21 September 2015
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<strong>21</strong> <strong>September</strong> <strong>2015</strong>
Contents<br />
Contents .................................................................................................................................... 2<br />
Newsflash .................................................................................................................................. 3<br />
Market Comment ........................................................................................................................................................... 3<br />
Other Commentators ...................................................................................................................................................... 5<br />
Economic Update ....................................................................................................................... 6<br />
Weekly Market Analysis ........................................................................................................... 10<br />
STANLIB Money Market Fund ....................................................................................................................................... 11<br />
STANLIB Enhanced Yield Fund ...................................................................................................................................... 11<br />
STANLIB Income Fund ................................................................................................................................................... 11<br />
STANLIB Flexible Income Fund ...................................................................................................................................... 12<br />
STANLIB Multi-Manager Absolute Income Fund .......................................................................................................... 12
Newsflash<br />
Despite volatility in all risk-oriented asset classes of late, SA Asset Class returns so<br />
far in <strong>2015</strong> show SA Listed Property still way ahead<br />
Market Comment<br />
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Source: I-Net Bridge<br />
After plenty of volatility in all risk-oriented asset classes of late, the picture above of SA Asset Class<br />
returns so far in <strong>2015</strong> shows SA Listed Property still way ahead at +13.6% (total return), followed by the<br />
All Share Index +5.3%, then Cash at +4.5%, then the All Bond Index at +3.3%.<br />
All 3 risk-related asset classes have perked up of late, last week in particular. Property is now once<br />
again not far from a record high, although it is back where it was in early March.<br />
The All Share Index had one of the best returns in the world last week, +4.3%, thanks to the bid for SAB,<br />
which gained about 20% (now the biggest share on the ALSI at 10.7% and 12.7% of the ALSI 40), plus a<br />
jump in Richemont on better sales and a bounce in some financials.<br />
SAB is now up 23% in rand terms this year, or +8% in dollars. It would be very sad to lose the share as<br />
an investment on the JSE. The share has returned about +14% average annual compound growth<br />
(before dividends) since the end of 1993 (i.e. the new SA), so for the past 22.5 years. Add dividends of<br />
about 3% or so and you have a total return of around +17% per year compounded for 22.5 years.<br />
This +14% before dividend annual average compound return compares with a return of +13% per year<br />
for the JSE Financial & Industrial Index over this period or +11.8% for the All Share Index. For a<br />
company of its size, that is very good.<br />
The S&P 500 Index has not risen for 7 consecutive years over the past 150 years or so. This year, after 6<br />
years of rising, so far it is down -4.9%, similar to the MSCI World Index’s -4.6%, both in dollars.<br />
<br />
The European market is slightly up in euro terms so far in <strong>2015</strong> (but down 6% in dollar terms), while<br />
London’s FTSE is -7% in pounds this year and the Nikkei is +3.5% in yen and in dollars.<br />
Because of the rand’s big fall so far in <strong>2015</strong> (-15.6% versus the dollar, -15.3% versus the pound and -8%<br />
versus the euro) the offshore funds still look good in rand terms, with the STANLIB European Equity<br />
Feeder Fund +15.5%, the STANLIB Global Equity Feeder Fund +12.7% and the STANLIB Global Property<br />
Feeder Fund +8.8% (-6.7% in dollars).
