F o r t h e p e r i o d e n d e d 3 1 M a r c h

Transcription

1 F o r t h e p e r i o d e n d e d 3 1 M a r c h

2 QUARTERLY DOMESTIC INVESTMENT REVIEW FOR THE PERIOD ENDED 31 MARCH 2018 The purpose of this report is to provide you, as a unit holder or a stakeholder in one of the Nedgroup Investments Private Wealth unit trust solutions, with a review of the past quarter s performance. The report is structured as follows: PART ONE: MARKET RE VIEW This section provides a market review, which looks at the performance over the past quarter of local and global asset classes, as well as currencies, and puts this into perspective relative to longer-term performance. The purpose of this review is to provide a context in which the performance of the Nedgroup Investments Private Wealth unit trust range can be assessed. PART TW O: INVESTMENT SOLUTIONS PERFORM ANCE This section provides an overview of the performance of the unit trust range that Nedbank Private Wealth Clients are invested. The review focuses on both short and longer time periods. PART THREE: PORTFOL IO MANAGER REVIEW This section provides an assessment of the performance of each of the underlying portfolio managers. This assessment compares the managers performance to their respective benchmarks. PART FOUR: INVESTMENT SOLUTIONS REVIEW This section provides a detailed review of each of the investment solutions in which you or your clients are invested, looking at the solution s objective, its benchmark, the asset allocation, and the manager s allocations. AS AT 31 March 2018 PAGE 2 OF 27

3 PART ONE: MARKET REVIEW The tables below provide a review of key local and international investment indicators for the past quarter, as well as over longer periods. SOUTH AFRICAN ASSET CLASSES (IN RANDS) Performance over periods to 31 March 2018 ASSET CLASS INDICATOR 3 MONTHS 1 YEAR 3 YEARS 5 YEARS LT-AVERAGE* EQUITIES All Share Index -6.0% 9.6% 5.1% 10.0% 12.5% PROPERTY Listed Property Index -19.6% -7.1% -0.5% 7.1% 12.2% BONDS All Bond Index 8.1% 16.2% 8.6% 7.7% 6.9% CASH STeFI Call 1.6% 6.8% 6.6% 6.0% 5.9% INFLATION CPI (one month in arrear) 1.5% 4.0% 5.8% 5.4% 5.7%. GLOBAL ASSET CLASSES (IN DOLLARS) Performance over periods to 31 March 2018 ASSET CLASS INDICATOR 3 MONTHS 1 YEAR 3 YEARS 5 YEARS LT-AVERAGE* EQUITIES MSCI All Country World Index -0.8% 15.4% 8.7% 9.8% 8.6% PROPERTY FTSE EPRA/NAREIT Developed Property Index -4.3% 4.2% 2.4% 5.0% 7.2% BONDS JPM Global Bond Index 1.4% 7.0% 3.1% 1.5% 4.6% CASH US 3-month deposits 0.4% 1.3% 0.7% 0.5% 4.4% INFLATION US CPI (one month in arrear) 0.9% 2.2% 2.0% 1.4% 3.0%. CURRENCIES Movements over periods to 31 March 2018 CURRENCY VALUE AT MONTH END 3 MONTHS 1 YEAR 3 YEARS 5 YEARS LT-AVERAGE RAND / DOLLAR % 11.6% 0.7% -5.2% -5.5% RAND / STERLING % 0.9% 2.6% -3.6% -4.1% RAND / EURO % -1.6% -3.8% -4.3% -5.5% * Updated annually from 1900, or longest available period. Returns for periods longer than 12 months are annualised. AS AT 31 MARCH 2018 PAGE 3 OF 27

4 ECONOMIC AND MARKET COMMENTARY International After a strong January, the mood of financial markets shifted suddenly, making February and March much more difficult for investors. Overall, it was a tough quarter for investors, with financial assets generally performing poorly as volatility rose and risk appetite diminished. Although global economic data releases softened a little (albeit from elevated highs), the overall picture remained one of decent growth for Equally, after a strong Q4 corporate earnings season, the outlook for company profits this year also remains solid, with analysts generally looking to upgrade their shorter term forecasts. In searching for explanations for the sudden volte-face in market conditions, there are perhaps a number of factors worth highlighting. Firstly, in our view, the lack of volatility through 2017 created a degree of complacency on the part of investors. Linked to that, we believe that the strong returns seen over the last year or so pushed financial markets beyond fair value, heightening the risk of a market pullback. Secondly, robust and synchronised global growth focused investors minds on whether central banks might choose to accelerate their shift away from the extraordinarily accommodative policies that they have pursued over recent years. Whilst investors have seemed comfortable with a gradual unwinding of these policies, they would not welcome any evidence that central banks are behind the curve, and having to tighten policy more quickly. Certainly one of the triggers for the late January / early February drawdown was the reporting of a higher than expected US hourly wage growth number, which had economists wondering whether inflationary pressures are building more than previously assumed. A third factor on investors minds has been Trump s determined attack on Chinese trade policy. Having purged his inner circle of some of the more moderate voices, Trump announced the imposition of tariffs on US$50bn worth of American imports from China, which was duly reciprocated with equivalent measures from the Chinese. Not to be upstaged, Trump then instructed the Office of the US Trade Representative, the agency responsible for developing trade policy, to consider imposing tariffs on an additional US$100bn worth of US imports from China. Beijing responded by threatening an equivalent response, and a willingness to fight back at all costs. Is this Trump just extending his Art of the Deal business negotiating tactics to the international stage? Certainly many commentators think so, including ourselves, even though we recognise the risk of an escalation into a full blown trade war with all its economically damaging ramifications. In other news, the Federal Reserve raised US interest rates by 0.25% in March. Whilst this change was widely expected, Powell s accompanying speech struck a slightly more hawkish tone than his predecessor, which led many economists to suggest that the Federal Reserve could raise rates a little faster than previously anticipated. Finally, the UK and EU Brexit negotiations seemed to take a small step forward as the two sides agreed high level terms on a transition period. This was welcomed by the market as it could reduce the damaging risk of the so called cliff-edge departure from the EU in March Heightened risk aversion saw equity markets lose -1.0% over the quarter, when measured using the MSCI All Country World Index in US dollars. Amongst the majors, the best performers were Asia ex Japan (+0.5%), Global Emerging Markets (+1.3%) and Japan (+0.1%). Conversely, the UK (-3.9%) and Europe ex UK (-1.2%) were the biggest underperformers. At the sector level, performance AS AT 31 MARCH 2018 PAGE 4 OF 27

