Nedgroup Investments Core Chartbook 2016 Key industry trends in index unit trusts, ETFs and other rules-based strategies E&OE
Rules-Based Investing Rules-Based Investing
Nedgroup Investments Core Chartbook 2016 2 Passive investment landscape has changed Past Present Rules-based investing Traditional Passive Alternative strategies (Smart-beta) Multi-asset Market cap weighted Eg. ALSI tracker Factor-based Eg. Divi-Plus tracker Multi-factor Eg. RAFI fund Asset Allocation Eg. Balanced fund Traditional passive strategies track standard market-cap weighted indices such as the All-Share Index (ALSI). The passive landscape has changed over the past decade. We therefore use the term rules-based investing, which now includes alternative and mulit-asset strategies. Smart-beta products track indices which use fundamental factors such as dividend yield to determine their index weightings. Multi-asset strategies include portfolio construction considerations such as asset allocation, benchmark selection and rebalancing. Rules-Based Investing
Nedgroup Investments Core Chartbook 2016 3 SA advisors increasingly adopting rules-based strategies Do you currently use passive solutions? Do you anticipate using passive solutions three years from now? 48.1% 51.9% 33% 67% YES NO YES NO Source: Survey conducted for the Nedgroup Investments National Convention, August 2015. Rules-Based Investing
Nedgroup Investments Core Chartbook 2016 4 Trustees are considering new options in the light of proposed retirement fund reforms Has the [trustee] board considered any of the following aspects during the last 12 months? (percentage of surveyed respondents) Do you believe the proposed reforms will result in cost savings to members, better preservation and enhanced replacement ratios on retirement? Passive investment options/ strategy for the fund 59% 9% Communication strategy for default options to members 58% 15% Appointment of advisors/counsellors to withdrawing/retiring members 33% Joining an umbrella fund, where the above changes can be dealt with more effectively 24% 76% Yes No Don t Know None of the above 11% Source: PwC, Retirement fund strategic matters and remuneration survey, 2016. Rules-Based Investing
Nedgroup Investments Core Chartbook 2016 5 Globally, investors use active AND rules-based funds Average mix in client portfolios* Reasons to implement rules-based investments 65% 35% Rules-based Active Advisors* Simplified access to efficient asset classes. Present clients with a lower-fee investment option. Clients preferences. Institutional decision makers** 75% of surveyed investors indicate that they use rules-based to manage at least a part of their portfolio. Use rules-based to minimise fees. Use it to access efficient asset classes. * Source: Natixis Global Asset Management, Global survey of financial advisors conducted by CoreData Research, July 2015. Survey included 2 400 financial advisors in 14 countries. ** Source: Natixis Global Asset Management, Global survey of institutional investors conducted by CoreData Research, July 2015. Survey included 660 institutional decision-makers in 29 countries. Rules-Based Investing
Trends in rules-based investing 2015 Trends
Nedgroup Investments Core Chartbook 2016 7 Growth in asset size of the South African rules-based market 2010 2011 2012 2013 2014 2015 AUM Y-o-Y growth (%) 35% 17% 31% 25% 27% 21% 20% The Assets Under Management (AUM) of the rules-based market has seen steady annual growth (more than 20% on average) over the past five years. This has largely been driven by inflows but has been assisted by positive asset class performances in the South African market. R61bn At R61bn the rules-based market makes up only 3.1% of the nearly R2 trillion Collective Investment Schemes (CIS) industry. The rules-based market has however been growing at double the rate of the total CIS industry which was 11.5% during 2015 and 13.7% in 2014. Source: ASISA Trends