The Brent oil price is -16.5% this year, gold is -4%, platinum -19% and the US 10-year yield is lower by 4<br />
basis points at 2.13% versus the end of 2014.<br />
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Last week’s US Fed decision to hold off on hiking rates has caused a bit of ‘risk-off’ where nervous<br />
nellies are selling equities and buying bonds, interpreting Yellen’s comments and the Fed’s decision as<br />
negative for global economies and equities (hinting at worse than expected).<br />
However, delaying a rate hike makes sense at this stage simply because of all the ructions of the past<br />
month or so (market sell-off, weaker Chinese and other emerging market numbers, big falls in<br />
emerging market currencies and shares, lower oil and commodity prices leading to lower inflation<br />
etc.…).<br />
So it is probably a short-term sell-off being witnessed in markets now, providing an opportunity for the<br />
bold and brave, but staying conscious of the fact that the bull market, if it is still alive (still alive for the<br />
likes of SA Breweries), is over 6.5 years old now.<br />
The fall in the US ten-year bond yield to 2.13% from 2.29% last week, along with other bond yields<br />
around the globe (meaning the bond prices rose), is good news for global listed property shares, still<br />
down almost 7% in dollar terms in <strong>2015</strong> and back at May 2013 levels in dollars (yes, 2013), with a<br />
forward dividend yield of 4%-plus.<br />
Bond yields offshore are not as key for offshore listed property shares as is the case locally, but they<br />
still do influence them because of the comparison of bond yields with the dividend yields. Global<br />
growth is a big factor for offshore listed property shares, meaning more employment and more<br />
demand for space, better retail spending, holiday spending etc.<br />
Meanwhile the fact that interest rates remain so low is good for the gold price, which has perked up by<br />
around $15 or so dollars over the past few days. Because gold pays no interest, it does better when<br />
money markets pay little or no interest, because an investor buying gold is then not sacrificing much<br />
interest by being in gold instead of in a money market or interest bearing account.<br />
Although some of us at STANLIB (a minority it must be said) remain positive on the future of this 6.5<br />
year old bull market, our STANLIB Balanced team, managing the STANLIB Balanced and Balanced<br />
Cautious Funds, is a lot more cautious and concerned about a possible crash in the next year or two. On<br />
their recent roadshow, they covered this extensively.<br />
<br />
<br />
<br />
They are underweight in equities, both locally and offshore, holding only 33% of the STANLIB Balanced<br />
Fund in local equities, quite heavily skewed to the global companies that trade on the JSE, plus 20% in<br />
offshore equities, with a partial hedge in place in case of a bigger fall in offshore equities. They also<br />
hold 26% in money market and income fund, plus 5% in dollar cash.<br />
After such a long bull market and concerns over China and emerging markets like Brazil, Russia, Turkey<br />
and SA (amongst others), it is understandable that views within one house may diverge at this stage,<br />
especially where we don’t have a “house view” as such, because we have different franchises with<br />
different mandates.<br />
No-one has a monopoly on the future, but generally speaking it does make sense to lower one’s risk<br />
profile after so many good gains (except for mining and construction shares) over the past 6.5 years;<br />
plus our money market and income funds are paying fairly decent rates of interest, especially where<br />
one’s funds are tax free.
Other Commentators<br />
US Market Analyst, Elaine Garzarelli<br />
Garza sees the latest global stock market correction as similar to the 1997 correction, because her<br />
quants indicators were at the same level then, as they are now.<br />
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<br />
She still believes the bottom was reached on August 25 th . The S&P 500 is currently 5% higher than that<br />
level. Various pullbacks since then are merely attempts at retesting that low, which is not unusual after<br />
a sharp dip.<br />
She interprets the Fed’s delay in hiking as a response to other countries (including the IMF) asking the<br />
Fed to hold off. It was not because the US economy is too weak.<br />
Yellen said the US economy is performing well and the Fed expects it to continue to do so.<br />
Garza’s quants model is still bullish at 80% (out of a total possible 100%), so she remains a buyer of<br />
equities into the dips and assesses the S&P 500 Index as 12% undervalued at present.<br />
Her contrarian indicator shows that only 27% of US financial advisors are bullish, which is still extremely<br />
low, indicating a continuing high degree of pessimism out there.<br />
The CPI inflation in both the UK and in France was 0% in August, while the US CPI was at +0.2% year-onyear<br />
in August. US petrol prices are at $2.35 per gallon versus $3.40 a year ago. This -$1.05 in the petrol<br />
price translates into an annual savings of $200 billion for US consumers.<br />
US housing remains healthy, including new homes being built (housing starts are +14.9% y/y), while<br />
multi-family starts are +19.8% y/y (blocks of flats).<br />
Garza looks for steady and solid growth ahead with low inflation. She does not expect a recession in the<br />
US and expects it to be years away.<br />
BCA Research<br />
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They expect the Fed to raise rates in December, but there is a one-in-three chance that the first rate<br />
hike could be postponed to 2016, because of ongoing problems in emerging markets.<br />
BCA recommends staying tactically cautious on equities because of the risks surrounding emerging<br />
markets, but to use any correction of 10% or more in developed market shares, like we had recently, as<br />
an opportunity to increase risk.<br />
