A COCKTAIL OF FINANCIAL VOLATILITY AND POLITICAL UPHEAVAL

Transcription

1 MACROSOLUTIONS A COCKTAIL OF FINANCIAL VOLATILITY AND POLITICAL UPHEAVAL ARTHUR KARAS PORTFOLIO MANAGER APRIL 2016 I don t need to be the one to tell you that financial markets have been extremely volatile recently. Markets are always busy and noisy, but most of the time a clear trend is evident. Over the longer term the market trend has been upwards, but the swings of the past year reveal no clear direction. The chart below shows the weekly percentage change in the FTSE/JSE Shareholder Weighted All Share Index (SWIX) over the past three years. The weekly data shows that the market moved up and down in quite a random fashion, but for much of the period, the trend was steadily moving up. Investors were rewarded for sitting through the noise with a total return of 5 for the three years to the end of March STRONG LONG-TERM GAINS JUXTAPOSE A WILD 12 MONTHS SWIX 5 years to end of March 2016 % change (annual) 5 FTSE/JSE Shareholder Weighted All Share Index - % Change FTSE/JSE Shareholder Weighted All Share Index - Total Return SHORT-TERM NOISE DISTRACTS FROM LONGER-TERM GAINS SWIX 3 years to end of March Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct % SWIX 1 year to end of March 2016 % change (weekly) 6% 4% 2% -2% -4% -6% FTSE/JSE Shareholder Weighted All Share Index - % Change FTSE/JSE Shareholder Weighted All Share Index - Total Return -8% Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct Mar-16 This upward trend has been a feature of the past five years, with the market appreciating by an average rolling annual total return of nearly 17%. % change (annual) 25% FTSE/JSE Shareholder Weighted All Share Index - % Change FTSE/JSE Shareholder Weighted All Share Index - Total Return 2 15% 1 5% -5% Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 However, recently markets have been more unsettled and volatile, lacking clear direction. The following chart shows that over the last 12 months, the SWIX has essentially gone sideways, with lots of volatility.

2 SO WHY THE VOLATILITY? To understand the unsettled equity market, we need to place South Africa in context. SA is a small open economy with a stock market dominated by offshore listings and rand hedge shares. Our market is very susceptible to external drivers. The chart attests to this as it shows how the US S&P 500 has seen a similar volatile pattern, tracking sideways over the past year. US S&P 500 DRIVES DIRECTION OF JSE SWIX 1 year to end of March 2016 % change (annual) 2 15% 1 5% -5% -1 US S&P % Change US S&P Total Return -15% Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 Many of the themes weighing on our domestic investment portfolios originate from outside South Africa. Chief among these factors is the US Federal Reserve (Fed)'s monetary policy. Markets across the world spent much of 2015 waiting for clear direction on the timing and extent of interest rate hikes in the US. US interest rates are implicit in the valuations of almost all investments and have a strong influence on markets globally. It became clear late in 2015 that the Fed was less convinced about the strength of the US economy and was unlikely to raise rates meaningfully. Consequently, the US dollar weakened and the gold price, being the other side of the coin, moved up strongly. Although we have seen numerous economic data releases since then, investors remain divided about the potency of the US recovery, leaving us without reaching any clarity as to the slope and timing of a US rate hike cycle. THE TWO SIDES OF THE GOLD COIN: US DOLLAR AND GOLD PRICE SWIX 3 years to end of March 2016 Euro/US dollar exchange rate $1.00 $0.95 $0.90 $0.85 $0.80 $0.75 Euro/US Dollar exchange rate Gold Price (NYM $/oz) $0.70 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 $1 500 $1 450 $1 400 $1 350 $1 300 $1 250 $1 200 $1 150 $1 100 $1 050 $1 000 Mar-16 Gold price per ounce (US dollars) China has been another major source of investor angst. With a slowing economy that s transitioning away from relying on fixed investment, China has had a huge negative influence on metal prices for the past few years. Throw in an opaque central bank, a weaker yuan and inexperienced regulators trying to prop up debt and equity markets and the scope for uncertainty is huge. The oil price falling to levels unimaginable just a few years ago, has also added to the macroeconomic turmoil. While lower crude prices have been good news for motorists, they have been a crippling blow for some oil-producing economies, including Angola, Nigeria and Russia. Investors have also had to digest significant political uncertainty in some economies. The United Kingdom faces a vote on a potential exit from the European Union, while Brazil is navigating political scandal and a possible presidential impeachment Which brings us back to South Africa. With the Nenegate debacle, the Constitutional Court judgement over Nkandla and the increased pressure on our President over the past few months, we have seen major political upheaval and a resulting negative impact on our investment markets. And just to keep things interesting, in an uncertain global economic environment with little sign of a sustainable cyclical upturn, the strongest stock market performers have been