5 was quite dispersed, with Technology (+3.1%) and Consumer Discretionary (+1.0%) leading the way, whilst Telecoms (-5.4%) and Consumer Staples (-4.8%) propped up the bottom of the performance table. In terms of style, Growth (+0.6%) fared better than Value (-2.5%), whilst Smaller companies (-0.5%) marginally outperformed Larger Companies (-1.0%). Having shown signs of weakness early in the quarter, the performance of safe haven bonds improved as investor risk appetite declined. In the event, government bonds ended up being one of the best performing asset classes over the quarter, whilst corporate and emerging market bonds underperformed as spreads widened. Overall, the JP Morgan Government Bond Index rose +0.4%, whilst the Merrill Lynch Global Investment Grade Corporate Bond Index declined -1.3%, the Merrill Lynch Global High Yield Bond Index lost -0.6%, and the JP Morgan Global Emerging Market Bond Index slipped -1.8% (all in hedged to US dollar terms). Most commodities managed to advance, although the overall Bloomberg Commodity Index lost -0.4%. Crude Oil (+8.8%) was the best performing sector, as it responded to a significant fall in US inventories. Gold (+1.0%) also posted a positive return on its perceived safe haven status. At the other end of the spectrum, Industrial Metals (-6.2%) were under pressure, largely on fears that a global trade war could negatively impact bulk commodity demand and pricing. Dollar weakness continued to be a feature on the foreign exchange markets, as it slipped -5.5% versus the Japanese yen, -2.2% against the euro and -3.5% relative to the British pound. Better economic growth continued to help emerging market currencies, most of which managed to advance against the dollar over the period. Notable movers included the Chinese Renminbi (+3.1%), the Mexican peso (+7.6%) and the South African rand (+4.3%), with the latter responding enthusiastically to the replacement of Zuma with Cyril Ramaphosa as President of South Africa. Notes: All quarterly data is quoted in US dollar terms unless otherwise stated. AS AT 31 MARCH 2018 PAGE 5 OF 27

6 Local The positive end to 2017 was set to continue into the new year, following the election of Cyril Ramaphosa as president of the ANC at its national conference at Nasrec in December Positive political developments led to the S&P raising South Africa s GDP growth forecast to 2.0% for 2018, from 1.0% previously, and 2.1% for 2019, from 1.7% before, while improved investor sentiment has translated into a stronger rand and lower inflation. In February, the ANC took the decision to remove Jacob Zuma from his post as President of South Africa, and, after initially refusing to step down, Zuma tended his resignation late on the evening of 14 February. Cyril Ramaphosa was sworn in as the 5th democratic President of South Africa the next day. A cabinet reshuffled followed on 26 February, with 10 of the 35 cabinet ministers being dropped, including Zuma faithfuls like David Mahlobo and Faith Muthambi, while others such as Malusi Gigaba was kept. In addition, there were a lot of portfolio changes, with 23 ministers swopping portfolios. All in all, the Cabinet can be seen as an unavoidable compromise, the consequence of Ramaphosa winning the ANC election at Nasrec without the support of the greater majority. The most high profile changes, however, occurred in the economic cluster, with the appointments of Nhlanhla Nene at Finance, Gwede Mantashe at Mineral Resources, and Pravin Gordhan at Public Enterprises clearly indicating where Ramaphosa s priorities lie. The 2018 Budget speech was delivered by ex-finance Minister Malusi Gigaba (now Minister of Home Affairs), who produced a tough financial plan for the country with some difficult decisions at its core. In order to achieve a more sustainable fiscal trajectory, expenditure cuts were announced, alongside additional revenue raising measures. Most notably, the VAT rate was increased to 15% from 14%, the first such increase since Although the country s VAT rates are low relative to many other countries, this remains a politically difficult decision in a country with high inequality and levels of poverty - but one that yields enough to address the gaping hole in the budget. The positive political changes, along with the upgrade to economic growth figures and a more transparent and predictable policy framework, led Moody s to keep South Africa s credit rating at investment grade, while revising the outlook to stable from negative. In a further economic boost, the South African Reserve Bank (SARB) announced on 28 March that the repo rate has been cut by 25 basis points to 6.5%. Further on the political front, Parliament s Constitutional Review Committee will look into amending Section 25 of the Constitution to allow for expropriation without compensation, after the ANC supported an amended EFF motion. The ANC will be hosting an internal workshop, before the Committee will begin its investigations, which will include public participation, and report its findings to Parliament in August. On the economic front, the positive political and economic changes has led to the rand strengthening by 4.3% to the US Dollar over the first quarter of 2018, while the bond market produced a return of 8.1% and cash 1.8% for the quarter. Following the troubles at Steinhoff in December 2017, however, local markets have been decidedly skittish about any company specific allegations, especially against those with elevated valuations. A recent Viceroy report on Capitec was decidedly negative and, despite the rebuttal from the company, the share price failed to return to prior levels. Against this backdrop, another report written by hedge fund manager, 36One, questioning the valuation of the Resilient Group and related entities led to a significant AS AT 31 MARCH 2018 PAGE 6 OF 27

