2018 Annual Report To Unit Trust Investors for the year ended 28 February 2018

Transcription

1 2018 Annual Report To Unit Trust Investors for the year ended 28 February 2018

2 Contents Chairman s Report 01 Market Review 04 Market Background 05 Foord Flexible Fund of Funds 06 Foord Balanced Fund 07 Foord Conservative Fund 08 Foord Equity Fund 09 Foord International Feeder Fund 10 Foord Global Equity Feeder Fund 11 Statements of Financial Position 12 Statements of Comprehensive Income 13 Directors Approval 14 Trustee Report 14 Total Cost Ratio 15 Distribution Information 16 Company Information Inside Back Cover Note: It is a statutory requirement to make the Abridged Annual Financial Statements available to investors in collective investment scheme portfolios. Please take special note that the information relates to the Scheme s financial year ended 28 February The delay in distribution is a result of the time needed to complete the audit of the unabridged financial statements. The report therefore does not contain the most recently available performance information and exposures, which are available on

3 Chairman s Report Paul Cluer Chairman This annual report to Foord s unit trust investors describes disappointing recent investment outcomes for investors in Foord s flagship South African portfolios. The underperformance compared to peers and benchmarks is mostly attributable to conservative portfolio positioning given the high and rising investment risks as we saw them. In the event, the nine-year long bull market continued and South Africa latterly stepped back from a political abyss. Given the binary outcomes facing the country, we believe we acted judiciously to safeguard investor capital against a potential calamitous outcome. Pleasingly, Foord s global funds delivered excellent US dollar returns. Performance Cycles Over its 33 years of managing retirement fund portfolios such as the Foord Balanced Fund, Foord has outperformed the industry average by 4.0% per annum. Compounded for 33 years, this outperformance results in an investment portfolio worth a staggering three times as much as the peer group portfolio. Our track record shows that underperformance cycles are short-lived and that while returns are low, they are still positive, meaning accumulated capital continues to grow. But this outperformance was not delivered smoothly. Over these 33 years, investors experienced four underperformance periods lasting on average just over two years each (including the current one persisting from February 2016) and three outperformance periods lasting on average seven years each. Our track record shows that underperformance cycles are short-lived and that while returns are low, they are still positive, meaning accumulated capital continues to grow. Their timing is consistent with Foord s investment philosophy, occurring during the late stages of a bull market and culminating in major inflection points in global financial markets Black Monday in 1987, the Asian crisis of 1997 and the global financial crisis of We have communicated for the last two years that we are at or near a major inflection point in global capital markets. The portfolios have for some time already shifted to benefit from the outcomes of the next ten years, moving to where the markets are going to be as opposed to where they have been. It typically takes a couple of years for inflection points to materialise, but when they do, Foord s portfolios are always ahead of the curve. Market Review Global share markets posted double-digit US dollar gains on evidence of accelerating, synchronised global economic growth and rising earnings expectations. In the US, markets gained on the legislative advance of Trump s aggressive tax reforms, while investor sentiment was buoyed by receding European political risks, pro-eu election outcomes and increasing expectations of a softer Brexit result. US bond yields rose as expectations of further federal funds rate increases became entrenched and inflation finally started to rise. The ECB s decision to begin winding down its overly accommodative monetary policy boosted yields across the Atlantic. When measured in weaker US dollars, the World Government Bond Index nevertheless gained. All industrial hard commodities advanced, led by copper. Oil rose to its highest level in more than two years as OPEC and Russia agreed to extend production cuts, while the Saudi Arabian political shake-up exacerbated supply risks. Gold firmed on increasing geopolitical tensions on the Korean peninsula and broad US dollar weakness. In South Africa, the JSE tracked emerging markets higher on advancing commodity prices and improved global growth. The FTSE/JSE All Share Index advanced on outsized gains by index heavyweight Naspers, stronger commodity prices and a late, Foord Unit Trusts Annual Report

