is used. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. TER is the annualised percent of the average Net Asset Value of the portfolio incurred as charges, levies and fees. A higher TER ratio does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TERs. Portfolios are valued on a daily basis at 15h30. Investments and repurchases will receive the price of the same day if received prior to 15h30. Liberty is a full member of the Association for Savings and Investments of South Africa. The Manager is a member of the Liberty Group of Companies. As neither STANLIB Wealth Management Limited nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor s unique objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only and STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Wealth Management Limited does not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial adviser in this regard. STANLIB Wealth Management Limited is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (Licence No. 26/10/590) Compliance No.: H5431X 17 Melrose Boulevard, Melrose Arch, 2196 P O Box 202, Melrose Arch, 2076 T (SA Only) T+27(0) E contact@stanlib.com Website STANLIB Wealth Management Limited Reg. No. 1996/005412/06 Authorised FSP in terms of the FAIS Act, 2002 (Licence No. 26/10/590) STANLIB Collective Investments Limited Reg. No. 1969/003468/06