resources shares. The rally in mining stocks can potentially be explained by a number of factors: a dead cat bounce (a short-term recovery after devastating share price declines), a seasonal uptick in a secular downtrend (Chinese producers stocking up after their New Year) or a consequence of economic stimulus. SO WHAT TO DO? We have participated in these trends where we have been able to understand the logic behind the price action. We bought gold shares in December and platinum shares in January. We retained our diversified miners through the trough and even added to them in March. Our clients have been well rewarded for taking on that risk, but our key objective is to ensure that our portfolios are well positioned for the long term, while being resilient enough to cope with anything the markets may throw at us in the short term. Our first step in achieving this is to diversify our holdings. We own local and international stocks, ensuring that we are not exposed to just one source of sovereign risk or one national economy. We own bonds and hold cash, both currently earning healthy yields; we own property and convertible bonds, and where client mandates allow, alternatives such as hedge funds and private equity.

3 With equity as the primary source of long-term real returns, we are always focused on identifying and holding those companies that can provide long-term outperformance. Naspers, FirstRand, Bidvest, Investec, Discovery, British American Tobacco, Steinhoff and have all been held in our portfolios for the past five years earning returns well above the SWIX, as can be seen in the chart below. Perspectives 2016 yearbook). These include equity being the primary source of long-term real returns, taking a long-term approach and diversifying across asset classes. To that I can add the importance of looking at your performance in real terms (inflation is the silent killer of returns). Most important of all, however, is that investors need to be patient. I believe our portfolios are appropriately positioned to withstand the turmoil of this busy and noisy world. I have touched on a number of key lessons we believe are crucial to building a solid portfolio (as outlined in our MacroSolutions Long-term COMPANIES OUTPERFORMING THE SWIX OVER THE PAST FIVE YEARS Naspers 500 Price indexed Steinhoff 366 British American Tobacco 362 Discovery FirstRand 286 Bidvest 252 Investec 203 FTSE/JSE Shareholder Weighted All Share

4 MARKET COMMENTARY The first quarter of 2016 proved to be challenging, as several significant events unfolded on both the global and local stages. Globally, growth concerns resurfaced as data surprised on the downside. This led to equity markets falling sharply in January. However, policymakers continued to throw stimulus at the slow growth dilemma: the European Central Bank (ECB) became the fifth central bank to cut short-term interest rates to below zero, China loosened policy further and the US Federal Reserve (Fed) adopted a more dovish tone and continued revising their own expectations for short rates lower. The Fed s softer view on the path of interest rates led to the US dollar weakening, commodity prices rallying and mining shares moving higher off very depressed levels. Emerging markets also benefited and handsomely outperformed developed markets over the quarter. However, the longer-term outlook for both resources companies and emerging market equities remains poor. Turning to our shores, South Africa had to deal with the ensuing fallout of the Finance Minister calamity in December. All eyes were on the new Finance Minister leading into the Budget Speech in February. Minister Gordhan allayed near-term fears with a sound budget that focused on reducing expenditure without raising taxes significantly. The decision was important, as a sharp hike in taxes could have weighed heavily on the growth outlook for South Africa a critical factor for the ratings agencies when deciding on the rating of our debt and our ability to borrow in the future. With a more positive view on emerging markets and commodities and some calm restored to our own shores, the local equity and bond markets performed well over the quarter the bulk of which occurred in February and March. The rand regained some value and ended the quarter at levels last seen when Nhlanhla Nene was Finance Minister. On the equity front, it was all about resources, as many of those companies that have taken a beating over the past few years enjoyed an exceptional quarter. Meanwhile, several of the longer-term winners, like Naspers and Mondi, struggled. Local property had another good quarter, with all of its gains achieved in March. OLD MUTUAL MAXIMUM RETURN FUND OF FUNDS (Peter Brooke) (Classification category: Worldwide Multi-Asset Flexible) The Maximum Return of s delivered a return of 5.3% over the past year. While this is better than what was delivered by local equity and bonds, it is some way off what we would aim to deliver in the longer term. However, over the short term, we are concerned about the outlook for the local equity market and so are holding more cash and bonds than our high return targets would imply. We have 15% in SA bonds (on the back of the high yield on offer) and a further 1 in the Income to capture the more than 8% yield available on 