Successful Long- Term Investor Principles

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2 Successful Long- Term Investor Principles While it may be true that in investing there is no rule without an exception, there are some principles that are tough to dispute. Let's review a few fundamental principles to help investors get a better grasp of how to approach the market from a long- term view and better evaluate short term volatility. Every point embodies some fundamental concept every investor should know and incorporate into their financial planning. Revisit your Financial Needs Analysis The tough part about investing is that we are trying to make informed decisions based on things that are yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most. Completing a Financial Needs Analysis (FNA) with your advisor will help quantify future requirements allowing for the implementation of a suitable investment strategy. The FNA should always be the foundation of your investment strategy. Your starting point and future reference point to judge whether or not you are on track to achieving your goal. Identify a strategy and stick with it Different people use different methods to construct investment portfolios and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you have identified your investment road map (risk profile and target return objective), stick with it. An investor who flounders between different investment strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely territory most investors should avoid.

3 When it comes to investing, my suggestion is to first understand your strengths and weaknesses, and then devise a simple strategy so that you can sleep at night Walter Schloss. Adopt a long- term perspective Large short- term profits can often entice those who are new to the market. But adopting a long- term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. Investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy- and- hold investors don't experience. As such, active trading requires certain specialized skills, not to mention nerves of steel. Don t chase short- term performance One of the biggest mistakes an investor can make is chasing past performance. In the investment world, performance is the quantifiable outcome by which any investment is judged but how do investors determine if good performance is a result of investment skill, and is repeatable, or a result of random luck? This differentiation between luck and skill is crucial in evaluating and choosing an investment fund. Over the long term, good skill can overcome bad luck. However, good luck can only overcome bad skill over the short term. Don t just look at the upside performance Time and again bursts of strong performance attract investors lured by impressive short term track records with disastrous results, as it becomes apparent that these returns are unsustainable, and quite possibly due to luck rather than skill. Evaluating performance based on one market environment alone, particularly a strong bull market, does not take into consideration that all market cycles, regardless of their length, include both bull and bear markets. A fundamentally sound investment strategy should be about growing and protecting capital and both these aspects of performance need to be

4 considered. How your investment performs in a bear market actually dominants the overall return achieved and has a significant impact on your returns over a full market cycle. Graph 1 below illustrates the importance of downside protection. To outperform the market, the investor only needs to participate in 27% of the market upside (i.e. for every R market gains, the investor gains R27.00), if the investor can limit his downside market participation to 0% (i.e. out of every R that the market loses, the investor does not lose). This is just one example that relates to a cautious risk profile and would correspond with the Ampersand Momentum CPI +2% strategy. Graph 1 Source: Crestmont Research To illustrate this with a real world example we include the performance of the Ampersand Momentum CPI +2% Portfolio versus the SA Equity Market (as measured by the J203T or JSE All Share) from the inception of the strategy on 12 May 2008 to 11 September 2015:

5 Graph 2 Source: I- Net, Ampersand Asset Management What you can see from the analysis is that the Ampersand Momentum CPI +2% strategy has actually managed to outperform the SA Equity Market while assuming less than a quarter of the risk. Investors were protected from massive volatility during the Great Financial Crisis (GFC) while the portfolio managed to capture significant upside from 2009 onwards. During the eye of the storm in the GFC, when the market had lost 42.88%, the CPI +2% portfolio managed to provide substantial protection for investors by not losing any money. Protecting capital during market declines is not only a very important first objective for most investors, it is crucial to meeting the overall objective of generating superior returns above inflation over the long term. The winner is not the one who makes the most when markets go up, it s the one who loses the least when markets go down*. * RE:CM

6 Picking and sticking with a good investment team The key is to focus on the source of good returns rather than on the returns themselves this is achieved through a well- articulated investment philosophy and an investment process that can be consistently applied. A good investment process will ultimately lead to good results in the long run, and most importantly to results that are repeatable from one market cycle to another. Dealing with short term market volatility As a long- term investor, you shouldn't panic when your investments experience short- term downside movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Granted, certain market players will use these day- to- day and even minute- to- minute fluctuations as a way to make gains. But the gains of a long- term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment strategy and stick with it. Remember, short term volatility creates long term opportunities. When markets sell off it allows investors to buy assets at a cheaper price, setting up long term market outperformance. If you don t understand your investment strategy or the associated risk of your portfolio please contact your VPFP financial advisor for further information. Don't chase a "hot tip" Whether the tip comes from your brother, your cousin, your neighbour or even your stockbroker, you shouldn't accept it as law. When you make an investment, it's important you know the reasons for doing so and what realistically you can achieve? Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out; it's also

7 a type of gambling. Sure, with some luck, tips sometimes pan out. But they will never make you an informed investor, which is what you need to be to be successful in the long run. Investment taxes Putting taxes above all else is a dangerous strategy, as it can often cause investors to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in investing are to grow and secure your money. You should always attempt to minimize the amount of tax you pay and maximize your after- tax return, but the situations are rare where you'll want to put tax considerations above all else when making an investment decision. Conclusion There are exceptions to every rule, but we hope that these guidelines for long- term investors and the common- sense principles we've discussed benefit you overall and provide some insight into how you should think about your investments with VPFP. Thank you for your continued support.

