Alexander Forbes 2019 Investment Outlook by Alexforbes

2019 INVESTMENT OUTLOOK

A review on key global trends, our local market and how itâ&#x20AC;&#x2122;s informing performance

Alexander Forbes Investments Limited. Registration number 1997/000595/06

CONTENT Letter from the Group Chief Executive

Section one | South African market and economic outlook 4 A fragile mix of local policy promises and global uncertainties Portfolio performance update

Section two | Global perspectives Themes and opportunities 2019

Section three | Portfolio snapshots How to read the portfolio snapshots

5 12

18 19

31 32

Specialist multimanager AF High Growth

Multimanager balanced Performer 36 Spectrum 38 Conserver 40 Banker 42 AF Active Balanced Life Stage High Growth 44 AF Active Balanced Life Stage Conservative Growth 46 Stable Focus Combined 48 AF Protector 50

Shari’ah multimanager Shari’ah High Growth Shari’ah Medium Growth

52 54

Passive AF Passive Bold AF Passive Protector

56 58

Single manager balanced Allan Gray Ltd Classic Balanced Coronation Managed I Foord Asset Management – Best Investment View Investec Asset Management – Best Investment View Investec Cautious Managed Oasis Asset Management – Best Investment View

60 62 64 66 68 70

Disclaimers 72

On behalf of Alexander Forbes Investments Limited, Iâ&#x20AC;&#x2122;d like to warmly welcome you to our annual Hot Topics, which now for the first time, includes a reportback on your portfolio. We are delighted to be sharing this interactive day with you; a day where, in addition to us sharing information with you, you will have an opportunity to directly engage with us. Today, you will be hearing directly from Alexander Forbes Investments and Mercer experts, as we discuss issues that affect much of what we do and what we aim to do: give our clients a comfortable investor journey. The investment landscape has faced many challenges, as a result of the low-return environment, but our goal to achieve better outcomes for our clients remains the same. To this end, we believe our Living*Investingâ&#x201E;˘ philosophy can assist in ensuring that your investor goals are met. A risk-based, forward-thinking, holistic investment approach that evolves to achieve a specific client outcome with a greater degree of certainty. As an investment community, we are constantly striving to evolve in our quest to facilitate better outcomes for our clients. We are excited to be hosting you today, as we discuss and engage with you on your portfolio performance, with a global and local view on the economy and key investment themes and opportunities present. We will also be giving you insights on the investment strategies that we implement and how these themes and opportunities have informed them. Enjoy your day. Sincerely

Dawie de Villiers Group Chief Executive

ALEXANDER FORBES INVESTMENTS

South African market and economic outlook

SOUTH AFRICAN MARKET AND ECONOMIC OUTLOOK

A fragile mix of local policy promises and global uncertainties Isaah Mhlanga | Executive Chief Economist

The year 2018 came to an end in a disappointing fashion for markets, after starting on a positive note with a synchronized economic growth outlook that started in 2017. This optimism was quickly halted by the trade tensions between the United States (US) and its major trading partners, the Brexit negotiations, Italian and Argentinian debt issues, Turkeyâ&#x20AC;&#x2122;s currency problems and more importantly, the US Federal Reserveâ&#x20AC;&#x2122;s (Fed) four interest rate increases to 2.5%. These developments all combined over the course of the year and shifted the outlook for markets from a low-return environment to a negative returns environment, across a broad range of asset classes, as shown on the next page.

ALEXANDER FORBES INVESTMENTS

Figure 1:

global asset class returns in 2018

US Dollar Index

4.6% 0.2%

US Dollar Bonds US Corporate Bonds

-1.5% -2.6%

Gold -6.2%

S&P 500 US Small Caps

-9.8% -12.2%

Canadian Stocks Commodities

-13.9%

Europe Stocks

-14.5%

Emerging Markets Stocks Crude Oil

-16.9% -24.8%

Global oil supply surged through 2018, and prices crashed dramatically in November

Figure 2:

returns on S&P 500 sub-sectors in 2018

4.7%

Healthcare 0.5%

Utilities -0.5%

Consumer Discretionary

-1.6%

Technology -5.6%

Real Estate -11.2%

Financials Industrials

-14.7%

Communication Services

-15.0%

Materials

-16.4%

Emerging Markets Stocks

-16.4%

Energy

-20.5%

Source: Bloomberg

Usually, market performance similar to that depicted above, occurs when one or more major economies experiences a significant recession or financial crisis of one form or another. However, we had no single advanced or emerging economy in deep recession, no major financial meltdown and no major corporate default, to justify the 2018 marketâ&#x20AC;&#x2122;s performance, which confirms that short-term market dynamics are driven 6|

more by sentiment, which may be unrelated to underlying macroeconomic factors. We believe that we are at the end of a long economic cycle, which implies that liquidity will become scarce, volatility will rise and there is going to be more differentiation in economic and market performance across regions and countries.

SOUTH AFRICAN MARKET AND ECONOMIC OUTLOOK

Figure 3:

returns on S&P 500 sub-sectors in 2018

30 20 10 0 -10 -20

2018

GBPZAR

EURZAR

USDZAR

S&P SA Multi-factor Index

S&P Quality

S&P Momentum

S&P Low Vol

S&P Value

Styles

Large Caps

Mid Caps

Small Caps

JSE Industrials

JSE Financials

JSE Resources

Local Property

Capped SWIX

Top 40 Index

All Share Index

Equities

Bonds

Cash

-30

3 years

Source: Bloomberg

The performance of the domestic asset class returns followed global trends. As shown in Figure 3 above, bonds and cash were the only asset classes that had positive returns, while all other asset classes were in the red. Within equities, property was the worst performer, with -25.3%, while resources outperformed, with +15.5% return. The rand depreciated against the three major currencies, along with other emerging markets (EM). Domestic macroeconomic and political backdrop was not supportive for markets. The economy experienced a technical recession during the first and second quarters of the year, before a modest rebound to positive territory in the third quarter. The Medium Term Budget Policy Statement (MTBPS) showed a deterioration in the fiscal outlook, Eskom’s debt burden and rolling electricity blackouts increased risks for both the fiscus and economy. As if this wasn’t enough, pronouncement of land expropriation without compensation and the potential nationalisation of the South African Reserve Bank (SARB) negatively impacted market sentiment and business confidence.

Headline inflation gradually trended up, from the 3.8% trough in March, peaking at 5.2% and averaging 4.7% for 2018 as a whole, which was lower than 5.3% in 2017. Due to elevated global risks, the SARB hiked rates by 25 basis points (bp) in November, which reversed the 25bp cut in March. The picture that emanates from the global and local asset class performance clearly demonstrates that 2018 was a difficult year. It didn’t matter which asset classes you had in a portfolio, whether you were offshore or local, or what investment style you followed, portfolio returns would have returned negative, as long as the portfolio was diversified. In such an environment, the strategy shifted from chasing returns to protecting the drawdowns in portfolios.

ALEXANDER FORBES INVESTMENTS

2019 Investment outlook: a fragile mix of policy and political uncertainties

Global growth is expected to plateau in 2019, driven by the slowdown in the US and Eurozone, which is offset by improvement in emerging markets. The outlook for 2020 is less assured, due to rising risks of a US recession. The UK should continue to be weighed down by Brexit uncertainties.

The moderation in developed markets (DMs) growth should dampen domestic demand, which implies that inflation will remain stable and close to targets, enabling a continuation of the removal of monetary stimulus. In terms of interest rate paths, we believe that the rising risks of a 2020 US recession will push the Fed to be more data dependent, and pause interest rate hikes, in the absence of an overshoot in inflation. We expect the Fed to hike once or twice, at most, and the European Central Bank (ECB) to hike only once in 4Q2019. The US dollar should peak in 1H2019, before weakening against other major currencies. This implies that EM currencies should recover from the significant weaknesses we saw in 2018.

A recovery in EM currencies, with moderately rising energy prices, should drive inflation lower in oil importing countries, which in turn will keep interest rates stable, boosting domestic demand and economic growth. The slowdown in Chinaâ&#x20AC;&#x2122;s economic growth remains a source of risk for EMs, from a trade point of view.

2019

SOUTH AFRICAN MARKET AND ECONOMIC OUTLOOK

On the basis of our base case views, we believe investors will see better returns in 2019, if they are positioned in global equities, particularly EMs and US large- and mid-caps, investment grade corporate debt, US short-term fixed income, EMs debt, commodities and alternatives.

The global backdrop is supportive for South African (SA) fundamentals, from a potential capital flows and currency perspective. However, we believe that the national elections in May will prove to be an inflection point for both the macroeconomic outlook and investment outcomes.

Although there is a generally positive outlook on political outcomes, we forecast a marginal improvement in economic growth, to 1.5% and 2.1% in 2019 and 2020, respectively, from sub-1% in 2018. We attribute the slower recovery to a delay in policy reforms and private investment until after elections.

Inflation should remain well within the 3%-6% target band, because of the stable rand and low oil prices. There are little demand-side inflationary pressures currently, low FX pass-through, due to administered prices, especially electricity.

From an investment point of view, we believe local equities are poised to recover, following an 8.5% decline in 2018 total returns. Bonds should still offer good returns, given the stable inflation and an unchanged interest rate outlook, but there remains a risk of one rate hike by the SARB, which advocates for short duration positioning.

ALEXANDER FORBES INVESTMENTS

South African economic outlook: politics and policy slow recovery

Will the SARB be nationalised?

SA’s economic and markets outlook for this year will be impacted by the National and Provincial elections, which are scheduled to take place in May, in addition to the global factors discussed above. Independent Press Standards Organisation’s (IPSO) latest survey of voter intentions shows that the African National Congress (ANC) has 61% support. If the ANC maintains or gains more support at the polls, it will be market positive, as it will mean that President Ramaphosa has a clear mandate from the electorate to push through the much needed economic reforms that will boost economic growth. We believe this is the likely outcome, so we expect local equities to outperform local bonds.