12-month NCDs (negotiable certificates of deposit). Our preferred asset class to deliver long-term real returns is offshore equity. This has stood us in very good stead over the last year. However, we decreased offshore exposure to 45% of the portfolio in January. This was based on our view that the rand could potentially strengthen, which was certainly the case in the last month when the rand strengthened by nearly 7%. We used this rand strength to top up on international property, moving to 5% of the portfolio. The international property position is to provide some diversification and also exposure to higher yield. OLD MUTUAL FLEXIBLE FUND (Peter Brooke) (Classification category: South African Multi-Asset Flexible) The Flexible is cautiously positioned in the current volatile environment. While the domestic equity investments in the portfolio performed well during the month, the fund holds an underweight exposure to this asset class. Along with the fund s domestic bond and international equity holdings, this proved to be a drag on returns in a month where the FTSE/ JSE Shareholder Weighted All Share Index (SWIX) ran strongly. Over the past 12 months, the fund is lagging its performance objective. In the short term, we are concerned about the outlook for the local equity market so are holding more cash and bonds than our high return targets would imply. We are confident that our approach will prevail. Our preferred asset class to deliver long-term real returns is offshore equity. This has stood us in very good stead in the past year. March saw some very large moves in some of the fund s equity holdings, including Capitec up 2, Nampak up 2 and Glencore up 13%. We topped up the fund s exposure to plc during the month. Our parent company has perpetually traded at a discount and a new CEO with a clear plan to simplify the complex structure of the group is a strong catalyst to close the undervaluation. OLD MUTUAL BALANCED FUND (Graham Tucker) (Classification category: South African Multi-Asset High Equity) It was a difficult and disappointing quarter for the fund from a performance perspective. For some time now we have held a bearish view on resources, given the unfavourable supply and demand dynamics. This obviously worked against the fund in the quarter as commodity prices rose and the miners bounced sharply from low levels. The negative impact of the shift from quality to value was further felt through the likes of preferred holdings such as Naspers and Mondi. Another detractor over the period was the underweight stance on local equities. The increased stimulus and dovishness from policymakers in the quarter drove emerging markets higher, with local equities outperforming. Following the global financial crisis, asset prices have been driven sharply higher through various monetary easing programmes. In order to justify these higher prices, investors require an improvement in earnings. Our view of a slow growth world increases the likelihood of an earnings disappointment. Hence, we maintain our cautious positioning on equities, in particular local equities, which look expensive. The local economic environment continues to disappoint, hence the fund is tilted towards those businesses with a significant global footprint Naspers, Mondi, Steinhoff and British American Tobacco. There is also a focus on quality within the equity portfolio, which talks to the ability of companies to continue delivering in a challenging environment like Capitec and Woolworths. Global equity remains the most attractive asset class in our view. Within that, Europe is seen to be offering both good value and an improving operating environment. Hence, we maintain the maximum allowed weight to global equities. The rand is trading at cheap levels relative to economic fundamentals. As such, we would not expect the currency to be a significant positive contributor to returns (as we ve seen in the past five years). That said, the environment for the rand remains poor and the risk elevated. Hence, despite the value argument, it is difficult to see the rand strengthening significantly under these conditions. Turning to fixed income, the fund bought local bonds during the quarter as the storm around South Africa was starting to dissipate somewhat ahead of the Budget Speech. Bonds continue to offer good real returns looking out over the next five years, but there are clear and present dangers that could negatively impact returns in the short term. As such, we maintain a meaningful, yet considered position in local bonds. The fund has built up a significant cash position over the last year as we ve seen fewer opportunities in growth assets. A large portion of this was invested in attractive money market instruments during the quarter. We will look to deploy this cash should alternative attractive opportunities present themselves. While the recent fund performance has been poor and below the standards we set ourselves, looking forward we remain convinced that the fund is well placed to deliver the returns that our clients require. Our objective is to position our clients in such a way as to deliver to their real return objectives in the long term. The recent short-term whipsawing is a challenge, but it will create opportunities for us to position our clients, and ourselves as investors in the fund, for longer-term success. OLD MUTUAL MODERATE BALANCED FUND (John Orford) (Classification category: South African Multi-Asset Medium Equity) The fund s performance over the past year and in the most recent quarter has been disappointing. A big contributor was the negative impact from the shock dismissal of Finance Minister Nene in December last year given the fund s exposure to government bonds and, within local equities, to financials. During the last quarter, the fund s low allocation to local equities

