Contents Newsflash Market Comment Other Commentators Economic Update STANLIB Money Market Fund... 10

Transcription

1 09 March 2015

2 Contents Contents... 2 Newsflash... 3 Market Comment... 3 Other Commentators... 6 Economic Update... 7 STANLIB Money Market Fund STANLIB Enhanced Yield Fund STANLIB Income Fund STANLIB Flexible Income Fund STANLIB Multi-Manager Absolute Income Fund... 11

3 Newsflash HAPPY 6 TH BIRTHDAY, THE BULL MARKET! Market Comment Wow, we are six years down the track in this global equity bull market today! That is quite something, considering that the JSE All Share Index was 18,000 on this day six years ago versus 52,875 today and dividends have been very good over that time too. Even with the market down 0.8% early this Monday morning, the total return (including dividends) since 9 th March 2009 has been 242% or 22.6% per year compound growth. In dollar terms, the return has been 19.6% per year, although the ALSI in dollars has broadly moved sideways for the past three to four years. So if anyone has been selling into the strength of the market over the past few weeks, that is understandable, considering the market is expensive. Excluding dividends, the ALSI return has been 19.2% per year compounded, so the dividends have added a very impressive 3.4% compounded per year for six years. The MSCI World Index has done 193% in dollars over the past six years, or 19.6% compounded per year, including dividends, so that is almost a trebling in dollar value. In rand terms the MSCI World Index has done 238.6% or 22.5% per year, almost identical to the return of the All Share Index over this six year bull market period!! Looking at the graph of the global equity index in rands below (almost entirely the developed markets) one can see that the uptrend remains firmly intact, with new highs literally last Friday (thanks to rand weakness). But prior to 2009, SA investors made no money in rands in developed markets for over 9 years, from January 2000 to March Source: I-Net Bridge

4 Clearly patience is now paying off big-time! Those investors who held onto their offshore investments from the year 2000 or thereabouts are now reaping the fruits of their patience. Since March 2000 the annualised return of developed markets in rands is 8.6%, whereas the JSE All Share Index has returned 17.1% per year over the same period, which is 15 years. BUT over the last 3.2 years (since end 2011), the MSCI World Index has returned a whopping 30.9% per year in rand terms versus the 20.6% annualised return of the JSE All Share Index, as the rand has weakened sharply and our mining and construction shares have performed so poorly. Today stock markets are pulling back, after the US lost 1.4% on Friday when the much better jobs numbers came out. Why? Because bond yields jumped sharply (bond prices fell) as fears rose that the US Fed would start raising interest rates sooner. Stock markets have risen quite sharply of late, to new record highs, so the elastic is stretched (markets are overbought); thus a correction of sorts is overdue. It is now over three years since the last 10%-plus correction in the S&P 500 Index, which is creating some nervousness. Investors have piled out of US equity-based exchange traded funds (ETFs) so far in 2015 to the tune of $16.9bn, whilst at the same time they have invested $16.2bn into bond ETFs. This is because many people in the US think the US stock market is overpriced. Lately the equity market has gained nicely, while the bond market has lost money over the past few weeks, as the yields have risen sharply. The 10-year yield has jumped from its low of 1.66% at end January to 2.23% now, causing capital losses in excess of 12%. The US yield is now way higher than the German 10-year yield of 0.4%, even though the German yield may also be correcting (pushing yields higher). All-in-all, although stock markets are experiencing a pullback at this time and no-one knows how far the pullback will go, corrections or pullbacks are normal in bull markets and there are no signs that this bull market is over as yet, not by a while. Investor scepticism remains pervasive. There is almost no euphoria. As Sir John Templeton said all those years ago, bull markets grow on scepticism, they mature on optimism and they die on euphoria. Investors in SA and elsewhere remain fairly fearful. The painful memories of 2008/9 remain sharply ingrained in our minds. So this bull market probably has a way to go yet (possibly another year), especially in the developed markets - and our market has a high correlation with the US stock market. STANLIB and almost all other SA Fund Managers continue to regard our stock market as expensive, overpriced, overcooked. Since the end of June last year, the JSE All Share Index total return has been a fairly muted 6.4%, not much more than cash (not worth the extra risk), unless one sold then and bought back after the sharp correction in September/October. Since then the return has been 14.7%. Also, Resources have been a sharp brake on the All Share Index. Since the end of June last year, the JSE Resources Index has returned -22%, including dividends, while the JSE Financial & Industrial Index has returned +16.3%, a very good return (definitely worth the risk relative to cash, in hindsight). This morning, Credit Suisse s highly regarded Global Strategist, Andrew Garthwaite, raised his forecast year-end target price for the Euro Stoxx 50 Index of the top 50 shares in Europe from 3,600 to 3,900 (+8.3%). The market is around the 3,600 level now. He expects the Eurozone economy to grow by 1.5% to 2% this year, whereas he says the market is priced more for 0% to 0.5% growth. Positive earnings revisions (ie more company earnings are being revised upwards than downwards) are near all-time highs and he has raised his earnings forecast for this year for Europe from 8% to 10%, with 13% anticipated in 2016.

