INVESTMENT COMMENTARY FOR 2018

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1 Quarter INVESTMENT COMMENTARY FOR 2018 The Year of the Dog The year of the dog the zodiac associated with 2018 by the Chinese calendar turned out to be an appropriate description for the fortunes of investment markets both locally and abroad. On the JSE, the year started with markets in a confident mood after Cyril Ramaphosa unearthed Jacob Zuma s hold on the ANC and the country. However, as the year progressed it became apparent the market was in fact overconfident Ramaphosa is no miracle-maker and it will take years to rectify the damage done by the Zuma administration. South African investors are fortunate that a large proportion of their wealth is invested outside of our borders via rand hedges such as Naspers, British American Tobacco and Richemont. These rand-hedges were key drivers of the JSE since the bottom of the previous cycle in However, as 2018 progressed a few dark clouds started to gather over the global economy, resulting in a correction in global markets and rand-hedges on the JSE. The JSE All Share Index ended the year down 8.5% and the MSCI World Index faltered in the last quarter to return a paltry -8.9%. Indeed, the year of the dog. Despite the disappointing year, both local and global equities have still produced returns above inflation over the past 7 years (in rand-terms) the value of time in the market. Total Returns - 7 years to 31 December ,0% 18,0% 16,0% 14,0% 12,0% 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% 18,3% MSCI World Index 12,5% MSCI Emerging Markets 10,7% JSE All Share Index 5,4% SA Inflation Annualised. Source: Thomson Reuters DataStream.

2 +20.8% On a more positive note both the True North IP Flexible Equity Fund and True North IP Enhanced Property Fund achieved their objectives of providing investors with better returns than their market benchmarks in These results are discussed below: True North IP Enhanced Property Fund The True North IP Enhanced Property Fund returned -4.1% and withstood a 25.3% decline by the JSE All Property Index the worst calendar year on record for this sector. The fund outperformed its benchmark by 20.8% and testament to this, it ended 2018 as the top-performing SA Listed Property Fund over 2 years. Our strategy of not aligning ourselves closely to the benchmark (known as active risk) has paid of materially. Weathering the Storm Source: Thomson Reuters DataStream The key reason for the fund s significant outperformance in 2018 was low exposure to the: (1) Overvalued Resilient-stable (2) Struggling SA Mall and Office sectors (3) Weakening UK Property Market Exposure to offshore property, niche sectors (self-storage, logistics) and fixed interest investments further contributed to outperformance.

3 Despite the sector s large decline in 2018, there are currently only a handful of good investment opportunities in the local property market. However, we are in the fortunate position that the fund can allocate a large portion of its capital in offshore markets where we see a wide array of opportunities. True North IP Flexible Equity Fund The True North IP Flexible Equity Fund returned -6.1% in 2018, providing a 2.0% active return over its benchmark (-8.1%). Very good returns from Sasol (+28.0%), Anglo American (+18.3%) and Santam (+16.4%) contributed the most to outperformance in the year. British American Tobacco (BAT) declined by -35% and was by far our weakest performer in The reason for the decline in the BAT share price was a proposed ban on menthol cigarettes in the United States. Menthol sales account for 20% of BAT s total revenues. We believe the market has overreacted to the likely menthol ban in the US, yet we also recognize the increased risk to BAT s future cash flows. At the time of writing we are selling a portion of our BAT stake and buying Philip Morris International (PMI) a similar high-quality tobacco company but with no exposure to the US cigarette market. The Year of the Pig associated with good fortune and wealth. The upshot to the high volatility in 2018 is that it has left numerous mispriced stocks 1 in the market. Entering the 2019 year of the pig we are buying AB Inbev at a 37% discount to its fair value; topping up on Apple Inc. and adding Philip Morris International at a 21% discount to its fair value. Locally, we see more than 20% upside in selected banks and are buyers of property stocks Fairvest Properties, Echo Polska and Sirius Real Estate at very attractive prices. Greedy as a pig. ECONOMIC DATA CPI: December % PPI: August % Unemployment (Q3 18) 27.50% Repo Rate 6.75% Prime rate 10.25% GDP (Q3 18) 2.2% q/q 1 The difference between a stock s share price and its intrinsic value