They do not expect Treasury bond yields to spike sharply and in fact recommend being slightly<br />
overweight duration. Over the next six to twelve weeks, BCA sees bond yields trending downwards in<br />
the US, UK and Euro areas (prices up).<br />
Treasuries offer valuable protection against persistent deflation tail risks, meaning deflation causes<br />
yields to decline, prices to rise (as happened so vividly in Japan in the 1990’s and 2000’s).<br />
The world has “too many goods chasing too few consumers”, i.e. insufficient demand, too much<br />
savings, which is a deflationary risk and deflation is the biggest risk in the world at present (good for<br />
bonds, bad for profits and equities).<br />
Despite the 5% gain in US shares since the 25 th of August, the BCA financial conditions index has still<br />
tightened by the equivalent of around 50 to 100 basis points (i.e. 0.5% to 1%) of rate hikes over the<br />
past 12 months, mainly thanks to the stronger dollar and higher credit spreads (gap between<br />
government bond yields and corporate bond yields).<br />
Central banks outside the US hold 64% of their foreign exchange reserves in US dollars, the bulk of<br />
which is parked in US Treasuries, with 74% of these holdings having a maturity of under five years,<br />
while only 4% have a maturity of in excess of ten years.<br />
Paul Hansen<br />
Director: Retail Investing
Economic Update<br />
1. SA household income and spending continued to slow in Q2 <strong>2015</strong>, but has avoided a return to<br />
recession conditions. Sustained and extensive job losses will push the household sector into<br />
recession.<br />
2. SA fixed investment is stagnating with growth of only 1.0% in Q2 <strong>2015</strong>. Private sector investment has<br />
actually declined in the past 18 months. Lack of confidence is a key factor.<br />
3. US Federal Reserve decided to leave interest rates unchanged. The Fed is concerned about the<br />
impact of global economic developments on the US, as well as the sustained low inflation rate.<br />
4. Nigeria's inflation rate continues to rise.<br />
1. During Q2 <strong>2015</strong>, SA consumer spending rose by a very modest 1.2%q/q, annualised, down from<br />
growth of 2.4%q/q in Q1 <strong>2015</strong>. This is well below the average rate of growth in consumer spending<br />
for the past five years of 3.1%. Unsurprisingly, household disposable income also slowed in Q2 <strong>2015</strong><br />
to a growth rate of only 1.6%q/q, down from 2.2%q/q in Q1 <strong>2015</strong>. The growth in household<br />
disposable income (which is measured as household income after tax) is also well below the five year<br />
average growth rate of 2.7%. Overall, it is clear that consumer activity has been trending weaker in the<br />
past two years and is expected to remain under pressure during the next 18 months, but possibly avoid<br />
a return to outright recession conditions; unless there are significant job losses.<br />
In 2014 consumer spending grew by a mere 1.4%, down from a more robust growth rate of 2.9% in 2013, and<br />
3.4% in 2012. In <strong>2015</strong> and 2016 consumer spending is forecast to grow at an average of only 1.6%, before<br />
improving somewhat in 2017. This forecast is highly dependent on possible tax hikes in the February 2016<br />
National Budget, further increases in electricity and other prices, the risk of additional job losses in the corporate<br />
sector and subdued consumer confidence. The risks to the forecasts are, unfortunately, weighted to the<br />
downside. Extensive job losses would, undoubtedly, push household consumer activity into recession.<br />
Because consumer spending represents more than 60% of the SA economy, the relationship between consumer<br />
income and consumer spending can be considered one of the most important economic variables in South Africa.<br />
The relationship is especially strong because consumer savings is essentially zero on a quarterly basis. This means<br />
that any change in income is immediately reflected in a change in consumer spending, irrespective of changes in<br />
consumer confidence or interest rates.<br />
The robust increase in consumer spending during the period from the beginning of 2010 to the end of 2012 was<br />
mainly as a result of a strong rise in real household disposable income. In particular, disposable income grew by<br />
3.7%, real, in 2010 and by 4.6%, real, in 2011. This was due to a combination of relatively high salary increases (in<br />
excess of 8% a year in both 2010 and 2011, supported by double-digit wage growth in the public sector), relatively<br />
low inflation (inflation averaged 4.3% in 2010 and 5.0% in 2012), some improvement in employment (public<br />
sector) and strong growth in social payments. The vibrant growth consumer spending continued into 2012 with<br />
the help of an unsustainable surge in the use of expensive unsecured credit. Since then all of these areas of<br />
income and growth have stalled. Instead, consumer income and spending are under significant pressure, and<br />
without an increase in employment, are likely to remain subdued. In fact, the recent spate of job cuts in the<br />
mining sector and elsewhere, coupled with a rise in the cost of living (inflation), significantly increases the change<br />
that consumer income will start to decline. This would, most likely, pull the overall consumer sector into<br />
recession. During the past year to Q1 <strong>2015</strong> the formal sector of the economy had shed a total of 43 000 jobs.<br />
Fortunately, household debt has continued to moderate when measured as a percentage of household<br />
disposable income. In Q2 <strong>2015</strong> the ratio of household debt to disposable income fell to 77.8%, down from 78.7%<br />
in the first quarter of the year. This is the lowest ratio of debt to income in the household sector since the second<br />
quarter of 2006. At the same time the cost of servicing household debt, measured as a percentage of disposable<br />
income (which is a typical affordability ratio), remained unchanged at 9.4%; in-line with the average since 1994.
