South Africa. Fund Observer

Transcription

1 2015 2Q Q4 South Africa Fund Observer

2 Morningstar Fund Observer 4th Quarter 2015 Contents Data: Individual Funds 3 Data: Fund Categories 4 Data: Fund Houses 5 Data: Market Performance 6 Commentary: Quarterly Market Summary 7 Commentary: 6 Retirement Asset-Allocation Pitfalls to Avoid Morningstar, Inc. All rights reserved. The information, data, analyses, and opinions contained herein (1) include the confidential and proprietary information of Morningstar, Inc., (2) may not be copied or redistributed, (3) do not constitute investment advice offered by Morningstar, Inc., (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar, Inc. shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use.

3 Morningstar Fund Observer 4th Quarter 2015 Page 3 Performance and Estimated Net Flows for Largest 20 Funds by AUM Short Term Bond Morningstar Rating Return (Past Quarter) Mstar Category Quartile Rank Return (1 Year) Fund Level AUM (R Mil) Quart Est Net Flow (R Mil) STANLIB Income Coronation Strategic Income Cautious Allocation Allan Gray Stable Nedgroup Inv Stable Coronation Balanced Defensive Prudential Inflation Plus Coronation Capital Plus ABSA Absolute Moderate Allocation Allan Gray Balanced Investec Opportunity Foord Balanced Coronation Balanced Plus Discovery Balanced Prudential Balanced South African Equity Allan Gray Equity Nedgroup Inv Rainmaker Old Mutual Investors Foord Equity Coronation Top Global Equity Allan Gray - Orbis Global Equity FF Largest Funds: Market Cap vs # of holdings Nedgroup Stable AUM: R34bn Avg Mkt Cap (R bn) Investec Opportunity AUM: R39bn AG Equity AUM: R38bn Prudential Inf Plus AUM: R38bn AG Stable AUM: R36bn Coro Bal Plus AUM: R85bn AG Balanced AUM: R111bn Foord Balanced AUM: R49bn Coro Capital Plus AUM: R22bn Coro Bal Defensive AUM: R40bn # of holdings 2016 Morningstar, Inc. All rights reserved. The information, data, analyses, and opinions contained herein (1) include the confidential and proprietary information of Morningstar, Inc., (2) may not be copied or redistributed, (3) do not constitute investment advice offered by Morningstar, Inc., (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar, Inc. shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use.

4 Morningstar Fund Observer 4th Quarter 2015 Page 4 Performance and Estimated Net Flows by Fund Category ASISA Categories Return (1 Month) Return (Past Quarter) 1 Year Return Category AUM (R m) Quart Est Net Flow (R m) Global EQ General Global RE General Global MA High Equity Global MA Flexible Global MA Low Equity Wwide MA Flexible South African MA High Equity South African MA Medium Equity South African MA Low Equity South African MA Flexible South African IB Short Term South African EQ General South African EQ Mid/Small Cap South African RE General South African IB Variable Term Morningstar Categories Return (1 Month) Return (Past Quarter) 1 Year Return Category AUM (R m) Quart Est Net Flow (R m) Global Large-Cap Blend Equity Property - Indirect Global Global Bond Flexible Allocation Aggressive Allocation Moderate Allocation Cautious Allocation Africa Equity Bond - Ultra Short Term Bond - Short Term South Africa & Namibia Equity Flexible Bond South Africa & Namibia Small-Cap Equity Property - Indirect South Africa & Namibia Diversified Bond Morningstar, Inc. All rights reserved. The information, data, analyses, and opinions contained herein (1) include the confidential and proprietary information of Morningstar, Inc., (2) may not be copied or redistributed, (3) do not constitute investment advice offered by Morningstar, Inc., (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar, Inc. shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use.

