MACROSOLUTIONS INVEST WITH PERSPECTIVE CPI +6% CPI +5% CPI +3% CPI+4% CONSERVATIVE MODERATE RISK/RETURN DYNAMIC PROFILE RANGE FACTSHEETS DECEMBER 2018
MULTI-ASSET CLASS SOLUTIONS: THE PROFILE RANGE The suite of portfolios is a comprehensive range of unitised, marketlinked portfolios that span the risk/return spectrum. These policy-based 10 investments are specifically designed for institutional investors and are 9 compliant with Regulation 28 of the Pension Funds Act of South Africa. 8 Within the parameters of their mandates, the portfolios invest across a range of local and offshore asset classes including equity, interest-bearing instruments, property, convertibles, commodities and derivatives. There are four portfolios in the portfolio range, from very conservative to aggressive. The investor may also switch between these funds within the range on a seamless basis to correspond with their changing risk profile. STATIC BENCHMARK ASSET ALLOCATION The static benchmark represents our view of the optimal long-term asset allocation per portfolio. 7 6 5 4 3 2 1 2.5 2.5 2.5 2.5 2.5 5.0 10.0 7.5 10.0 25.0 22.5 5.0 42.5 No Static Allocation SA Equity SA Bonds SA Money Market Gold OUR SOLUTIONS Returns Target Return CPI+3% CPI+4% CPI+5% CPI+6% preservation 12month 18month range CAPITAL MODERATE BALANCED EDGE28 Risk JOHN ORFORD GRAHAM TUCKER PETER BROOKE John joined MacroSolutions in June 2014 as a portfolio manager. As a member of the MacroSolutions team, he is responsible for managing conservative funds including the and Funds and the Old Mutual Real Income and Stable Growth Funds. John s background as an investment strategist enables him to integrate top-down and bottom-up analysis into portfolio construction. Prior to joining MacroSolutions, he was the Investment Strategist for South Africa at UBS South Africa for nine years. In his last two years at UBS, he was also responsible for the emerging EMEA Equity strategy. John has 12 years of work experience in financial markets in South Africa and London. In addition, he has seven years of experience as an economist in public and private sector capacities in Namibia and South Africa. Graham joined Old Mutual in 2000 and is the portfolio manager of MacroSolutions range of balanced funds. Before assuming this responsibility in 2014, he was portfolio manager on a number of aggressive funds, including. In addition, Graham is MacroSolutions quantitative strategist, risk manager and a member of the asset allocation group. He is quantitatively driven and adds value through his ability to thoroughly test ideas prior to implementation. Peter joined Old Mutual in May 2005 and has been the Head of MacroSolutions since 2007. Peter has specific responsibility for third-party funds, including the range. He also manages a number of unit trusts including the Old Mutual Flexible Fund, Old Mutual Maximum Return Fund and Old Mutual Fund. Having analysed countries and companies, Peter can integrate top-down and bottom-up drivers and valuations to create an optimal portfolio. Peter is an award-winning analyst who has extensive experience in the investment arena. He worked at a stockbroker for 10 years, as an analyst and equity strategist, after which he was the Head of Research and Head of Equities for Cazenove South Africa.
PROFILE COMMENTARY AS AT 31/12/2018 MARKET OVERVIEW Investors experienced very low volatility in the years leading up to 2018, but market action in 2018 has shaken them out of that comfort zone. The year started off well enough, with global equities up nearly 5% in US dollars in January 2018, but there was little to celebrate from that point on as wave after wave battered risk assets. Global equities ended the year 9% down in US dollars, while local equities were 11% lower in rand terms and the rand weakened 16% against the US dollar. Many would fault rising trade tensions, Chinese growth slowing, countryspecific crises (such as what we observed in Turkey and Argentina) and stock-specific problems (such as the US Food and Drug Administration (FDA) versus British American Tobacco, the unravelling of the Steinhoff debacle and MTN s Nigeria woes) for this outcome. While each of these likely weighed on investor sentiment, the underlying issue as we see it was the withdrawal of global liquidity, primarily through the US Federal Reserve (the Fed) unwinding quantitative easing and raising short-term interest rates. The reason for the Fed taking this action is understandable the US economy was growing rapidly, unemployment was falling to very low levels and they needed to manage the risk of their economy overheating, which, if left unchecked, would likely lead to a hard landing in the years ahead. With the benefit of hindsight, investors were ill-prepared for the change in liquidity conditions. In addition, the valuation underpin for many assets has disappeared in recent years it s easier for expensive assets to fall when conditions become less favourable. Locally, the initial bout of Ramaphoria fizzled out fairly early in the year as it dawned on the market that South Africa s recovery was perhaps a bit further out than expected. While Cyril Ramaphosa was able to move swiftly early in the year, it is near impossible to undo the damage of the past decade in a few short months. This realisation, combined with global concerns, tighter liquidity and stock-specific news, saw increased volatility in local assets. Many of the local equity market heavyweights fell sharply in the year, for instance. Naspers was down 16%, Richemont was 14% lower and British American Tobacco fell 4. Property, a much-loved asset class in recent years, experienced poor performance, even after adjusting for the Resilient fall-out. It wasn t all bad news though. Following the pullback caused by the Viceroy report, Pepkor and Capitec were amongst the better performers. Local bonds held up well despite uncertainty around land reform and, more recently, Eskom. PROFILE EDGE28 2018 was a disappointing year for, as it was for all portfolios with high equity benchmarks. During the year, the portfolio has reduced its global equity exposure following good performance. The proceeds were repatriated back to South Africa and used to increase holdings of selected domestic equities, where we see some opportunities. The portfolio also added to South African bonds, which offer a high real yield. The portfolio s holdings in local cash and bonds helped to shield against weak equity markets. While global equities held up well during 2018, the last quarter was particularly weak for international markets. Avoiding exposure to SA listed rand hedge property shares was a big positive for the portfolio as this sector was badly hit over the past 12 months. This active asset allocation is a key tool to help us to deliver better long-term returns and certainly helped protect the portfolio from the worst of the fall. Look forward, the news is getting better. We have recently upgraded our long-term, real expected returns on the back of cheaper valuations, which bodes well for future returns. During 2019, you can expect us to start using the portfolio s interest-bearing assets to buy back into equity markets to take advantage of the sell-off. This will create the potential for much better returns going forward. PROFILE BALANCED While the negative result for the year is by no means pleasing, this relatively competitive result is largely attributable to the consistent implementation of our investment philosophy resulting