4 Chairman s Report (Continued) sentiment-driven rally in SA Inc. shares and the banks. Bond yields were volatile intra-year but fell in aggregate on improved risk sentiment, pushing the SA All Bond Index to double-digit gains. The SA listed property sector s woes led to negative returns for the sector. This investment strategy will underperform in the late stages of an economic cycle when investor exuberance is highest. But investors are protected against negative market outcomes as we approach a major inflection point in global markets. Investment Strategy In our view, the world is slowly nearing the end of the second-longest economic expansion in living memory. Central banks, having lowered interest rates to zero percent or below to boost investor confidence and fight deflation after the 2008/2009 global financial crisis, have commenced policy normalisation as inflation finally started to rise. Given the prevailing SA and global investment risks, Foord s defensive investment strategy cautiously favours global equities within the parameters of the investment mandates. It is typical for share prices to lag the cycle in the first stages of an expansionary cycle when investor sentiment is low. But excessive share market exuberance at the end of the cycle is also common. Despite the rich valuations, markets may continue to advance as investors extrapolate favourable conditions, increasing the risk of permanent capital loss. Given current valuations, we expect global share market returns to be muted over the next five years. The bull market in developed market bonds is already over. In South Africa, macro-economic headwinds imply great difficulty for SA Inc. companies to grow earnings meaningfully. Notwithstanding the relief rally after Ramaphosa s narrow December ANC elective conference victory, the economic outlook is distressed. Government s February response to the ballooning fiscal deficit and debt burden was higher consumption taxes and diversion of much-needed infrastructure expenditure to free tertiary education and real social grant increases. These are growth-negative policy responses. Given the prevailing SA and global investment risks, Foord s defensive investment strategy cautiously favours global equities within the parameters of the investment mandates, avoids expensive SA Inc. shares and seeks to lock in high, fixed yields on SA cash and bonds given prospects of benign near-term SA inflation. The rand is one of the biggest contributors to inflation and we moved early to protect the portfolios against this risk by holding sizable foreign asset positions. Portfolio Returns The conservative investment strategy favouring non-resource rand hedge counters underperformed in the year given the excessively strong rand at the end of February. Excellent US dollar returns achieved in the offshore portfolios were pared on conversion given double-digit rand strength. Steinhoff losses also weighed on returns in varying degrees. The sizeable bond position was beneficial as yields declined. Given this environment, the flagship Foord Flexible Fund of Funds gained 3.0% over the year despite double-digit US dollar returns in the offshore building block funds. The Foord Balanced Fund (+4.4%) and Foord Conservative Fund (+5.7%) delivered inflation-beating returns but which were below many peers. The Foord Equity Fund returned 0.8% for the year as the impact of Steinhoff losses weighed on its net performance. The two feeder funds, Foord International Feeder Fund (+0.5%, +10.6% in US dollars) and Foord Global Equity Feeder Fund (+9.1%, +20.2% in US dollars), performed well. More information on fund returns is provided later in this annual report. Steinhoff Steinhoff s spectacular share price collapse caught most of the SA investment fraternity off guard. We were early investors in Steinhoff and liked the company s strategy of borrowing cheaply to expand into the fragmented European mass-market household goods sector. Shareholders were let down by Steinhoff s governance structures, which failed to detect what appears to be an accounting fraud perpetrated over many years. South Africa s 30-place drop in the World Economic Forum s ranking for auditing and reporting standards, after seven consecutive years at number one, is a telling indictment of the deterioration in SA s governance standards. Foord s exposure to Steinhoff was mandate dependent, in keeping with Foord s investment approach to match investment risk to the investment objective and to own assets that suit the investor s profile and time horizon. Portfolio exposures ranged from 0.8% of fund in the Foord Flexible Fund of Funds to 5.2% in the Foord Equity Fund, which is hamstrung by far less investment choice. As an investment house that prides itself on being careful and preserving capital, we were chastened by the experience. We are evaluating legal options regarding the Steinhoff losses and will pursue damages claims where appropriate. Foord Unit Trusts Annual Report

5 Chairman s Report (Continued) Milestones The Foord Balanced and Foord Equity Funds marked their 15th anniversaries in September 2017 while Foord s best investment view fund for South African investors, the Foord Flexible Fund of Funds, turned ten at the end of March The flagship Foord global fund, the Foord International Fund, recorded its 20-year track record in March These funds have achieved excellent since-inception investment track records against their peers and benchmarks. The Foord Global Equity Fund, the Singapore domiciled unit trust managed by Foord Singapore, turned five in June 2017 and is building a very promising track record under its fund managers Brian Arcese, Dave Foord, Ishreth Hassen and Guy Shirtliff. Benchmarks and Methodologies As separately communicated, the performance measurement benchmark of the Foord Equity Fund will change from the FTSE/JSE All Share Index (ALSI) to the FTSE/JSE All Share Capped Index (CAPI). The CAPI comprises the same constituents as the ALSI but caps each share s weight at a maximum of 10%, meaning it is more diversified than the uncapped ALSI. The performance fee measurement methodology of the Foord Flexible Fund of Funds will change from an effective one-day methodology to a rolling 365-day methodology, aligning it with the methodology used on the Foord Balanced, Foord Equity and Foord Conservative Funds. International Feeder Funds The Foord international feeder funds regrettably remain closed to new investment. However, the US dollar-denominated portfolios are open for investment and can be accessed by investors contributing US dollars or other hard currency. Investors are reminded that the individual offshore investment allowance of up to R10 million and/or the discretionary allowance of R1 million are available annually and investors should contact their banks in this regard. Direct investors into the international unit trust portfolios will interface with the Royal Bank of Canada which has successfully taken over the fund administration of the Foord global funds. Concluding Remarks I thank all investors for their continued support over what has been an uncomfortable period of relative returns for the last 18 months. Given our experience of performance and investment cycles, we are confident that the beginnings of an outperformance cycle are in sight. Given our experience of performance and investment cycles, we are confident that the beginnings of an outperformance cycle are in sight. Team Update We recently bid farewell to Brian Davey who retired at the end of February after an impressive 23 years with Foord. Brian had served the company in various roles during this time, most recently as multiple-counsellor portfolio manager on Foord s equity portfolios. After Dane Schrauwen s departure last year, the multiple-counsellor portfolio management team now comprises Nicholas Balkin, William Fraser, Daryll Owen and Dave Foord. I convey my thanks to the portfolio managers, investment team and all the operational and investor service staff for their commitment and persistence over the year. Paul Cluer Chairman Mike Townshend returned to South Africa late last year after a two-year secondment with his family to Foord s Singapore office. Mike shared responsibility for the management of personal investment portfolios with Brian Davey for the past five years and assumes leadership of this initiative. Wim Murray returned to Foord as an investment analyst, having left in 2015 to pursue an MBA abroad. In Singapore, we welcomed equity analysts Anjay Kumar and Xue Jing Cong to the investment team. Foord Unit Trusts Annual Report

