Newsflash Market Comment... 3 Snippets of Info Economic Update South Africa... 7 Global... 10

Transcription

1 27 June 2011

2 Contents Newsflash... 3 Market Comment... 3 Snippets of Info... 4 Economic Update... 6 South Africa... 7 Global Weekly Market Analysis Rates Standard Bank Money Market Fund STANLIB Cash Plus Fund STANLIB Dividend Income Fund Glossary of terminology

3 Newsflash July is typically a good month for global stock markets Market Comment Risk aversion remains high on the agenda for investors, as Greece prepares to jump through another crucial hoop this week (parliament voting on the new spending cuts and tax increases) and as European leaders dither and exhibit a lack of firm leadership. The longer the Euro area leaders fail to act decisively, the greater the risk of contagion to other countries. The US dollar has gained against most currencies (from $1.46 to $1.41 versus the euro) - as it usually does during times of risk aversion - and some commodity prices have come tumbling down, fortunately including oil, cotton and certain food prices. Last Thursday oil prices fell more than 7% after western nations said they would release the biggest amount of oil from their emergency stockpiles in 20 years. The International Energy Agency (IEA), which was established as a counter-balance to OPEC after the 1974 Arab oil crisis, agreed to release 60m barrels of oil in the coming months to offset the daily production loss of 1.5m barrels of high quality oil from Libya. The US led the release (worried about the effect of the high oil price on consumers), providing 50% of the crude oil, with Japan, Germany, France, Spain and Italy providing most of the rest. This is only the 3 rd time in the IEA s 37 year history that there has been a release. Brent oil is now down 15% from its April high, trading at February 2011 levels. Over the past month, the dollar cotton price has fallen 33%, the dollar wheat price 20% and the dollar maize price fell 5.7% in one day last week (13% from its recent high). These are all positives for financial markets (pro-growth) and of course for poorer countries and for inflation. Countries like France have been quite vocal in their opposition to traders taking speculative positions in the futures markets on food and oil; quite right, good for them. Although the platinum price is down 8% so far in June, the copper price has remained stable. The US stock market has fallen by 7% from its recent peak and the JSE is down around 8%, which so far is not too bad, considering that it fell 11% last year. The Japanese Nikkei Index has perked up a tad of late, as has the Chinese Shanghai Composite Index - the latter in response to the Chinese Premier s positive comments about inflation. European shares, meanwhile, have fallen for 8 consecutive weeks and are down 8-11%. Overall, the spate of bad news has continued for much of the past 2 months. It is probably getting a bit extended and some good news is probably just around the corner (July?). Certainly the fall in oil and food prices noted above is a good start. One suspects that a buying opportunity for more risk-oriented investors may be at hand. 3

4 Note the chart below of the JSE All Share Index, courtesy of Noah Financial s technical analyst, Tricia Lunenberg. It appears that the 30,000 level on the All Share Index has a better-thaneven chance of holding and that a bounce from here could be imminent. As we mentioned last week, July is typically a good month for global stock markets and it is probably because June is typically such a bad month (bounce as the news turns a little better). After all, sentiment or emotion is what drives markets in the short-term. Source: I-Net Bridge US market analyst, Elaine Garzarelli, says her quants system remains in bullish mode and advisors are bearish in the US (a good contrarian sign), although she says the credit spread indicators are still negative for the market, indicating stress. She notes that the US Fed views recent economic weakness as transitory and thinks the pace of economic recovery should pick up over coming quarters. Snippets of Info Germany has decided to close its 17 nuclear plants and replace them with renewable energy and gas-fired power stations within the next 11 years. This is expected to cost 90 billion euros. No question about it, this is a major, major decision and is particularly interesting considering that its neighbour, France, relies so much on nuclear power. So far in 2011, the MSCI World Index is still up 3.7% in rand terms, while the JSE All Share Index is down 4.4% (excluding dividends). 4

