THE SHOPPING LIST BY GLACIER RESEARCH

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1 THE SHOPPING LIST BY GLACIER RESEARCH December Review of Quarter 3 A reference guide to superior collective investment schemes in SA THINK WORLD CLASS

2 FOREWORD Welcome to the Glacier Research Shopping List your reference guide to superior collective investment schemes in South Africa. When the Glacier Research team selects funds for the Shopping List we look for quality fund managers who have displayed the ability to produce consistent outperformance over meaningful time periods and the ability to protect capital in adverse market conditions, relative to peers. We strive to ensure that the most objective and independent selections are made - always keeping our clients in mind. The process focusses on both quantitative and qualitative assessments, but the ultimate fund selection is tilted towards the latter. Please have a look at our fund selection process for a better understanding of what we take into account when selecting a fund. It seems like the standard opening line to any economic or market commentary in 2016 will inevitably include the words uncertainty and volatility, and is no different. Both local and global markets were characterised by volatility much of it caused by the uncertainty around the outcome of the US elections in November Global risky assets posted marginal gains in the month of September in USD terms as key central banks decisions disappointed investors in their hopes for more monetary stimulus. This followed the risk-on appetite in July (especially in emerging markets) as markets rebounded from the financial wreckage caused by the Brexit decision. In South Africa, the ALSI underperformed emerging markets gaining a meagre 0.48% (+7.69% in USD) in Q3. s remained dispersed with small and mid-caps delivering +5.52% and +3.79% while largecaps delivered a negative 0.16%. The ALBI returned +3.42% (+10.84% in USD) with the longer end of the yield curve (+12 years) performing the best (+3.98%) as foreigners were net buyers of R3.8bn worth of bonds in Q3 (+R25.3bn YTD). The South African economy rose by a significant 3.3% y/y in Q2 after contracting 1.2% in. On 22 September 2016 the SARB kept the rate unchanged at 7% citing a weak domestic outlook, uncertain global economic growth prospects and modest improvements in South Africa s inflation forecasts as the key drivers behind the decision. Over the quarter, the rand appreciated against the US dollar (-6.7%), the euro (-5.44%), the British pound (-18%) and the yen (-5.12%). The last quarter was therefore yet another very difficult period for both local and global asset managers to navigate through. Generally those local funds that were short SA Inc. stocks and resources and long offshore assets (impacted by rand appreciation) performed relatively poorly. But despite all the market difficulties, I m very pleased to say that most of the Shopping List funds performed quite admirably relative to peers, given the tough conditions yet another indictment to sticking to qualitatively superior managers when selecting funds for your clients. Both local and global markets were characterised by volatility much of it caused by the uncertainty around the outcome of the US elections in November The Glacier Research team completed 99 asset manager interviews and due diligence meetings YTD. Some of the highlights include our interactions with the local management teams of Kagiso, Sanlam Investments, Nedgroup Investments (passive solutions), Obsidian, Ashburton, Reitway Global, Laurium, Colourfield and Bateleur. On the international side, we had very good sessions with Janus, Dodge & Cox, Schroders and Old Mutual Global. Our interactions with top local and global asset managers provide us with unique qualitative insights which form a large part of our fund assessment process. New additions to the Shopping List We are very excited to announce the addition of three new funds to the Shopping List. The Investec Equity Fund and Marriott Dividend Growth Fund have been included as part of our General Equity selection, while the Old Mutual Global Equity Fund has been included in the Global Equity category. These additions are as the result of more than 24 months of qualitative interactions with all three management teams. Investec Equity Fund: This is managed by a very strong team, with ample resources to draw upon. The team has been managing money together for a significant period of time. The Investec Equity Fund s philosophy and process of focussing on earnings revisions is a definite differentiator and strength. Earnings revision as an investment strategy has been shown to offer very low correlation to other, more well-known investment strategies such as value, quality, growth, low risk and price momentum. Marriott Dividend Growth Fund: Marriott employs a highly process-driven approach to income investing. The fund is managed on a committee basis with two of the members on this committee independent of the investment research process. Since 2000, the fund has maintained a very healthy dividend yield with a standard deviation of only %. Consequently over this period the dividend yield on this fund has never been lower than 2.24%. The Marriott Dividend Growth Fund is a true dividend-focussed fund. Old Mutual Global Equity Feeder Fund: This team has a unique systematic approach to managing this fund. All research efforts by the team are focused on enhancing the model used to select stocks and rebalance the portfolio. The model will produce a portfolio which is not concentrated, resulting in lower volatility, smoother long-term returns and good diversification. The fund s unique process has positioned it ideally to take advantage and compete with a proliferation of high frequency and algorithm trading strategies. THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

3 SIM Balanced Fund Fred White took over the management of the SIM Balanced Fund effective June Patrice Rassou, head of equities, will now assume the role of secondary manager on the fund. Going forward, White will make use of SIM s house-view moderate SWIX portfolio, as opposed to managing equities against the institutionally focussed Alexander Forbes Large Manager Watch (LMW). From our interactions with White, it is very clear that he will increase the risky asset exposure in the fund and will now aim to compete directly with the traditional large retail high equity managers, as opposed to the balanced strategy s institutional peers. Investors should prepare to see more exaggerated bet sizes in the fund. White has indicated that more focus will be placed on risk management through the use of derivatives which is a new innovation to the existing process. After five months of intense scrutiny and interrogation, our view is that the changes to the fund are material and that the return signature will be different to Gerhard Cruywagen s SIM Balanced fund going forward. However, White will look to exploit the full capability of the house in this newlook Balanced Fund and investors should now expect to experience the best of what Sanlam Investments has to offer. Our view on the changes is therefore positive and the fund will remain on the Shopping List. Exciting developments in 2017 Look out for very exciting developments in Global Equity General space in Q Glacier has partnered with Dodge & Cox to launch the Glacier Global Stock Feeder Fund (feeding into the Dodge & Cox Global Stock Fund). Dodge and Cox is an investment-led firm founded in San Francisco, USA, in To date, the company manages more than $360 billion AUM. They are long-term investors (average stock holding of seven years) with more than 95 investment professionals supporting their investment strategy and process. On a qualitative basis, Glacier Research is firmly of the opinion that Dodge and Cox is a superior fund management firm, and that the fund should fare particularly well in difficult market conditions. Risk ratings Please note that due to technical challenges, we are using Q2 s risk ratings in this Shopping List edition. These risk ratings will be updated in the next Shopping List. We d like to thank you for your ongoing support and assure you of our commitment to meeting the investment needs of your clients. Please contact the team at any stage if you have any queries or if we can assist in any way. Leigh Köhler Head: Glacier Research THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

4 QUARTERLY ECONOMIC AND FINANCIAL MARKET REVIEW The South African economy rose by a significant 3.3% y/y in Q2 after contracting 1.2% in. This was well above market expectations and largely due to the mining and manufacturing sectors which together contributed 1.8% to the quarterly growth. Growth on a yearly basis has risen by a modest 0.6% y/y. Overall growth is expected to moderate to 0.3% in 2016, improving modestly to 1.2% in This compares with the previous forecast of 0.1% for 2016 as the recent boost from mining and manufacturing is not expected to be repeated. On 22 September 2016 the SARB kept the rate unchanged at 7% citing a weak domestic outlook, uncertain global economic growth prospects and modest improvements in South Africa s inflation forecasts as the key drivers behind the decision. South Africa s headline inflation declined to an 8 month low of 5.9% y/y in August decreasing from 6% in July Despite this, inflation is still expected to remain outside the target range this year, averaging 6.4% in 2016 and 5.8% in Over the quarter, the rand appreciated against the US dollar (6.7%), the euro (5.44%), the British pound (18%) and the yen (5.12%). Global risky assets posted marginal gains in the month of September in USD terms as key central banks decisions disappointed investors in their hopes for more monetary stimulus. This followed the riskon appetite in July (especially in emerging markets) as markets rebounded from the financial wreckage caused by the Brexit decision. US GDP exceeded market expectations in Q2, growing 1.4% q/q as opposed to the 1.1% in the previous quarter. Markets are now expecting a 60%-70% probability that the Fed may raise rates in December by 25bp from 0.50%-0.75%. US inflation was 1.1% through the 12 months ending August Further rate increases are anticipated in In Q2, developed market equities (+4.38% in USD and -2.61% in ZAR) underperformed emerging market equities (+8.32% in USD and +1.06% in ZAR). Developed market bonds (+0.82% in USD and -5.94% in ZAR) outperformed developed market property (+0.64% in USD and -6.1% in ZAR). The ALSI underperformed emerging markets, gaining a meagre 0.48% (+7.69% in USD) in Q3. s remained dispersed with small and mid-caps delivering +5.52% and +3.79% respectively while large-caps delivered a negative 0.16%. By tradable industries, SA Industrials (including dual-listed companies) was the worst performer, delivering -2.05, followed by SA listed property which delivered -0.73%. Resources and industrials were again the best performers delivering +8.7% and 2.22%. The ALBI returned +3.42% (+10.84% in USD) with the longer end of the yield curve (+12 years) performing the best (+3.98%) as foreigners were net buyers of R3.8bn worth of bonds in Q3 (+R25.3bn YTD). Inflation linked bonds was the worst performing fixed interest asset class returning +0.42%. Preference shares and cash increased +2.23% and +1.86% respectively over the same period. Foreigners were net sellers of R19.5bn worth of equities in Q3 (-R96.5bn YTD). The South African economy rose by a significant 3.3% y/y in Q2 after contracting 1.2% in. This was well above market expectations and largely due to the mining and manufacturing sectors which together contributed 1.8% to the quarterly growth. Growth on a yearly basis has risen by a modest 0.6% y/y. THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

5 THE TEAM Darren Burns Darren is a CFA charter holder and holds a degree in Investment Management (Stellenbosch University) and a BCom (Hons) in Financial Analysis and Portfolio Management from the University of Cape Town. He has completed RE 1, 3 and 5 exams and has the relevant experience as a representative and key individual for both a Cat I and Cat II licences. Darren joined Glacier from Secure Wealth, where he worked for seven years as a director, financial advisor and analyst. He joined Glacier as a Fund and Client solutions specialist in October Leigh Köhler Leigh joined Glacier in 2003 after completing his BCom undergraduate degree in Politics, Philosophy and Economics from the University of Cape Town. He later qualified with a BCom (Hons) in Economics from UNISA. Leigh was previously the head of the Investment Administration team at Glacier before taking up the role as head of Glacier Research in Francis Marais Francis is a CFA Charter holder and holds a BCom (Hons) degree in Financial Analysis from the University of Stellenbosch. He started his career at Sanlam Employee Benefits as a fund accountant and later on as a review manager. He then spent four years as the Operations and Research manager at Nostic Asset Management (Category 2 Discretionary FSP). Francis joined Glacier Research in March Liesl-Mari de Jager Liesl-Mari holds a BA (Hons) degree in Industrial Psychology (Cum Laude) and MBA (Cum Laude). She has 18 years financial services industry experience of which five years were spent as an equity analyst. Liesl-Mari joined Glacier in 2002 and was previously the head of Glacier Risk and Compliance, then head of Glacier Research before taking up the role as head of Client and Fund Solutions. Imraan Khan Imraan holds a BCom (Finance and Economics) degree and BCom (Hons) degree specialising in Finance and Investment from the University of the Western Cape (UWC). He is a CFA Level I candidate. He joined Glacier in 2011 as a Client Service Consultant from a Santam Graduate Program. Imraan joined the Glacier Research team in November Luke McMahon Luke holds a BCom (Acc) degree and BCom (Hons) degree in Business Administration from the University of the Western Cape (UWC). He is completing a Masters degree in Business Management from UWC. Luke joined Glacier Research in January Johan Louwrens Johan holds a BCom (Hons) degree in Financial Analysis from the University of Stellenbosch, and obtained his CFA Charter in October 2015 while completing his MSc in Financial Markets and Investments at SKEMA Business School (Paris Campus), graduating in December He started his career as a Corporate Action Specialist at Maitland Fund Services, he also worked as a Fund Accountant at Kleinwort Benson Fund Services, now part of JTC Group, and later joined SunGard Financial Systems, now part of Fidelity National Information Services (FIS), as a Product Specialist. Johan joined the Glacier Research team in November Shawn Phillips Shawn holds a Bcom (Hons) degree in Financial Analysis and Portfolio Management from the University of Cape Town. He also holds a BSocSci degree in Philosophy, Politics and Economics from the University of Cape Town. Shawn joined Glacier Research in January Johann-Hendrik Vlok Jan holds a BCom degree in Investment Management and is currently completing a Post -Graduate Diploma in Financial Planning. He has completed all three CFA exams. Jan started his career as an administrator and underwriter at MUA Insurance. He joined MyWealthbook as a trader and later joined Findata Financial Services as a Para Planner. He joins the Glacier Research team in December Thobela Mfeti Thobela is a BCom (Hons) (Financial Analysis and Portfolio Management) graduate from the University of Cape Town. She also holds a postgraduate Diploma in Management from the University of Cape Town and a BBA (Bachelor in Business Administration) degree from TSiBA Education and has passed CFA Level I exam. She joined Glacier in May 2013 and the Glacier Research team in October THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

6 CONTENTS Fund selection process 7 Fund Index 8 Glacier Research s Guide to Portfolio Construction 9 Annual s of Asset Classes, Sectors and Categories 14 Multi Asset Portfolio Construction SA - Multi Asset Global Worldwide Specialist Asset Class Building Block Portfolio Construction SA - Interest Bearing SA - Real Estate SA - Equity SA - Equity Specialist Global User Guide (Glossary) 78 THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

7 FUND SELECTION PROCESS AIM To identify funds that deliver consistent, long-term out-performance and display the ability to protect capital when markets are falling. 1INITIAL SCREENING Fund size greater than R250 million Three-year track record of managing the fund 3Year Single managers 2QUANTITATIVE ANALYSIS Performance analysis using both rolling and cumulative (static) return measures but most emphasis placed on rolling returns (useful for examining the behaviour of returns for holding periods similar to those actually experienced by investors). We look for funds that consistently display first and second quartile outperformance relative to peers over all periods where possible (1 10 years) with most of the emphasis placed on the longer periods. Statistical risk measure analysis aimed at understanding the volatility of the fund this includes standard deviation and downside deviation. Statistical risk-return measure analysis of the fund aimed at understanding the achieved return per unit of risk taken this includes Sharpe, Sortino, Treynor, Calmar and Information ratios. Drawdown analysis aimed at understanding the capital preservation ability of the fund this includes maximum drawdowns, up and down capture. Consistency: We look for funds that consistently outperform peers across risk, risk-return and drawdown measurements and are therefore consistently ranked above peers over all periods where possible (1 10 years) with most of the emphasis placed on the longer periods. Correlation analysis aimed at understanding how well the fund can be combined with others in a portfolio. The quantitative analysis process is conducted quarterly. 3QUALITATIVE ANALYSIS Investment Philosophy: Convincing and wellarticulated investment philosophy. Investment Process: Disciplined, methodical and repeatable investment process with exceptional risk management capabilities. Investment Team: An investment team that has been together for a long period of time; with individuals who have relevant experience, proven investment expertise and a track record within the relevant asset class. Remuneration and incentive structures: Fair and aligned with the investor objectives. Stable business: Stable group and management structures. Healthy financial position. Focus on stewardship and long-term investing Culture of co-investment: Evidence of investing alongside the clients Passion, perspective, purpose and progress: Managers who are highly motivated and intensely competitive are more likely to be focused on excellence in performance results. 4FINAL SELECTION The output from the research process, both quantitative and qualitative, is discussed by the Glacier Research Investment Committee to decide the final composition of the Shopping List. In line with the philosophy of longterm investing, the list of funds will remain fairly stable over time. Any changes will be highlighted in the fund/sector comment. The number of funds appearing per category will be proportionate to the size of the category. THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

8 FUND INDEX Funds suited for multi-asset portfolio construction SA - Multi Asset Income Low Equity Medium Equity High Equity Flexible** Coronation Strategic Income Prescient Income Provider Prudential Enhanced Income SIM Active Income Coronation Balanced Defensive* Nedgroup Stable (Foord Asset Managers) Prudential Inflation Plus* SIM Inflation Plus Coronation Capital Plus* Nedgroup Investments Opportunity Fund* (ABAX Investments) Allan Gray Balanced* Coronation Balanced Plus* Foord Balanced* Investec Opportunity* SIM Balanced* Bateleur Flexible Prescient Laurium Flexible Prescient PSG Flexible Truffle Flexible Global Worldwide Passive Fund Alternatives Multi Asset High Equity Multi Asset Flexible SA Multi Asset Low Equity SA Multi Asset High Equity Coronation Global Managed Investec Global Strategic Managed Feeder Foord Flexible FoF Satrix Low Equity Balanced Index # Satrix Balanced Index ## Funds suited for specialist asset class building block portfolio construction SA - Interest Bearing Money Market Short Term Variable Term Glacier Money Market Old Mutual Income Stanlib Bond Nedgroup Investments Money Market (Taquanta Asset Managers) Nedgroup Investments Core Income (Taquanta Asset Managers) Stanlib Income SA - Real Estate SA - Equity** SA Real Estate Equity General Investec Equity Fund Catalyst SA Property Coronation Equity Prudential Dividend Maximiser Foord Equity PSG Equity Marriott Dividend Growth SIM General Equity SA - Equity Specialist Mid & Small Cap Financial Industrial Resources Nedgroup Investments Entrepreneur (ABAX Investments) Nedgroup Investments Financials (Denker Capital) SIM Industrial Investec Commodity Global** Equity General Real Estate Investec Worldwide Equity Feeder Catalyst Global Real Estate Feeder Nedgroup Investments Global Equity Fund (Veritas Asset Management) Old Mutual Global Equity Feeder * Regulation 28 compliant ** The Marriott Dividend Growth Fund and Investec Equity Fund have been added to the Shopping List. Please see the SA Equity category for commentary. # Strategic Asset Allocation Equity: 35%; Property: 5%; Nominal Bonds: 25%; ILBs: 10%; Cash: 25%. Local: 80%; Foreign: 20% ** The Old Mutual Global Equity Feeder Fund has been added to the Shopping List. Please see the Global category for commentary. ## Strategic Asset Allocation Equity: 70%; Property: 6%; Nominal Bonds: 13%; ILBs: 6%; Cash: 5%. Local: 80%; Foreign: 20% THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