8 How to obtain offshore exposure through your Trust The South African Reserve Bank (SARB) does not allow SA resident Trusts to invest directly offshore, there are however three ways that these Trusts can get offshore exposure. 1. Invest into Rand denominated offshore unit trust funds. 2. Utilise asset swap capacity from a provider and then invest into assets denominated in other currencies. 3. Loan to an individual who uses their foreign investment allowance to invest directly offshore. 1. Rand denominated offshore funds - These funds invest into offshore assets but the funds reporting currency is a Rand unit price i.e. you have not moved your money directly offshore, therefore you will be paid out in Rands. - The growth in this unit price consists of Rand depreciation as well as foreign asset growth. - The two cannot be separated so the trust pays tax on the total growth. - The trust CGT rate is 26,5%. 2. Utilise asset swap capacity - The trust pays a provider a fee to use their foreign investment capacity. - This provider then converts the Rands into hard currency and buys the foreign assets. - No limit on amount to be invested. - If the trust makes use of a wrapper then the tax reporting obligation transfers to the life company.

9 - If the beneficiaries of the trust are individuals then the individual policy holder fund is used. - Two benefits arise. Ø the CGT rate reduces from 26,5% to 10%. Ø CGT is paid on hard currency gain only and not on Rand depreciation. 3. Loan to an individual - This has the same tax benefits as 2 above. - A consequence of going this route is that the asset is now back in the individual s estate. - The net effect is that the growth on this asset will be liable for estate duty. - If the trusts distributes rather than loans to the individual then the entire asset becomes dutiable. - The amount is limited to ZAR10m per individual. Important: The South African Reserve Bank (SARB) has recently increased the individual s offshore discretionary allowance to R10m per annum. For clients looking to externalise funds VPFP will facilitate obtaining your SARB offshore clearance certificate and foreign currency transfer. For further information on offshore exposure through Trusts or in your individual capacity please contact your Vickers & Peters Financial Planner.

10 The Living Annuity (investment linked pension) The living annuity is an investment linked pension purchased at retirement by a member of a pension fund, provident fund, retirement annuity and preservation funds. Here is an overview of the general product features: 1. The annuitant can select the annuity level within legislated limits. Currently it is restricted to between 2.5% and 17.5% of the underlying investment value p.a. 2. The annuitant can only alter the income rate and the frequency of the payment of the income on the anniversary of the annuity. 3. More than one fund source can be invested into a single living annuity (the funds from a retirement annuity fund, pension fund and provident fund, including preservation funds, can all be invested in one living annuity). 4. Regulation 28 to the Pension Funds Act does not apply to the underlying investment choices made by the annuitant and therefore there is no legislative limitation on the investment risk. The annuitant can therefore theoretically carry 100% offshore exposure or 100% equity exposure although this would be dependent on a number of factors see point 6 below. 5. The annuitant carries the investment risk associated with the living annuity as the underlying assets value is used to determine the value of the annuity. Therefore, if the investment value is depleted by negative investment returns (high risk assets) or the income drawdown selected by the annuitant is too

11 high (above the investment return), the annuity will reduce accordingly. There are no guarantees on investment performance. 6. In terms of RF1/96 as well as the Income Tax Act, the purpose of the living annuity is to provide the annuitant with an annuity for his/her lifetime. It is therefore crucial to ensure that prudent investment choices and income drawdown decisions are made to provide a life annuity. (See discussion below.) Selecting the appropriate investment portfolio (risk versus return) and income drawdown rate The starting point is to identify the annuitant s needs and objective. This will be the monthly budget (lifestyle requirements) and investment goal. Once the income requirement is identified we match this Rand amount with the capital. The annuity (or income) will then be quantifiable in terms of a percentage of the total capital (investable asset) known as the annual drawdown rate. We can then select the appropriate investment portfolio to provide a sustainable retirement strategy. Investment portfolio CPI +2% For a capital preservation objective the annuitant will require a fund with an investment target return objective of CPI +2% - this is a low risk strategy where the annuitant runs minimal risk of running out of capital during his/her retirement years. This strategy also allows for the opportunity for the annuitant to increase his/her annuity upwards in later years. Investment portfolio CPI +4% For a primary capital preservation objective and a secondary capital growth objective the annuitant will require a fund with an investment target return objective of CPI +4% - this is a medium risk strategy where the annuitant s fund return expectations and annual income

