The Weekly Focus. A Market and Economic Update 28 May 2018

Transcription

1 The Weekly Focus A Market and Economic Update 28 May 2018

2 Contents Newsflash...3 Market Comment... 3 Other Commentators... 5 Economic Update...7 Rates STANLIB Money Market Fund STANLIB Enhanced Yield Fund STANLIB Income Fund STANLIB Extra Income Fund STANLIB Flexible Income Fund STANLIB Multi-Manager Absolute Income Fund... 12

3 Newsflash Apart from the recent strong rally in the big mining shares and in Sasol and Mondi, our stock market continues to struggle Market Comment Offshore Market Comment Two major economic developments have occurred over the past week or so. The first is the sudden and sharp pullback in the medium to long-term cost of money in the US on the back of the sharp drop in yield of the US 10-year government bond. The yield reached a high of 3.13% (a price low) ten days ago and is today back down at 2.93%, some 20 basis points lower - and back at February s level. Who knows whether this is a permanent or temporary drop in yield (rise in price) for this economic cycle, but it is a most intriguing move, positive for now for the economy and for equities. One of the reasons equities have struggled since January is the rising cost of money in the US on the back of a strong economy. So far there is no evidence of a slowing economy, unless the bond market knows something we don t know, although it could also be that inflation is perceived to be under reasonable control too - despite the strong economy. The 10-year yield ended 2017 at 2.45%, so is still somewhat higher at 2.93%. In 2007 the 10-year yield was at 5% and in 2008 before the stock market crash it was at 4%. The other potentially big economic change is that the oil price, which ended 2017 at $66.50, hit $80 last week and has now drifted back to $75 on the news that both Russia and OPEC are close to a decision to increase production by about one million barrels a day. I have seen one news report on Bloomberg suggesting that The Donald Trump has put pressure on Saudi Arabia to calm the rising oil price by increasing production. Certainly a rising price does create a risk for both inflation and for a strong global economy by squeezing both consumers and companies, especially considering that most currencies have been falling against the dollar too for much of At this stage the oil price, in stronger dollars, is still in a strong uptrend that started last June at $45. However, some relief would be welcome. Of course the negative side of a falling oil price is that oil shares fell -5% in both the US and Europe last week. A week ago the Energy sector of the S&P 500 Index was +8.2%, the best performance of all sectors (even ahead of the +8% of the IT sector). So today the IT sector is back in first place at around +8%, followed by Consumer Discretionary s +6.4%, then Energy s +3%. The S&P 500 Index was up slightly last week and is +1.8% so far in 2018, excluding dividends. The Nasdaq Index is still showing the best return of +7.7% in 2018, then the smaller share Russell 2000 Index, which is up +6% and which is the first major index to regain its record high since the late January correction. The MSCI World Index is +0.3% in dollars so far in 2018 (+10.4% over the past 12 months). The approximately 48% of the index outside of the US has been hurt lately by the fall in almost all the currencies relative to the dollar. The stronger dollar has in particular hurt a number of emerging market currencies, except the biggest one, the Chinese yuan. The MSCI Emerging Markets Index is -1.8% so far in 2018, although it is still +11.8% over the past 12 months. Merrill Lynch showed an interesting chart recently, whereby the US Information Technology Index has a total market capitalisation/value of $6bn, bigger than both the market capitalisation of the Eurozone ($4.9bn) and Japan ($3.7bn).