in avoiding many of the poor stock specific stories, such as Aspen and Resilient, and actively managing exposures, such as strategically reducing Naspers early in the year, buying more Capitec in the Viceroy-assisted correction and buying local bonds at attractive yields. We also reduced equity exposure ahead of the correction in the fourth quarter. Markets have been turbulent and returns difficult to come by, the likelihood of which had been rising given the elevated returns achieved after the Global Financial Crisis. We are now seeing better value in select areas, meaning that we are more encouraged by the opportunities today than we were a year ago. That said, we are not out of the woods just yet. We believe that South African assets look attractive from both a valuation and macroeconomic perspective. Local bonds are offering very attractive real yields, while better economic growth should improve our fiscal stance. Within equities, the portfolio has exposure to banks and smaller industrial companies with a large local footprint. The rand is another means of expressing our positive view on South Africa. The portfolio has less rand-hedge exposure than what would be typical. Despite refreshed valuations, we have become increasingly more concerned about global equities, particularly the US, which makes up the vast majority of the global market. As such, we ve been reducing our global equity exposure and building up our global fixed income weight. We understand that this has been a difficult period for our clients. Given the circumstances, we believe that we have delivered good results in terms of relative performance and volatility experienced. Looking forward, in our view there are better returns in the medium term and we are actively managing the portfolio to capture these returns. At times like these, we must remind ourselves to stay the course rather than capturing the wrong side of volatility by de-risking.
PROFILE COMMENTARY CONT. PROFILE MODERATE In line with weaker financial markets, delivered a disappointing return for the year. During the year, the portfolio s allocation to local government bonds benefited performance. We used spikes in local bond yields to increase our holding, which, in our view, offer attractive long-term returns to investors. The portfolio also has a considerable allocation to cash and corporate credit. The credit portion of the portfolio is particularly attractive consisting of a well-diversified holding of high-quality corporate credit with very low interest rate risk. This offers yields above cash and inflation and delivers bond like returns for much lower risk than owning long-dated government bonds. Holding some cash also means that the portfolio will be able to take advantage of opportunities that arise. The portfolio continues to hold a reasonable portion of its assets offshore. During 2018, as the risk posed to global equities from rising US interest rates increased, we reduced our offshore equity holding significantly. This was mostly done prior to the sharp selloff in global equities in the final quarter of 2018. The proceeds were allocated to offshore cash and selected offshore US dollar bonds. This offered protection against falling equities and the weaker rand. The portfolio s local equities holdings detracted from absolute performance of the portfolio. After a good start at the beginning of 2018, the equity market disappointed, posting double digit negative returns. The equity building block performed more or less in line with the capped SWIX equity benchmark. Overweight positions in Old Mutual, Capitec, Pepkor and KAP Industrial Holdings contributed to performance, while avoiding shares like Aspen and MediClinic, which showed significant declines, added to relative returns. Detractors of performance varied from companies that are more locally focused, like Omnia, Tongaat and PPC, to MTN (impacted by Nigerian woes) and British American Tobacco, which has been held for its diversification characteristics. Looking ahead, the portfolio continues to favour local over global assets, with local fixed-income assets offering an attractive yield and local equities starting to offer much better value. We believe the portfolio is well positioned to benefit from the higher returns on offer in most South African assets. While the outlook for growth assets and the rand is uncertain, the improved valuations in many South African assets should deliver good inflation-beating returns to long -term investors. PROFILE CAPITAL During the year, s allocation to local government bonds benefited performance. We have used spikes in local bond yields to increase our holding, which, in our view, offer attractive long-term returns to investors. The portfolio also has a considerable allocation to cash and corporate credit. The credit portion of the portfolio is particularly attractive consisting of a well-diversified holding of high quality corporate credit with very low interest rate risk. This offers yields above cash and inflation and delivers bond like returns for much lower risk than owning long-dated government bonds. Holding some cash also means that the portfolio will be able to take advantage of opportunities that arise. The portfolio continues to hold a reasonable portion of its assets offshore. During 2018, as the risk posed to global equities from rising US interest rates increased, we reduced our offshore equity holding significantly. This was mostly done prior to the sharp selloff in global equities in the final quarter of 2018. The proceeds were allocated to offshore cash and selected offshore US dollar bonds. This offered protection against falling equities and the weaker rand. The portfolio s local equities holdings detracted from absolute performance of the portfolio. After a good start at the beginning of 2018, the equity market disappointed, posting double digit negative returns. The equity building block performed more or less in line with the capped SWIX equity benchmark. Overweight positions in Old Mutual, Capitec, Pepkor and KAP Industrial Holdings contributed to performance, while avoiding shares like Aspen and MediClinic, which showed significant declines, added to relative returns. Detractors varied from companies that are more locally focused, like Omnia, Tongaat and PPC, to MTN (impacted by Nigerian woes) and British American Tobacco, which has been held for its diversification characteristics. Looking ahead, the portfolio continues to favour local over global assets with local fixed income assets offering an attractive yield and local equities starting to offer much better value. We believe the portfolio is well positioned to benefit from the higher returns on offer in most South African assets. While the outlook for growth assets and the rand is uncertain, the improved valuations in many South African assets should deliver good inflation-beating returns to long-term investors. Building multi-asset class solutions for clients is our sole focus. Our active asset allocation process has delivered superior long-term, risk-adjusted performance for clients. To achieve this success, we combine top down macroeconomic research with bottom up fundamental analysis to inform our buy and sell decisions. The structured implementation of this two-dimensional framework enables us to deliver different sources of alpha. We look beyond the conventional asset classes and use an integrated approach to assess the sensitivity of macro factors on our portfolios.
