Contents Newsflash Market Comment What happened in November? Other Commentators Economic Update... 5

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1 01 December 2014

2 Contents Contents... 2 Newsflash... 3 Market Comment... 3 What happened in November?... 3 Other Commentators... 4 Economic Update... 5 STANLIB Money Market Fund... 7 STANLIB Enhanced Yield Fund... 7 STANLIB Income Fund... 7 STANLIB Flexible Income Fund... 8 STANLIB Multi-Manager Absolute Income Fund... 8

3 Newsflash At its worst point today, the JSE Financial & Industrial Index was -3% from its recent record high, hit on 24 th November Market Comment A combination of factors has caused a sharp drop in the JSE All Share Index early this Monday morning 1 st December. Firstly, commodity prices fell to their lowest levels in over 5 years as Brent oil sank further to $67.7 (the US price is $63.9). This has caused a very sharp fall in Sasol s share price, -9%, on top of the -8.2% fall on Friday; but it is also infecting other commodities, probably because holders of commodity funds offshore are selling out, putting further pressure on most commodity prices. The softer Chinese manufacturing data this morning (for November) is hurting commodity prices and shares in general too. The Chinese purchasing managers index (PMI) was at an 8-month low. With China the biggest buyer of metals in the world and also a big importer of oil, this is hurting mining shares severely, with Exxaro down 7%, Impala down 6% and even Glencore (mostly copper and coal) down 3%. The copper price had mostly held up over the past 8 months, but has suddenly dropped further and is now -11.9% in 2014 in dollar terms. So a share like BHP Billiton is hurting from the fall in the prices of iron ore, oil and copper, not to mention coal. The share fell 5.7% on Friday and is down another 3.6% today (-21.7% in 2014 and -33% from its all-time peak in rands this July). This has just caused a change of the guard on the JSE ALSI 40 and All Share Indices. BHP has been knocked off its number one perch in both indices by SA Breweries. SAB is now 11.1% of the ALSI 40 Index, ahead of the 10.05% of BHP. In the All Share Index, SAB is 9.15% and BHP is 8.35%. In early trade on the JSE this morning, BHP fell to where it was 4.5 years ago - in rand terms (239 rand per share)!! It has recovered to 254 rand at time of writing. Likewise Sasol hit a record high of 653 rands in June and this morning traded as low at 405 rand, down 36%, before recovering to 425 rand at time of writing. Sasol is now 4.4% of the ALSI 40 and 3.6% of the All Share Index (7 th biggest share). At its worst point today, the JSE Financial & Industrial Index was -3% from its recent record high, hit on 24 th November. What happened in November? The JSE Mid-cap Index (share 41 to 100) did best with +5.4% (ALSI %), but the best broad asset class was the SA Listed Property Index +2.8% (25% year-to-date), followed by the All Bond Index s +2.4% (11.9% year-to-date), then the All Share Index +0.54% (11.1% YTD), then Cash +0.51% (5.4% YTD). The JSE Mining Index did -3.4% (-11.4%YTD), while Sasol did -15.9% (-6.9% YTD) and Construction & Materials did -12.9% (-21.3% YTD). On the plus-side, Food Producers (Tigerbrands 41%, AVI 17%, Tongaat 13%, Pioneer 13%) did % (+45.1% YTD) and Personal Goods (just Richemont) +11.3%. Telkom also did 17.3% (+145.4% YTD).