4 One other economic factor that is influencing most markets lately is the strong uptrend of the US dollar relative to the euro, pound and most other currencies. The dollar hit a low of just over $1.25 to the euro back in February, just before stock markets peaked. Today it is at $1.167 to the euro, so is up +6.6% in just over 3 months, hurting risk-taking in commodities priced in dollars (except oil) and also in bonds and equities, especially of many emerging markets. The dollar is back at last July s levels versus the euro. Is it a new bull market in the dollar, or just a correction in its downtrend? No-one knows at this stage, although chartists point out that the elastic is very stretched at this stage in its latest surge upwards. It is a key factor because it affects risk-taking outside of the US. Analysts say its uptrend since February has been driven by the superior growth rate of the US economy relative to Europe and Japan in particular; also the rising inflation and interest rates in the US relative to those other regions. So hopefully both the economies of Europe and Japan will regain some of their lost steam as the year progresses and put an end to the dollar s rise and enable risk-taking to resume in emerging markets like ours; other developed markets too. Markets should be very quiet today because of holidays in both the US and UK. Local Market Comment Our stock market continues to struggle, apart from the recent strong rally in the big mining shares and in Sasol and Mondi. In particular, many industrial shares have been battered, lately the food producers. The J257 All Share Industrial Index (of all non-resource and non-financial shares) is % since its November high some 7 seven months ago, back at May 2017 levels and also 2016 levels. Just looking at the top 40 shares, Nepi Rockcastle is -43% in 2018, Tigerbrands -27%, British American Tobacco -22%, Capitec -20%, Imperial -20%, Anglogold -19%, Goldfields - 17%, MTN -15%, Discovery -14%, Bidcorp -14%, Truworths -12%, Sanlam -12%, Reinet - 12%, Remgro -11%, Barclays Africa -10%, Aspen -10%, Firstrand -9.5%, RMB -9%, Sappi - 8%, Naspers -7%, Woolies -7%, Spar -7%, Foschini -4%, Mediclinic -1% and Bidvest - 0.3%. So that is 25 of the top 40 shares that are negative so far in 2018! The Top 40 is -3.5%. The JSE Mid-Cap Index of roughly share 41 to 100 is -9.4% so far in 2018, while the JSE Small-Cap Index is -3.6% year-to-date. So it really is a bleak picture so far in 2018 for our local market. Perhaps the good news is that so many shares are being offered at a discount. There really is a share sale on the go, offering opportunity for resilient and patient investors. One wonders, though, to what extent the shocking state of our Municipalities around SA (except most of the Western Cape ones) is contributing to the poor performance of our listed companies and their share prices. In particular the Municipalities in the Free State seem to be at rock bottom, judging by Kevin Lings presentation this morning on the Auditor-General s report. So far in 2018 the All Bond Index continues to lead the risk-oriented SA asset classes with a return of +5.7%, followed off course by Cash, then the All Share Index with -3.4% and.the SA Listed Property Index with -17.3%. Property has drifted back down over the past week, almost back at its lows for the year (see chart below) and -6.1% from exactly one year ago (including dividends). Are Municipalities negatively impacting property companies as well? The chart below shows just the capital index of SA Listed Property, excluding dividends. The index is -20.1% so far in Including dividends it is -17.3%. The index excluding dividends is back at levels of both 4 and 5 years ago. Hopefully it is still in the process of forming a market bottom, something that has so far lasted about 4 months.

5 After the extremely steep fall witnessed since the end of 2017, it is not uncommon for the bottoming process to take a number of months. So there is still hope that a bottoming is taking place. The good news is that the historic (past 12 month) dividend yield of the index is an attractive 7.3%, its highest level in 6 years, higher than the current money market yield. Source: I-Net Bridge The one bright part of the ALSI has been the JSE Resources Index. It recently hit a 3-year high, but has pulled back since then on profit-taking in Anglos, BHP and Sasol in particular. Its total return so far in 2018 is +3.5%. Anglo American has the best return of the bigger shares so far in 2018 of +16%, then BHP +12%, Mondi +11% and Sasol +6%. Glencore is -4% so far this year because of its issues in the DRC in particular. Meanwhile the JSE Platinum Index is -29% so far in 2018 and a whopping -90% from its record high exactly 10 years ago, before the crash of It is trading now back at levels of 18 years ago in the year 2000, thanks to the very low rand platinum price. The dollar platinum price has been in a sharp downtrend relative to the global share index (MSCI World) for the last 7 years. The JSE Gold Index isn t much better: -25% in 2018 and -70% since its record high in 2006 and.trading at levels of 23 years ago in Other Commentators US Market Analyst, Elaine Garzarelli Garza s quantitative model on the S&P 500 Index declined recently from a reading of 77.5% to a still bullish 73.5%. She recommends a fully invested position. First quarter operating earnings for the S&P 500 Index were up +26% year-on-year, with tax cuts contributing about 40% of this gain. So even without the tax cuts, earnings would still be up over +15% year-on-year. Currently the S&P 500 Index is undervalued by around 3.5%, based on her forecast of an 18 times fair PE ratio. The Index of leading economic indicators in the US recently rose by +6.6% in April, signalling solid economic growth this year. Manufacturing activity looks healthy, judging from both the Empire and Phil Fed Manufacturing indices in May. The retail sector should do well in the current economic climate of high consumer confidence, rising share prices, low unemployment and rising incomes. Also e-commerce retail sales are up +16.4% year-on-year.