MACROSOLUTIONS PROFILE BALANCED PORTFOLIO INVEST WITH PERSPECTIVE MULTI-ASSET CLASS SOLUTIONS: THE PROFILE RANGE The suite of portfolios is a comprehensive range of unitised, market-linked portfolios that span the risk/return spectrum. These policy-based investments are specifically designed for institutional investors and are compliant with Regulation 28 of the Pension Funds Act of South Africa. Within the parameters of their mandates, the portfolios invest across a range of local and offshore asset classes including equity, interest-bearing instruments, property, convertibles, commodities and derivatives. There are four portfolios in the portfolio range, from very conservative to aggressive. The investor may also switch between these funds within the range on a seamless basis to correspond with their changing risk profile. STATIC BENCHMARK ASSET ALLOCATION The static benchmark represents our view of the optimal long-term asset allocation per portfolio. 10 9 8 7 6 5 4 3 2 1 2.5 2.5 2.5 2.5 2.5 5.0 10.0 7.5 10.0 25.0 22.5 5.0 42.5 LONG-TERM RISK AND RETURN OBJECTIVES Return Banker Risk No Static Allocation SA Equity SA Bonds SA Money Market Gold Conservative Dynamic CPI + 3% CPI + 4% S CPI + 5% GRAHAM TUCKER BSc Actuarial Science (Hons), CFA 15 years of investment experience CPI + 6% WARREN VAN DER WESTHUIZEN BCom (Hons), CFA 15 years of investment experience MARKET COMMENTARY AS AT 31/12/2018 Investors experienced very low volatility in the years leading up to 2018, but market action in 2018 has shaken them out of that comfort zone. The year started off well enough, with global equities up nearly 5% in US dollars in January 2018, but there was little to celebrate from that point on as wave after wave battered risk assets. Global equities ended the year 9% down in US dollars, while local equities were 11% lower in rand terms and the rand weakened 16% against the US dollar. Many would fault rising trade tensions, Chinese growth slowing, countryspecific crises (such as what we observed in Turkey and Argentina) and stock-specific problems (such as the US Food and Drug Administration (FDA) versus British American Tobacco, the unravelling of the Steinhoff debacle and MTN s Nigeria woes) for this outcome. While each of these likely weighed on investor sentiment, the underlying issue as we see it was the withdrawal of global liquidity, primarily through the US Federal Reserve (the Fed) unwinding quantitative easing and raising short-term interest rates. The reason for the Fed taking this action is understandable the US economy was growing rapidly, unemployment was falling to very low levels and they needed to manage the risk of their economy overheating, which, if left unchecked, would likely lead to a hard landing in the years ahead. With the benefit of hindsight, investors were ill-prepared for the change in liquidity conditions. In addition, the valuation underpin for many assets has disappeared in recent years it s easier for expensive assets to fall when conditions become less favourable. Locally, the initial bout of Ramaphoria fizzled out fairly early in the year as it dawned on the market that South Africa s recovery was perhaps a bit further out than expected. While Cyril Ramaphosa was able to move swiftly early in the year, it is near impossible to undo the damage of the past decade in a few short months. This realisation, combined with global concerns, tighter liquidity and stock-specific news, saw increased volatility in local assets. Many of the local equity market heavyweights fell sharply in the year, for instance. Naspers was down 16%, Richemont was 14% lower and British American Tobacco fell 4. Property, a much-loved asset class in recent years, experienced poor performance, even after adjusting for the Resilient fall-out. It wasn t all bad news though. Following the pullback caused by the Viceroy report, Pepkor and Capitec were amongst the better performers. Local bonds held up well despite uncertainty around land reform and, more recently, Eskom. FUND PERFORMANCE COMMENTARY AS AT 31/12/2018 While the negative result for the year is by no means pleasing, this relatively competitive result is largely attributable to the consistent implementation of our investment philosophy resulting in avoiding many of the poor stock specific stories, such as Aspen and Resilient, and actively managing exposures, such as strategically reducing Naspers early in the year, buying more Capitec in the Viceroy-assisted correction and buying local bonds at attractive yields. We also reduced equity exposure ahead of the correction in the fourth quarter. Markets have been turbulent and returns difficult to come by, the likelihood of which had been rising given the elevated returns achieved after the Global Financial Crisis. We are now seeing better value in select areas, meaning that we are more encouraged by the opportunities today than we were a year ago. That said, we are not out of the woods just yet. We believe that South African assets look attractive from both a valuation and macroeconomic perspective. Local bonds are offering very attractive real yields, while better economic growth should improve our fiscal stance. Within equities, the portfolio has exposure to banks and smaller industrial companies with a large local footprint. The rand is another means of expressing our positive view on South Africa. The portfolio has less rand-hedge exposure than what would be typical. Despite refreshed valuations, we have become increasingly more concerned about global equities, particularly the US, which makes up the vast majority of the global market. As such, we ve been reducing our global equity exposure and building up our global fixed income weight. We understand that this has been a difficult period for our clients. Given the circumstances, we believe that we have delivered good results in terms of relative performance and volatility experienced. Looking forward, in our view there are better returns in the medium term and we are actively managing the portfolio to capture these returns. At times like these, we must remind ourselves to stay the course rather than capturing the wrong side of volatility by de-risking. www.macrosolutions.co.za