Nedgroup Investments Core Chartbook 2016 8 Multi-asset unit trusts seeing the strongest growth 70 AUM (Strategy) 70 AUM (Investment vehicle) 60 60 AUM (R Billions) 50 40 30 20 AUM (R Billions) 50 40 30 20 10 10 0 2009 2010 2011 2012 2013 2014 2015 0 2009 2010 2011 2012 2013 2014 2015 Multi-asset Alt Rules-based Market cap Unit trust ETF Market cap strategies still Multi-asset strategies have Alternative rules-based 75% dominate the rules-based 13.5% seen the strongest growth 1bn strategies have seen a market and make up 75% and make up 13.5% of the decline of nearly R1bn 38% of AUM. rules based market in 2015, up from 6.2% in 2014. during 2015. Unit trusts have see the majority of growth over the past five years, growing by 38% compared to ETFs that only grew by 6.2%. Source: ASISA and Morningstar Direct Trends
Nedgroup Investments Core Chartbook 2016 9 Continuous growth in global market share for rules-based funds 100% Global increase in rules-based market share 100% Global AUM market share by region 2015 80% 80% 60% 60% 40% 40% 20% 20% 0% 10% 10% 12% 13% 14% 15% 16% 18% 20% 2007 2008 2009 2010 2011 2012 2013 2014 2 0 1 5 Rules-based Traditional active 0% 26% 22% 16% 12% 12% 11% 10% 3% 2% 2% USA Asia Oceania Europe Rules-based Canada Cross-border Middle East Traditional active Africa Latin America Other Europe 20% Rules-based funds have increased their global market share to 20% during 2015. It was less than 10% a decade ago. 26% The US is leading this trend with a market share of 26%, up from 24% the previous year. Asia & Oceania Asia and Oceania (Australia) have also seen significant growth in rules-based funds. Source: Morningstar Direct Trends
Nedgroup Investments Core Chartbook 2016 10 Steady growth in the number of rules-based funds Number of South African funds 83 69 39 49 60 91 Growth in number of funds (2009-2015) p.a. Total market 5.9% Traditional funds 5.3% Rules-based funds 18.0% 904 900 909 994 1089 1185 2010 2011 2012 2013 2014 2015 Traditional Rules-based Rules-based funds have grown at a higher rate than traditional funds in AUM and the number of new funds launched. Source: ASISA and Morningstar Direct Trends
Nedgroup Investments Core Chartbook 2016 11 The South African market is getting more rules-based funds Number of rules-based funds launched per year Total number of rules-based funds 16 100 12 8 4 0 1 3 3 2 2 6 2 9 2 2 5 8 4 2 5 6 3 80 60 40 20 10 4 2 17 15 22 28 4 19 37 6 14 21 25 42 44 19 22 50-4 2010 2011 2012 2013 2014 2015 0 2010 2011 2012 2013 2014 2015 Market cap Alt Rules-based Multi-asset Market cap Alt Rules-based Multi-asset 8 Since 2005 an average of eight rules-based funds have been launched per year. 53% The number of unit trusts have grown significantly faster than ETFs over the past four years and has resulted in unit trusts making up the majority (53%) of available rules-based funds in 2015. 63% 63% of currently available rules-based funds were launched in the past four years. Source: ASISA and Morningstar Direct Trends
Nedgroup Investments Core Chartbook 2016 12 Equity funds still dominate the South African rules-based market 30 AUM of largest categories rules-based 1000 AUM of largest categories industry R Billions 25 20 15 10 5 R Billions 800 600 400 200 0 SA Equity Foreign Equity SA Multi Asset 2014 2015 SA Real Estate SA Interest Bearing 0 SA Multi Asset SA Interest Bearing SA Equity 2014 2015 Foreign Multi Asset Foreign Equity SA Equity funds are still the largest segment Foreign Regional Equity funds experienced AUM in the rules-based market. However, this 34% strong growth in 2015, mostly supported segment has seen a decrease in AUM during by the depreciation of the Rand against 2015 2015. This is due to negative market returns and net-outflows during the year. developed market currencies (34% depreciation against the US dollar). Industry and rules-based SA Multi-Asset funds saw the strongest growth in 2015. Source: ASISA Trends