6 Last year was difficult for many retailers with the highest number of store closures since the Great Recession. However, the cost-cutting will allow retailers to invest more in their online business. Although mortgage rates are up and likely to continue to rise, housing starts will likely remain strong due to increasing household formation, good employment and rising wages. BCA Research Last year s broad-based global growth recovery has given way to slower growth (in Europe, the UK and Japan) and increased differentiation in growth rates across economies. The US has gone from laggard to leader in the global growth horse race, helping to drive the dollar to a 5-month high. The US 10-year bond yield rose by 90 basis points since the September low, compared to just 20 basis points for German bunds, 47 basis points for UK gilts and just 4 basis points for Japanese 10-year bonds. The leading economic indicators for the various regions confirms that US growth is likely to stay better than the other regions for a while longer. In the US the number of job openings exceeds the number of unemployed Americans for the first time in the 17 years of keeping these statistics. The biggest risk to BCA s cautious view on emerging markets is that China stimulates the economy proactively as an insurance policy against a possible trade war. So far there is little evidence that this is happening. In fact, the economy has lost some growth momentum. The turmoil in Italy s bond markets is a timely reminder that if the European periphery wants more stimulus, this has to happen through a weaker euro rather than through larger budget deficits. Stay short the euro versus the dollar. Take profits at around $1.15 to the euro. BCA remains overweight global equities for now. Paul Hansen Director: Retail Investing

7 Economic Update 1. SA consumer inflation jumped to 4.5%y/y in April The increase in VAT and the higher fuel price did most of the damage. Looking ahead, inflation is expected to continue to drifting higher. 2. SA Reserve Bank decided to leave interest rates unchanged in-line with expectations. The Bank indicated that the balance of risks to the domestic inflation outlook is now to the upside. 3. Emerging economies have attracted an astounding $2.5 trillion in foreign portfolio investment over the past nine years. Seventy percent of this has been in the form of bond flows. But risks are rising. 4. S&P decided to leave South Africa s credit rating unchanged, in-line with market expectations. Ratings outlook is stable. S&P warned SA's rating could be lowered if property rights were to weaken. 5. Nigeria Q GDP data shows that although the economy is growing, non-oil economic activity is still very weak. 1. In April 2018, South Africa s headline CPI inflation increased by a substantial 0.8%m/m, which was actually less than market expectations for an increase of 0.9%m/m. As a consequence the annual rate of inflation jumped to 4.5% from 3.8%y/y in March Core consumer inflation rose from 4.1% to 4.5%, having fallen more than expected in prior months. Most of the increase in inflation this month was due to the 1 percentage point increase in VAT, the higher fuel price and other excise taxes. It seems fair to argue that SA inflation reached a lower turning point last month (3.8%y/y) and will tend to move higher over the coming months. All of this supports the view that although the Reserve Bank cut rates in March 2018, they have been highlighting the importance of keeping SA inflation around the mid-point of the inflation target (4.5%). For 2017 as a whole, South African inflation averaged 5.3%, down from 6.3% in 2016, but up from 4.6% in SA inflation has averaged a respectable 5.6% over the past five years, and 6.1% over the past 10 years. For 2018 we forecast that SA inflation will average around 4.9%, including the recent increase in the VAT rate, and average about 5.6% in Most of the inflation categories contributed to the April increase in inflation. In terms of the VAT hike, Stats SA indicated that the exact impact on inflation is not yet entirely clear in the data, since VAT is not paid on all goods and services, and the introduction of the higher rate is being treated differently by providers. Most calculations suggested VAT would add anything from 0.4 to 0.6 percentage points to the annual rate of inflation. The new Health Promotion Levy or sugar tax on cool drinks came into effect in April at a rate of 2.1 cents per gram of sugar content exceeding 4 grams per 100ml. Newspaper articles reported predictions that the tax would raise the price of a can by approximately 11%. In terms of the CPI survey, prices for April show more modest average increases of 4.5% for a bottle and 5% for a can of carbonated soft drinks. Another key area of focus is the petrol price. Petrol inflation rose by a substantial 4.5%m/m in April, with the annual rate rising to 9.0%y/y. This largely reflects the 72c/l increase in the petrol price during the month. Unfortunately the petrol price increased by a substantial 49c/l in May, and is expected to rise noticeably further in June 2018 given the higher oil price and weaker exchange rate. At this stage we are forecasting a petrol price rise in June of about 85c/l. All of this means that SA petrol price will move sharply higher over the coming months and could reach 28%y/y in July 2018.