PROFILE BALANCED PORTFOLIO This is an actively managed and a moderate-risk portfolio that aims to provide investors with compelling real returns over the long term by investing in an optimal spread of local and international asset classes. While the bias is towards growth assets, the portfolio manager will allocate to other asset classes to exploit market opportunities and to achieve diversification. PERFORMANCE AS AT 31/12/2018 3 CPI + 5% 5-Year Rolling Returns Closely aligned with our Best Investment View process, this portfolio offers our clients the opportunity to receive the full benefit of our proven investment track record. Investors should note that investment objectives are not guaranteed. This portfolio may be ideal for investors who are prepared to accept the potential for short-term market fluctuations in pursuing significant real growth relative to inflation over the long term. The portfolio complies with Regulation 28 of the Pension Funds Act. PERFORMANCE PER ANNUM 2 1 ADDITIONAL INFORMATION Launch date January 1995 Dec 99 Mar 03 Jun 06 Sep 09 Dec 12 Mar 16 Benchmark Returns as at 31 December 2018 Static asset allocation benchmark 14. 12. Benchmark 11.5% 12.3% Risk category 10. 8. 6. 5.1% 5.3% 7.2% 7.8% Investment objective The portfolio aims to deliver competitive and consistent real returns with a target of CPI + 5% per annum (gross of fees) over the long term. The fund also aims to outperform its composite index benchmark. Investment objectives are not guaranteed. Fees Domestic assets: 0.5 p.a. (rebates for large funds) International assets: 0.8 p.a. Plus: A performance fee in respect of alternative assets. Fees on domestic assets exclude VAT. (VAT is deemed not payable.) 4. 2. 0. -2. - 1.7% - 0.9% -4. - 3.3% -6. - 4.5% 3 Months 1 Year 3 Years 5 Years 10 Years ASSET ANALYSIS AS AT 31/12/2018 2.1% (8%) SA Money Market 6.9% (5.) 25.1% (22.5%) Nominal Bonds 20.1% (15%) PRINCIPAL HOLDINGS AS AT 31/12/2018 Holding Sector % of fund Naspers Media 3.5 Sasol Oil & Gas 2.7 Nedcor Banks 2.5 ABSA Banks 2.4 British American Tobacco Consumer Goods 1.8 Old Mutual Life Insurance 1.7 Standard Bank Banks 1.7 Preference Shares 1.6% (0.) 5.3% (5.) Benchmark allocation in brackets FUND TILT VS BENCHMARKS 8% Global Cash 0.2% (0.) SA Equities 38.7% (42.5%) Source: Old Mutual Investment Group (HiPortfolio) 5.1% MTN Group Telecommunications 1.7 Remgro Ltd Industrials 1.7 4% 0.3% 0. 1.8% 2.6% Glencore Basic Resources 1.6 21.3-4% -3.8% -2.5% -5.4% -8% SA Equities Commodities Property SA Convertible Bonds Nominal Bonds SA Money Market Global Equities Global Bonds Source: Old Mutual Investment Group (HiPortfolio) Old Mutual Investment Group (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group s company registration number is 1993/003023/07. The investment portfolios are market linked. Products may either be policy based or unitised in collective investment schemes. Investors rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance.
PROFILE CAPITAL PORTFOLIO MACROSOLUTIONS INVEST WITH PERSPECTIVE MULTI-ASSET CLASS SOLUTIONS: THE PROFILE RANGE The suite of portfolios is a comprehensive range of unitised, market-linked portfolios that span the risk/return spectrum. These policy-based investments are specifically designed for institutional investors and are compliant with Regulation 28 of the Pension Funds Act of South Africa. Within the parameters of their mandates, the portfolios invest across a range of local and offshore asset classes including equity, interest-bearing instruments, property, convertibles, commodities and derivatives. There are four portfolios in the portfolio range, from very conservative to aggressive. The investor may also switch between these funds within the range on a seamless basis to correspond with their changing risk profile. STATIC BENCHMARK ASSET ALLOCATION The static benchmark represents our view of the optimal long-term asset allocation per portfolio. 10 9 8 7 6 5 4 3 2 1 2.5 2.5 2.5 2.5 2.5 5.0 10.0 7.5 10.0 25.0 22.5 5.0 42.5 LONG-TERM RISK AND RETURN OBJECTIVES No Static Allocation SA Equity SA Bonds SA Money Market Gold Conservative Dynamic MARKET COMMENTARY AS AT 31/12/2018 Investors experienced very low volatility in the years leading up to 2018, but market action in 2018 has shaken them out of that comfort zone. The year started off well enough, with global equities up nearly 5% in US dollars in January 2018, but there was little to celebrate from that point on as wave after wave battered risk assets. Global equities ended the year 9% down in US dollars, while local equities were 11% lower in rand terms and the rand weakened 16% against the US dollar. Many would fault rising trade tensions, Chinese growth slowing, countryspecific crises (such as what we observed in Turkey and Argentina) and stock-specific problems (such as the US Food and Drug Administration (FDA) versus British American Tobacco, the unravelling of the Steinhoff debacle and MTN s Nigeria woes) for this outcome. While each of these likely weighed on investor sentiment, the underlying issue as we see it was the withdrawal of global liquidity, primarily through the US Federal Reserve (the Fed) unwinding quantitative easing and raising short-term interest rates. The reason for the Fed taking this action is understandable the US economy was growing rapidly, unemployment was falling to very low levels and they needed to manage the risk of their economy overheating, which, if left unchecked, would likely lead to a hard landing in the years ahead. With the benefit of hindsight, investors were ill-prepared for the change in liquidity conditions. In addition, the valuation underpin for many assets has disappeared in recent years it s easier for expensive assets to fall when conditions become less favourable. Locally, the initial bout of Ramaphoria fizzled out fairly early in the year as it dawned on the market that South Africa s recovery was perhaps a bit further out than expected. While Cyril Ramaphosa was able to move swiftly early in the year, it is near impossible to undo the damage of the past decade in a few short months. This realisation, combined with global concerns, tighter liquidity and stock-specific news, saw increased volatility in local assets. Many of the local equity market heavyweights fell sharply in the year, for instance. Naspers was down 16%, Richemont