Nedgroup Investments Core Chartbook 2016 13 The largest rules-based funds in South Africa Fund ASISA category AUM (R Million) 2015 2014 YoY Growth Satrix 40 ETF SA Equity Large Cap 7 025 7 841-10.4% Prudential Enhanced SA Property Tracker Fund SA Real Estate General 5 025 4 315 16.4% Db X-Trackers MSCI USA ETF Regional Equity General 4 770 2 717 75.6% Db X-Trackers MSCI World ETF Global Equity General 3 462 2 541 36.3% Nedgroup Investments Core Diversified Fund SA Multi Asset High Equity 3 168 1 505 110.5% Db X-Trackers DJ Euro Stoxx 50 Regional Equity General 2 428 1 501 61.8% Satrix Indi ETF SA Equity Industrial 2 222 1 802 23.3% Satrix SWIX Top 40 Index Fund SA Equity Large Cap 2 082 - - Nedgroup Investments Core Guarded Fund SA Multi Asset Low Equity 2 001 1 263 58.4% StanLib SWIX Top 40 ETF SA Equity Large Cap 1 817 2 417-24.8% The top 10 largest rules-based funds made up 56% of the rules-based 56% market in 2015 (up from 51% in 2014). ZAR The majority of the growth in the Global and Regional Equity funds in the top 10 list was a result of the depreciation of the rand over the year. Source: ASISA Trends
Nedgroup Investments Core Chartbook 2016 14 Largest South African rules-based management companies 20 16 2014 AUM 2015 AUM R Billions 12 8 4 - Satrix Deutsche (db-x trackers) STANLIB Nedgroup Investments Prudential Market share 31.5% 20.6% 10.8% 9.4% 8.6% Growth in AUM (2015) 20.6% 59.6% -6.4% 67.2% 16.5% Rulesbased The number of companies offering rules-based funds has increased from 14 in 2010 to 19 in 2015. The five largest funds account for 80% of AUM. 2015 Most companies experienced growth during 2015, in particular Nedgroup Investments and DB Trackers saw the strongest growth. Source: ASISA and Morningstar Direct Trends
Flows - 2015 Flows - 2015
Nedgroup Investments Core Chartbook 2016 16 Net Flows growth in rules-based market 9.0 7.5 6.0 4.3 Net flows (R Billions) 4.5 3.0 1.5 0 2.5 0.5 0.6-0.6-0.6 1.0 1.2 2.1 3.4 3.6-1.5 2010 2011 2012 2013 2014 2015 Multi-asset Market cap Alt Rules-based Rules-based funds accounted for 7% Multi-asset strategies attracted more R8.1bn (R8.1bn of the R115bn) of the total R4.3bn than half of the net flows in 2015 R3.6bn net-flows into the asset management (R4.3bn), continuing the trend over the industry in 2015, up from 4.2% in 2014. past three years. Source: ASISA Single asset class strategies are still dominated by market cap funds seeing R3.6bn in net inflows during 2015 compared to alternative rules-based funds net inflows of only R360 million. Flows - 2015
Nedgroup Investments Core Chartbook 2016 17 Increased use of rules-based balanced fund SA Multi Asset categories: Portion of invested assets Proportion of multi-asset net flows that go in rules-based funds 12.0% 9.0% 98.8% 99.4% 99.0% 99.7% 6.0% 1.2% 0.7% 1.0% 0.3% High Equity Medium Equity Low Equity Flexible Rules-based Traditional active 3.0% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2014 2014 2014 2014 2015 2015 2015 2015 Rules-based funds still make up a small percentage of the SA Multi Asset SA CIS categories, which are the largest sectors in the SA CIS market. 10% Over the past eight quarters, rules-based funds have increased market share and accounted for nearly 10% of the net flows into the Multi Asset categories. The lion s share went into the SA Multi Asset High and Low Equity categories. Source: ASISA Flows - 2015
Nedgroup Investments Core Chartbook 2016 18 Globally, rules-based is taking a larger market share of new inflows 100% Global estimated net flows market share $500 Global estimated net flows by Region 2015 80% 60% 40% 20% 0% 19% 46% 33% 56% 90% 37% 37% 41% 60% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Rules-based Traditional active R Billions $400 $300 $200 $100 $0 -$100 -$200-0.3 3.2 Africa 40.8 142.5 Asia 8.7 10.2 Canada 60.5 235.4 Cross-border Rules-based 45.8 123.2 Europe -1.7-2.4 Latin America 1.0-7.9 Middle East Traditional active 3.7 Oceania -1.8-0.0 Other Europe 0.1 397.5 USA -136.2 Globally 60% of net flows went into rules-based funds during 2015. The 60% vast majority of those flows come from the US where traditional active funds experienced net outflows. 25% In European, Cross Border (tax havens) and Asian regions, rules-based funds took around 25% of net flows. Source: Morningstar Direct Flows - 2015