7 derating of these companies. With the broader Resilient stable making up on average 40% of the property sector (at the time), the share price moves of these entities contributed significantly to the property sector s poor performance of -19.6% over the first quarter of In general, the local equity market struggled against the backdrop of increased global volatility and further weakness in risk assets, with the South African All Share Index producing -6.0% for the quarter. Market favourite Naspers contributed to local equity market weakness as the share price of Tencent, their key return driver, sold off in tandem with global technology stocks. Further weakness followed on the announcement that Naspers would be selling part of their stake (up to 2%) in Tencent to a group of international investors. The strengthening of the rand hurt rand-hedge industrial stocks as well as the offshore portion of most of South African investors portfolios. However, all the equity sectors suffered during the first quarter, with the industrial sector (-8.7%) being hit the hardest. AS AT 31 MARCH 2018 PAGE 7 OF 27

8 PART TWO: INVESTMENT SOLUTIONS PERFORMANCE PERFORMANCE OF THE NEDGROUP INVESTMENTS PRIVATE WEALTH FUND OF FUNDS RANGE Q YEAR 3 YEARS 5 YEARS 7 YEARS 10 YEARS INCEPTION** FUND OF FUNDS COMPOSITE BENCHMARK Nedgroup Investments Private Wealth Conservative FoF 10% JSE SWIX 40, 7.5% ALBI, 7.5% SA Prop Index, 10% CPI, 65% Alexander Forbes STEFI Index INFLATION OBJECTIVE CPI + 2%* over rolling 3 year periods Q YEAR 3 YEARS 5 YEARS 7 YEARS 10 YEARS INCEPTION** FUND OF FUNDS COMPOSITE BENCHMARK Nedgroup Investments Private Wealth Defensive FoF 30% JSE SWIX 40, 15% ALBI, 15% SA Prop Index, 10% CPI, 30% Alexander Forbes STEFI Index INFLATION OBJECTIVE CPI + 3%* over rolling 3 year periods Q YEAR 3 YEARS 5 YEARS 7 YEARS 10 YEARS INCEPTION** FUND OF FUNDS COMPOSITE BENCHMARK Nedgroup Investments Private Wealth Balanced FoF 50% JSE SWIX 40, 12.5% ALBI, 12.5% SA Prop Index, 5% CPI, 20% Alexander Forbes STEFI Index INFLATION OBJECTIVE CPI+ 4%* over rolling 5 year periods Q YEAR 3 YEARS 5 YEARS 7 YEARS 10 YEARS INCEPTION** FUND OF FUNDS COMPOSITE BENCHMARK Nedgroup Investments Private Wealth Grow th FoF 70% JSE SWIX 40, 5% ALBI, 5% SA Prop Index, 20% Alexander Forbes STEFI Index INFLATION OBJECTIVE CPI + 5%* over rolling 5 year periods AS AT 31 MARCH 2018 PAGE 8 OF 27

9 FUND OF FUNDS COMPOSITE BENCHMARK Nedgroup Investments Private Wealth Satellite FoF (Formerly the Nedgroup Investments Private Wealth High Grow th FoF) 90% JSE SWIX 40, 5% CPI, 5% Alexander Forbes STEFI Index Q YEAR 3YEARS 5 YEARS 7 YEARS 10 YEARS INCEPTION** INFLATION OBJECTIVE CPI + 6%* over rolling 7 year periods *The benchmark is a composite one that is designed to achieve an outcome of inflation plus a specified amount. ** From 1 May Returns for periods longer than 12 months are annualised. PORTFOLIO PERFORMANC E It was a tough quarter for the NPW fund of fund range as well for the domestic risky asset classes. The property index returned % over the quarter with the All share index returning around -6%. The best performing Fund of Fund in the NPW range was the conservative fund with a return of over the quarter, largely due to low exposure to property and equities. The worst performing fund was the NPW Growth Fund of Funds with a return of -4.6% with a large exposure to risky asset classes. The best performing underlying funds for the quarter were the NGI Private Wealth Bond fund, which returned around 7% and the next best performing was the Nedgroup Investments Core Income fund, which is largely a cash fund, returning aboput 2%. This shows that it was quite a tough quarter for the fund managers, especially those in the risky asset classes such as equity and property. The global risky asset classes also struggled with the MSCI ACWI returning -1% in USD with the Nedgroup Investments Global Equity fund of funds returning -7.2% in Rand terms, with the global property building block, The Negroup Investments Global Property fund of funds returning -8.1%. RANKINGS AS AT 31 MARCH 2018 AGAINST ALL FUNDS IN THE SAME CATEGORY 1 The table below highlights the performance ranking relative to all funds (single managed funds and fund of funds) over various time periods. The appropriate measurement period for each fund is in bold. 1 Source for all rankings is Morningstar Direct and Nedgroup Investments AS AT 31 MARCH 2018 PAGE 9 OF 27