was 14% lower and British American Tobacco fell 4. Property, a much-loved asset class in recent years, experienced poor performance, even after adjusting for the Resilient fall-out. It wasn t all bad news though. Following the pullback caused by the Viceroy report, Pepkor and Capitec were amongst the better performers. Local bonds held up well despite uncertainty around land reform and, more recently, Eskom. Return Banker CPI + 3% CPI + 4% S Risk CPI + 5% JOHN ORFORD CPI + 6% BA Economic History (Hons), Postgraduate Dip (Quantitative Development Economics), MSc (Development Economics), MBA 14 years of investment experience ALIDA JORDAAN BMus (Hons) (cum laude), MBA (cum laude), CFA 23 years of investment experience FUND PERFORMANCE COMMENTARY AS AT 31/12/2018 During the year, s allocation to local government bonds benefited performance. We have used spikes in local bond yields to increase our holding, which, in our view, offer attractive long-term returns to investors. The portfolio also has a considerable allocation to cash and corporate credit. The credit portion of the portfolio is particularly attractive consisting of a welldiversified holding of high quality corporate credit with very low interest rate risk. This offers yields above cash and inflation and delivers bond like returns for much lower risk than owning long-dated government bonds. Holding some cash also means that the portfolio will be able to take advantage of opportunities that arise. The portfolio continues to hold a reasonable portion of its assets offshore. During 2018, as the risk posed to global equities from rising US interest rates increased, we reduced our offshore equity holding significantly. This was mostly done prior to the sharp selloff in global equities in the final quarter of 2018. The proceeds were allocated to offshore cash and selected offshore US dollar bonds. This offered protection against falling equities and the weaker rand. The portfolio s local equities holdings detracted from absolute performance of the portfolio. After a good start at the beginning of 2018, the equity market disappointed, posting double digit negative returns. The equity building block performed more or less in line with the capped SWIX equity benchmark. Overweight positions in Old Mutual, Capitec, Pepkor and KAP Industrial Holdings contributed to performance, while avoiding shares like Aspen and MediClinic, which showed significant declines, added to relative returns. Detractors varied from companies that are more locally focused, like Omnia, Tongaat and PPC, to MTN (impacted by Nigerian woes) and British American Tobacco, which has been held for its diversification characteristics. Looking ahead, the portfolio continues to favour local over global assets with local fixed income assets offering an attractive yield and local equities starting to offer much better value. We believe the portfolio is well positioned to benefit from the higher returns on offer in most South African assets. While the outlook for growth assets and the rand is uncertain, the improved valuations in many South African assets should deliver good inflation-beating returns to long-term investors. www.macrosolutions.co.za
PROFILE CAPITAL PORTFOLIO This is an actively managed and a very conservative investment that aims to provide high levels of capital protection by investing primarily in interestbearing assets, while limited exposure to equity and quoted property provides scope for growth in excess of inflation. This portfolio may be an attractive option for investors with a low risk appetite but who are mindful of the erosive effects of inflation on a cash-only portfolio, and the consequent need for some exposure to a selection of quality growth assets. Investors should note that investment objectives are not guaranteed. The portfolio complies with Regulation 28 of the Pension Funds Act. ADDITIONAL INFORMATION Launch date: January 1995 Benchmark: Static asset allocation benchmark Risk category: Conservative Investment objective The portfolio aims to offer returns in excess of cash, and targets CPI + 3% per annum (gross of fees) over the long term, at a relatively low level of risk. The fund also aims to preserve capital over any 12-month period. Investment objectives are not guaranteed. Fees Domestic assets: 0.4 p.a. (rebates for large funds) International assets: 0.8 p.a. Plus: A performance fee in respect of alternative assets. Fees on domestic assets exclude VAT. (VAT is deemed not payable.) ASSET ANALYSIS AS AT 31/12/2018 SA Equities 19% (20.) Preference Shares 4% (0.) 6% (2.5%) Nominal Bonds 21% (30.) PERFORMANCE AS AT 31/12/2018 PERFORMANCE PER ANNUM 25% 2 15% 1 5% 12. 10. 3-Year Rolling Returns CPI + 3% Dec 97 Jul 00 Feb 03 Sep 05 Apr 08 Nov 10 Jun 13 Jan 16 8. 6. 4. 2. 0. -2. 35% 3 Fund Benchmark -0.1% -1.2% Returns as at 31 December 2018 3.3% 4.1% 6.9% 6.8% 7.7% Aug 18 7.7% 9.7% 3 Months 1 Year 3 Years 5 Years 10 Years 12-Month Rolling Returns (Non-annualised) 31 December 1995 to 31 December 2018 9. 12-month capital preservation success rate: 10 Global Cash 4% () 1 (10.) 5% (%) Inflation-linked Bonds 6% (0.) SA Money Market 25% (20.) 25% 2 15% 1 Source: Old Mutual Investment Group (HiPortfolio) Benchmark allocation in brackets PRINCIPAL HOLDINGS AS AT 31/12/2018 Holding Sector % of fund Naspers Media 1.7 Sasol Oil & Gas 1.3 Nedcor Banks 1.0 MTN Group Telecommunications 0.9 ABSA Banks 0.8 Standard Bank Banks 0.8 Glencore Basic Resources 0.8 Anglo American Basic Resources 0.8 Old Mutual Life Insurance 0.7 British American Tobacco Consumer Goods 0.6 9.2 5% Dec 95 Dec 99 FUND TILT VS BENCHMARKS 8. 6. 4. 2. 0. -2. -4. -6. -8. -10. -12. -0.8% -2.5% SA Equities Commodities 3.6% 0. Convertible Bonds Dec 03 Dec 07 Dec 11 Dec 15-9.2% Nominal Bonds 6.2% 5.5% Inflation- linked Bonds SA Money Market -0.2% 0. Global Property -10.1% 3.7% 3.9% Preference Shares Global Cash 0. Africa Source: Old Mutual Investment Group (HiPortfolio) Old Mutual Investment Group (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group s company registration number is 1993/003023/07. The investment portfolios are market linked. Products may either be policy based or unitised in collective investment schemes. Investors rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance.