6 Market Review Asset Class Returns One year to 28 February 2018 Year Year Feb 2018 Feb 2017 (USD returns unless otherwise stated) % % Shares FTSE/JSE All Share Index (in ZAR) FTSE/JSE All Share Index (in USD) MSCI World Index (developed markets) MSCI Emerging Markets Index S&P 500 Index (US) FTSE100 Index (UK) Euro Stoxx 50 Index (Eurozone) MSCI China Index Commodities Gold Copper Oil (Brent Crude) Property SA real estate (in ZAR) (6.1) 11.0 Bonds SA All Bond Index (in ZAR) SA cash (in ZAR) Citigroup World Government Bond Index 8.5 (2.0) Currencies US dollar per rand ($/R) Euro per US dollar ( /$) (13.3) 3.0 Inflation SA Consumer Price Index (in ZAR) Source: Deutsche Securities (Pty) Ltd and IRESS Ltd Foord Unit Trusts Annual Report

7 Market Background One year to 28 February 2018 World South Africa Global equity markets extended an eight-year bull market as the reflation rally spread to Europe and Asia European markets were boosted by the French populism defeat and the UK electorate voting for a softer Brexit outcome Global emerging markets rallied most, led by China (+47%) on improving manufacturing fundamentals but commodity export markets lagged The US labour market tightened with the unemployment rate approaching 4%, but wage growth was controlled inflation stayed within range of the Federal Reserve s 2% target rate The US dollar depreciated from its post-trump election high the euro was especially strong as Eurozone political risk waned and fundamentals improved A year of high political drama climaxed at December s ANC elective conference when business-friendly candidate Cyril Ramaphosa triumphed over Zuma-aligned rival Nkosazana Dlamini-Zuma Ramaphosa was latterly invested as South Africa s president after Jacob Zuma reluctantly resigned The new president speedily reshuffled his cabinet, appointing Nhlanhla Nene as Finance Minister and Pravin Gordhan as Public Enterprises Minister setting course for a more effective and fiscally responsible government Investors cheered the Ramaphosa victory, quickly forgetting the bleak fiscal outlook of October s Medium-term Budget Policy Statement and subsequent S&P ratings downgrade the rand surged and domestically focused assets, led by retailers and banks, considerably outperformed rand-hedge counters Developed market monetary policy expansion stabilised as the Fed raised interest rates for the third time in 2017 and the BoE reversed the emergency quarter-point 2016 Brexit cut in response to rising inflation resulting from sterling weakness while the ECB has indicated it could soon start tapering financial asset purchases Global bond yields closed higher after initially falling on escalating geopolitical tensions stirred by improving economic growth numbers, inflationary surprises and the Fed signalling a gradual but continued tightening of monetary policy Oil and copper made double-digit advances, benefiting from global growth dynamics and short-term supply/demand disruptions gold (+5.5%) and platinum (-1.2%) underperformed industrial metals on dollar strength and anticipated central bank policy adjustments Moody s subsequently confirmed SA s local currency rating at the lowest investment grade rating while changing the outlook from negative to stable bond yields continued to firm after year end The SA Reserve Bank lowered the repo rate by 0.25% in July and again in March 2018 inflation recorded a low of 4% for the year while the rand gained on the back of continued foreign portfolio inflows and improved sentiment SA s terms of trade improved, assisted by rising commodity prices and vehicle export volumes and lower consumer demand for imported goods but the current account deficit widened as increased payments of dividends and interest to foreign investors offset terms of trade gains The rand continued its advance against the dollar, especially after Ramaphosa s victory at the turn of the year the FTSE/JSE All Share Index matched the global emerging markets in US dollars but shed nearly half of its dollar gains on conversion to a stronger rand Foord Unit Trusts Annual Report