5 MARKET COMMENTARY CONTINUED and our underweight allocation within local equities to resources detracted from the fund s performance, given the strong rally in mining shares and some strengthening in the rand. Both globally and locally, the outlook remains challenging, warranting a cautious stance within the fund. Overall, the fund has a lower than average allocation to equities and, within equities, we continue to favour global over local equities. Our preference for global equities is less about the rand (which we think, at current levels, is undervalued) and more about relative valuations and earnings prospects. South African equities remain expensive relative to global equities, while earnings prospects are poor. We are unconvinced that the recent rally in mining shares heralds a sustained period of outperformance by mining shares, because we do not think anything has changed in the commodity market fundamentals. Global and, in particular, China s growth prospects remain muted, while key commodity markets like iron ore and oil remain oversupplied. We did increase our exposure to selected mining shares (such as AngloGold and Anglo Platinum, which have performed very well in the portfolio) but are comfortable remaining, in aggregate terms, underweight to mining shares. We are also cautious on the outlook for domestic facing companies where the weak growth prospects for South Africa will likely see corporate profitability remain under pressure over the coming year as interest rates and inflation remain on an upward trend. Where we own domestically exposed companies, they tend to be high quality, more defensive companies capable of growing earnings in difficult conditions, such as Rhodes Food Group. Overall, the portfolio continues to find high quality companies with global exposure attractive. These include companies like British American Tobacco, Mondi and Naspers. The fund s global equity exposure has been reduced slightly, but remains a significant position. We think global equities offer higher quality and more diversified earnings streams at generally more favourable valuations than South African equities. Within global equities, European equities look particularly attractive given an improving economic backdrop and ongoing monetary policy stimulus. We have also taken advantage of locally listed companies that have exposure to the improving European environment. An example is Steinhoff, which is successfully growing its European retail footprint and has returned 23% during the quarter, following its European listing late last year. The fund s holdings in government bonds were negatively affected by the Nenegate selloff last year. There are many risks facing government bonds, including rising inflation and the potential for a ratings downgrade. However, we think current yields price in much of this risk and the prospective real returns over the next few years are attractive. The fund therefore holds a significant position in nominal government bonds. Given our overall level of caution, the fund continues to hold a large position in cash. Not only does this give the fund some protection from short-term volatility and potential loss in capital, it also means that as opportunities arise we will be able to take advantage of them. OLD MUTUAL STABLE GROWTH FUND (John Orford) (Classification category: South African Multi-Asset Low Equity) The fund s performance over the past year and in the most recent quarter has been disappointing. Despite this, the fund continues to deliver to its long-term real return targets, while preserving capital over the shorter term. A big contributor was the negative impact from the shock dismissal of Finance Minister Nene in December last year given the fund s exposure to government bonds and, within local equities, to financials. During the last quarter, the fund s low allocation to local equities and our underweight allocation within local equities to resources detracted from the fund s performance given the strong rally in mining shares and some strengthening in the rand. Both globally and locally, the outlook remains challenging, warranting a cautious stance within the fund. Overall, the fund has a lower than average allocation to equities and, within equities, we continue to favour global over local equities. Our preference for global equities is less about the rand (which we think, at current levels, is undervalued) and more about relative valuations and earnings prospects. South African equities remain expensive relative to global equities, while earnings prospects are poor We are unconvinced that the recent rally in mining shares heralds a sustained period of outperformance by mining shares, because we do not think anything has changed in the commodity