2. In Q2 <strong>2015</strong> SA fixed investment spending rose by a very disappointing 1.0%q/q, annualised, down<br />
from a modest 1.8%q/q in Q1 <strong>2015</strong>. The current slump in investment activity has been largely driven by<br />
a fall-off in the rate of growth of private sector investment. In contrast, investment activity by general<br />
government has maintained solid growth in the past 18 months, albeit off a relatively low base.<br />
Unfortunately, this has not been supported by the large public corporations despite all their promises<br />
and raised expectations. In fact fixed investment spending by public corporations is now flirting with<br />
recession at a time when the country is facing significant infrastructure backlogs.<br />
The rate of growth in capital spending by general government rose by a solid 5.3%q/q in Q2 <strong>2015</strong>,<br />
after growing by 5.1%q/q in Q1 <strong>2015</strong> and by 10.3% during 2014 as a whole. This included increased<br />
spending by central and local government departments on projects related to energy, water, transport<br />
and education. In addition, capital spending by provincial government departments has been focused<br />
on the refurbishment of various road networks. Sadly, fixed capital expenditure by public corporations<br />
increased by a mere 0.1%q/q in Q2 <strong>2015</strong>, after declining by -0.6%q/q in Q1 <strong>2015</strong>. Furthermore, in 2014<br />
as a whole, capital expenditure by public corporations rose by a subdued 1.6%y/y. According the<br />
Reserve Bank, “real capital outlays by Eskom and the Umgeni Water Board increased firmly in the<br />
quarter, neutralising a contraction in capital spending by public corporations in the transport,<br />
manufacturing and mining subsectors”. The Reserve Bank also highlighted that “Eskom stepped up real<br />
gross fixed capital formation on construction works and on machinery and equipment related to its<br />
Medupi and Kusile power stations as well as on the revamping of the transmission grid and selected<br />
substations”. This would suggest that capital spending buy other large public corporations has been<br />
deeply disappointing and well below expectations.<br />
The rate of growth in real fixed capital formation by private business has fallen-off very noticeably in<br />
the past 18 months, growing by only 0.1%q/q in Q2 <strong>2015</strong> after recording growth of a mere 1.6%q/q<br />
in Q1 <strong>2015</strong> and a decline of 3.4% in 2014 as a whole. This slump in private sector investment activity<br />
has been especially evident in the mining and manufacturing sectors, although most other sectors have<br />
also cut-back on their expansion plans. Back in 2013, private sector investment activity had been<br />
somewhat buoyed by an increase in capital spending on wind farms and solar plants as part of the<br />
Renewable Energy Independent Power Producer Procurement Programme (especially in the Eastern<br />
and Northern Cape). Most of these projects, however, were completed in the second half of 2013 or<br />
early 2014.<br />
It seems clear that although many of South Africa’s large corporates have fairly robust balance sheets<br />
that are not especially highly leveraged; they lack the confidence to significantly expand capacity. This<br />
partly reflects concerns about South Africa’s electricity supply, but also a lack of certainty regarding<br />
government’s economic policy, including land ownership, mining rights, availability of skills and<br />
government’s commitment to implementing the NDP and lifting the economic growth rate.<br />
Overall, the rate of increase in South Africa’s fixed investment activity remains well below target.<br />
Currently, South Africa spends 20.4% of its national income on capital expenditure. That is far too little<br />
given the country’s extensive infrastructure backlog and high level of unemployment. Ideally, South<br />
Africa should be spending a minimum of 25% to 30% of GDP on investment activity (the NDP set a<br />
target of 30%), and maintaining it at that level for more than a decade. Internationally, there is a<br />
reasonably clear relationship between increased investment spending and sustained higher GDP<br />
growth, with the level of investment ultimately determining the level of employment. This suggests<br />
that much more needs to be done to encourage a more robust investment environment for all<br />
participants, including foreign investors.