10 ASISA CATEGORY 1 YEAR 3 YEAR 5 YEAR 7 YEAR 10 YEAR INCEPTION Nedgroup Investments Private Wealth Conservative SA Multi Asset Low Equity 62 / / /77 47 /64 21 /44 6 /9 Nedgroup Investments Private Wealth Defensive SA Multi Asset Low Equity 92 / / /77 14 /64 3 /44 1 /9 Nedgroup Investments Private Wealth Balanced SA Multi Asset Medium Equity 68 /80 49 /63 17 /48 5 /38 1 /32 1 /9 Nedgroup Investments Private Wealth Grow th SA Multi Asset Flexible 43 /60 33 /55 15 /44 17 /41 10 /33 4 /14 Nedgroup Investments Private Wealth Satellite SA Multi Asset Flexible 52 /60 32 /55 20 /44 17 /41 15 /33 3 /14 RANKINGS AS AT 31 MARCH 2018 AGAINST ALL FUND OF FUNDS IN THE SAME CA TEGORY The table below highlights our performance relative to other fund of fund options, over various time periods. You will notice that the relative performance has been good overall and although we do not manage the solutions relative to the peer group, we are pleased that investors have fared well compared to similar alternatives. The appropriate measurement period for each solution is in bold. ASISA CATEGORY 1 YEAR 3 YEAR 5 YEAR 7 YEAR 10 YEAR INCEPTION Nedgroup Investments Private Wealth Conservative SA Multi Asset Low Equity 17/44 21/44 27/44 27/40 9/28 3/5 Nedgroup Investments Private Wealth Defensive SA Multi Asset Low Equity 26/44 30/44 13/44 5/40 1/28 1/5 Nedgroup Investments Private Wealth Balanced SA Multi Asset Medium Equity 21/27 17/27 6/27 4/24 1/20 1/4 Nedgroup Investments Private Wealth Grow th SA Multi Asset Flexible 20/26 16/24 9/24 4/23 2/22 2/5 Nedgroup Investments Private Wealth High Grow th SA Multi Asset Flexible 25/26 14/24 13/24 7/23 9/22 1/5 AS AT 31 MARCH 2018 PAGE 10 OF 27

11 PLEXUS CROW N RATINGS 2 The Nedgroup Investments Private Wealth Fund of Funds and the single asset class funds have been awarded Plexus Crown ratings. The maximum amount of Plexus Crowns one can be awarded is 5. 5 Plexus Crowns Nedgroup Investments Private Wealth Equity Fund Nedgroup Investments Private Wealth Balanced Fund of Funds 4 Plexus Crowns Nedgroup Investments Private Wealth Growth Fund of Funds Nedgroup Investments Private Wealth Small & Mid Cap Equity Fund 3 Plexus Crowns Nedgroup Investments Private Wealth Conservative Fund of Funds Nedgroup Investments Private Wealth Defensive Fund of Funds Nedgroup Investments Private Wealth Satellite Fund of Funds Nedgroup Investments Private Wealth Bond Fund 1 Plexus Crown Nedgroup Investments Private Wealth Property Equity Fund MORNINGSTAR RATINGS 3 In addition to the Plexus Crown ratings, the following four Nedgroup Investments Private Wealth Funds have also been awarded the maximum Morningstar rating of 5 stars. Nedgroup Investments Private Wealth Defensive Fund of Funds ***** Nedgroup Investments Private Wealth Balanced Fund of Funds ***** Nedgroup Investments Private Wealth Growth Fund of Funds ***** Nedgroup Investments Private Wealth Equity Fund ***** 2 The ratings are based on the PlexCrown Report for the fourth quarter of Full details of the rating system are available upon request. 3 The ratings are as at 31 March Full details of the rating system are available upon request. AS AT 31 MARCH 2018 PAGE 11 OF 27

12 POSITIONING OF THE SOLUTIONS As at the end of Q1 2018, the NPW fund of funds were positioned as follows: Q Domestic Offshore Q Domestic Offshore Equity Underweight Neutral Equity Neutral Overweight Property Neutral Overweight Property Neutral Overweight Bonds Neutral Underweight Bonds Overweight Underweight Cash Overweight Neutral Cash Underweight Underweight The underweight to local equities was marginally reduced over the quarter. This was due to some pockets of value showing in the domestic equity market, despite the elevated valuations on a broader market level. The increase in equities was funded by the reduction in domestic cash, in favour of the cyclical attractive areas (value and small/mid-cap counters). The strength of the Rand to expensive levels relative to the long-term fair value caused a marginal increase to the offshore exposure, but not necessarily be at the maximum allowable limit. The proceeds (from local flexible income) went towards the global property sector given that its broadly fair valued and being a growth asset, the prevailing macro-economic backdrop still suggest that the asset class is well supported. AS AT 31 MARCH 2018 PAGE 12 OF 27