5 Morningstar Fund Observer 4th Quarter 2015 Page 5 4th Quarter Net Flows* and Morningstar Ratings by Fund Company AUM (R Mil) (30/09/2015) Quarterly Net- Flow (R Mil) Net-Flow Rank # of 4 & 5 Star Rated Funds Total # of Star Rated Funds % of Funds rated 4 & 5 Stars ABSA Fund Managers % Allan Gray Unit Trust Mgmt % Ashburton Management Company % Boutique Collective Investments % Cadiz Collective Investments % Ci Collective Investments % Community Growth Mgmt Co % Coronation Management Co % Discovery Life Collective Inv % Element Unit Trusts % FNB Unit Trusts % Foord Unit Trusts % Grindrod Collective Investments % H4 Collective Investments % Investec Fund Mgrs SA % Investment Solutions UTs Ltd % IP Management Company % Kagiso Collective Investments % Marriott Unit Trust Mgmt Co % MET Collective Investments Limited % Momentum Collective Investments % Nedgroup Collective Investments % Oasis Crescent Management Co % Old Mutual Unit Trust Mgrs % Personal Trust Intl Mgmt Co % PPS Management Company (Pty) Ltd % Prescient Management Co % Prime CIS Mgmt Co % Prudential Portfolio Managers % PSG Collective Investments % RECM Collective Investments % Rezco Collective Investments % Sanlam Collective Investments % Satrix Managers (Pty) Limited % STANLIB Collective Investments % STANLIB Multi-Manager % Sygnia Collective Investments % *Figures are estimates which exclude Money Market and Fund of Funds 2016 Morningstar, Inc. All rights reserved. The information, data, analyses, and opinions contained herein (1) include the confidential and proprietary information of Morningstar, Inc., (2) may not be copied or redistributed, (3) do not constitute investment advice offered by Morningstar, Inc., (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar, Inc. shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use.

6 Morningstar Fund Observer 4th Quarter 2015 Market Performance Local Market Indices 1 Month Quarter 1 Year YTD 3 Years 5 Years JSE All Share JSE All Share SWIX JSE Top JSE SA Listed Property JSE Small Cap JSE Mid Cap STeFI Composite Beassa ALBI JSE Sector Indices Basic Materials Consumer Goods Consumer Services Financials Health Care Industrials Technology Telecommunication Total Ret 1 Mo (Qtr-End) Total Ret 3 Mo (Qtr-End) Total Ret 1 Yr (Qtr-End) Global Market Indices 1 Month Quarter 1 Year YTD 3 Years 5 Years S&P NASDAQ Shanghai SE Composite Nikkei 225 Average Hang Seng HSI Top 10 Stocks by Market Cap Quantitative Moat Quantitative Fair-Value Estimate Quantitative Valuation Quantitative Valuation Uncertainty Quantitative Financial Health SABMiller Naspers Richemont BHP Billiton British American Tobacco MTN Sasol Steinhoff Old Mutual Standard Bank Wide Fairly Valued Low Moderate Wide Fairly Valued High Moderate Wide Undervalued Medium Strong None Undervalued High Moderate Wide Fairly Valued Low Strong Narrow Undervalued High Moderate None Fairly Valued High Moderate Narrow Undervalued High Strong None Undervalued High Strong Narrow Undervalued High Strong