4 Food & Drug Retailers (Shoprite 55%, Spar 21%, Clicks 14% and PicknPay 10%) did 8.7% in November (+11.9% YTD) while General Retailers did 5.9% (24.7% YTD). The Financial & Industrial Index did 2.4% in November and 18.4% YTD, with Financials leading with 3% in November and 27.6% YTD. So far the Financial & Industrial Index remains in a bull market, albeit expensive, while the Resources Index remains in a bear market. Interestingly, Sasol s main uptrend from the lows in 2008 remains intact, as long as the share holds approximately 420 rand at the end of the week (422 rand now!). Mid-Caps have done 18.3% YTD, Small-Caps 18.4% and the Top %. On the international front, all in US dollar terms, the German Dax 30 Index did best with 6.5% in November, then the Nasdaq 4.4%, the Dow Jones Euro Stoxx 50 4%, the French Cac40 3.2%, the S&P %, the MSCI World Index 2.1%, the Nikkei % and the MSCI Emerging Markets -1.1%. The rand gained 2.3% versus the pound, 0.2% versus the euro and lost 0.2% versus the dollar in November (-6.2% YTD). Other Commentators US MARKET ANALYST, ELAINE GARZARELLI Last week equities rose to new record highs in the US after a week of good economic data, including a healthy GDP report. Over the past month there has been a record inflow into US equity funds and foreign purchases of US securities was at a record. Her quants system stands at 70.5% (30% and lower is bearish) and she recommends full exposure to equities, unhedged. Corrections, if any, should be limited to 4-7%. Based on her forecast for operating earnings for the S&P 500 Index of 136 in 2015, fair value for the S&P 500 Index is at 2380, a 15% gain from current levels. Bullish investment advisors rose to 56.5%, slightly up on the previous week. US banks had their largest revenue increase since 2009, up 4.8% y/y in the 3 rd quarter. The US economy is growing at a healthy rate, although not taking off. Garza continues to see evidence of strength in housing. She expects US GDP growth over 2.5% in BCA RESEARCH The BCA tactical allocation quants model further increased its allocation to equities for December from 89% to 91%, while bonds are cut from 11% to 9%. US shares are upgraded strongly from 6% to 18%, also Japan from 0% to 5%, while Emerging Market equities were cut further. European equities are still very high at 36%. Otherwise, on the US dollar, a correction remains probable in the light of universally bullish sentiment towards the USD, but its trend remains up. Paul Hansen Director: Retail Investing

5 Economic Update Locally last week, SA GDP in Q rose by 1.4%q/q, annualised (seasonally adjusted). This compares with a revised increase of 0.5%q/q in Q and a decline of -1.6%q/q in Q1 2014, back to During 2013 as a whole the SA economy grew by a revised 2.2%, unchanged compared with 2.2% in 2012, but down from 3.2% in 2011 and 3.0% in For 2014, SA GDP growth is still forecast at 1.4%, before rising to an expected 2.0% in It would appear that South Africa is going to struggle to lift its growth rate meaningfully above 3% over the next few years given the electricity, labour, and low-confidence constraints. SA s improved GDP growth rate in Q was largely driven by business services and retail trade, which each contributed 0.5 percentage points to the quarterly growth rate. General government services contributed 0.3 percentage points, while agriculture and the transport, storage and communication industry each contributed 0.2 percentage points. Unfortunately, the manufacturing sector remained in recession, having declined in each of the past three quarters. The construction sector is still struggling to gain momentum, but at least it continues to generate positive growth, up 2.2%q/q in Q On a trend basis, it is clear that the South African economy has lost momentum over the past 18 months. This is partly due to the protracted strikes in the mining and manufacturing sectors, regular electricity shortages with the constant threat of further blackouts, a lack of policy clarity in key industrial sectors, and a drop-off in consumer and business confidence. The recent credit rating downgrades have added to the drop-off in confidence. It is especially concerning that the economic recovery since the global financial market crisis in 2009 has not been robust enough to lead to widespread job creation in the formal sector, despite government s counter-cyclical fiscal policy. Looking ahead to 2015, we currently expect SA economic growth to improve slightly to 2.0%y/y. This is largely premised on the expectation that SA will experience some improvement in export performance (including into the rest of Africa), a curtailment of imports due to sluggish consumer demand, less labour market unrest (especially in the mining and manufacturing sectors) and further progress in the implementation of South Africa much needed infrastructural development programme (including the partial commissioning of the Medupi power station). Furthermore, we expect the residential property sector to improve more meaningfully in 2015 (helped by sustained low interest rates and a fundamental shortage of residential properties), while the tourism sector is expected to benefit from another record inflow. Ultimately, it is critical that SA economic policy leaders find a way to encourage business investment (both new and existing business). Realistically, this is most likely to be achieved through a firmer implementation of the NDP, targeted infrastructure development both hard and soft infrastructure as well as labour market stability. It is critical that South African corporates are encouraged to become more expansionary as well as entrepreneurial. South African private sector credit growth increased to 9.06%y/y in October from 8.74% in September. A slowdown in household credit growth to 3.6%y/y from 3.8% was balanced by an increase in corporate credit growth which grew by 15.3%y/y in October up from 15.1% in September. Household credit growth, both secured and unsecured lending growth decreased to 2.9%y/y and 5.8% respectively in October. Looking ahead, the resilience in headline private sector credit growth continues to be supported by corporate credit. South Africa s trade account recorded its worst monthly trade deficit on record with a R21.3bn shortfall in October following September s R2.9bn deficit. According to the South African Revenue Service (SARS), a 1.8% m/m decline in exports coupled with a large 17.8% climb in imports was the cause of the weakening. Interestingly, the main reason behind the large increase in imports in October came from a significant rise in mineral product imports which increased 34% m/m. Most of the increase was driven by a massive 72% ramp up in oil imports which were partly to sustain Eskom. The 1.8% m/m decline in exports can be explained through a 14% decline in precious metal and stone exports; a 4% decline in base metal exports and vegetable product exports which fell 38% in the month. However, the significant weakening in the country s trade deficit in October, continues to highlight the vulnerability of the rand given that the bulk of the country s external account shortfall is financed through portfolio flows, which now appear uncertain in the context of US monetary policy normalisation plans. In the emerging markets on the final day of its meeting on 25 November 2014 the Monetary Policy Committee (MPC) of the Central Bank of Nigeria announced it would increase interest rates from 12% to 13% and devalue the official peg of the currency to 168 Naira to the Dollar. The cash reserve requirement on private sector deposits was increased to 20% from 15%. This was an aggressive move by the central bank. The decision was made on the back of increasing pressure on the currency as oil prices have fallen by around 30% since the June peak. Nigeria is the largest exporter of oil on the continent and derives about 95% of its foreign exchange revenue from oil exports and 80% of