13 PART THREE: PORTFOL IO MANAGER REVIEW The Nedgroup Investments Private Wealth Fund of Funds investment philosophy is one that seeks to appoint specialist underlying portfolio managers who are most appropriate for the achievement of each risk profiled fund of funds investment objective. A combination of externally and internally appointed fund managers is used. PERFORMANCE OF UNDER LYING FUNDS The tables and graphs that follow highlight the performance of most of the current underlying fund managers that are used within the Nedgroup Investments Private Wealth Fund of Funds range. NEDGROUP INVESTMENTS PRIVATE W EALTH BOND FUND The table and graph below compares the performance of the manager against the manager s benchmark. For the Nedgroup Investments Private Wealth Bond Fund the benchmark is the South African All Bond Index. In the table the returns for periods longer than 12 months are annualised. NEDGROUP INVESTMENTS PRIVATE WEALTH BOND ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/UNDER 1 year 14.4% 16.2% -1.8% SA Interest Bearing Variable Term Nedgroup Investment Advisors 3 year 8.5% 8.7% -0.2% 5 year 7.2% 7.7% -0.5% The graph shows performance from the fund s inception to 31 March 2018 AS AT 31 MARCH 2018 PAGE 13 OF 27

14 MANAGER COMMENTARY The vanilla bond market returned a massive 8.1% over the last quarter, and 16.2% over the last year. Bonds have been the best performing asset class in South Africa over this period. The Fund did not fully participate in the strong rally, as it was more conservatively positioned, but still delivered strong absolute returns of 14.4% over the last year. Over the last 3 years the Fund has returned 8.5%, broadly in line with the index's 8.6%. The reason for our more conservative positioning is that SA's fiscal risks remain high, given SA's precarious fiscal position. This can be turned around with prudent, sound financial management but will require a different approach from the political leadership of the country. We will be keeping a close eye on these developments and are thus far encouraged by some of the early signs emerging from the new leadership in the country. Annualised returns from vanilla bonds over the last 3-years have been 8.6% and over the last 5-years bonds have delivered 7.7% in pre-tax total returns. The Fund has increased its duration relative to benchmark, following the improved political situation in the country. We will only commit significant additional capital to long duration debt once we see a credible commitment to prudent growth enhancing policy, or when the risks are correctly reflected in yields. The fund remains a reasonable exposure to less liquid, shorter dated, highly rated corporate paper (no more than 2% of the fund is exposed to any one non-government issuer) and longer dated bonds issued by state owned enterprises which the manager believes to be of similar credit risk as the SA government. The Fund has exposure to quality corporate names such as Netcare, MTN, Bidvest, Imperial, Liberty and Discovery. NEDGROUP INVESTMENTS PRIVATE W EALTH PROPERTY EQUITY FUND The table and graph below compares the performance of the manager against the manager s benchmark. For the Nedgroup Investments Private Wealth Property Equity Fund the benchmark is the South African Listed Property Index. In the table the returns for periods longer than 12 months are annualised. NEDGROUP INVESTEMENTS PRIVATE WEALTH PROPERTY ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/IUNDER 1 year -7.0% -7.1% 0.1% SA Real Estate General Nedgroup Investment Advisors 3 year 0.1% -0.5% 0.6% 5 year 6.2% 7.1% -0.9% AS AT 31 MARCH 2018 PAGE 14 OF 27

15 The graph shows performance from the fund s inception to 31 March 2018 MANAGER COMMENTARY Listed property, as measured by the SA Property Index, delivered 8.32% to investors in the fourth quarter of The Nedgroup Investments Private Wealth Property Fund returned 1.54% over the period, underperforming its benchmark. For the twelve months ending 31 March 2018 the fund underperformed its benchmark by returning 11.56% to investors while the index returned 17.15%. The top contributors to the fund's performance compared to the benchmark over the 12 months were its overweight positions in Greenbay Properties, Rebosis Property Fund A, Mas Real Estate and in Stor-Age Property REIT. The fund also benefitted from underweight positions in SA Corporate Real Estate, Redefine Properties, Arrowhead Properties A and Hyprop Investments. The major detractors to performance were underweight positions in Resilient REIT, NEPI Rockcastle Investment and in the Fortress REIT B share. The fund's performance was also negatively impacted by overweight positions in Rebosis Property Fund B, Ingenuity Property and in the Hospitality Property Fund B share. Due to the uncertain polictical and economic climate in South Africa in 2017, stocks that outperformed in the year had large exposures to offshore markets in general, and to the Central and Eastern European (CEE) region in particular. The fund maintains a large overweight position in the Rebosis Properties Fund A share. The guaranteed income growth with substantial interest cover remains an attractive value proposition in an expensive market in which income growth is difficult to sustain. Stocks with CEE operations have also become a larger part of the fund, although we remain underweight the benchmark. In South Africa, the fund endeavours to maintain large overweight positions in stocks that have relied more on fundamental drivers of income growth than on once-off gains. The sector still trades at a near record low dividend yield even as the quality of dividends has deteriorated substantially. The fund is avoiding stocks that have shown distributable income growth through acquisitions or other once-off activities. The fund manager is of the view that this mispricing will correct in time as the sector will find it more difficult to generate income through (i) debt restructuring and (ii) yield enhancing acquisitions over time. Defensive and prudently managed SA portfolios at appropriate prices will deliver superior performance over the medium-term compared to peers that trade at similar valuations but on inflated income streams. AS AT 31 MARCH 2018 PAGE 15 OF 27