3. The US Federal Open Market Committee decided to keep the federal funds target rate unchanged at<br />
0.00% to 0.25%. Although this was ultimately in-line with expectations, analysts were extremely<br />
divided on what the Fed would do. Out of the 114 analysts surveyed by Bloomberg, 58 expected rates<br />
to remain unchanged, while 56 expected the Fed to hike rates. In discussing the decision, Janet Yellen<br />
stressed, in her press briefing, that they are concerned about the impact of global economic<br />
developments on the performance of the US economy. In addition, she highlighted that inflation<br />
remains lower than they would want and is well below the Committee's longer-run objective.<br />
According to Yellen, the low inflation partly reflects declines in energy prices and the impact of the<br />
strong Dollar on the cost of non-energy imports.<br />
The FOMC indicated that it will maintain the existing policy of reinvesting principal payments from the<br />
Federal Reserve’s holdings of agency debt and agency MBS in agency MBS and of rolling over maturing<br />
Treasury securities at auction.<br />
There has also been an adjustment to the committee’s outlook for interest rates as well as inflation and<br />
growth. Back in June <strong>2015</strong>, 15 out of the 17 FOMC committee members expect interest rates to start to<br />
rise this year. Today, this was adjusted down to 13 out of 17 FOMC committee members expect a rate<br />
hike before year-end. In fact one committee member argued for a rate cut before year-end, due to<br />
concerns about low inflation. Furthermore, the median committee member now expects only one rate<br />
hike this year and not two hikes. (There are two more FOMC meetings remaining this year, one in<br />
October and one in December). The committee also adjusted their inflation forecast down measurably.<br />
For example, in June <strong>2015</strong> the FOMC inflation forecast for <strong>2015</strong> was 0.7%, today it was revised down to<br />
0.4%. The Fed’s inflation forecast for 2016 and 2017 was not adjusted meaningfully. The GDP growth<br />
outlook was adjusted only modestly for all time periods.<br />
Although the inflation rate is still uncomfortably low, the FOMC still expects inflation to rise gradually<br />
toward 2% over the medium term as the labour market improves further and the transitory effects of<br />
earlier declines in energy and import prices dissipate.<br />
From our perspective, recent economic data reflects a further general improvement in the US economy<br />
including retail sales, car sales, housing activity, and job growth. In fact, many US analysts have recently<br />
revised up their GDP growth estimate for <strong>2015</strong>, especially after the Q2 <strong>2015</strong> GDP was adjusted<br />
significantly higher. In contrast, it cannot be denied that US inflation remains stubbornly low for a<br />
variety of reasons (including low commodity prices and a strong Dollar) and there is still no clear<br />
evidence of a meaningful pick-up in wage. Furthermore, it seems unlikely that this will change<br />
significantly in the next two or three months. All of this would argue that the Fed could delay their<br />
decision to raise rates until 2016. However, we have consistently argued that the longer the Fed<br />
maintains it zero interest rate policy the more it distorts global risk taking. Furthermore, if the Fed<br />
delays the first rate hike into 2016 there is a real risk that this policy decision itself starts to undermine<br />
economic confidence, as it would be an acknowledgement that the economic performance has been<br />
disappointing despite the massive policy stimulus.<br />
Overall, the latest FOMC statement from the Fed as well as Yellen’s own comments at her press<br />
conference can be considered relatively dovish. Consequently, I suspect an increasing number of<br />
market participants will now start to anticipate that the Fed will delay their first rate hike until 2016<br />
unless the next round of key economic data convinces them otherwise. (There is clearly going to be a<br />
massive focus on the next few US inflation reports). Overall, we still expect the US FOMC to announce<br />
a rate increase before the end of <strong>2015</strong> and our best bet remains that this will occur in December <strong>2015</strong>.<br />
4. Nigeria’s inflation rate stayed above the Central Bank’s 6% - 9% target for the third straight month at<br />
9.3%y/y in August <strong>2015</strong> from 9.2% in the previous 2 months. This was the figure expected by markets<br />
as the country is experiencing inflationary pressure from exchange rate weakness. Most of the pressure<br />
came from core inflation which moved up to 9% in August from 8.8% in July <strong>2015</strong>. This was expected as<br />
currency controls forced importers into the parallel market where foreign exchange is more expensive.