MACROSOLUTIONS PROFILE EDGE28 PORTFOLIO INVEST WITH PERSPECTIVE MULTI-ASSET CLASS SOLUTIONS: THE PROFILE RANGE The suite of portfolios is a comprehensive range of unitised, market-linked portfolios that span the risk/return spectrum. These policy-based investments are specifically designed for institutional investors and are compliant with Regulation 28 of the Pension Funds Act of South Africa. Within the parameters of their mandates, the portfolios invest across a range of local and offshore asset classes including equity, interest-bearing instruments, property, convertibles, commodities and derivatives. There are four portfolios in the portfolio range, from very conservative to aggressive. The investor may also switch between these funds within the range on a seamless basis to correspond with their changing risk profile. STATIC BENCHMARK ASSET ALLOCATION The static benchmark represents our view of the optimal long-term asset allocation per portfolio. 10 9 8 7 6 5 4 3 2 1 2.5 2.5 2.5 2.5 2.5 5.0 10.0 7.5 10.0 25.0 22.5 5.0 42.5 LONG-TERM RISK AND RETURN OBJECTIVES Return No Static Allocation SA Equity SA Bonds SA Money Market Gold Conservative Dynamic CPI + 3% CPI + 4% CPI + 5% CPI + 6% MARKET COMMENTARY AS AT 31/12/2018 Investors experienced very low volatility in the years leading up to 2018, but market action in 2018 has shaken them out of that comfort zone. The year started off well enough, with global equities up nearly 5% in US dollars in January 2018, but there was little to celebrate from that point on as wave after wave battered risk assets. Global equities ended the year 9% down in US dollars, while local equities were 11% lower in rand terms and the rand weakened 16% against the US dollar. Many would fault rising trade tensions, Chinese growth slowing, countryspecific crises (such as what we observed in Turkey and Argentina) and stockspecific problems (such as the US Food and Drug Administration (FDA) versus British American Tobacco, the unravelling of the Steinhoff debacle and MTN s Nigeria woes) for this outcome. While each of these likely weighed on investor sentiment, the underlying issue as we see it was the withdrawal of global liquidity, primarily through the US Federal Reserve (the Fed) unwinding quantitative easing and raising short-term interest rates. The reason for the Fed taking this action is understandable the US economy was growing rapidly, unemployment was falling to very low levels and they needed to manage the risk of their economy overheating, which, if left unchecked, would likely lead to a hard landing in the years ahead. With the benefit of hindsight, investors were ill-prepared for the change in liquidity conditions. In addition, the valuation underpin for many assets has disappeared in recent years it s easier for expensive assets to fall when conditions become less favourable. Locally, the initial bout of Ramaphoria fizzled out fairly early in the year as it dawned on the market that South Africa s recovery was perhaps a bit further out than expected. While Cyril Ramaphosa was able to move swiftly early in the year, it is near impossible to undo the damage of the past decade in a few short months. This realisation, combined with global concerns, tighter liquidity and stock-specific news, saw increased volatility in local assets. Many of the local equity market heavyweights fell sharply in the year, for instance. Naspers was down 16%, Richemont was 14% lower and British American Tobacco fell 4. Property, a much-loved asset class in recent years, experienced poor performance, even after adjusting for the Resilient fall-out. It wasn t all bad news though. Following the pullback caused by the Viceroy report, Pepkor and Capitec were amongst the better performers. Local bonds held up well despite uncertainty around land reform and, more recently, Eskom. Banker S Risk PETER BROOKE Head of MacroSolutions BBusSc Finance (Hons) 21 years of investment experience ARTHUR KARAS BCom, CFA 25 years of investment experience FUND PERFORMANCE COMMENTARY AS AT 31/12/2018 2018 was a disappointing year for, as it was for all portfolios with high equity benchmarks. During the year, the portfolio has reduced its global equity exposure following good performance. The proceeds were repatriated back to South Africa and used to increase holdings of selected domestic equities, where we see some opportunities. The portfolio also added to South African bonds, which offer a high real yield. The portfolio s holdings in local cash and bonds helped to shield against weak equity markets. While global equities held up well during 2018, the last quarter was particularly weak for international markets. Avoiding exposure to SA listed rand hedge property shares was a big positive for the portfolio as this sector was badly hit over the past 12 months. This active asset allocation is a key tool to help us to deliver better long-term returns and certainly helped protect the portfolio from the worst of the fall. Look forward, the news is getting better. We have recently upgraded our long-term, real expected returns on the back of cheaper valuations, which bodes well for future returns. During 2019, you can expect us to start using the portfolio s interest-bearing assets to buy back into equity markets to take advantage of the sell-off. This will create the potential for much better returns going forward. www.macrosolutions.co.za
PROFILE EDGE28 PORTFOLIO This is an actively managed and a flexible portfolio that seeks to deliver superior real returns over the long term by capitalising on high-conviction asset allocation and stock selection opportunities across local and international asset classes. This investment suits investors who are prepared to accept the potential for significant short-term fluctuations in pursuit of maximum growth over the long term. Investors should note that investment objectives are not guaranteed. PERFORMANCE AS AT 31/12/2018 4 3 CPI + 6% 7-Year Rolling Returns The portfolio complies with Regulation 28 of the Pension Funds Act. ADDITIONAL INFORMATION Launch date January 1995 2 1 Benchmark No static asset allocation benchmark Risk category Active Investment objective The portfolio aims to maximise real returns, and targets CPI + 6% per annum (gross of fees) over the long term. As such, a relatively high level of short-term volatility can be expected. Investment objectives are not guaranteed. Fees Domestic assets: 0.65% p.a. (rebates for large funds) International assets: 0.8 p.a. Plus: A performance fee in respect of alternative assets. Fees on domestic assets exclude VAT. (VAT is deemed not payable.) Dec 01 16. 12. 8. 4. 0. -4. -8. Jul 03 Feb 05 Sep 06 Apr 08 Nov 09 Jun 11 Jan 13 Aug 14 Mar 16 Oct 17 Returns as at 31 December 2018 12.4% 8. 4.8% - 3.6% - 5.4% 3 Months 1 Year 3 Years 5 Years 10 Years PRINCIPAL HOLDINGS AS AT 31/12/2018 Holding Sector % of fund Nedcor Banks 2.8 Sasol Oil & Gas 2.7 Naspers Media 2.7 ABSA Banks 2.4 Old Mutual Life Insurance 2.2 Pepkor Consumer Goods 1.8 MTN Group Telecommunications 1.7 Glencore Basic Resources 1.6 Anglo American Basic Resources 1.5 Foschini Group Consumer Goods 1.5 21.0 ASSET ANALYSIS AS AT 31/12/2018 Alternatives 2% Africa 2% 26% SA Equities 41% Preference Shares 1% Nominal Bonds 12% Global T-Bills 1. SA Money Market 8% 7% Source: Old Mutual Investment Group (HiPortfolio) Old Mutual Investment Group (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group s company registration number is 1993/003023/07. The investment portfolios are market linked. Products may either be policy based or unitised in collective investment schemes. Investors rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance.