6 fiscal revenue from sales of oil and gas. Should the oil price persist at these low levels the government will struggle to reach revenue targets and this would significantly increase the chances of a fiscal deficit. Further risks to the currency are the strengthening Dollar, lower oil production levels, higher than expected spending towards the February 2015 elections and OPEC s decision not to cut oil supply. This will have an impact on growth as it could result in a reduction of government expenditure. Inflation in Nigeria was recorded at 8.1% in the month of October down from 8.3% in September. Core inflation decelerated from 6.28% in September 2014 to 6.25% October Food inflation, the biggest component of the CPI basket, slowed from 9.68% in September to 9.34% in October. The biggest risks to the inflation outlook are the increased spending ahead of the February 2015 elections as well as the pass through effects from the depreciation of the Naira. However the central bank forecasts that inflation will remain in single digits until year end. The biggest uncertainty that the bank is facing is the future of oil prices. A sustained lower price will have negative effects on growth and the currency. The recent widening of the currency s trading band is a sign that the central bank could be considering a flexible exchange rate in future as intervention depletes reserves. Please follow our regular economic updates on Kevin Lings, Laura Jones & Kganya Kgare (STANLIB Economics Team) Rates These rates are expressed in nominal and effective terms and should be used for indication purposes ONLY.

7 STANLIB Money Market Fund Nominal: Effective: 6.12% per annum 6.29% per annum STANLIB is required to quote an effective rate which is based upon a seven-day rolling average yield for Money Market Portfolios. The above quoted yield is calculated using an annualised seven-day rolling average as at 30 November This seven- day rolling average yield may marginally differ from the actual daily distribution and should not be used for interest calculation purposes. We however, are most happy to supply you with the daily distribution rate on request, one day in arrears. The price of each participatory interest (unit) is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. STANLIB Enhanced Yield Fund Effective Yield: 6.44% STANLIB is required to quote a current yield for Income Portfolios. This is an effective yield. The above quoted yield will vary from day to day and is a current yield as at 28 November The net (after fees) yield on the portfolio will be published daily in the major newspapers together with the all-in NAV price (includes the accrual for dividends and interest). This yield is a snapshot yield that reflects the weighted average running yield of all the underlying holdings of the portfolio. Monthly distributions will consist of dividends and interest. Interest will also be exempt from tax to the extent that investor s are able to make use of the applicable interest exemption as currently allowed by the Income Tax Act. The portfolio s underlying investments will determine the split between dividends and interest. STANLIB Income Fund Effective Yield: 7.26% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 28 November 2014.