The central bank faces a number of challenges which will make monetary policy decision tricky. It currently has to<br />
maintain a tight monetary policy, because of a weakening currency and an increasing inflation rate, amidst a<br />
slowing economy. Nigeria was also removed from the JP Morgan GBI-EM index for lack of liquidity and<br />
transparency in trading its currency from administrative measures put in place by the bank. The Central Bank is<br />
under pressure to devalue the local currency or even let it free-float such as Russia and Kazakhstan, the other oil<br />
exporting nations, have done.<br />
Please follow our regular economic updates on twitter @lingskevin<br />
Kevin Lings, Laura Jones & Kganya Kgare<br />
(STANLIB Economics Team)
Weekly Market Analysis<br />
Currencies/ Indices/ Commodities<br />
Friday’s Close<br />
18/09/15<br />
Weekly Move<br />
(%)<br />
YTD<br />
(%)<br />
Indices<br />
*MSCI World – US Dollar 1630.69 0.23 -4.62<br />
*MSCI World – Rand <strong>21</strong>684.69 -1.37 10.73<br />
*MSCI Emerging Market – US Dollar 829.86 3.41 -13.22<br />
*MSCI Emerging Market – Rand 11035.41 1.76 0.74<br />
All Share Index – US Dollar 3836.06 5.99 -11.75<br />
All Share Index – Rand 51044.58 4.32 2.56<br />
All Bond Index 496.48 0.96 3.22<br />
Listed Property J253 2007.99 3.42 13.62<br />
Currencies<br />
US Dollar/Rand 13.31 -1.58 16.<strong>21</strong><br />
Euro/Rand 1.13 -0.22 -6.51<br />
Sterling/Rand 20.56 -0.97 14.55<br />
Euro/US Dollar 1.13 -0.22 -6.51<br />
Oil Brent Crude Spot Price ($/bl) 47.47 -3.12 -17.20<br />
Gold Price $/oz 1139.40 2.86 -3.70<br />
Platinum Price S/oz 981.00 1.19 -18.86<br />
Source: I-Net Bridge<br />
* MSCI - Morgan Stanley Capital International
Rates<br />
These rates are expressed in nominal and effective terms and should be used for indication purposes ONLY.<br />
STANLIB Money Market Fund<br />
Nominal:<br />
Effective:<br />
6.38% per annum<br />
6.57% per annum<br />
STANLIB is required to quote an effective rate which is based upon a seven-day rolling average yield for Money<br />
Market Portfolios. The above quoted yield is calculated using an annualised seven-day rolling average as at 19<br />
<strong>September</strong> <strong>2015</strong>. This seven- day rolling average yield may marginally differ from the actual daily distribution and<br />
should not be used for interest calculation purposes. We however, are most happy to supply you with the daily<br />
distribution rate on request, one day in arrears. The price of each participatory interest (unit) is aimed at a constant<br />
value. The total return to the investor is primarily made up of interest received but, may also include any gain or loss<br />
made on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily<br />
yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio.<br />
STANLIB Enhanced Yield Fund<br />
Effective Yield: 6.70%<br />
STANLIB is required to quote a current yield for Income Portfolios. This is an effective yield. The above quoted yield<br />
will vary from day to day and is a current yield as at 18 <strong>September</strong> <strong>2015</strong>. The net (after fees) yield on the portfolio will<br />
be published daily in the major newspapers together with the “all-in” NAV price (includes the accrual for dividends<br />
and interest). This yield is a snapshot yield that reflects the weighted average running yield of all the underlying<br />
holdings of the portfolio. Monthly distributions will consist of dividends and interest. Interest will also be exempt from<br />
tax to the extent that investor’s are able to make use of the applicable interest exemption as currently allowed by the<br />
Income Tax Act. The portfolio’s underlying investments will determine the split between dividends and interest.<br />
STANLIB Income Fund<br />
Effective Yield: 7.41%<br />
Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of<br />
participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A<br />
schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can<br />
engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the<br />
overall costs.” The above quoted yield will vary from day to day and is a current yield as at 18 <strong>September</strong> <strong>2015</strong>.
STANLIB Extra Income Fund<br />
Effective Yield: 6.98%<br />
Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of<br />
participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A<br />
schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can<br />
engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the<br />
overall costs.<br />
Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or<br />
down.” The above quoted yield will vary from day to day and is a current yield as at 18 <strong>September</strong> <strong>2015</strong>.<br />
STANLIB Flexible Income Fund<br />
Effective Yield: 7.37%<br />
Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of<br />
participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A<br />
schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can<br />
engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the<br />
overall costs.” The above quoted yield will vary from day to day and is a current yield as at 18 <strong>September</strong> <strong>2015</strong>.<br />
STANLIB Multi-Manager Absolute Income Fund<br />
Effective Yield: 5.59%<br />
Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of<br />
participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A<br />
schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can<br />
engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the<br />
overall costs.” The above quoted yield will vary from day to day and is a current yield as at 18 <strong>September</strong> <strong>2015</strong>.
