AB CLIENT
Implementing the optimal strategy
The purpose of this document is to set out the clear implementation process of your assets in order to align them as
closely as possible to your long term optimal strategic asset allocation. This is an important document as it describes
the implementation process undertaken by Seed. Please read it carefully. You will be asked to sign an
acknowledgement of this service which will record our ongoing advice to you.
According to your “Investment Strategy Document” (ISD) your long term optimal strategic asset allocation is as
follows:
3%
0%
4%
Local Equities
Local Bonds
18%
Local Cash
Local Listed Property
44%
OFF Equities
OFF Bonds
OFF Cash
14%
OFF Property
10%
6%
We recommend that, over time, your total assets are invested in line with the above long term optimal strategic asset
allocation in order to meet your long term objective. However, in order to align your assets as closely as possible with
this strategy, the implementation of these assets may be different. As a result, the risk and return objective of the
implemented portfolio may be different than that the optimal strategy. Seed believes that the risk and return
objective of your overall portfolio is significantly more important than each of the underlying portfolios.
Your current allocation relative to the optimal strategy is as follows:
60%
50%
40%
30%
20%
10%
0%
Local
Equities
Local
Protected
Equity
Local
Bonds
Local Cash Local Listed
Property
Local
Unlisted
Property
Current Asset Alllocation
Authorised Financial Service Provider 2346
Local Fund
of Hedge
Funds
Local
Private
Equity
OFF Equities OFF Bonds
OFF Cash
Proposed Asset Allocation
Seed Investment Consultants (Pty) Ltd Reg 1999/007999/07
P.O. Box 3107, Tygervalley, Bellville, 7536, South Africa
3rd Floor, Waterfront Terraces, Tyger Waterfront, Bellville, 7530, South Africa
Tel +27 21 914 4966 : Fax +27 21 914 4912 : Email [email protected]
www.seedinvestments.co.za
Directors: Ian de Lange CA(SA) Vincent A Heys (Actuary, FIA) Trevor D Davenport
OFF
Property
OFF
Alternatives
We propose the following implementation process:
Funds
Disinvest
1.Living Annuity – Alexander Forbes
Invest
Administrator
R 2,614,501
Alexander Forbes
Seed Conservative Portfolio
R 250,000
Glacier
Seed Multi Asset Class (Pension) Portfolio
R 250,000
Glacier
R 2,114,501
Glacier
Seed Flexible Fund
2. Retirement Annuity - Old Mutual
Seed Flexible Fund
R 218,524
3. Retirement Annuity – Liberty
Seed Flexible Fund
R 348,173
4. Local Cash - Stanlib Money Market
R 700,000
Old Mutual
R 218,524
Liberty
R 348,173
Seed Conservative Portfolio
5. Investment Policies – Liberty
Local Share Portfolio
Glacier
Glacier
Stanlib
R 700,000
Glacier
R 768,702
Allan Gray
R 324,782
Glacier
R 268,702
R 500,000
Seed Offshore Balanced Portfolio
6. Endowment Policy #1 - Liberty
R 324,782
Seed Multi Asset Class (Pension) Portfolio
7. Local Share Portfolio
R1 000,000
Diversified share portfolio
R1 000,000
Sharenet (Imara)
We propose no changes to your remaining investments:
Endowment Policy #2 – Liberty
R 95,491
Universal Lifestyle Policies - Liberty
R 49,067
With-profit Life Assurance - Liberty
R 191,668
Local Share Portfolio
R1,000,000
You have indicated that an income of R 30,000 p.m. is required from your total investment funds. Seed recommends
that this income be structured as follows:
Investment
Portfolio
Amount p.m.
Living Annuity - Glacier
Seed Conservative Portfolio
R 5,500
Discretionary (from Stanlib MM) - Glacier
Seed Conservative Portfolio
R 24,500
Total
R 30,000
This structure proposes that only the minimum required drawdown of 2.5% is made from your compulsory (Living
Annuity) assets, while the biggest portion comes from your liquid discretionary assets.
As only income from
compulsory assets is taxable in retirement, the R 5,500 drawdown will result in a significant tax saving compared to a
full R 30,000 drawdown from your Living Annuity. Your effective tax rate will drop to 0% as your income received will
be below the income tax threshold.
Seed Investment Consultants (Pty) Ltd
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Step 1: Living Annuity – Alexander Forbes
We propose investing these funds to a total value of R 2,614,501 into three separate portfolios on the Glacier
platform, in the following way:
Seed Conservative Portfolio
R 250,000
Seed Multi Asset Class (Pension) Portfolio
R 250,000
Seed Flexible Fund
R 2,114,501
The Seed Conservative Portfolio is a grouping of unit trusts suitable for the cautious investor wanting to preserve
capital. It has an asset allocation weighted heavily towards local fixed income assets, and aims to outperform CPI +
3% per annum over rolling 3 year periods while still protecting capital over rolling 24 month periods. The portfolio
complies with regulations, and you will always hold units in these unit trusts directly.
The top 5 holdings are as follows:
Fund Name
Allocation
Nedgroup Flexible Income – A
20.0%
Coronation Strategic Income - A
19.0%
Atlantic Enhanced Income
18.1%
Foord International FF
15.4%
Nedgroup Positive Return – A
11.8%
The Seed Multi Asset Class (Pension) Portfolio is a grouping of unit trusts aiming to strike a perfect balance between