4 STOCKWATCH: ANHEUSER-BUSCH INBEV The Wide Moat 2 around its Castle When Anheuser-Busch Inbev the world s largest brewer acquired SABMiller in October 2016 it irreversibly beat its competitors to the cost leadership position in the global beer market. Company profile: Anheuser-Busch InBev (ABI) is the largest brewer in the world and one of the world's top five consumer product companies by operating profit. The company's portfolio now contains five of the top ten beer brands by sales and 18 brands with retail sales over $1 billion. AB InBev was originally created by the 2008 merger of Belgium-based InBev and U.S.-based Anheuser-Busch. Led by CEO Carlos Brito, ABI has made transformative deals for Interbrew and Anheuser-Busch, and more recently the acquisition of SABMiller. Brito s playbook is to buy brands with a promising growth platform, expand distribution, and ruthlessly squeeze costs from the business by removing duplicate costs, bringing distribution inhouse and expanding volume it has tripled Budweiser's volume in China in less than three years! Economies of scale 3 is the single most important competitive advantage in the beer industry and ABI now produces more than double the beer volumes of its closest rival Heineken. This vast global scale and its near-monopoly dominance in Brazil (where subsidiary Ambev generates an enormous 50% operating margin) has given rise to one of the widest economic moats in the global consumer defensive sector. ABI s competitive advantages have allowed the firm to generate excellent returns on invested capital (ROIC). the % earned for every dollar spent by the company to expand its business. A return above 20% is regarded as excellent, whilst a return below 8% is generally regarded as poor. 2 The term economic moat refers to a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms 3 Economies of scale is the competitive advantage that large entities have over smaller ones. The larger the business, the lower its per-unit costs.

5 As seen from the blue bars in the chart below, ABI s ROIC has remained above 20% over the past 12 years (even throughout the great recession of 2008/2009). Source: Thomson Reuters Eikon The acquisition of SABMiller has ultimately cemented the moat around ABI s castle, and the brewer will likely continue to achieve an industry-leading ROIC. Written by: Wim Prinsloo Portfolio Manager John Swart Chief Investment Officer For more details on holdings and performances, please view the Minimum Disclosure Documents which can be downloaded from our website: Sources: Morningstar Premium, Thomson Reuters DataStream, Trading Economics

6 Disclosure Collective Investment Schemes are generally medium to long term investments. The value of participatory interests or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. The performance is calculated for the portfolio. The individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. The fund is invested in a portfolio of collective investment schemes that levy their own charges, which could result in a higher fee structure for the fund of funds. A schedule of fees and charges and maximum commissions is available on request from the manager. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The Manager retains full legal responsibility for the Fund, regardless of Co-Naming arrangements. Transaction cut off time is 14:30 daily. Valuation time is 15:00 (17h00 at quarter end). Prices are published daily and available newspapers countrywide, as well as on request from the Manager. IP Management Company (RF) Pty Ltd is the authorised Manager of the Scheme contact or clientservices@ipmc.co.za. Standard Bank is the trustee / custodian contact compliance- IP@standardbank.co.za. Additional information including application forms, the annual report of the Manager and detailed holdings of the portfolio as at the last quarter end are available, free of charge, from clientservices@ipmc.co.za. IP Management Company is a member of ASISA. Financial Advisor fees as agreed between the Investor and the Advisor may apply and payment to the Advisor will be facilitated on behalf of the Investor. A statement of changes in the composition of the portfolio during the reporting period is available on request. 5 The portfolio may include foreign investments and the following additional risks may apply: liquidity constraints when selling foreign investments and risk of non-settlement of trades; macroeconomic and political risks associated with the country in which the investment is made; risk of loss on foreign exchange transactions and investment valuation due to fluctuating exchange rates; risk of foreign tax being applicable; potential limitations on availability of market information which could affect the valuation and liquidity of an investment. All these risks could affect the valuation of an investment in the fund. CONTACT DETAILS FOR IP MANAGEMENT COMPANY Tel CONTACT DETAILS OF THE TRUSTEE Compliance-IP@standardbank.co.za 6 Funds administered by: