Fundamentals
The news magazine of Old Mutual Investment Group
AUGUST 2015
WHAT YOU'LL FIND INSIDE
HIGHER YIELDS AND WEAK
RAND LURE FOREIGN
INVESTORS
WIKUS FURSTENBERG
Global outlook
unexciting, SA growth
deteriorates
SOUTH AFRICA, WHAT LIES
AHEAD?
INVESTOR IMPACT ON
CORPORATE GOVERNANCE
ELIAS MASILELA
TRACY BRODZIAK
Inside this issue
Looming US rate hike unnerves markets
Rian le roux
4
SARB rate hike likely not the last for 2015
Rian le roux
7
Sector overview and outlook
8
Higher yields and weak rand lure foreign
investors
Wikus furstenberg
11
Global outlook unexciting, SA growth
deteriorates
MACROSOLUTIONS INVESTMENT TEAM
12
South Africa, what lies ahead?
ELIAS MASILELA
15
Investor impact on corporate governance
TRACY BRODZIAK
18
Tools to enhance long-term returns
22
Sharp lessons from Greece abound on the
streets of Athens
PETER BROOKE
24
For more information
JAnina SLAWSKI
Head: Institutional Sales
Tel: +27 11 217 1873
Email: [email protected]
Wynand Gouws
Head: Marketing
Tel: +27 21 509 5601
Email: [email protected]
2
3
LOOMING US RATE HIKE
UNNERVES MARKETS
Rian le Roux
Old Mutual Investment Group’s Chief Economist
Over the past month, investors’ focus was on three key issues:
tensions and uncertainties around Greece’s debt situation;
the continued debate about the timing, speed and extent of
US Federal Reserve (the Fed) policy tightening; and growing
concerns over the state of the world economy. This as
incoming data was generally on the weak side and concerns
over the slowdown in China mounted sharply.
Despite the Greek population voting overwhelmingly in favour
of rejecting more austerity in their early-July referendum,
shortly thereafter, the Greek government was effectively forced
into accepting such austerity in exchange for more financial
support from the European Union. The choice for Greece
was simple: accept the terms for financial support or leave
the Eurozone. With the pain of closed banks and intensifying
damage to the already severely depressed economy mounting
rapidly, the Greek government accepted the terms for more
financial support. So, towards the end of July concerns over
the immediate risks to global financial markets over the risk
of Greece exiting the common currency block and defaulting
on large debt payments faded. Yet, while the situation
around Greece has calmed down for now, the problem has
4
global Economic Overview and Outlook
by no means been solved. Ultimately, Greece will require
in China had a very negative effect on commodity prices over
considerable debt relief in order to make their debt situation
the past month and prices slumped over a broad front. Against
sustainable. So, the Greek debt problem will likely raise its
this background, it is difficult to see much of a recovery
head again sometime in the future. Also of concern is whether
anytime soon.
Greece will honour its reform commitments − something they
have been rather poor at so far.
ECONOMIC OUTLOOK
Global market sentiment is being dominated by the imminent
EMPLOYMENT CASTS DOUBT ON RATE
HIKE TIMING
start of the rise in US interest rates, as well as the economic
As far as the Fed is concerned, incoming data on the real
is putting downward pressure on commodity prices and
economy continues to support the case for the Fed lifting
emerging market currencies, causing more difficult conditions
rates before the end of the year. More important, especially
for many developing countries.
slowdown in China. The combination of these two forces
for the Fed, is that the labour market continued to tighten as
job growth accelerated, with wage growth showing more
signs of life and jobless claims remaining at multi-year lows.
However, as the month drew to a close, the closely watched
employment cost index, which covers both wages and
benefits, slumped sharply in the second quarter, indicating
that overall remuneration growth remains relatively weak. As
a result, doubts were cast over the timing of the first hike in
US interest rates, with many arguing that the latest data may
well result in the start of the US rate “lift-off” being postponed
to October or December, rather than September. Still, the Fed
is marching closer to the beginning of the hiking cycle and
markets remain unnerved by the potential ramifications of
rising US rates, especially given the vulnerabilities and weak
growth elsewhere in the world.
In the meantime, the news out of China remains poor as
incoming data points to a renewed loss of growth momentum
over the past few months. Indeed, a survey among mostly
private sector manufacturers found that sentiment has slumped
to the lowest level in two years, raising concern that the policy
measures implemented so far this year have had little effect in
Key takeouts:
• The next act in the Greek
tragedy
arresting the slowdown. Concerns consequently mounted that
• US rate hike timing uncertain
the economy is heading for a harder landing than expected
• Global growth slows,
ESPECIALLY IN CHINA
up to now.
Concerns over rising US interest rates, prospects for a
renewed bout of strength of the US dollar and the slowdown
5
Key takeouts:
• SARB moves to offset rising
inflation
• Growth outlook remains
weak
• Rand extremely vulnerable
6
LOCAL Economic Overview and Outlook
SARB RATE HIKE LIKELY NOT THE LAST FOR 2015
rian le roux | Old Mutual Investment Group’s Chief Economist
The main event on the local front over the past month was the
forecast was cut from 2.9% to 2.1% over the same period. If
decision by the South African Reserve Bank (SARB) to raise the
anything, risks to these forecasts, which are in line with current
repo rate by 25 basis points to 6.0%, with the banks’ prime
market consensus forecasts, are skewed to the downside.
rate following suit and rising to 9.50%. While the SARB has
RAND UNDER PRESSURE
been warning for some time that interest rates will have to rise
further to counterbalance building underlying inflation pressures
(emanating from the weaker rand and above-inflation wage
settlements), the timing of the hike was not fully expected by
market participants. This was largely because of increased
expectations that the US Federal Reserve will delay the start of
their hiking cycle to later than September, weak incoming local
macro-economic data, a downside inflation surprise in June
and a renewed decline in the oil price. Nevertheless, having
warned endlessly about the need for higher local rates and
concern over the impact on SA’s ability to finance the still large
current account deficit in the face of increasingly difficult global
financing conditions, the SARB likely raised rates as both a
pre-emptive measure and to protect its own credibility.
Returning to the trade balance, the improvement over the past
few months is indeed comforting. We estimate that the recent
improvement implies that the current account deficit could
narrow to about 3.5% of GDP in the second quarter, down
from 4.8% in the first quarter and 5.5% in 2014. While the
smaller deficit indicates that SA’s foreign trade position is finally
starting to improve, the problem is that even a smaller deficit
might be hard to finance if global financing conditions were to
tighten further when the US Fed starts to raise interest rates.
Indeed, the release of the favourable June trade balance had
little favourable impact on the rand in the days following its
release. This highlights the ongoing vulnerability of the rand in
the current difficult global circumstances of falling commodity
prices and tightening global liquidity.
TRADE BALANCE BRINGS SOME CHEER,
GROWTH OUTLOOK BLEAK
ECONOMIC OUTLOOK
News on the economic front was mixed during June. On the
again later in the year. The timing of such a move is hard to
positive side, the trade deficit recorded a second consecutive
Looking forward, we expect the SARB to raise interest rates
predict as the Reserve Bank made it clear after the July
monthly surplus in June and while inflation rose from 4.6% in
Monetary Policy Committee meeting that future decisions
May to 4.7% in June, the rise was notably less than the 5.0%
around interest rates are highly data dependent. Still, with the
expected by market consensus. On the negative side,
rand still under pressure, inflation likely to rise further through
indicators of real economic activity remained soft with credit
the remainder of the year, inflation expectations anchored at
demand, especially from households, remaining very slow, car
the top end of the target range and wage settlements well
sales fell further and the Reserve Bank’s leading indicator index
above the going rate of inflation, we would, at this stage,
weakened further − pointing to little chance of any
expect the SARB to raise rates at one of its remaining
acceleration in economic growth anytime soon. Indeed,
scheduled meetings in September and November. The actual
growth forecasts for 2015 and 2016 continue to be revised
timing will be highly dependent on incoming data. As far as
downwards. As an example, the Reserve Bank now forecasts
2016 is concerned, the trajectory of rates will also be highly
2.1% GDP growth for 2015, down from its forecast of 2.5%
dependent on the unfolding inflation outlook, with the rand, oil
made in December 2014. Similarly, their 2016 GDP growth
price and food inflation the key drivers in this regard.
7
SECTOR overview and outlook
FINANCIALS
BANKS MORE ROBUST THIS TIME ROUND
resources
COULD THIS BE THE BOTTOM?
July was dominated by the South African Reserve Bank (SARB)’s
pending decision on interest rates. On 23 July, Governor
Kganyago confirmed speculation and announced a 25 basis point
hike in the repo rate – in an attempt to counterbalance rising
inflation emanating from a weak rand and above-inflation wage
settlements. This raises the interest SARB charges banks to 6% and,
consequently, banks’ prime lending rate increased to 9.50%. We
believe this signals the start of a shallow rate hiking cycle.
The run on the Basic Materials Index picked up speed in July, with
a 5.2% fall compared with a rise of 0.5% for the FTSE/JSE All
Share Index. Over the past three months, the Index has fallen
13.8% as any meagre good news from the commodity space has
tended to be swamped by ongoing price falls, concerns about
global (read Chinese) growth and mining companies being under
pressure from all sides. Forestry & paper remains the bright star in
all the misery, with Mondi driving this sector to a gain of 11.8% for
the month, and a positive return of 18.5% for the quarter. The
gloomiest sector to be in was gold, where a non-performing metal
price was coupled with seemingly suicidal union demands and
investors fled the sector, leading to a fall of 21.9% during the
month.
Despite the uncertainly around a rate hike and its implications for
consumers, the financial sector continued to strengthen during the
month. The FTSE/JSE Financial Index delivered a return of 3.8% in
July and 24% over the past 12 months, significantly outperforming
the FTSE/JSE Shareholder Weighted All Share (SWIX) Index over
both periods.
The banks sector marginally underperformed with a 0.3% decline in
the month that signalled the beginning of the upward rate cycle.
However, we believe that banks will be more resilient in this cycle.
The rising rate cycle benefits the banks with endowment income or
the interest they earn on “lazy deposits”. Therefore, there is the
potential to absorb a moderate bad debt outlook for the consumer,
despite households remaining highly indebted. Furthermore, the
banks have strengthened balance sheets in the form of provision
and capital, which provides some buffer against the fragile state of
our economy with GDP growth forecasts revised down to 2.1%
for 2015.
Within the Financial Index, the general financial and life insurance
sectors outperformed, with returns of 8.4% and 4.6%, respectively.
Brait continued its strong share price performance following the
recent portfolio acquisitions of New Look and Virgin Active.
Positive contributors to the performance of the index were
Old Mutual, Nedbank and Investec. These companies recovered
as positive expectations for their upcoming reporting balanced
against recent underperformance relative to their peers.
While it remains a tough operating environment for financial
companies, in the wake of the 2008/2009 financial crisis many
of these companies focused on restructuring their businesses and
cutting costs. The pain of these actions is bearing fruit and stronger
companies are emerging that are finding favour
with investors for their attractive dividend yields as
well as their growth prospects relative to the
broader market.
NEELASH HANSJEE |
Old Mutual Equities
With projects commenced three or four years ago starting to
produce, the last thing a weak market needed was for China to
start to disappoint. Although official Chinese GDP growth will come
in at or around 7%, some statistics, such as steel production and
electricity production, indicate a switch is underway from an
industrially driven model to a more balanced economic model.
While in the best interests for the longer term, in the shorter term this
is upsetting the commodities markets.
The ongoing “will she, won’t she” debate over US interest rates
kept gold trading around the US$1100/ounce mark, despite the
relentless economic malaise. Platinum group metals (PGM) prices
drifted off during the month in sympathy with gold, prompting the
first signs of a supply response from the beleaguered South African
producers.
Following many years of underperformance, it appears that shares
are finally suffering from a capitulation in investor interest. While
this could be seen as a signal that the bottom of the market is close,
the macroeconomic outlook across the board is still poor enough to
warrant caution. The results for the six months to the end of June
have shown that most companies continue to operate under great
pressure, both externally and internally. Emphasis in share selection
will be placed on individual companies’ ability to “self-help” by
reducing costs – either operating or capital – and cash generation
will be scrutinised. The industry is in a period of restraint, however
reluctantly, and most companies will be hunkering down for the
foreseeable future to see through to the inevitable upturn.
ian woodley |
Old Mutual Equities
Market Indices 1 August 2014 – 31 July 2015
FTSE/JSE All Share Index (ALSI) 4.4% | FTSE/JSE Shareholder Weighted All Share Index (SWIX) 8.6% | FTSE/JSE Financial Index 24.1%
8
LISTED PROPERTY
OFFSHORE HOLDINGS DRIVE
DIVIDEND GROWTH
INDUSTRIALS
WEAK CURRENCY LIFTS THE
BIG RAND HEDGES
Listed property provided a 5.1% total return during July. The sector
outperformed the FTSE/JSE All Share Index (0.5%), the JSE All Bond
Index (1%) and the interest rate sensitive general retailers (-2.3%).