risk and return. The asset allocation is diversified across all asset classes, but is mostly weighted towards local equities,
local bonds and global equities. This portfolio aims to outperform CPI + 4% per annum over rolling 4 year periods
while still protecting capital over rolling 36 month periods. The wrap fund complies with regulations, and you will
always hold units in these unit trusts directly.
The top 5 holdings are as follows:
Fund Name
Allocation
Foord International FF
16.2%
Nedgroup Positive Return - A
16.0%
Cannon Equity
15.9%
Nedgroup Flexible Income - A
15.6%
Coronation Strategic Income - A
14.6%
The Seed Flexible Fund is a multi manager unit trust with the following managers that manages the portfolio:
-
Cannon – local equity and property
-
Atlantic – cash and bonds
-
Orbis – offshore assets
-
Seed is responsible for the asset allocation
Metropolitan is the custodian of the unit trust.
The fund has the following mandate limits within which it operates:
Seed Investment Consultants (Pty) Ltd
27/3/2013
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Strategic
Tactical Limits
Allocation
RSA Equity
30.0%
-
75.0%
55.0%
RSA Protected Equity
0.0%
-
20.0%
0.0%
RSA Fixed Income
5.0%
-
45.0%
22.5%
RSA Property
0.0%
-
20.0%
7.5%
RSA Fund of Hedge Funds
0.0%
-
0.0%
0.0%
Offshore Assets
0.0%
-
25.0%
15.0%
100.0%
The benchmark of this portfolio is the composite return of:
All Share Index
55%
All Bond Index
7.5%
Stefi Cash Index
15%
SAPY Property Index
7.5%
MSCI World Equity Index
11%
JP Morgan Global Bond Index
2.5%
MSCI Real Estate Index
1.5%
Glacier, a 100% subsidiary of Sanlam, was launched in 2006 to lead Sanlam's expansion into the affluent market. This
administrator brings together some of the most respected financial services companies as product providers, and
gives investors the benefit of a truly integrated, focused financial services company. The company has a successful
track record of over 10 years in the investment industry. Glacier offers a wide range of tailored financial solutions,
with products designed to assist affluent clients to create and preserve wealth throughout their lifetime. Glacier will
be the administrator and custodian of your unit trust investments. Seed will make changes to the size of allocation
and changes to specific unit trusts from time to time as per your ISD.
Step 2: Retirement Annuity - Old Mutual
We also advisemoving your first retirement annuity from Old Mutual to the Glacier platform, and investing the funds
worth R 218,524 into the Seed Flexible Fund (as long as no penalties are payable).
Step 3: Retirement Annuity - Liberty
We further suggestmoving your second retirement annuity from Liberty to the Glacier platform, and also investing
these funds worth R 348,173 into the Seed Flexible Fund (as long as no penalties are payable).
Step 4: Local Cash – Stanlib Money Market
Seed recommends that these funds to the value of R 700,000 be invested into the Seed Conservative Portfolio, also
on the Glacier platform.
Seed Investment Consultants (Pty) Ltd
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Step 5: Investment Policies – Liberty & Local Share Portfolio (partial)
We suggest that the funds from your Investment Policies at Liberty worth R 268,702 as well as R 500,000 from your local
share portfolio, be invested into the Seed Offshore Balanced Portfolio on the Allan Gray Offshore platform.
The Seed Offshore Balanced Portfolio is a grouping of offshore unit trusts aimed at investors wishing to maximize
returns without taking unnecessary risks. The asset allocation is diversified across all offshore asset classes, but is mostly
weighted towards global equities. This portfolio aims to outperform LIBOR + 4% per annum over rolling 5 year periods
while still protecting capital over rolling 48 month periods in USD. This portfolio complies with regulations, and you will
always hold units in these unit trusts directly.
Underlying Unit Trusts:
Fund Name
Allocation
Orbis Global Equity
30%
SIM Global Best Ideas
25%
Orbis Optimal
20%
Sarasin Equisar Global Thematic
15%
Sarasin CI Real Estate Equity
10%
Allan Gray is an investment management company aiming to help their investors build wealth over the long term.
They also provide administrative services to financial advisers via their online investment platform.
Step 6: Endowment Policy # 1 - Liberty
You are indirectly paying 30% income tax and 7.5% capital gains tax on this investment in the endowment policy. We
recommend we take it out from this structure as long as there is no penalties payable. We therefore suggest cashing
in this policy and investing the amount of R 324,782 into the Seed Multi Asset Class (Pension) Portfolio, also on the
Glacier platform.
Step 7: Local Share Portfolio
We believe that having too much exposure to a few shares can result in a large potential capital loss. We therefore
suggest that we reduce the allocation to one counter as follows:
1.
We increase your offshore exposure by investing R500 000 of your share portfolio offshore via Step 5.
2.
We sell R1m of Company X shares and invest in a more diversified share portfolio consisting of about 15
shares.
3.
We keep R1m invested in Company X.