As it relates to the nationalisation of the SARB, there are two aspects that need to be separated: ownership, mandate and independence. At its Monetary Policy Committee (MPC) meeting on 17 January 2019, the SARB Governor spoke at length, clarifying these two points. Firstly, the ownership of the SARB does not impact its mandate and independence. To us, this means that even if the state were to nationalise the SARB, this will not change its mandate, which is constitutionally prescribed as “to achieve and maintain price stability in the interest of balanced and sustainable economic growth in South Africa”. In any case, there are other central banks that are owned by their government that are independent in how they achieve their mandated objectives. Secondly, given that the independence and mandate of the SARB is prescribed in the Constitution, changing that will require changing the Constitution, which will be a far more difficult task to do without thorough economic justification. We believe that the SARB will not be nationalised, and its mandate and independence will not be changed.

From a policy point of view, pronouncements during election campaigns, as we have already seen with the ruling ANC’s manifesto, will introduce a layer of concerns, even before the outcome of the elections itself, and policy position of the government that will be established, is in place. Two aspects that are of concern for markets, are the intention to look into prescribed minimum assets for pension fund investors and the nationalisation of the SARB.

Will prescribed minimum assets be imposed on pension funds?

5.0%

Economic growth will marginally recover

Talks on tapping into prescribed minimum assets are not new, and they seem to resurface around national elections and disappear soon after. Currently, there are no prescribed minimum assets, for developmental purposes, for pension funds in SA. If prescribed minimum assets were to be made into law, it will distort investment outcomes and prejudice clients whose pensions are managed by pension funds. However, we do not believe that prescribed minimum assets will be made into law; but it remains a low probability event.

Given our expectations on the political outcomes, we believe economic growth will recover to about 1.5% in 2019, from an estimated 0.6% in 2018. The recovery is premised on a rebound in household consumption and fixed investment, especially in the second half of the year. It is a wait-and-see before elections in May, with little economic reforms and, as a result, little private sector investment. Even after elections, it will take some time to re-organise government, pronounce and implement policy. Therefore, a pickup of growth is a story of 2020 and beyond.

3.8% 3.6% 3.4% 2.9%

-0.75%

10 | -1.0%

-1.0%

SOUTH AFRICAN MARKET AND ECONOMIC OUTLOOK

No rate hikes in 2019, as inflation is well contained within the 3%-6% SARB target band We forecast inflation of 5.0% in 2019, from 4.8% in 2018. The decline in oil prices and slightly stronger rand against the US dollar, has resulted in cuts in petrol prices in December and January. However, market expectations are that oil prices will increase, and the rand will remain slightly weaker. Electricity prices are likely to increase above 10% per year, for the next three years, given Eskom’s financial problems. Food price inflation will also likely rise, due to poor rainfall in major maize production regions. These factors will push inflation risks to the upside for the year. What remains supportive of a better inflation outlook, is the fact that demand-pull inflation remains minimal. Given our expectations on inflation and the SARB’s inflation forecast of 4.8%, 5.3% and 4.8% in 2019, 2020 and 2021, we believe interest rates will stay on hold for the rest of the year, with a risk of one hike at best. The bank’s Quarterly Projection Model forecasts only one rate hike over the forecast horizon.

Fiscal policy has run out of space Last year’s MTBPS clearly highlighted a deteriorating fiscal outlook, with a debt trajectory, which did not stabilise within the medium-term expenditure framework. The risk of unsustainable fiscal balances (public debt and deficit) will likely remain, if economic growth does not recover, while the interest paid on debt and expenditure pressures rise. In addition, state-owned companies that continuously need recapitalisation, are a big risk to the fiscus, especially Eskom. Calls for the privatisation of the electricity utility have long been there, but it’s unlikely that it will be done any time soon. A credible scenario will be a part privatisation, separating generation, distribution and transmission. However, given the current financial problems the utility is in, we do not expect Eskom to be privatised over the next couple of years, which implies that it will remain a risk to the fiscus.

Note: Any projections contained in the information are estimates only. Such projections are subject to market influences and contingent upon matters outside the control of Alexander Forbes Investments, so may not be realised in the future. Historical returns are no guarantee of future performance.

-0.95%

-1.2%

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ALEXANDER FORBES INVESTMENTS

Portfolio performance update Gyongyi King | Chief Investment Officer

A year of landmines 2018 was a challenging year, where every asset class around the world was challenged, with global capital markets shrinking by a combined tally of USD 5 trillion â&#x20AC;&#x201C; the biggest capital contraction since the global financial crisis 10 years ago. According to research conducted by Deutshe Bank, 90% of global asset returns were negative in USD. Several global equity markets entered bear market territory. Furthermore, 7.5% of stocks in the MSCI ACWI posted positive returns (in USD), in South Africa, 23% of Top 40 stocks delivered positive returns (in ZAR).

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SOUTH AFRICAN MARKET AND ECONOMIC OUTLOOK

Excess returns: South African equities vs cash Both US equities and US bonds delivered returns that were below the return of cash. According to research conducted by Schroders, this is only the third time in over a century of annual market return, where such an outcome has been observed. This outcome almost materialised in the South African market as well – cash returns as measured by the Alexander Forbes Short Term Fixed Interest (STeFI) Composite Index (returning 7.25%) came within 0.45% of the All Bond Index (returning 7.69%). In the last calendar year, local cash outperformed local equities – in fact this is the third time in the last four years that local cash has come in ahead of local equities. This again signifies the period of low real returns that we have cautioned our clients about in the past. However, this is not an unusual occurrence. Data shows that since 1960, cash has delivered higher calendar year returns than equities in 23 occasions of the 58 years observed (or 39% of the time). Furthermore, fiveyear rolling cash returns are ahead of equities, an outcome that has been observed 19% of the time since 1960.

There have been instances where cash has outperformed equities in recent history Times like these can foster poor behavioural biases in the actions of some investors, where they switch to cash to remedy the disappointment of low equity returns. There can be little doubt that equities is the asset class that will deliver superior returns over the long term. Data shows that provided five-year rolling cash returns are ahead of equities, there is only an 8% chance that they will be ahead of equities in the subsequent five years.

Select AF Investments portfolio performance – 1 year to 31 December 2018 We have sent several client communications in the last two years cautioning our clients about the looming low real return environment and the negative impact it might have on meeting targets. We are now experiencing the impact of this environment and we remain persuaded that it will persist in the near future. To reduce this impact, and in line with the process that we follow, we introduced various alternative strategies in our portfolios. These alternative strategies come in the order of hedge funds and private markets. These were introduced with the intention of reducing risk, enhancing returns, diversifying portfolios and improving the likelihood of achieving our clients’ long-term objectives. In our growth solutions, hedge funds and private markets delivered returns above the respective benchmarks of these solutions. Introducing an exposure to Africa also added value, with this allocation returning inflation-beating numbers over the year. We recently entered into a strategic relationship with our global partner Mercer, with the aim of accessing the latest developments in global best practice, innovation, and worldleading asset manager research. In addition, this relationship offers us the opportunity to access the best portfolio solutions across a range of asset classes, on behalf of our clients. I am pleased to update you that all the global portfolios outperformed their respective benchmarks and returned above-inflation numbers, mainly due to the weaker rand – global asset class returns were negative for the year, except for global cash. This again points back to the challenging market environment we observed in 2018.

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ALEXANDER FORBES INVESTMENTS

The table below shows the performance of the investment portfolios underlying the Linked Fund Policies, relative their respective benchmarks.

Fixed Income

Main portfolios -0.71%

-1.87%

Performer

1.07%

Inflation Linked Bond

1.16% -4.50%

1.49% -4.18%

AF High Growth

8.73%

Pure Fixed Interest Local

-0.32% -12.28%

-0.43%

7.74%

0.99% -10.94%

Pure Equity Local

9.45%

Income

-1.34%

9.18%

0.27% 8.80%

Banker

6.61%

2.19%

Multi-asset (balanced) -4.47%

-4.44%

Performer Local

Global

-0.03% -3.62%

-5.41%

Accelerator

5.17%

Global Equity

1.79% 4.45%

2.21%

Conserver

15.86%

Global Fixed Income

15.80%

0.06%

2.24% -0.80%

4.92%

0.25%

-1.08%

Moderate Balance 0.27%

Alternatives + Africa 6.98%

Multi-asset (absolute returns) 3.29%

Real Return Focus

Caveo Africa 7.16%

9.21%

7.65%

Private Markets SA

Stable Focus

8.20%

13.82%

Sakhisizwe

-4.93%

AF Invest Focus QI Hedge Fund of Funds

-25.26%

-4.27%

AF Invest QI Performance Hedge Fund of Funds

3.09%

Portfolio

Benchmark

Source: Alexander Forbes Investments

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-5.83%

0.89%

Property Property

9.33%

4.49%

-4.13%

-22.17%

7.65%

0.00%

-5.92% 4.07%

-0.19%

-3.34%

Relative performance (1 year to end December 2018)

-0.93%

SOUTH AFRICAN MARKET AND ECONOMIC OUTLOOK

Real return expectations look better, but CPI + % remains challenging Our internally-generated real return assumptions that are based on theoretical underpinnings and relationships that hold through numerous market cycles, for each asset class, show that despite the low long-term return outlook on listed equity, returns are expected to be higher than defensive asset classes.

Asset class (returns are rand denominated for SA and USD for Global) (to end Dec 2018)

Cash and bonds, locally and globally, are unlikely to match up to equity returns over five years. Over the long term growth asset allocation is favored over defensive. This paints a significantly improved picture against current five-year real returns.