5 The EPRA NAREIT global listed property index is doing even better than the global developed market equity index and is up 5.8% in rand terms (still a positive 1.3% in dollar terms) so far in By comparison, the JSE Listed Property Index is down 2.4% so far in 2011 (excluding dividends). However, including dividends gives a positive return of 2% in rands. Foreign investors have continued to buy more SA bonds and are now up to R24.7bn year-todate, whereas they have only bought R1.7bn of equities. Paul Hansen (Director: Retail Investment Marketing - Investments) 5

6 Economic Update Locally, SA consumer inflation rose more than expected in May 2011 to 4.6%y/y. The inflation rate for low income earners and pensioners is now above 5%y/y. Looking ahead, there are a number of clear upside risks to SA inflation. These include higher food inflation, and higher energy prices. The extent to which these price pressures will impact on inflation will be heavily influenced by the Rand exchange rate. There is little doubt that the relative strength of the Rand in 2010 cushioned SA from some potentially damaging price pressure, but this is likely to change in 2011/2012. Domestically, further electricity price hikes, coupled with other service costs and administered price rises (including water costs) as well as the concerning increase in wage demands could also push SA inflation higher during 2011/2012. SA current account deficit widened more than expected in Q to 3.1% of GDP, due to a sharp rise in the value of merchandise imports, coupled with an increase in dividend outflows. Looking forward, import intensity is likely to rise as domestic expenditure improves; especially if there is a pick-up in fixed investment activity. This implies that the trade balance could be under some pressure over the coming 24 months; although the deterioration is expected to be fairly modest. In addition, dividend/interest outflows are also likely to widen further over the next 12 to 24 months given the increased foreign holding of SA bonds and equities. Consequently, a systematically larger (but still manageable) services and current account deficit is anticipated for 2011/2012. SA recorded a tentative improvement in investment activity during Q1 2011, driven by the private sector and public corporations. Investment spending by general government continues to decline. The rapid slowdown in the rate of growth of investment activity over the past year has meant that investment spending now represents only 18.7% of SA s GDP, which is the lowest level since Q3 2006, and extremely low by emerging market standards. While reducing the level of unemployment (and hence job creation) has become the number one economic objective in South Africa (finally), the country s employment target cannot be achieved without a commensurate increase in investment activity by the private sector. SA created formal sector jobs in Q Once-again the increase was within the public sector, while the private sector lost jobs. There was, however, a surprising increase in construction employment. The most recent data on SA employment suggests that the labour market has started to stabilise with some sectors showing signs of a modest improvement but clearly needs to be more balanced in favour of private sector employment. Of course, the overall level of unemployment remains absurdly high by international and historical standards (whether the assessment is based on the QES or QLFS survey) and is clearly SA s number one economic concern as previously noted in the paragraph above on fixed investment. 6

7 Globally last week, the IMF released their June World Economic Outlook. In summary, the IMF has heavily revised down their 2011 growth outlook for Japan, acknowledging that the 11 March 2011 earthquake had a much bigger impact than initially envisaged. They also revised down their growth outlook for Brazil and the US, but argue that this slowdown in growth is temporary. In contrast, the IMF revised up their growth outlook for Germany meaningfully. Importantly, the IMF left their growth outlook for China unchanged at 9.6% in 2011 and 9.5% in This is despite the barrage of scare economic research on China by the stock-broker community. Emerging markets - a report released by the Ghana Statistical Service revealed that Ghanaian GDP increased by 23% year on year in the first quarter of This dramatic increase in GDP comes from heightened activity in crude oil production, which saw a 162% jump in mining and quarrying activity, the sector that includes the oil industry and which benefited from the recent start of crude production. Central Bank of Nigeria (CBN) Governor Sanusi announced on 23 June that the CBN has decided to relax exchange controls relating to government securities by lifting the lock-in period that previously saw investors having to hold Naira positions for at least one year. This is a significant change and should see investors more comfortable to hold Naira positions in government securities, and therefore should see the naira gain some support. Swaziland hit crisis mode in terms of government liquidity, and South Africa confirmed that they had been asked for a bail-out by Swaziland. Swaziland has been facing significant fiscal challenges since the world economic crisis saw a decrease in government custom revenues as well as difficulties with the IMF Staff Monitored Programme which led to funding from third party organizations stalling. South Africa SA CPI In May 2011, headline CPI inflation rose by 0.5%m/m, with the annual rate increasing to 4.6%y/y from 4.2%y/y in April. This was higher than market expectations for a rise to 4.4%y/y. For 2010 as a whole SA CPI inflation averaged a very respectable 4.3%y/y, after averaging 7.2% in The current inflation rate is the highest since May During May 2011 there were very few major changes to inflation. The main reason for the higher than expected inflation reading was a jump in food prices. Food inflation rose by a substantial 1.7%m/m in May, which contributed 0.3 percentage points to the monthly change in CPI. There was also a further rise in fuel (petrol) prices, which increased by 2.9%m/m, taking the annual rate of petrol inflation to 17.7%y/y. This added 0.1 of a percentage point to the monthly change in inflation. 7