5 Meanwhile, back in the US the powerful dollar is a problem for the economy and for company earnings (acts as a brake), because some 40% of the sales of the big companies come from business outside the US. The market has shown its hand as far as currencies go. The dollar has broken up to a new 12-year high at $1.084 versus the euro, indicating that it may go further. Many forecasters are looking for a one to one exchange rate some time in The stronger dollar is negative for commodity prices, since commodities are typically priced in dollars and the relationship between a stronger dollar and falling commodity prices is strong (and vice versa). Since Friday gold, platinum, oil and other commodities have fallen in price, on cue. Foreign investors tend to like our stock market, or company shares, within the Emerging Market universe, because of the high return on equity of many of our financial and industrial shares, the good track record, sound management and credibility, the common language factor and the good dividend yields. Even after its massive run, the JSE Financial & Industrial Index is still yielding 2.5% on dividends. Although this is the lowest yield in 5 years, it is still much higher than the yields of almost all European ten-year government bonds, as well as the US ten-year yield, which is 2.23%. The US dividend yield is only just below 2% too. What we have witnessed of late is that many global investors who used to only buy bonds (for income) are now also buying equities because dividend yields are higher than most bond yields. The yield on the Dow Jones Euro Stoxx 50 Index is around 3.5%. Although it does make sense to lower one s exposure to local equities, it doesn t appear to make sense to sell out completely, other than in the very short-term if one is expecting a correction. Meanwhile the weak rand (especially versus the dollar) and the sharp correction (higher yields, lower prices) in the US bond market have caused a very sharp correction in our bond market, pushing our SA government 10-year yield up from 6.95% at end January to 7.82% today, with some loss of capital - almost as high as the 7.87% where it ended The yield rose over 8% briefly in December. STANLIB s Economist, Kevin Lings, is of the view that recent economic numbers out of the US have been softer than expected and that the economy is not as strong as the latest jobs number suggests; that the bond market has probably over-reacted, both in the US and here in SA. Only time will tell, of course, but he doubts that the US Fed will raise rates in June, but rather later in the year. Wages in the US are still only up 2% year-on-year. Also, inflation in SA is still on a downward tack, which should be good for bonds (lowering yields, raising prices from this level). SA Listed Property prices hit a new record high on Thursday, before correcting by 2% on Friday and another -1% by 11.15am today (Monday 9 th ). A correction may be due there because of the higher bond yields. Global listed property indices have fallen about 6% in dollars in the past six weeks, in response to the pickup in bond yields and generally some profit-taking after a sharp move upwards of around 15% in dollars since October.