Glossary of terminology<br />
Bonds<br />
A bond is an interest-bearing debt instrument, traditionally issued by governments as part of<br />
their budget funding sources, and now also issued by local authorities (municipalities),<br />
parastatals (Eskom) and companies. Bonds issued by the central government are often<br />
called “gilts”. Bond issuers pay interest (called the “coupon”) to the bondholder every 6<br />
months. The price/value of a bond has an inverse relationship to the prevailing interest rate,<br />
so if the interest rate goes up, the value goes down, and vice versa. Bonds/gilts generally<br />
have a lower risk than shares because the holder of a gilt has the security of knowing that<br />
the gilt will be repaid in full by government or semi-government authorities at a specific<br />
time in the future. An investment in this type of asset should be viewed with a 3 to 6 year<br />
horizon.<br />
Cash<br />
Collective<br />
Investments<br />
Compound Interest<br />
Dividend Yields<br />
Dividends<br />
Earnings per share<br />
An investment in cash usually refers to a savings or fixed-deposit account with a bank, or to<br />
a money market investment. Cash is generally regarded as the safest investment. Whilst it is<br />
theoretically possible to make a capital loss investing in cash, it is highly unlikely. An<br />
investment in this type of asset should be viewed with a 1 to 3 year horizon.<br />
Collective investments are investments in which investors‟ funds are pooled and managed<br />
by professional managers. Investing in shares has traditionally yielded unrivalled returns,<br />
offering investors the opportunity to build real wealth. Yet, the large amounts of money<br />
required to purchase these shares is often out of reach of smaller investors. The pooling of<br />
investors’ funds makes collective investments the ideal option, providing cost effective<br />
access to the world’s stock markets. This is why investing in collective investments has<br />
become so popular the world over and is considered a sound financial move by most<br />
investors.<br />
Compound interest refers to the interest earned on interest that was earned earlier and<br />
credited to the capital amount. For example, if you deposit R1 000 in a bank account at 10%<br />
and interest is calculated annually; your balance will be R1 100 at the end of the first year<br />
and R1 <strong>21</strong>0 at the end of the second year. That extra R10, which was earned on the interest<br />
from the first year, is the result of compound interest ("interest on interest"). Interest can<br />
also be compounded on a monthly, quarterly, half-yearly or other basis.<br />
The dividend yield is a financial ratio that shows how much a company pays out in dividends<br />
each year relative to its share price. The higher the yield, the more money you will get back<br />
on your investment.<br />
When you buy equities offered by a company, you are effectively buying a portion of the<br />
company. Dividends are an investor’s share of a company’s profits, given to him or her as a<br />
part-owner of the company.<br />
Earnings per share is a measure of how much money the company has available for<br />
distribution to shareholders. A company’s earnings per share is a good indication of its<br />
profitability and is generally considered to be the most important variable in determining a<br />
company’s share price.
Equity<br />
Financial Markets<br />
Fixed Interest Funds<br />
Gross Domestic<br />
Product (GDP)<br />
Growth Funds<br />
Industrial Funds<br />
Investment Portfolio<br />
JSE Securities<br />
Exchange<br />
Price to earnings<br />
ratio<br />
Property<br />
Resources and Basic<br />
Industries Funds<br />
A share represents an institution/individual’s ownership in a listed company and is the<br />
vehicle through which they are able to “share” in the profits made by that company. As the<br />
company grows, and the expectation of improved profits increases, the market price of the<br />
share will increase and this translates into a capital gain for the shareholder. Similarly,<br />
negative sentiment about the company will result in the share price falling. Shares/equities<br />
are usually considered to have the potential for the highest return of all the investment<br />
classes, but with a higher level of risk i.e. share investments have the most volatile returns<br />
over the short term. An investment in this type of asset should be viewed with a 7 to 10 year<br />
horizon.<br />
Financial markets are the institutional arrangements and conventions that exist for the issue<br />
and trading of financial instruments.<br />
Fixed interest funds invest in bonds, fixed-interest and money market instruments. Interest<br />
income is a feature of these funds and, in general, capital should remain stable.<br />
The Gross Domestic Product measures the total volume of goods and services produced in<br />
the economy. Therefore, the percentage change in the GDP from year to year reflects the<br />
country's annual economic growth rate.<br />
Growth funds seek maximum capital appreciation by investing in rapidly growing companies<br />
across all sectors of the JSE. Growth companies are those whose profits are in a strong<br />
upward trend, or are expected to grow strongly, and which normally trade at a higher-thanaverage<br />
price/earnings ratio.<br />
Industrial funds invest in selected industrial companies listed on the JSE, but excluding all<br />
companies listed in the resources and financial economic groups.<br />
An investment portfolio is a collection of securities owned by an individual or institution<br />
(such as a collective investment scheme). A funds‛ portfolio may include a combination of<br />
financial instruments such as bonds, equities, money market securities, etc. The theory is<br />
that the investments should be spread over a range of options in order to diversify and<br />
spread risk.<br />
The primary role of the JSE Securities Exchange is to provide a market where securities can<br />
be freely traded under regulated procedures.<br />
Price to earnings ratio or p: e ratio is calculated by dividing the price per share by the<br />
earnings per share. This ratio provides a better indication of the value of a share, than the<br />
market price alone. For example, all things being equal, a R10 share with a P/E of 75 is much<br />
more “expensive” than a R100 share with a P/E of 20.<br />
Property has some attributes of shares and some attributes of bonds. Property yields are<br />
normally stable and predictable because they comprise many contractual leases. These<br />
leases generate rental income that is passed through to investors. Property share prices<br />
however fluctuate with supply and demand and are counter cyclical to the interest rate<br />
cycle. Property is an excellent inflation hedge as rentals escalate with inflation, ensuring<br />
distribution growth, and property values escalate with inflation ensuring net asset value<br />
growth. This ensures real returns over the long term.<br />
These funds seek capital appreciation by investing in the shares of companies whose main<br />
business operations involve the exploration, mining, distribution and processing of metals,<br />
minerals, energy, chemicals, forestry and other natural resources, or where at least 50<br />
percent of their earnings are derived from such business activities, and excludes service<br />
providers to these companies.