Nedgroup Investments Core Chartbook 2016 19 Rules-based net-flows for 2015 (South African sectors) South African Equity (General, Large/Mid/Small Caps, Resources, Industrials and Financials) Rules-based equity funds experience net-inflows of R630m for the first time in a few years. This is mainly due to the seeding of one new fund in the sector with R2bn. South African Multi-Asset (High/Medium/Low Equity, Flexible and Income) Net-flows doubled from 2014 to 2015 making this the sector with the largest net-inflows (R4.3bn). During the same time net-flows across the industry in this sector halved from R136bn in 2014 to R67bn in 2015. South African Real Estate Rules-based fund had another good year taking just over R1bn in net flows, almost a quarter of the industry category flows. South African Interest Bearing (Short, Variable and Money Market) Net-flows for 2015 were flat compared to 2014 s R2bn flows while the total industry flows were R3.5bn for 2015 (still low compared to prior years). Global Equity Net-flows were only R160m in 2015, down from R950m the previous year. Regional Equity This category had the second largest net inflows for 2015 at R1.9bn, up from R1.4bn in 2014. This is higher than the industry flows where non-rules-based funds had net-outflows. Source: ASISA Flows - 2015
Nedgroup Investments Core Chartbook 2016 20 Net-flows for 2015 (South African sectors) Net flows (R Million) Rules-based market 2015 2014 2013 SA Equity 630-1 811-392 SA Multi Asset 4 342 2 185 952 SA Real Estate 1 126 1 641 500 SA Interest Bearing 153 2 034-339 Global Equity 165 952 321 Regional Equity 1 864 1 377 96 Net flows (R Million) Industry 2015 2014 2013 SA Equity 9 551 19 783 1 510 SA Multi Asset 67 034 136 453 131 565 SA Real Estate 4 819-934 1 710 SA Interest Bearing 3 526-30 792 42 121 Global Equity 13 091 6 353 10 138 Regional Equity 806 1 068 1 342 Source: ASISA Flows - 2015
Nedgroup Investments Core Chartbook 2016 21 Top 10 rules-based net inflows in 2015 Fund name ASISA category Flows (R Million) AUM (R Million) Satrix SWIX Top 40 Index Fund SA Equity Large Cap 2 029 2 082 Nedgroup Investments Core Diversified Fund SA Multi Asset High Equity 1 588 3 168 Db X-Trackers MSCI USA ETF Regional Equity General 967 4 770 Satrix Balanced Index Fund SA Multi Asset High Equity 871 1 263 Nedgroup Investments Core Guarded Fund SA Multi Asset Low Equity 688 2 001 Sygnia All Bond Index Fund SA Interest Bearing Variable Term 621 966 Prudential Enhanced SA Property Tracker Fund SA Real Estate General 514 5 025 Db X-Trackers DJ Euro Stoxx 50 Regional Equity General 494 2 428 Colourfield BCI Equity 1 Fund SA Equity General 383 376 Satrix MSCI World Equity Index Feeder Fund Global Equity General 341 836 Source: ASISA Flows - 2015
Nedgroup Investments Core Chartbook 2016 Flows - 2015 22 Top 10 rules-based net outflows in 2015 Fund name ASISA category Flows (R Million) AUM (R Million) Satrix 40 ETF SA Equity Large Cap -1 104 7 025 Stanlib SWIX Top 40 ETF SA Equity Large Cap -626 1 817 NewFunds ILB ETF SA Interest Bearing Variable Term -354 421 Old Mutual Global FTSE RAFI All World Index Feeder Fund Global Equity General -303 544 Ashburton Top 40 ETF SA Equity Large Cap -249 596 Stanlib Inflation Linked Bond Fund SA Interest Bearing Variable Term -206 1 745 NewFunds Govi ETF SA Interest Bearing Variable Term -123 412 Stanlib ALSI 40 Fund SA Equity Large Cap -114 1 510 Ci Property Index Fund SA Real Estate General -106 347 Grindrod RAFI Enhanced SA Strategy Fund SA Equity General -97 0* * Fund closed in 2015. Source: ASISA Flows - 2015
Cost Trends Cost trends
Nedgroup Investments Core Chartbook 2016 24 Fees have remained stable in the South African market 1.8 Asset-weighted average TERs 1.6 1.4 TER (%) 1.2 1.0 0.8 0.6 0.4 2007 2008 2009 2010 2011 2012 2013 2014 2015 South African multi-asset South African equity South African real estate Total market fees Foreign equity South African interest bearing 8 yrs Retail expenses have remained stable over the past 8 years with minor decreases in some sectors. Source: Morninstar Direct Cost trends