16 NEDGROUP INVESTMENTS PRIVATE W EALTH SMALL AND MID CAP EQUITY The table and graph below compares the performance of the manager against the manager s benchmark. The Nedgroup Investments Private Wealth Small & Mid Cap Equity Fund uses a composite benchmark comprised of 75% of the FTSE/JSE Mid-Cap Index and 25% of the FTSE/JSE Small-Cap Index. In the table the returns for periods longer than 12 months are annualised. NEDGROUP INVESTMENTS PRIVATE WEALTH SMALL & MID CAP ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/UNDER 1 year -7.2% 1.1% -8.4% SA Equity Mid & Small Caps Nedgroup Investment Advisors 3 year 0.9% 4.4% -3.5% 5 year 5.4% 9.1% -3.7% The graph shows performance from the fund s inception to 31 March MANAGER COMMENTARY After a challenging 2017, the Fund delivered a gain of 0.5% for the first three months of While the 0.5% gain is moderate in isolation, the performance needs to be considered in the context of the 3% decline in the Fund s benchmark over the same period. A number of the Fund s larger positions rallied strongly on the back of improved investor sentiment following the election of President Cyril Ramaphosa in December Further evidence of repair at key government institutions and upgrades to GDP growth expectations helped the country avoid another local currency credit rating downgrade during the quarter. Instead, SA s local currency credit rating as assessed by Moody s was maintained at investment grade, and the credit outlook was upgraded from negative to stable. Holdings like The Foschini Group (which was our largest holding going into 2018), Hudaco and City Lodge experienced significant re-ratings on the back of increased demand for stocks that are well positioned to leverage off the improved economic outlook. We have used the significant change in sentiment as an opportunity to take profits in positions such as The Foschini Group and Spar, AS AT 31 MARCH 2018 PAGE 16 OF 27

17 and recycled the capital into businesses we believe to be equally well positioned for a cyclical recovery, but are more attractively priced. The Fund benefited from being underweight Resources, as stocks like Exxaro, Sibanye Gold, Impala Platinum and Northam Platinum all underperformed over the period. This was partly due to the strengthening of the Rand and concerns around the extent to which export earnings from these companies could be affected. Adapt IT is our largest holding at present. Despite the stock having been a significant detractor to our performance during 2017, the share price has begun to recover and the stock has been our top performing investment for the year to date. We believe that Adapt It remains undervalued relative to its long-term earnings potential. Improved business confidence should support a recovery in corporate IT spend (as the deferral of IT projects created significant headwinds for the group in 2017). In our view, Adapt IT is also well positioned to play a leading role in the consolidation of the fragmented software industry, and has scope to pursue additional international opportunities given its scalable business model. Despite a number of positions having worked out well for the Fund during the quarter, a handful of holdings continued to drag on performance. EOH, Curro and Ascendis Health all materially underperformed during the period. Curro reported weaker than expected results for the year to December Despite a resilient performance from the group s core Curro-branded operations (which comprise c.90% of Group earnings), the lower fee-paying schools operating under the Meridian brand (a venture run in partnership with Old Mutual) generated a sizeable loss. Increased learner churn and fee pressure also raised some concerns. While we have pared our expectations following the recent market update, we remain constructive on the group s longer-term prospects. Curro operates a very cash generative business model, and should continue to benefit from significant demand for quality education. In addition, Curro has a strong pipeline for growth (with the Group having recently highlighted a number of exciting potential opportunities for expansion into the rest of Africa). Results from EOH and Ascendis also disappointed, with both companies having experienced increased strain from a cash flow perspective over the past financial year. Ascendis has been on a significant acquisition drive since listing, but certain acquisitions (like the group s sports nutrition business, Scitec) have failed to deliver. A new CEO has been appointed to conduct a thorough strategic review of the business and right size the group where necessary. EOH, suffered from increased working capital absorption due to delayed payments on public sector contracts. The company was also subject to a slew of adverse media coverage around potential corporate governance concerns. EOH has proposed a restructuring of the group in order to simplify reporting lines, and we think a more supportive trading environment should help alleviate some of the pressure on cash flows. We will continue to monitor the situation at both companies closely. As things stand we think the valuation currently on offer for both counters provide sufficient upside on a risk-adjusted basis to warrant maintaining the Fund s holdings. On balance, despite some small setbacks during the first quarter, we think the Fund is attractively positioned to benefit from a recovery in the SA economy. We also think that valuations across the majority of our holdings remain relatively undemanding. As always, it is hard to predict how conditions will unfold in the near term, but given the current starting point we think the Fund is well positioned to deliver meaningful returns to our co-investors over time. NEDGROUP INVESTMENTS PRIVATE W EALTH EQUITY FUND The table and graph below compares the performance of the manager against the manager s benchmark. For the Nedgroup Investments Private Wealth Equity Fund the benchmark is the FTSE/JSE SWIX 40. In the table the returns for periods longer than 12 months are annualised. AS AT 31 MARCH 2018 PAGE 17 OF 27