12 inflation rate needs to be tempered. The strategy s base assumption rates need to be conservative and revisited with changing economic variables. Investment portfolio CPI +6% For a primary capital growth objective the annuitant will require a fund with an investment target return objective of CPI +6% - this is a high risk strategy with the accompanying return volatility. This type of annuity strategy is not common but is suitable for certain types of annuity investors. Note: If the annuitant selects an annual drawdown rate above the return of the fund the annuitant will deplete his/her capital i.e. if the annual drawdown rate is 12% and the funds return is 10%, the annuitant will start depleting his/her capital. Example: Graph 1 below illustrates the return profile for each investment portfolio highlighted above. Note the higher levels of return for the CPI +6% and CPI +4% compared with the CPI +2% over the full term but also the higher levels of volatility compared to the smoothed performance profile of the CPI +2% portfolio. Assumptions: Term = 20 years Annual income at 6% for each portfolio (CPI +2%, 4%, 6%) Inflation at 6% (CPI =6%) Target return (CPI +2%, 4%, 6%) achieved over rolling 5 years No negative performance for any given year

13 Graph 1 Return volaplity of reprement strategy ,00 Annual capital growth - post income , , , , ,00 CPI +2% CPI +4% CPI +6% Years of reprement Source: VPFP Assuming the annuitant decided to increase the annual drawdown rate each year (same annuity income percentage for each portfolio) and on every 5th year the market experienced heightened volatility. Also assuming the first bout of volatility was experienced by the annuitant in year 1. Based on these assumptions, the investment capital breakthrough point for the CPI +4% and CPI +6% versus the CPI +2% portfolio will be approximately 10 years, as indicated in Graph 2 below.

14 Graph 2 Return profile of reprement strategy , ,00 Investment Capital , , , , , ,00 CPI +2% CPI +4% CPI +6% , Years of reprement Source: VPFP For annuitants that have a capital growth objective (CPI +6% and CPI +4%) it is evident that performance does not run in a straight line and they will experience capital volatility from time to time. However, by sticking with the strategy and holding firm through the cycle the portfolio will provide superior returns in the long term. For annuitants that prefer a smoother ride with their retirement capital, the CPI +2% provides a lower level of volatility through the cycle whilst providing the necessary growth for capital preservation and income sustainability. This example highlights the importance of selecting the appropriate investment portfolio (risk versus return) and income drawdown rate to match your retirement needs.

15 Access to funds The annuitant may not make lump sum withdrawals from a Living Annuity. Should the investment value reach R (if a previous commutation was made) or R if no commutation was made before, the annuitant can withdraw the full amount as a lump sum amount. The annuitant will however be fully taxed on the lump sum withdrawal according to the post retirement tax tables. SARS has records of previous commutations made and will only issue the tax directive accordingly. (From 1 March 2016 the limits are likely to increase to R and R respectively.) Once the annuitant has applied for a full withdrawal the transaction cannot be halted or withdrawn. The annuitant needs to be cognisant of the tax liability before the application for a tax directive has been issued and will be immediately liable for any outstanding taxes or penalties. No withdrawal is allowed purely based on the annuitant s emigration. In that instance the monthly annuity may be remitted offshore, depending on business requirements and SA Reserve Bank approval. Income tax will still be deducted.

16 Market Overview As we highlighted in the recent communication we sent out at the beginning of September, markets have experienced excessive volatility in recent months. After global equity markets bottomed in August, stocks continued to plummet to new lows in September. The MSCI All Country World Index lost - 6.9% in August and an additional - 3.6% in September, ending the quarter - 9.5% lower in US dollars. The MSCI All Country World ex US lost %, Emerging Markets fell % and Developed Markets (MSCI The World Index) dropped - 8.5%, all in US dollar terms. The Eurozone fell into deflationary territory in September as headline CPI declined by - 0.1% y/y from a gain of +0.1% y/y in August. The decline is largely due to continued pressure on global energy prices with the energy sub- component falling by - 8.9% y/y. Lower energy prices remain a primary deflationary force globally. The US Federal Reserve ( Fed ) has continued to hold interest rates steady against speculation for a rate increase. Fed Chair, Janet Yellen, continues to maintain her approach that while a rate increase may be possible this year, a change in the Fed s stance is data dependent, with regards to maximum employment and a 2% inflation target. US inflation remains at historically low levels, at only 0.2% y/y. The Fed believes that recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. In South Africa, the South African Reserve Bank ( SARB ) increased interest rates in July by 25bps to 6%, largely reflecting upside risks to inflation and the vulnerability of the rand. Since the July meeting however, the SARB decided to keep rates on hold, citing increased risks to the global economic outlook against the backdrop of a slowing Chinese economy as well as a deterioration in the domestic economic outlook. A number of upside risks to the domestic inflation outlook remain however, the primary one being the exchange rate. The Monetary Policy Committee ( MPC ) has stated that it remains on a gradual policy