Nedgroup Investments Core Chartbook 2016 25 Tracking of cost trends in the rules-based market (2012-2015) Asset-weighted average TERs ASISA category Rules- based 2012 2015 no. of funds Industry # of funds Rules- based no. of funds Industry no. of funds SA Equity 0.44 26 1.67 146 0.46 48 1.47 197 SA Multi Asset 0.65* 4* 1.51 358 0.57 25 1.53 525 SA Real Estate 0.74 4 1.38 23 0.65 8 1.30 39 SA Interest Bearing 0.50 7 0.64 76 0.42 7 0.59 91 Global Equity - - 1.88 27 0.56 4 1.79 47 Regional Equity - - 2.19 6 0.86 4 2.05 10 Rules-based funds have not had an impact on average TERs in South Africa as they are still too few in number and AUM. * TER skewed by the RMB ILB Fund. As this fund is not representative of MA funds, we have excluded it. Source: Morningstar Cost trends
Nedgroup Investments Core Chartbook 2016 26 Global trends in asset management fees Asset-weighted median TERs Country Fixed income Equity Multi Asset Money market Australia 0.58% 1.18% 0.82% 0.40% Canada 1.51% 2.35% 2.16% 0.60% Germany 1.06% 1.81% 1.63% 0.15% South Africa* 0.83% 1.85% 1.63% 0.57% UK 1.11% 1.75% 1.50% 0.12% US 0.59% 0.84% 0.61% 0.14% The US market has the lowest fees In other regions there is a very low USA available for sale to investors which is in Other correlation between size of fund market part due to economies of scale and and the cost charged to investors. Australia B-grade competition. The growing presence of rules-bases funds is also making an impact on overall TERs. has some of the lowest fees in the world while Canada has some of the highest. Regulatory and distribution costs in some cases (eg. cross-border regions such as Luxembourg) may contribute to higher fees as it is easier to rebate fees than to launch additional classes which increases costs. Clean pricing has led to South African asset management fees scoring a B-grade on Morningstar s Fees and Expenses Scorecard. Australia, the Netherlands and US score A-grades (lowest fees). * Four catagories listed have combined all SA and Global funds. Source: Morningstar Global Fund Investor Experience Study, 2015 Cost trends
Nedgroup Investments Core Chartbook 2016 27 Global fees and expense trends Clean pricing A growing trend in many markets is the use of clean pricing (or unbundled fees), whereby an advisor is not paid a sales commission by the asset management company. Instead investors are charged separately by their advisors. In 2013 the US market was the only market that did not extensively use all-in pricing (bundled fees), however, since then Australia, South Africa and Netherlands have moved over to clean pricing. It is also becoming more prevalent in many other countries such as the UK. Advisor and platform annual fees (Australia, South African, UK and US) Advice fees Financial advisor fees range between 0.5% and 1.2%. Avg 0.75% Average financial advisor fees are around 0.75%. Platform fees Platform fees range between 0% and 0.75% Total additional fees If an advisor and a platform is used, the additional cost to the investor in a fund can be around 1% and 1.5%. Source: Morningstar Global Fund Investor Experience Study, 2015 Cost trends
Trends and Flows of Foreign Collective Investment Schemes (FCIS) FCIS - Trends and Flows
Nedgroup Investments Core Chartbook 2016 29 Increasing number of available foreign rules-based funds 400 350 300 250 200 8 Number of FSB approved foreign funds 13 13 48 Growth in number of funds (2012-2015) p.a. Total market 7.1% Traditional funds 4.0% Rules-based funds * 72.4% 150 298 293 336 328 100 50 0 2012 2013 2014 2015 Traditional Rules-based Number of rules-based funds increased dramatically in 2015 due to Blackrock (inlcuding ishares) coming to the market. * This figure includes 34 BlackRock index funds that were approved in December 2015. The growth rate changes to 20.5% for the other rules-based funds for the same period. Source: Financial Services Board of South Africa, 2015 FCIS - Trends and Flows
Nedgroup Investments Core Chartbook 2016 30 Largest rules-based foreign management companies 12 000 10 000 2014 AUM 2015 AUM AUM, R Million 8 000 6 000 4 000 2 000 Sanlam Ginsglobal Nedgroup Investments Market Share 60.0% 33.4% 6.5% Growth in AUM (2015) 14.3% 45.9% - FCIS With fewer asset managers in the foreign space than in the local, the concentration in this segment of the market is more focused. This is true in both the traditional market and in the rules-based market. 3 There were only three rules-based managers with assets as at the end of 2015. Source: Morningstar Direct FCIS - Trends and Flows