Five-year real historical ann. return, % (to end Dec 2018)

Bear case %

Base case %

Bull case %

Local Equities (FTSE/JSE ALSI)

0.4%

3.8%

8.1%

Local Property (SAPY)

-3.7%

4.0%

7.2%

10.3%

Local Bonds (All Bond Index, ALBI)

2.3%

0.4%

2.0%

3.7%

Local Cash (STeFi)

1.5%

0.4%

1.7%

3.0%

Global Equities (MSCI EM, USD)

3.6%

-0.1%

4.2%

8.5%

EM Equities (MSCI EM, USD)

-2.2%

4.1%

9.0%

14.0%

US Bonds (Treasury Index, USD)

0.5%

0.3%

1.0%

1.7%

Global Bonds (WGBI, USD)

-0.2%

-1.3%

-0.6%

0.2%

US Cash (USD)

-0.3%

0.5%

1.7%

2.8%

Rand â&#x20AC;&#x201C; Dollar*

6.5%

2.7%

-0.3%

-3.3%

Source: Alexander Forbes Investments

Note*: rand - dollar positive values = rand weakeness. Rand - dollar numbers are nominal, not real. Base Case = Forecast - 80% confidence interval from respective model. Bear Case = Forecast + 80% confidence interval

Greater offshore allocation offers a wider opportunity set Maximum allowed offshore exposure for SA retirement funds 45 40 35 30 25 20 15 10 5 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2015 2016 2017 2018 2019 Offshore

Africa

Source: Regulation 28 under the Pension Funds Act

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ALEXANDER FORBES INVESTMENTS

Following the relaxation of the offshore exchange control limits to investing a maximum of 40% in offshore assets, with the non-African portion being limited to 30%, by the Reserve Bank in February, we decided to up-weight our exposure to non-African offshore, to the maximum allowable limit, in our growth portfolios. This action added value on the back of a weaker rand and stronger relative performance from our offshore building blocks. Furthermore, this change has improved the diversification of our portfolios, which means that client portfolios stand to benefit from different sources of return. The overarching goal of portfolio diversification is to better manage risk, rather than maximise return. We believe the diversification benefits from investing assets offshore remain compelling, mainly due to the fact that portfolios with offshore exposure can be exposed to different investment strategies and opportunities that may not be available, or present, in the South African market. These various types of investment strategies can complement one another through different investment cycles, and portfolios can be constructed to benefit from the differing risk-return characteristics.

Allocation to alternatives has been supportive of greater portfolio diversification Research shows that private markets investments are expected to provide a premium above listed asset markets. While it is important to note that listed investments broadly share the same drivers, there are opportunities in the unlisted space, not available in the listed space and an illiquidity premium. We do not provide a specific point forecast for alternatives, but we are convicted by the premium that is confirmed by a range of sources (global indices, Mercer and SAVCA). Private markets have a liquidity premium attached to them, so they offer the possibility of stronger real returns than traditional markets over the longer term. Further, they provide access to areas of the economy that listed markets may not have exposure to. They are a novel source of income generation, meaning that they are not correlated to traditional market cycles, so can potentially enhance the diversification in an overall client solution. We seek to exploit these benefits, by allocating to these assets within our client portfolios. Regulation currently allows for as much as 15% to alternatives, to which 10% can be private markets.

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Following are the risks associated with private markets: Liquidity risk: Private markets assets have limited liquidity, thus selling before the defined maturity date of these assets may result in a client having to incur a material discount to NAV, to access liquidity. Alexander Forbes Investments, via this programme intends to assist in providing more economically viable liquidity solutions to clients, in time. Market risk: The fluctuation of the market has an impact on the value of private market investments held in the portfolio, albeit on a lesser basis to similar assets traded in the listed environment. Capital risk: The realisation value of private market investments can be affected by numerous factors, including (but not limited to) the quality of the portfolio manager, equity market exposure, interest rates and foreign exchange. Default risk: The unpredictable timing of cash flows poses funding risks to clients who do not set aside capital with which to meet capital calls to underlying portfolio offerings. Commitments are contractually binding, defaulting on payments results in the loss of private market interests. Alexander Forbes Investments intends to reduce this risk via the programme, in diluting the amount of commitment risk to be borne by clients, and focusing on providing clients with immediate deployment of capital into asset value.

How we construct our client solutions In our risk-led investment approach, we seek to use all available sources of excess return. In our investment portfolios underlying our range of Linked Fund Policies, we include active, passive and smart beta strategies and our underlying investment building blocks are combined in an optimal way. We use passive and smart beta strategies to access systematised returns at lower costs. Where client mandates allow for it, we use alternative asset classes, to enhance the overall risk/return profiles of portfolios and improve diversification. Our investment approach is risk centred, optimising the return outcomes within a given risk budget. We believe in using the complete information set (market derived information, macro analysis, other sources of information) in making our investment decisions.

SOUTH AFRICAN MARKET AND ECONOMIC OUTLOOK

Near-term outlook

Tailwinds: Market valuations look softer

Good opportunity for diversification within alternatives

Wider breadth of investment universe after relaxation of regulation to 30% maximum non-African allowable limit

SA inflation remains well-contained

Headwinds: Earnings outlook remains subdued

We expect volatility to remain elevated

EMs are open to shocks in a liquidity tightening environment

Opportunities

Challenges

Market valuations look softer following the sell-off markets experienced in 2018. The current market environment presents an opportunity for diversification within alternatives for client portfolios. The benefit of this is further compounded with the recent change of regulation which now allows for 30% maximum allowable limit to invest offshore. South African inflation also appears to be contained which positively impact real returns be supportive of local bonds.

The volatile economic backdrop renders the earnings outlook subdued for the near future. We expect this volatility to be a consistent feature in the market, owing to geopolitical tensions, trade war risks and tightening market liquidity. The negative impact of a tighter liquidity environment will be most pronounced in EM capital markets.

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Global perspectives

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We see in the leveraged loans market that more than three out of four loans are what is termed “cov-lite” — that is, they don’t have covenants that require the borrower to maintain prudent financial behavior. The proportion of loans without these protections has more than tripled from the levels immediately prior to the Global Financial Crisis. Essentially, this may have swept a lot of bad news under the carpet, as some borrowers would have undergone technical defaults by now if these covenants had been in place. In the more creditworthy “investment grade” sector, the levels of leverage exhibited by borrowers have increased such that a large proportion of the outstanding stock is now positioned at BBB. If credit quality slides any further, investment grade bonds will take an automatic price hit when credit reclassifies to “high yield” — that is, it moves below BBB.2 Of course, if it is believed these bonds are “money good” (that is, they will successfully pay out all scheduled coupons and principal payments) and investors can hold them to maturity, this may present a great opportunity in the form of a Buy and Maintain strategy.3 This outlook is quite distinct from that for the high yield market, which — relative to history — looks expensive, with low spreads suggesting lower potential prospective returns.

which the investment manager has the ability to rotate between credit sectors are also well placed to take advantage of the changing prospects of different sectors of the credit universe (multi-asset credit managers are an example of this). If the credit cycle4 does turn in the next couple of years, distressed debt may prove an interesting asset class to consider. Equity markets have seen an artificially low failure rate over a long period of monetary largesse. The most levered companies may be at risk of failure, however, if they have thus far avoided the fate of bankruptcy due to refinancing costs remaining low. Along with these “zombies” (now a larger proportion of the market than ever,5 and overdue a reckoning), income-rich stocks — such as utilities — are likely to be sensitive to faster-thananticipated interest rate rises. We believe shares that are growing their dividends sustainably year-on-year may be the best port in a storm for equity investors. It is also worth considering holding cash now, particularly in places where interest rates are normalizing, such as the US. It would also be easy to be complacent about the need for inflation protection in portfolios, as none has been needed for a long time, but we encourage investors to be inflation-aware.6

We still see opportunities in the area of growth fixed income, however, in both hard and local currency emerging market debt. Mandates in

BBBs make up 49.6% of global investment grade credit (as represented by ICE BofAML Global Corporate Index as at November 7, 2018) and 52.8% of US investment grade credit (as represented by the ICE BofAML US Corporate Index as at November 7, 2018).

Buy and Maintain is a strategy in which a portfolio of bonds is bought that the manager believes will honor all payments in the long run and in which the bonds are held onto, provided that the original investment thesis on purchase remains sound. This approach, if successful, can be low cost due to the low turnover and can allow for some capturing of the illiquidity premium.

Mercer. Preparing for Late Credit Cycle Dynamics, September 2018, available at https://www.mercer.com/content/dam/mercer/attachments/ private/nurture-cycle/gl-2018-wealth-preparing-for-late-cycle-dynamics-mercer.pdf.

McGowan MA, Andrews D, Millot V. The Walking Dead: Zombie Firms and Productivity Performance in OECD Countries, OECD Economics Department Working Papers, No. 1372, 2017.

Mercer. Inflation Awareness: Understanding Inflation and Its Impact on Your Portfolio, April 2018, available at https://www.mercer.com/ content/dam/mercer/attachments/private/gl-2018-wealth-inflation-awareness-understanding-inflation-and-its-impact-on-your-portfoliomercer.pdf.

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The prevailing wind looks increasingly challenging for public market investors, with extraordinarily low yields and generally elevated valuations. Private equity and private debt, on the other hand, have continued to offer attractive growth opportunities, and constraints on bank lending have also increased the opportunities for sophisticated investors to lend directly to businesses. However, the level of asset flows into private markets — and the elevated valuations prevailing in certain segments — may be cause for concern. The importance of investors understanding their tolerance for illiquidity, in a range of scenarios, is heightened. So, too, is the value of ensuring balance in a program of private market investments that is diversified across vintages, managers, market segments and the capital structure. The expansion of private markets may also limit the economic exposure of public markets if an increasing proportion of companies remain privately owned. This may be particularly relevant in emerging markets, where many investors allocate to gain exposure to economic growth in these higher-growth economies — this exposure may be skewed or diluted by more businesses staying away from public markets. The final dynamic that we believe is worthy of discussion is one that we might historically have referred to as “active versus passive,” with growth of “passive” investing at the expense of “active” management. This characterization has always been too simple, but perhaps never more so than today. The growth of systematic or factor strategies, such as alternative risk premia8 or multi-factor equity funds (sometimes referred to as “smart beta”), shows how demand for simpler,

often cheaper, products has been on the rise across a whole spectrum of product types, from hedge funds to indexed equity. Some of this change is being driven by investor concerns about alignment of fees9 — a topic Mercer has been vocal about. Active management can add real value, particularly in an environment of change, but it is not appropriate for all investors or for all markets. To implement active management successfully, asset owners need strong governance, an ability to withstand periods of underperformance and to be mindful of behavioral biases in an environment of variable, and often cyclical, relative performance. Where active management may not be suitable for reasons of market efficiency, a broader spectrum of available systematic and alternative index strategies is likely to benefit investors not content with a portfolio construction process set out purely by an index provider. We are sometimes asked whether outflows from active strategies are a concern for the functioning of capital markets (given the important role played by active management in price discovery), or whether the rise of factor investing and the use of exchange-traded funds (ETFs10) could present systemic risks. Although there may be pockets of concern, we have, so far, seen little evidence to suggest any investor action is needed. A higher prevalence of rules-based investing may make the landscape for traditional active management even more competitive, but the potential returns available to skilled investors through exercising judgement may also improve if such rules-based strategies create systematic biases that can be taken advantage of.