8 CPI excluding food and petrol is still well within the inflation target at 4.4%y/y, while core inflation (CPI excluding food, fuel and electricity) increased to 4.5%y/y from a low of 4.1%y/y last month. Services inflation was recorded slightly higher at 5.3%y/y (5.1%y/y last month), while administered price inflation moved jumped sharply to 6.2%y/y, mainly due to the higher petrol price. The inflation rate for pensioners also increased substantially from 4.1%y/y to 4.7%y/y. 2. The South African Reserve Bank decided to leave the Repo rate (Repurchase Rate) unchanged at 6.50% at its MPC meeting last week. This was in-line with market expectations. The Reserve Bank last adjusted interest rates in March 2017, when they cut rates by 25bps. According to the MPC, the interest decision was unanimous. In the making the decision the SARB highlighted that the balance of risks to the domestic inflation outlook are now to the upside. In terms of inflation the Reserve Bank highlighted the following: Food prices are expected to increase by 4.9% in 2018 and by 5.5% in Assumptions for the oil price were revised up by US$7 per barrel to US$70 for 2018 and by US$5 per barrel, to US$67, for the next two years. Nominal average wage growth is expected to be sticky around the 7.0% level over the next three years. The full impact of the VAT increase may still be felt in the coming months. Greater clarity with regard to electricity tariffs is expected in June when NERSA is scheduled to respond to Eskom s application for an increase in the order of 30%. The SARB s current assumptions are for an 8.0% increase from mid-2019 and a further similar increase in mid The inflation forecasts for 2018 and 2019 are 4.9% and 5.2% respectively, while the forecast for 2020 is 5.2%. Although inflation is expected to remain within the inflation target range over the entire forecast period, the balance of risk has tilted to the upside. Global inflation remains on a moderate upward trend, but still at low levels. Rising international oil prices could derail the relatively benign global inflation prognosis. In terms of the growth outlook the Bank highlighted the following: The domestic economic growth outlook has improved moderately amid rising business and consumer confidence, despite a disappointing first-quarter performance in a number of key sectors. Although the domestic growth outlook remains challenging, growth is still expected to outperform recent year outcomes. Consumption expenditure by households is expected to be the main driver of growth going forward. Consumption expenditure growth is forecast to remain below 2.0% in both 2018 and 2019, but is expected to reach 2.5% in The SARB s forecast for GDP growth is unchanged at 1.7% for 2018, but has been revised up from 1.5% to 1.7% for The forecast for 2020 is unchanged at 2.0%. In terms of the Rand exchange rate the Bank highlighted the following: The main driver of this recent rand weakness has been developments in the US financial markets, where Treasury yields exceeded 3.0% for the first time since July A number of emerging markets have experienced capital outflows and currency depreciation, with those with wider current account deficits and other macroeconomic imbalances being most vulnerable. Month-to-date in May, non-residents have been net sellers of South African government bonds to the value of R33.6 billion, contributing to the sharp increase in long-term domestic bond yields. In the near term, the rand is expected to remain volatile, with movements dominated by the changing assessment of these global trends.