9 GLACIER RESEARCH S GUIDE TO PORTFOLIO CONSTRUCTION There are a number of approaches that can be followed when constructing investment portfolios for clients. This section focuses on arguably the two most popular approaches, namely the prudential (or multi-asset fund) approach and the building block approach. Below, we outline the portfolio construction process of each approach, using practical examples where possible. We also highlight some of the key characteristics of each approach to assist you in selecting the best method for you and your clients. 1 MULTI-ASSET FUND APPROACH The key characteristics of this approach include: The use of multi-asset funds to construct the investment portfolio The financial adviser being responsible for the strategic (long-term) asset allocation Outsourcing of the tactical (short- to medium-term) asset allocation duties to the portfolio or asset manager Advice risk being less of a concern for the adviser if the portfolio is structured using maximum mandated limits The five steps involved in constructing a multi-asset fund portfolio? STEP 1: Determine the client s risk profile Use the RITA or Oxford tool (or other risk profiling tool) to determine the client s risk profile. STEP 2: Determine the strategic asset allocation Having determined the client s risk profile, the adviser can loosely match this profile to the respective ASISA categories. The two tables below illustrate the abovementioned point. ASISA Category Maximum Equity Exposure Maximum Property Exposure Maximum Foreign Exposure SA Multi-Asset Income 10% 25% 25% SA Multi-Asset Low Equity 40% 25% 25% SA Multi-Asset Medium Equity 60% 25% 25% SA Multi-Asset High Equity 75% 25% 25% SA Multi-Asset Flexible 100% 100% 25% Type of investor Maximum Equity Exposure Maximum Property Exposure Maximum Foreign Exposure Conservative investor 10% 25% 25% STEP 3: Select funds In this step, the adviser selects the funds for the investment portfolio. An extensive understanding of the funds in the CIS universe is extremely important when it comes to this section of the portfolio construction process to ensure a well-diversified portfolio for the client. Cautious investor 40% 25% 25% Moderate investor 60% 25% 25% Moderately Aggressive investor 75% 25% 25% Aggressive investor 100% 100% 25% The Shopping List and the Glacier Research team can add value and assist the adviser with this step. When constructing multi-asset fund portfolios, it is important to note that it is not a requirement to only use funds from one ASISA category - the adviser may combine funds from different categories. The portfolio below is an example of the construction of a moderate investment portfolio and is for illustrative purposes only. ASISA Category Moderate Portfolio SA Multi-Asset Medium Equity Coronation Capital Plus (20%) SA Multi-Asset Low Equity SIM Inflation Plus (20%) SA Multi-Asset Low Equity Prudential Inflation Plus (20%) SA Multi-Asset High Equity Allan Gray Balanced (20%) SA Multi-Asset Medium Equity Foord Conservative (20%) STEP 4: Ensure risk profiles match Having constructed the portfolio, the next step is to ensure that the risk profile of the portfolio matches the risk profile of the client. This process is illustrated in the graph on the following page (ICE risk rating). When using the prudential or multi-asset fund approach, the adviser is also able to ensure that the portfolio does not breach certain asset class limits. This is done using the fund s maximum mandated limits. By doing this, the adviser also eliminates potential portfolio drift and consequent advice risk at the same time. The example below illustrates how to ensure that a moderate risk-profiled portfolio stays within its predetermined asset class limits with a maximum equity exposure of 60%. THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

10 Ensure risk profiles match (continued) Conservative Cautious Moderate Moderately aggressive Aggressive Portfolio Risk rating: 4.18 Correlation Risk rating: 3.98 Fund category Fund name Max equity % in portfolio Max Equity (actual) Max foreign Max foreign (actual) MA Medium Equity Coronation Capital Plus 60% 20% 12% 25% 5% MA High Equity Allan Gray Balanced 75% 20% 15% 25% 5% MA Low Equity SIM Inflation Plus 40% 20% 8% 25% 5% MA Low Equity Prudential Inflation Plus 40% 20% 8% 25% 5% MA Medium Equity Nedgroup Investments Opportunity 60% 20% 12% 25% 5% 100% 55% 25% STEP 5: Quarterly review of the portfolio Reviewing the portfolios regularly is very important. Glacier Research can add value to this step by not only providing reasons for the respective funds performances, but also by providing insights into their positioning, key strengths and weaknesses and their roles in the portfolio. Glacier Research is also able to provide substitute funds if required. Factors to consider when choosing this approach: The adviser makes the strategic asset allocation calls the ASISA category limits can loosely be used as a proxy for strategic asset allocation. The tactical asset allocation calls are made by an experienced portfolio manager. This relieves the adviser of having to take a view on any particular asset class. Diversification is obtained across all asset classes and funds. Investment advice risk is reduced, provided the portfolio is constructed using maximum mandated limits. The adviser requires an extensive understanding of the funds when constructing a portfolio. Glacier Research can add value by providing the adviser with the necessary fund research and insights needed to construct a well-diversified portfolio for the client. 2 BUILDING BLOCK APPROACH The key characteristics of this approach include: The use of asset class specific funds to construct the investment portfolio; and Assuming responsibility, as the financial adviser, for both the Strategic (longterm) and Tactical Asset Allocation (short- medium-term) of the portfolio. The seven steps involved in constructing a building block portfolio? STEP 1: Determine the client s risk profile Use the RITA or Oxford tool (or other risk profiling tool) to determine the client s risk profile. STEP 2: Determine the strategic asset allocation Having determined the risk profile, SIM s recommended bands (right) can be used as a guide to how much of the portfolio should be invested in each of the respective asset classes. Conservative Cautious Moderate Moderate Aggressive Aggressive Equities (%) Bonds (%) Cash (%) Property (%) Domestic (%) International (%) THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

11 STEP 3: Tactical asset allocation When following the building block approach, the financial adviser is responsible for the tactical asset allocation calls in the portfolio. This refers to the short to medium calls that are made relative to the strategic asset allocation (SIM s recommended bands) above. Example: If an adviser is of the opinion that local equities are expensive, an option - based on the strategic asset allocation is to reduce local equity exposure to 30%, which is at the low end for local equity exposure for a moderate client in a discretionary investment. At the same time the adviser may be of the opinion that local property is cheap and sees a significant amount of value in the asset class. The decision can be made to increase the exposure to 15%, which is at the high end for local property exposure in a moderate discretionary investment. The Glacier Bull & Bear document can potentially assist in making tactical asset allocation calls in a portfolio. STEP 4: Select funds In this step, the adviser must select the funds to be included in the portfolio and at the same time make sure that they fall within the recommended asset bands on the previous page. The Shopping List and the Glacier Research team can add value and assist the adviser with this step. The table below is an example of a moderate portfolio for a discretionary investment, and is for illustrative purposes only. STEP 5: Ensure risk profiles match After constructing the portfolio, the next step is to ensure the risk profile of the portfolio matches the risk profile of the client. This can be seen in the graph below (ICE risk rating). SIM s Recommended Asset Bands Fixed Interest Money Market (15% - 30%) Moderate Portfolio Glacier Money Market - 24% Fixed Interest Bonds (15% - 30%) Stanlib Bond 26% Property (5% - 15%) Catalyst SA Property Equity PSG 6% Equity (30% - 50%) SIM General Equity Equity 33% Conservative Cautious Moderate Moderately aggressive Aggressive Foreign (10% - 20%) Investec Worldwide Equity Feeder 6% Prudential Global High Yield Bond 5% Portfolio Risk rating: 5.86 Correlation Risk rating: 4.74 STEP 7: Quarterly review of the portfolio STEP 6: Ensure allocation matches asset bands In this step, the adviser needs to ensure that the underlying asset exposure of the portfolio falls within SIM s recommended asset bands per risk profile. Using the information from the moderate portfolio example above, the graph below shows that the underlying asset exposure in the portfolio does fall within the recommended bands as set out by SIM. This step is extremely important, especially when following the building block approach. If the portfolio were left unchecked over the past few years, it would have shifted from a moderate portfolio to a moderately aggressive portfolio, with the consequent advice risk implications for the adviser. As a result, these portfolios should be reviewed on a quarterly basis and rebalanced when applicable to make sure that the risk profile of the client still matches the risk profile of the investment portfolio. Asset Classes Actual % Reg 28 Max % SIM Sense Guide % Equity 34.85% 75% 30-75% Property 5.96% 25% 5-15% Bonds 29.55% 100% 15-35% Cash 29.64% 100% 15-30% Other 0% 100% 0-100% Foreign 10.97% 25% 10-20% Africa 0% 5% 0-5% Factors to consider when choosing this approach: The adviser makes the strategic asset allocation calls SIM s recommended bands can assist with this step. The adviser also makes the tactical asset allocation calls this means determining if a particular asset class is looking attractive or not and allocating accordingly. The adviser has to be able to allocate between the different asset classes (having an overweight position in a certain asset class, while having an underweight position in another asset class). The investment portfolios must be reviewed more regularly to manage portfolio drift, and indirectly, the potential advice risk. The adviser needs an extensive understanding of the funds included in the portfolio. Having an extensive understanding of the fund universe allows the adviser to express investment views more effectively. To be truly effective, the building block method does require more skill, more time, and a more hands-on approach when it comes to the management of investment portfolios. THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

12 ANNUAL RETURNS OF ASSET CLASSES,SECTORS AND CATEGORIES Asset Class s YTD - Property (35.88%) Foreign (52.6%) Property (26.64%) Foreign (31.05%) Bonds (15.05%) Equity (26.68%) Equity (21.43%) Foreign (14.63%) Property (7.99%) Property (8.82%) Foreign (22.28%) Property (8.39%) Equity (10.88%) Cash (6.46%) Cash (5.42%) Bonds (15.95%) Cash (5.18%) Bonds (10.15%) Equity (5.13%) Equity (4.82%) Cash (5.54%) Bonds (0.64%) Cash (5.9%) Bonds (-3.93%) Foreign (-5%) Sector s YTD - Financials J580T (38.08%) Small Cap J202T (26.31%) Financials J580T (27.28%) Top 40 J200T (7.52%) Resources J258T (35.88%) Industrials J520T (36.53%) Top 40 J200T (22.77%) Small Cap J202T (20.57%) Financials J580T (3.91%) Mid Cap J201T (25.61%) Mid Cap J201T (29.48%) Industrials J520T (21.5%) Mid Cap J201T (19.62%) Small Cap J202T (-3.92%) Small Cap J202T (20.21%) Small Cap J202T (28.95%) Financials J580T (19.1%) Top 40 J200T (9.17%) Mid Cap J201T (-7.54%) Industrials J520T (15.47%) Top 40 J200T (26.12%) Mid Cap J201T (12.99%) Industrials J520T (6.99%) Industrials J520T (-17%) Financials J580T (2.47%) Resources J258T (3.05%) Resources J258T (1.38%) Resources J258T (-14.74%) Resources J258T (-36.99%) Top 40 J200T (1.44%) Bond s YTD Years (18.74%) 1-3 Years (4.4%) 12+ Years (12.91%) 1-3 Years (4.1%) 12+ Years (17.51%) 7-12 Years (18.34%) 3-7 Years (1.45%) 7-12 Years (8.3%) 3-7 Years (0.93%) 7-12 Years (14.6%) 3-7 Years (13.62%) 7-12 Years (-0.21%) 3-7 Years (7.9%) 7-12 Years (-3.19%) 3-7 Years (12.23%) 1-3 Years (8.29%) 12+ Years (-0.68%) 1-3 Years (6.23%) 12+ Years (-7.04%) 1-3 Years (8.52%) THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

13 Category s YTD - SA - Equity - Financial (34.87%) Global Equity General (52.17%) Global Real Estate General (28.57%) Global Real Estate General (32.82%) SA - Equity - Resources (32.55%) SA Real Estate General (31.51%) Global Multi Asset Flexible (43.27%) SA Real Estate General (25.12%) Global Interest Bearing Short Term (30.96%) SA - Interest Bearing Variable Term (12.54%) SA - Equity Industrial (30.88%) SA - Equity Industrial (32.72%) SA - Equity - Financial (22.65%) Global Equity General (29.13%) SA - Equity Mid & Small Cap (8.44%) Global Real Estate General (28.37%) Worldwide - Multi Asset Flexible (32.56%) SA - Equity Industrial (16.68%) Global Multi Asset Flexible (27.75%) SA Multi Asset - Income (6.53%) SA - Equity Mid & Small Cap (27.47%) Global Real Estate General (23.37%) Global Equity General (11.96%) Global Interest Bearing Variable Term (24.64%) SA - Interest Bearing Short Term (6.21%) SA - Equity - General (19.98%) Global Interest Bearing Short Term (23.15%) Worldwide - Multi Asset Flexible (11.17%) Worldwide - Multi Asset Flexible (18.54%) SA - Equity - General (5.56%) Global Equity General (18.59%) SA - Equity Mid & Small Cap (27%) SA - Equity - General (10.31%) SA - Equity Industrial (12.88%) SA - Interest Bearing MoneyMarket (5.52%) SA - Multi Asset - Flexible (17.8%) Global Interest Bearing Variable Term (19.47%) Global Multi Asset Flexible (9.94%) SA Real Estate General (10.82%) SA Inflation (5.48%) Worldwide - Multi Asset Flexible (16.92%) SA - Equity - General (19.36%) SA - Multi Asset - Flexible (9.7%) SA - Multi Asset High Equity (7.66%) SA Real Estate General (4.97%) SA - Multi Asset High Equity (16.27%) SA - Equity - Financial (19.04%) SA - Multi Asset High Equity (9.5%) SA - Multi Asset Low Equity (7.6%) SA - Multi Asset Low Equity (3.81%) SA - Multi Asset Medium Equity (15.78%) SA - Multi Asset High Equity (18.03%) SA - Equity Mid & Small Cap (9.22%) SA - Multi Asset Medium Equity (7.4%) SA - Multi Asset Medium Equity (2.87%) SA - Interest Bearing Variable Term (15.37%) SA - Multi Asset - Flexible (17.76%) SA - Multi Asset Medium Equity (9.14%) SA - Interest Bearing Short Term (6.45%) SA - Multi Asset High Equity (2.81%) Global Multi Asset Flexible (14.74%) SA - Multi Asset Medium Equity (15.8%) SA - Interest Bearing Variable Term (8.96%) SA - Interest Bearing MoneyMarket (6.41%) SA - Multi Asset - Flexible (2.7%) SA - Multi Asset Low Equity (13.1%) SA - Multi Asset Low Equity (12.17%) Global Interest Bearing Variable Term (8.3%) SA Multi Asset - Income (6.33%) SA - Equity - Financial (0.1%) Global Interest Bearing Variable Term (11.52%) SA Real Estate General (9.22%) SA - Multi Asset Low Equity (8.2%) SA - Multi Asset - Flexible (6.11%) SA - Equity Industrial (-0.18%) SA Multi Asset - Income (8.57%) SA Multi Asset - Income (5.75%) Global Interest Bearing Short Term (7.28%) SA Inflation (5.23%) Worldwide - Multi Asset Flexible (-2.79%) SA - Interest Bearing Short Term (6.7%) SA - Interest Bearing Short Term (5.57%) SA Multi Asset - Income (5.88%) SA - Equity - Financial (1.04%) Global Interest Bearing Variable Term (-2.94%) SA Inflation (5.71%) SA Inflation (5.4%) SA - Interest Bearing MoneyMarket (5.8%) SA - Equity - General (1.01%) Global Real Estate General (-5.66%) SA - Interest Bearing MoneyMarket (5.41%) SA - Interest Bearing MoneyMarket (5.13%) SA - Interest Bearing Short Term (5.54%) SA - Equity Mid & Small Cap (0.32%) Global Multi Asset Flexible (-6.92%) Global Interest Bearing Short Term (3.81%) SA - Interest Bearing Variable Term (1.1%) SA Inflation (5.31%) SA - Interest Bearing Variable Term (-1.97%) Global Equity General (-7.49%) SA - Equity - Resources (-0.57%) SA - Equity - Resources (0.8%) SA - Equity - Resources (-3.16%) SA - Equity - Resources (-12.84%) Global Interest Bearing Short Term (-11.1%) THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

14 FUNDS SUITED FOR MULTI ASSET PORTFOLIO CONSTRUCTION THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

15 SA - MULTI ASSET - INCOME Category Analyst: Shawn Phillips These portfolios invest in a spectrum of equity, bond, money market, or real estate markets with the primary objective of maximising income. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolio s mandate and stated investment objective and strategy. These portfolios can have a maximum effective equity exposure (including international equity) of up to 10% and a maximum effective property exposure (including international property) of up to 25% of the market value of the portfolio. Many of the funds that were in the old Fixed Interest Varied Specialist (FIVS) category have subsequently moved to the Multi Asset Income category. All the former FIVS Shopping List funds now fall under this new category. At present none of these funds intend to amend their mandates. Shopping List selection: Coronation Strategic Income Fund, SIM Active Income Fund, Prescient Income Provider Fund, Prudential Enhanced Income Fund. Quartile Ranking As of Date: 30/09/2016 Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile YTD 1 year 2 Years 3 years 5 years 7 Years Coronation Strategic Income A SIM Active Income A1 Prescient Income Provider A1 Prudential Enhanced Income A Maximum Drawdown: Monthly Coronation Strategic Income A SIM Active Income A1 Prescient Income Provider A1 Prudential Enhanced Income A Risk-Reward: 3-Year Annualised Time Period: 01/10/2013 to 30/09/ Std Dev Coronation Strategic Income A SIM Active Income A1 Prescient Income Provider A1 Prudential Enhanced Income A s As of Date: 30/09/2016 Source Data: Total YTD 1 year 2 Years 3 years 5 years 7 years Coronation Strategic Income A SIM Active Income A1 Prescient Income Provider A Prudential Enhanced Income A Risk Statistics Time Period: 01/10/2013 to 30/09/2016 Coronation Strategic Income A SIM Active Income A1 Prescient Income Provider A1 Prudential Enhanced Income A Std Dev Max Drawdown (monthly) Up Period Percent Down Sharpe Period Ratio Percent Rolling 2-Year s Time Period: 01/08/2009 to 30/09/2016 Rolling Window: 2 Years 1 Month shift Coronation Strategic Income A SIM Active Income A1 Prescient Income Provider A1 Prudential Enhanced Income A THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