8 Foord Flexible Fund of Funds The fund aims to provide investors with long-term real returns exceeding 5% per annum. It exploits the benefits of global diversification in a portfolio that continually reflects Foord s prevailing view on all available asset classes, in South Africa and abroad. The fund is suitable for discretionary investors with a moderate risk profile who require long-term inflation-beating total returns from a dynamically managed multi-asset class portfolio. The fund is unconstrained in terms of asset class and geographic location. This flexibility allows the fund manager the freedom to invest according to Foord s best investment view. The fund is structured as a fund of funds to allow its exposure to the Foord International and Foord Global Equity Funds to each exceed 20% if deemed necessary. No additional charges or layering of fees applies. Performance Comment R100 Mar 08 Aug 09 Asset Allocation Jan 11 Jun 12 Foord Nov 13 Apr 15 Benchmark Sep 16 One year returns 28 Feb 2018 % 28 Feb 2017 % Foord ** Benchmark *** R309 R285 Domestic % Foreign % Total % Commodities Equities Government bonds Feb 18 The Foord Flexible Fund of Funds underperformed its benchmark, returning 3.0% after fees and expenses. Inflation, as measured by the Consumer Price Index, moderated to 4.0% on weak internal demand and low growth. While recent political developments are undeniably positive and sentiment enhancing, we remain concerned that shares exposed to the local economy have run way ahead of fundamentals in the late stages of this bull market. We believe cautious portfolio positioning will be vindicated in the next five years, which is likely to include the end of the current business cycle. The fund maintained its majority foreign asset exposure, reflecting the fund manager s prevailing view on relative value in offshore markets. The Foord global funds produced pleasing US dollar returns in volatile market conditions the Foord Global Equity Fund recorded a return of 20.2% in US dollars, while the Foord International Fund recorded a return of 10.6% in US dollars. The rand s 11.4% advance against the US dollar pared these returns on conversion to rand. The South African component of the portfolio added little to returns. The meaningful fixed interest position contributed positively while Steinhoff, EOH and Capital & Counties weighed on returns in the year. * Current value of R notional lump sum invested at inception, distributions reinvested (graphically represented in R 000s above) ** Class R, net of fees and expenses *** Benchmark: CPI +5% per annum, which is applied daily by using the most recently available inflation data and accordingly will be lagged on average by five to six weeks Listed property Money market Total Foord Unit Trusts Annual Report

9 Foord Balanced Fund The fund aims to grow retirement fund savings by meaningful, inflation-beating margins over the long term. The fund is managed to comply with the prudential investment limits set for South African retirement funds (Regulation 28 to the Pension Funds Act). It is therefore suitable for investors saving via retirement funds or other contractual savings products. The portfolio typically exhibits a medium to high average weighting to JSE shares but can also include exposure to bonds, money market instruments, listed property, commodity securities and foreign assets. Appropriate asset allocation is a critical component of the investment strategy and plays a key role in the management of investment risk. Regulation 28 limits the fund s maximum net equity exposure to 75% and foreign asset exposure to 25% of the portfolio (increased to 30% after the year-end). Performance Comment R802 The portfolio achieved a return of 4.4% for the year net of fees and fund expenses, beating moderating inflation but underperforming R652 most leading balanced funds. The conservative portfolio positioning that included a full offshore weighting, lower than average equity exposure, preference for non-resource rand hedge shares and meaningful commodity position underperformed in an environment of sentiment-driven, resurgent SA Inc. counters and excessive rand strength. R100 Aug 02 Mar 05 Oct 07 Foord May 10 Dec 12 Benchmark July 15 Feb 18 While recent political developments are undeniably positive and sentiment enhancing, we remain concerned that shares exposed to the local economy have run way ahead of fundamentals in the late stages of this bull market. We believe cautious portfolio positioning will be vindicated in the next five years, which is likely to include the end of the current business cycle. One year returns 28 Feb 2018 % 28 Feb 2017 % Foord ** Benchmark *** Asset Allocation Domestic % Foreign % Total % Equities Government bonds Money market Commodities Listed property Corporate bonds The fund benefited from its holdings in the Foord global funds, which performed excellently in US dollars. The material SA government bond investment produced double-digit returns and cash achieved an inflation-beating 8.1% for the year. The highly liquid bond position is a hedge against unexpected rand strength and should deliver returns close to the fund s inflation +5% objective in the medium term. RMB Holdings (+42.5%), Standard Bank (+58.0%), BHP Billiton (+22.4%), Naspers (+56.3%) and Mr Price (+70.6%) were notable contributors to positive return within the SA equity allocation. These gains were pared by Steinhoff losses (-3.2% of fund) and share price declines of core holdings, British American Tobacco (-9.5%), Capital & Counties (-8.1%) and Aspen (-3.2%). * Current value of R notional lump sum invested at inception, distributions reinvested (graphically represented in R 000s above) ** Class R, net of fees and expenses *** Benchmark: The market value weighted average total return of the South African Multi-Asset High Equity unit trust sector, excluding Foord Balanced Fund Total Foord Unit Trusts Annual Report