For the past 12 months, listed property has provided a 31% total
return.
The FTSE/JSE All Share Industrial Index had a good month, posting
a return of 1.2%, while the rand/US dollar exchange rate saw the
rand weakening a further 3.9%. This weakening was probably the
main contributor to the increased performance of some of the
rand-hedge heavyweights and, consequently, the Index’s
performance. British American Tobacco was up 14.1%, Richemont
10.6%, Mondi 13.4% and SABMiller 4.8%, to number a few.
Over the month, bond yields moved only marginally, so the price
move was listed property related. Capital Property and,
specifically, Fortress B released well above inflation dividend
growth results, with Resilient releasing a high dividend growth
trading update. Significantly, the super-growth driver for these
related companies was offshore listed holdings, as local conditions
were tough, especially for Capital. There was no shortage of
capital raisings and important corporate activity announcements.
The property index offers a 6.5% forward dividend yield (excluding
non-REIT Attacq and Pivotal) compared to 8.2% on bonds.
Near-term distribution growth should comfortably exceed inflation.
Vacancies may still increase in some sectors. A genuine recovery in
conditions may take longer than many anticipate, with
disappointing GDP growth; cost increases constraining net rental
growth; and significant over-rentals on renewal in some pockets
(our key concern, especially in offices also faced with significant
potential new supply). Large malls remain robust, but oversupply in
some nodes and tenant and medium-term consumer health are a
concern. Increases in bond yields remain the key short-term
capital risk.
evan robins |
macrosolutions
There were some interesting moves in the construction sector where
PPC (+28%) and Aveng (+12%) did well, while Group Five (-17%)
and Raubex (-9%) performed poorly. This can only be attributed to
no good news and no discernible direction in the construction
market, so share prices react to snippets of company-specific news,
rather than moving in the same direction. It is also important to note
that the listed construction firms are all exposed to very different
industries and geographies.
Retailers and SA consumer-facing shares were generally laggards
in the month, off the back of poor macroeconomic data and the
prime interest rate increase. Lewis was particularly hard hit, falling
41%. There is a lot of uncertainty in the furniture retailing sector at
present, most significant of which is the pending change to the
regulatory environment for credit and insurance sales.
The forward price:earnings (p:e) ratio of the Industrial Index
continues to trade at high levels of around 19 times. This is well
above the 10-year average of 14 times. Having said that, the
rating is biased due to the large weighting and highly rated
Naspers. With high valuation levels, weak local fundamentals and
a vulnerable rand, we continue to favour high quality companies
that are defensive with at least some rand-hedge qualities.
brian pyle |
Old Mutual Equities
Market Indices 1 August 2014 – 31 July 2015
FTSE/JSE All Share Industrial Index 16.6% | FTSE/JSE All Share Resources Index -37.8% | FTSE/JSE SA Listed Property Index (SAPY) 31.0%
9
Key takeouts:
•Developed market bonds
trade stronger
•Commodities sell-off hits
the rand
•SARB acts on its hawkish
rhetoric
10
Interest Rate Market Overview and Outlook
HIGHER YIELDS AND WEAK RAND
LURE FOREIGN INVESTORS
Wikus Furstenberg | PORtfOLIO MANAGER at futuregrowth asset
management
forward, as well as monetary policy divergence. It also implies
a steady and shallow tightening cycle for the few economies
that are indeed in a position to start the normalisation process.
This should cap global bond yields and benefit countries
offering higher yielding assets at more attractive exchange
rates.
Therefore we believe that, at current levels, local long bond
yields offer better value than both cash and short- and mediumdated nominal bonds, even more so now that the SARB had
resumed tightening policy. The fact that inflation is expected
to head higher, makes inflation-linked bonds an attractive
investment relative to cash and short-dated nominal bonds.
Yield spread between 3-month JIBAR and 30-year
RSA nominal bond
The combination of the repo rate increase and slightly
lower long bond yields caused the difference to narrow in
July. Even so, the 30-year nominal bond is still offered at a
relatively attractive yield.
6%
Yield spread
4%
2%
0%
-2%
Standard deviation
-4%
Jun-15
Feb-14
Jun-11
Oct-12
Feb-10
Jun-07
Oct-08
Feb-06
Jun-03
Oct-04
Feb-02
Jun-99
Oct-00
Feb-98
Jun-95
Oct-96
Feb-94
-6%
Jun-91
The gains in developed bond markets, better than expected
local economic data releases and foreign investors’ renewed
interest in our bond market helped offset the impact of currency
weakness on the local bond market. As a result, local bond
yields, especially at the back end of the yield curve, ended
the month marginally lower. The small downward movement in
yields was enough to allow the JSE All Bond Index to render a
decent return of 1.04% for the month, compared to the cash
return of 0.46%. More significantly, long-dated nominal bonds
(maturity of 12 years and longer) came out tops at 1.42%.
The JSE Inflation-linked Government Bond Index returned a
noteworthy 2.04%, reflecting rising inflation and stronger
investor demand for inflation protection.
which sets the scene for a more modest inflation profile going
Oct-92
Long bonds come out tops
The global growth recovery remains fragile and inconsistent,
Feb-90
Locally, the rand lost significant ground against the major
currencies as the commodity market sell-off gained momentum,
with investors conveniently ignoring the important fact that the
price of crude oil, South Africa’s biggest imported commodity
by a significant margin, also dropped sharply. Data wise, the
latest releases revealed a modest rise in inflation, very low
household credit extension growth and a continued narrowing
of the external account deficit. Moreover, fiscal account data
supports our view that Government will meet the National
Budget targets this fiscal year. To our delight, the South African
Reserve Bank (SARB) acted on its hawkish rhetoric by raising the
repo rate by 25 basis points and thereby boosting its credibility
with respect to managing inflation expectations.
Futuregrowth outlook
Oct-88
The US bond market rose on the back of economic data that
questioned the well-telegraphed intention of the US Federal
Reserve to start policy normalisation as soon as September
this year. With the Greek-induced dust settling in the Eurozone
(for now), attention shifted to the weak economic data from
the region and the European Central Bank (ECB)’s quantitative
easing programme and, particularly, speculation of more to
come. As a result, core Eurozone bond markets also traded
stronger.