16 CORONATION STRATEGIC INCOME Fund manager Mark le Roux, Nishan Maharaj, Adrian van Pallander No of quarters 19 Benchmark 110% STeFi 3-month Index Risk Description Conservative Role of Benchmark Agnostic Inception Date 02 July 2001 Focus Absolute Fund Size (Rm) R Philosophy Fundamental, bottom up valuation driven Fee Description (retail class) Annual management fee Glacier Risk Rating 1.23 Total Investment Charge 1.01% The fund has a flexible mandate with no maturity limits for the securities in which it invests. It also has a flexible duration policy to protect capital during times of bond market weakness. Risky assets (property, preference shares, foreign) will be maintained at a combined maximum weight of 25% with zero exposure to equity. Exchange rate risk is also actively managed. The fund s offshore exposure has typically been below 10% in the past. The fund will aim to provide a higher level of income than a regular money market fund while providing greater diversification. It will also add a layer of capital protection when bond markets decline in a conservative to cautious multi-asset portfolio. Coronation is a bottom-up investment house that focuses on proprietary research. Interest rate management (duration and yield curve) and security selection (credit and liquidity management) are two of the major focus areas of the fixed interest team. The fixed income portfolios are positioned with a long-term strategic market view in mind, with short-term tactical opportunities being taken when the market differs from the strategic view. The fixed interest team is headed by Nishan Maharaj and consists of 12 investment professionals. Analysts research responsibilities span numerous industry sectors, giving them a better perspective of the industry as a whole. Latitude is given to allow them to find opportunities that are not fashionable or short term fads. Adrian van Pallander has joined as co-portfolio manager on the Strategic Income Fund and Mark le Roux now fulfils an analyst and portfolio manager role. The fund delivers better drawdowns than many of its peers whilst displaying lower levels of volatility than most of its peers over rolling two and three year periods since It has performed well, outperforming its peer group average over all periods longer than three months. It has also been able to outperform its benchmark over all periods above one year. The fund remains in the first and second quartiles of performance for all periods above six months. It has experienced some short-term volatility but it does have the highest exposure to local property of all the Shopping List funds in this category. Current Portfolio Positioning The fund outperformed its benchmark and its Shopping List peers over the third quarter of 2016 and the one-year period ending 30 September Over the third quarter of 2016 the fund returned 2.38% compared to its benchmark s return of 1.95%. Annually, the fund delivered a net performance of 9.33% compared to its benchmark s return of 7.47%. The fund s assets under management have increased over the quarter by 2.38% from R22.2 billion to R22.8 billion. SA bond exposure was increased by 2.2% to 51.1% and SA cash was reduced by 2.4% to 35.0%, while international bond exposure was reduced by 3.0% to 3.8%. The fund s modified duration remained at 1.1 with the fund delivering a yield of 9.05%. SA bonds was the best performing asset class in the third quarter, with the fund s exposure to the longer end of the yield curve contributing positively to performance. The portfolio managers continue to favour preference shares given the steady dividend yields on offer, and maintain the current level of 3% of the fund. Foreign assets were the only minor detractor from performance due to the rand strengthening against most major currencies. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% SA Cash SA Bonds SA Property SA Prefs SA Other International Cash International Bonds International Property THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

17 PRESCIENT INCOME PROVIDER Fund manager Guy Toms, Farzan Bayat & JP du Plessis No of quarters 8 Benchmark STeFi Call 110% Risk Description Conservative Role of Benchmark Agnostic Inception Date 31 December 2005 Focus Absolute Fund Size (Rm) R Philosophy Quants valuation and risk focused Fee Description (retail class) Annual management fee Glacier Risk Rating 1.15 Total Investment Charge 0.97% Even though the fund is benchmarked against the STeFi Call Rate, the managers internal targets are to outperform inflation, cash and the ALBI 1-3 index. The fund focuses heavily on capital preservation and aims to make no capital losses over any rolling three-month period. Prescient has very strong in-house quantitative and derivative capabilities. This fund is highly uncorrelated to the other Shopping List funds, which adds diversification and portfolio construction benefits. This is primarily due to the higher exposure to CLNs that the fund has relative to its peers. Moreover, the fund won t have any equity exposure and will typically have a higher offshore exposure in comparison to its Shopping List peers. The fund, while offering a cash alternative, is highly uncorrelated to other more vanilla type funds in the Multi Asset Income category. The fund is exposed to unique instruments that are actively managed allowing for superior risk adjusted returns. Furthermore, this fund can be used in a client s portfolio in order to draw an income. Prescient follows a quantitative approach to managing money. They focus on what is priced into the markets and make decisions based on asset pricing. Risk is defined as the probability of not meeting investment objectives, which means that any positions taken in the portfolios are mathematically tested using different scenarios. The team consists of highly qualified, quantitative individuals, ranging from physicists to engineers, who have extremely strong modelling and derivative capabilities. The fund displays very low correlations (ranging from -3 to 0.19) against the other Shopping List funds. It displays second and third quartile volatility while being able to maintain first quartile riskadjusted performance across all one- and two-year rolling periods. It has outperformed its benchmark by more than 200bps since inception, on an annual basis. The quantitative, risk-focused process that is employed to construct the portfolio also sees it deliver some of the lowest drawdowns in its category. The fund has outperformed its internal target of inflation+3% over the past 10 years returning an annualised return of 9.7%. Current Portfolio Positioning The fund outperformed cash and the ALBI 1-3 year index over the third quarter of 2016 and the one-year period ending 30 September Over the third quarter of 2016 the fund returned 2.25%, while cash and the ALBI 1-3 year index returned 1.86% and 2.21% respectively. Annually the fund returned 8.54%, while cash and the ALBI 1-3 year index returned 7.11% and 7.97% respectively. The funds assets under management have increased over the quarter by 10.98% from R12.1 billion to R13.4 billion. There were incremental changes throughout the portfolio, with FRN and CLN exposures being reduced to 33.27% and 10.47% respectively. Exposure to preference shares and offshore assets were slightly increased to 2.52% and 18.14% respectively. The offshore assets continue to be fully hedged as the portfolio managers believe that the rand is cheap on a long term purchasing power parity basis, where rand strength could damper performance. Fixed bonds were also increased to 4.25%. The fund s duration was reduced to 0.4 years from 1.17 years in the previous quarter, which is 1.93 years less than the ALBI 1-3 year index. The fund currently has a yield of 9.6%. Credit exposure remained conservative, primarily with the big banks. The higher credit spreads and 3-year swap position which was closed out when yields dipped were the major contributors to performance. The increase in yields towards the end of September resulted in a negative impact on the fixed rate bond exposures in the fund, thereby detracting from performance. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Cash FRN CLN Credit bonds Floating rate bonds Inflation Linked Bonds Swap and Option Mkt Val Preference shares Property International Fixed Bonds THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

18 PRUDENTIAL ENHANCED INCOME Fund manager David Knee & Roshen Harry No of quarters 8 Benchmark STeFi Composite over 36m rolling period Risk Description Cautious Role of Benchmark Agnostic Inception Date 01 July 2009 Focus Absolute Fund Size (Rm) R Philosophy Long term, relative valuation Fee Description (retail class) Annual management fee Glacier Risk Rating 1.88 Total Investment Charge 1.29% The fund is benchmarked against the ALBI 1-3 year index but its primary objective is to achieve cash+2%, with no capital losses over rolling one year periods as its secondary objective. Prudential employs a Strategic Asset Allocation (SAA) approach in their multi asset portfolios, which offers a different approach to portfolio construction. The SAA is derived from numerous multi-variable efficient frontier analyses with long run economic forecasts built into the models. The SAA for the Enhanced Income fund is currently: 50% to cash, 10% to inflation-linked bonds, 10% to government bonds, 5% to foreign government bonds, 15% to local corporate bonds, 5% to foreign corporate bonds, 5% to local property and 0% to local equity. The portfolio managers are also able to tactically allocate within defined limits around the SAA, with the fund being limited to 20% exposure in foreign assets. The fund will look to achieve a moderate level of capital growth whilst providing a stable level of income. It may display higher levels of volatility in comparison to its Shopping List peers. The Strategic Asset Allocation approach should offer diversification benefits when used with other Shopping List funds, despite being highly correlated to these funds. Qualitative Highlights The team consists of seven highly qualified and experienced professionals, led by David Knee, who has recently been promoted to CIO of Prudential SA following Marc Beckenstrater s decision to join M&G in the UK to focus on Prudential s offshore capability. The credit team leverages off the offshore team, M&G, who are based in London, to gain insights on foreign companies that issue local debt. Prudential believes that market prices are broadly efficient over the long term but can be very inefficient over the short term. The team consists of seven highly qualified and experienced professionals, led by David Knee, who has recently been promoted to CIO of Prudential SA following Marc Beckenstrater s decision to join M&G in the UK to focus on Prudential s offshore capability. The credit team leverages off the offshore team, M&G, who are based in London, to gain insights on foreign companies that issue local debt. Prudential believes that market prices are broadly efficient over the long term but can be very inefficient over the short term. Current Portfolio Positioning The fund outperformed its benchmark over the third quarter of 2016 and the year ending 30 September Over the third quarter of 2016 the fund returned 1.97% compared to its benchmark return of 1.71%. Annually, the fund delivered a net return of 7.93% compared to its benchmark return of 6.60%. The fund s assets under management has decreased by 7.07% over the quarter from R2.3 billion to R2.1 billion. Moreover, the funds composition has changed over the quarter. The fund s exposure to SA cash was increased by 1.41% and remains the highest holding at 42.56% which is 7.44% lower than the funds SAA. SA bonds were reduced by 2.64% to 28.30%, ILBs were increased by 0.20% to 5.90% and the offshore exposure was marginally reduced to 18.03%. The fund has the highest modified duration compared to its Shopping List peers, which was reduced to 2.22 years from 2.32 years as a result of the reduction in SA bond exposure. Furthermore, the funds underweight SA cash position relative to its benchmark was a major contributor to performance, while the main detractor from performance was an overweight position in international fixed income. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q SA Property SA Bonds SA Inflation Linked Bonds SA Cash SA Equity International Equity International Bonds International Cash International Property THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

19 SIM ACTIVE INCOME Fund manager Philip Liebenberg No of quarters 33 Benchmark STeFi Composite + 1% Risk Description Conservative Role of Benchmark Agnostic Inception Date 03 November 2006 Focus Absolute Fund Size (Rm) R Philosophy Bottom up, pragmatic value approach Fee Description (retail class) Annual management fee Glacier Risk Rating 1.09 Total investment charge 0.93% The portfolio manager has an internal mandate to never include equity in the fund. He also leverages off the Sanlam Investments credit team quite heavily, as they provide a formidable competitive advantage. The fund is invested in local assets only. Barring one quarter in September 2009, the fund has never been below 60% cash and money market assets. The nature of the fund reflects Liebenberg s conservative and cautious nature. The fund is a money market alternative that is able to consistently add extra yield relative to cash, while providing very low levels of volatility and drawdowns. The fund delivers a very stable return profile and will not give investors any unwelcome surprises. In times of adverse market conditions, this fund will protect capital very well. Philip Liebenberg is the sole portfolio manager on the fund. He does utilize the expertise and knowledge of the fixed interest team at Sanlam Investments (SI). He is a very conservative portfolio manager by nature and this will always be reflected in the funds he manages. The credit process in the fixed interest team is one of the outstanding competitive advantages for this fund and SI as a whole. The Fixed Interest Model Portfolio Group (MPG) within SI, which used to consist of Chris Hamman, Philip Liebenberg and Gerhard Cruywagen, determines the strategic direction of the fixed interest portfolios and house view. However, as from 1 August 2016, this picture will change as Hamman leaves SI and his replacement from Argon Asset Management, Mokgatla Modisha joins as Head of Fixed Interest. As from 1 July 2016, Cruywagen also leaves the MPG as he shifts his focus from retail to institutional portfolio management for the Sanlam Group. The MPG is merely there to provide guidance for the direction within fixed income assets but as the sole portfolio manager, Liebenberg, Head of Absolute, still maintains his ability to manage his portfolios as he sees fit. The fund has done well over longer periods, outperforming its benchmark over one and three years and its category average over all periods. The fund is heavily allocated to cash and money market instruments and is one of the lowest volatility funds in the category, while delivering some of the lowest drawdowns. The fund has managed to beat its benchmark over all periods and remains in the second quartile of performance over all two- and three-year rolling periods. It is also in the third and fourth quartiles in its category for volatility over all two- and three-year rolling periods as well, delivering a more stable return profile. Current Portfolio Positioning The fund outperformed its benchmark over the third quarter of 2016 and the year ending 30 September Over the third quarter of 2016 the fund returned 2.30% compared to its benchmarks return of 2.11%. Annually, the fund returned 8.61% compared to its benchmark s return of 8.20%. The fund is the most conservatively positioned amongst its peers on the Shopping List, with its largest allocation to cash and money market instruments being increased by 1.4% to 84.2%, while the fund s exposure to interest-bearing investments was reduced by 1.1% to 11.6%. Moreover, the fund s assets under management have increased over the quarter by 21.44% from R5 458 million to R6 628 million. During the quarter, nominal bond yields reached levels closer to 8.5%, which allowed the fund manager to decrease the fund s duration. As a result, duration was decreased from 1.21 years to 0.97 years. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Cash and Money Market Assets Inflation Linked Bonds Interest Bearing Investments Property Equities International THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

20 SA - MULTI ASSET- LOW EQUITY Category Analyst: Luke McMahon Funds in this sector display reduced volatility relative to general equity funds, with a strong focus on capital preservation and a net equity exposure (including international equity) that typically would not exceed 40% of the portfolio. Funds in this sector are mostly funds of funds and consequently are not considered for the Shopping List. That said, the number of single manager funds has increased substantially and this sector is becoming increasingly competitive. Shopping List selection: Coronation Balanced Defensive Fund, Nedgroup Investments Stable Fund, Prudential Inflation Plus Fund, SIM Inflation Plus Fund Quartile Ranking As of Date: 30/09/2016 Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile YTD 1 year 2 Years 3 years 5 years 7 Years Prudential Inflation Plus A Coronation Balanced Defensive A Nedgroup Inv Stable A SIM Inflation Plus Maximum Drawdown: Monthly (ASISA) South African MA Low Equity Prudential Inflation Plus A Coronation Balanced Defensive A Nedgroup Inv Stable A SIM Inflation Plus (ASISA) South African MA Low Equity Risk-Reward: 3-Year Annualised Time Period: 01/10/2013 to 30/09/ Std Dev Prudential Inflation Plus A Coronation Balanced Defensive A Nedgroup Inv Stable A SIM Inflation Plus s As of Date: 30/09/2016 (ASISA) South African MA Low Equity Source Data: Total YTD 1 year 2 Years 3 years 5 years 7 Years Prudential Inflation Plus A Coronation Balanced Defensive A Nedgroup Inv Stable A SIM Inflation Plus (ASISA) South African MA Low Equity Risk Statistics Time Period: 01/10/2013 to 30/09/2016 Prudential Inflation Plus A Coronation Balanced Defensive A Nedgroup Inv Stable A SIM Inflation Plus (ASISA) South African MA Low Equity Std Dev Max Drawdown (monthly) Up Period Percent Down Period Percent Sharpe Ratio Rolling 1 Year s Time Period: 01/12/2007 to 30/09/2016 Rolling Window: 2 Years 1 Month shift Prudential Inflation Plus A Coronation Balanced Defensive A Nedgroup Inv Stable A SIM Inflation Plus (ASISA) South African MA Low Equity THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

21 CORONATION BALANCED DEFENSIVE Fund manager Charles de Kock & Duane Cable No of quarters 26 Benchmark Alexander Forbes 3-month (STeFI) Index +3% Risk Description Cautious Role of Benchmark Agnostic Inception Date 01 February 2007 Focus Absolute Fund Size (Rm) R Philosophy Fundamental, bottom-up valuation driven Fee Description (retail class) Annual management fee with reduced fees should the fund lose capital over any 12-month period. Glacier Risk Rating 2.48 Total Investment Charge 1.86% Coronation has arguably one of the best research teams and broad asset class capabilities in the industry. The fund has an internal limit of maximum 40% exposure to risky assets (includes total equity and property). The fund will thus at all times have a minimum of 60% allocated to fixed interest assets. Given the fund s 40% risky asset (property and equity) exposure limit, this fund can be viewed as a less aggressive option when compared to more traditional funds in its category - where risky asset exposure can reach a maximum of 65%. The fund is suited to a cautious portfolio with an absolute return focus and a strong emphasis on capital preservation. As the fund will not have more than 40% risky asset exposure it would blend well with a more aggressive cautious fund to temper overall portfolio volatility. This fund can be used as a core holding in a cautious risk, absolute return focussed portfolio with the aim of outperforming inflation by 2-3% over a 3+ year period. The fund is managed by Charles de Kock and Duane Cable. Charles has over 29 years of investment experience, nine of which have been spent at Coronation, while Cable is Head of SA Equity and has over nine years investment experience, spent with Coronation. Cable was announced as co-manager in August The investment team consists of three former Coronation CIOs. The culture remains one of ownership and accountability, and is client focused. Given that staff ownership is 23%, the interests of the managers and clients are well aligned. De Kock has stated that the fund has two levels of conservatism, the first being asset allocation and the second stock selection. Their asset allocation is a bottom-up valuation process and they make use of a proprietary asset allocation tool implemented in A team of key individuals determines the macro-economic variables that will be the inputs to the proprietary models used at Coronation. Key macro drivers are used as inputs, such as interest rates, inflation and also expected return. While the model will guide asset allocation decisions, each manager is responsible for the management of the funds given the risk budget of the fund. De Kock and Cable are thus responsible for the asset allocation weighting and stock selection of the fund. Proprietary research is the foundation of their investment proposition. From this platform, they construct portfolios that meet the varying risk and return objectives. All portfolios reflect the same Coronation DNA which comprises Coronation s best investment ideas, leveraging off the same investment process. The fixed interest instruments selection is managed by the portfolio managers. They interact and leverage off the fixed interest team headed up by Mark le Roux. There is no formal house view portfolio, as flexibility is encouraged amongst portfolio managers. Current Portfolio Positioning 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q The fund has consistently delivered better than category average threeyear rolling risk-adjusted returns since inception. On a rolling threeyear basis, the fund has achieved its performance objective over 70% of the time. It is important to note that all the underperformance was experienced up to the three year period ending 31 August Since then, the fund has consistently outperformed its benchmark. Although the fund tends to have a slightly higher down-period percent it has experienced smaller drawdowns relative to the category average and Shopping List peers. The fund has also delivered positive returns over every 12-month period since inception. The fund delivered 1.45% over the quarter, outperforming the category average by 57 basis points and achieving second quartile performance. Over a one year period it returned 6.31%, underperforming the category average of 6.73%, as well as its benchmark of 9.80%. The most notable changes from the second quarter was a 1.80% increase in SA bonds which was the best performing local asset class (+15.05%) of the year, as of end. The fund s largest detractor from performance over the quarter was the fund s foreign assets; however, the fund managers aimed to manage this by reducing global exposure through currency futures when the rand was weaker, and reversing the position when the rand recovered. Local assets, bonds (+1.31%), equities (+0.30%) and cash (+0.14%), were the biggest contributors to the fund s performance. The three largest holdings in the fund remain Coronation Global funds: The Global Opportunities fund (9.90%), the Global Capital Plus fund (10.30%) and the Global Emerging Markets fund (2.20%). Individual holdings were only marginally adjusted over the quarter, with the largest position move in the fund being the reduction in exposure to Growthpoint Properties from 1.50% to 0.80%. SA Equity Foreign Equity SA Property Foreign Property SA Cash SA Bonds SA Pref Shares & Other Foreign FI & Cash Foreign Pref Shares & Other THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

