The political risks are here to stay and fund managers are taking them into account when constructing their portfolios.

Transcription

1 as at 31 March 2017 Destiny Prudential MET Fund of Funds Assets managed by: Destiny Asset Managers Destiny Asset Managers is a FSB approved Category II asset management business, which has been operating from the Helderberg and Winelands area since Our core focus is to provide independent advisors and their clients with an investment solution that is thoroughly researched and easy to understand. We aim to balance risk and return parameters in line with the investor's long-term investment objectives. Destiny Asset Managers does the required proper due diligence of manager selection on behalf of independent financial advisors (IFAs) which is critical in the changing legislative environment. This allows IFA's to focus on their core function which is financial planning. Managers corner Meet your managers Greg Flash MSc (Eng), MSc (MED), CAIA Member of Destiny Investment Committee With a Master s degree in Biomedical Engineering (UCT), Greg began his career in research and development in the medical imaging industry in South Africa and the USA. In 2007 he changed career paths and joined the multi-management division of Alphen Asset Management, which later became PSG Multi-Management. There he became a senior member of the award-winning PSG Multi-Management team, which managed over R18 billion of assets. He left PSG in 2013 and started Southern Cross Asset Consulting, which provided independent asset consulting on funds and portfolios, both locally and offshore. In May 2015 Southern Cross Asset Consulting was sold to GCI and Greg took up the position of Chief Investment Officer. He is a Chartered Alternative Investment Analyst (CAIA). Managed portfolio since 15 Oct 2008 Managers view Economic overview Political Risk Effects on Markets - A month ago we wrote how the market sentiment was showing signs of improvement both locally and abroad. s and the average person in the street were feeling more optimistic after the horrible How this has changed in a matter of days here in South Africa with the turmoil caused by the cabinet reshuffle and the downgrade to sub-investment grade of SA s offshore credit rating by S&P Global (with the other two ratings agencies to follow). In the US, the exuberance in the US market which we also wrote about last month has dissipated. As in SA, this negativity was caused by politics with the Trump administration failing in its bid to recall or change the Affordable Care Act (Obamacare). s started to have second thoughts about if President Trump could be able to fulfil his campaign promises. Europe is also in the midst of political machinations with the UK s Brexit, upcoming elections in France, Germany, Norway and Italy. Normally politics has an acute impact on markets, short and sharp market spikes that dissipate over time. Examples of this were the blowout of the Rand in 2001 and even the effect of 9/11 on global market. What is happening now is different and politics is having more of a chronic effect on economies and markets. Research 1 shows that this change from acute to chronic effects is due to the level of economic stress. When economies are strong, political shocks are acute, but when they are under strain the shocks can have a sustained effect this is what is happening here in SA and Europe. Although the US market has been rampant, it is not clear how robust it actually is. The rising inequality between the ultra-rich and the middle-class is growing, in particular the middle-class is getting poorer 2. At the same time economic growth rates (real GDP) have been dropping 3. These two facts are driving the nationalism and protectionism that is permeating politics worldwide. The political risks are here to stay and fund managers are taking them into account when constructing their portfolios. Effect of Credit Downgrade - S&P Global assigning us with junk status has had less effect on the All Share Index, our bond market and the Rand than Nenegate in December 2015 did. The reasons for this are twofold the market has priced in the downgrade for months now; and the actual downgrade has occurred in a time of Emerging Market exuberance driven by the global search for yield because of uncertainty in developed market returns going forward. Our local currency credit rating is still rated as investment grade and hence we remain part of World Government Bond Index, be it a very small part (less than 1%). If we were to be excluded due to a downgrade on the local currency there would be forced sellers and this would hurt the Rand further, which could cause a further downward spiral on our economy. Currently foreign investors remain confident in our Reserve Bank s ability to fight inflation and keep to its fiscal discipline. Although history shows that rising back to an investment grade rating can take anywhere from 8 to 12 years, this does not mean that investors will not want to invest in South Africa. We are still more attractive than our larger Emerging Market peers Russia and Turkey. In addition, political turmoil doesn t always deter investors which was evident when foreigners kept buying Turkish bonds while an attempted coup was taking place a few years ago. Lastly, Brazil was downgraded to junk status in December 2015 due to similar problems as we face and the interesting thing is that the market rallied thereafter, so our downgrade may not signal the end of the world. MET Collective Investments Destiny Prudential MET Fund of Funds QIR as at March 2017 Published: 04 May 2017 Page 1 of 5