10 Foord Conservative Fund The fund seeks to provide investors with a net-of-fee return of 4% per annum above the annual change in the SA Consumer Price Index from a conservatively positioned balanced fund portfolio. It is managed to comply with the prudential investment limits set for South African retirement funds (Regulation 28 to the Pension Funds Act). The fund is suitable for conservative investors who are typically in, or close to, retirement with a time horizon of less than three years. The fund restricts exposure to share investments to a maximum 60% of portfolio (down from the 75% maximum limit of typical balanced funds). The remaining assets must be invested in listed property, government and corporate bonds, commodities and cash. Prudential regulations allow 25% of the fund to be invested abroad (increased to 30% after year-end). Performance Comment R100 Dec 13 Oct 14 Aug 15 Foord Jun 16 Benchmark Apr 17 One year returns 28 Feb 2018 % 28 Feb 2017 % Foord ** Benchmark *** R146 R126 Feb 18 The portfolio returned 5.7% for the year to 28 February 2018, underperforming the inflation plus 4% benchmark return of 8.7% over the one-year measurement period. The fund benefited from its large SA bond holding which delivered double-digit returns over the course of the year. While recent political developments are undeniably positive and sentiment enhancing, we remain concerned that shares exposed to the local economy have run way ahead of fundamentals in the late stages of this bull market. We believe cautious portfolio positioning will be vindicated in the next five years, which is likely to include the end of the current business cycle. The foreign assets produced stellar returns in US dollars which were pared by 11.4% when converted into stronger rands. The SA equity weight remained very low during the year. Steinhoff losses (-1.7% of fund) and investments in rand-hedge counters British American Tobacco (-9.5%) and Capital & Counties (-8.1%) detracted from returns, while RMB Holdings (+42.5%) and Standard Bank (+58.0%) contributed meaningfully to fund performance. * Current value of R notional lump sum invested at inception, distributions reinvested (graphically represented in R 000s above) Asset Allocation ** Class R, net of fees and expenses Domestic % Foreign % Total % *** Benchmark: CPI +4% per annum, which is applied daily by using the most recently available inflation date and accordingly will be lagged on average by five to six weeks Commodities Equities Government bonds Listed property Money market Total Foord Unit Trusts Annual Report

11 Foord Equity Fund The fund aims to outperform the South African equity market without assuming greater risk. The benchmark has been the FTSE/JSE All Share Index, which will change to the FTSE/JSE All Share Capped Index from 1 July It is suitable for investors with time horizons exceeding five years requiring maximum long-term capital growth and who can withstand investment volatility in the short to medium term. The Foord Equity Fund is a general equity fund investing in specially selected equities across the spectrum of the South African equity market. The strategy does not permit the inclusion of foreign assets into the fund. Performance Comment R100 Aug 02 Mar 05 Oct 07 Foord May 10 Dec 12 Benchmark Jul 15 One year returns 28 Feb 2018 % 28 Feb 2017 % R1,109 Foord ** Benchmark *** R948 Feb 18 The Foord Equity Fund recorded a 0.8% return net of fees and expenses for the year to 28 February 2018, weighed down by the Steinhoff share price collapse which reduced fund returns by 6.9% over the full 12-month period. Index heavyweight Naspers (+56.3% for the year) peaked at 21% of the FTSE/JSE All Share Index, propelling the benchmark to a 17.1% return. Foord Equity Fund s lower (max 14.0%) position size in Naspers was negative on a relative basis. In addition to Steinhoff, IT services firm EOH and rand-hedge counters British American Tobacco, Northam Platinum and Capital & Counties were notable detractors from performance given rand strength in the year. Lower than benchmark weights in resources shares and SA Inc. companies also detracted from relative returns. We continue to have high conviction that the stocks we hold in the portfolio will generate good alpha for investors over the full investment cycle at this inflection point in global share markets. * Current value of R notional lump sum invested at inception, distributions reinvested (graphically represented in R 000s above) ** Class R, net of fees and expenses Sector Allocation *** Benchmark: Total return of the FTSE/JSE All Share Index % Overseas companies 17.9 Financials 15.4 Media 15.2 Industrials/transport 11.9 Commodity cyclicals 10.7 Consumer/services 9.6 Health 7.0 Property 5.5 Information technology 2.7 Precious metals 2.1 Commodities 1.7 Capital goods/construction 0.3 Total Foord Unit Trusts Annual Report