22 NEDGROUP INVESTMENTS STABLE Fund manager Foord Asset Management (Dave Foord, Dane Schrauwen, William Fraser & Nick Balkin) No of quarters 19 Benchmark Inflation + 4% over a rolling three year period Risk Description Cautious Role of Benchmark Agnostic Inception Date 01 November 2007 Focus Absolute Fund Size (Rm) R Philosophy Top-down, bottom-up, valuation driven approach Fee Description (retail class) Annual management fee with 2.50% maximum performance fee Glacier Risk Rating 2.53 Total Investment Charge 1.55% The fund s stock selection applies an absolute overlay to Foord s strong fundamental process, meaning stocks in the portfolio need to have a large margin of safety. The fund therefore has a low probability of capital loss, which is how Foord defines risk. The team has limited fixed interest capabilities relative to Shopping List peers. The fund will therefore look to use vanilla instruments to express their fixed income views. The relative weakness in fixed income capabilities is largely offset by Foord s excellent equity capabilities. The fund can take on higher risky asset exposure and does not have any internal mandate limits. With the introduction of the multi-counsellor approach in 2011, key man risk has been significantly reduced. The fund has been managed using a multi-counsellor approach since late 2011, with Dave Foord, Dane Schrauwen, William Fraser and Nick Balkin each managing a portion of the assets and being individually accountable for that portion. Foord believes that meaningful investment returns are not earned by making incremental decisions, but that superior long-term returns are generated by identifying and taking advantage of economic cycles, and that buying at the right price is crucial. They do not take benchmarks into consideration when constructing portfolios as they are often representative of what is simply big or in vogue. Guided by asset allocation parameters, each manager is allowed flexibility in the portion of the portfolio they manage. Their asset allocation style is predominantly top-down value orientated, but incorporates bottom-up portfolio construction. All research, both on equities and fixed interest, is done in-house and portfolio managers also undertake research. They place an intrinsic valuation on the company and assess to what extent market is pricing that valuation. Foord looks for stocks with good management teams and are willing to pay for what they deem fair value for quality businesses. The fund has relatively low turnover, which is a result of being a concentrated portfolio with a few good ideas that will only be replaced when a better opportunity arises. The fund combines a top-down macroeconomic view for asset allocation with a bottom up analysis of stocks in portfolio construction. Foord have a dedicated offshore team in Singapore which manages the equity fund that forms part of the offshore exposure in the Foord Balanced fund. Current Portfolio Positioning This fund can be used as a core holding in a cautious or moderate risk, absolute return focussed portfolio with the aim of outperforming inflation by 3-4% over a three+ year period. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q The fund has produced top quartile performance over longer investment periods. Since inception, the fund has consistently delivered better than category average risk-adjusted returns at slightly higher volatility and has also achieved its performance objective over 90% of the time. Over all rolling 12-month periods since inception the fund has not delivered any negative returns. The fund has been the least correlated to other funds on the Shopping List in the low equity category, and has had the lowest down period percentage over the last year. The fund has, however, during the financial crisis, experienced a greater drawdown than the peer average but at a lower down percent ratio. Since inception, the fund has managed to maintain a smooth alpha-generating profile as compared to peers, which speaks to its stock selection capabilities. The fund delivered 0.21% for the quarter, underperforming the peer group average of 0.88%, as well as its benchmark of 2.40%. This translated into the second consecutive bottom quartile performance. Over the one-year rolling period, ending September, the fund returned 6.65%, 0.11% behind its peers and 3.63% behind its inflation +4% benchmark. Local listed property and foreign assets were significant detractors from performance. There were slight changes to asset allocation over the quarter with local and foreign cash decreasing by a total of 2.19%. Local equities were decreased by 0.57% and SA bonds were increased by 1% over the third quarter as bonds remained the best performing local asset class year-todate. The largest holding in the fund is still the R186 bond, with a 10.5% coupon, at 6.90% up from 6.62% in the previous quarter, followed by the NewGold ETF at 5.40%, up from 4.78%. Floating-rate notes continue to occupy three positions in the top 10, with a total weight of 6.50%. The fund currently holds 14.3% in SA equities with effective exposure to resources at 2%, financials at 2% and industrials at 10% of total SA equity. The fund remains cautiously positioned with a high allocation to cash (37%). This is the strategy of the asset managers until they are comfortable that the market presents opportunities to exploit and deploy cash in riskier assets. Equities Property Commodities Bonds Cash Global Equities Global Bonds Global Cash Other THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

23 PRUDENTIAL INFLATION PLUS Fund manager Michael Moyle, David Knee, Duncan Schwulst & Johnny Lambridis No of quarters 9 Benchmark CPI + 5% p.a. over a rolling three-year period Risk Description Cautious / Moderate Role of Benchmark Agnostic Inception Date 01 June 2001 Focus Absolute Fund Size (Rm) R Philosophy Relative value Fee Description (retail class) Annual management fee Glacier Risk Rating 3.09 Total Investment Charge 1.69% The fund is managed according to a strategic asset allocation (SAA) process which is the cornerstone of the investment process. This differs from how the other low equity funds on the Shopping List are managed. The fund has a high strategic allocation to ILBs and will thus have a higher duration relative to peers. It is also slightly more aggressive given its performance objective of CPI+5% and is a more risky option in the low equity category - but has achieved its risk benchmark 95% of the time since inception. Be cautious when combining this fund with a fund like ABSA Absolute - as both funds have a high strategic weighting to ILBs. The house has very good asset allocation, equity and fixed income capabilities and leverages off strong offshore capabilities at M&G - Prudential s international parent company. The fund is Prudential s flagship real return offering and has a primary performance objective of CPI + 5% p.a. over a rolling three-year periods, and secondly aims to not incur any capital losses over a rolling one-year period. This speaks to the fund s real return focus. Prudential follows a strong value-based approach using historical and current factual information, rather than forecasting to determine the fair value of an asset class. When constructing portfolios they are always cognisant of risk. They will assess the relative value of an asset by looking at its current valuation and comparing that to its own historical valuation range and alternative assets within the investment universe. Instrument selection within each asset class is outsourced to the relevant specialist teams. The local AA team, in conjunction with Prudential s global teams, decides on exposure to individual markets, government vs corporate bonds and currencies. Weekly meetings as well as intra-quarterly teleconferences are held, as well as a quarterly meeting in London. When constructing real return portfolios an internal long-term Strategic Asset Allocation is established. The SAA of the Prudential Inflation Plus fund is set at 26.3% ILBs, 22.5% local equity, 15% local bonds, 7.5% local property, 3.8% local cash, 12.5% foreign equity and 12.5% foreign bonds. Tactical asset allocation (TAA) calls are made relative to the SAA within a range of 0% to 10% to adjust the exposure to asset classes, and these decisions are made using valuation-based techniques. The TAA calls are made with both the fund s risk and return objectives in mind. Once the TAA calls have been made, instruments are selected within each asset class through active stock-picking in equities, listed properties and bonds using the prudent value philosophy. The fund leverages off each specialist team for instrument selection. Marc Beckenstrater who was previously a manager on the fund, as well as CIO, will be relocating to the UK in March As of 01 July 2016 David Knee has been appointed as the CIO. He will retain his responsibilities but systematically start reallocating duties to other FI team members. Michael Moyle who was previously Head of Absolute will now serve as Head of Multi-Asset. These changes will be closely monitored and we are comfortable that no changes will be made to existing processes. Current Portfolio Positioning This fund can be used in a cautious or moderate risk, absolute return focussed portfolio with the aim of outperforming inflation by 3-4% over a three-year+ period. This fund would complement a portfolio of extremely cautious funds and can also be used in a moderate solution given its slightly more aggressive nature and performance objective. The fund is the more aggressive option relative to Shopping List peers. Given the fund s more aggressive performance objective, we do expect a relatively higher volatility profile when compared to peers. Over a rolling twoand three-year basis the fund has had the highest standard deviation of all the Shopping List funds. It has, however, compensated for this in performance and has produced above-category-average risk-adjusted returns over the same rolling periods. On a rolling three-year basis since inception the fund has achieved its performance objective over 75% of the time. The fund has also delivered positive returns more than 95% of the time over 12-month rolling periods. Due to its high strategic allocation to riskier assets, the fund will typically experience larger drawdowns when compared to Shopping List peers as well as the category average. This can be evidenced in the drawdown figures where the fund experienced a maximum drawdown of 8.6% against the category average of 2.7% over the period, while the next lowest Shopping List fund had a maximum drawdown of 5.7%. The fund delivered 0.60% for the quarter, underperforming its peer group by 0.28%. On an annual basis the fund delivered 7.52% which was 0.76% ahead of peers and in the top quartile but lagging its inflation objective of 11.34%. Despite this fund being the more aggressive of its Shopping List peers it has produced weaker returns than the majority of its shopping list peers over the 3-12 month short term. However, it has still been able to produce the lowest downside deviation and better capital preservation capability than the category average and Shopping list peers. International equity and cash holdings were the main detractors from performance while domestic bonds and a neutral weighting to SA equities were the largest contributors to the fund s performance. The fund s underweight holdings in international fixed income added the most relative value to returns. Exposure to international bonds was reduced by 0.20% to 5.90%. Domestic property, which has been one of the stronger local asset classes year-to-date, was increased by 1.3% to 8.90% in quarter three. The largest holding in the fund is the Prudential Corporate Bond fund, at 6.40%. Second is Naspers which was increased from 4.10% to 4.60%, followed by the SA ILB R202 nominal bond at 3.4%. Relative to Shopping List peers the fund has one of the highest offshore exposure allocations at 25.70% and bond exposure, which includes ILBs, at 42.3%. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Domestic Equities Domestic Property Domestic Bonds Domestic ILBs Cash (Domestic & Offshore) International Equities International Bonds International Property THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

24 SIM INFLATION PLUS Fund manager Philip Liebenberg & Natasha Narsingh No of quarters 19 Benchmark CPI + 4% over a rolling three year period Risk Description Cautious Role of Benchmark Agnostic Inception Date 01 April 1999 Focus Absolute Fund Size (Rm) R Philosophy Pragmatic value approach Fee Description (retail class) Annual management fee Glacier Risk Rating 2.28 Total Investment Charge 1.33% The risk/return profile has improved immensely given the more disciplined management approach of Liebenberg and previous fund manager Gerhard Cruywagen, and there is a strong focus on investing in stocks with a large margin of safety. The equity carve-out will not be different to the house-view equity carve-out: moderate SWIX portfolio. Fixed income will be similar to the SIM Active Income fund with the only difference being the magnitude of calls. The fund is managed with a strong absolute mind-set and the managers will be very active in the derivative space. There is a strong focus on where the managers can add value, specifically fixed interest, asset allocation and derivatives. The fund is managed by Philip Liebenberg and Natasha Narsingh with a strong absolute focus, as well as placing a great deal of emphasis on capital preservation. This ties in with the fund s explicit risk benchmark of no negative returns over rolling 12-month periods. Investment decisions at SI are team-based with Liebenberg leveraging off SI s house view on asset allocation. Liebenberg is responsible for the asset allocation overlay and management of the fixed interest portion of the fund. Asset allocation is directed by the Asset Allocation Model Portfolio Group (AA MPG), although the fund manager has discretion on the size of his over-/ underweights given the objective of the mandate. Fixed interest decisions are guided by the Fixed Income Model Portfolio Group (FI MPG) which will be headed up by Mokgatla Madisha as of 1 August 2016 following the departure of Chris Hamman. The fixed interest carve-out will look similar to the SIM Active Income fund, which is also managed by Liebenberg. Cruywagen is responsible for the equity selection of the fund and direction is given by the Equity Model Portfolio Group (EQ MPG). The equity carve-out of the fund will look similar to that of the moderate SWIX house-view portfolio. Offshore exposure is obtained through investments in CIS funds, whilst the offshore fixed income exposure is managed by BlackRock. Offshore property exposure is split between the biggest global diversified stocks and the other half is managed by Alliance Bernstein. Global cash is managed by Cameron Hume. From a risk management perspective, the managers will make use of derivatives to protect the portfolio from adverse market movements when necessary. Current Portfolio Positioning The fund can be used in a cautious to moderate risk, absolute return focussed portfolio with the aim of outperforming inflation by 3-4% over a three-year period. It can also be used as a core fund in a portfolio. The fund is the most conservative option relative to Shopping List peers. On a rolling three-year basis, the fund has consistently delivered above-category-average returns since the three-year period ending 31 July It has also managed to achieve this at lower volatility (on a rolling three-year basis) than all of the Shopping List funds and since December 2014, has managed to achieve lower volatility than its category average. Since 2009, the fund s volatility of returns has significantly decreased and this co-incides with the management changes. The fund has achieved its risk target of no negative returns over a rolling 12-month period over 90% of the time since inception, and has achieved its performance objective of CPI + 4% over a rolling threeyear period over 65% of the time. It is important to note that, since Philip Liebenberg and Gerhard Cruywagen took over management in April 2009, the fund has achieved its performance objective 100% of the time and over rolling one-year periods, has had no negative returns. The fund delivered 1.80% over the quarter, outperforming the peer group average of 0.88%. However, its performance remained below the fund s benchmark return of 2.58%. Domestic cash and fixed interest were the main contributors to performance. On an annual basis the fund is 1.63% ahead of peers but lagging its inflation target by 1.89%. There were no major changes to asset allocation, with the most significant change being a 1.98% increase in local equities. This was mainly attributed to resources returning 8.07% over the quarter. Hence the portfolio managers increased the fund s allocation to basic resources by 1.61% from 1.06% in Q2 to 2.67% in Q3, favouring diversified miners, Anglo American and BHP Billiton in this regard. Also, a reduction in exposure to the 12+ year interest-bearing bucket by 0.31% was implemented as nominal bond yields reached levels closer to 8.5% over the quarter, which provided a good opportunity for the portfolio managers to reduce duration. The modified duration at fund level decreased from 0.72 in Q2 to 0.61 in Q3. The largest holding in the fund is Naspers, which was increased from 3.37% to 3.91% over the quarter, with BTI and Steinhoff at 1.35% and 1.18% respectively. The fund s holding in MTN was trimmed over the quarter from 1% to 0.87%, amid further pressure being experienced by the group from Nigeria s authorities. Relative to Shopping List peers the fund has the highest exposure to cash at 56.5%. It also has the lowest exposure to offshore assets and property at 20.96% and 1.52% respectively. 100% 90% Current Long Term Portfolio Asset Positioning Allocation 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Equities Preference shares Property International Assets Inflation Linked Bonds Interest Bearing 0-3 years Interest Bearing 3-7 years Interest Bearing 7-12 years Interest Bearing 12+ years Cash/MM THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

25 SA - MULTI ASSET - MEDIUM EQUITY Category Analyst: Francis Marais These portfolios invest in a spectrum of investments in the equity, bond, money, or property markets. These portfolios tend to display average volatility, aim for medium to long term capital growth and can have a maximum effective equity exposure (including international equity) of up to 60% and a maximum effective property exposure (including international property) of up to 25% of the market value of the portfolio. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolios mandate and stated investment objective and strategy. Shopping List selection: Coronation Capital Plus Fund, Nedgroup Investments Opportunity Fund Quartile Ranking As of Date: 30/09/2016 Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile YTD 1 year 3 years 5 years 7 years 10 Years Coronation Capital Plus Nedgroup Inv Opportunity A (ASISA) South African MA Medium Equity Risk-Reward: 3 Years Annualised Time Period: 01/10/2013 to 30/09/ Std Dev Coronation Capital Plus Nedgroup Inv Opportunity A (ASISA) South African MA Medium Equity Maximum Drawdown: Monthly s As of Date: 30/09/2016 Source Data: Total YTD 1 year 3 years 5 years 7 years 10 Years -0.5 Coronation Capital Plus Nedgroup Inv Opportunity A (ASISA) South African MA Medium Equity Risk Statistics Time Period: 01/10/2013 to 30/09/2016 Std Dev Max Drawdown (monthly) Up Period Percent Down Period Percent Sharpe Ratio Coronation Capital Plus Nedgroup Inv Opportunity A Coronation Capital Plus Nedgroup Inv Opportunity A (ASISA) South African MA Medium Equity Rolling 2 Year s Rolling Window: 3 Years 1 Month shift 2 (ASISA) South African MA Medium Equity Coronation Capital Plus Nedgroup Inv Opportunity A (ASISA) South African MA Medium Equity SA CPI + 4% THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

26 CORONATION CAPITAL PLUS Fund manager Charles de Kock & Duane Cable No of quarters 45 Benchmark CPI + 4% Risk Description Low to medium Role of Benchmark Agnostic Inception Date 02 July 2001 Focus Absolute Fund Size (Rm) R Philosophy Fundamental, bottom-up valuation driven Fee Description (retail class) Annual management fee with reduced fees should the fund lose capital over any 24-month period. Glacier Risk Rating 4.06 Total Investment Charge 1.90% The fund has an internal risky assets (equity and property) limit of 60%, and can therefore be viewed as a less aggressive option when compared to a more traditional fund in its category - where risky asset exposure can reach a maximum of 85% (60% equity and 25% property). The equity portion in this fund, however, is slightly more aggressive when compared to the equities in a fund such as the Coronation Balanced Defensive Fund. This fund will make use of derivatives to hedge certain currency and equity exposures. Coronation has extensive experience and capabilities across all asset classes - which is a key advantage in the management of this multiasset fund. Due to Coronation s extensive expertise across all asset classes, this fund can be used as a core holding in a cautious to moderate risk, absolute return focussed portfolio with the aim of outperforming inflation by 4% over a three - five year period. The fund s dual mandate of no negative returns over any 12 month period and 4% real return will work equally well for a retiree with a slightly higher risk appetite or a discretionary investor with a slightly lower risk appetite. The fund was managed by Charles de Kock and Henk Groenewald up to August Charles has over 29 years investment experience, 9 of which have been spent at Coronation. Duane Cable, head of SA Equity, the current co-manager of the Balanced Plus Fund has however been appointed as co-manager on the Capital Plus fund alongside Charles de Kock during August Henk s focus will shift to research, and co-managing the Coronation Resources Fund. Cable has previously comanaged the absolute return portfolios with Louis Stassen and Henk for two years and is well positioned to assume this role. Cable joined Coronation in 2006 as an investment analyst and is well experienced. Coronation have a highly skilled and experienced investment team, this together with their single investment process, philosophy and research platform will ensure that these changes have a minimal impact on investments. The investment team consists of 3 former Coronation CIOs. Coronation has developed a proprietary central research system which is available to all analysts and portfolio managers at all times. The culture remains one of ownership and accountability that is client focused. This is evident by the fact that staff owns 23% of the holding company of the South African and international operating subsidiaries. All analysts are rotated among industries so as to become generalists in every industry and avoid developing biases. Coronation believes in conducting comprehensive research on a company rather than just analysing it and spends a vast amount of time looking at different ways of trying to understand a company and its operating environment for that extra bit of information the market may be overlooking. The fund has outperformed its benchmark of CPI + 4% consistently over longer, more meaningful periods. It does tend to achieve this with slightly higher levels of volatility relative to peers, but protects capital well in times of adverse market conditions. This is not a fund that will deliver massive outperformances, due to its more conservative nature. When comparing this fund to its peers in the medium equity category, one should be cognisant of the internal limit of risky assets to 60% (peers limit = 85%). The fund has been very consistent in implementing its dual mandate of no negative 12 month returns and CPI+4% over rolling 3 year periods. Since August 2001, the fund experienced only 11 months of negative 12-month returns, i.e. 93% consistency. Over the same period the fund has outperformed its CPI + 4% benchmark 75% of the time, while outperforming its average peers 64% of the time, when looking at 3-year rolling returns. This rolling 3-year outperformance averaged 4.4% above its CPI+4% benchmark since August Current Portfolio Positioning The fund delivered a very consistent 1.49% for the quarter ending, 30 September This was 94 basis points ahead of its average peer. The fund s 3-year performance continues to lag CPI+4% over a 3-year period and continues to be a concern. However underperformance can be expected from time to time and it is important to consider the fund s duel objective of real returns and no negative 12-month returns. The fund s year-to-date performance is 4.79%, while it delivered 7.80% over the previous 12 months. This compares very favourably with the broader JSE that only managed to deliver 4.82% and 6.57% respectively over the same periods, indicative of a market with benign returns. During the quarter local assets contributed to performance, while foreign assets detracted from performance on the back of continued ZAR strength. Both equities and local bonds contributed strongly to performance. The fund s offshore hedging managed to somewhat limit the negative impact of a stronger rand, decreasing offshore exposure during times of currency weakness and increasing exposure during currency appreciation. During the quarter the fund s offshore exposure was increased in line with rand strength. The fund is mostly short duration, with only 1.9% of bonds in the fund being exposed to longer-dated fixed government bonds. Floating-rate and corporate bonds consequently make up the bulk of the fund s Fixed Income exposure. On a relative basis the fund s duration 0f 2.91% is significantly higher than its Shopping List peer, the Nedgroup Investment Opportunity Fund, which had a duration of 0.18 as at quarter end. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q SA Equity SA Cash SA Gov Bonds SA Corp Bonds SA IL Bonds SA Pref Shares & Other SA Property Other - Derivatives Foreign Property Foreign Equity Foreign Preference Share Foreign FI Foreign Commodities Foreign Other THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