2 Market overview Europe - The 2017 election season is in full swing and at this stage domestic political risks in the region seem contained, however, following the number of shock election results in major economies in 2016, political surprises cannot be ruled out and clouds continue to loom over the region s economic outlook. In focus is major player France, which will hold the first round of the most uncertain presidential vote in its recent history on 23 April. Right-wing Eurosceptic Marine Le Pen is widely expected to move on to the final vote, like her father, she won t clear the final hurdle as is the presumption of most analysts. According to the analysts at FocusEconomics, they are confident that a more mainstream candidate will come out on top in the end and thus downside risks to the economy are marginal. Germany, Europe s largest economy will also hold general elections later this year, which have the potential to facilitate a change in key Eurozone leadership. United Kingdom - The seasonally adjusted United Kingdom Manufacturing PMI fell to 54.2 in March 2017, its lowest figure in four months. Wage growth slowed markedly in the three months to January, while the increase in inflation observed in recent months continued unabated in February. Analysts are predicting a 3% inflation rate for this year. This together with the continuing tax credits and child benefits freeze, this will eat into consumer spending. Despite the improvement in employment rate, GDP is expected to ease back to 1.7% this year. On the political front we saw the triggering of Article 50 towards the end of March What are the investment implications of triggering Article 50? According to market analysts at Fidelity International, they believe the tricky two-year Brexit negotiations and the string of European votes between now and September are asymmetric risks. The likely market response to the possible outcomes of each is not balanced. Even more importantly, the asymmetry of each event points in a different direction - in Europe, the upside potential is greater than the downside risk; in Britain, the opposite is true. China - With all eyes are on the upcoming meeting between Xi Jinping and Donald Trump in April, which could help to de-escalate tensions between the two countries, particularly over trade policy. Should emerging market investors be concerned about the twin threats of Taper and Trade? Historically, looking at monetary policy, rate hikes reflect stronger global growth in the early stages of a tightening cycle, which is good for all markets but particularly those in the developing world. Trade is certainly the bigger worry, however market analysts are saying there are three reasons why a trade war is unlikely. Firstly, China-specific tariffs would see jobs move to other countries like Vietnam. Second, the imposition of import duties push up costs for US consumers. Finally, we can expect China to retaliate, which will hit sales of big US companies. has carried over some of the growth momentum from Q4 on the back of a dynamic manufacturing sector and strong infrastructure investment. On the monetary policy side, the credit growth target was lowered, signalling a slight tightening bias for this year. The National People s Congress offered no major surprises and Chinese authorities lowered the growth target for this year to 6.5%. United States of America - American households remain the backbone of economic growth. Although retail sales barely grew in February. Accelerating wage growth and rising equity and housing prices are likely to boost consumer spending in upcoming months. Economic activity is firming elsewhere, with the ISM manufacturing index rising to an over-three-year high in February. In politics the major headline grabber is the growing disagreements on the repeal-and-replace bill for the Affordable Care Act (ACA), also known as Obamacare. With all eyes on the ACA a comprehensive tax reform plan is unlikely to be greenlighted anytime soon. South Africa - GDP Growth contracted over the last quarter by -0.3%, with expectations for pick-ups pushed out on the back of the current political landscape dominating economic focus, and the decreased potential for rate cuts later in the year. The SARB last projected 2017 GDP growth to be 1.4%. The narrative behind expected inflation remains, with expectations that inflation should moderate in the second half of In March, the leading composite business cycle indicator remained in increasing territory however, the coincident indicator remains subdued. The answer lies in depressed consumer confidence and low business confidence (having been below the neutral mark for now 2 years). The catalyst for growth remains a change in both these regards. Sources: Focus Economics, Trading Economics, ETM Analytics, Fidelity International, Cinnabar Investment Management, Bureau for Economic Research, SA Reserve Ban, Prescient Investment Management, Northstar Asset Management, Prudential Investment Managers. 1 Pastor & Veronesi Political Uncertainty And Risk Premia, NBER Working Paper 17464, September 2011 and Empirical Research Partners, 7 October Emmanuel Saez & Gabriel Zucman, October 2015; Share of wealth, calculated by capitalising income reported by individual taxpayers, accounting for assets which don t generate income; data to Bloomberg, Schroders, as of 8 March 2017; Real GDP, geometric average. Portfolio overview The portfolio was rebalanced during the quarter Foord Balanced and Rezco Value Trend being sold out. Portfolio positioning The Portfolio is in the 3rd quartile over 1 year and 2nd quartile over 5 years and is ahead of the benchmark, the average of the South African Multi Asset Medium Equity category over 5 years. MET Collective Investments Destiny Prudential MET Fund of Funds QIR as at March 2017 Published: 04 May 2017 Page 2 of 5

