Has the SA equity investment opportunity set evolved to a case of rand-hedge versus nonrand-hedge?

Investments Has the SA equity investment opportunity set evolved to a case of rand-hedge versus nonrand-hedge? BCI Global Conference 6 June 2016 Vanessa van Vuuren

GLOBAL FINANCIAL MARKETS

Austria Italy Belgium France Germany Portugal Spain Japan Norway Europe World ex-us Ireland Switzerland Netherlands World UK Finland Denmark Canada Sweden Newzealand US Australia South Africa LONG RUN REAL EQUITY RETURNS Real Annualized Equity Returns (Local Currency) for 115 Years (1900-2015) 8 7 6 5 4 3 2 1 0 For the South African investor investing in Rand, South Africa has been the best performing equity market globally Long Run Equity Returns Source: Credit Suisse Global Investment Returns Sourcebook 2016 Sanlam Investments 3

Austria Italy France Belgium Germany Spain Portugal Norway World ex-us Japan Ireland Europe Netherlands UK Switzerland Canada Finland Sweden World Newzealand Denmark South Africa US Australia LONG RUN REAL EQUITY RETURNS Real Annualized Equity Returns (USD) for 115 Years (1900-2015) 7 6 5 4 3 2 1 0-1 For the foreign investor investing in USD, South Africa is the best performing emerging market and 3 rd globally Long Run Equity Returns Source: Credit Suisse Global Investment Returns Sourcebook 2016 Sanlam Investments 4

JSE- LONG TERM RESILIENCE DESPITE MAJOR CRISES 50000 FTSE/JSE All Share Index 1925-2016 10000 2003 SARS outbreak & the Iraq war begins 2009 Credit Crunch & Great Recession 1000 1999 Emerging markets crisis (Rand volatility) 1987 Stock market crash as a result of the savings and loans crisis in the US 100 1980 U.S Recession 1970 Tech-Stock Crash 1929 Great Depression 1960 Sharpeville Massacre 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 Sanlam Investments JSE- Long Term Resilience Despite Major Crises Source: SIM Equities Research 5

THE CASE FOR RAND HEDGE INVESTING? Sanlam Investments The Case for Rand Hedge Investing Source: SIM Economics Team 6

JSE LANDSCAPE: RAND HEDGE VERSUS SA INC JSE Universe 83,2% Large Mid MARKET CAP 0,5% 2,8% 13,5% Small Fledgling Source: SIM Equities Research Large Cap Universe Mid Cap Universe Small Cap Universe Fledgling Universe MARKET CAP 70% RH 30% NRH/SA Inc 24,4% R2.2tn R7trillion 48,1% R720bn R777billion 36,6% R120bn R209bn 44,1% R45bn R57bn 75,6% 51,9% 63,4% 55,9% STOCK COUNT 39% RH 61% NRH/SA Inc Sanlam Investments 48,8% Large Cap Universe 21 counters 22 51,2% 44,3% JSE Landscape Mid Cap Universe 27 33,3% 34 55,7% Small Cap Universe 20 40 66,7% 35,0% Fledgling Universe 36 67 7 65,0%

BEHAVIOURAL FINANCE: HEURISTIC BIASES Defined as a simple thinking strategy that often allows us to make judgements and solve problems efficiently rule-of-thumb derived from experience that has no guarantee of accuracy or usefulness Example: Racial profiling or stereotyping ALL BLONDES ARE DUMB! Sanlam Investments Behavioural Finance 8

HEURISTICS IN PRACTICE Rand weakens Rand Hedge Investing Rand strengthens Sanlam Investments Heuristics in practice 10

1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 RAND HEDGE VERSUS RAND LEVERAGE 3,00 Relative Strength of Indices 2,50 2,00 Industrials Resources Rand-Hedge SAB Naspers Richemont BAT Steinhoff 1,50 1,00 0,50 - Rand-Hedge Anglo American Impala Platinum BHP Billiton Anglo Gold Lonmin Sanlam Investments Rand Hedge vs. Rand Leverage Source: SIM Equities Research 11

SA INC DEFIES RULE-OF-THUMB EXPECTATIONS Company Economic Sector CAGR in HEPS (2011-2016) Total return (2011-2016) Annualised return % Capitec Niche financial services 31% 272.58% 22.4% EOH IT 32% 786.37% 39.9% FBR Food services/qsr 18% 212.20% 19.1% ITE Niche retail 19% 254.24% 21.5% CSB Niche retail 19% 312.01% 24.3% COH Education 34% 680.30% 37.2% CLH Hotels/leisure 9% 117.47% 12.7% Stocks Outperforming SWIX 80 72 68 67 Rand Hedge Non-Rand Hedge 70 62 61 58 60 60 53 48 50 42 44 44 45 42 39 39 40 42 41 40 34 36 35 30 20 10 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-Q1 Sanlam Investments SA INC Defies Rule-of-Thumb Expectations Source: SIM Equities Research 12