Sources: I-Net, Futuregrowth
11
Global outlook
unexciting, SA
growth deteriorates
MacroSolutions investment team
Every six months we update our medium-term (five-year) asset
class outlook. This outlook influences both our strategic and
tactical investment decisions. We have made no material
changes to our long-term expected real returns as we see the
world broadly unchanged from the start of the year. Despite
the unexciting global outlook and deterioration in South Africa’s
growth expectation, we think a portfolio including global
equity, local bonds and some selected SA shares will deliver
acceptable absolute returns.
Asset class commentary
SA economy: The South African economic growth environment
is bleak, with global headwinds (such as weak commodity
prices and a strong US dollar) and local self-inflicted capacity
constraints (the electricity crisis and cash-strapped parastatals).
Global economy: The world economy continues to muddle
through in a goldilocks fashion: not too hot and not too cold.
There is sufficient growth (stimulus) to ensure we don’t slump
back into recession, but not enough to trigger interest rate
hikes.
Key takeouts:
•Long-term asset class
outlook updated
•Key risk to SA equities is
earnings delivery
•In low return world, SA
bonds surprisingly
attractive
12
SA equity: The tough economic climate is making it extremely
difficult for companies to deliver good earnings growth. As
a result, we are much more cautious on SA equity than on
global equity.
SA listed property: The sector continues to defy gravity,
delivering excellent returns. Distribution growth has been good
and our only concern is the higher valuations.
SA bonds: Given that we are probably entering a low
return environment, we find South African bonds surprisingly
attractive. A steep yield curve should ensure that long-dated
bonds deliver good returns despite interest rate hikes.
SA cash: The South African Reserve Bank has shown its
inflation-fighting credentials, with a 25 basis point hike in
interest rates. This is bad news for the economy, but good
news for savers.
The rand: Our currency is caught between the conflicting
currents of a bad thematic (macroeconomic) environment and
cheap price. This means that it has moved sideways on a
trade-weighted basis. We don’t currently have a strong view
on the rand, but believe the risk is to further weakening.
Global bonds: We retain our long-term bearish view on
global bonds due to exceptionally low yields. However, we
do expect them to be range bound as a result of the low levels
of global growth and inflation.
Global cash: Despite an impending rate hike from the
US Federal Reserve, global interest rates continue to fall as
central banks around the world cut rates. Global cash remains
trash.
Global equities: Low inflation means lots of liquidity, which
is good for growth assets. As a result, global equites remain
our preferred asset class. We need better earnings growth to
really deliver and are optimistic that Europe will see a cyclical
recovery.
Long-term asset class outlook
Real return
SA
View
Comment
Neutral
More balanced outlook
Equity
5.0%
Neutral –
Key risk is earnings delivery as economy battles
Property
4.5%
Neutral
Growing risk following huge bull market
Bonds
2.5%
+
Lack of alternatives makes SA bonds attractive
Cash
0.5%
–
Hawkish Reserve Bank helps boost returns
Neutral
Maintain diversification for risk management
International*
Equity
5.0%
+
Best risk-adjusted returns
Bonds
-1.0%
–
Record low yields = low returns
Cash
-1.0%
–
Global cash remains trash
Note: These are long-term, real returns expected over the next five years, as at 15 July 2015. The international return expectations are quoted in US dollar terms; any REAL rand depreciation will add to domestic
investor returns. Source: MacroSolutions.
Please be aware that there are risks in simply implementing these views into a portfolio without carefully considering the dynamic
nature of the environment and how change impacts each asset class. As we continuously examine this environment, we have been
very successful in converting our asset allocation outlook into performance for our investors.
PETER BROOKE
Boutique Head (20 Yrs)
AGGRESSIVE
ARTHUR KARAS
Portfolio Manager (25 Yrs)
GRAHAM TUCKER
Portfolio Manager (15 Yrs)
JOHN ORFORD
Portfolio Manager (13 Yrs)
BALANCED
WARREN VD WESTHUIZEN
Portfolio Manager (15 Yrs)
SA EQUITIES
DENZIL BURGER
Portfolio Manager (32 Yrs)
URVESH DESAI
Portfolio Manager (13 Yrs)
GARY DAVIDS
Research Analyst (7 Yrs)
ZAIN WILSON
Investment Analyst (5 Yrs)
CONSERVATIVE
ALIDA JORDAAN
Portfolio Manager (22 Yrs)
EVAN ROBINS
Portfolio Manager (16 Yrs)
LISTED PROPERTIES
RIAN LE ROUX
Chief Economist (36 Yrs)
JOHAN ELS
Economist (30 Yrs)
ECONOMICS
13
Key takeouts:
• We can no longer pay lip
service to sustainability
• Private sector must take the
lead
• Owners of capital need to be
responsible
14
SOUTH AFRICA, WHAT LIES AHEAD?
Our future, an economic
perspective
Elias Masilela | Executive Chairman of DNA Economics
Our future, its success and that of the rest of the African
continent, lies in sustainability and the extent to which we
embrace it and how we endogenise it in our day-to-day
activities, as business, households and policymakers.
Where does the story begin?
For me it begins at Rio +20 in June 2012. This was the United
Nations Conference on Sustainable Development, which
provided a critical turning point in the thinking about
sustainability across the globe for the private and public sector.
This conference raised a challenge best summarised as “… the
way we (think and) run our corporates and … our economies
… to a large extent has been short-termist. We have a very
short-term focus in the way in which we run these institutions.
We are in this financial meltdown today not because the
financial meltdown was going to happen ... We are in this
situation because of the manner in which we have chosen to
manage our institutions and our economies. If we had been
It was very clear from these diverse views that the understanding
of sustainability is circumstantial. In our circumstances,
sustainability has to be associated with reducing socioeconomic imbalances. As we think about the policies we craft
and business decisions we make, our appreciation of
sustainability will be at the heart of these decisions.
Post 2015 Agenda
The perspective shared above is not only a South African or
continental reflection. It is global.
The Post 2015 Agenda identifies sustainability as the underlying
foundation for realising the sustainable development goals
(SDGs). It further identifies development as “the underpin” for
sustainability. It emphasises keeping people (Africans) at the
centre of development through poverty reduction, food security,
human health, education, promoting inclusive societies and
sustainable development.
the issues we are facing today.”1
These ideals are mirrored in South Africa’s National
Development Plan (NDP) and if not dealt with, they will be key
risk factors for the country’s stability.
Disparate understanding of
sustainability
A shift from governments to
private sector
much more focused on the long term, we would not be facing
More importantly, the conference brought home the stark
difference in the appreciation of sustainability between the
developed and developing economies.