Mercer. Alternative Risk Premia, June 2018, available at https://www.mercer.com/content/dam/mercer/attachments/private/gl-2018alternative-risk-premia-investing-mercer.pdf.

Mercer. Investment Manager Fees Expanding the Framework, June 2018, available at https://www.mercer.com/content/dam/mercer/ attachments/private/nurture-cycle/gl-2018-wealth-investment-manager-fees-expanding-the-framework-mercer.pdf.

Mercer. Exchange-Traded Funds — An Effective Tool for Implementation, July 2018, available at https://www.mercer.com/content/dam/ mercer/attachments/private/nurture-cycle/gl-2018-wealth-exchange-traded-funds-an-effective-tool-for-implementation-mercer.pdf.

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In our 2018 themes, we talked about the risks posed by political fragmentation and the potential for increased protectionist or isolationist policy. Going into 2019, we are asking ourselves whether we may have reached peak globalization. We doubt that we will see the gains from globalization over the last 50 years reversed materially, but we recognize that the forces behind globalization may be fading. Nowhere is a stalling of economic integration more visible than in the trading relationship between the United States and China. In 1990, China was the twelfth largest economy in the world, less than a sixteenth of the size of the US (the world’s largest economy) and with an average annual income per capita of around US$315. In the 28 years that followed, the size of the Chinese economy increased by more than a factor of 30, lifting more than 700 million people out of poverty. It is a phenomenal growth story. Such significant growth, for such a large economy, is bound to cause friction. In Washington, the mood toward China turned decisively during 2017 and 2018, with increases in trade tariffs between the US and China dominating headlines. The investment implications of the tariff increases have dominated many investor discussions since then and are likely to continue into 2019 (and maybe beyond). An important question is how investors can balance the risks associated with investing in China with the growth opportunity that the country still clearly presents.

If global trade reverses direction, a potential impact could be greater divergence in investment returns across regions and countries. This may present a challenge to our view that global investment mandates12 are generally better placed than portfolios of regional mandates to deliver active returns (with some notable exceptions13), so this is a dynamic that we will be watching closely. The (very gradual) introduction of onshore Chinese equities14 (A-shares) into the MSCI Emerging Markets and All Countries World Indexes, and the announcement that Chinese bonds15 will be incorporated into the Bloomberg Barclays Global Aggregate Index in 2019, will provide impetus for investors to consider how best to get exposure to the second largest economy in the world, and whether they are comfortable being led by index providers. There are undoubtedly risks to consider, too, many of which will be challenging to assess. However, we are definitely seeing a shift toward the East. An environment of global economic divergence has the potential to present a favorable investment environment for unconstrained investors with global macroeconomic insight, but it could lead to more volatility in currency markets, prompting a review of how currency risk is managed within investor portfolios.

Mercer. The Challenge – Global or Regional Equity Mandates? June 2016, available at https://www.mercer.com/content/dam/mercer/ attachments/private/nurture-cycle/gl-2016-equity-portfolios-wealth-and-investments-the-challenge-global-or-regional-equitymandates-mercer.pdf.

Mercer. Active Small Cap Equities and the Value of Local Knowledge, September 2018, available at https://www.mercer.com/content/dam/ mercer/attachments/private/nurture-cycle/gl-2018-wealth-active-small-cap-equities-and-the-value-of-local-knowledge-mercer.pdf.

Mercer. The Inclusion of China A-shares in MSCI Indices — Implications for Asset Managers and Investors, August 2018, available at https:// www.mercer.com/content/dam/mercer/attachments/private/nurture-cycle/gl-2018-wealth-the-inclusion-of-china-a-shares-in-msciindices-mercer.pdf.

Mercer. China Onshore Bonds — The New Territory, November 2018, https://www.mercer.com/content/dam/mercer/attachments/private/ nurture-cycle/gl-2018-wealth-china-onshore-bonds-the-new-territory-mercer.pdf.

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already underway and gathering steam — a risk we believe investors should bear in mind is that they could end up with “stranded assets.” Focusing on appointing managers that have strong ESG credentials (alongside a high investment due diligence rating) could be the most effective and appropriate first step for many investors looking to incorporate sustainability into their portfolios. This can then be extended to incorporating more sustainability-focused satellites into their equity portfolio — for example, by investing in an active environmental equity strategy. This involves investing in a portfolio of companies that would be expected to fare well in the transition to a low carbon economy. Clearly, this comes with a concentration risk that investors shouldn’t be complacent about; however, this could be a good

complement to existing allocations. Academia provide a good level of evidence that incorporating sustainability into corporate strategy has yielded a neutral to positive impact on financial performance in recent times.17, 18, 19 For fee- and governance-sensitive investors, the next step could be to look at allocating to an ESG-focused index, as an evolution from a standard (market-capitalization-weighted) passive approach. We believe this approach has merit in terms of potential risk reduction and that the return prospects over the long term would be in line with traditional approaches. For unconstrained investors with a higher commitment to sustainability, impact investing through private market strategies is worth considering.

TA K I N G A C T I O N The ideas outlined in this paper represent our observations on the challenges, opportunities and drivers of change present in the current investment environment. We provide these ideas with the aim of provoking discussion, but the appropriate response at an investor level will be heavily influenced by the specific beliefs, objectives and constraints of each investor. We look forward to helping investors adapt their strategies as new risks and opportunities arise over the course of 2019.

Deutsche Asset & Wealth Management Investment GmbH. ESG & Corporate Financial Performance: Mapping the Global Landscape, 2015.

University of Oxford and Arabesque Partners. From the Stockholder to the Shareholder, 2015.

Khan M, Serafeim G, Yoon A. “Corporate Sustainability: First Evidence on Materiality,” The Accounting Review, Volume 91, Issue 6 (February 2017), pp. 1697–1724.

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Important Notice References to Mercer shall be construed to include Mercer LLC and/or its associated companies. © 2018 Mercer LLC. All rights reserved. For Mercer’s conflict of interest disclosures, contact your Mercer representative or see www.mercer.com/ conflictsofinterest. No investment decision should be made based on this information without first obtaining appropriate professional legal, tax and accounting advice and considering your circumstances. Investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Not all services mentioned are available in all jurisdictions. Please contact your Mercer representative for more information. This does not constitute an offer to purchase or sell any securities. The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed.

Investment management and advisory services for US clients are provided by Mercer Investment Management, Inc. (MIM) and Mercer Investment Consulting LLC (MIC). MIM and MIC are federally registered investment advisers under the Investment Advisers Act of 1940, as amended. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. MIM and MIC’s Form ADVs Part 2A & 2B can be obtained by written request directed to: Compliance Department, Mercer Investments, 701 Market Street, Suite 1100, St. Louis, MO 63101. Certain regulated services in Europe are provided by Mercer Global Investments Europe Limited, Mercer (Ireland) Limited and Mercer Limited. Mercer Global Investments Europe Limited and Mercer (Ireland) Limited are regulated by the Central Bank of Ireland. Mercer Limited is authorized and regulated by the Financial Conduct Authority. Registered in England and Wales No. 984275. Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU. This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without Mercer’s prior written permission.

This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Information contained herein may have been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential, or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.

6009600b-GB

PORTFOLIO SNAPSHOTS

Portfolio snapshots Markets experienced one of the longest bull runs in the history following the 2008 global financial crisis. The challenging return environment that markets experienced over the last few years is an indication that we are approaching the end of this economic cycle. It has been a challenging environment for local and global markets as market performance has come under pressure due to increased global volatility, particularly over the last quarter of 2018. Market volatility levels are expected to normalise in the coming years making it more challenging to achieve inflation-beating returns. We will take advantage of our expertise and resources to improve our ability to spread your investment risk, looking to include different sources of performance to improve client outcomes. Following are portfolio snapshots of some of our portfolios.

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ALEXANDER FORBES INVESTMENTS

How to read the portfolio snapshots Portfolio objective

Portfolio objective

The portfolio is a balanced risk profiled investment strategy with the following objectives:

BENCHMARK aepra vel magnatium qui sequis eatia sinctur, con eatem fugite rest.

States the goal of the portfolio and briefly describes its characteristics.

1 Protect the capital value of the retirement savings over 24-month periods.

2 Generate returns that are geared towards medium-term real growth (target: CPI +3%* p.a. over a rolling two-year period). * This target is based on the Alexander Forbes long-term actuarial calculations and may change through time.

Benchmark States the benchmark of the portfolio, against which the investment returns are compared.

BENCHMARK *Composite benchmark

ing objectives:

rat ut magnis.

rat ut magnis se aute sit.

rat ut magnis se aute veliqui dempor sit.

Risk profile

Risk profile Capital

Low

Low to medium

Inflation Low

Medium

Medium to high

Capital: Shows how risky the portfolio is, and the likelihood of it achieving negative returns. Inflation: Shows the expected investment return above inflation over the long term. Range: Shows the expected spread of investment returns over a 12-month period.