3 Facts and figures Holdings Asset allocation (look through) 2017 Portfolio holdings Nedgroup Inv Core Diversified B Nedgroup Inv Core Guarded B PSG Flexible Coronation Capital Plus D Allan Gray Balanced A 9.97 Prudential Balanced B 9.96 Coronation Strategic Income D 9.45 Nedgroup Inv Balanced B 5.16 PSG Balanced A 0.01 SA Cash/Money Market 0.85 Q Portfolio holdings PSG Balanced A Prudential Balanced B Rezco Value Trend C Truffle MET Balanced B Allan Gray Balanced A Foord Balanced B Nedgroup Inv Core Diversified B Nedgroup Inv Core Guarded B Coronation Capital Plus B Local Cash/Money Market 1.40 MET Collective Investments Destiny Prudential MET Fund of Funds QIR as at March 2017 Published: 04 May 2017 Page 3 of 5

4 Performance Returns Cumulative for all periods less than 1 year, annualised for all longer periods. One year returns Cumulative returns ending 31 March each year. Fund: Destiny Prudential MET Fund of Funds Class A (Inception 1 December 2011) Benchmark: ASISA South African Multi Asset - Medium Equity Sector Average All portfolio performance is calculated for a portfolio/portfolio class. Individual investor returns may differ as a result of fees, actual date(s) of investment, date(s) of reinvestment of income and withholding tax. Annualised returns, also known as Compound Annualised Growth Rates (CAGR), are calculated from cumulative returns; they provide an indication of the average annual return achieved from an investment that was held for the stated time period. Actual annual figures are available from the Manager on request. All portfolio performance figures quoted (tables and charts where present) are as at 31/03/2017, based on a lump sum investment, using NAV-NAV prices with income distributions reinvested on the ex-dividend date. CPI/Inflation figures, where present, are lagged by one month. Cash figures, where present, are STeFI Composite Index returns. All figures quoted in ZAR. Source: Morningstar and/or Momentum. Information Destiny Prudential MET Fund of Funds R million Class Status Direct Retail TER Cost Ratios as at 31 December 2016 FYE Price, Participatory Interests and AUM TC TIC From TER NAV Price (cpu) Units in issue Size (Rands) A Open Yes Dec ,065, ,660,140 B Open No Dec ,072,084 36,943,031 MDD Class, Status, Direct Retail: A portfolio may have multiple classes, each of which may be open or closed to new investment, not all classes of a portfolio are available for direct retail investment as the different classes may be designed for/accessible to different investor types. Cost Ratios: The Total Expense Ratio (TER) is the percentage of the net asset value of the class of the Financial Product incurred as expenses relating to the administration of the Financial Product. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. A current TER may not necessarily be an accurate indication of future TER s. The disclosed TERs are shown as an annual percentage based on data for the period from the date shown to 31 December The Transaction Costs Ratio (TC) is the percentage of the net asset value of the Financial Product incurred as costs relating to the buying and selling of the assets underlying the Financial Product. Transaction costs are a necessary cost in administering the Financial Product and impact Financial Product returns. The TC should not be considered in isolation as returns may be impacted by many ot her factors over time including market returns, the type of Financial Product, the investment decisions of the investment manager and the TER. The disclosed TC is shown as an annual percentage based on data for the period from the date shown to 31 December The Total Investment Charges (TIC) is the sum of the TER of the relevant class and the TC of the Financial Product and is shown as a percentage depicting the annual costs relating to the investment of the Financial Product. Cost ratios are calculated using historical actual and/or estimated data and are provided solely as an indication/guide as to the annual expenses/costs that could be incurred. These ratios do not represent any current/actual charges or fees. FYE: The disclosed Financial year end TERs (total expense ratios) are shown as an annual percentage based on data for the 1 year period to 30 June Price, Participatory Interests and AUM: Data as at 31 March 2017 MDD: CIS regulations require a minimum disclosure document (MDD) to be compiled for all CIS portfolios, which must be viewed by an investor at point of sale. A link to the MDD that corresponds to the date of this QIR has been provided in the table above (for the relevant class of the portfolio) and we recommend that you review the MDD for further details on this portfolio. MET Collective Investments Destiny Prudential MET Fund of Funds QIR as at March 2017 Published: 04 May 2017 Page 4 of 5