On the one hand, the developed world understood
sustainability as that state of the economy characterised by
well-functioning stock exchanges with high levels of governance
and transparency. While on the other, for the developing world
this was not enough. Instead, they defined sustainability as an
environment characterised by growth, job creation and poverty
reduction – to avoid crises akin to the Arab Spring. Without
these, we cannot talk about stability – thus sustainability.
1
To realise these objectives, there arises an imperative to step up
investment in social and economic infrastructure across the
continent. The New Partnership for Africa's Development
(NEPAD) estimates that the continent will need US$360 billion
to deliver on infrastructure, between now and 2040. This is a
daunting task. Our success in delivering against this objective,
to a large extent, will depend on the participation of the private
sector.
Having noted the broadly inadequate delivery on Millennium
Development Goals, owing to resource constraints among
governments and the multiple objectives that stretch these finite
resources, the Agenda proposes a shift in reliance, away from
http://196.33.27.195/wp-content/uploads/2012/10/CEO-Rio-Summary-2012.pdf
15
governments to the private sector. That means in the near to
long term, development will increasingly depend on private
sector financial and human capital. Gone are the days of
relying purely on official development assistance.
sustainable manner? We need to think about the role of asset
managers who figuratively hold a double-edged sword, in the
manner in which they make investment decisions and capital
allocations.
What this means in simple terms is that the continent will have
to increase reliance on its own resources. It will have to look
elsewhere for resources to supplement domestic resources. In
theory, the role of African pension funds, sovereign wealth funds
and training/research institutions will have to be prominent in
the development of the continent. These views are echoed by
the UNGC2, Nepad (PIDA3) and UNCTAD WIF 20144.
In theory, the best regulator is the consumer. The crucial question
is whether the consumers of the world can systematically and
consistently vote with their feet? When corporates are behaving
badly, are the consumers able to withdraw their demand from
those commodities such that the suppliers of these goods and
services are forced to change their production processes and
act in a much more responsible and sustainable fashion?
Like the rest of the continent, South Africa needs to invest in a
strong network of social and economic infrastructure designed
to support the country’s medium- and long-term economic and
social objectives. This economic infrastructure is a precondition
for providing basic services such as electricity, water, sanitation,
telecommunications and public transport, and it needs to be
robust and extensive enough to meet industrial, commercial and
household needs. More importantly, these infrastructural
interventions need to be delivered in not only an efficient, but
also a sustainable fashion. Criticisms in this regard cannot be
ignored, particularly in electricity provision.
Lastly, can we change the role of analysts? At which point are
we going to get analysis from the financial markets that
consciously and objectively incorporates sustainability and will
not only be driven by the bottom line, which is purely financial
and “short-termist” in nature?
Where the private sector is involved, as is expected to be the
case, regulatory intervention that incentivises good behaviour is
paramount. Further, logistical arrangements are going to be
critical in the race to meet delivery expectations over the next
fifteen years of the new Agenda.
Who best to entrench
sustainability?
Over the years, it has become quite clear that the responsibility
for infrastructure development cannot be left to governments
alone. Private sector has a critical role to play, given the impact
of poor infrastructure on bottom lines. But the answer to this
question is not yet as clear.
What is clear is that this cannot rely on legislation or regulation
alone. It will decidedly depend on changes in our
accountability and responsibility levels as economic players. But
there is no doubt that owners of capital are critical in this
regard. Next in line are consumers and market analysts.
The roles of each of these different players in our economic
environment, need to change significantly. The first and essential
question we ought to be answering, is: to what extent do
owners of capital make the right long-term decisions? To what
extent do they send the right signals to the people who manage
this capital on their behalf to ensure that it is managed in a
16
Depending on how we respond to these questions, the
sustainability challenge will either be resolved or kept in
abeyance for a very long time. The latter is certainly not ideal
for growth and development.
Sustainability must be a lifestyle
It is instructive to mention that this discussion is taking place in
a year that marks 15 years of the existence of the United
Nations Global Compact (UNGC) and the Global Reporting
Initiative (GRI) guidelines. This celebration ought to be seen as
a reminder to all of us – not to pay lip service to sustainability.
We need to use it as an opportunity to raise commitment and
the deeper embrace of sustainability, with the aim of making it
a lifestyle – across the world.
The future is not only coloured by sustainability, but also by
private sector leadership in the developmental space. This is
not only a South African consideration, but a global one. The
private sector needs to fully embrace the need for balanced
growth as a basis for doing business, if business is to be
sustainable.
However, this ought not to be forced on the private sector. It is
hoped that entities and individuals will take it upon
themselves, in a voluntary fashion, to do the right things, to do
things for the good of the economy. It needs to be a culture to
prioritise the economic case over the business case. It is only
under such conditions that sustainability will not only be
achieved but guaranteed.
2
United Nations Global Compact
3
Programme for Infrastructural Development for Africa
4
UNCTAD World Investment Forum
Key takeouts:
•Corporate governance
impacts a company’s value
•Crucial to a wellfunctioning equity market
•Company remuneration
policies are telling
17
INVESTOR IMPACT ON
CORPORATE GOVERNANCE
Tracy Brodziak | Head of Research, Old Mutual Equities
Good corporate governance is crucial to a well-functioning
equity market. You just have to call to mind Enron, WorldCom,
the global financial crisis and, locally, the epic collapse of
African Bank, to realise that poor corporate governance can
have a profound impact on the valuation of a company.
Not a box-ticking exercise
Corporate governance is the system of rules, practices and
processes by which a company is controlled and directed, and
interacts with its stakeholders. It is the framework within which
the company must meet its objectives and, as such, it touches
on every sphere of management and operations.
similar long-term outlook and encourages sustainable
We are acutely aware that our clients have entrusted us with
their savings. This stewardship bestows some serious
responsibilities on us as investors and we need to assess every
investment we make, with corporate governance being a key
determinant in our decision-making process.
overlay to the work we do. They also assist us in sustainability
We are wary of companies that see corporate governance as
merely a box-ticking exercise. This is because we have a
long-term investment horizon and we want to ensure that the
framework within which a company operates supports a
economic success. Once we have undertaken our own
thorough analysis of a company’s corporate governance, we
cross-check it with external evaluations. We have access to a
dedicated responsible investment team that provides an
research and engaging with companies to encourage
improved environmental, social and governance (ESG)
performance.