High

Long-term expected return ahead of inflation

Low to medium

Range Low

Probability of a capital loss or negative return in any 12-month period

Medium

High

Expected range of returns around the benchmark in any 12-months period

Low to medium

Medium

Medium to high

High

Region allocation

Shows the spread of assets in the portfolio per region, for example – South Africa (local), Africa and offshore (global). Global 23.2% Africa 1.1% Local 75.8%

Asset allocation

Asset allocation (actual) Shows the spread of assets in the portfolio per asset class. Equities

70% – 75%

Bonds

0% – 10%

Cash

30% – 50%

Portfolio

Property 5% – 15%

Benchmark

Portfolio returns 1 Year

32 |

-10.18%

-9.69%

3 Years

7.42%

5.91%

5 Years

11.66%

10.40%

10 Years

11.60%

10.66%

15 Years

16.27%

15.54%

20 Years

14.45%

13.69%

Since inception

14.50%

13.67%

Global

Max 30%

Africa

Max 10%

Alternative 0% – 15%

Portfolio returns The table shows the past investment returns of the portfolio for different time periods. The investment returns are compared to the benchmark of the portfolio.

PORTFOLIO SNAPSHOTS

Cumulative returns

450 400

The graph shows how an initial investment of R100 in the portfolio would have grown over time, from inception of the portfolio. This investment return is compared to the benchmark and objective.

350 300 250 200 150 100 50

Mar-2006 Sep-2006 Mar-2007 Sep-2007 Mar-2008 Sep-2008 Mar-2009 Sep-2009 Mar-2010 Sep-2010 Mar-2011 Sep-2011 Mar-2012 Sep-2012 Mar-2013 Sep-2013 Mar-2014 Sep-2014 Mar-2015 Sep-2015 Mar-2016 Sep-2016 Mar-2017 Sep-2017 Mar-2018 Sep-2018

Portfolio

Benchmark

Objective

Manager weightings

Manager weightings2 Prudential FDL

20.4%

Foord FDL

17.6%

Allan Gray FDL

16.7%

Investec FDL

13.6%

Shows the split of underlying investment manager portfolios that the portfolio invests in.

4.4%

Performer Domestic Hedge Fund

1.9%

Private Markets SA Mercer Global DM Active Equity – Performer

14.9%

Mercer Global DM Index Equity – Performer

3.1%

Performer Global Cash

2.9%

Mercer Global EM Index Equity – Performer

1.6%

Performer Global High Yield

0.5%

Private Markets Global

0.4%

Performer Africa

1.2%

Banker

0.8% 0.0%

Transition

Meeting the objective

Total 100.0%

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially.

Years

Rolling outperformance

Rolling 6-year outperformance Relative to the objective over time1. 7.5%

The bars in the graph show the maximum and minimum investment returns experienced per rolling time period, for the portfolio. The dot represents the actual objective over the period, for example CPI +5%. When the bar is above the dot, the portfolio has beaten the objective over this time period. Over time, the chance of meeting the portfolio’s objective 8 9 10 improves substantially.

Outperform

This shows the portfolio performance compared to the objective over all rolling time periods, in the past, since inception of the portfolio. If the bars are negative, the portfolio has underperformed the objective, and if they are positive, the portfolio has outperformed the objective over the respective periods.

5.5% 3.5% 1.5% -0.5% -2.5%

Underperform

2012

2018

Months

Maximum drawdown

Maximum drawdown3 From inception to date. 0%

The graph shows the portfolio performance compared to the objective, since inception of the portfolio. If the bars are negative (below the 0 line), the portfolio has underperformed the objective, and if they are positive (above the 0 line), the portfolio has outperformed the objective in that specific month.

–5% –10% –15% –20%

Mar-2006

Sep-2018

–25%

Portfolio maximum drawdown

Benchmark maximum drawdown

Fees – total investment charge

Fees – total investment charge4 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% -0.2%

The graph shows the split of the total fees charged, to invest in the portfolio. The sliding scale shows that the more you invest in the portfolio, the lower the fee. 50 million Other

250 million 500 million Trading

1 billion

Performance

>1 billion Policy

Notes:

■A ll investment returns are before deduction of Alexander Forbes Investments' policy fees and performance fees, but net of other expenses. Returns for periods exceeding one year are annualised and all returns are quoted in rands. Please note past investment returns are not indicative of future returns. ■ Performance fees are paid directly to the underlying investment managers, for performance in excess of a pre-defined hurdle. ■P olicy fees are payable directly to Alexander Forbes Investments. ■T he institutional fee is based on a sliding fee scale, and is dependent on the size of assets invested in the portfolio. ■T here may be differences in totals, due to rounding. | 33

AF High Growth as at 31 December 2018

BENCHMARK

Portfolio objective

*Composite benchmark

The portfolio is a specialist risk-profiled investment strategy with the following objectives: 1 Generate returns that are geared towards long-term real growth (target: CPI +5% p.a. over a rolling six-year period). This target is based on the Alexander Forbes long-term actuarial calculations and may change through time.

2 Appropriately diversify risk and enhance returns by using a broad range of asset classes.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Asset allocation (actual)

Medium

Medium to high

Medium

Region allocation

Africa 1.6% Global 28.6% Local 69.8%

Medium to high

Property 8.7%

Bonds 17.4%

Cash 4.4%

Commodities Alternative 0.1% 5.3%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Low to medium

Equities 63.9%

High

Pure Equity Local BB

42.74%

AF High Growth Global BB

26.12%

TAA 3 Global Constrained BB

8.39%

Sakhisizwe Portfolio BB

6.93%

AF Investments Focus QI Hedge FoF B -â&#x20AC;&#x201C; BB

5.25%

Property Fund BB

3.60%

Inflation linked Bond BB

2.73%

Pure Fixed Interest Local BB

1.84%

Caveo Africa BB

1.65%

Private Markets Global BB

0.75%

Banker BB

0.01%

Total 100.0%

* Local: FTSE/JSE Capped SWIX ALSI 44.8%, Focus Hedge FoF 5.0%, FTSE/JSE SA Property 4.9%, Sakhisizwe 4.0%, Barclays/ABSA SA Govt ILB Index 3.0%, All Bond Index 2.3%. Global: MSCI AC World (RID) 21.1%, Citi WGBI 7.4%. Combined: TAA Composite 7.5%.

34 |

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

1 Year

-4.50%

-4.18%

0.00%

3 Years

3.44%

3.86%

–5.00%

5 Years

6.40%

7.24%

8 Years

10.05%

10.99%

10 Years

11.32%

11.93%

15 Years

–

10.71%

11.32%

Since inception

–10.00% –15.00% –20.00%

Mar-2006

Dec-2018

–25.00%

Benchmark maximum drawdown

Cumulative returns

Portfolio maximum drawdown

Fees – total investment charge

450

0.40%

400

0.35%

350

0.30%

300

0.25%

250

0.20%

200

0.15%

150

0.10%

100

0.05%

0.00%

Benchmark

Dec-2018

Jun-2017

Mar-2018

Sep-2016

Dec-2015

Jun-2014

Mar-2015

Sep-2013

Mar-2012

Dec-2012

Jun-2011

Sep-2010

Dec-2009

Jun-2008

Mar-2009

Sep-2007

Mar-2006

Dec-2006

-0.05% -0.10% 50 million Policy

Portfolio

250 million 500 million Performance

1 billion Trading

>1 billion Other

Meeting the objective Over time, the chances of meeting the objective improve substantially. 40.00% 30.00%

Returns

20.00% 10.00% 0.00% -10.00% -20.00% -30.00%

10 11

Years Source of all data: Alexander Forbes Investments

| 35

Performer as at 31 December 2018

BENCHMARK

Portfolio objective

Alexander Forbes Investable Global Large Manager Watch Median

The portfolio is a moderate-to-high risk balanced portfolio and targets CPI inflation-beating returns over the long term. 1 Adopts Living*Investing as a philosophy, which entails a risk-based forward-thinking investment approach, with the aim to achieve client outcomes with a greater degree of certainty.

2 The asset allocation is dynamic to allow participation on the upside and to protect on the downside in falling markets, which means accumulating from a higher base, thus adding value in the long term.

3 Blends diversified strategies including alternatives, both locally and offshore, to capture different sources of returns.

Asset allocation (actual)

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Medium

Medium to high

Medium

Medium to high

Property 3.7%

Bonds 16.5%

Cash 15.4%

Commodities Alternative 1.5% 0.7%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Low to medium

Equities 62.1%

High

Performer International BB

20.74%

Prudential FDL AM

18.58%

Foord FDL AM

15.93%

Allan Gray FDL AM

15.83%

Investec FDL AM

11.93%

Performer Global Cash BB

5.83%

Performer Domestic Hedge Fund BB

4.66%

Private Markets SA BB

2.51%

Banker BB

1.63%

Performer Africa BB

1.15%

Africa 1.1%

Performer Global High Yield BB

0.54%

Global 27.4%

Private Markets Global BB

0.50%

Region allocation

Local 71.5%

36 |

Total 100.0%

Portfolio

Benchmark

Portfolio returns

Maximum drawdown From inception to 31 December 2018.