market fundamentals. Global and, in particular, China s growth prospects remain muted, while key commodity markets like iron ore and oil remain oversupplied. We did increase our exposure to selected mining shares (such as AngloGold and Anglo Platinum, which have performed very well in the portfolio) but are comfortable remaining, in aggregate terms, underweight to mining shares. We are also cautious on the outlook for domestic facing companies where the weak growth prospects for South Africa will likely see corporate profitability remain under pressure over the coming year as interest rates and inflation remain on an upward trend. Where we own domestically exposed companies, they tend to be high quality companies growing market share, like Capitec, or defensive companies able to grow earnings in difficult conditions, such as Rhodes Food Group. Overall, the portfolio continues to find high quality companies with global exposure attractive. These include companies like British American Tobacco, Mondi and Naspers. The fund s global equity exposure has been reduced slightly, but remains a significant position. We think global equities offer higher quality and more diversified earnings streams at generally more favourable valuations than South African equities. Within global equities, we have a clear preference for European equities, which should benefit from ongoing monetary policy stimulus and a gradually improving economic environment. We have also taken advantage of locally listed companies that have exposure to the improving European environment. An example is Steinhoff, which is growing its European retail footprint and performed very well during the quarter, delivering a 23% price return. The fund s holdings in government bonds were negatively affected by the Nenegate selloff last year. There are many risks facing government bonds, including rising inflation and the potential for a ratings downgrade. However, we think current yields price in much of this risk and the prospective real returns over the next few years are attractive. The fund therefore holds a significant position in nominal government bonds. Given our overall level of caution, the fund continues to hold a large position in cash. Not only does this give the fund some protection from short-term volatility and potential loss in capital, it also means that as opportunities arise we will be able to take advantage of them. OLD MUTUAL REAL INCOME FUND (John Orford) (Classification category: South African Multi-Asset Low Equity) The fund aims to provide income that grows in line with inflation. Historically, the fund has produced excellent returns well in excess of its target return of inflation (CPI) plus 1-2% net of fees. Over the short term, however, returns have been disappointing, especially relative to the current higher rate of inflation. However, the fund aims to conserve capital and, in an environment of heightened volatility, we have reduced risk in the portfolio. The fund is currently conservatively positioned with a much lower than average allocation to growth assets and a less than 1% exposure to equities. The fund s growth exposure is primarily in property, with a reasonable position in global property. Over time, property should deliver real growth and a steady income making it an ideal asset class for the fund. Global property, in our view, is well positioned developed economies are gradually recovering and interest rates are set to remain very low. This is the environment in which property typically delivers good returns. With the rand having depreciated significantly over the past few years, the fund benefited from having significant offshore exposure. This has, however, been scaled back over the past year and the fund s offshore exposure is now lower at around 12%. This reflects our view that from already weak levels, significant further rand weakness is less likely. Furthermore, domestic fixed income assets offer attractive yields. Twelve-month money market paper, for instance, offers a yield of 8.5%, while 10-year government bonds offer a yield of over 9%. Over time, the fund will undoubtedly own more growth assets. For now, however, the fund is comfortable with less growth exposure and significant exposure to high-yielding, relatively low-risk domestic fixed

6 THREE-YEAR PERFORMANCE: (TO 31 MARCH 2016) ASSET ANALYSIS: (TO 31 MARCH 2016) % p.a. 12.8% p.a % p.a. 10.2% p.a. 75% % p.a. 8.1% p.a. 6.9% p.a. 7. p.a CPI 4. 25% Flexible Flexible Life Balanced Balanced Life Stable Growth Stable Growth Life Real Income Real Income Life Stable Real Maximum Moderate Flexible Balanced Growth Income Return Balanced Stable Real Flexible Life Balanced Life Growth Life Income Life SA Equities Property Preference Shares Commodities Convertible Bonds Nominal Bonds Inflation-linked Bonds Sources: Investment Group & Morningstar Cash International Africa Sources: Investment Group & Morningstar Performance 31 March year 3 years (p.a.) 5 years (p.a.) Highest** Average** Lowest** Description TER* TC* Flexible A 1.8% 12.4% 12.5% % -26.9% 2.37% 0.24% Flexible Life % % Target: CPI + 5% to 7% p.a. 11.9% 10.7% 10.8% CPI + 5% p.a. over rolling 3 years UT Peer Average % South African - Multi-Asset - Flexible Balanced A 1.7% 9.9% 11.4% 45.5% 14.1% -23.2% 2.37% 0.1 Balanced