27 NEDGROUP INVESTMENTS OPPORTUNITY FUND Fund manager Abax Investments (Rashaad Tayob & Omri Thomas) No of quarters 4 Benchmark Inflation + 5% over a rolling three-year period Risk Description Moderate Role of Benchmark Agnostic Inception Date 27 June 2011 Focus Absolute Fund Size (Rm) R Philosophy Bottom-up, fundamental research Fee Description (retail class) Annual management fee Glacier Risk Rating 4.97 Total Investment Charge 2.06% Abax places a large emphasis on return modelling and establishing expected returns for asset classes / securities. As inputs to this return modelling, a significant amount of emphasis is placed on sell-side research, which could potentially be seen as a possible weakness. However, the strength of Abax lies in how they use this sell-side research as well as their asset allocation and modelling abilities and portfolio implementation. Their investment process seems very effective in incorporating this research and delivering strong investment returns. With the addition of Rashaad Tayob in 2012, Dean Marks in 2013 and Dylan Oelofse in 2015, Abax has expanded their fixed income capabilities extensively and fixed income seems to have contributed positively to Abax s ability to deliver excess returns. Abax defines risk as drawdowns and uses this as input in their portfolio optimisation process. With regard to portfolio management, Tayob will be responsible for asset allocation and, together with Dean Marks and Dylan Oelofse, also for the fixed income portion of this fund. Omri Thomas will primarily be responsible for the equity portion, as well as the structuring of any derivative positions. Abax will make use of derivative strategies to construct asymmetrical payoff profiles. The equity portion in this fund is essentially a carve-out of the Nedgroup Investments Rainmaker Fund, but with different weights, due to the difference in the return and risk mandates. Abax s investment philosophy is brought to fruition through a well-defined, proprietary investment process that has allowed this fund to deliver excellent risk-adjusted returns. Its absolute return mindset is clearly visible in its performance figures. The team is made up of highly experienced and well qualified individuals. Dean Marks and Dylan Oelofse recently been added as assistant portfolio managers to help Tayob with respect to the fixed income part of the portfolio, which is a positive development. This will help build additional skills in the team as well as bring some continuity and help negate possible key man risk. The offshore capability of the team could be expanded a bit more, but the current screening methods and processes employed do make sense. Abax is further also planning to launch a specialist offshore equity fund, under the management of Steve Minnaar and Campbell Parry. The Opportunity Fund s offshore equity exposure will then be gained through investing in this specialist offshore fund, which will significantly add to the team s offshore capability. There is very little to fault in terms of investment philosophy and process and this fund is a good alternative in the multi-asset medium equity space. This fund is an excellent choice for an investor who prefers a broad exposure to multiple asset classes, where the asset manager has the responsibility of both strategic and tactical asset allocation. This is a benchmark agnostic fund with an absolute return mindset. This fund is suitable for a client with a moderate risk profile seeking no more than 60% equity exposure (equity + property < 85%). The fund has a low correlation to its peers and this, together with its low volatility profile, will add excellent diversification benefits and lower the overall volatility profile of a portfolio. The Nedgroup Investments Opportunity Fund is a top performer in its category and has outperformed its inflation + 5% mandate over any rolling three year period since its exception. The fund s volatility has trended upwards recently, but this is in line with its peers. It has also managed to compensate the investor sufficiently for these higher levels of volatility by delivering higher returns and subsequently maintaining its superior risk adjusted returns as measured by its Sharpe ratio. The fund s focus on downside protection has also translated into a superior Sortino ratio when compared to its peers, with its overall volatility mainly stemming from its upside performance. The volatility profile does seem to be characterised by larger than average drawdowns as opposed to a consistently high level of volatility. This indicates a susceptibility to unforeseen tail risk, and is confirmed by a consistently higher rolling VAR measure, since December On average, this fund captures 65% of the upside movement of the JSE All Share, and only 14.2% of the downside, reflecting an asymmetrical performance profile which is so important for an absolute focussed portfolio. Current Portfolio Positioning The third quarter of 2016 was characterised by a more benign risk environment globally, while locally the South African political environment was a bit more muted than in August and as a result the quarter ended with reduced levels of risk. The Nedgroup Investment Opportunity Fund performed well over the three months ending 30 September 2016, returning 1.44% for the quarter, significantly outperforming its peers, who managed to return on average 0.55% over the same period. During the quarter foreign assets detracted from performance, primarily as a result of a stronger rand. The fund took advantage of the stronger currency and added to its positions in selected offshore counters. The fund also increased its holdings in selective equities such as Steinhoff and made an allocation to Hammerson, a UK retail property company, which listed on the JSE during the quarter. The fund s hedging positions contributed to some positive portfolio changes, most notably reduced holdings in Naspers and Nedbank as it traded through the upper strikes, while the fund got the opportunity to add Steinhoff at lower prices as it traded below its strike. The fund has maintained its very short duration position, currently sitting at 66 days, down from 159 days as at the end of the previous quarter. The fund s net equity exposure as at the end of 30 September was 53%, comprising a physical exposure of 55%, option and future strategies currently decreasing the effective equity exposure by 4% and convertibles currently adding about 2% to effective equity exposure. The fund s net equity exposure increased by 5% over the quarter; consequently the fund s net risky assets increased to 62.60% from 60.60% as at the end of the previous quarter. The fund, however, continues to be positioned cautiously, viewing most asset classes as fully valued and being wary of outsized tail events caused by shocks in such an environment. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Cash Floating Rate Notes Bonds Inflation Linked Bonds Preference Shares Convertible Bonds Property Equities: Domestic Equities: International Offshore Cash Offshore Bonds THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

28 SA - MULTI ASSET - HIGH EQUITY Category Analyst: Francis Marais These portfolios invest in a spectrum of investments in the equity, bond, money, or property markets. These portfolios tend to have an increased probability of short-term volatility, aim to maximise long term capital growth and can have a maximum effective equity exposure (including international equity) of up to 75% and a maximum effective property exposure (including international property) of up to 25% of the market value of the portfolio. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolio s mandate and stated investment objective and strategy. Shopping List selection: Allan Gray Balanced Fund, Coronation Balanced Plus Fund, Foord Balanced Fund, Investec Opportunity Fund, SIM Balanced Fund Quartile Ranking As of Date: 30/09/2016 Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile YTD 1 year 3 years 5 years 10 years Allan Gray Balanced A Coronation Balanced Plus A Foord Balanced R SIM Balanced R Investec Opportunity R Maximum Drawdown: Monthly Allan Gray Balanced A Coronation Balanced Plus A Foord Balanced R SIM Balanced R Rolling 3 Year s Investec Opportunity R Rolling Window: 3 Years 1 Month shift Risk-Reward: 3 Years Annualised Time Period: 01/10/2013 to 30/09/ Std Dev Allan Gray Balanced A Coronation Balanced Plus A Foord Balanced R SIM Balanced R s As of Date: 30/09/2016 Allan Gray Balanced A Coronation Balanced Plus A Foord Balanced R SIM Balanced R Investec Opportunity R Risk Statistics Investec Opportunity R Source Data: Total YTD 1 year 3 years 5 years 10 years Time Period: 01/10/2013 to 30/09/2016 Max Up Down Sharpe Std Dev Drawdown Period Period Ratio (monthly) Percent Percent Allan Gray Balanced A Coronation Balanced Plus A Foord Balanced R SIM Balanced R Investec Opportunity R Allan Gray Balanced A Coronation Balanced Plus A Foord Balanced R SIM Balanced R Investec Opportunity R (ASISA) South African MA High Equity THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

29 ALLAN GRAY BALANCED Fund manager Benchmark Duncan Artus, Andrew Lapping, Simon Raubenheimer, Ruan Stander & Jacques Plaut No of quarters 32 ASISA SA MA High Equity category mean (excl Allan Gray Balanced Fund) Risk Description Moderate Aggressive Role of Benchmark Agnostic Inception Date 01 October 1999 Focus Absolute Fund Size (Rm) R Philosophy Fundamental, bottom-up, value, contrarian approach Fee Description (retail class) Annual management fee with a performance fee, maximum annual fee 1.50% (excl VAT) Glacier Risk Rating 5.03 Total investment charge 1.61% Property is not viewed as a separate asset class at Allan Gray - as a result, property needs to compete with equities for a place in the portfolio. Historically, the fund has been able to protect capital really well when compared to some of its peers (2008/2009 as an example). Using futures also makes it easier for Allan Gray to increase/decrease equity exposure without having to buy/sell the actual equity. The hedged equity portion of the portfolio can also limit losses if there is a market correction, but will detract from performance in rising markets. Fixed income capabilities are not as strong as Shopping List peers and thus allocation is very vanilla. It is a consequence of not finding enough attractive equity opportunities. Allan Gray has good offshore capabilities in Orbis. The fund is considerable in size and thus manoeuvrability in terms of selling stocks or buying sizeable positions in certain stocks is hampered. The fund is managed on a multi-counsellor basis with each fund manager effectively managing a separate balanced portfolio, and thus each deciding upon the asset allocation and stock selection. Allan Gray s investment philosophy is value-orientated, with their research efforts focused on identifying good quality assets that are priced below intrinsic value. A rigorous and disciplined process is applied and investments are usually made with a four-year view, and thus portfolio turnover tends to be low. Allan Gray s investment philosophy takes absolute risk into account first and foremost and will therefore manage this risk over the risk of equity underperforming over the short term. A domestic equity committee called the Share Policy Group (SPG), makes use of a voting system in order to determine which counters appear on the ranking table. Each manager still has full discretion over which counters they buy and there is no house-view portfolio. Allan Gray follows a bottom-up equity selection process. The SPG determines the broad margins within which the portfolio managers are required to asset allocate. Asset allocation is a consequence of the availability of attractively valued equities relative to the other asset classes within the set parameters. Andrew Lapping, who co-manages the Allan Gray Money Market fund, and Sandy McGregor are responsible for managing the fixed interest portion of the fund. The offshore portion is managed by Orbis. Following the passing of Simon Marais, Ian Liddle will be stepping down as CIO and relinquishing portfolio manager responsibilities to assume the position of chairman. Andrew Lapping will assume the CIO position in March These are changes that we will monitor quite closely, as Liddle, one of the most experienced portfolio managers, has been managing a large portion of the Balanced fund. The associate portfolio managers Ruan Stander and Jacques Plaut have been promoted to portfolio managers as of November The impact of Liddle s departure from portfolio management on the fund and the investment team is a critical qualitative consideration that must be taken into account when assessing the Balanced Fund. Current Portfolio Positioning The fund is suited for use in a portfolio with the aim of minimising drawdowns in down markets as well as a strong focus on real return. The fund s focus on capital protection further aids to temper overall volatility in a portfolio, particularly in adverse market conditions. It can be used in a moderate or moderate aggressive risk, absolute or relative return focussed portfolio with the aim of outperforming either inflation by 5% or the category average of the SA MA High Equity category over a five - ten year period. The fund has delivered above category average risk-adjusted returns since 2002, but tends to lag over the shorter term. Over the same measurement period on a five-year rolling basis, the fund has experienced no negative returns. The fund has protected capital well in down markets, particularly in the period 2007 to 2009 when the market fell 40% and the average balanced fund lost 17%. Over the same period, the Allan Gray Balanced fund was down 10%. Over five-year rolling periods since inception the fund has achieved its risk benchmark of CPI +5% 80% of the time and consistently delivered above-category-average returns. The fund has also historically had the lowest volatility amongst Shopping List peers, but since the fiveyear period ending June 2014, the Investec Opportunity fund has had the lowest volatility. The fund has been seeing decreased alpha generation capability and this could be directly attributable to size and the fund s ability to take meaningful positions in certain counters. The fund returned 1.87% for the quarter, outperforming its peer category average by 1.26%. This has once again translated into the fund achieving top quartile performance. The fund continues to also deliver strong performance over longer, more meaningful periods, outperforming not only its average peer, but also CPI + 5%. During the quarter the fund s relative overweight positions to Standard Bank and Impala platinum and relative underweight positions to SABMiller and MTN have contributed to performance. Overweight positions to British American Tobacco (the fund s largest holding) and Reinet, and underweight positions to Anglo American and BHP Billiton detracted from performance. Over the last 12 months, material contributors to performance include the fund s equity selections as well as exposure to global equities through Orbis. No major changes to the fund s underlying asset allocations were observed, however hedged equity, both locally and foreign were reduced. Local cash increased slightly, while the fund s overall duration decreased marginally. The fund continues to hold very little property exposure, both locally and offshore, despite attractive yields and stated discounts to NAV. The fund would rather prefer high quality companies such as British American Tobacco with: 1) a high conversion to free cash flow; 2) a high return on equity; 3) stable and high profit margins; 4) moderate gearing; and 5) management with a track record of good capital allocation. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q SA Net Equity SA Hedged Equity SA Property SA Bonds SA MM/Cash Commodities Offshore Net Equity Offshore Hedged Equity Offshore Property Offshore Bonds Offshore MM/Cash Africa ex-sa THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

30 CORONATION BALANCED PLUS Fund manager Karl Leinberger No of quarters 27 Benchmark Composite Benchmark (52.5% equity, 22.5% bonds, 5% cash, 20% international) Risk Description Moderate Aggressive Role of Benchmark Agnostic Inception Date 15 April 1996 Focus Relative Fund Size (Rm) R Philosophy Fundamental, bottom-up valuation driven approach Fee Description (retail class) Annual management fee Glacier Risk Rating 5.59 Total Investment Charge 1.76% This fund is managed by Karl Leinberger who is also the CIO of Coronation. The house arguably has one of the best research teams in the industry and has strong capabilities in all asset classes. The size of the fund may however become an issue going forward. This fund can be used in a moderate-aggressive risk, relative return focussed portfolio with the aim of outperforming the category average of the SA MA High Equity category over a seven - ten year period. The fund is managed by Karl Leinberger. Leinberger is the current CIO and has over 14 years of investment experience, 14 of which have been spent at Coronation. He is supported by one of the largest and most experienced investment teams in SA. Duane Cable was formerly a comanager on this fund, but was announced as co-manager of Coronation Balanced Defensive and Coronation Capital Plus fund alongside Charles de Kock. The investment team consists of three former Coronation CIOs. The culture remains one of ownership and accountability and is client focused. Given that staff ownership is 23%, the interests of the managers and clients are well aligned. Asset allocation is a bottom-up valuation process and they make use of a proprietary asset allocation tool implemented in A team of key individuals determine the macro-economic variables that will be the inputs to the proprietary models used at Coronation. Key macro drivers are used as inputs such as interest rates, inflation and also expected return. While the model will guide asset allocation decisions, each manager is responsible for the management of the funds given the risk budget of the fund. Leinberger is thus responsible for the asset allocation and stock selection of the fund. Coronation has developed a proprietary central research system which is available to all analysts and portfolio managers at all times. Proprietary research is the foundation of their investment proposition. From this platform they construct portfolios that meet the varying risk and return objectives. All portfolios reflect the same Coronation DNA which comprises Coronation s best investment ideas, leveraging off the same investments process. All portfolio managers also have analyst responsibilities. Analysts are assigned cross-sector and this provides them with the tools to price-profit across sectors The managers are style agnostic and take a long-term view by attempting to see through the business cycle in an attempt to identify intrinsic value. They are bottom-up investors and ignore market timing and catalysts. Fixed interest exposure is leveraged off the research by Mark le Roux s fixed interest team. The fund s offshore exposure is obtained through investing in a combination of Coronation s offshore fund offerings. Current Portfolio Positioning On a rolling five-year basis, the fund has delivered consistent abovecategory average, risk-adjusted returns, since 31 July 2004, despite higher levels of volatility. The fund tends to have drawdowns greater than the category average and its peers and over the last three years had a maximum drawdown of 4.95%, while the category average had a maximum drawdown of 3.29% over the same period. The fund also tends to have a higher volatility when compared to its Shopping List peers. Coronation as house tends to focus on longer term periods (5 years plus), when evaluating equities and since it has had an average exposure to equities of 66% since March 2007, it should also be judged according to this longer, more meaningful period. Over rolling 5-year returns, the fund is a consistent first quartile performer, albeit with higher levels of volatility. The fund, however, has had no negative returns over any five-year period since inception. The fund delivered 2.01% over the quarter, which was significantly above the category average of 0.61% and thus delivered top quartile performance. Over a one-year period the fund returned 7.96%, which was 1.21% ahead of the category average. The fund s local assets contributed strongly to performance, most notably SA Equity, but also SA Fixed Income. Despite continued rand strength, the fund s offshore investments delivered particularly strong returns, primarily through their emerging markets exposure. Their biggest exposure to offshore equities is gained through the Coronation Global Opportunities Fund that delivered strong returns over the quarter in USD, up 7% and in ZAR, down 0.16%. The Coronation Global Emerging Markets fund delivered 8.80% in USD and 1.52% in ZAR. Coronation maintains the view that domestic equities remain moderately attractive. Despite the JSE All Share Index at close to record highs, it has basically moved sideways in USD terms. Global businesses that are listed in SA are preferred such as Naspers, Steinhoff International Holdings, British American Tobacco and Anheuser-Busch InBev. These holdings, however, do run the risk of underperforming during times of a stronger ZAR currency. Coronation s relatively big exposure to resources contributed significantly to performance over the quarter and despite strong returns remains positive on these counters prospects. Within resources, Coronation prefers holdings such as Mondi, Anglo American and low cost platinum producers such as Northam and Impala Platinum. Overall, equities remain their preferred asset class with offshore equities preferred above local equities. The fund, however, continues to hold positions in inflation-linked bonds and selected corporate bonds where spreads sufficiently compensate their investors for risk taken. The fund s duration as at quarter end was % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q SA Equity Foreign Equity Property SA Cash SA Bonds SA Pref Shares & Other Foreign FI & Cash Foreign Pref Shares & Other THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