1 Year

-0.71%

-1.87%

3 Years

5.30%

4.20%

5 Years

7.57%

6.52%

–15.00%

8 Years

11.52%

10.52%

–25.00%

10 Years

12.82%

11.84%

15 Years

14.58%

13.84%

Since inception

13.87%

13.04%

0.00% –5.00% –10.00%

–20.00%

–30.00%

Dec-2018

Oct-1997

–35.00%

Benchmark maximum drawdown

Portfolio maximum drawdown

Cumulative returns

Fees – total investment charge

2000

1.20%

1800

1.00%

1600

0.80%

1400

0.60%

1200 1000

0.40%

800

0.20%

600

0.00%

400 200

50 million 250 million 500 million Policy

Performance

Trading

>1 billion Other

Oct-1997 Sep-1998 Aug-1999 Jul-2000 Jun-2001 May-2002 Apr-2003 Mar-2004 Feb-2005 Jan-2006 Dec-2006 Nov-2007 Oct-2008 Sep-2009 Aug-2010 Jul-2011 Jun-2012 May-2013 Apr-2014 Mar-2015 Feb-2016 Jan-2017 Dec-2017 Nov-2018

1 billion

Benchmark

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00%

9 10 11

Years Source of all data: Alexander Forbes Investments

| 37

Spectrum as at 31 December 2018

BENCHMARK BENCHMARK

Portfolio objective

Alexander Forbes Investable Global Large Manager Watch Median

A fully discretionary balanced portfolio split equally among the managers submitting to the Alexander Forbes Investable Global Manager Watchâ&#x201E;˘ survey. These managers allocate capital to asset classes and select the most attractive securities within each asset class.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Low to medium

Medium

High

Medium to high

Low to medium

Medium

Africa 1.0% Global 26.7% Local 72.3%

Medium to high

Equities 65.3%

Property 5.9%

Bonds 19.6%

Cash 7.8%

Commodities Alternative 1.1% 0.3%

Balanced 0.1%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Region allocation

38 |

Medium to high

Long-term expected return ahead of inflation

Range

Low

Asset allocation (actual)

High

Allan Gray FDG AM

10.55%

Foord FDG AM

10.47%

ABSA FDG AM

10.12%

Sanlam FDG AM

9.97%

Coronation FDG AM

9.95%

STANLIB FDG AM

9.95%

Prudential FDG AM

9.84%

OASIS FDG AM

9.81%

OMIGSA FDG AM

9.77%

Investec FDG AM

9.20%

Banker BB

0.38%

Total 100.0%

Portfolio

Benchmark

Portfolio returns

Maximum drawdown From inception to 31 December 2018.

1 Year

-2.15%

-2.04%

0.00%

3 Years

4.56%

4.17%

–10.00%

5 Years

6.21%

5.86%

–15.00%

8 Years

10.18%

10.09%

–25.00%

–5.00%

–20.00%

–30.00%

11.44%

15 Years

13.58%

13.47%

Since inception

13.33%

12.98%

–35.00% Dec-2018

11.68%

Oct-1997

10 Years

Benchmark maximum drawdown

Portfolio maximum drawdown

Fees – total investment charge

Cumulative returns

1.00% 0.90% 0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00%

1800 1600 1400 1200 1000 800 600

50 million

400 200

Policy

Performance

Trading

500 million Other

250 million

Benchmark

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00%

10 11

Years Source of all data: Alexander Forbes Investments

| 39

Conserver as at 31 December 2018

BENCHMARK

Portfolio objective

*Composite benchmark

This portfolio is managed within what are regarded to be conservative investment parameters. 1 A lower allocation to equities allows for a higher allocation to local and global bonds and cash. 2 Global component is invested in the Global Conserver portfolio and has an allocation to global equities, bonds, cash and alternative investments.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Asset allocation (actual)

Medium

Medium to high

Medium

Medium to high

Property 2.6%

Bonds 41.4%

Cash 15.3%

Commodities Alternative 0.6% 10.4%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Low to medium

Equities 29.6%

Conserver Local BB

71.65%

Conserver Global BB

18.30%

AF Investments Stable QI Hedge FoF B - BB

5.13%

AF Investments Stable QI Hedge FoF B - BB

4.92%

High

Total 100.0% Region allocation

Africa 0.0% Global 18.1% Local 81.9%

* Local: FTSE/JSE Capped SWIX ALSI 32.0%, All Bond Index 24.0%, STeFI Call Deposit Index 24.0%. Global: MSCI AC World (RID) 7.9%, Citi WGBI 6.0%, US Treasury Bill 3.1%, French Treasury Bill 3.1%.

40 |

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

4.45%

1 Year

2.21%

0.00% –5.00%

3 Years

6.64%

5.80%

5 Years

6.90%

7.05%

–15.00%

8 Years

9.15%

9.32%

–25.00%

9.60%

15 Years

11.63%

10.82%

Since inception

12.01%

10.80%

–30.00% –35.00% Dec-2018

9.80%

–20.00%

Oct-1997

10 Years

–10.00%

Benchmark maximum drawdown

Portfolio maximum drawdown

Cumulative returns

Fees – total investment charge

1200

0.40% 0.35%

1000

0.30%

800

0.25%

600

0.20% 0.15%

400

0.10% 200

0.05%

Benchmark

Dec-2018

Jun-2016

Sep-2017

Mar-2015

Dec-2013

Jun-2011

Sep-2012

Mar-2010

Dec-2008

Sep-2007

Jun-2006

Mar-2005

Dec-2003

Jun-2001

Sep-2002

Mar-2000

Dec-1998

Sep-1997

0.00%

50 million Policy

Performance

250 million Trading

Other

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00%

10 11

Years Source of all data: Alexander Forbes Investments

| 41

Banker as at 31 December 2018

BENCHMARK

Portfolio objective

STeFI Call Deposit Index

The portfolio is a single asset class portfolio. 1 The specialist investment managers selected for this portfolio may invest in money-market instruments and cash.

2 Money-market instruments are liquid financial instruments simulating cash, but often give a higher return. 3 The managers are given specific mandates aimed at providing an investment return above the average of money-market portfolios, while maintaining a high degree of liquidity and capital preservation.

4 They may only be exposed to institutions with an A1 (F1) credit rating or better.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Low to medium

Medium

High

Medium to high

Low to medium

Medium

Africa

â&#x20AC;&#x201C;

Global

â&#x20AC;&#x201C;

Local 100%

Medium to high

Bonds 24.1%

Cash 75.9%

Manager weightings

High

Expected range of returns around the benchmark in any 12-month period

Region allocation

42 |

Medium to high

Long-term expected return ahead of inflation

Range

Low

Asset allocation (actual)

High

Taquanta Banker AM

34.41%

Prescient Banker AM

34.21%

OMIGSA Banker AM

31.39%

Total 100.0%

Portfolio

Benchmark

Meeting the objective

Portfolio returns

Over time, the chances of meeting the objective improve substantially.

8.80%

6.61%

3 Years

8.86%

6.77%

5 Years

8.14%

6.30%

8 Years

7.56%

5.83%

10 Years

7.83%

6.13%

15 Years

8.34%

6.84%

Since inception

9.66%

8.28%

Cumulative returns

25.00% 20.00% Returns

1 Year

15.00% 10.00% 5.00% 0.00%

10 11

Fees â&#x20AC;&#x201C; total investment charge

700

0.35%

600

0.30%

500

0.25%

400

0.20%

300

0.15%

200

0.10%

100

0.05%

0.00%

Mar-1998 Nov-1998 Jul-1999 Mar-2000 Nov-2000 Jul-2001 Mar-2002 Nov-2002 Jul-2003 Mar-2004 Nov-2004 Jul-2005 Mar-2006 Nov-2006 Jul-2007 Mar-2008 Nov-2008 Jul-2009 Mar-2010 Nov-2010 Jul-2011 Mar-2012 Nov-2012 Jul-2013 Mar-2014 Nov-2014 Jul-2015 Mar-2016 Nov-2016 Jul-2017 Mar-2018 Nov-2018

0.40%

Source of all data: Alexander Forbes Investments

Years

800

Benchmark

50 million Policy

250 million Performance

500 million Trading

Other

Portfolio

| 43

AF Active Balanced Life Stage High Growth as at 31 December 2018

BENCHMARK

Portfolio objective

Alexander Forbes Investable Global Large Manager Watch Median

The portfolio is a balanced risk-profiled investment strategy with the following objectives: 1 Generate returns that are geared towards long-term real growth (target: CPI +5% p.a. over a rolling six-year period). This target is based on the Alexander Forbes long-term actuarial calculations and may change through time.

2 Appropriately diversify risk and enhance returns by using a broad range of assets and strategies.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Asset allocation (actual)

Medium

Medium to high

Medium

Region allocation

Medium to high

Property 3.7%

Bonds 16.5%

Cash 15.4%

Commodities Alternative 1.5% 0.7%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Low to medium

Equities 62.1%

High

Performer International BB

27.61%

Prudential FDL AM

18.58%

Foord FDL AM

15.93%

Allan Gray FDL AM

15.83%

Investec FDL AM

11.93%

Performer Domestic Hedge Fund BB

4.66%

Private Markets SA BB

2.51%

Banker BB

1.79%

Performer Africa BB

1.15%

Total 100.0% Africa 1.1% Global 27.4% Local 71.5%

44 |

Portfolio

Benchmark

Portfolio returns

Maximum drawdown From inception to 31 December 2019.

1 Year

-0.71%

-1.87%

3 Years

5.29%

4.20%

5 Years

7.56%

6.52%

8 Years

–

0.00% –0.50% –1.00% –1.50% –2.00% –2.50%

–

15 Years

–

11.29%

10.03%

Since inception

–3.00% Dec-2018

–

May-2012

10 Years

Benchmark maximum drawdown

Cumulative returns

Portfolio maximum drawdown

Fees – total investment charge 1.20%

250

1.00% 200

0.80% 0.60%

150

0.40% 0.20%

100

0.00% 50

Policy

250 million 500 million Performance

1 billion Trading

>1 billion Other

Apr-2012 Jul-2012 Oct-2012 Jan-2013 Apr-2013 Jul-2013 Oct-2013 Jan-2014 Apr-2014 Jul-2014 Oct-2014 Jan-2015 Apr-2015 Jul-2015 Oct-2015 Jan-2016 Apr-2016 Jul-2016 Oct-2016 Jan-2017 Apr-2017 Jul-2017 Oct-2017 Jan-2018 Apr-2018 Jul-2018 Oct-2018

50 million

Benchmark

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00%

Years Source of all data: Alexander Forbes Investments

| 45

AF Active Balanced Life Stage Conservative Growth as at 31 December 2018

BENCHMARK

Portfolio objective

*Composite benchmark

The portfolio is a balanced risk-profiled investment strategy with the following objectives: 1 Protect the capital value of the retirement savings over rolling 24-month periods.