MACROSOLUTIONS PROFILE MODERATE PORTFOLIO INVEST WITH PERSPECTIVE MULTI-ASSET CLASS SOLUTIONS: THE PROFILE RANGE The suite of portfolios is a comprehensive range of unitised, market-linked portfolios that span the risk/return spectrum. These policy-based investments are specifically designed for institutional investors and are compliant with Regulation 28 of the Pension Funds Act of South Africa. Within the parameters of their mandates, the portfolios invest across a range of local and offshore asset classes including equity, interest-bearing instruments, property, convertibles, commodities and derivatives. There are four portfolios in the portfolio range, from very conservative to aggressive. The investor may also switch between these funds within the range on a seamless basis to correspond with their changing risk profile. STATIC BENCHMARK ASSET ALLOCATION 10 The static benchmark represents our view of the optimal long-term asset allocation per portfolio. LONG-TERM RISK AND RETURN OBJECTIVES Return 9 8 7 6 5 4 3 2 1 Banker 2.5 2.5 2.5 2.5 2.5 5.0 10.0 7.5 10.0 Conservative Dynamic CPI + 3% 25.0 CPI + 4% S 22.5 5.0 42.5 Risk CPI + 5% JOHN ORFORD No Static Allocation SA Equity SA Bonds SA Money Market Gold CPI + 6% BA Economic History (Hons), Postgraduate Dip (Quantitative Development Economics), MSc (Development Economics), MBA 14 years of investment experience ALIDA JORDAAN BMus (Hons) (cum laude), MBA (cum laude), CFA 23 years of investment experience MARKET COMMENTARY AS AT 31/12/2018 Investors experienced very low volatility in the years leading up to 2018, but market action in 2018 has shaken them out of that comfort zone. The year started off well enough, with global equities up nearly 5% in US dollars in January 2018, but there was little to celebrate from that point on as wave after wave battered risk assets. Global equities ended the year 9% down in US dollars, while local equities were 11% lower in rand terms and the rand weakened 16% against the US dollar. Many would fault rising trade tensions, Chinese growth slowing, country-specific crises (such as what we observed in Turkey and Argentina) and stock-specific problems (such as the US Food and Drug Administration (FDA) versus British American Tobacco, the unravelling of the Steinhoff debacle and MTN s Nigeria woes) for this outcome. While each of these likely weighed on investor sentiment, the underlying issue as we see it was the withdrawal of global liquidity, primarily through the US Federal Reserve (the Fed) unwinding quantitative easing and raising short-term interest rates. The reason for the Fed taking this action is understandable the US economy was growing rapidly, unemployment was falling to very low levels and they needed to manage the risk of their economy overheating, which, if left unchecked, would likely lead to a hard landing in the years ahead. With the benefit of hindsight, investors were ill-prepared for the change in liquidity conditions. In addition, the valuation underpin for many assets has disappeared in recent years it s easier for expensive assets to fall when conditions become less favourable. Locally, the initial bout of Ramaphoria fizzled out fairly early in the year as it dawned on the market that South Africa s recovery was perhaps a bit further out than expected. While Cyril Ramaphosa was able to move swiftly early in the year, it is near impossible to undo the damage of the past decade in a few short months. This realisation, combined with global concerns, tighter liquidity and stock-specific news, saw increased volatility in local assets. Many of the local equity market heavyweights fell sharply in the year, for instance. Naspers was down 16%, Richemont was 14% lower and British American Tobacco fell 4. Property, a much-loved asset class in recent years, experienced poor performance, even after adjusting for the Resilient fall-out. It wasn t all bad news though. Following the pullback caused by the Viceroy report, Pepkor and Capitec were amongst the better performers. Local bonds held up well despite uncertainty around land reform and, more recently, Eskom. FUND PERFORMANCE COMMENTARY AS AT 31/12/2018 In line with weaker financial markets, delivered a disappointing return for the year. During the year, the portfolio s allocation to local government bonds benefited performance. We used spikes in local bond yields to increase our holding, which, in our view, offer attractive long-term returns to investors. The portfolio also has a considerable allocation to cash and corporate credit. The credit portion of the portfolio is particularly attractive consisting of a welldiversified holding of high-quality corporate credit with very low interest rate risk. This offers yields above cash and inflation and delivers bond like returns for much lower risk than owning long-dated government bonds. Holding some cash also means that the portfolio will be able to take advantage of opportunities that arise. The portfolio continues to hold a reasonable portion of its assets offshore. During 2018, as the risk posed to global equities from rising US interest rates increased, we reduced our offshore equity holding significantly. This was mostly done prior to the sharp selloff in global equities in the final quarter of 2018. The proceeds were allocated to offshore cash and selected offshore US dollar bonds. This offered protection