Below are some details of the share portfolio we recommend.
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The Seed Houseview Share Portfolio is a selection of top shares selected by Seed. We only consider shares with
adequate market capitalisations, higher than average dividend yields and lower than average PE ratios for inclusion
in our portfolio. We also require that consensus earnings, dividends or both must be expected to grow in future.
The portfolio currently contains the following shares:
Weight
KIO
Kumba Iron Ore Ltd
7%
ABL
African Bank Investments
7%
BTI
British American Tobacco Plc
7%
SLM
Sanlam Ltd
7%
TBS
Tiger Brands Ltd
7%
RLO
Reunert Ltd
6%
FSR
First Rand Ltd
6%
AVI
AVI Limited
6%
EXX
Exxaro Resources Ltd
6%
SOL
Sasol Ltd
6%
SHF
Steinhoff International Ltd
5%
ALT
Allied Technologies
5%
ARL
Astral Foods Ltd
5%
CML
Coronation Fund Managers Ltd
5%
RMI
Rand Merchant Insurance Ltd
5%
Share Portfolio
90%
MSCI World Equity ETF
5%
Cash
5%
The following graphs compare this weighting to the JSE All Share Index in terms of sectors and market capitalisation.
90%
45%
80%
40%
70%
35%
60%
30%
50%
25%
40%
20%
30%
15%
10%
20%
5%
10%
0%
0%
Top 40
Mid
Small
Seed Value Equity Houseview
Offshore
Financials
Cash
Industrials
Resources
Seed Value Equity Houseview
All Share Index
Offshore
Cash
All Share Index
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Oil and
Gas
Basic Industrials Consumer Health Consumer
Materials
Goods
Services
Seed Value Equity Houseview
Seed Investment Consultants (Pty) Ltd
Telco
Financials
Tech
Offshore
Cash
All Share Index
27/3/2013
6
The charts below show the dispersion of the Seed portfolio and various benchmark indices. When compared to the
benchmarks, the Seed Houseview can be seen to produce a high dividend yields at a cheap PE ratio. This is a
typical characteristic of a portfolio with a tilt towards value shares. The smaller dots on the second scatter plot
correspond to the various valuations of individual shares in our portfolio.
●
●
●
●
●
Seed Equity Houseview
All Share Index
Fini 15
Indi 25
Resi 20
PE Ratio
13.40
15.00
13.00
18.40
13.50
20
Dividend Yield
4.6%
2.5%
3.8%
2.3%
2.0%
20
18
16
14
PE Ratio
PE Ratio
15
10
12
10
8
6
5
4
2
0
0
0
1
2
3
Dividend Yield (%)
4
0
5
2
4
6
8
10
Dividend Yield (%)
Conclusion:
Once the above steps are implemented, your total portfolio composition compared to your long term optimal
strategy will be as follows:
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
SA Equity
SA Protected
Equity
SA Bonds
SA Cash
Allocation Before implementation
SA Property
SA Hedged
Offshore
Equity
Allocation After Implementation
Offshore
Bonds
Offshore
Cash
Offshore
Property
Offshore
Hedged
Seed Recommended Strategic Allocation
You will notice that we have reduced your local cash significantly and increased offshore. Offshore allocations can
be increased more, especially with the strong value of the rand.
Seed Investment Consultants (Pty) Ltd
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Private
Equity
Please note that your assets will at no point be transferred to any of Seed’s accounts. Your assets will be invested
directly with the unit trusts’ and fund of hedge funds’custodians and they will be the custodian of your assets.
We attach a schedule in the Appendix showing the fees applicable to the different service providers. These fees
exclude Seed’s fees as it is detailed in the mandate agreement.
Finally, these implemented assets will be managed according to the signed mandate between Seed Investment
Consultants and yourselves. We attach an annexure to your mandate that specifies the mandate limits of the
proposed investments.
Seed Investment Consultants (Pty) Ltd
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APPENDIX – FEES
Fee Summary:
Investment type
Seed
Conservative
Portfolio
Administration platform
Seed Multi Asset
Class (Pension)
Portfolio
Seed Flexible
Fund
Seed Offshore
Balanced
Portfolio
Share
portfolio
Glacier
Glacier
Glacier
Allan Gray
Sharenet
R 950,000
R 574,782
R 2,681,198
R 768,702
R 1,000,000
Underlying fund fees
0.00%
0.00%
0.00%
0.00%
0.00%
Administration platform fees
0.00%
0.00%
0.00%
0.00%
0.00%
Seed's fee
0.00%
0.00%
0.00%
0.00%
0.00%
Underlying fund fees
0.94%
0.97%
1.00%
1.50%
0.00%
Administration platform fees
0.30%
0.30%
0.30%
0.00%
0.00%
Seed's net fee
0.85%
0.85%
0.85%
0.85%
1.00%
Total Initial
0.00%
0.00%
0.00%
0.00%
0.00%
Total Annual
2.09%
2.12%
2.15%
2.35%
1.00%
Underlying
funds
Administration
platform
Seed
Total
Initial fee (%)
0.00%
0.00%
0.00%
0.00%
Initial fee (Rands)
R 0.00
R 0.00
R 0.00
R 0.00
Annual fee (%)
0.88%
0.21%
0.88%
1.97%
R 52,847.90
R 12,617.94
R 52,284.80
R 117,750.63
Amount
Initial fees:
Annual fees:
Total weighted average fee: (in % terms)
Initial fee
0.00%
Annual fee
1.97%
Total weighted average fee: (in
Rand terms)
Annual fee (Rands)
All fees exclude VAT. Note that there is no VAT charged on retirement funds.
The fees may vary, however Seed has taken a best estimate when calculating the fees.
Seed Investment Consultants (Pty) Ltd
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Client Acknowledgement of Service and Declaration
In relation to this Implementation Document “the Record” I AB Client acknowledge that;