Continues on page 18
OLD MUTUAL INVESTMENT GROUP’S 2014 PROXY VOTING ACTIVITY
Abstain*
45 000
40 000
Number of resolutions
440
Against
For
35 000
9 982
131 932
Voted at 409 company meetings across
30 000
363 unique companies
25 000
Voted on 142 354 resolutions per
20 000
15 000
ballot across all the boutiques
10 000
72.4% of the issues fell into four
18
Memorandum of
incorporation
Adoption of annual
financial statements
Financial assistance
General resolutions
Shares under the control
of directors
Authority granted to directors
to implement a specific
resolution
* Abstentions are considered active but % too small to reflect
Appointment of auditors
Capital management
resolutions
Appointment of audit &
other committee groups
Remuneration
Election of directors
5 000
categories – the election of directors;
remuneration policy; appointment of
audit and other committee members;
and capital management
OLD MUTUAL'S RESPONSIBLE
INVESTMENT JOURNEY SO FAR
Sponsorship
of PRI in
Person
in SA
Proxy Voting
Policy published
Dedicated
RI resource
appointed
RI
Guidelines
published
ESG
analyst
appointed
RI Standard
published
Participated
in drafting
of CRISA
Old Mutual Group
Launch of
Tomorrow
as invested
as you are
2 015
RI disclosure
Old Mutual
becomes PRI
signatory
Client ESG
reporting
implemented
Governance
and
Engagement
Manager
employed
2 014
2 011
2 012
2 013
RI Committee
established
1st CRISA
report
(2012)
published
Launch of
1st Africanbased ESG
tracker fund
1st PRI
Transparenc y
Report
published
Public
disclosure
of proxy
vote results
Sponsorship
of PRI in
Person in UK
Collaboration with
USB & INSEAD
on African
Directors
Programme
Proprietary
Governance
research of
JSE Top 100
completed
Old Mutual Investment Group
KEY
RI:
ESG:
CRISA:
PRI:
Responsible investment
Environmental, social and governance
Code for Responsible Investment in South Africa
Principles for Responsible Investment
19
In addition, we subscribe to the MSCI ESG ratings system. The
system rates each company based on its detailed ESG score
and provides flags on pertinent news issues on a companyspecific basis. Our final assessment impacts the “margin of
safety” we require in order to invest in a stock. For example,
companies with poor labour relations or environmentally
unfriendly mining practices will need to attract a higher margin
of safety before we would consider investing in them, as we
believe these negatives will impact shareholder returns.
Voting for change
Voting rights are a valuable asset and are the primary tool that
we can use to effect change in a company and to signal our
views to the company and other stakeholders. Essentially, our
clients, as shareholders in investee companies, delegate to us
the right to vote on their behalf with regard to Board proposals
and decisions.
window into the quality and priorities of a Board of Directors.
When we review remuneration, our starting point is that
compensation should meet three criteria: it must be
performance based, integrated into the strategy of the
company, and long term in nature.
To gain insight into this we look at:
• the composition and functioning of the remuneration
committee;
• whether there are performance metrics in place and, if
they are, we look to see if they are valid and fit in with
the long-term goals of the organisation;
• the transparency and accuracy of the remuneration report;
and
• whether there are clawback provisions in place.
In 2014, Old Mutual Equites alone voted at 201 company
meetings across 155 unique companies on 13 770
resolutions (topic of vote). We have voted against 901
resolutions. These votes are largely against remuneration
policies, capital allocation and board composition. Taking into
account all its boutiques, Old Mutual Investment Group has
voted at 409 company meetings across 363 unique
companies on 142 354 resolutions.
Remuneration practices are a true test of whether corporate
Constructive engagement
benefits all
with international best practice. We have noticed a significant
governance is seen by the board as a means to drive
behaviour and the desired outcomes. This is an area where
improvement is still needed in South Africa (SA) and we
believe that greater transparency is needed on performance
metrics. A current issue on the table is that, in SA, shareholder
votes on executive pay are non-binding. We are supportive of
a binding vote on remuneration, which will bring SA in line
increase in constructive engagement with dual-listed
Management engagement is another way that asset managers
can influence for change, because large shareholders can
bring pressure to bear on companies. When it comes to such
engagements, we concentrate on issues that could have a
material impact on the company, such as strategy,
management competence, capital allocation and executive
pay – to name some of the more pertinent issues. We are
encouraged that more and more companies are seeing the
merits of active engagement and believe that this can be a
constructive process.
companies on remuneration issues since the implementation of
Remuneration policies expose
true motives
governance. Ensuring good governance practice is therefore
We firmly believe that company performance is directly
affected by executive compensation practices, in that how you
design your reward structure will drive the behaviour of
20
employees. Importantly, compensation practices provide a
the international rules. We believe that a similar policy in SA
would be very beneficial and would allow us to drive
meaningful change in corporate behaviour.
It’s about the future
Corporate governance can – and does – have a profound
impact on how a company operates and its long-term
sustainable value. This is reflected in significant investment
losses around the world due to severe lapses in corporate
not a nice-to-have quality in an investee company but, rather,
a requirement. What it comes down to is that our clients have
entrusted us with their savings and it is our responsibility to
ensure that we safeguard their investments into the future!
21
Customised Solutions
FOUR EFFECTIVE TOOLS
TO ENHANCE LONG-TERM RETURNS
Tool 1
Tool 2
Asset allocation is one of the
Use alternative assets to
biggest drivers of long-term
enhance expected returns
performance, so allocate
carefully
Allocate assets wisely
Portfolio A vs Portfolio B
Add alternative assets
Portfolio B vs Portfolio C
Portfolio B
Portfolio A
Bonds (BESA All Bond Index)
Bonds (BESA All Bond Index)
Equity (SWIX)
Portfolio C
Bonds (BESA All Bond Index)
Equity (SWIX)
Old Mutual Wealth Defender Fund*
Portfolio B
Bonds (BESA All Bond Index)
Equity [FTSE/JSE Shareholder
Weighted All Share Index (SWIX)]
*Regulation 28 allows an investor to allocate a maximum of 15% to alternative investments. We
have used this as a guideline for our allocation.
R1.4 million added value
R0.2 million added value
Asset Allocation Effect on R1 million investment over 10 years
R4 000
Portfolio A
R3 500
Asset Allocation Effect on R1 million investment over 10 years
R3 754 316
Portfolio B
R2 500
R2 344 372
R2 000
R000s
Portfolio C
R3 956 193
R3 754 316
R3 000
R2 500
R2 000
Sources: Old Mutual Investment Group, I-Net
Sources: Old Mutual Investment Group, I-Net
Sep-14
Mar-15
Sep-13
Mar-14
Sep-12
Mar-13
Sep-11
Mar-12
Sep-10
Mar-11
Sep-09
Mar-10
Sep-08
Mar-09
Sep-07
R500
Mar-08
R1 000
Sep-06
Sep-14
Mar-15
Sep-13
Mar-14
Sep-12
Mar-13
Sep-11
Mar-12
Sep-10
Mar-11
Sep-09
Mar-10
Sep-08
Mar-09
Sep-07
Mar-08
Sep-06
Mar-07
Sep-05
Mar-06
Mar-05
R500
Returns for the period
Portfolio B: 14.1% p.a.