17 normalisation path and that the MPC will continue to monitor developments closely. Any future moves remain highly data dependent. Performance what added and what detracted? The portfolios held up reasonably well this past quarter, particularly the two more conservative portfolios, both of which experienced positive gains against largely negative returns from most asset classes. Our higher risk portfolio did experience a marginal decrease in value mainly as a result of local risky assets coming under pressure in the volatile global environment. The JSE All Share Index fell % this quarter. Local bonds gained +1.1% and local listed property achieved +6.2% return over the period. The offshore component of the portfolios was the biggest outperformer this quarter as the rand weakened by a substantial 13.9%, leading to a positive performance in rand terms from our offshore assets. Global equity (measured by the MSCI AC World Index) returned +3.2% in rand terms while global bonds and global listed property each returned +16.2% and +15%, in rand terms, respectively. Although it has been a tough quarter for markets and negative performance has run rife, our asset allocation and our strategy of being well diversified has worked in our favour, with rand- based offshore assets and local listed property being the largest positive contributors to performance.

18 Presented by: MoneyMate Limited The figures shown are based on the following: South African Rand, Nav to Nav, Gross income re-invested on Ex-dividend date Past Performance is not necessarily a guide to future performance; Unit prices may fall as well as rise. Indices shown in South African Rand (ZAR) MoneyMate Limited All Rights Reserved. MoneyMate *. Index prices are end of day values

19 Annualised Fund Performance for the Period Ending 30 September 2015 Position going forward The portfolios have been positioned more conservatively for some time in anticipation of market volatility and areas of concern around global economic conditions and asset class valuations. Although we remain concerned with market valuations and risk, structurally we need to retain growth assets in the portfolio to ensure we achieve our longer term objectives. Hence asset allocation and diversification remain key to ensuring downside risk management while continuing to achieve our inflation- based returns. We continue to focus our attention on consistently applying our philosophy and process to ensure we meet our investment objectives over the long term (a time horizon of at least 3 years, and longer for the more risk- orientated portfolios). We are confident that our strategy will deliver over time and we are comfortable with the positioning of the portfolios in the current environment. We continuously monitor markets and the global economy as a whole to ensure that we remain on track.

20 Disclosures 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. Performance figures quoted are from MoneyMate, as at 30/09/2015, for a lump sum investment, using NAV- NAV prices with income distributions reinvested on the ex- dividend date. CPI/Inflation figures are lagged by one month. Collective investment schemes in securities 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 manager does not provide any guarantee, either with respect to the capital or the return of a portfolio. For certain portfolios the manager has the right to close these portfolios to new investors to manage them more efficiently, in accordance with their mandates. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. The collective investment scheme may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. Different classes of participatory interests apply to these portfolios and are subject to different fees and charges. A schedule of fees, charges and maximum commissions is available on request from the manager, or is available on the website ( Forward pricing is used. The portfolio valuation time is 08h00 for fund of funds, and 15h00 for all other portfolios. The transaction cut- off time for non- fund of funds is 14h00 on the pricing date, and for fund of funds it is 14h00 on the business day prior to the pricing date. MMI Holdings Limited is a full member of the Association for Savings and Investment SA. Associates of the manager may be invested within certain portfolios and the details thereof are available from the manager. Foreign securities 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. Investors are reminded that an investment in a currency other than their own may expose them to a foreign exchange risk. A fund of funds is a portfolio that invests in portfolios of collective investment schemes that levy their own charges, which could result in a higher fee structure for the fund of funds. The manager retains full legal responsibility for the third- party- named portfolio. The investment manager of the funds pertaining to this application form is Ampersand Asset Management (Pty) Ltd, registration number 2007/006571/07, and is an authorised financial services provider, FSP licence number The above investment manager is an authorised financial services provider under the Financial Advisory and Intermediary Services Act (No. 37 of 2002), to act in the capacity as investment manager. The address is 1 Tuscany Office Park 6 Coombe Place Rivonia Johannesburg. This information is not advice, as defined in the Financial Advisory and Intermediary Services Act (No. 37 of 2002). Please be advised that there may be representatives acting under supervision.

21 Ampersand Asset Management Ampersand Momentum CPI FoF Class A Market Review as at 30 September 2015 Published: October 2015