It represents an accurate record of the scope of advice and subsequent investment recommendation(s)
that I received from my Financial Advisor i.e. Seed Investment Consultants the “Advisor”

I have received a letter of introduction from the Advisor confirming legal status and scope of authorisation
under the Financial Advisory & Intermediary Services Act 2002

I undertook a risk profile exercise with the Advisor and concur with my profile as summarised in my
Investment Strategy Document “ISD”.

Where I did not elect to follow the recommendations of the Advisor I understand that it may result in the
commitment to a strategy or products that are inappropriate to my risk profile.

The Advisor furnished me with sufficient information regarding the relevant terms and conditions of the
investment mandate inclusive of their fees and other costs.

I am aware that I will be exposed to a level of financial market risk and understand that the value of my
investments may go down as a result of financial market movements.

The Advisor gave me the opportunity to ask questions about the investment recommendations and the
basis on which they were created.

The advice and subsequent recommendation given in this Record was largely based on information
provided or volunteered by myself. I understand that material non disclosure could result in inappropriate
strategy for my actual circumstances and risk profile.

I confirm that I’ve viewed the schedule of fees.
I hereby authorise the Advisor to proceed with the investment strategy detailed in Record.
Signed as factually true and correct at _________________ on the ___ day of ___________ 2011.
_______________________
__________________________
Print Name
Signature
Seed Investment Consultants (Pty) Ltd
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Seed Investment Consultants’ Acknowledgement and Declaration
In relation to this Record I Advisor acknowledge that;

This document is an accurate and complete record of the advice and investment recommendations, that I
gave to AB Client “ the Client”

That I conducted an appropriate analysis to establish the financial priorities and risk profile of the Client

I furnished the Client with information regarding the relevant terms and conditions of the investment
mandate and associated fees.
Signed as factually true and correct at _________________ on the ___ day of ___________ 2011.
_______________________
__________________________
Authorised Representative
Authorised Representative
Print Name
Seed Investment Consultants (Pty) Ltd
Signature
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