8 STANLIB Extra Income Fund Effective Yield: 6.68% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. The above quoted yield will vary from day to day and is a current yield as at 28 November STANLIB Flexible Income Fund Effective Yield: 6.25% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 28 November STANLIB Multi-Manager Absolute Income Fund Effective Yield: 6.13% Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. The above quoted yield will vary from day to day and is a current yield as at 28 November 2014.

9 Glossary of terminology Bonds A bond is an interest-bearing debt instrument, traditionally issued by governments as part of their budget funding sources, and now also issued by local authorities (municipalities), parastatals (Eskom) and companies. Bonds issued by the central government are often called gilts. Bond issuers pay interest (called the coupon ) to the bondholder every 6 months. The price/value of a bond has an inverse relationship to the prevailing interest rate, so if the interest rate goes up, the value goes down, and vice versa. Bonds/gilts generally have a lower risk than shares because the holder of a gilt has the security of knowing that the gilt will be repaid in full by government or semi-government authorities at a specific time in the future. An investment in this type of asset should be viewed with a 3 to 6 year horizon. Cash Collective Investments Compound Interest Dividend Yields Dividends Earnings per share An investment in cash usually refers to a savings or fixed-deposit account with a bank, or to a money market investment. Cash is generally regarded as the safest investment. Whilst it is theoretically possible to make a capital loss investing in cash, it is highly unlikely. An investment in this type of asset should be viewed with a 1 to 3 year horizon. Collective investments are investments in which investors funds are pooled and managed by professional managers. Investing in shares has traditionally yielded unrivalled returns, offering investors the opportunity to build real wealth. Yet, the large amounts of money required to purchase these shares is often out of reach of smaller investors. The pooling of investors funds makes collective investments the ideal option, providing cost effective access to the world s stock markets. This is why investing in collective investments has become so popular the world over and is considered a sound financial move by most investors. Compound interest refers to the interest earned on interest that was earned earlier and credited to the capital amount. For example, if you deposit R1 000 in a bank account at 10% and interest is calculated annually; your balance will be R1 100 at the end of the first year and R1 210 at the end of the second year. That extra R10, which was earned on the interest from the first year, is the result of compound interest ("interest on interest"). Interest can also be compounded on a monthly, quarterly, half-yearly or other basis. The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its share price. The higher the yield, the more money you will get back on your investment. When you buy equities offered by a company, you are effectively buying a portion of the company. Dividends are an investor s share of a company s profits, given to him or her as a part-owner of the company. Earnings per share is a measure of how much money the company has available for distribution to shareholders. A company s earnings per share is a good indication of its profitability and is generally considered to be the most important variable in determining a company s share price.