12 Foord International Feeder Fund Closed to new investment The fund aims to achieve meaningful inflation-beating US dollar returns over rolling five-year periods from a conservatively managed portfolio of global equities, interest-bearing securities and cash reflecting Foord s prevailing best investment view. The feeder fund invests directly into the Luxembourg-domiciled Foord International Fund and is suitable for South African investors who seek to diversify their portfolios offshore and to hedge against rand depreciation. Performance Comment R100 Feb 06 Feb 09 Foord Feb 12 Feb 15 US Inflation in ZAR One year returns 28 Feb 2018 % 28 Feb 2017 % Foord ** R343 R240 Feb 18 The underlying Foord International Fund (FIF) achieved a US dollar return of 10.6% after fees and expenses compared to US inflation of 2.0%. Measured in rands, however, the feeder fund s return contracted to 0.5% owing to the rand s double-digit advance against the dollar. The FIF managers continued to favour select global equities despite stretched market valuations. Astute geographic asset allocation and stock selection continued to drive returns the increased allocation to Chinese equities contributed 5.6% (or half) of the fund s return as the Chinese market surged on renewed expansion and consumer-led growth. The portfolio s majority equity weighting to US stocks was maintained during the year as the US Federal Reserve remained accommodative and pronounced tax cuts continued to propel the US market, a positive outcome as US equities contributed 4% of the fund s return for the year. The cash component of the portfolio is in US dollars and the commodities comprise a gold ETF security. The managers dislike the valuation of global properties but hold a position in Wharf, with its specific investment in Hong Kong property. US Inflation in ZAR * Current value of R notional lump sum invested at inception, distributions reinvested (graphically represented in R 000s above) Asset Allocation ** Class R, net of fees and expenses % Equities 71.5 Property 3.6 Commodities 4.0 Cash 20.9 Total Foord Unit Trusts Annual Report

13 Foord Global Equity Feeder Fund Closed to new investment The fund aims to outperform the MSCI All Country World Index without assuming greater risk. The fund is suitable for South African investors who can withstand a high level of volatility and who seek to diversify their equity portfolios offshore and to hedge against rand depreciation. The feeder fund invests directly into the Foord Global Equity Fund, a retail unit trust fund domiciled in Singapore. As its name suggests, the Foord Global Equity Fund is a global fund. The investment team can thus research all geographies for companies that offer prospects for sustainable earnings growth and portfolio diversification. Performance Comment R100 Apr 14 Foord Mar 16 Benchmark One year returns 28 Feb 2018 % 28 Feb 2017 % R150 R138 Foord ** Benchmark *** Equity Sector Allocation Consumer discretionary 26.3 Financials 20.3 Healthcare 12.2 Information technology 11.4 Consumer staples 10.0 Cash 8.2 Materials 4.8 Industrials 4.4 Feb 18 % The underlying Foord Global Equity Fund achieved an excellent 20.2% net US dollar return compared to the benchmark return of 18.8%. The rand s 11.4% advance against the dollar for the year, however, tempered returns in the local feeder fund, which returned 9.1% compared to the benchmark of 7.2%. Global equities expanded for 13 consecutive months before correcting in February 2018, buoyed by corporate earnings and macro-economic data that affirmed synchronized global growth. Key drivers during the year included the passage of the US tax reform bill, a weaker US dollar, rising commodity prices and the consolidation of political power in key economies. The portfolio maintained an average 95% global equity exposure during the year, with the two-thirds invested in the US and Chinese markets contributing 80% of the fund s return. Emerging markets (+31.0%) outperformed and Chinese equities (+47.0%) surged ahead as a robust consumer and targeted government stimulus helped maintain a steady economic growth pace. The fund maintains a sizable position in Chinese consumer stocks premised on the growth of an underleveraged rising middle class. Niche growth pockets such as Macau, luxury automobiles and e-commerce further enhanced fund returns. The fund s technology sector holdings, specifically in China, were key generators of return. Tencent Holdings (+117.0%), JD.Com (+54.7%) and Baidu Inc. (+47.5%) were important contributors for the sector. Leisure holdings Wynn Macau (+106.1%) and Nagacorp (+90.8%) along with Chinese insurer PICC Property & Casualty (+32.5%) also contributed to returns. Biopharmaceutical and healthcare stocks struggled, with Shire (-28.8%), Allergan (-36.1%) and CVS Health Corp (-14.2%) detracting from returns. * Current value of R notional lump sum invested at inception, distributions reinvested (graphically represented in R 000s above) ** Class R, net of fees and expenses *** Benchmark: The ZAR equivalent of MSCI All Country World Total Return Index Energy 2.4 Total Foord Unit Trusts Annual Report

14 Statements of Financial Position As at 28 February 2018 Foord Foord Foord Foord Foord Foord Flexible Balanced Conservative Equity International Global Equity Fund of Fund Fund Fund Feeder Feeder Funds Fund Fund Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Assets Investment portfolio at market value 10,244 10,724 39,993 44,366 1,316 1,538 10,292 11,523 5,451 5, Accounts receivable Total assets 10,401 10,831 40,045 44,427 1,361 1,542 10,307 11,544 5,456 5, Liabilities Accounts payable Distributions payable Total liabilities Net assets attributable to unitholders 10,289 10,760 39,512 43,830 1,335 1,514 10,166 11,344 5,449 5, Foord Unit Trusts Annual Report