7 Morningstar Fund Observer 4th Quarter 2015 Commentary Page 7 Offshore exposure bolsters returns of global categories as locally focused unit trusts produce subdued returns in 2015 Local equities and property post single digit positive returns while local bonds post losses in an environment of currency weakness and falling commodity prices proved to be a turbulent year for local fund managers as both local and global conditions weighed in on fund performance. All things considered, South African unit trusts could ve fared much worse this year, with 23 of the 25 ASISA categories tracked by Morningstar producing positive returns for investors. Between the further collapses in commodity prices, a rapidly depreciating Rand, slowing domestic growth, interest rate hikes and China s transitioning economy there was no shortage of negative news in Kyle Cox Investment Analyst Morningstar Investment Management Deteriorating local macroeconomic conditions had an indelible effect on markets which resulted in subdued returns from locally focused South African unit trusts. In general, the trend of lower returns from the largest unit trust categories continued with returns falling from high to mid-single digit returns from 2014 to In 2015, the figures were largely aligned with the 5.1% return of FTSE/JSE All Share Index (ALSI). For instance, the South African Multi-Asset categories all experienced similar returns: High Equity (7.7%), Medium Equity (7.4%), Low Equity (7.6%) and Flexible (6.1%). One exception to this was the disappointing performance of the General Equity Category which produced a return of just 1.0% in Global markets provided a mixed bag of returns, with developed markets flat for the year while emerging markets posted significant losses. Despite this, offshore categories produced stellar performance on the back on significant Rand weakness. Offshore categories dominated the list of best performing categories in Global Listed Property was top of the list with return of 32.8%. The next best performing categories were Global Interest Bearing Short Term and Global Multi-Asset Low Equity with returns of 31.0% and 30.2% respectively. Interestingly, the performance of the offshore categories was very similar despite varying levels of risk. This indicates a convergence of asset class returns. There is also evidence of this when looking at the domestio multi-asset categories. Unsurprisingly, the worst performing unit trust category in 2015 was again South African Equity Resources. Falling commodity prices and, in particular, softening gold and platinum prices hurt local miners. Meanwhile, the price of oil collapsed even further in Oil ended the year down 35% in US dollar terms marking levels not seen in over 10 years. As a result the South African Resources category fell 12.8% in The best performing funds for 2015 were the Prescient China Balanced Feeder Fund (57.3%), Investec Global Opportunity Equity Fund of Funds (43.9%) and SIM Global Equity Income Feeder Fund (41.5%). These results aren t surprising given the Rand s significant depreciation against major currencies, including the Chinese Yuan. Meanwhile the worst performing funds included the Third Circle MET Targeted Return (-53.0%), Coronation Resources (-35.8%) and Allan Gray Africa ex-sa Equity (-32.6%). The reasons for these funds underperforming vary from use of derivatives and resource exposure to exposure to emerging and developed markets. *unless otherwise stated returns are quoted in Rand terms

8 Morningstar Fund Observer 4th Quarter 2015 Commentary Page 8 6 Retirement Asset-Allocation Pitfalls to Avoid Make sure portfolio's stock or bond mix factors in your risk capacity, non-portfolio income sources, and non-retirement goal The size of your retirement nest egg and the pace at which you plan to spend it--your withdrawal rate--are the key determinants of the viability of your financial plan for retirement. But when it comes to your actual investment portfolio, no other factor will have a bigger impact on your portfolio's success or failure than your asset-allocation plan--your mix of stocks, bonds, and cash. Be too meek and you heighten the risk of a shortfall; maintain a too aggressive portfolio and you run the risk of incurring a bigger loss than you could reasonably recoup over your inretirement time horizon. Christine Benz Director of Personal Finance Although it's hard to go terribly wrong with a simple 50% stock/50% bond mix, there aren't any one-size-fits-all asset-allocation frameworks for retirement portfolios. An individual's age, other income-producing retirement assets (like pensions or Social Security), and spending rate, among other factors, can all dictate higher or lower equity or bond weightings. As you evaluate your retirement portfolio, making sure you're sidestepping the following asset-allocation pitfalls is a good way to steer your portfolio in the right direction. Being Too Conservative Survey market experts' outlooks for the stock and bond markets, and you'll notice that true equity bulls are in short supply. Even more scant are experts who are expecting very strong returns from the bond market; most agree that owners of high-quality bonds will be lucky to earn a positive return once inflation is factored about it. Cash looks like an even worse bet from the standpoint of preserving purchasing power. That means that on a long-term real basis, seemingly safe securities aren't all that safe. Confusing Risk Tolerance With Risk Capacity Many retirees and pre-retirees are way out on the other extreme: They're equity true believers, and don't see much of a role for anything BUT stocks in their portfolios. This describes many baby boomer investors I run in to. They've had a good experience with stocks over their investing careers, whereas bonds' prospects seem downright questionable given the headwinds of higher interest rates. But it's important to make sure you're not confusing your ability to tolerate risk--in this case, not getting too bugged about equity losses--with risk capacity, a much more important consideration. Risk capacity refers to what sorts of losses you can handle without having to meaningfully alter your plans. For retirees who encounter big losses in equity portfolios that they're actively spending from, the net effect is that less of their portfolios are in place to recover when stocks eventually do. This can be a big problem for a portfolio's longevity, especially if those losses occur early in the retiree's time horizon. That's the reason that most in-retirement asset-allocation frameworks call for holding significant shares of the portfolio in cash and bonds to meet in-retirement living expenses in years when stock returns are poor. They also call for reducing equities in a retirement portfolio over time to reflect the fact that risk capacity shrinks with an individual's time horizon. Ignoring Your Behavioral Track Record Yet, even as risk capacity should supersede considerations about your comfort level with risk, it's important to take your past investing behavior into account when determining your portfolio's asset allocation. Do you have a track record of running for the exits when the going gets rough for your stock portfolio? If so, consider nudging your equity allocation down a bit and your cash and bond cushion up relative to recommended allocations for investors at your same life stage to improve the odds that you'll stick with the program in periods of volatility. Just remember that a more-conservative portfolio may necessitate changes elsewhere in your plan--for example, the lower your equity weighting, the lower your withdrawal rate should generally be.