2 Generate returns that are geared towards medium-term real growth (target: CPI +3% p.a. over a rolling two-year period). This target is based on the Alexander Forbes long-term actuarial calculations and may change through time.

Risk profile Capital

Low

Asset allocation (actual)

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Medium

Medium to high

High

Long-term expected return ahead of inflation

Equities 11.3%

Property 4.2%

Bonds 4.0%

Cash 34.4%

Manager weightings Stable Focus Portfolio BB

Low

Low to medium

Medium

Medium to high

High

Conserver Global BB

Range

Low

Expected range of returns around the benchmark in any 12-month period

Low to medium

Medium

Medium to high

High

Region allocation

Africa 0.0% Global 5.5% Local 94.5%

*Local: Headline CPI +3% 95.0%. Global: MSCI AC World (RID) 2.0%, Citi WGBI 1.5%, US Treasury Bill 0.8%, French Treasury Bill 0.8%.

46 |

Commodities Alternative 0.9% 9.3%

94.38% 5.62%

Total 100.0%

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

8.43%

3 Years

6.32%

8.16%

5 Years

6.72%

8.79%

8 Years

–

10 Years

–

15 Years

–

7.83%

9.05%

Since inception

0.00% –0.50% –1.00% –1.50% –2.00% –2.50% –3.00% Dec-2018

4.45%

May-2012

1 Year

Benchmark maximum drawdown

Cumulative returns

Fees – total investment charge

200

0.90% 0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00%

180 160 140 120 100 80 60 40 20

50 million

Dec-2018

Apr-2018

Aug-2018

Dec-2017

Apr-2017

Aug-2017

Dec-2016

Apr-2016

Benchmark

Aug-2016

Dec-2015

Apr-2015

Aug-2015

Dec-2014

Apr-2014

Aug-2014

Dec-2013

Apr-2013

Aug-2013

Dec-2012

Apr-2012

0 Aug-2012

Portfolio maximum drawdown

Policy

Performance

250 million Trading

Other

Portfolio

Meeting the objective Over time, the chances of meeting the objective improve substantially. 16.00% 14.00% 12.00% Returns

10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00%

Years Source of all data: Alexander Forbes Investments

| 47

Stable Focus Combined as at 31 December 2018

BENCHMARK

Portfolio objective

Headline CPI +3%

This is a global Regulation 28-compliant, multi-asset class portfolio. 1 It adopts an absolute return multi-manager investment approach. 2 It selects skilled absolute return managers as well as specialist managers in specific asset classes and strategies. 3 The underlying asset allocation, portfolio construction and strategy selection are designed to reflect the asset managersâ&#x20AC;&#x2122; view to capture positive returns given existing market conditions and mandate objectives.

4 An absolute return strategy should, over the longer term, generate less volatile returns than a typical balanced portfolio. 5 The portfolio may include investments in derivative instruments.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Medium to high

High

Low to medium

Medium

Medium to high

High

Expected range of returns around the benchmark in any 12-month period

Low to medium

Medium

Region allocation

Medium to high

Equities 14.1%

Property 4.1%

Bonds 39.4%

Cash 33.3%

Commodities Alternative 0.8% 0.0%

Balanced 8.4%

Manager weightings

Long-term expected return ahead of inflation

Range

Low

Asset allocation (actual)

High

SIM Absolute AM

28.01%

Investec Cautious Managed AM

23.55%

ABSA Absolute Return AM

17.17%

Conserver Global BB

14.96%

Futuregrowth Community Builder AM

7.31%

AF Investments Moderate QI Hedge FoF B - BB

4.26%

AF Investments Stable QI Hedge FoF B - BB

4.16%

Banker BB

0.58%

Total 100.0% Africa 0.0% Global 14.8% Local 85.2%

48 |

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

8.20%

3 Years

6.09%

8.48%

5 Years

6.81%

8.78%

8 Years

–

10 Years

–

15 Years

–

7.05%

8.70%

Since inception

0.00% -0.20% -0.40% -0.60% -0.80% -1.00% -1.20% -1.40% -1.60% -1.80% Dec-2018

5.12%

Oct-2013

1 Year

Benchmark maximum drawdown

Portfolio maximum drawdown

Fees – total investment charge

Cumulative returns

0.90% 0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00%

180 160 140 120 100 80 60 40

50 million

20 Dec-2018

Jun-2018

Sep-2018

Mar-2018

Dec-2017

Jun-2017

Sep-2017

Mar-2017

Jun-2016

Benchmark

Dec-2016

Mar-2016

Jun-2015

Sep-2015

Mar-2015

Dec-2014

Jun-2014

Sep-2014

Mar-2014

Dec-2013

Sep-2013

Policy

Performance

250 million Trading

Other

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00%

Years Source of all data: Alexander Forbes Investments

| 49

AF Protector as at 31 December 2018

BENCHMARK

Portfolio objective

*Composite benchmark

The AF Protector Fund is a goals-based investment strategy with three integrated objectives: 1 Protect the expected income replacement value of the accumulated retirement savings for retirement. 2 Protect the capital value of the retirement savings over 24-month periods. 3 Maximise real returns whilst achieving objectives 1 and 2.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Asset allocation (actual)

Medium

Medium to high

Medium

Region allocation

Medium to high

Property 9.6%

Bonds 53.6%

Cash 7.6%

Alternative 9.7%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Low to medium

Equities 19.5%

High

Inflation linked Bond BB

25.70%

Pure Fixed Interest Local BB

16.90%

Core Equity BB

16.08%

AF Protector Offshore

14.39%

Property Fund BB

8.82%

Banker BB

8.31%

AF Investments Stable QI Hedge FoF B - BB

4.95%

AF Investments Moderate QI Hedge FoF B - BB 4.84%

Total 100.0% Africa 0.0% Global 14.2% Local 85.8%

* Local: Barclays/ABSA SA Govt ILB Index 25.0%, FTSE/JSE Capped SWIX ALSI 20.0%, STeFI Call Deposit Index 15.0%, All Bond Index 15.0%, FTSE/JSE SA Property 10.0%. Global: Citi WGBI 10.0%, MSCI AC World (RID) 5.0.

50 |

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

-0.34%

-0.99%

3 Years

4.85%

4.44%

5 Years

–

1 Year

0.00% –0.50% –1.00% –1.50%

–

10 Years

–

15 Years

–

5.33%

4.68%

Since inception

–3.00% –3.50% –4.00% Dec-2018

–

–2.50%

Jun-2015

8 Years

–2.00%

Benchmark maximum drawdown

Cumulative returns

Portfolio maximum drawdown

Fees – total investment charge 1.00%

140

0.90%

120

0.80%

100

0.70%

0.60% 0.50%

0.40% 0.30%

0.20%

0.10% Oct-2018

Dec-2018

Aug-2018

Apr-2018

Jun-2018

Feb-2018

Oct-2017

Dec-2017

Aug-2017

Apr-2017

Benchmark

Jun-2017

Feb-2017

Oct-2016

Dec-2016

Aug-2016

Apr-2016

Jun-2016

Feb-2016

Oct-2015

Dec-2015

Jun-2015

Aug-2015

0.00%

50 million Policy

Performance

250 million Trading

Other

Portfolio

Meeting the objective Over time, the chances of meeting the objective improve substantially. 12.00%

Returns

10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00%

Years Source of all data: Alexander Forbes Investments

| 51

Shari’ah High Growth as at 31 December 2018

BENCHMARK

Portfolio objective

*Composite benchmark

A Shari’ah-compliant portfolio that is managed within moderate limits. 1 A Shari’ah-compliant portfolio designed to grow an investor’s savings over the long term (six years or more). 2 Invests in local and international types of investments that are Shari’ah complaint, such as shares, sukuk and listed property.

3 We appoint investment managers who are specialists in a particular asset class to invest assets within their area of expertise. 4 Has a low chance of the value of the investment going down over the long term. 5 The value of your investment will go up and down in the short term due to the exclusions required by Islamic law. This means there are fewer shares and other types of assets available to invest in, which may result in the portfolio being more volatile over the short term.

Asset allocation (actual)

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Medium

Medium to high

Medium

Region allocation

Medium to high

High

Bonds 0.1%

Cash 22.6%

Commodities 0.3%

High

Old Mutual Shari’ah Equity - AM

18.95%

Kagiso Shari’ah Equity - AM

15.97%

Mazi Shari’ah Equity - AM

15.57%

Old Mutual Sukuk - AM

15.16%

Old Mutual Global Islamic Equity Fund - AM

10.75%

Blackrock iShares MSCI World Islamic UCITS ETF - AM

7.93%

AFI Shari’ah Property Tracker AM

6.10%

Franklin Global Sukuk Fund - AM

4.86%

Oasis Crescent Global Equity Fund - AM

4.71%

Africa 0.0% Global 28.0% Local 72.0%

* Local: FTSE/JSE Shariah All Share 50.0%, STeFI Composite - 1% 13.0%, Shari’ah Local Property Benchmark 7.0%. Global: MSCI World Islamic Index 25.0%, DJ Sukuk Index 5.0%.

52 |

Property 6.4%

Manager weightings

Expected range of returns around the benchmark in any 12-month period

Low to medium

Equities 70.6%

Total 100.0%

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

-1.37%

–

5 Years

–

8 Years 10 Years

– –

15 Years

–

– – –

2.77%

2.81%

Since inception

–2.00% –4.00% –6.00% –8.00% –10.00% –12.00% Dec-2018

3 Years

0.00%

Jul-2017

-1.10%

1 Year

Benchmark maximum drawdown

Cumulative returns

Portfolio maximum drawdown

Fees – total investment charge

1.30% 1.28% 1.26% 1.24% 1.22% 1.20% 1.18% 1.16% 1.14% 1.12% 1.10%

115 110 105 100 95 90

50 million

Benchmark

Dec-2018

Oct-2018

Nov-2018

Sep-2018

Aug-2018

Jun-2018

July-2018

May-2018

Apr-2018

Mar-2018

Jan-2018

Feb-2018

Dec-2017

Oct-2017

Nov-2017

Sep-2017

Jul-2017

Aug-2017

Policy

Performance

Trading

Other

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -6.00%

2 Years

Source of all data: Alexander Forbes Investments

| 53

Shari’ah Medium Growth as at 31 December 2018

BENCHMARK

Portfolio objective

*Composite benchmark

A Shari’ah-compliant portfolio that is managed within moderate limits. 1 Invested in local and international types of investments that are Shari’ah compliant, such as shares, sukuk and listed property.