9 In contrast with the previous MPC meeting, the Bank now assesses the risks to the inflation forecast to have moved to the upside. This change is mainly due to global developments. Key uncertainties relate to the outlook for the currency and the oil price. Although inflation is still expected to remain largely under control over the coming year, it will tend to drift to the top-end of the inflation target in the first half of 2019, before stabilising at around 5.5% for 2019 as a whole. Importantly, the Reserve Bank recently highlighted the importance of inflation stabilising around the mid-point of the inflation target (4.5%) and not at the upper-end of the band (6%). The weaker exchange rate, higher oil price, and above inflation increase in public sector wages clearly add upside risks to inflation. Consequently, we expect the Reserve Bank to leave interest rates unchanged for a considerable period while trying to gauge the impact of further hikes in US interest rates on emerging economies. 3. In the nine years from 2009 to 2017 emerging markets attracted a staggering $2.519 trillion in net foreign portfolio investment. That easily surpasses the portfolio flows these markets attracted in the nine years immediately preceding the global financial market crisis in It also means that foreign ownership of emerging market financial assets are at an all-time high, with the inflows in 2017 only fractionally below the record level achieved in Understandably, the on-going search for yield global investment theme meant that most of these investment inflows into emerging markets (69.7%) were in the form of fixed interest (bond) investments, with the remaining 30.3% comprising equity investments. Perhaps more interesting is a breakdown of the countries that received the bulk of the inflows. In top spot over the past nine years is China with 18% of total emerging market portfolio flows; split somewhat in favour of equity flows (56% of total). This is followed by Mexico (13.6% of total emerging market flows, 91% of which represented debt/bond flows), Brazil (9.8% of total, 55% in the form of equities), South Korea (7.0% of total, 50.5% in the form of equities), India (7% of total, 70% in the form of equities), Turkey (5.8% of total, 89% in the form of debt flows), and Indonesia (5.5% of total, 98% in the form of debt flows). While Russia was able to attract significant bond inflows over the period, they also experienced a substantial outflow of equity investment. In total, the foreign portfolio investment into South Africa from 2009 to 2017 amounted to around 5.3% of all emerging market investment flows, 57% of which was in the form of debt flows. The above data suggests that in total eight emerging markets, including South Africa, attracted roughly 66% of all foreign portfolio investment into emerging markets. Looking forward, emerging economies can continue to attract substantial portfolio inflows, but this is largely contingent on a range of factors including maintaining the growth differential with developed economies, a smooth, modest and predictable tightening of monetary policy by the Federal Reserve, and relatively stable commodity prices. Critically, it also suggests that any unexpected turbulences in global financial markets could disproportionately negatively impact portfolio flows to emerging markets ( risk-off trade ), generating major challenges for a wide range of emerging market currencies, especially those with either a more highly indebted corporate sector, significant holdings of foreign debt or a weakening of their economic fundamentals. 4. Standard and Poor s Ratings Services decided to leave South Africa s international credit rating unchanged at BB. (BB is two notches below investment grade). In addition, S&P kept South Africa domestic credit rating unchanged at BB+. (BB+ is one notch below investment grade). S&P also maintained its stable outlook for the ratings. S&P downgraded South Africa s international and domestic credit ratings by one notch back in November 2017, but as recently as 2 December 2016 S&P had confirmed South Africa s credit rating at BBB-, albeit with a negative outlook.

10 In making their latest ratings decision S&P highlighted that South Africa s credit ratings are constrained by the weak pace of economic growth, particularly on a per capita basis, as well as the large fiscal debt burden and sizeable contingent liabilities. Furthermore, South Africa faces significant challenges in light of high levels of poverty, unemployment, and economic inequality, which break along racial lines. More positively, according to S&P, the ratings are supported by the country's monetary flexibility, large domestic financial sector, and deep capital markets, alongside moderate external debt, with very low levels of external debt denominated in foreign currency. Furthermore, S&P argues that while the policy framework remains broadly the same as previous ANC administrations, there seems to be renewed impetus to the reform agenda. The new leadership of the government is working on measures to enhance governance at state-owned enterprises (SOEs), reviewing weak SOEs' balance sheets to enhance financial sustainability. The government has also expressed its willingness to promote private-sector investment by removing policy uncertainty, improving competitiveness in economic sectors, and announcing fiscal measures to stabilise public finances. S&P expects SA s annual change in net general government debt to average 4.5% of GDP per year over , while net general government debt to GDP is forecast at around 52% by the fiscal year ending March Debt-servicing costs, measured by the ratio of interest to revenues, are anticipated to remain close to 12% of revenues. Overall, S&P suggests that South Africa's public finances still face risks from higher public-sector wage agreements than budgeted, and potential unbudgeted support to SOEs with weak balance sheets, which are not included in the current fiscal framework. Lastly, the South African Reserve Bank is regarded as operationally independent, with transparent and credible policies In terms of economic growth, S&P anticipates a pick-up in private-sector fixed investment, while lower inflation could boost households' disposable income, resulting in higher household consumption. Consequently, they estimate economic growth to average at least 2% over They also expect the current account deficit to average 3.2% of GDP over , arguing that the size of the current account deficit is relatively low by historical standards, but has been funded predominantly via volatile portfolio inflows. Foreign investors hold nearly US$20 billion in government local currency debt. S&P highlight that such flows can be susceptible to changes in foreign investor sentiment, and that interest rates in the US are forecast to rise. In terms of land expropriation S&P suggested that it is still too early to tell how the process will unfold, but they expect that rule of law, property rights, and enforcement of contracts will remain in place and will not significantly hamper investment in South Africa. In that regard S&P warned that they could lower SA s ratings if there is fiscal deterioration due to higher expenditure pressures or weaker economic performance. They could also consider lowering the ratings if the rule of law, property rights, or enforcement of contracts were to weaken, undermining the investment and economic outlook. The decision by S&P to leave South Africa s credit rating unchanged was broadly anticipated, and the tone of the statement was a lot more positive compared with November 2017, with no real surprises. We expect S&P to maintain the current rating until after the national election in 2019, with any upward adjustment to the rating highly dependent on higher economic growth, improved fiscal parameters, and a clear indication that the SOEs are in better financial health. 5. Nigerian Real GDP growth was recorded at 1.95% y/y in the first quarter of 2018 which was below both the consensus forecast of 2.6% y/y and the fourth quarter 2017 figure of 2.1% y/y. This was disappointing considering that most indicators were suggesting a strong start to the year.