31 FOORD BALANCED Fund manager Dave Foord, Daryll Owen & Dane Schrauwen No of quarters 32 Benchmark ASISA SA MA High Equity category mean (excl Foord Balanced Fund) Risk Description Moderate Aggressive Role of Benchmark Agnostic Inception Date 01 September 2002 Focus Relative Fund Size (Rm) R Philosophy Top-down, bottom-up, valuation driven approach Fee Description (retail class) Annual management fee with a performance fee Glacier Risk Rating 5.23 Total Investment Charge 1.69% Foord is a more equity focussed house. The fund s stock selection applies an absolute overlay to Foord s strong fundamental process, meaning stocks in the portfolio need to have a large margin of safety. The fund therefore has a low probability of capital loss, which is how Foord defines risk. The team has limited fixed interest capabilities relative to Shopping List peers. The fund will therefore look to use vanilla instruments to express their fixed income views. With the introduction of the multi-counsellor approach in 2011, key man risk has been significantly reduced. This fund can be used in a moderate aggressive risk, absolute or relative return focussed portfolio with the aim of outperforming either inflation by 5% or the category average of the SA MA High Equity category over a seven - ten year period. The fund has been managed using a multi-counsellor approach since late 2011, with Dave Foord, Dane Schrauwen and Daryll Owen each managing a portion of the assets. Foord believes that meaningful investment returns are not earned by making incremental decisions, but that superior long-term returns are generated by identifying and taking advantage of economic cycles, and that buying at the right price is crucial. They do not take benchmarks into consideration when constructing portfolios, as Foord believes that they are often representative of what is simply big or in vogue. Guided by asset allocation parameters, each manager is allowed flexibility in the portion of the portfolio they manage. Their asset allocation style is predominantly top-down value orientated, but incorporates bottom-up portfolio construction. Their asset allocation process is forward looking and they do not make use of any form of mean variance optimisation. They believe that it is possible to form a good directional view on the interest rate cycle. As opposed to larger houses, Foord does not have formalised investment committees and meetings and they cite this as being an advantage, in that they are able to reposition and implement changes within the fund more quickly. They have daily meetings where markets and company specific information is discussed. The entire team also sits in close proximity to each other and this facilitates timeous and constant information sharing. All research, on both equities and fixed interest, is conducted in-house and portfolio managers also undertake research. The analysts maintain a stock ranking table that covers all the relevant forward looking metrics across all the shares in their research universe. They place an intrinsic valuation on the company and assess to what extent the market is pricing that valuation. Foord looks for stocks with good management teams and is willing to pay for what they deem fair value for quality businesses. The fund has relatively low turnover which is a result of being a concentrated portfolio with a few good ideas that will only be replaced when a better opportunity arises. The fund combines a top-down macroeconomic view for asset allocation with a bottom-up analysis of stocks in portfolio construction. The house has limited fixed interest capabilities and will thus invest in vanilla instruments. Foord has a dedicated offshore team in Singapore which manages the equity fund that forms part of the offshore exposure in the Foord Balanced fund. Current Portfolio Positioning The Foord Balanced Fund has been a consistent long-term performing fund delivering annualised returns in excess of 13% over both five and seven years. Its five-year rolling returns have made it a consistent 1st quartile performer, over the last 10 years, speaking to Foord s process that has been consistently applied across different market cycles. The fund has achieved these returns with slightly higher levels of volatility than some of its peers, but compensated investors sufficiently, when judged by its Sharpe ratio, which has also consistently been in the top quartile relative to its peers. While the fund does tend to have bigger average drawdowns, it has had a lower down-period percentage against peers. From a quantitative performance this fund has performed really well, but its performances should be considered over more meaningful periods, at least five years, as it does tend to underperform over shorter-term periods. This speaks to Foord s philosophy of getting broader directional trends right, and being buy and hold investors with a longer-term focus. The fund delivered -0.44% for the quarter, underperforming its peer group by 1.05% and achieving fourth quartile performance. Over the one-year period to September the fund returned 6.11% while the category average was 6.75%. Underperformance was driven by most asset classes, in particular JSE equities, JSE property and foreign assets. A big contributor to this broad level of underperformance was the stronger rand as Foord is short the local currency and local economy from a top-down macro perspective. When compared to its peers it had significantly higher cash balances, lower overall equities exposure, lower overall resources exposure and lower overall duration with regard to its fixed interest exposures. This suggests that the fund continues to be conservatively positioned. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Domestic Equity Domestic Property Domestic Corporate Debt Domestic Government Bonds Domestic Commodities Domestic Cash Foreign Equity Foreign Corporate Debt Foreign Listed Property Foreign Commodities Foreign Cash THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

32 INVESTEC OPPORTUNITY Fund manager Clyde Rossouw No of quarters 33 Benchmark CPI + 6% Risk Description Moderate Aggressive Role of Benchmark Agnostic Inception Date 02 May 1997 Focus Absolute Fund Size (Rm) R Philosophy Fundamental bottom-up, valuation driven approach with a key emphasis on quality companies Fee Description (retail class) Annual management fee with a performance fee Glacier Risk Rating 4.71 Total Investment Charge 2.47% The Quality team leverages off the capabilities of a strong specialist team. Clyde Rossouw is very experienced in managing multi-asset portfolios. The fund will generate good alpha when markets are falling but may struggle relative to peers when markets are buoyant and driven by high-beta stocks with little regard for quality (i.e. a momentumdriven market). The Quality team has become more focussed over the recent past and was formalised as a stand-alone capability almost three years ago. More is managed by them as opposed to outsourced. Also, they have their own analysts who now focus purely on the quality process and philosophy covering local and global opportunities. Clyde Rossouw is head of Quality at Investec Asset Management and focuses on multi-asset, absolute return, low volatility, real return equity investing. He has managed the Opportunity strategy since 2003, having joined the firm in initially as an asset allocation and sector allocation strategist. The fund has a primary focus on investing in good quality companies with a secondary focus on buying them when they are attractively priced. Rossouw is responsible for the fund s asset allocation, which is determined by following a bottom-up relative valuation approach. Asset classes are thus bought on merit while taking into account the relevant risk. Asset allocation starts with equities and the fund follows a very structured and systematic equity process. The equity holding will usually be very concentrated and not traded often. The majority of the team sits in the UK and they have added two new analysts to the Cape Town team, both of whom are relatively inexperienced. They will also leverage off the research conducted by Chris Freund s equity team. The Quality team makes the final decision on the fixed interest portion and, while not aligned with the Fixed Income team, they do draw on the expertise and experience of the analysts and portfolio managers of the Fixed Income team, both locally and internationally. Offshore exposure is obtained via investing in two non-retail offshore funds. Both funds are managed by the Quality team. They have bolstered their offshore capability with the addition of ex-threadneedle analysts and portfolio managers in Current Portfolio Positioning This fund can be used in a moderate or moderate aggressive risk, absolute return focussed portfolio with the aim of outperforming inflation by 4-5% over a five - ten year period. The absolute return focus, together with the fund s defensive positioning, benefits a portfolio by lowering volatility, particularly in adverse markets conditions. The Investec Opportunity fund has delivered returns in excess of 12% per annum over both five and seven years. It has delivered consistent 1 st and 2 nd quartile performances when looking at its rolling five-year returns figures over the last 10 years. It has delivered these type of returns at lower levels of volatility when compared to its peers. These lower levels of volatility has led to excellent risk-adjusted returns as measured by its Sharpe ratio and Calmar ratio. This fund performs particularly well during times of high market volatility and periods characterised by slightly higher drawdowns. The fund delivered a particularly disappointing return over the quarter, returning -2.22%, making it the worst performing fund amongst its Shopping List peers in the Multi-Asset High Equity Category. This is however over a very short period and the fund, due to its higher allocation to equities, should be judged over longer, more meaningful periods. Over 1-year, 3-year and 5-year periods the fund continues to be a top quartile performer. The major detractor to performance was rand strength as well as positions in Assore, British American Tobacco and Mediclinic International. The fund has a relatively high exposure to local bonds, which contributed positively to performance as investors continued their search for yield on the back of a Fed decision to postpone raising interest rates in the US, and central banks in Europe and Japan continue to pursue monetary policies characterised by low yields. No major changes were observed over the quarter. The fund continues to have a large exposure to offshore companies (27.9%); however, short currency futures have reduced the net offshore exposure to 24.2%. The fund continues to remain cautiously positioned, preferring to focus on equity opportunities that offer a high probability of generating sustainable and growing free cash flow, with global equities preferred above local equities. Bonds are seen as offering good value and a natural hedge against further currency weakness; however, interest rate sensitive banks and retailers are avoided as the managers are concerned about a possible sovereign credit rating downgrade. The fund continues to run a relatively large cash balance taking advantage of attractive floating-rate notes when they are issued. 94% 74% 54% 34% 14% -6% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Foreign Assets Bonds Foreign Assets Cash / Money Market (incl FX) Foreign Assets Commodities Foreign Assets Equities Foreign Assets Property (listed) Local Assets Bonds Local Assets Cash / Money Market (incl FX) Local Assets Commodities Local Assets Equities Local Assets Property (listed) THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

33 SIM BALANCED Fund manager Fred White & Patrice Rassou No of quarters 47 Benchmark ASISA SA Multi-Asset High Equity category mean Risk Description Moderate Aggressive Role of Benchmark Cognisant Inception Date 01 February 1995 Focus Relative Fund Size (Rm) R Philosophy Bottom-up and Top-down, pragmatic value approach Fee Description (retail class) Annual management fee with a performance fee Glacier Risk Rating 5.37 Total Investment Charge 1.58% This is a benchmark cognisant fund that will resemble SI s best view of all underlying asset classes and instruments. As of June 2016 Cruywagen has relinquished the management of the fund, with this responsibility now vesting with Fred White, who has been an integral part of the asset allocation committee. Patrice Rassou, head of equities, will now assume the role of secondary manager on the fund. Going forward, White will make use of SIM s house-view moderate SWIX portfolio, as opposed to managing equities against the institutionally focussed Alexander Forbes Large Manager Watch (LMW). From our interactions with White, it is very clear that he will increase the risky asset exposure in the fund and will now aim to compete directly with the traditional large retail high equity managers, as opposed to the balanced strategy s institutional peers. White has indicated that more focus will be placed on risk management through the use of derivatives which is a new innovation to the existing process. He has employed a new resource, Ralph Thomas, to assist him in this regard. Our initial view is that these changes are material and that the return signature will be different to Cruywagen s Balanced Fund going forward; however, it is also our view that most of the intended changes will be positive. White s main responsibility will be asset allocation and managing the exposure to different asset classes, either by means of derivatives or physical exposures. Underlying instrument selections such as equities, fixed income, property and offshore securities will be the responsibility of the various specialist teams with the broader SI group. The fund will therefore seek to leverage off the strengths of these various specialist teams, ultimately resembling a blend of the best views of these teams. From extensive engagements with White and senior management it is clear that the intention is to create a highly competitive fund in the retail CIS, SA multiasset high equity space. From a return perspective we can expect more competitive returns going forward, with risk actively managed through the use of derivatives. Superior risk-adjusted performances with lower correlations to its peers can therefore be expected. It is also comforting to know that the lead portfolio manager, White, will be substantially invested alongside clients. This fund can be used in a moderate aggressive risk, relative return focussed portfolio with the primary aim of delivering long-term capital growth for investors, while also adhering to Regulation 28 limitations. The fund is a peer agnostic fund that will add additional diversification benefits when combined with its peers in a portfolio. As of June 2016 Cruywagen no longer manages the fund and this responsibility now vests with Fred White, who has always been an integral part of the asset allocation committee. Patrice Rassou is the secondary manager and provides input on the equity selection. The Balanced Fund is the best reflection of SI s house view. There is a strong focus on following SI s strong pragmatic value philosophy and process. Valuations are based on a belief in the reversion to long run average returns on asset classes. There are three key committees or Model Portfolio Groups (MPG) that impact the Balanced Fund. White sits on all three of these MPGs (Asset Allocation, Equity and Fixed Interest) and decisions are reached through a majority vote. Previously, Cruywagen constructed his own equity building block, in line with the equity MPG views. Going forward, White will make use of the houseview moderate SWIX portfolio. Similarly, property, bonds and cash exposure are also managed leveraging off the asset class MPG s and allocations are made according to the mandate and portfolio construction process. The decisions have to be carried through by all managers although they are allowed a bit of flexibility - the direction must be similar, but magnitude of the over-/underweight can differ. The manager has a cautious style with a strong focus on getting stock allocation and selection correct. The fund is quite cognisant of peers in terms of both the allocation and stock selection. Due to the diversification benefits, the fund will always be close to, or at full offshore exposure. Offshore equity exposure is gained through unit trusts and ETFs. White has indicated that more focus will be placed on risk management through the use of protection and SI has successfully balloted for the inclusion of derivatives in the fund. Ralph Thomas has been appointed as the dedicated resource in this regard. Quantitative Highlights The SIM Balanced Fund is a peer cognisant fund and has delivered consistently high second quartile performances. It has delivered these returns with volatility levels higher than its peers. Amongst Shopping List peers the fund experienced the greatest drawdown during the financial crisis of (-24.0%, while the average balanced fund experienced -15.7%). It is important to note that this was prior to Cruywagen managing the fund. When looking at shorter-term figures it does seem that the overall volatility profile is steadily increasing. As the fund is cognisant of peers, it follows a similar volatility and drawdown profile as the category average. Given the fund s relative focus, we expect to see drawdowns similar to its Shopping List peers and for the quarter the fund s maximum drawdown was 1.32% while the category average was 2.35%. Current Portfolio Positioning The fund delivered a very respectable return of 2.01% over the third quarter while the category average was 0.61%. Over the one year period to end September 2016 the fund delivered 9.18%, which was materially ahead of the peer group average of 6.75%. The fund s performance YTD has primarily been driven by good performances realised from local equity generating good excess returns as well as cash and local fixed interest. Offshore assets, however, have been a major detractor from performance and considering the exposure to offshore assets, it underscores how well the fund s local investments have performed. More nuanced changes to the fund in future will include a greater reliance on the individual teams (equity, fixed interest, property and offshore) views and selections of underlying instruments. The fund will therefore exhibit a greater degree of Sanlam Investments house view, which we believe to be positive going forward. From an asset class perspective the management of the Sanlam Investments Balanced Fund continues to view equities as the preferred asset class, with offshore equities slightly better priced than local equities. Locally, fixed interest still presents good value, offering attractive real yields; however, the team is cognisant of political risks which have a material impact on local bonds markets. The fund has maintained its moderate allocation to locally listed property, albeit their belief that the current yield on offer of 6.2% is slightly expensive. Locally listed property offers good diversification due to the high percentage of income now being generated offshore, and on a relative basis still offers a good yield when compared to other asset classes. The fund s offshore property holdings currently offer a yield of 5.5% in foreign currency, which is attractive especially in light of the team s view that the rand is one standard deviation cheap on a purchasing power parity basis. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Cash and Money Market Assets Inflation Linked Bonds Interest Bearing Investments Property Equities International Assets Preference Shares THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

34 SA - MULTI ASSET - FLEXIBLE Category Analyst: Francis Marais These portfolios invest in a flexible combination of investments in the equity, bond, money and property markets. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolio s mandate and stated investment objective and strategy. These portfolios may be aggressively managed with assets being shifted between the various markets and asset classes to reflect changing economic and market conditions and the manager is accorded a significant degree of discretion over asset allocation to maximise total returns over the long term. Shopping List selection: Bateleur Flexible Prescient Fund, Laurium Flexible Prescient Fund, PSG Flexible Fund, Truffle Flexible Fund Quartile Ranking As of Date: 30/09/2016 Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile YTD 1 year 3 years 5 years 7 years 10 Years PSG Flexible Truffle MET Flexible A Bateleur Flexible Prescient A1 Laurium Flexible Prescient A1 Maximum Drawdown: Monthly (ASISA) South African MA Flexible PSG Flexible Truffle MET Flexible A Bateleur Flexible Prescient A1 Laurium Flexible Prescient A1 (ASISA) South African MA Flexible Risk-Reward: 5 Years Annualised Time Period: 01/10/2013 to 30/09/ Std Dev PSG Flexible Truffle MET Flexible A Bateleur Flexible Prescient A1 Laurium Flexible Prescient A1 s As of Date: 30/09/2016 PSG Flexible Truffle MET Flexible A Bateleur Flexible Prescient A1 Laurium Flexible Prescient A1 (ASISA) South African MA Flexible Source Data: Total YTD 1 year 3 years 5 years 7 years 10 Years (ASISA) South African MA Flexible Risk Statistics Time Period: 01/10/2013 to 30/09/2016 Std Dev Max Drawdown (monthly) Up Period Percent Down Period Percent Sharpe Ratio PSG Flexible Truffle MET Flexible A Bateleur Flexible Prescient A1 Laurium Flexible Prescient A1 (ASISA) South African MA Flexible Rolling 3 Year s Rolling Window: 3 Years 1 Month shift PSG Flexible Truffle MET Flexible A Bateleur Flexible Prescient A1 Laurium Flexible Prescient A1 (ASISA) South African MA Flexible SA CPI + 5% THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