Smaller Companies<br />
Funds<br />
Value Funds<br />
Growth Funds<br />
Smaller Companies Funds seek maximum capital appreciation by investing in both<br />
established smaller companies and emerging companies. At least 75 percent of the fund<br />
must be invested in small- to mid-cap shares which fall outside of the top 40 JSE-listed<br />
companies by market capitalisation.<br />
These funds aim to deliver medium- to long-term capital appreciation by investing in value<br />
shares with low price/earnings ratios and shares which trade at a discount to their net asset<br />
value.<br />
Growth funds seek maximum capital appreciation by investing in rapidly growing companies<br />
across all sectors of the JSE. Growth companies are those whose profits are in a strong<br />
upward trend, or are expected to grow strongly, and which normally trade at a higher-thanaverage<br />
price/earnings ratio.<br />
Sources: Unit Trust and Collective Investments (<strong>September</strong> 2007), The Financial Sector Charter Council, Personal Finance (30 November 2002),<br />
Introduction to Financial Markets, Personal Finance, Quarter 4 2007, Investopedia (www.investopedia.com) and The South African Financial<br />
Planning Handbook 2004.
Disclaimer<br />
The price of each unit of a domestic money market portfolio is aimed at a constant value. The total return to the investor is primarily made up of<br />
interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of<br />
increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. Collective<br />
Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as<br />
up and past performance is not necessarily a guide to the future. An investment in the participations of a CIS in securities is not the same as a<br />
deposit with a banking institution. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and<br />
maximum commissions is available on request from STANLIB Collective Investments Ltd (the Manager). Commission and incentives may be paid and<br />
if so, would be included in the overall costs. A fund of funds is a portfolio that invests in portfolios of collective investment schemes, which levy<br />
their own charges, which could result in a higher fee structure for these portfolios. Forward pricing is used. Fluctuations or movements in exchange<br />
rates may cause the value of underlying international investments to go up or down. TER is the annualised percent of the average Net Asset Value<br />
of the portfolio incurred as charges, levies and fees. A higher TER ratio does not necessarily imply a poor return, nor does a low TER imply a good<br />
return. The current TER cannot be regarded as an indication of future TERs. Portfolios are valued on a daily basis at 15h30. Investments and<br />
repurchases will receive the price of the same day if received prior to 15h30. Liberty is a full member of the Association for Savings and Investments<br />
of South Africa. The Manager is a member of the Liberty Group of Companies.<br />
As neither STANLIB Wealth Management Limited nor its representatives did a full needs analysis in respect of a particular investor, the investor<br />
understands that there may be limitations on the appropriateness of any information in this document with regard to the investor’s unique<br />
objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only<br />
and STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Wealth Management Limited does<br />
not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment<br />
objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial<br />
adviser in this regard. STANLIB Wealth Management Limited is an authorised Financial Services Provider in terms of the Financial Advisory and<br />
Intermediary Services Act 37 of 2002 (Licence No. 26/10/590)<br />
Compliance No.: H18X15<br />
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Website www.stanlib.com<br />
STANLIB Wealth Management Limited<br />
Reg. No. 1996/005412/06<br />
Authorised FSP in terms of the FAIS Act, 2002 (Licence<br />
No. 26/10/590)<br />
STANLIB Collective Investments Limited<br />
Reg. No. 1969/003468/06