8 The main reason for the increase in food inflation during May was a substantial 2.9%m/m increase in bread and cereal prices, a 3.0%m/m increase in oils and fats prices, a 4.3%m/m increase in vegetable prices, a 2.1%m/m increase in sugar and sweet prices and a 1.5%m/m rise in diary prices. These increases were partially offset by a 0.1%m/m decline in fish prices as well as 1.4%m/m drop in fruit prices. On an annual basis, food inflation rose to 6.3%y/y from 4.8%y/y. This is the highest reading for food inflation since July We still expect SA food inflation to move higher in the coming months. CPI excluding food and fuel is still well within the inflation target at 3.7%y/y (0.2%m/m in May 2011), while services inflation remained unchanged at 4.7%y/y; having been well over 6%y/y fairly recently. It is concerning, however, to see that the inflation rate for very low income earners is now up at 5.4%y/y, while the inflation rate for pensioners is up at 5.2%y/y. SA current account In Q1 2011, South Africa recorded a current account deficit equivalent to 3.1% of GDP. The market was expecting a deficit of 2.8% of GDP. The latest current account reading compares with a deficit of only 1.0% of GDP in Q In value terms, the current-account deficit widened to R87.8 billion from a mere R27.5 billion in Q (these are annualised numbers). For 2010 as a whole, the current-account deficit was recorded at R74.1bn (2.8% of GDP). The increased current account deficit in Q was mainly due to a substantial increase in merchandise imports, which increased from an annualised R600.5 billion in Q to R661.7 billion in Q (a rise of R61.2bn). At the same time merchandise exports remained relatively unchanged in Q at R683.7bn (up only R7.7bn (annualised) in the quarter). This meant that the surplus on the trade account narrowed significantly from 2.7% of GDP in Q to only 0.8% of GDP in Q The deficit on the services account widened fractionally in Q to 3.8% of GDP from 3.7% of GDP in Q This deterioration was partly due to an increase in net dividend outflows. In the first quarter of 2011, dividend outflows totalled R66.0bn (or 2.3% of GDP), up from R48.8bn in Q4 2010, while dividend inflows amounted to R17.0bn (0.6% of GDP), up from R10.4bn in Q The end result was an increase in net dividend outflows from R38.44bn in Q to R48.9bn in Q (1.7% of GDP). This outcome is not all that surprising given that foreign investors have continued to accumulate SA bonds and equities. The recent trend in the travel account, especially in the nine months since the World CUP, is worth exploring in more detail. During the first quarter of 2011, travel receipts continued to decline, dropping by a further R0.18 billion. In total, travel receipts have dropped by a massive R14.2bn since the World Cup, and are well below levels experienced in 2008, suggesting that there has still not been a noticeable uplift in foreign tourism following the World Cup. 8