18 NEDGROUP INVESTMENTS PRIVATE WEALTH EQUITY ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/UNDER 1 year -2.3% 11.7% -14.1% SA Equity General Nedgroup Investment Advisors 3 year 0.5% 4.4% -3.9% 5 year 10.2% 10.9% -0.7% The graph shows performance from the fund s inception to 31 March MANAGER COMMENTARY The Fund outperformed its Swix40 index benchmark by 0.81% in the first quarter. Positive contributors for the quarter included Naspers, Steinhoff Africa Retail and software group, Adapt IT. The Fund s performance benefited from an underweight position in Naspers. Naspers constitutes in excess of 25% of the Swix40 index. Detractors for the period included the Fund s positions in IT services group, EOH Holdings, education group, Curro and investment holding company, Reinet. In response to a resurgent rand and moderating domestic interest rate expectations, a broad basket of SA Inc. stocks posted a strong rally over the period. The Fund took the opportunity to reduce certain positions in response to this Ramaphosa rally. Examples of positions reduced included The Foshini Group, Bidvest, and RMH Holdings. Focus areas in the Fund: EOH announced a particularly weak trading statement during the period for the six months ending 31 January The interim performance reflected the knock-on financial consequences of the 2017 news flow relating to unfounded adverse media coverage. Going forward, EOH will now need to rebuild market confidence which will require evidence of a return to business as usual. In addition, an internal restructuring exercise is also underway in a bid to enhance transparency and efficiency within the Group. Reinet also remained under pressure during the quarter which reflected the performance of its largest investment, British American Tobacco (BAT). The tobacco industry has entered what has been dubbed "the FDA bear market". The US Food and Drug Administration (FDA) has recently adopted a more proactive strategy in a bid to discourage the appeal of smoking. In particular, the FDA is targeting a reduction in flavours, menthol and nicotine levels in cigarettes and has embarked on a process of public consultation. The market has adopted a cautious stance and BAT has in turn de-rated to a low teens multiple and a dividend yield approaching 5%. AS AT 31 MARCH 2018 PAGE 18 OF 27

19 NEDGROUP INVESTMENTS RAINMAKER FUND The table and graph below compares the performance of the manager against the manager s benchmark. For Nedgroup Investments Rainmaker the benchmark is the ASISA South African Equity General unit trusts average return. In the table the returns for periods longer than 12 months are annualised. NEDGROUP INVESTMENTS RAINMAKER ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/UNDER 1 year 9.4% 4.8% 4.6% SA Equity General Abax 3 year 3.3% 2.1% 1.2% 5 year 9.3% 7.4% 1.8% The graph shows performance from the fund s inception to 31 March W hy we chose Nedgroup Investments Rainmaker The fund has a long, consistent track record of outperformance. Abax, the asset management business that manages the fund, is wholly owned by fund managers and staff. The fund manager focuses on a core of high growth stocks across the larger and mid cap sectors. The active management style of the fund managers has resulted in good risk adjusted relative performance. The investment team is stable and experienced. AS AT 31 MARCH 2018 PAGE 19 OF 27

20 PRUDENTIAL EQUITY FUND The table and graph below compares the performance of the manager against the manager s benchmark. For Prudential Equity the benchmark is the ASISA South African Equity General unit trusts average return. In the table the returns for periods longer than 12 months are annualised. PRUDENTIAL EQUITY ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/UNDER 1 year 6.9% 4.8% 2.0% SA Equity General Prudential 3 year 4.2% 2.1% 2.1% 5 year 10.2% 7.4% 2.8% Sourc e: Morni ngstar an d Nedg ro up Invest ments The graph shows performance from the fund s inception to 31 March W hy we chose Prudential Equity The fund has an excellent long term track record. The investment team is stable and experienced. We identify with their value approach to investing. They are part of a global asset management business. The fund management team is easily accessible. AS AT 31 MARCH 2018 PAGE 20 OF 27

21 NEDGROUP INVESTMENTS VALUE FUND The table and graph below compares the performance of the manager against the manager s benchmark. For Nedgroup Investments Value the benchmark is the ASISA South African Equity General unit trusts average return. In the table the returns for periods longer than 12 months are annualised. NEDGROUP INVESTMENTS VALUE ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/UNDER 1 year 1.8% 4.8% -3.1% SA Equity General Foord 3 year 3.3% 2.1% 1.2% 5 year 7.5% 7.4% 0.1% The graph shows performance from the fund s inception to 31 March W hy we chose Nedgroup Investments Value The business is wholly owned by the fund manager and staff. Long term track record of outperformance. The investment team is stable and experienced. The fund manager has a core competency in value investing. They have proven stock selection abilities. AS AT 31 MARCH 2018 PAGE 21 OF 27

22 CORONATION TOP 20 FUND The table and graph below compares the performance of the manager against the manager s benchmark. For Coronation Top 20 the benchmark is the FTSE/JSE All Share Capped Index. In the table the returns for periods longer than 12 months are annualised. CORONATION TOP 20 ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/UNDER 1 year 5.2% 8.9% -3.7% SA Equity General Coronation 3 year 4.3% 5.1% -0.9% 5 year 9.1% 10.1% -1.1% The graph shows performance from the fund s inception to 31 March W hy we chose Coronation Top 20 The fund has a strong long term track record. The fund management team is stable and experienced. The fund management team is aligned to investor s best interest via performance based fees. Coronation staff have an equity interest in the business. The equity research team is stable and experienced. They have a concentrated large cap stock portfolio. AS AT 31 MARCH 2018 PAGE 22 OF 27

23 NEDGROUP INVESTMENTS STABLE FUND The table and graph below compares the performance of the manager against the manager s benchmark. For Nedgroup Investments Stable the benchmark is CPI + 4%. In the table the returns for periods longer than 12 months are annualised. NEDGROUP INVESTMENTS STABLE ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/UNDER 1 year 3.5% 8.2% -4.7% SA Multi Asset Low Equity Foord 3 year 4.6% 10.0% -5.4% 5 year 7.4% 9.7% -2.3% The graph shows performance from the fund s inception to 31 March W hy we chose Nedgroup Investments Stable Fund A tried and tested investment philosophy is being used to manage the fund A 30 year track record in asset allocation and absolute mandate. Proven asset allocation and stock selection abilities Foord is an owner managed business that is small enough to remain flexible AS AT 31 MARCH 2018 PAGE 23 OF 27