9 Morningstar Fund Observer 4th Quarter 2015 Page 9 Commentary 6 Retirement Asset-Allocation Pitfalls to Avoid Not Factoring in Nonportfolio Income Sources The reason that making one-size-fits-all asset-allocation recommendations is so difficult is that no one but you knows all of the pieces of your financial life. (This is why a financial advisor can be so valuable, in that he or she can make recommendations based on your own variables.) One of the biggest factors that can affect an individual's asset allocation, both leading up to and during retirement, is the presence of other in-retirement income sources, above and beyond what the portfolio will supply. Here, I'm talking about Social Security or pensions, mainly, but fixed annuities as well. If those stable income sources will supply most or all of your needed income in retirement, your risk capacity (see above) is high and you should be able to withstand a higher equity weighting, at least in theory. Retirees with limited stable income sources, by contrast, will need to batten down the hatches with the parts of their portfolios they'll spend within the next several years. They'll need higher weightings in cash and bonds. Not Factoring in Nonretirement Goals In a related vein, successful asset-allocation plans should take into account other goals--in addition to providing cash flows during retirement--that you have for your portfolio later in life. A common example of such a goal would be to leave assets behind for children, grandchildren, or charity; individuals for whom this is a priority will generally want to maintain a more equity-heavy posture in their long-term portfolios than individuals who aren't aiming to make bequests. Not only do they have a greater incentive to make their portfolios grow, but they also have a longer time horizon for their assets than investors who are using the "last breath, last dollar" approach to portfolio management. (Of course, some retirees view their homes as the chief asset that would eventually be sold to benefit their heirs; a desire to make that type of bequest wouldn't have an impact on the positioning of the investment portfolios.) Having a Fuzzy View of Your Asset Allocation If you hold individual stocks and individual bonds, or your portfolio consists entirely of index funds, it's easy to keep tight rein on your portfolio's asset allocation. But maintaining oversight and control over your portfolio's asset allocation can be trickier if you hold actively managed funds. That's because what you see isn't always what you get. Domestic-equity funds may hold foreign stocks, bond funds may be hoarding cash, and allocation funds may shift their stock/bond weightings around. Your portfolio's asset allocation may not be what you thought it was. Morningstar's X-Ray function can help solve this issue by letting you view your portfolio's actual allocations, based on the composition of your holdings. For investors who own actively managed funds, they're often surprised by their large cash weightings in the X-Ray view. That cash is apt to give the portfolio better downside performance than if it were fully invested, but it isn't available to serve as spending money or your emergency cushion. For that reason, it makes sense to consider your cash needs for near-term expenses--bucket one in my bucket framework--apart from what you see in X-Ray.

10 2016 Morningstar, Inc. All rights reserved. The information, data, analyses, and opinions contained herein (1) include the confidential and proprietary information of Morningstar, Inc., (2) may not be copied or redistributed, (3) do not constitute investment advice offered by Morningstar, Inc., (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar, Inc. shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use.