6 Other Commentators US MARKET ANALYST, ELAINE GARZARELLI The strong dollar has caused Garza to reduce her earnings forecast for the S&P 500 for 2015 from 127 to 119 (by 6.3%), which is now just a 5.4% gain from Higher unit labour costs of late have also contributed to this reduction. This means that her fair value for the S&P 500 Index is now lower at 2,071, a mere 0.6% gain from here. So although her forecasts have been lowered, she still sees the S&P 500 Index as slightly undervalued, whereas many others see it as overvalued. Of course if the dollar continues to gain, she will have to revisit her forecasts. On the other hand, if the European economy continues to impress on the upside, this may offset some of the negatives. She notes that global monetary policy continues to be supportive of shares, with Israel, Indonesia, Turkey, China, India and Poland cutting interest rates recently and the ECB starting QE today. Also, deals totalling $61 billion just last week continue to support shares. So with interest rates low and few better alternative investments, she recommends full exposure to equities. Her quants indicator is still bullish at 64%, albeit down from 76.5% last week (due to the earnings downgrade). In her view, the rise in US bond yields is likely to be constrained by the very low bond yields in Europe. If this is so, the S&P 500 Index is unlikely to correct significantly, she suspects. A moderately paced and solid economy is favourable for equities (rather than a booming economy which pushes interest rates up and causes inflation to rise). Consumer borrowing rates are attractive, employment and wage growth are improving and petrol prices are about 40% lower than a year ago. The persistent and solid increase in bank loans indicates that the US economic expansion is continuing at a healthy pace. The global composite PMI or purchasing managers index (which includes manufacturing and services) rose 0.9 in February - a solid gain reflecting increases in the UK, UK, Eurozone, China and India. The global economy is benefiting from lower oil prices and the continued easing cycle. Draghi was recently upbeat on Eurozone growth. US weather (snow, ice etc.) has hurt the economy a bit in the short-term, but creates fuel for future spending once the winter weather fades. BCA RESEARCH BCA remains overweight global equities, but underweight the US, because the strong dollar represents a headwind for both the economy and the stock market. Although Chinese growth is slowing from last year s 7.4% towards 7%, the Chinese authorities are unlikely to take aggressive steps to stimulate the economy, because of various concerns and constraints. BCA expects the Chinese currency to depreciate by 7-8% versus the US dollar over the next year. This will help the Chinese economy. BCA continues to favour Chinese shares, although they expect volatility. Paul Hansen Director: Retail Investing

7 Economic Update 1. SA Kagiso PMI manufacturing index decreased significantly in February to 47.6, below the neutral 50- point mark suggesting strain in the manufacturing sector. 2. US added a very impressive jobs in February Emerging market currency movements are slowly reflecting economic fundamentals and not simply a search for yield. 4. New leader emerges from tight elections in Lesotho 5. Uganda sustains low inflation 6. Food inflation in Mauritius produces unexpected surprise 1. The Kagiso PMI index, decreased significantly by 6.6 index points to 47.6 in February 2015 from 54.2 in January. While it was expected that February s index level would be lower than January s, the February reading is much lower than anticipated. Looking at the sub-components of the index, the business activity index plunged from 61.7 in January to 45.5 in February. This 16.2 index point decline is the main driver of the fall in the headline index. Also concerning though, is that the new sales orders index fell below 50 index points for the first time since September All of this suggests that the manufacturing sector is experiencing broad-based pressures, which probably partly reflects the negative impact of load-shedding. The fall-off in the employment index in February, which declined from 43.8 in January to 43.0 in February 2015, also remains a major concern. The employment index has been mostly below the neutral 50 index level in the past few years suggesting that the manufacturing sector is struggling to increase employment in any meaningful way. The price index continued to indicate a slowdown in the rate of increase in input costs and now stands at 60.4 points, which is more than 30 index points below the level recorded a year ago. Encouragingly the index measuring expected business conditions in 6 months time fell by a moderate 2.5 index points to 64.4, which suggest that purchasing managers remain surprisingly optimistic about the longer-term outlook. Overall, the worse than expected decline in the PMI Index remains concerning. Challenging global and domestic demand conditions coupled with disruptive electricity supply is keeping industry relatively weak. 2. In February 2015, the US unemployment rate fell to 5.5%, below market expectations for the rate to fall to 5.6%. Unfortunately, the labour market participation rate also dropped to 62.8% in February, down from 62.9% in January Overall, the labour market participation rate is still extremely low by historical standards, but appears to have bottomed. As we have indicated previously, it seems sensible that one would argue that the labour market participation rate is probably indicating a higher level of structural unemployment in the US that is not purely related to demographics. Non-farm payrolls rose by an impressive jobs in February The change in total nonfarm payroll employment data for the previous two months was revised down by a combined total of The level of US employment is now a substantial above the peak prior to the global financial market crisis. During the financial market crisis the US lost a total of 8.7 million jobs. This means the US has created well over 11 million jobs since the financial crisis ended. The private sector added jobs in February 2015, after adding a revised jobs in January The private sector has gained employment in each of the past 60 months at an average of jobs a month and is at a record high, comfortably surpassing the previous peak recorded in January The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was slightly lower at 6.6 million in February 2015 down from 6.8 million in January. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