Nedgroup Investments Core Chartbook 2016 31 Largest foreign funds rules-based market * AUM 2015 AUM 2014 Fund name Morningstar category Y-o-Y growth R Million $ Million ** R Million Sanlam World Equity Tracker Fund EAA OE Global Large-Cap Blend Equity 8 052.4 519.6 6 243.0 29.0% GinsGlobal Global Equity Index Fund EAA OE Global Large-Cap Blend Equity 5 467.1 352.8 3 864.0 41.9% Nedgroup Investments Core Global Fund EAA OE USD Aggressive Allocation 1 145.3 73.9 - - Sanlam Europe ex-uk Equity Tracker Fund EAA OE Europe ex-uk Large-Cap Equity 1 047.3 67.6 857.8 22.1% Sanlam UK Equity Tracker Fund EAA OE UK Large-Cap Blend Equity 649.7 41.9 796.6-18.4% Sanlam Emerging Markets Equity Tracker Fund EAA OE Global Emerging Markets Equity 405.6 26.2 808.9-49.9% Sanlam North America Equity Tracker Fund EAA OE US Large-Cap Blend Equity 368.3 23.8 498.0-26.0% GinsGlobal Global Bond Index Fund EAA OE Global Bond 305.0 19.7 83.1 267.1% GinsGlobal US Equity Index Fund EAA OE US Large-Cap Blend Equity 52.7 3.4 32.9 60.2% GinsGlobal European Equity Index Fund EAA OE Eurozone Large-Cap Equity 27.9 1.8 15.6 78.5% * AUM only includes assets held by South African investors. ** Rand conversion: R15.50/USD at 31 December 2015 Source: Morningstar Direct FCIS - Trends and Flows
Nedgroup Investments Core Chartbook 2016 32 Net-flows for 2015 (Global sectors) Net flows (R Million) Total market 2015 2014 2013 Equity -16 851.1-8 975.2-10 599.2 Asset Allocation 1 391.9 1 575.0-7 321.0 Property 11.4-353.6-387.9 Fixed Income 222.3 1 095.7 438.8 Money Market 2 061.8 2 867.0 9 407.5 Net flows (R Million) Rules-based market 2015 2014 2013 Equity 637.8 1 020.4 1 040.3 Asset Allocation 1 152.7 - - Property 0.3 1.0 0.4 Fixed Income - - - Money Market - - - Source: ASISA FCIS - Trends and Flows
Nedgroup Investments Core Chartbook 2016 33 Largest flows Rules-based funds Net flows Fund name Morningstar category R Million $ Million * GinsGlobal Global Equity Index Fund EAA OE Global Large-Cap Blend Equity 1 316.9 85.0 Nedgroup Investment Funds Core Global Fund EAA OE USD Aggressive Allocation 1 152.7 74.4 GinsGlobal US Equity Index Fund EAA OE US Large-Cap Blend Equity 25.3 1.6 GinsGlobal European Equity Index Fund EAA OE Eurozone Large-Cap Equity 4.9 0.3 GinsGlobal Japanese Equity Index Fund EAA OE Japan Large-Cap Equity 1.3 0.1 GinsGlobal European Real Estate Index Fund EAA OE Property - Indirect Eurozone 0.3 0.0 Sanlam Europe Excluding UK Equity Tracker Fund EAA OE Europe ex-uk Large-Cap Equity -12.6-0.8 Sanlam Emerging Market Equity Tracker Fund EAA OE Global Emerging Markets Equity -35.7-2.3 Sanlam World Equity Tracker Fund EAA OE Global Large-Cap Blend Equity -662.5-42.8 * Rand conversion: R15.50/USD at 31 December 2015 Source: ASISA FCIS - Trends and Flows
Economic overview - 2015 Economic overview - 2015
Nedgroup Investments Core Chartbook 2016 35 Historical South African asset class returns in SA Rands (1994-2015) Year Equity Listed property Bonds Cash Inflation 1994 22.1% - -9.1% 11.4% 9.9% 1995 8.3% - 30.2% 14.6% 6.9% 1996 9.6% - 6.6% 16.5% 9.4% 1997-6.1% - 29.2% 17.4% 6.1% 1998-5.2% - 5.0% 18.5% 9.0% 1999 68.6% - 29.9% 15.5% 2.2% 2000 0.2% - 20.0% 10.9% 7.0% 2001 30.7% - 18.4% 10.6% 4.2% 2002-7.9% - 16.4% 12.1% 12.4% 2003 15.1% 41.0% 18.5% 12.6% 0.3% 2004 24.5% 41.3% 14.2% 8.2% 3.4% above-average returns negative returns Year Equity Listed property Bonds Cash Inflation 2005 45.4% 50.0% 12.3% 7.5% 3.6% 2006 39.9% 28.4% 6.1% 7.9% 5.8% 2007 18.9% 26.5% 3.6% 10.0% 9.0% 2008-23.3% -4.5% 16.6% 12.2% 9.5% 2009 33.4% 14.1% -2.9% 9.2% 4.8% 2010 18.7% 29.6% 15.2% 7.1% 3.5% 2011 2.2% 8.9% 9.4% 6.1% 6.1% 2012 26.7% 35.9% 16.0% 5.5% 5.7% 2013 21.4% 8.4% 0.6% 4.7% 5.4% 2014 10.9% 26.6% 10.1% 5.3% 5.3% 2015 5.1% 8.0% -3.9% 5.6% 6.2% LT average 16.3% 24.2% 11.9% 10.4% 6.2% Source: Morningstar Direct, 2016 Economic overview - 2015