15 Statements of Comprehensive Income For the year ended 28 February 2018 Foord Foord Foord Foord Foord Foord Flexible Balanced Conservative Equity International Global Equity Fund of Fund Fund Fund Feeder Feeder Funds Fund Fund Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Net investment income ,343 1, Dividends Interest , Income adjustments on creation - 2 (53) (32) (4) (2) (10) (11) and cancellation of units Deductions 68 (14) (276) (334) (8) (6) (34) (47) (12) (13) (1) (1) Service charge 69 (12) (271) (329) (8) (6) (32) (45) (11) (12) (1) (1) Other expenses (1) (2) (5) (5) - - (2) (2) (1) (1) - - Net income (deficit) ,067 1, (10) (12) (1) (1) Income distributions (202) (151) (1,067) (1,209) (55) (60) (267) (315) Capital adjustment Distributable income at year end Foord Unit Trusts Annual Report

16 Directors Responsibility and Approval of the Abridged Annual Financial Statements The directors of Foord Unit Trusts (RF) (Pty) Limited are responsible for the preparation of the abridged annual financial statements and related financial information included in this annual report. The abridged annual financial statements and supplementary information of the Foord unit trust funds for the year ended 28 February 2018 were approved by the Board of Directors of Foord Unit Trusts (RF) (Pty) Limited on 22 May 2018 and are hereby signed on its behalf by: PE Cluer Chairman WL Fraser Director Trustee Report on the Foord Unit Trust Scheme As Trustees to the Foord Unit Trust Scheme (the Scheme), we are required in terms of the Collective Investment Schemes Control Act, 2002 (Act No.45 of 2002) (the Act) to report to participatory interest holders on the administration of the Scheme during each annual accounting period. We advise for the period 1 March 2017 to 28 February 2018 we reasonably believe that the Manager has administered the Scheme in accordance with the: i) limitations imposed on the investment and borrowing powers of the manager by the Act; and ii) provisions of the Act and the relevant deeds. We confirm that, according to the records available to us, there were no material instances of compliance contraventions and therefore no consequent losses incurred by the Portfolios in the year. Yours faithfully Nelia De Beer Head: Trustee Services Rand Merchant Bank Limited A division of FirstRand Bank Limited Marian Rutters Manager: Trustee Services Rand Merchant Bank Limited A division of FirstRand Bank Limited 22 May 2018 Foord Unit Trusts Annual Report

17 Total Cost Ratio * The Total Cost Ratio for any portfolio is the sum of its Total Expense Ratio (TER) and Transaction Cost Ratio (TCR). A TER is a measure of a portfolio s annual expenses, fees and charges, expressed as a percentage of the average daily value of the portfolio. These expenses include the annual service charge, VAT, audit fees, bank charges and costs incurred in any underlying funds. Included in the TER, but separately disclosed, is a performance fee charge (or credit) resulting from over-performance (or under-performance) against the benchmark. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER is not an indication of future TERs. The TCR comprises expenses such as brokerage, VAT, Securities Transfer Tax, Investor Protection Levies and STRATE contract fees incurred when buying and selling investments, expressed as a percentage of the average daily value of the portfolio. These costs are excluded from the TER measure. The quantum of transaction costs is affected by the quantum of the fund s gross inflows and outflows that are required to be invested or disinvested from the portfolio TER Performance TCR Total TER Performance TCR Total fees Cost fees Cost in TER Ratio in TER Ratio Foord Flexible Fund of Funds 0.73% -0.55% 0.00% 0.73% 1.34% -0.18% 0.01% 1.35% Foord Balanced Fund 1.27% -0.22% 0.02% 1.30% 1.37% -0.19% 0.05% 1.42% Foord Equity Fund 0.66% -0.50% 0.09% 0.75% 0.78% -0.38% 0.12% 0.90% Foord Conservative Fund 1.13% -0.37% 0.04% 1.17% 1.08% -0.49% 0.05% 1.13% Foord International Feeder Fund 1.88% N/A 0.00% 1.88% 1.93% N/A 0.00% 1.93% Foord Global Equity Feeder Fund 1.56% N/A 0.00% 1.56% 1.52% N/A 0.00% 1.52% * R class units ** May not cross-cast due to rounding differences Foord Unit Trusts Annual Report