9 Fortunately, travel payments (outflows) slumped noticeably in Q1 2011, down R7.6bn, suggesting that there was a pull-back in the number of South Africans travelling overseas, certainly relatively to Q3 and Q The net result was that the surplus on the Travel Account widened by a welcome R7.4 billion in Q1 2011, having narrowed alarming in the six months following the World Cup. SA fixed investment In Q SA fixed investment spending rose by a welcome 3.1%q/q, annualised. This compares with growth of only 1.5%q/q in Q and 1.0%q/q in Q The latest improvement is driven by a further pick-up in investment spending by public corporations (+6.6%q/q) as well as the private sector (+2.7q/q). Unfortunately, investment activity undertaken by general government (largely provinces and municipalities) continued to decline falling by 0.5%q/q. This is the ninth consecutive quarterly decline in investment activity by general government, despite promises and budgets to the contrary. Remarkably, investment spending by public corporations (which was dramatically boosted by the Soccer World Cup) comprises a meaningful 24% of total investment activity in South Africa, whereas at the beginning of 2000 it was only around 11%. In fact, the pick-up in infrastructural activity over the past few years has meant that private sector investment spending now constitutes around 60% of the total investment activity, and the public sector the other 40%; at the beginning of 2000 this was split 70:30 in favour of the private sector. Ultimately, though, the private sector has to be the engine of growth and job creation in the country, which means the economy urgently needs a more robust and sustained pick-up in private sector fixed investment activity. The most recent peak was 24.6% of GDP in Q The country has an informal target of increasing investment spending to over 25% of GDP and maintaining it at that level for many years. Internationally, there is a reasonably clear relationship between increased investment spending and sustained higher GDP growth, with the level of investment ultimately determining the level of employment. SA formal sector employment According to Stats SA, formal (non-agricultural) employment in SA rose by jobs in Q1 2011; based on today s release of the Quarterly Employment Survey (QES). This follows an increase of in Q4 2010, in Q and in Q Over the past year, SA has added a more encouraging formal sector jobs (with jobs added in the community sector of the economy, which is mostly represented by the public sector). 9

10 A breakdown of the job gains in Q1 2010, by sector, indicates that most of the jobs were gained in the service sectors of the economy, specifically community services with a gain of jobs (which mostly represents the public sector). There was also an encouraging, and somewhat surprising, increase in construction employment of This increase follows 2 years of relatively severe job losses in the broad building and construction industry. In contrast, the retail sector shed a substantial jobs in Q1 2011, while the financial and business services lost a further jobs. (It is worthwhile to note that the quarterly changes in employment are not seasonally adjusted. The seasonal variation in employment can be very significant, especially in sectors such as retail trade when measured between the final quarter of the year and the first quarter of the following year). It is also encouraging that gross earnings in the formal sector rose by reasonable 9.3%y/y in Q1 2011, although this improvement is lower than the increases recorded in most sector of the economy during Global IMF Despite some negative surprises, global growth was recorded at 4.3% in the first quarter of 2011, broadly in-line with the April 2011 IMF World Economic Outlook. On the negative side, the earthquake and tsunami in Japan heavily impacted industrial production as well as consumer sentiment and spending. Growth also disappointed in the United States, in part due to transitory factors, namely higher commodity prices, bad weather, and supply chain disruptions from the Japanese earthquake. In contrast, growth surprised on the upside in the euro area, driven by increased investment activity in Germany and France. Growth in emerging and developing economies was mostly in-line with expectations. Global activity is projected, by the IMF, to slow in the second quarter of 2011, and then reaccelerate in the second half of the year. Economic activity is expected to remain unbalanced with risks to the downside (due to concerns about the Euro-area and the path of recovery in the US). Growth is set to be sluggish in advanced economies facing fiscal and financial sector balance sheet problems, which will continue to be a drag on employment. Activity will continue to expand strongly in advanced economies that do not face such challenges, as well as in many emerging and developing economies. Importantly, the fundamental drivers of growth remain in place, namely still accommodative macroeconomic conditions, pent-up demand for consumer durables and investment, and strong potential growth in emerging and developing economies. Growth in the advanced economies is projected to average about 2.5% during , slightly weaker than in the April 2011 IMF World Economic Outlook. Growth in emerging and developing economies is expected to be 6.5% during , in line with the April 2011 World Economic Outlook projections. 10