10 Equity Financial Markets Fixed Interest Funds Gross Domestic Product (GDP) Growth Funds Industrial Funds Investment Portfolio JSE Securities Exchange Price to earnings ratio Property Resources and Basic Industries Funds A share represents an institution/individual s ownership in a listed company and is the vehicle through which they are able to share in the profits made by that company. As the company grows, and the expectation of improved profits increases, the market price of the share will increase and this translates into a capital gain for the shareholder. Similarly, negative sentiment about the company will result in the share price falling. Shares/equities are usually considered to have the potential for the highest return of all the investment classes, but with a higher level of risk i.e. share investments have the most volatile returns over the short term. An investment in this type of asset should be viewed with a 7 to 10 year horizon. Financial markets are the institutional arrangements and conventions that exist for the issue and trading of financial instruments. Fixed interest funds invest in bonds, fixed-interest and money market instruments. Interest income is a feature of these funds and, in general, capital should remain stable. The Gross Domestic Product measures the total volume of goods and services produced in the economy. Therefore, the percentage change in the GDP from year to year reflects the country's annual economic growth rate. Growth funds seek maximum capital appreciation by investing in rapidly growing companies across all sectors of the JSE. Growth companies are those whose profits are in a strong upward trend, or are expected to grow strongly, and which normally trade at a higher-thanaverage price/earnings ratio. Industrial funds invest in selected industrial companies listed on the JSE, but excluding all companies listed in the resources and financial economic groups. An investment portfolio is a collection of securities owned by an individual or institution (such as a collective investment scheme). A funds portfolio may include a combination of financial instruments such as bonds, equities, money market securities, etc. The theory is that the investments should be spread over a range of options in order to diversify and spread risk. The primary role of the JSE Securities Exchange is to provide a market where securities can be freely traded under regulated procedures. Price to earnings ratio or p: e ratio is calculated by dividing the price per share by the earnings per share. This ratio provides a better indication of the value of a share, than the market price alone. For example, all things being equal, a R10 share with a P/E of 75 is much more expensive than a R100 share with a P/E of 20. Property has some attributes of shares and some attributes of bonds. Property yields are normally stable and predictable because they comprise many contractual leases. These leases generate rental income that is passed through to investors. Property share prices however fluctuate with supply and demand and are counter cyclical to the interest rate cycle. Property is an excellent inflation hedge as rentals escalate with inflation, ensuring distribution growth, and property values escalate with inflation ensuring net asset value growth. This ensures real returns over the long term. These funds seek capital appreciation by investing in the shares of companies whose main business operations involve the exploration, mining, distribution and processing of metals, minerals, energy, chemicals, forestry and other natural resources, or where at least 50 percent of their earnings are derived from such business activities, and excludes service providers to these companies.

11 Smaller Companies Funds Value Funds Growth Funds Smaller Companies Funds seek maximum capital appreciation by investing in both established smaller companies and emerging companies. At least 75 percent of the fund must be invested in small- to mid-cap shares which fall outside of the top 40 JSE-listed companies by market capitalisation. These funds aim to deliver medium- to long-term capital appreciation by investing in value shares with low price/earnings ratios and shares which trade at a discount to their net asset value. Growth funds seek maximum capital appreciation by investing in rapidly growing companies across all sectors of the JSE. Growth companies are those whose profits are in a strong upward trend, or are expected to grow strongly, and which normally trade at a higher-thanaverage price/earnings ratio. Sources: Unit Trust and Collective Investments (September 2007), The Financial Sector Charter Council, Personal Finance (30 November 2002), Introduction to Financial Markets, Personal Finance, Quarter , Investopedia ( and The South African Financial Planning Handbook 2004.

12 Disclaimer The price of each unit of a domestic money market portfolio is aimed at a constant value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. An investment in the participations of a CIS in securities is not the same as a deposit with a banking institution. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from STANLIB Collective Investments Ltd (the Manager). Commission and incentives may be paid and if so, would be included in the overall costs. A fund of funds is a portfolio that invests in portfolios of collective investment schemes, which levy their own charges, which could result in a higher fee structure for these portfolios. Forward pricing is used. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. TER is the annualised percent of the average Net Asset Value of the portfolio incurred as charges, levies and fees. A higher TER ratio does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TERs. Portfolios are valued on a daily basis at 15h30. Investments and repurchases will receive the price of the same day if received prior to 15h30. Liberty is a full member of the Association for Savings and Investments of South Africa. The Manager is a member of the Liberty Group of Companies. As neither STANLIB Wealth Management Limited nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor s unique objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only and STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Wealth Management Limited does not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial adviser in this regard. STANLIB Wealth Management Limited is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (Licence No. 26/10/590) Compliance No.: H6125X 17 Melrose Boulevard, Melrose Arch, 2196 P O Box 202, Melrose Arch, 2076 T (SA Only) T+27(0) E contact@stanlib.com Website STANLIB Wealth Management Limited Reg. No. 1996/005412/06 Authorised FSP in terms of the FAIS Act, 2002 (Licence No. 26/10/590) STANLIB Collective Investments Limited Reg. No. 1969/003468/06