18 Distribution Information Cents per Participatory Interest Dividend Interest Total Component* Component* Foord Flexible Fund Of Funds R Class No. 18: 6 months to 28 February No. 17: 6 months to 31 August No. 16: 6 months to 28 February No. 15: 6 months to 31 August Foord Balanced Fund R Class No. 29: 6 months to 28 February No. 28: 6 months to 31 August No. 27: 6 months to 28 February No. 26: 6 months to 31 August Foord Equity Fund R Class No. 29: 6 months to 28 February No. 28: 6 months to 31 August No. 27: 6 months to 28 February No. 26: 6 months to 31 August Foord Conservative Fund R Class No. 9: 6 months to 28 February No. 8: 6 months to 31 August No. 7: 6 months to 28 February No. 6: 6 months to 31 August Foord International Feeder Fund R Class** Foord Global Equity Feeder Fund R Class** * Gross of any applicable South African dividends and interest withholding taxes. ** There were no distributions in the current or previous reporting periods as the Foord global funds do not distribute their income (it is rolled up into the unit price of the funds). As a result, the feeder funds had insufficient income after deducting expenses and covered the income shortfall with a transfer from fund capital (refer abridged statements of comprehensive income). Foord Unit Trusts Annual Report

19 Company Information Registration number: 2001/029793/07 Address of registered office: 8 Forest Mews, Forest Drive, Pinelands, 7405 Ultimate holding company: Directorate: Foord Asset Management (Pty) Ltd Paul Cluer (Executive, Chairman) Diane Behr (Executive) (Appointed 16 May 2017) Don Bowden (Independent) Adam Cowell (Independent; Chairman Audit Committee) William Fraser (Executive) Mark Hodges (Non-executive) Investment managers: Foord Asset Management (Pty) Ltd (FSP: 578) Trustees: Auditors: Administrators: Rand Merchant Bank, a division of FirstRand Bank Limited KPMG Inc. Maitland Fund Services (Pty) Ltd Contact Us Foord Unit Trusts: Website: unittrusts@foord.co.za Physical address: 8 Forest Mews, Forest Drive, Pinelands, 7405 Postal address: PO Box 135, Howard Place, 7450 Disclosures Foord Unit Trusts (RF) (Pty) Ltd (Foord Unit Trusts) is an approved CISCA Management Company (#10). Portfolios are managed by Foord Asset Management (Pty) Ltd (Foord), an authorised Financial Services Provider (FSP: 578). The custodian/trustee of Foord Unit Trusts is RMB Custody and Trustee Services (a division of FirstRand Bank Limited), contactable on T: , F: , Collective Investment Schemes in Securities (unit trusts) are generally medium- to long-term investments. The value of participatory interests (units) may go down as well as up and past performance is not necessarily a guide to the future. Performance is calculated for the portfolios. Individual investor performance may differ as a result of the actual investment date, the date of reinvestment and withholding taxes. Performance may be affected by changes in the market or economic conditions and legal, regulatory and tax requirements. Foord Unit Trusts does not provide any guarantee either with respect to the capital or the performance return of the investment. Unit trusts are traded at ruling prices and can engage in borrowing. Foord Unit Trusts does not engage in scrip lending. Commission and incentives may be paid and, if so, this cost is not borne by the investor. A schedule of fees and charges and maximum commissions is available on request. Distributions may be subject to mandatory withholding taxes. A feeder fund portfolio is a portfolio that, apart from assets in liquid form, consists solely of units in a single portfolio of a Collective Investment Scheme which could result in a higher fee structure. A fund of funds invests only in other Collective Investment Scheme portfolios, which may levy their own charges, which could result in a higher fee structure. Foord Unit Trusts is authorised to close the portfolio to new investors in order to manage the portfolio more efficiently in accordance with its mandate. This document is not an advertisement, but is provided exclusively for information purposes and should not be regarded as advice, an offer or solicitation to purchase, sell or otherwise deal with any particular investment. Minimum disclosure documents (fact sheets), prepared monthly, are available on or on request. Economic forecasts and predictions are based on Foord s interpretation of current factual information and exploration of economic activity based on expectation for future growth under normal economic conditions, not dissimilar to previous cycles. Forecasts and commentaries are provided for information purposes only and are not guaranteed to occur. While we have taken and will continue to take care that the information contained herein is true and correct, we request that you report any errors to Foord at unittrusts@foord.co.za. The document is protected by copyright and may not be altered without prior written consent. Unit Price Unit trust prices are calculated on a net asset value basis, which is the total value of all assets in the portfolio including any income accruals and less any permissible deductions from the portfolio. Forward pricing is used. Prices are determined at 15h00 each business day and are published daily on The cut-off time for instruction is 14h00 each business day. Foreign Investment Risk The portfolio may include underlying foreign investments. Fluctuations or movements in exchange rates may cause the value of underlying foreign investments to go up or down. The underlying foreign investments may be adversely affected by political instability as well as exchange controls, changes in taxation, foreign investment policies, restrictions on repatriation of investments and other restrictions and controls that may be imposed by the relevant authorities in the relevant countries. Unabridged Audited Financial Statements Copies of the unabridged audited financial statements of Foord Unit Trusts (RF) (Pty) Ltd and the Foord Unit Trust Scheme are available to investors for review at the registered office of the company by prior arrangement.

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