24 INVESTEC W ORLDW IDE EQUITY FEEDER FUND The table and graph below compares the performance of the manager against the manager s benchmark. For Investec Worldwide Equity Feeder the benchmark is the MSCI AC Word Index (ZAR). In the table the returns for periods longer than 12 months are annualised. ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/UNDER 1 year 0.0% 1.5% -1.5% Global Equity General Investec 3 year 3.9% 7.3% -3.4% 5 year 13.1% 14.9% -1.8% The graph shows performance from the fund s inception to 31 March W hy we chose Investec W orldwide Equity Feeder Fund The fund invests into the top performing Investec GSF Global Equity Fund. Exposure to developed global markets which has diversification benefits. The investment team is part of a reputable international asset management business. The investment style is flexible giving exposure to both large and mid caps. AS AT 31 MARCH 2018 PAGE 24 OF 27

25 NEDGROUP INVESTMENTS GLOBAL EQUITY FEEDER FUND The table and graph below compares the performance of the manager against the manager s benchmark. For the Nedgroup Investments Global Equity Feeder Fund the benchmark is the ASISA Global Equity General unit trusts average return. In the table the returns for periods longer than 12 months are annualised. NEDGROUP INVESTMENTS GLOBAL EQUITY FEEDER ASISA CATEGORY MANAGER PERIOD PERFORMANCE BENCHMARK OUT/UNDER 1 year -2.7% -0.5% -2.2% Global Equity General Veritas 3 year 5.9% 5.1% 0.8% 5 year 14.1% 12.6% 1.6% The graph shows performance from the fund s inception to 31 March W hy we chose Nedgroup Investments Global Equity Feeder Fund Managed by Veritas Fund Managers. Focus on value investing and downside protection. Excellent long term investment track record. Fund manager and staff are owners of the business and there is an alignment of interests. Exposure to developed global markets which has diversification benefits. AS AT 31 MARCH 2018 PAGE 25 OF 27

26 The chart below shows the underlying funds returns (dark green bars) as well as index returns (light green bars) over the last three months as at 31 March FTSE/JSE SA Listed Property TR ZAR 2. (ASISA) South African RE General 3. NGI Private Wealth Property Equity Underlying Funds Performance, 2018 Q1 4. Nedgroup Inv Global Property FF A 5. (ASISA) Global RE General Nedgroup Inv Global Equity FF B 7. Investec Worldwide Equity FF A 8. FTSE/JSE All Share SWIX TR ZAR 5 9. Nedgroup Inv Private Wealth Equity A FTSE/JSE All Share TR ZAR 11. Coronation Top 20 A 12. (ASISA) Global EQ General 13. (ASISA) Global MA High Equity 14. Coronation Equity R 15. Prudential Equity D 16. Nedgroup Inv Core Global FF A 17. (ASISA) South African EQ General 18. Nedgroup Inv Rainmaker A 19. (ASISA) South African MA High Equity Nedgroup Inv Value A 21. (ASISA) South African EQ Mid/Small Cap 22. (ASISA) South African MA Low Equity 23. Nedgroup Inv Stable A MSCI ACWI NR USD 25. NGI Private Wealth Small & Mid Cap Eq 26. STeFI Composite ZAR Nedgroup Inv Core Income C 28. (ASISA) South African IB Short Term 29. (ASISA) South African IB Variable Term 30. NGI Private Wealth Bond 31. Beassa ALBI TR ZAR AS AT 31 MARCH 2018 PAGE 26 OF 27

27 PART FOUR: INVESTMENT SOLUTIONS REVIEW Following is the detailed review of each of the Nedgroup Investments Private Wealth fund of funds range of investment solutions: Nedgroup Investments Private Wealth Conservative Fund of Funds Nedgroup Investments Private Wealth Defensive Fund of Funds Nedgroup Investments Private Wealth Balanced Fund of Funds Nedgroup Investments Private Wealth Growth Fund of Funds Nedgroup Investments Private Wealth Satellite Fund of Funds Disclosures: Nedgroup Collective Investments (RF) Proprietary Limited is the company that is authorised in terms of the Collective Investment Schemes Control Act to administer the Nedgroup Investments unit trust portfolios. It is a member of the Association of Savings & Investment South Africa (ASISA). Unit trusts are generally medium to long term investments. The value of your investment may go down as well as up. Past performance is not necessarily a guide to future performance. Nedgroup Investments does not guarantee the performance of your investment and even if forecasts about the expected future performance are included you will carry the investment and market risk, which includes the possibility of losing capital. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. Certain unit trust funds may be subject to currency fluctuations due to its international exposure. Nedgroup Investments has the right to close unit trust funds to new investors in order to manage it more efficiently. A schedule of fees and charges and maximum commissions is available on request from Nedgroup Investments. A fund of funds may only invest in other unit trust funds that levy their own charges, which could result in a higher fee structure. The funds mentioned in this document are managed by authorised Financial Service Providers under the Financial Advisory and Intermediary Services Act. Performance calculated for the funds and individual investment performance may differ as a result of initial fees, actual investment date, date of reinvestment and dividend withholding tax. The annualized total return is the average return earned by an investment each year over a given time period. AS AT 31 DECEMBER 2016 PAGE 27 OF 27