Portfolio C: 14.7% p.a.
R1 500
Mar-07
R1 000
Sep-05
Returns for the period
Portfolio A: 8.9% p.a.
Portfolio B: 14.1% p.a.
Mar-06
R1 500
Mar-05
R000s
Portfolio B
R4 000
R3 500
R3 000
22
R4 500
Tool 3
Tool 4
Use skilful and value-adding
Reduce the overall cost
capabilities that generate excess
of the portfolio
returns
Have a skilful manager
Portfolio C vs Portfolio D
Look to reduce costs
Portfolio C
ACTIVE + PASSIVE = EXCESS RETURNS WITH REDUCED
COSTS
Bonds (BESA All Bond Index)
Equity (SWIX)
Old Mutual Wealth Defender Fund
A skilful active manager = excess return potential
Portfolio D
Indexation (passive) manager = low-cost exposure to the market
Bonds
Old Mutual Managed Alpha Equity Fund
Old Mutual Wealth Defender Fund
Allocating a portion of fund to indexation provides the following benefits:
• Reduction in the overall cost of the portfolio
• Efficient and cost-effective exposure to markets or asset classes
R53 635 added value
• Efficient and cost-effective exposure to investment styles
Asset Allocation Effect on R1 million investment over 10 years
• Efficient and cost-effective option to implement responsible investment views
R4 500
Portfolio C
R4 000
Portfolio D
• Creates additional capacity for investments into expensive value-adding skilful
managers that take on significant active risks.
R4 009 828
R3 956 193
• Creates additional capacity for investments into expensive value-adding skilful
managers that take on significant active risks.
R3 000
R2 500
R2 000
Sep-14
Mar-15
Sep-13
Mar-14
Sep-12
Mar-13
Sep-11
Sep-10
Mar-11
Sep-09
Mar-10
Sep-08
Mar-09
Sep-07
Mar-08
Sep-06
Mar-07
Sep-05
R500
Mar-06
R1 000
Mar-12
Returns for the period
Portfolio C: 14.7% p.a.
Portfolio D: 14.9% p.a.
R1 500
Mar-05
R000s
R3 500
TOOL 1 + TOOL 2 + TOOL 3 + TOOL 4 =
ENHANCED LONG-TERM RETURNS
Sources: Old Mutual Investment Group, I-Net
23
Sharp lessons from
Greece abound on the
streets of Athens
has bought no tangible benefit, with the perception that it has
just gone towards paying interest.
Walking around Athens there were many vacant buildings and
lots of graffiti, evidence of lean years and unemployed young
people. I attended a rally next to parliament and, despite the
fairground atmosphere, it was chilling to see a group of Young
Communists clutching motorbike helmets and pick handles.
Once a government loses control of its finances it gets squeezed
from both sides as it cannot afford to subsidise the poor and
cannot pay back the rich. There is a very clear lesson for South
Africa, that we must bring our budget deficit under control before
we run out of options.
An unavoidable aspect of Athens is a sense of history with the
Acropolis looming over the city. I went to the War Museum,
Peter Brooke | Head of MacroSolutions
where displays on the country‘s ancient history show Greece
in its prime beating the Persians and conquering the world.
Many of the latter conflicts I was less familiar with, such
as the Balkan war in 1912 and the Greco-Turkish war of
Greece is the hot topic of the moment and I was lucky enough
1919-1922. The Greco-Turkish war is also known as the Asia
to arrive on the day of the referendum and come home to a
Minor Catastrophe as the Greek invasion crystallised the formation
rebounding equity market on the back of a new deal. However,
of the Turkish Nationalist Movement and resulted in a major
this was a holiday and not a due diligence trip so my perspective
reversal in fortunes for the Greeks.
was informed by taxi drivers rather than investment bankers.
My first lesson was that there were no tolls on the trip into town
importance of strong leadership, and the recent erratic behaviour
as the government wasn‘t collecting them due to the referendum.
from Greek politicians doesn‘t bode well. History also shows us
This was a consistent pattern, with multiple loopholes such as
24
What was clear from these different periods in history was the
that Greece has a poor economic record. Since independence
discounts for students and pensioners.
in 1829 they have spent over 50% of the time in default or
Standardising VAT rates is a key reform required by the troika
and Rogoff database (from the economics paper by American
and one can see why. Improving tax compliance will be a
economists Carmen Reinhart and Kenneth Rogoff). On this basis
major challenge and I would be surprised if the government
I wouldn‘t be too optimistic that the latest plan will succeed and
succeeds here.
think there will be future changes in the Eurozone.
This is not just a cultural issue but also a form of rebellion from
On the metro there was a large advert reading: “Treating all
an angry population. The groundswell of support for the “No”
your senses at once. Priceless. With your MasterCard you
vote was obvious across the country with strong emotional rather
are welcome all over Greece in restaurants, tavernas and
than logical arguments such as: “I am voting no for my children
bakeries.” This was ironic as we found a large number of shops
so they can get work” and “the Germans owe us money from
and restaurants who didn‘t have any card machines or whose
the war”. Much of this stems from the pain of austerity, which
machines weren‘t working.
debt rescheduling. This is the fifth worst country on the Reinhart
This is a form of Gresham‘s law, where the good money (euro
notes) vanishes under mattresses, while no one wants the bad
money (bank accounts which are liable to losses if the banking
system goes under). We could, however, draw unlimited cash
from the ATMs with a foreign credit card, while the Greeks were
queuing to take out their €60 (R800) per day. Unfortunately, I
couldn‘t get a premium for cash. This reinforces the investment
lesson that some cash is useful in a portfolio for liquidity purposes
when you need it.
During these two weeks out of the office the market mood on
Greece had swung from despair to euphoria with some big
movements in share prices, but not resulting in much change.
This is probably the most important lesson: Greece has a very
limited impact on the global economy and global markets in its
own right. However, the swings in sentiment caused many billions
of paper profits and losses.
This is why it is important to ignore the noise and focus on your
long-term investment plan.