11 Oil production (including condensates) reached an average of 2 million barrels per day (mbpd) for the first quarter of this year. Hardly surprising and with a higher oil price this helped foreign exchange reserves reach a near five-year high of $47.8 Billion, almost 12 months of import cover. This also led the oil sector to grow by an impressive 14.8%. Oil contributed 9.6% towards Nigerian GDP in the first quarter. The non-oil sector weakened to 0.8% y/y in the first quarter after it had increased to 1.5% in the fourth quarter of Agriculture grew at 3% and due to stable weather patterns growth in the sector tends to be consistent at around those levels. This feeds back towards inflationary data which has seen food inflation fall sharply in recent months. The average agricultural output is starting to trend lower and could be attributed to the unrest in farming areas. After being in recession for the last 3 years, Manufacturing recovered to 3.4%. This is consistent with the improvement in PMI figures which are currently hovering at record levels. The sector was growing at double digit levels in 2013 so it is still some way of its potential. Disappointingly Retail and Wholesale Trade activity fell sharply to -2.6% after recording an impressive recovery in the previous quarter at 2.1%. This sector gives some picture into the consumer and the optimism in this sector appears to be starting to wane. The Telecommunication Sector bounced back to 1.9% after being in recession in We expect further improvements as the year progresses. The Finance and Insurance Sector surged to 13.3% after being flat in the previous quarter. This could be attributed to the amount of flows going into the country that were facilitated by banks. Insurance companies also recorded a marked improvement. Growth in Nigeria averaged 7.7% between 2004 and It then softened to 2.7% in 2015 on the back of weaker oil prices. The country then fell into its deepest recession in 25 years and contracted by 1.6% in The Nigerian economy then recovered 0.8% in 2017 driven by higher oil production coming off a low base. The non-oil sector first quarter performance has clearly disappointed many analysts, with the sector in essence being stagnant for the last nine quarters. With that being said we still believe that growth in the second half of the year will be driven by the non-oil sector. Election spending and easing of monetary policy should help create some demand which should be positive for growth. We maintain our 1.9% growth forecast for this year with some upside risk. We are likely to adjust our outlook when there is sufficient evidence that growth has broadened beyond the oil sector. Please follow our regular economic updates on Kevin Lings, Laura Jones & Kganya Kgare (STANLIB Economics Team)

12 Rates These rates are expressed in nominal and effective terms and should be used for indication purposes ONLY. STANLIB Money Market Fund Nominal: 6.51% Effective: 6.71% 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 May 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: 7.79% 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 25 May 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 investors 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: 8.33% STANLIB Extra Income Fund Effective Yield: 7.84% STANLIB Flexible Income Fund Effective Yield: 6.23% STANLIB Multi-Manager Absolute Income Fund Effective Yield: 7.72% 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 25 May For the STANLIB Extra Income Fund, Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. The historical yield over the last 12 months is reported for the STANLIB Multi-Manager Absolute Income Fund.

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