CONCLUDING THOUGHTS The rand is a single FACTOR when understanding and selecting an individual investment not THE factor when constructing a portfolio All rand hedges DO NOT behave in the same way as is the case with all non-rand hedges/ SA Inc stocks The rand is materially undervalued and a reversion of this strength is a very real UNTIMEABLE risk at this point SA Inc shares offer a vast and diverse opportunity set, but careful research and analysis is required Inflation-beating return sources: Go down the size curve (retail investors CAN) Select industries or sectors that offer resilience to macro headwinds (education, IT, niche retail, food services) Select robust company fundamentals and understand the long term investment case Competitive advantage and unique proposition Structural growth Quality management High returns on capital Sanlam Investments Concluding Thoughts 13

thank you Terms of use: This document is for internal use only and is intended for training purposes for Account Managers and Brokers in South Africa only. The information in the document is intended to serve as general information only. Nothing contained in this document is intended as financial or investment advice, or an offer to do business and should not be construed as such. While we will take care to provide accurate information, the information set out in this document is provided without any express or implied warranty of any kind whatsoever. In particular, we do not warrant that it is appropriate or suitable for any particular purpose, that it is complete and accurate, or that is virusfree. We will not be responsible for any loss incurred or damages suffered (whether direct, indirect, special or consequential) to you or any third party that may be attributable, directly or indirectly, to the use of, or reliance upon, this document by you. You may not reproduce, modify or create derivative works from, publish, distribute, transmit, or display, or license or transfer any of the content contained in this document, unless you have obtained our prior written authorisation. This document and all its content (text, graphics, icons, hyperlinks, private information and designs) are owned by or licensed to Sanlam. As such the intellectual property rights in the content are protected against infringement by local and international legislation and treaties, it may not be used in any way without our or the licensor s consent. You may not (under no circumstances whatsoever) distribute this document to end clients. Distribution of this document may lead to enforcement action by the Financial Services Board which may lead to penalties on the management company (SCI/Satrix). You may only use APPROVED marketing material or the Minimum Disclosure Document when advising clients. We reserve the right to refuse you further access to this document or documents of this nature in future if you breach any of the terms of use or if we believe that your use of the document is illegal or places us in disrepute. We reserve the right to claim damages for all loss and damage suffered by us and expenses we incur as a result of your breach of these terms of use. You agree to indemnify us and hold us harmless, as well as any member of the Sanlam Group and its respective directors, officers, employees, agents, licensors, suppliers, and any third party information providers from and against all losses and expenses (including attorney-and own client costs), resulting from any failure to adhere to these terms of use by you. Sanlam Investments consists of the following authorised Financial Services Providers: Sanlam Investment Management (Pty) Ltd ( SIM ), Sanlam Multi Manager International (Pty) Ltd ( SMMI"), Satrix Managers (RF)(Pty) Ltd, Graviton Wealth Management (Pty) Ltd ( GWM ), Graviton Financial Partners (Pty) Ltd ( GFP ), Radius Administrative Services (Pty) Ltd ( Radius ), Blue Ink Investments (Pty) Ltd ( Blue Ink ), Sanlam Capital Markets (Pty) Ltd ( SCM ), Sanlam Private Wealth (Pty) Ltd ( SPW ) and Sanlam Employee Benefits (Pty) Ltd ( SEB ), a division of Sanlam Life Insurance Limited; and has the following approved Management Companies as defined in the Collective Investment Schemes Control Act, No 45 of 2002 ( CISCA ): Sanlam Collective Investments (RF)(Pty) Ltd ( SCI ) and Satrix Managers (RF)(Pty) Ltd ( Satrix ). Although all reasonable steps have been taken to ensure the information on this presentation is accurate, the Sanlam Collective Investments (RF) (Pty) Ltd / Satrix Managers (RF)(Pty) Ltd (Sanlam Collective Investments) does not accept any responsibility for any claim, damages, loss or expense; however it arises, out of or in connection with the information. No member of Sanlam gives any representation, warranty or undertaking, nor accepts any responsibility or liability as to the accuracy of any of this information. The information to follow does not constitute financial advice as contemplated in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 ( FAIS ). Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision. The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium- to long-term investments. Please note that past performances are not necessarily an accurate determination of future performances, and that the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available from the Manager, Sanlam Collective Investments (RF) Pty Ltd / Satrix Managers (RF) (Pty) Ltd, a registered and approved Manager in Collective Investment Schemes in Securities. Additional information of the proposed investment, including brochures, application forms and annual or quarterly reports, can be obtained from the Manager, free of charge. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in the portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of the portfolio and the investor will differ depending on the initial fees applicable, the actual investment date, and the date of reinvestment of income as well as dividend withholding tax. Forward pricing is used. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The performance of the portfolio depends on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-div date. Lump sum investment performances are quoted. The portfolio may invest in other unit trust portfolios which levy their own fees, and may result is a higher fee structure for our portfolio. All the portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No 45 of 2002 ( CISCA ). The fund may from time to time invest in foreign instruments which could be accompanied by additional risks as well as potential limitations on the availability of market information. The Manager has the right to close any portfolios to new investors to manage them more efficiently in accordance with their mandates. The portfolio management of all the portfolios is outsourced to financial services providers authorized in terms of the Financial Advisory and Intermediary Services Act, 2002. Standard Bank of South Africa Ltd is the appointed trustee of the Sanlam Collective Investments scheme/standard Chartered Bank is the appointed trustee of the Satrix Managers Scheme.