Published in Sunday Times, 19 July 2015
Key takeouts:
•Since 1829, Greece has faced
debt problems 50% of time
•Tax compliance a major
challenge
•Emotions prevail over logic
25
Market Indicators
as at 31 JULY 2015
DY %
P/E Ratio
1 Month %*
12 Months %*
FTSE/JSE All Share Index
3.0
18.0
0.5
4.4
FTSE/JSE Resources Index
5.2
17.4
-8.5
-37.8
FTSE/JSE Industrial Index
2.3
14.9
1.2
16.6
FTSE/JSE Financial Index
3.7
13.3
3.8
24.1
FTSE/JSE SA Quoted Property Index
5.3
18.8
5.1
31.0
ALBI BEASSA Bond Index
1.0
8.2
STeFI Money Market Index
0.5
6.3
MSCI World Index (R)
5.8
24.2
MSCI World Index (US$)
1.8
5.5
*Total return index percentage change
Economic Indicators
Latest Data
Previous Year
Exchange Rates
Rand/US$
July-15
12.7
10.7
Rand/UK Pound
July-15
19.7
18.1
Rand/Euro
July-15
13.9
14.3
Rand/Aus$
July-15
9.3
9.9
Commodity Prices
Gold Price (US$)
July-15
1 095.5
1 282.1
Gold Price (R)
July-15
13 921.2
13 749.3
Oil Price (US$)
July-15
52.2
105.6
Prime Overdraft
July-15
9.5%
9.3%
3-Month NCD Rate
July-15
6.3%
5.9%
R157 Long-bond Yield
July-15
8.3%
8.3%
June-15
4.7%
6.6%
GDP Growth (y-o-y)
March-15
2.0%
2.1%
HCE Growth (y-o-y) (Household Consumption Expenditure)
March-15
1.7%
1.6%
GFCF Growth (y-o-y) (Gross Fixed Capital Formation)
March-15
0.3%
3.5%
Manufacturing Production (y-o-y) (seasonally adjusted)
May-15
-0.4%
-1.6%
June-15
-$6.4
-$8.4
Interest Rates
Inflation
CPI (y-o-y)
Real Economy
Balance of Payments
Trade Balance (cumulative 12-month)
Current Account (% of GDP)
Forex Reserves (incl. gold)
March-15
-4.8%
-4.6%
June-15
$46.4
$48.7
Sources: JSE, Iris, I-Net
26
FCB10016856/JB/E
HOW MUCH IS ENOUGH TO GIVE YOUR DAUGHTER A DREAM
WEDDING & STILL GROW YOUR INVESTMENTS LOCALLY & OFFSHORE?
Let Old Mutual Investment Group deliver on your ‘enough’ by putting its 170 years of investment expertise to work
The rand’s performance is up today, down tomorrow, but one thing that doesn’t change - your dreams and goals. Whatever the rand does,
what you really need to know is how many rands invested is enough for your lifestyle, today and tomorrow.
How much is enough? At Old Mutual, we’ll help you work out exactly how much is enough for you. Then Old Mutual Investment Group provides
the investment solutions to deliver on those goals. Solutions like the Old Mutual Global Equity Fund – a consistent top quartile performer over all
periods and since inception*. Speak to your Financial Adviser today about how this fund can help ensure you have enough to do great things.
Call 0860 INVEST (468378) or visit www.howmuchisenough.co.za
ADVICE I INVESTMENTS I WEALTH
* Global General Equity category. Source: Morningstar as at 30 June 2015. Inception Date 1995
Disclaimer: The Retail class is the most expensive class offer by the Manager. The actual highest and lowest 12-month return figures during the 20 year period to June 2015 are 75.0% (highest) and -40.3% (lowest). Past performance is not
an indicationThe
of Retail
futureclass
performance.
Unit trusts
mediumto long-term
investments.
Shorter-term
fluctuations
occur as your investment moves in line with the markets. Fluctuations or movements in exchange rates may cause
DISCLAIMER:
is the most expensive
classare
offergenerally
by the Manager.
The content
of this document
does not
constitute advice
as definedcan
in FAIS.
the value of underlying international investments to go up or down. Unit trusts can engage in borrowing and scrip lending. Fund valuations take place on a daily basis at approximately 15h00 on a forward pricing basis. The fund’s TER
Old Mutual Investment Group (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS).
reflects the percentage of the average Net Asset Value of the portfolio that was incurred as charges, levies and fees related to the management of the Portfolio. A schedule of fees is available from Old Mutual Unit Trusts Ltd, an approved in
Old Mutual Investment Group is a part of the Old Mutual South Africa Group. Reg No 1993/003023/07. The investment policies are market linked. Products are either policy based or unitised in collective investment schemes. Investors’ rights and obligations are set out in the relevant contracts.
Collective Investment Schemes in Securities. Old Mutual Investment Group (Pty) Ltd (FSP 604) is a Licensed Financial Services Provider. For more information please refer to the Fund’s Minimum Disclosure Document (MDD), www.omut.co.za.
Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future
* Global General Equity category. Source: Morningstar as at 30 June 2015. Inception Date 1995.
investment performance. Unit trusts are generally medium- to long-term investments. Unit trusts can engage in borrowing and scrip lending. Fund valuations take place on a daily basis at approximately 15h00 on a forward pricing basis. The fund’s TER reflects the percentage of the average Net
Asset Value of the portfolio that was incurred as charges, levies and fees related to the management of the Portfolio. A schedule of fees is available from Old Mutual Unit Trusts Ltd, an approved in Collective Investment Schemes in Securities. For more information please refer to the Fund’s Minimum
Disclosure Document (MDD), www.omut.co.za.
Personal trading by staff is restricted to ensure that there is no conflict of interest. All directors and those staff who are likely to have access to price-sensitive and unpublished information in relation to the Old Mutual Group are further restricted in their dealings in Old Mutual shares. All employees of
Old Mutual Investment Group are remunerated with salaries and standard short-term and long-term incentives. No commission or incentives are paid by Old Mutual Investment Group to any person. All inter-group transactions are done on an arm’s length basis. In respect of pooled, life wrapped
products, the underlying assets are owned by Old Mutual Life Assurance Company (South Africa) Limited, who may elect to exercise any votes on these underlying assets independently of Old Mutual Investment Group. In respect of these products, no fees or charges will be deducted if the policy
is terminated within the first 30 days. Returns on these products depend on the performance of the underlying assets. Old Mutual Investment Group has comprehensive crime and professional indemnity insurance, as part of the Old Mutual Group cover. For more detail, as well as for information on
how to contact us and on how to access information, please visit www.oldmutualinvest.com.
Old Mutual Investment Group (Pty) Limited. Physical address: Mutualpark, Jan Smuts Drive, Pinelands 7405. Telephone number: +27 21 509 5022
27