against falling equities and the weaker rand. The portfolio s local equities holdings detracted from absolute performance of the portfolio. After a good start at the beginning of 2018, the equity market disappointed, posting double digit negative returns. The equity building block performed more or less in line with the capped SWIX equity benchmark. Overweight positions in Old Mutual, Capitec, Pepkor and KAP Industrial Holdings contributed to performance, while avoiding shares like Aspen and MediClinic, which showed significant declines, added to relative returns. Detractors of performance varied from companies that are more locally focused, like Omnia, Tongaat and PPC, to MTN (impacted by Nigerian woes) and British American Tobacco, which has been held for its diversification characteristics. Looking ahead, the portfolio continues to favour local over global assets, with local fixed-income assets offering an attractive yield and local equities starting to offer much better value. We believe the portfolio is well positioned to benefit from the higher returns on offer in most South African assets. While the outlook for growth assets and the rand is uncertain, the improved valuations in many South African assets should deliver good inflation-beating returns to long -term investors. www.macrosolutions.co.za
PROFILE MODERATE PORTFOLIO This is an actively managed and a conservative portfolio which aims to provide investors with an attractive combination of stable capital growth and capital protection by investing in a well-diversified mix of local and global assets. A selection of quality shares helps to defend capital against inflation and provide valuable dividend payouts, while bonds, property and money market securities provide volatility protection and a steady income yield. All income is reinvested. PERFORMANCE AS AT 31/12/2018 3 CPI + 4% 3-Year Rolling Returns It is an ideal consideration for investors nearing retirement who want to preserve wealth while continuing to grow capital. Investors should note that investment objectives are not guaranteed. The portfolio complies with Regulation 28 of the Pension Funds Act. ADDITIONAL INFORMATION Launch date: January 1995 Benchmark: Static asset allocation benchmark Risk category: Conservative Investment objective The portfolio targets returns of CPI + 4% (gross of fees) per annum over the long term, while aiming to minimise capital loss over rolling 18-month periods. The portfolio has a low level of risk relative to a typical balanced fund. Investment objectives are not guaranteed. Fees Domestic assets: 0.45% p.a. (rebates for large funds) International assets: 0.8 p.a. Plus: A performance fee in respect of alternative assets. Fees on domestic assets exclude VAT. (VAT is deemed not payable.) ASSET ANALYSIS AS AT 31/12/2018 PERFORMANCE PER ANNUM 2 1 12. 10. 8. 6. 4. 2. 0. -2. -4. Dec 97 Jul 00 Feb 03 Sep 05 Apr 08 Nov 10 Jun 13 Jan 16 Benchmark Returns as at 31 December 2018 1. 1.9% 6.2% 6.6% 7.9% 7.9% Aug 18 10.7% 10.7% -1.4% -2.8% 3 Months 1 Year 3 Years 5 Years 10 Years 5% (10.) 14% (%) SA Equities 3 (30.) 35% 18-Month Rolling Returns (Annualised) 30 June 1996 to 31 December 2018 18-month capital preservation success rate: 97% 3 Global Cash 4% () 6% (2.5%) 25% Preference Shares 3% (0.) 2 SA Money Market 12% (%) 15% Inflation-linked Bonds 5% (0.) Nominal Bonds 21% (25.) 1 5% Source: Old Mutual Investment Group (HiPortfolio) Benchmark allocation in brackets PRINCIPAL HOLDINGS AS AT 31/12/2018 Holding Sector % of Fund Naspers Media 2.6 Sasol Oil & Gas 2.0 Nedcor Banks 1.5 MTN Group Telecommunications 1.4 ABSA Banks 1.3 Standard Bank Banks 1.3 Glencore Basic Resources 1.2 Anglo American Basic Resources 1.2 Old Mutual Life Insurance 1.0 British American Tobacco Consumer Goods 0.9 14.4-5% Jun 96 May 00 Apr 04 Mar 08 Feb 12 Jan 16 FUND TILT VS BENCHMARKS 2 15% 1 5% -5% -1-0.2% -2.5% SA Equities Commodities 3.9% 3. 0. Preference Shares Convertible Bonds -4.4% Nominal Bonds 5.4% Inflation-linked Bonds -0.6% -3.1% -5.2% SA Money Market 0. Global Property 3.6% Global Cash 0. Africa Old Mutual Investment Group (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group s company registration number is 1993/003023/07. The investment portfolios are market linked. Products may either be policy based or unitised in collective investment schemes. Investors rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance.
CONTACT Our dedicated distribution team or visit us at www.macrosolutions.co.za Sathyen Mahabeer Chief Operating Officer E smahabeer@oldmutualinvest.com T +27 (0)21 504 4614 C +27 (0)82 440 8801 Merrelyn Diale Senior Account Manager E mdiale@oldmutualinvest.com T +27 (0)21 504 4257 C +27 (0)82 464 8864 Melanie Vollenhoven Business Development Specialist E mvollenhoven@oldmutualinvest.com T +27 (0)21 509 2166 C +27 (0)76 010 6550 Mutualpark, Jan Smuts Drive, Pinelands 7405 PO Box 878, Cape Town 8000, South Africa Tel +27 (0)21 509 5022, Fax +27 (0)21 509 4663 Old Mutual Investment Group (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group is a wholly owned subsidiary of Old Mutual (South Africa) Limited. Reg No 1993/003023/07. The investment portfolios are market linked. Products may either be policy based or unitised in collective investment schemes. Investors rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance. All satellite photography courtesy NASA.