35 BATELEUR FLEXIBLE PRESCIENT Fund manager Kevin Williams No of quarters 3 Benchmark CPI + 4% Risk Description Medium to High Role of Benchmark Agnostic Inception Date 1 July 2010 Focus Absolute Fund Size (Rm) R Philosophy Bottom-up stock picking, with a top-down macro overlay Fee Description (retail class) Performance fee Glacier Risk Rating 4.70 Total Investment Charge 3.02% One of the key strengths of the Bateleur Flexible Fund has to be the fund s very consistent returns, with very low levels of risk and drawdowns, consequently leading to excellent risk-adjusted returns. The two main portfolio managers, Kevin Williams and Charl Gouws have good experience, however the team is still relatively small. It is comforting to see that Bateleur is investing in their process and has been expanding their team. Galen Hossack has been with Bateleur since 2012 and has also recently been made portfolio manager of the Bateleur Equity Fund. This will contribute to further experience and a reduction in key-man risk. They have also added three additional analysts since Bateleur s interest in Ranmore Fund Managers will contribute to its offshore expertise and can be considered an additional strength. Bateleur will however, take direct positions in offshore instruments should they have identified a high conviction opportunity and a substantial holding is justified as opposed to a weighted exposure through Ranmore. Bateleur is an equity biased house, preferring to run the flexible fund as an equity (including property) cash fund. Cash exposure is gained by investing in the Prescient Money Market fund. Bateleur combines a macro, top-down approach with its bottom-up fundamental research. They spend a fairly significant part (±30%) of their research process discussing the macro environment and this is a key differentiator to more bottom-up focused flexible funds such as the PSG Flexible Fund and the Truffle MET Flexible Fund. Bateleur is an owner-managed, boutique investment house with a hedge fund background. Their focus on risk management and not losing clients money has led them to deliver excellent risk-adjusted returns. They have a clearly defined investment philosophy with a robust investment process. Their size allows them to be nimble and to discuss and evaluate opportunities quickly as they present themselves. Bateleur has expanded its team with a new team member who joined in 2014 and two new members who joined at the beginning of They have an interest in the offshore fund management company, Ranmore Fund Managers, through which they gain their offshore exposure. The Bateleur Flexible Prescient Fund will work well in an absolute return focussed multi-asset portfolio, which seeks a real return of between 4%-5%. It is an equity biased fund, typically moving between equity and cash depending on the availability of real-return opportunities. This fund will work well in combination with other multi-asset flexible funds such as the PSG Flexible and Truffle Flexible Fund. This fund is ideal for people seeking a slightly more aggressive type of real return but who are sensitive to capital losses, and who prefer a benchmark agnostic approach. While the fund does tend to have a higher exposure to equity than either the PSG or Truffle funds, it achieves these exposures at lower levels of systemic risk (as measured by beta and R2), delivering an overall lower risk profile. Consequently, this fund works well in a wide variety of portfolios, ranging from slightly conservative to more aggressive type portfolios as it materially lowers overall portfolio risk. The Bateleur Flexible Fund has delivered excellent returns since its inception with very little risk used to achieve these returns. This was particularly evident during 2015, a very volatile year in terms of investment performances. During this period the JSE All-Share TR index returned 5.13%, with the Bateleur Flexible returning 21% for the 12 months ending 31 December Over the last five years, the Bateleur Flexible Prescient Fund has managed to share on average 78% of the upside, and on average not share in any of the downside. This type of asymmetrical return profile is exactly what a Flexible Fund should exhibit, with Bateleur having one of the most consistent and prevalent asymmetrical return profiles when compared to some of its peers. The fund has one of the lowest volatility profiles as reflected by its three-year rolling returns, as well as one of the lowest drawdowns when compared to some of its top performing peers over the same period. Current Portfolio Positioning The fund delivered a respectable 2.14% over the quarter, compared to the JSE All Share and JSE Swixx that delivered 0.48% and 0.31% over the same period respectively. The fund s year to date performance, however, continues to be somewhat underwhelming at 0.97%. Underperformance is mainly as a result of more macro-oriented calls such as rand strengthening and the avoidance of resource counters. Stock specific calls, however, continue to be a major driver of longer, more meaningful returns. Currently, Bateleur is doing extensive work on selected resource counters as commodity prices seem to have stabilised somewhat and cost curves have come down significantly. Despite this, they are wary of global macro risks, especially with regards to the sustainability of the recovery in commodity prices. During the quarter the fund reduced exposure to financials and property, while adding to some selected industrial counters. Some notable stock specific moves include increased exposures to EOH, KAP, Oceana, Omnia, Spar and Supergroup, while exposures to AVI, Bidcorp, Famous Brands, Reinet, Standard Bank and Tsogo Sun were reduced. Offshore exposure decreased over the quarter, while cash is slightly up. Possible threats to the fund s current positioning include higher interest rates, both locally and globally, rendering the fund s bond proxy holdings less competitive as well as growth in underlying earnings not materialising. Continued rand strength will weigh on the fund s offshore exposure, however this is currently sitting significantly below the maximum allowable exposure of 25%, somewhat lessening the potential impact of adverse currency movements. Bateleur continues to anticipate a challenging investment environment. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Domestic Equity Offshore Equity Cash THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

36 LAURIUM FLEXIBLE PRESCIENT Fund manager Gavin Vorwerg, Murray Winckler No of quarters 3 Benchmark CPI + 5% Risk Description Medium to High Role of Benchmark Some benchmark cognisance Inception Date 1 February 2013 Focus Absolute, with a relative bias Fund Size (Rm) R Philosophy Bottom-up stock picking, with a top-down macro overlay Fee Description (retail class) Annual management fee with a performance fee Glacier Risk Rating 5.02 Total Investment Charge 3.15% The fund has an absolute return mandate, but the managers are cognisant of the broader JSE All Share Index as well as their peers. The fund is therefore slightly more relatively managed than its peers with a similar mandate. Laurium has a definite bias towards equity with exposure to other asset classes being an opportunistic play, or as a result of not finding sufficient opportunities in locally listed shares. Offshore exposure will be gained primarily through ETFs. Fundamental research in offshore stocks is limited to competitors of local counters and could be included in the portfolio should they offer compelling value. The inclusion of direct offshore holdings therefore is more as a result of local fundamental research as opposed to actively looking for offshore opportunities. Laurium also has some excellent African investment capabilities and should opportunities avail themselves they will be included in their local SA portfolios. These opportunities will be fundamentally researched. The investment team at Laurium has a strong accounting background and places a lot of emphasis on financial analysis of companies when conducting fundamental research. Furthermore the team at Laurium places a lot of emphasis on interactions with leaders in the SA business environment for idea generation and as part of their fundamental research. These interactions may be formal and informal in nature. Laurium has been managing hedge and long-only funds investing across Africa since 2008, when it was founded by Murray Winckler and Gavin Vorwerg. They have certainly had the benefit of an extended bull run, but the senior members of the investment team bring with them years of experience. The investment team has won numerous hedge fund awards, while the long-only flexible fund has delivered some impressive returns since its inception when compared to the broader JSE (22.5 p.a. vs 12.21% p.a.). Murray Winckler and Gavin Vorwerg have over 26 years and 17 years investment experience respectively, while Craig Sorour and Paul Robinson as the two heads of research (local vs Africa) have over 16 years and 11 years respective experience. The team has also been relatively stable with only one analyst leaving since the firm s inception, and subsequently being replaced. The team is able to clearly articulate their philosophy and process and based on their extensive experience, we believe this team to be of a very high quality. Laurium is also well positioned to take advantage of African opportunities should it be suitable for their SA portfolios through their numerous African investments and experience. This is an SA Multi-Asset Flexible Fund, with a bias towards equity. Other asset classes such as money market instruments, bonds and property will be opportunistically added. The fund aims to deliver a real return of 5%, however the fund is more relatively focussed than a pure absolute type fund, with the managers also trying to outperform the broader SA equity market as well as their peers. This is an ideal fund for investors that seek long-term real growth. The fund will work well in a slightly more aggressive multi-asset portfolio, especially with funds such as the Truffle Flexible Fund, which is a strictly absolute, bottom-up focussed fund and will more readily invest in other asset classes. The fund s performance over the three years ending 30 September 2016 has seen it registering a maximum drawdown of only 4.99%. Over this same period, the JSE registered a maximum drawdown of 8.33%. The fund delivered consistent first quartile returns over a rolling 3-year period. This fund has exhibited excellent, positive asymmetric returns as measured by the fund s up and down capture ratios versus the J203T over rolling one-year periods since inception. It is a strong generator of excess returns. Despite the fact that the fund has an absolute return benchmark, it is managed on a slightly more relative basis, with the team very cognisant of outperforming the JSE but also its peers. On a relative basis the fund s volatility tends to be slightly higher than its peers, albeit significantly less than the overall market. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Current Portfolio Positioning The fund has underperformed the broader JSE (J203T) over the nine months ending 30 September 2016, as well as its Shopping List peers. Short-term underperformance can be expected from this fund from time to time, however, and as always it is important to judge the fund over longer, more meaningful periods. Over rolling 3 year periods the fund continues to exhibit top quartile performances. Absolute underperformance was mainly driven by rand appreciation against the USD and the British Pound on the back of Brexit. The fund s smaller capitalisation stocks detracted from relative performance, indicative of stock-picking that detracted from performance as the Mid Cap index returned 3.79% for the quarter, while Small Caps delivered 5.52% over the same period. Large Caps and Cash contributed to both absolute and relative performance. Selective changes to the fund were made during the quarter, however in the main the majority of positions remained the same. International property exposure was trimmed, while the fund added to its bond exposure. In total the fund s equity holdings were reduced, with local equity exposure trimmed by 6.3% to 50.5%, while offshore equity exposure increased by 2.9% to 15.2%. As at quarter-end the fund s currency exposure was 47% to South Africa, 34% to developed markets, 8% to emerging markets, 7% to GBP and 5% to Africa. Laurium continues to view local SA-focussed companies as having stretched valuations and hence was slightly more conservatively positioned towards local equity as at quarter end. Africa Equity Bond Cash Equity Foreign Equity Property THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

37 PSG FLEXIBLE Fund manager Paul Bosman & Shaun le Roux No of quarters 29 Benchmark CPI + 6% Risk Description Medium to High Role of Benchmark Agnostic Inception Date 02 November 1998 Focus Absolute Fund Size (Rm) R Philosophy Fundamental, bottom-up, value approach with a key focus on moat, management and margin of safety Fee Description (retail class) Annual management fee with a performance fee Glacier Risk Rating 5.25 Total Investment Charge 2.36% The fund will typically only be invested in either cash or equity and will not include other asset classes such as fixed income securities (longer duration bonds) or property. This is a fully flexible fund and the manager is prepared to invest a large amount of the fund in cash should he feel that equities offer little value. Conversely, the fund may also invest up to as much as 100% in equities as far as practically possible from a liquidity perspective and margin of safety. This is currently the largest fund in the multi-asset flexible category. The fund is very benchmark and peer agnostic, generating returns from specific shares that are very different to its peers. As an example, this fund s performance will typically be driven by counters very unique and different to some of its more well-known peers. The cash used in this fund will be slightly enhanced with a weighted average duration of around 215 days, mainly being NCD instruments. As the name suggests, the fund offers quite a lot of flexibility to the manager. The manager can hold cash should he feel equities are expensive. Holding more cash should result in less risk, but this will also lead to lower returns. This is a good option for investors who would like to take advantage of the manager s ability to make a decision as to whether equities seem expensive or not. It can also bring a sense of dynamism to a static portfolio split between equity and fixed income, overweighting equity in times when it is deemed to be inexpensive, or overweighting fixed income instruments or cash in high risk environments. It is furthermore ideal to use in an absolute focussed, moderate to aggressive portfolio. The investment team - both equity and fixed income - consists of 17 members. The fund was managed until 29 February 2016 by Jan Mouton. Since 1 March 2016 the management of the fund was taken over by Paul Bosman and Shaun le Roux. Paul Bosman has 11 years of investment experience, is the manager of both the PSG Stable Fund and the PSG Balanced Fund and has assisted Mouton for the last 11 years in managing the PSG Flexible Fund. Shaun is the portfolio manager of the PSG Equity Fund and has 19 years of investment experience, 16 of which has been spent with PSG. Paul brings with him multi-asset management as well as asset allocation experience, while Shaun brings with him a wealth of equity management experience, particularly when it comes to idea generation. Jan Mouton continued to function as chairman of the equity investment committee until June He has subsequently decided to focus on his personal endeavours and will no longer be chairman of the equity committee. Greg Hopkins, CIO, will take over as head of the equity committee. These changes are effective middle July PSG s investment process is strongly process driven, rather than relying on a specific star manager. We believe this transition was transparent and very well managed and hence have maintained our favourable stance on this fund. The portfolio managers and team are co-investors in this fund and therefore clients and the managers interests are aligned. The investment process is well articulated and structured to ensure that idea generation takes place effectively and that these ideas are vetted and brought to fruition in a timeous manner. The asset management arm of PSG is part of the wider PSG group and can leverage off the group s extensive resources and experience should they need to. As a result, a culture of strong corporate governance is evident in how investment committees are structured and undertaken. The fund has a 15 year performance track record, one of the very few funds in the multi-asset flexible category that offer such a long track record. The fund has a low correlation with its peers and the category as a whole. The fund s excess returns are generated mainly through its ability to generate alpha as opposed to the interaction between the fund and the general market, i.e. beta. The fund s risk profile as measured by standard deviation and drawdowns improved markedly since 2008, and is one of the less risky funds in the flexible space today. The fund has delivered consistent 1st and 2nd quartile risk-adjusted returns, as measured by its Sharpe, Sortino and Calmar ratios; in particular delivering strong returns when compared to its drawdowns, over longer more meaningful terms. PSG s investment process lends itself to stock selections that are slightly more contrarian in nature than some of its peers. This, together with their tendency to move early into certain mean-reverting stocks, may lead to periods of underperformance. Current Portfolio Positioning The PSG Flexible Fund delivered strong results over the quarter, returning 4.66%, compared to its category average of 0.94% and the broader JSE All Share index which delivered 0.48% over the same period. No major changes to the fund occurred during the quarter. The fund s offshore exposure continues to be below the maximum allowed limit of 25%, while cash exposure is currently sitting at 25.74%, down from the previous quarter, as the fund did some very selective stock-picking. The majority of the fund s underlying holdings continue to be held at very benign weights, indicating a more cautious approach with regard to the majority of their holdings. The fund s higher conviction holdings continue to be shares like Berkshire Hathaway, Firstrand Limited, Glencore Plc, Sainsbury J Plc, Old Mutual Plc, Discovery Holdings Ltd and Imperial Holdings. These holdings are materially different to most of their peers. The PSG Flexible Fund, despite delivering 15.03% over the previous 12 months continues to hold securities with low underlying valuations. This is confirmed by the fund s Price to Earnings Ratio of and Price to Book Ratio of % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Domestic Resources Domestic Financials Domestic Industrials Domestic Real Estate Cash, Derivative & Money Market Foreign Equities Foreign Cash, Derivative, Money Market THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

38 TRUFFLE FLEXIBLE Fund manager Charles Booth, Ian Power, Jonathan Du Toit No of quarters 5 Benchmark CPI + 5% Risk Description Medium to High Role of Benchmark Agnostic Inception Date 1 January 2011 Focus Absolute Fund Size (Rm) R Philosophy Bottom-up stock picking, relative valuation process Fee Description (retail class) Annual management fee Glacier Risk Rating 4.76 Total Investment Charge 1.89% The fund is benchmarked against the mean of the SA multi-asset flexible category, but its primary objective is to deliver absolute returns of CPI+5% over rolling three year periods. The way Truffle views risk is unique, as they place a great deal of emphasis on quantifying the possible downside of any potential investment. Should the possible downside be acceptable and the investment s expected return is greater than CPI+5% it will be considered as a possible candidate for inclusion in the portfolio. Asset allocation is primarily a result of the bottom-up valuation process. The fund will also invest in bonds and property, with the latter, however, needing to compete with equities to justify its inclusion in the portfolio. The fund will make use of options strategies to hedge positions in the portfolio should the costs justify it. All investment team members invest alongside their clients in the most expensive fee classes and no personal trading accounts are allowed. The fund is ideal for investors that target an absolute return of at least CPI+5%. These investors are typically able to take on more risk, either to save for retirement or as part of a diversified retirement portfolio to provide longer term capital growth. The portfolio is not Regulation 28 compliant. Flexible funds are unique in that they offer an investor the opportunity to participate in a rising market, but also the opportunity to revert to more conservative asset classes should they feel valuations are stretched. Consequently the investor does not need to share in the downside. Equity funds are constrained in this aspect as they are forced to have a minimum of 80% invested at all times in risky equities. The Truffle Flexible Fund is certainly focussed on delivering such an asymmetrical return profile, with a lot of time being spent trying to quantify the possible downside to any investment included in the portfolio. This is also a good fund to use in combination with the PSG Flexible Fund, or the Bateleur Flexible Fund which has traditionally been managed on a cash/ equity basis, as the Truffle Flexible Fund will more readily include other asset classes such as property and bonds. It will also work well with a fund such as the Laurium Flexible Fund that is managed on a slightly more relative basis and has historically included a bigger exposure to risky assets. The long-only investment team is led by a highly experienced team, consisting of three portfolio managers, one fixed income specialist and five additional analysts. The named portfolio managers are Charles Booth, Ian Power and Jonathan du Toit. Charles has over 35 years experience and began his career at Allan Gray Investment Council in He then entered stock broking and spent the next twelve years as Head of Research and Director at Simpson McKie Inc. (Now HSBC) and JD Anderson (now UBS). Charles joined RMB Asset Management in 1993 and left in 2008 as their CIO. He joined Truffle in 2009 to develop their traditional asset management capability. Ian Power has over 22 years investment experience, and began his career at RMB Asset Management in During this time Ian managed various mandates including balanced mandates and segregated aggressive equity funds, and started the RMB Mid & Small Cap Fund which he ran for three years. He was part of the asset allocation committee, head of industrials and finally head of equities. Jonathan is a qualified CA (SA) and CFA charterholder. He completed his articles at Deloitte and Touche from 2003 to 2006 and joined Allan Gray/Orbis at the end of 2006, where he was primarily responsible for global financial stocks. Jonathan joined Truffle in August Nicole Agar, a senior investment professional with 19 years of experience joined in 2015, while 2 additional members, Saul Miller (19 years experience) and SM van Garderen (25 years experience) also joined during the second quarter of 2016, from Argon Asset Management. The team now boasts considerable skill and expertise with a good mix between senior and junior team members. Truffle has a clearly defined fundamental, bottom-up value philosophy and a well-defined, unique investment process that places a lot of emphasis on trying to quantify the downside of a potential investment. Current Portfolio Positioning The Truffle Flexible Fund is currently one of the top 10 best performing flexible funds over three and five year periods. Since inception it has delivered consistent first and second quartile performances. On average the fund has captured 85% of the upside on the FTSE/JSE All Share, but only 21% of the downside. This confirms the team s unique approach to risk management and quantifying the potential downside of an individual investment. The fund s volatility is relatively low when compared to its peers, while it has protected capital well since its inception, as measured by its drawdowns. Over a rolling one-year period the fund has outperformed CPI+5% 88% of the time since inception, while over rolling three-year periods the fund has outperformed its CPI+5%, 100% of the time since inception. Over this same time period the fund has outperformed the JSE All Share Index, 96% of the time, since 1 July Finally the fund has displayed excellent risk-adjusted returns as measured by its Calmar, Sharpe and Sortino Ratios. For the three months ending 30 September 2016, the fund s performance was flat, delivering 8% compared to its benchmark of 2.5%, the broader JSE All Share Index that delivered 0.48% and the average peer that delivered 0.94%. The fund s short term performance figures continue to disappoint. Underperformance can mainly be attributed to a stronger local currency and the underweight exposure of the fund to basic resources that had a particularly good run so far this year. Additionally the fund was not positioned for Brexit and individual shares such as Old Mutual (their single biggest holding) that was subsequently negatively impacted. During the quarter the fund s exposure to risky assets (equity & property) remained roughly the same at 75%. Notable changes in asset allocation include a decrease of 3.03% in domestic listed property investments, a decrease in domestic fixed income investments of 1.53% and a decrease of 2.45% in foreign fixed income investments. Exposure to domestic cash increased by 3.78% while exposure to foreign equities was also increased by 2.85%. Truffle has positioned their funds for a possible negative political outcome locally, positioning the fund in such a manner that if Minister Gordhan is removed, the fund s local rand-hedge counters and the fund s foreign holdings would benefit. If Zuma, however, were to resign or be removed, the opposite would be true. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Domestic Equity Domestic Property Domestic Fixed Income Holdings Domestic Cash Foreign Equity Foreign Fixed Income Holdings & Money Market THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