8 During 2010 as a whole, the US economy created jobs, or an average of jobs per month. In 2011, the job gains averaged a far more respectable a month, while in 2012 job gains averaged a month. In 2013 employment rose by an average of jobs a month, suggesting that although the labour market was still struggling to gain significant upward momentum, the rate of increase remained encouraging. In 2014 employment rose by a very impressive monthly average of jobs, with job gains of more than in each month from March 2014 to February In February, average hourly earnings for all employees on private nonfarm payrolls rose by only 3 cents to $ Over the year, average hourly earnings have risen by a mere 2.0%. Furthermore, in February, average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $ Some analysts had previously referred to this data series as indicating a rise in employment. This has not materialised. While it is possible to torture some aspect of the wage data sufficiently to suggest a rise in wages, overall there is still no clear indication that US wages are rising much above 2% despite the economy having created more than 11 million jobs since 2010 and the unemployment rate falling to 5.5%. Nevertheless, a number of key economic indicators continue to argue that wages should start to rise more meaningfully in the coming months. Overall, the US employment report for February 2015 is once-again reflecting a solid and broad-based improvement. Furthermore, a range of indicators continue to suggest that the job gains should continue to average around a month over the coming months; but not accelerate to job gains consistently above a month. These recent labour market improvements could encourage the US Federal Reserve to alter their language pertaining to how patient they will be on keeping rates at historical lows. 3. Some emerging economies are facing sustained downward pressure on their currency in However, the good news is that many of these currency movements appear to be reflecting economic fundamental rather than simply an outright search for yield. This is especially evident in Brazil. The Brazilian real is at its weakest level in over a decade, even though the central bank recently raised rates to their highest level since 2009, with a further 50bps increase in rates this week. More policy tightening is expected in Brazil. The Turkish lira has also declined to a new record low against the Dollar, weakening by 10.4% year-to-date. This is creating significant pressure on the central bank, which has been under political pressure to cut rates to boost growth ahead of the June elections. In contrast, the Indian economy continues to improve, and the central bank cut rates further this week after a generally reformist National budget. The Indian currency has appreciated by 1.7% year-to-date, making it one the best performing emerging market currency. In general, many emerging economies have cut rates in recent months, reflecting concerns about slowing growth and falling inflation. In this context, the Rand has performed relatively well, losing only 2% against the strong Dollar since the end of 2014, having lost 9.3% in South Africa presented a conservative budget towards the end of February 2015, which aims to contain the fiscal deficit and the central bank is likely to keep interest rates unchanged well into The Rand is currently about 15% undervalued on a tradeweighted basis. The Euro declined to a 12-year low against the Dollar earlier last week as the ECB provided more detail on its bond-buying plans and revised up its GDP growth and inflation forecast. Interestingly, Euro-area equities rose further with the Euro Stoxx now up over 15% year-to-date, compared to 10% for the Nikkei, 5% for the S&P and 4% for EM equities. At the same time recent US data flow has been a little disappointing relative to expectations, while Euro Area economic indicators have been surprising on the upside; for example the German retail sales for January Perhaps one reason for the relative underperformance of US equities this year, despite still solid economic growth, has been concerns about the future impact of the strong dollar on US exporters. It is telling that the February ISM index reported a sharp decline in the new export orders.