Life 1.8% 10.2% 11.3% 0.93% Target: CPI + 4% to 5% p.a. 10.9% 9.7% 9.8% CPI + 4% p.a. over rolling 3 years UT Peer Average 4.6% 10.6% 11.5% South African - Multi-Asset - High Equity Moderate Balanced A 2.4% 2.3% 2.3% 2.3% 1.62% 0.26% Target: CPI + 3% to 4% p.a. 9.9% CPI + 3% p.a. over rolling 3 years UT Peer Average 4.7% South African - Multi-Asset - Medium Equity Stable Growth A 3.1% 7.8% 9.7% 18.6% % 2.01% 0.08% Stable Growth Life 3.2% 8.1% % Target: CPI + 2% to 3% p.a. 8.9% 7.7% 7.8% CPI + 2% p.a. over rolling 3 years UT Peer Average 5.6% 8.5% 9.6% South African - Multi-Asset - Low Equity Real Income A 4.3% 6.9% 8.9% 15.4% 9.4% -0.7% 1.43% 0.15% Real Income Life 4.6% % Target: CPI + 1% to 2% p.a. 7.9% 6.7% 6.8% CPI + 1% p.a. over rolling 3 years UT Peer Average 5.6% 8.5% 9.6% South African - Multi-Asset - Low Equity Maximum Return of 5.3% 23.6% 14.3% 5.3% 2.27% 0.08% s A Benchmark*** 7.9% UT Peer Average 9.1% Worldwide - Multi-Asset - Flexible CPI 6.9% 5.7% 5.8% * TER is a historic measure and includes the annual service fee. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER may not necessarily be an accurate indication of future TERs. Transaction Cost (TC) is a necessary cost in administering the fund and impacts fund returns. It should not be considered in isolation as returns may be impacted by many other factors over time including market returns, the type of fund, the investment decisions of the investment manager and the TER. TERs as at 31 December ** Rolling 12-month returns (Since inception) *** 6 FTSE/JSE Shareholder Weighted All Share Index, 35% MSCI All Country World Index, 5% STeFI Composite Index Sources: Morningstar and FOR MORE INFORMATION, VISIT: Investment Group (Pty) Limited PO Box 878, Cape Town Tel: Fax: Investment Group (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers ( to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of Investment Group is a wholly owned subsidiary of Limited. Reg No 1993/003023/07. The investment portfolios are market linked. Products are either policy based or unitised in collective investment schemes. Investors rights and obligations are set out in the relevant contracts. In respect of pooled, life wrapped products, the underlying assets are owned by Life Assurance Company (South Africa) Limited, who may elect to exercise any votes on these underlying assets independently of Investment Group. In respect of these products, no fees or charges will be deducted if the policy is terminated within the first 30 days. Returns on these products depend on the performance of the underlying assets. Investment Group has comprehensive crime and professional indemnity insurance, as part of the Group cover. For more detail, as well as for information on how to contact us and on how to access information, please visit STATUTORY INFORMATION You should ideally see the funds as a medium- to long-term investment. The fluctuations of particular investment strategies affect how a fund performs. Your fund value may go up or down. Therefore, we cannot guarantee the investment capital or return of your investment. How a fund has performed in the past does not necessarily indicate how it will perform in the future. The fees and costs that we charge for managing your investment are disclosed in the relevant fund s minimum disclosure document or table of fees and charges, both available on our public website or from our contact centre. The cut-off time for client instructions (e.g. buying and selling unit trusts) is at 15:00 each working day. This is also the time we value our funds to determine the daily ruling price. Daily prices for Unit Trust Managers (RF) (Pty) Ltd (OMUT) funds are available on the OMUT public website and in the media. Unit trusts are traded at ruling prices, may borrow to fund client disinvestments and may engage in script lending. The daily price is based on the current market value of the fund s assets plus income minus expenses (NAV of the portfolio) divided by the number of units on issue. Income funds derive their income primarily from interest-bearing instruments as defined. The yield is a current yield and is calculated daily. A fund of funds is a portfolio that invests in other funds which levy their own charges, which could result in a higher fee structure for the fund of funds. Some funds hold assets in foreign countries and therefore may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The Net Asset Value to Net Asset Value figures are used for the performance calculations. The performance quoted is for a lump sum investment. The performance calculation includes income distributions prior to the deduction of taxes and distributions are reinvested on the ex-dividend date. Performances may differ as a result of actual initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Annualised returns are the weighted average compound growth rates over the performance period measured. Performances are in ZAR and as at 31 March Sources: Morningstar and Investment Group. Unit Trust Managers (RF) (Pty) Ltd (OMUT) is a registered manager in terms of the Collective Investment Schemes Control Act 45 of is a member of the Association for Savings and Investment South Africa (ASISA). OMUT has the right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate. April 2016