39 GLOBAL - MULTI ASSET - HIGH EQUITY Category Analyst: Thobela Mfeti These portfolios invest in a spectrum of investments in the international equity, bond, money, or property markets. These portfolios tend to have an increased probability of short-term volatility, aim to maximise long-term capital growth and can have a maximum effective equity exposure of up to 75% and a maximum effective property exposure of up to 25% of the market value of the portfolio. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolio s mandate and stated investment objective and strategy. Most of the funds in this newly created category were previously in the Foreign Asset Allocation Flexible category. Shopping List selection: Coronation Global Managed FF and Investec Global Strategic Managed FF Quartile Ranking As of Date: 30/09/2016 Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile YTD 1 year 3 years 5 years 7 years 10 years Investec Global Strategic Managed FF B Maximum Drawdown: Monthly Coronation Global Managed [ZAR] FF B Risk-Reward: 5 Years Annualised Std Dev Investec Global Strategic Managed FF B Coronation Global Managed [ZAR] FF B (ASISA) Global MA High Equity s As of Date: 30/09/2016 Source Data: Total YTD 1 year 3 years 5 years 7 years 10 years -2.0 Investec Global Strategic Managed FF B Coronation Global Managed [ZAR] FF B (ASISA) Global MA High Equity Risk Statistics Std Dev Max Drawdown (monthly) Up Period Percent Down Period Percent Sharpe Ratio FF B Global Managed FF B Global MA High Investec Global Strategic Managed Coronation [ZAR] (ASISA) Equity Rolling 1 Year s Rolling Window: 1 Year 1 Month shift 6 Investec Global Strategic Managed FF B Coronation Global Managed [ZAR] FF B (ASISA) Global MA High Equity Investec Global Strategic Managed FF B Coronation Global Managed [ZAR] FF B (ASISA) Global MA High Equity THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

40 CORONATION GLOBAL MANAGED Fund manager Louis Stassen and Neil Padoa No of quarters 5 Benchmark 60% MSCI All Country World Index and 40% Barclays Global Bond Aggregate Risk Description Aggressive Role of Benchmark Agnostic Inception Date 29 October 2009 Focus Absolute Fund Size (Rm) R Philosophy Bottom-up, valuation-driven Fee Description (retail class) Annual management fee Glacier Risk Rating 8.70 Total Investment Charge 2.25% The fund is managed according to the Coronation DNA of employing a common sense, valuation-driven process of identifying mispriced assets that are trading at a discount to their long-term value. The fund is biased towards equities and primarily invests in developed economies (including the US, Europe and Japan) although the fund is also mandated to invest in emerging markets. The equity component of the Coronation Global Managed Fund also reflects Louis Stassen s best view in the Coronation Global Select Equity Fund. In addition to this, Stassen s team of seven members would express their high convictions by making use of derivatives and ETFs in the Coronation Global Managed Fund. Stassen s team would also leverage off research conducted by Gavin Joubert s GEM (Global Emerging Markets) team should they want to increase their exposure to emerging markets. The fixed interest research is conducted by Nishaan Maharaj s (Head of Fixed Interest and Property) team. Stassen s team would then leverage off this research to implement their view in the fixed interest component of the CGM. The fund provides exposure to managed growth-oriented offshore multiassets. Unlike the Investec Global Strategic Managed Fund (its Shopping List peer), this fund is a more traditional global balanced fund and is biased towards equity counters, with the remainder in cash. Meanwhile the fund is mandated to invest in bonds, cash, equity, property and commodities. The intent is to keep the parent fund fully invested offshore at all times. The fund s exposure will be in a variety of currencies, primarily the US dollar, British pound, euro and yen. This fund is suitable for portfolios looking to add developed markets and emerging markets exposure with relatively low volatility. Risk is defined as permanent loss of capital and this speaks to the absolute-return focus of the fund. Coronation s propriatery research is centralised, and the management of this fund leverages off a houseview and valuation-driven research process of picking stocks from a bottom-up approach. The asset allocation is determined by Coronation s long-term risk-adjusted returns proprietary model based on underlying fundamentals. Coronation s senior management would deliberate the asset allocation. Stassen would then implement active asset allocation to express his high convictions in the multi-asset portfolio. Regional allocation is merely a result of Coronation s fair value rankings. Qualitative research follows after the quantitative research, where some of the potential securities are flagged by the proprietary ranking table. The portfolio leverages off Gavin Joubert s GEM (Global Emerging Markets) team and Mark Le Roux s (Head of Fixed Interest and Property) team. Since the team is based in South Africa, they would lean towards industries with which they are comfortable. This fund is a more traditional multi-asset fund with an inclination towards equities. However, it is worth mentioning that this fund has expanded its asset allocation offering to include gold as a hedge against global uncertainty and merger arbitrage (companies involved in corporate transactions where the deal may favour patient investors). They have also increased their exposure to alternative asset managers. The fund has a history that commenced post 2008 s global recession. Since inception, the CGM Fund has consistently risen by more than the benchmark in periods where the benchmark rose (high up-capture ratio), but also fell by more than the benchmark in periods where the benchmark fell (high down-capture ratio). Until recently, the fund has consistently outperformed peers and the benchmark over rolling three-year periods based on net returns and the Sharpe ratio since inception. A similar trend was observed where the fund displayed relatively larger downside deviations over rolling three-year periods. This also speaks to the equity-biased nature of the fund relative to the Shopping List peer. The fund s drawdowns were much more pronounced between , 2015 and now, year-to-date Current Portfolio Positioning The fund (0.65%) outperformed its benchmark (-3.43%) in rand terms in quarter three. This was attributed to equity positions that well outperformed MSCI ACWI, the equity index benchmark portion of the fund, over the last quarter and one year. With an exception of the last two quarters, property continued to be a positive contributor. Credit also contributed positively. Interest rate risk is hedged on credit positions on the back of a negative view on government bonds in a normalised interest rate environment. The fund continues not to hold any government bonds. The fund had a strong quarter performance, which translated in a good one-year (14.60%), three-year (13.21%) and five year (20.84%) figures. Equity exposure was reduced from 61.8% to 60%, to be in line with the benchmark and way below the 67% high watermark point. Exposure to credit has been reduced from 10.8 to 5.3% and gold exposure has been increased from 0.8% to 1.5%. Gold will continue to be use as a risk diversification tool. Merger arbitrage allocation fell from 4.5% to 3.7%. Managers had previously used weakness in the UK property in light of the Brexit vote to add to property. Overweight in UK property has been maintained despite the reduction in property. The fund s exposure to alternative asset managers and other holdings, which have been a detractor to performance, have finally contributed positively to performance. Long-term positions such as JD.com and Qualcomm had a positive impact. The stock positions that continued to contribute the most to performance were Kroton and Estacio, the number 1 and number 2 players in the private education market in Brazil. Kroton announced a takeover proposal for Estacio and the board of Estacio has provisionally accepted. Kroton continues to be Coronation s biggest conviction in Brazil. Other winners included Amazon, Alphabet, Priceline, Apollo Global Management, Tata Motors, NetEase, Amazon and Urban Outfitters. A new stock in the portfolio, Tempur Sealy, is one of the leading mattress manufacturers in the US. Coronation was drawn to this stock after an activist investor took control of the Board through a hostile proxy vote, and immediately replaced top management. The new CEO, Scott Thompson, has an impressive track record. After his appointment in June 2016, the stock went up more than 20% and the position in the fund was sized down, taking some profits. Before quarter-end, the company issued negative growth guidance which saw the fund tumble 25% in two days thus presenting further buying opportunity. This stock makes up 2% of the fund. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Bonds Cash Commodities Property Equities Merger Arbitrage Other THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

41 INVESTEC GLOBAL STRATEGIC MANAGED FEEDER Fund manager Phillip Saunders and Max King No of quarters 5 Benchmark 60% MSCI AC World NR, 40% Citigroup World Government Bond Index Risk Description Aggressive Role of Benchmark Agnostic Inception Date 01 September 2003 Focus Relative to AC MSCI World Fund Size (Rm) R Philosophy Fundamentals, valuation and market behaviour Fee Description (retail class) Annual management fee Glacier Risk Rating 8.52 Total Investment Charge 2.44% The investment approach, whereby investment ideas are generated across a wide range of traditional and non-traditional assets and strategies, is one of the key differentiators. All opportunities are assessed on the team s three Compelling Forces, namely fundamentals, valuation and market price behaviour. Appropriate levels of diversification are attained by categorising assets and strategies into growth, defensive or uncorrelated categories based on their expected behaviour in order to ensure more robust portfolio construction. The sources of alpha are equity selection, bond selection, asset allocation, thematic positions and currency overlays. Philip Saunders, one of the co-managers, is also the head of Investec Asset Management s global asset allocation committee. The asset allocation is based on absolute value and relative value. The benchmark is not considered for asset allocation but it is utilised to define the risk budget. Saunders and King have managed multi-asset mandates since 1991 and have also run total return and inflation-relative portfolios since This fund has survived both bull and bear markets. The Investec Global Strategic Managed Feeder Fund is not a typical global balanced fund and provides investors with access to broadly diversified global multi-assets which include both traditional and nontraditional (alternative) investments private, unlisted equity, closedended funds and infrastructure. Both the asset allocation and currency decisions allow the Global Multi Asset team to express evolving strategic views, exploit tactical opportunities and to protect against market events. This fund also aims to provide equity-like returns with relatively lower volatility. The long-term strategic asset allocations are as follows: 30-75% in equity, 0-25% in cash and 15-70% in bonds. The tracking error to the reference benchmark is expected to range between 3% and 8%. Meanwhile, the fund has an outperformance target of 2% over a rolling three-year period relative to its benchmark (gross of fees). Despite the three-year outperformance target the portfolio managers encourage an even longer investment horizon of more than five years. This portfolio reduces the volatility when blended with a more equity-biased global balanced portfolio. The core global equity selection component is managed through Investec s 4Factor Global Core Equity Strategy comprising strategy, value, earnings and technical. The 4Factor Global Core Equity Strategy team looks for high quality stocks with attractive valuation, displaying improving operating performance and increasing investor attention. The Global Multi-Asset s thematic selection is an expansion of the investment opportunity set. Positions can include bonds, equities and alternative asset classes, which are held on a multi-year basis. The Global Multi- Asset team has an average of 24 investment professionals based in London and three based in Cape Town. The specialist teams can broadly be classified as equities, fixed income and alternative investments. The team is further divided into seven specialist research groups: Macro, Equities, Forex and Rates, Credit, Commodities, Property, Infrastructure and Private Equity and lastly, Alternative Risk Premia. Members of the respective specialist research groups are encouraged to attend other specialist group meetings. The Global Multi-Asset team is integrated while the open-plan setting ensures that individuals can leverage off each other while being able to conduct research in a specialist and focussed manner. The nine specialist portfolio managers have extensive and relevant industry experience, with 11 years as the minimum years of relevant experience (two portfolio managers) and 33 years as the maximum. This group has been quite stable while the entire team comprises high calibre individuals. Saunders and King have more than 34 and 25 years of relevant industry experience respectively and both have been with Investec for more than 30 years. Over the long term and various shorter-term periods, the fund achieved the 2% outperformance target over rolling 3 years on a gross return basis. However, the fund also experienced major drawdowns in the second half of 2008 and between 2011 and In 2008, the fund was negatively impacted by the global financial crisis when interasset correlations increased significantly. Meanwhile, the alternative closed-ended funds were also weighed negatively by the widening gap between their trading prices and net asset values (NAVs). At the beginning of 2011, Saunders and Max believed that the global economy was in the early stages of an up-cycle and kept a significant portion in cash rather than bonds. The fund missed an opportunity as 10- year bond yields in the UK and the US subsequently fell from 3.2% to 2%. The fund suffered from the sell-off in equities. These drawdowns had a negative impact on their subsequent rolling 3-year annualised returns and on their ability to outperform the reference benchmark in that period. There were also periods of good performance post the crisis, especially in 2009, 2013 and 2015 where the equity, bond and thematic selection, as well as the asset allocation added to significant outperformance on a net return basis. The downside deviation has consistently been below that of peers. On a rolling three-year basis, the fund has recently lagged the benchmark. This fund targets 2% outperformance over a three-year period. In the last quarter, the fund underperformed its benchmark. Current Portfolio Positioning Over the quarter, the fund (-0.58%) outperformed the benchmark (-3.01%) on a net return basis (gross income reinvested) in rand terms. In US dollar terms, asset allocation added to performance (0.5%) and equities contributed 1.7%. Overall bonds also performed well, adding 0.8%. The core bond returned 1.6%, beating its long-dated benchmark index and adding 0.3% to relative return. Allocation to alternative assets and currency also contributed to performance. The core global equity portfolio outperformed marginally by 0.3% and thematic equity delivered 4.7% outperformance, contributing 1.4% to relative returns. Technology, private equity and healthcare were the best performing themes. North America and property were the worst performers. Going forward, managers of this fund believe that markets are favourable for growth oriented assets such as equities. Growth assets have been further bolstered by stability in commodity prices and positive news from China. This is expected to help earnings recovery. However, a cautiously optimistic outlook for growth assets is maintained as most investors remained defensively positioned. The fund is positioned to take advantage of opportunitites in emerging market equities and currencies and in resources. The fund has closed it underweight position in the british pound following its free fall and increased exposure to the US in anticipation of an improvement in US growth momentum. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Equity Bonds Alternatives Cash Property Forex Multi-Asset Commodities Local Equity Local cash Local Bonds THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

42 WORLDWIDE - MULTI ASSET - FLEXIBLE Category Analyst: Thobela Mfeti These portfolios invest in a flexible combination of investments in the equity, bond, money, or property markets. The portfolios have complete or stipulated limited flexibility in their asset allocation both between and within asset classes, countries and regions. No minimum or maximum holding applies to South African or offshore investment. These portfolios are often aggressively managed with assets being shifted between the various markets and asset classes to reflect changing economic and market conditions to maximise total returns over the long term. Shopping List selection: Foord Flexible FoF Quartile Ranking As of Date: 30/09/2016 Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile Risk-Reward: 5-Year Annualised YTD 1 year 2 Years 3 Years 5 Years 7 Years Std Dev Foord Flexible FoF R (ASISA) Wwide MA Flexible Foord Flexible FoF R (ASISA) Wwide MA Flexible Maximum Drawdown: Monthly s -0.8 As of Date: 30/09/2016 Foord Flexible FoF R Source Data: Total YTD 1 year 2 Years 3 years 5 years 7 Years (ASISA) Wwide MA Flexible Risk Statistics Std Dev Max Drawdown (monthly) Up Period Percent Down Sharpe Period Ratio Percent Foord Flexible FoF R Foord Flexible FoF R (ASISA) Wwide MA Flexible (ASISA) Wwide MA Flexible Rolling 3-Year s Rolling Window: 3 Years 1 Month shift Foord Flexible FoF R (ASISA) Wwide MA Flexible THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

43 FOORD FLEXIBLE FOF Fund manager Dave Foord No of quarters 11 Benchmark CPI+5% Risk Description Aggressive Role of Benchmark Agnostic Inception Date 01 April 2008 Focus Absolute Fund Size (Rm) R Philosophy Top-down, bottom-up, valuation driven approach Fee Description (retail class) Annual management fee with a performance fee Glacier Risk Rating 6.51 Total Investment Charge 1.37% The portfolio is an unconstrained fund which reflects Foord Asset Management s best investment views over all asset classes domestic and foreign. Three Foord funds make up the Flexible FoF. The Foord International Fund and Foord Global Equity Fund deliver the offshore exposure while the Foord Absolute Fund is a local only institutional fund that is only utilised to balance the overall portfolio of the Flexible FoF. The Foord International Feeder Fund has been closed for new investments, effective from 1 February The fund s strategic effective asset allocation, as determined by the CIO and the investment team, The fund s target asset allocation has been changed with SA equities up by 5% to 20% and foreign assets down by 5% to 65%, 1% in commodities and 14% in money markets. The team aims to keep costs low, avoiding excess turnover, but works on an uncapped performance fee basis. Foord s asset allocation style is top-down and bottom-up portfolio construction, with a growth at reasonable prices approach. Dave Foord s style of managing money is key to the success of the asset management house, looking for earnings visibility and growth. There are currently two investment teams in Foord Asset Management. The local team has 13 professionals, of which four also conduct international research. There are nine members in the offshore team, which is based in Singapore (the second biggest mutual fund industry in the world). The house has an extremely strong research team, with analysts from all over the world. The worldwide, unconstrained nature of the fund does mean that it is highly volatile at times due to its ability to invest 100% in any single asset class. The Flexible FoF would be ideal for discretionary investors who do not need to comply with the Regulation 28 limits. The fund has an absolute focus and has proven itself to be one of the best performing funds in the Worldwide Multi-Asset Flexible category whilst being able to protect capital extremely well over longer periods. The fund has outperformed its benchmark over all periods, whilst being able to remain far less volatile than its peers. It has delivered better risk adjusted returns than most peers over most periods and has also displayed better drawdowns than many of its peers over these periods. The fund has consistently remained within the first and second quartile of performance. As we look over longer periods, the fund s outperformance of the benchmark and peer group average becomes larger and larger. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Current Portfolio Positioning The fund delivered 0.68% over the quarter, underperforming its benchmark which returned 2.82%, but outperforming its peer group average return of -0.17%. The fund s exposure to offshore equity further decreased by another 4% over the quarter, while foreign cash was increased by 3%. Offshore allocation remained the largest holding at 61.7%, up from 52.8%. SA equity was increased by 3.6% to 21.6%, SA government bonds increased by 2.1% to 3.2% and SA listed property was also marginally increased by 0.8%. The portfolio retains its relatively conservative positioning with global equities remaining the preferred asset class, while higher cash holdings give the portfolio manager higher liquidity for more optionality. The total allocation to equity declined marginally from 70.8% to 70.4% with total cash allocation unchanged. The fund is above its strategy for SA equities (20%) and commodities (1%), currently at 21.6% and 3.4% respectively. It is below its strategy for foreign asset (65%) at 61.7% and local cash (14%) at 9%. Foreign Equity Foreign Property Foreign Corp Debt Foreign Gov Bonds Foreign Commodities Foreign Cash SA Equity SA Property SA Corp Debt SA Gov Bonds SA Commodities SA Cash THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER

44 FUNDS SUITED FOR SPECIALIST ASSET CLASS BUILDING BLOCK PORTFOLIO CONSTRUCTION THE SHOPPING LIST BY GLACIER RESEARCH - Q3 - DECEMBER