9 The US bond market s view remains that the Fed will be less aggressive in normalizing rates than their own guidance has indicated. Unfortunately, the longer the low-rate environment in mature markets persists, the more pressure it puts on long-term investors to take on extra risk (credit, duration, leverage etc.) to generate returns. This could have dire consequences if there is an abrupt market correction. 4. The Democratic Congress (DC) led by Pakalitha Mosisili has narrowly won the Lesotho election by 47 seats to the All Basotho Convention s (ABC) 46 seats. The DC formed a coalition with six opposition parties. The ABC was previously in power led by Thomas Thabane. The Lesotho elections were brought 2 years ahead of schedule as there was a political coup led by the DC, with the backing of the military. The incoming prime minister has held the position before, from 1998 to The country has had a history of military coups in the past and the hastily formed coalition does little to dissipate political uncertainty in the country. 5. Inflation in Uganda came in at 1.4% in February from 1.3% in the previous month. The key reason was for the slight uptick was food deflation had started to reverse. It was recorded at -2.9% in February from -3.3% in January. Fuel prices had also come down in the month with transport inflation recording 3.2% from 3.4%. The two main disinflationary effects are expected to reverse as oil prices have risen since and a drought in the East African region could put upward pressure on prices towards the end of the year which could move the inflation rate closer towards the 5% target. With this mind the Bank of Uganda is unlikely to further reduce interest rates even though it is currently at 11%. 6. Inflation in Mauritius came in at an unexpected 2% in February 2015, up from 0.7% in January and 0.2% in December The market was expecting further disinflation to the tune of 0.2% whilst other analysts expected deflation. The main reason for the change was as a result of food inflation which rose by a substantial 7.5% between the months of January and February The explanation could be that it was a seasonal effect which usually occurs in the first quarter of the year where vegetable prices spike. Most other items were below 1% except transport which rose by 2.5%. Although fuel costs were lower, airline tickets and vehicle costs pushed the over transport prices higher. Please follow our regular economic updates on Kevin Lings, Laura Jones & Kganya Kgare (STANLIB Economics Team)

10 Rates These rates are expressed in nominal and effective terms and should be used for indication purposes ONLY. STANLIB Money Market Fund Nominal: Effective: 6.19% per annum 6.37% 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 06 March 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: 6.43% 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 06 March The net (after fees) yield on the portfolio will be published daily in the major newspapers together with the all-in NAV price (includes the accrual for dividends and interest). This yield is a snapshot yield that reflects the weighted average running yield of all the underlying holdings of the portfolio. Monthly distributions will consist of dividends and interest. Interest will also be exempt from tax to the extent that investor s are able to make use of the applicable interest exemption as currently allowed by the Income Tax Act. The portfolio s underlying investments will determine the split between dividends and interest. STANLIB Income Fund Effective Yield: 7.20% 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 06 March 2015.

11 STANLIB Extra Income Fund Effective Yield: 6.75% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. The above quoted yield will vary from day to day and is a current yield as at 06 March STANLIB Flexible Income Fund Effective Yield: 6.90% 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 06 March STANLIB Multi-Manager Absolute Income Fund Effective Yield: 5.50% 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 06 March 2015.

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

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

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

15 Disclaimer The price of each unit of a domestic money market portfolio is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. An investment in the participations of a CIS in securities is not the same as a deposit with a banking institution. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from STANLIB Collective Investments Ltd (the Manager). Commission and incentives may be paid and if so, would be included in the overall costs. A fund of funds is a portfolio that invests in portfolios of collective investment schemes, which levy their own charges, which could result in a higher fee structure for these portfolios. Forward pricing is used. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. TER is the annualised percent of the average Net Asset Value of the portfolio incurred as charges, levies and fees. A higher TER ratio does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TERs. Portfolios are valued on a daily basis at 15h30. Investments and repurchases will receive the price of the same day if received prior to 15h30. Liberty is a full member of the Association for Savings and Investments of South Africa. The Manager is a member of the Liberty Group of Companies. As neither STANLIB Wealth Management Limited nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor s unique objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only and STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Wealth Management Limited does not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial adviser in this regard. STANLIB Wealth Management Limited is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (Licence No. 26/10/590) Compliance No.: H5X Melrose Boulevard, Melrose Arch, 2196 P O Box 202, Melrose Arch, 2076 T (SA Only) T+27(0) E contact@stanlib.com Website STANLIB Wealth Management Limited Reg. No. 1996/005412/06 Authorised FSP in terms of the FAIS Act, 2002 (Licence No. 26/10/590) STANLIB Collective Investments Limited Reg. No. 1969/003468/06