11 Global inflation picked up from 3.5% in the last quarter of 2010 to 4% in the first quarter of 2011, more than 0.25 percentage points higher than projected in the April 2011 IMF World Economic Outlook. Inflation accelerated mainly because of larger than-expected increases in commodity prices. However, core inflation also crept up across a number of economies. Among advanced economies, core inflation remained subdued in the United States and Japan and rose moderately in the euro area. Among emerging and developing economies, inflation pressures have become increasingly broad-based, reflecting a higher share of food and fuel in consumption as well as accelerating demand pressure. Kevin Lings, Laura Jones and Xhanti Payi (STANLIB Economics Team) 11

12 Weekly Market Analysis Currencies/ indices/ Friday s Close Weekly Move YTD commodities 24/06/11 (%) (%) 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 * MSCI - Morgan Stanley Capital International Source: I-Net Bridge 12

13 Rates These rates are expressed in nominal and effective terms and should be used for indication purposes ONLY. Standard Bank Money Market Fund Nominal: Effective: 5.28% per annum 5.41% 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 25 June 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 Cash Plus Fund Effective Yield: 6.04% STANLIB Dividend Income Fund Effective Yield: 3.99% 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 24 June 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 (currently tax exempt) and taxable 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. The Manager has received a circular, (CISCA Circular No.11), from the Registrar of Collective Investment Schemes regarding a joint investigation of National Treasury, SARS and the FSB, which is currently in progress with regard to dividend income fund type portfolios. The Manager is obliged, in terms of this circular, to bring the following to your attention with regard to this investigation. The outcome of the investigation could affect certain structures and SPVs (special purpose vehicles) used by underlying investments of these types of portfolios, which may result in possible adverse tax consequences, and may require amendments to existing legislation. The abovementioned regulators still have concerns which could impact negatively on the future of these portfolios and the continuation of these portfolios can therefore not be guaranteed. The Manager however do not believe that there is any current cause for concern regarding the STANLIB Dividend Income Fund and should there be a more definitive outcome from the investigation investors in our STANLIB Dividend Income Fund will be informed timeously of any legislative changes that may affect their investment. 13

14 Liberty Investments Life Annuities Current Rates for 27 th June 1 st July 2011 Payments are assumed to be paid monthly in advance with no guarantee period or annual escalation in income. Ages indicated assume client is the exact age shown. No tax has been deducted. Gender Male Female Age last birthday Contribution R 100,000 R 811 R 857 R 923 R 738 R 780 R 818 R 250,000 R 2,090 R 2,205 R 2,371 R 1,907 R 2,013 R 2,105 R 500,000 R 4,235 R 4,465 R 4,799 R 3,868 R 4,079 R 4,265 R 1,000,000 R 8,547 R 9,010 R 9,679 R 7,810 R 8,234 R 8,605 The table above shows the monthly annuity that an annuitant will receive for life in return for the single premium in the left hand column. Note that the annuity depends on the annuitant s exact age and gender. The rates above were calculated assuming maximum commission and will be enhanced if a commission discount is selected. 14

15 Glossary of terminology Bonds Cash Collective Investments Compound Interest Dividend Yields Dividends Earnings per share Equity 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. 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. 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. 15

16 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 Smaller Companies Funds Value Funds 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-than-average 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. 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. 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

17 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) 17 Melrose Boulevard, Melrose Arch, 2196 P O Box 202, Melrose Arch, 2076 T (SA Only) T+27(0) E contact@stanlib.com Website 24 Ameshoff Street, Braamfontein, 2001 P O Box 10499, Johannesburg, 2000 T E info@liberty.co.za Website STANLIB Wealth Management Limited Reg. No. 1996/005412/06 Authorised FSP in terms of the FAIS Act, 2002 (Licence No. 26/10/590) Liberty Group Limited Reg. No. 1957/002788/06 Authorised FSP in terms of the FAIS Act (Licence No. 2409) STANLIB Collective Investments Limited Reg. No. 1969/003468/06 L4053N 17