Nedgroup Investments Core Chartbook 2016 36 Historical global asset class returns in US Dollars (1994-2015) Year Equity Listed property Bonds US Cash above-average returns negative returns US Inflation 1994 5.0% -13.6% 0.2% 0.0% 2.6% 1995 19.5% 19.6% 19.7% 0.0% 2.5% 1996 13.2% 30.9% 4.9% 0.0% 3.4% 1997 15.0% -7.4% 3.8% -0.8% 1.7% 1998 22.0% -8.2% 13.7% 9.2% 1.6% 1999 26.7% 8.9% -5.2% -1.5% 2.7% 2000-13.9% 13.8% 3.2% 1.1% 3.4% 2001-15.9% -3.8% 1.6% 2.3% 1.6% 2002-19.0% 2.8% 16.5% 12.8% 2.5% 2003 34.6% 40.7% 12.5% 13.1% 2.0% 2004 15.8% 38.0% 9.3% 7.9% 3.3% Year Equity Listed property Bonds US Cash US Inflation 2005 11.4% 15.4% -4.5% -4.8% 3.3% 2006 21.5% 42.4% 6.6% 13.1% 2.5% 2007 12.2% -7.0% 9.5% 9.6% 4.1% 2008-41.8% -47.7% 4.8% -6.9% 0.0% 2009 35.4% 38.3% 6.9% 6.9% 2.8% 2010 13.2% 20.4% 5.5% -2.4% 1.4% 2011-6.9% -5.8% 5.6% -0.4% 3.0% 2012 16.8% 28.7% 4.3% 2.9% 1.8% 2013 23.4% 4.4% -2.6% 2.6% 1.5% 2014 4.7% 15.9% 0.6% -5.8% 0.7% 2015-1.8% 0.1% -3.2% -4.9% 0.7% LT average 8.7% 10.3% 5.2% 2.5% 2.2% Global asset classes are in US Dollars. The SA investor would need to convert the data by using the Rand/Dollar exchange movement. Source: Morningstar Direct, 2016 Economic overview - 2015
Nedgroup Investments Core Chartbook 2016 37 Equity markets PE ratios 25 South African equities 35 US equities 20 30 15 25 20 10 15 5 10 0 1980 1985 1990 1995 2000 2005 2010 2015 5 1980 1985 1990 1995 2000 2005 2010 2015 PE ratios (18.2) One standard deviation from the mean PE ratios (20.8) One standard deviation from the mean SA Equities South African equities are still above their long-term average. US Equities US equities are above their long-term average but within one standard deviation. Source: Thomson Reuters Data stream, 2016 Economic overview - 2015
Nedgroup Investments Core Chartbook 2016 38 Bonds markets historical 10-year yields 16 14 12 10 8 6 4 2 0 1985 1990 1995 2000 2005 2010 2015 US (1.63) SA (7.73) 30 yrs Bond yields have been in a steady decline over the past 30 years Source: Thomson Reuters Data stream, 2016 Economic overview - 2015
Nedgroup Investments Core Chartbook 2016 39 Interest rates 30% South African prime rate 7% USA prime rate 25% 6% 5% 20% 4% 15% 9.75% 3% 10% 2% 5% 1% 0.50% 0% 0% 1996 2000 2003 2006 2009 2012 2015 1997 2000 2003 2006 2009 2012 2015 Slow SA interest rates seem to have bottomed-out and have been increasing slowly over the past 2 years. Low After over 7 years of low interest rates, the US has finally started raising rates. Rates are however, still very low compared to historical rates. Source: INET 2016 Economic overview - 2015
Nedgroup Investments Core Chartbook 2016 40 Purchasing Power Parity (PPP) Rand relative to US Dollar 140% 120% 100% Weak 80% 60% 40% 20% 0% -20% Strong -40% 1978 1985 1993 2000 2007 2015 Relative valuation Source: Firer 2006 and Monringstar Direct. PPP calculated using ten-year rolling averages. Economic overview - 2015
Nedgroup Investments Core Chartbook 2016 41 Rand performance vs major currencies Year US Dolllar Euro Pound Sterling Year US Dolllar Euro Pound Sterling 1994-4.33% -4.33% -10.02% 1995-2.87% -2.87% -2.22% 1996-28.33% -28.33% -41.77% 1997-4.00% -4.00% 0.22% 1998-20.43% -20.43% -21.80% 1999-4.73% 11.00% -1.71% 2000-23.20% -15.15% -13.72% 2001-58.65% -48.90% -54.16% 2002 28.39% 15.44% 20.07% 2003 22.93% 6.34% 15.06% 2004 14.88% 8.86% 7.81% The green shades represent periods where the Rand strengthened. 2005-12.12% 2.41% -0.08% 2006-10.38% -23.54% -25.49% 2007 2.33% -7.81% 0.16% 2008-39.84% -32.06% -0.61% 2009 22.31% 20.26% 13.55% 2010 10.55% 15.76% 13.14% 2011-21.90% -18.34% -21.60% 2012-4.08% -5.73% -11.40% 2013-23.25% -30.37% -24.26% 2014-10.63% 2.98% -3.49% 2015-35.02% -20.03% -25.61% LT average -9.20% -8.13% -8.54% Source: INET 2016 Economic overview - 2015
Nedgroup Investments Core Chartbook 2016 42 Inflation 14% 12% SA inflation 4.0% US inflation 10% 8% 6% 6.2% 3.0% 2.0% 4% 2% 0% 1.0% 0.7% 0.0% 1994 1998 2002 2006 2010 2014 1994 1998 2002 2006 2010 2014 3% - 6% inflation target band SA inflation has been increasing and has moved outside the Reserve 6% Bank s 3% to 6% targeted band. 0.7% US inflation is lower than the long-term average (2.5%). As with other developed markets, the US is facing low growth resulting in deflationary pressures. Source: INET 2016 Economic overview - 2015