5 Important information Disclosures Portfolio MET Collective Investments (RF) (Pty) Ltd (the Manager ), registration number 1991/003741/07, is authorised in terms of the Collective Investment Schemes Control Act, No 45 of 2002 (CISCA) to administer Collective Investment Schemes (CIS) in Securities. The Manager is the manager of the MET Collective Investments Scheme, and MMI Holdings Ltd is a full member of the Association for Savings and Investment SA. Standard Bank of South Africa Limited, registration number 1962/000738/06, is the trustee of the scheme. Destiny Prudential MET Fund of Funds is a portfolio of the MET Collective Investments Scheme and Destiny Asset Managers (Pty) Ltd, registration number: 2002/020091/07, an authorised financial services provider ( FSP ) under the Financial Advisory and Intermediary Services Act No. 37 of 2002 ( FAIS ), FSP number: 868, is the investment manager of this portfolio. Destiny Prudential MET Fund of Funds is a co-named portfolio, operating under an agreement entered into between the Manager and Destiny Asset Managers (Pty) Ltd, registration number: 2002/020091/07, an authorised FSP under FAIS, FSP number: 868. A co-named portfolio is a third party named portfolio bearing the name of both the Manager and the FSP, where the FSP undertakes financial services of a discretionary nature, as contemplated in FAIS, in relation to the assets of the portfolio. The Manager retains full legal responsibility for all third party named portfolios under the MET Collective Investments Scheme. This information is not advice, as defined in the Financial Advisory and Intermediary Services Act (No. 37 of 2002). Please note that there may be representatives of the FSP acting under supervision. Your financial adviser may be a related party to the FSP and/or the Manager of this portfolio. It is your financial adviser s responsibility to disclose details of any conflicts of interests that may apply, as well as all fees that they receive, in relation to an investment in this portfolio. Destiny Prudential MET Fund of Funds is a Fund of Funds CIS portfolio. A Fund of Funds, apart from assets in liquid form, consists solely of participatory interests in portfolios of CIS, which may levy their own charges, which could result in a higher fee structure for Fund of Funds than some other forms of CIS portfolios. This portfolio is permitted to invest in foreign securities which, within portfolios, may have additional material risks, depending on the specific risks affecting that country, such as: potential constraints on liquidity and the repatriation of funds; macroeconomic risks; political risks; foreign exchange risks; tax risks; settlement risks; and potential limitations on the availability of market information. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. s are reminded that an investment in a currency other than their own may expose them to a foreign exchange risk. Collective Investment Schemes (CIS) 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. CIS are traded at ruling prices and can engage in borrowing and scrip lending. The CIS may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. Different classes of units apply to portfolios, which are subject to different fees and charges. A schedule of fees and charges and maximum commissions is available on request from the Manager. The Manager reserves the right to close and reopen certain portfolios to new investors from time to time in order to manage them more efficiently in accordance with their mandate. Portfolios are valued daily at approx. 08h00 (T+1), latest prices can be viewed at and in some national newspapers. Forward pricing is used. Instructions must reach the Manager before 14h00 to ensure same-day value. The Manager does not provide any guarantee, either with respect to the capital or the return of this portfolio. Additional information on the proposed investment including, but not limited to, brochures, application forms and the annual report and any half yearly report can be obtained, free of charge, at or on request from the Manager. Any forecasts and/or commentary included in this document about the expected future performance of portfolios, asset classes or the market in general are not guaranteed to occur. Although all reasonable steps have been taken to ensure the validity and accuracy of the information in this document at time of publication, the Manager does not accept any responsibility for any claim, damages, loss or expense, howsoever arising, out of or in connection with the information in this document, whether by a client, investor or intermediary. This document should not be seen as an offer to purchase any specific product and is not to be construed as advice. s are encouraged to obtain independent professional investment and taxation advice before investing with or in any of the Manager s products. Contact details Scheme MET Collective Investments Scheme Custodian/Trustee Standard Bank of South Africa Limited Telephone: +27 (0) Registration no.: 1962/000738/06 Management company MET Collective Investments (RF) (Pty) Ltd 268 West Avenue, Centurion, 0157 PO Box 7400, Centurion, 0046 Facsimile: +27 (0) Call centre: ci.clientservice@momentum.co.za Web: Registration no.: 1991/003741/07 Third party manager Destiny Asset Managers (Pty) Ltd An authorised financial services provider, FSP No: 868 Block 7, Fairways Office Park, Niblick Way, Somerset West 7130 Posbus 461, Strand 7139 Telephone: +27 (0) Facsimile: +27 (0) info@destinyam.co.za Web: Registration no.: 2002/020091/ (0) info@destinyam.co.za MET Collective Investments Destiny Prudential MET Fund of Funds QIR as at March 2017 Published: 04 May 2017 Page 5 of 5