Nedgroup Investments Core Chartbook 2016 43 Residential property 300 250 ABSA Real House price index y = 0.025x - 769.1 200 Strong 150 100 50 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2.5% No real growth in residential property during 2015 compared to around 3% over the previous two years. The long-term real growth of residential property is at nearly 2.5% pa. Source: INET, 2016 Economic overview - 2015
About the Nedgroup Investments Core Range Nedgroup Investments Core Range
Nedgroup Investments Core Chartbook 2016 45 The Nedgroup Investments South African Core Range 1 Nedgroup Investments Core Guarded Fund A conservative balanced portfolio that targets returns of Inflation + 3% p.a. over rolling three year periods. The strategic equity allocation is 35%. 2 Nedgroup Investments Core Diversified Fund A traditional balanced portfolio that targets returns of Inflation + 5% p.a. over rolling five year periods. The strategic equity allocation is 67.5%. These portfolios are compliant with Regulation 28 of the Pension Funds Act and can be used for retirement funds, preservation funds, endowments, retirement annuities and living annuities. Nedgroup Investments Core Range
Nedgroup Investments Core Chartbook 2016 46 The Nedgroup Investments Core Global Fund 3 Nedgroup Investments Core Global Fund A global balanced portfolio that aims to provide capital growth through low-cost exposure to a range of global asset classes. Diversification across asset classes will help to reduce risk and volatility to moderate levels over the medium to longer term. Used for the offshore exposure in the Nedgroup Investments Core Guarded and Nedgroup Investments Core Diversified Funds. Access points: Nedgroup Investments provides two FSB-approved access points to the Core Global Fund. Domiciled in Ireland Domiciled in South Africa Nedgroup Investments Core Global Fund (USD) Nedgroup Investments Core Global Feeder Fund (ZAR) Nedgroup Investments Core Range
Nedgroup Investments Core Chartbook 2016 47 Contact us Funds domiciled in South Africa Phone 0860 123 263 if you call from South Africa +27 21 416 6011 if you call from another country Fax 0861 119 733 if you send it from South Africa +27 11 263 6067 if you send it from another country Email clientservices@nedgroupinvestments.co.za Write to us PO Box 1510, Cape Town. 8000 Funds domiciled in Ireland Phone 0800 999 160 if you call from South Africa (toll free) +44 (0)1624 645150 if you call from another country Fax +44 (0) 1624 670630 Email helpdesk@nedgroupinvestments.com Write to us 1st Floor, Samuel Harris House, St George s Street, Douglas, Isle of Man. IM1 1AJ. British Isles Disclaimer Nedgroup Collective Investments (RF) Proprietary Limited is the company that is authorised in terms of the Collective Investment Schemes Control Act to administer the Nedgroup Investments unit trust portfolios. Unit trusts are generally medium to long term investments. The value of your investment may go down as well as up. Past performance is not necessarily a guide to future performance. Nedgroup Investments does not guarantee the performance of your investment and even if forecasts about the expected future performance are included you will carry the investment and market risk, which includes the possibility of losing capital. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. Certain unit trust funds may be subject to currency fluctuations due to its international exposure. Nedgroup Investments has the right to close unit trust funds to new investors in order to manage it more efficiently. A schedule of fees and charges and maximum commissions is available on request from Nedgroup Investments. This document is of a general nature and intended for information purposes only. Whilst we have taken all reasonable steps to ensure that the information in this document is accurate and current on an ongoing basis, Nedgroup Investments shall accept no responsibility or liability for any inaccuracies, errors or omissions relating to the information and topics covered in this document.