2 We appoint investment managers who are specialists in a particular asset class to invest assets within their area of expertise. 3 Is suited to investors with a medium-term investment time horizon (three years) who want to protect capital while still achieving moderate growth of assets.

4 Has a low chance of the value of one’s investment going down over a three-year period. This means there’s a chance that the value of your investment may go down over the very short term – but these losses should not be big.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Asset allocation (actual)

Medium

Medium to high

Medium

Region allocation

Medium to high

High

Cash 47.9%

Commodities 0.2%

High

Old Mutual Sukuk - AM

41.67%

Old Mutual Shari’ah Equity - AM

15.12%

Kagiso Shari’ah Equity - AM

12.74%

Mazi Shari’ah Equity - AM

12.42%

Franklin Global Sukuk Fund - AM

4.45%

AFI Shari’ah Property Tracker AM

4.40%

Old Mutual Global Islamic Equity Fund - AM

4.22%

Blackrock iShares MSCI World Islamic UCITS ETF - AM

3.12%

Oasis Crescent Global Equity Fund - AM

1.85%

Africa 0.0% Global 13.5% Local 86.5%

* Local: STeFI Composite - 1% 40.0%, FTSE/JSE Shariah All Share 40.0%, Shari’ah Local Property Benchmark 5.0%. Global: MSCI World Islamic Index 1 0.0%, DJ Sukuk Index 5.0%.

54 |

Property 4.6%

Manager weightings

Expected range of returns around the benchmark in any 12-month period

Low to medium

Equities 47.3%

Total 100.0%

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

2.87%

0.00% –1.00%

3 Years

–

5 Years

–

–3.00%

8 Years

15 Years

–

– – –

–5.00%

10 Years

– – 1.72%

2.47%

Since inception

–2.00%

–4.00%

–6.00% –7.00% Sep-2017

Dec-2018

0.84%

1 Year

Benchmark maximum drawdown

Cumulative returns

Portfolio maximum drawdown

Fees – total investment charge

108

1.08%

106

1.06%

104

1.04% 1.02%

102

1.00%

100

0.98%

0.96%

0.94% 50 million

Benchmark

Dec-2018

Nov-2018

Oct-2018

Sep-2018

Aug-2018

Jun-2018

July-2018

Apr-2018

May-2018

Mar-2018

Jan-2018

Feb-2018

Nov-2017

Dec-2017

Oct-2017

Sep-2017

Aug-2017

Policy

Performance

Trading

Other

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 7.00% 5.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% -3.00%

2 Years

Source of all data: Alexander Forbes Investments

| 55

AF Passive Bold as at 31 December 2018

BENCHMARK

Portfolio objective

*Composite benchmark

The portfolio is a passive risk-profiled investment strategy with the following objectives: 1 Generate returns that are geared towards long-term real growth (target: CPI +4.5% p.a. over a

rolling six-year period). This target is based on the Alexander Forbes long-term actuarial calculations and may change through time.

2 Appropriately diversify risk and enhance returns by using a broad range of asset classes.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Asset allocation (actual)

Medium

Medium to high

Medium

Region allocation

Medium to high

Property 11.7%

Bonds 14.7%

Cash 7.0%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Low to medium

Equities 66.6%

High

AFI Capped Swix Tracker AM

50.27%

AF Investments Global DM Index Equity AM 18.70% AFI SA Property Tracker AM

7.28%

Blackrock SGF BB

6.29%

AFI ILB Tracker AM

5.79%

AFI ALBI Tracker AM

5.61%

Banker BB

2.59%

AF Investments Global EM Index Equity AM

2.15%

Global Banker BB

1.33%

Total 100.0% Africa 0.0% Global 28.3% Local 71.7%

* Local: FTSE/JSE Capped SWIX ALSI 50.0%, FTSE/JSE SA Property 7.5%, Government Bond Index 5.0%, All Bond Index 5.0%, STeFI Call Deposit Index 2.5%. Global: MSCI World (Net) 20.3%, MSCI Emerging Markets Net 2.3%, Citi WGBI (RID) - 2 Days 6.6%, French Treasury Bill 0.4%, US Treasury Bill 0.4%.

56 |

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

-4.98%

3 Years

3.38%

3.39%

5 Years

7.14%

7.07%

8 Years

–

10 Years

–

15 Years

–

9.41%

9.46%

Since inception

0.00% –1.00% –2.00% –3.00% –4.00% –5.00% –6.00% –7.00% –8.00% –9.00% –10.00% Dec-2018

-4.79%

Jan-2013

1 Year

Benchmark maximum drawdown

Cumulative returns

Portfolio maximum drawdown

Fees – total investment charge 0.42%

200 180

0.40%

160 140

0.38%

120

0.36%

100 80

0.34%

60 40

0.32%

Benchmark

Nov-2018

Jun-2018

Jan-2018

Aug-2017

Mar-2017

Oct-2016

May-2016

Dec-2015

Jul-2015

Feb-2015

Sep-2014

Apr-2014

Nov-2013

Jun-2013

Jan-2013

0.30%

50 million Policy

250 million Performance

500 million Trading

Other

Portfolio

Meeting the objective Over time, the chances of meeting the objective improve substantially. 30.00% 25.00%

Returns

20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00%

Years Source of all data: Alexander Forbes Investments

| 57

AF Passive Protector as at 31 December 2018

BENCHMARK

Portfolio objective

*Composite benchmark

The AF Passive Protector Fund is a passive goals-based investment strategy with three integrated objectives: 1 Protect the expected income replacement value of the accumulated retirement savings for retirement. 2 Protect the capital value of the retirement savings over 24-month periods. 3 Maximise real returns while achieving objectives 1 and 2.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Asset allocation (actual)

Medium

Medium to high

Medium

Region allocation

Medium to high

Property 11.2%

Bonds 48.0%

Cash 18.1%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Low to medium

Equities 22.7%

High

AFI ILB Tracker AM

25.00%

AFI Capped Swix Tracker AM

19.75%

Banker BB

16.00%

AFI ALBI Tracker AM

14.89%

Blackrock SGF BB

10.15%

AFI SA Property Tracker AM

9.56%

AF Investments Global DM Index Equity AM

4.18%

AF Investments Global EM Index Equity AM

0.48%

Total 100.0% Africa 0.0% Global 14.8% Local 85.2%

* Local: Government Bond Index 25.0%, All Bond Index 15.0%, FTSE/JSE Capped SWIX ALSI 20.0%, STeFI Call Deposit Index 15.0%, FTSE/JSE SA Property 10.0%. Global: Citi WGBI 10.0%, MSCI World (Net) 5.0%.

58 |

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

-0.71%

-0.84%

3 Years

–

5 Years

–

1 Year

0.00% –0.50% –1.00% –1.50%

–

10 Years

–

15 Years

–

2.97%

2.82%

Since inception

–3.00% –3.50% –4.00% Dec-2018

–

–2.50%

Jun-2017

8 Years

–2.00%

Benchmark maximum drawdown

Cumulative returns

Portfolio maximum drawdown

Fees – total investment charge

108

0.40%

106

0.35% 0.30%

104

0.25%

102

0.20%

100

0.15%

0.10%

Benchmark

Dec-2018

Oct-2018

Nov-2018

Sep-2018

Jul-2018

Aug-2018

Jun-2018

Apr-2018

May-2018

Mar-2018

Jan-2018

Feb-2018

Dec-2017

Oct-2017

Nov-2017

Sep-2017

Jul-2017

0.00%

Aug-2017

94 Jun-2017

0.05% May-2017

50 million Policy

Performance

Trading

Other

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00%

2 Years

Source of all data: Alexander Forbes Investments

| 59

Allan Gray Ltd Classic Balanced as at 31 December 2018

BENCHMARK

Portfolio objective

Alexander Forbes Investable Global Large Manager Watch Median

The assets in this portfolio are managed by Allan Gray Limited (Allan Gray). 1 Allan Gray is a focused, bottom-up, share-selecting investment manager, that buys companies with strong balance sheets and superior management teams.

2 It follows a value approach, investing in assets it believes offer superior fundamental value. 3 It analyses company value by comparing the price of the asset to its intrinsic or underlying value. 4 Assets trading at prices significantly below intrinsic value are considered attractive and could be included in its investment portfolios.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Low to medium

Medium

High

Medium to high

Low to medium

Medium

Africa 3.8% Global 28.6% Local 67.6%

Medium to high

Equities 65.0%

Property 1.7%

Bonds 13.2%

Cash 17.1%

Commodities 3.0%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Region allocation

60 |

Medium to high

Long-term expected return ahead of inflation

Range

Low

Asset allocation (actual)

High

Allan Gray Global Balanced AM Banker BB

99.87% 0.13%

Total 100.0%

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

1 Year

-0.76%

-1.87%

0.00%

3 Years

5.49%

4.20%

–5.00%

5 Years

7.90%

6.52%

8 Years

11.05%

10.52%

10 Years

11.94%

11.84%

15 Years

–

11.79%

11.06%

Since inception

–10.00% –15.00% –20.00%

Feb-2013

Dec-2018

–25.00%

Benchmark maximum drawdown

Cumulative returns

Portfolio maximum drawdown

Fees – total investment charge 1.20%

450 400

1.00%

350

0.80%

300 250

0.60%

200 150

0.40%

100

0.20%

Benchmark

Apr-2018

Nov-2018

Sep-2017

Jul-2016

Feb-2017

Dec-2015

Oct-2014

May-2015

Mar-2014

Jan-2013

Aug-2013

Jun-2012

Apr-2011

Nov-2011

Sep-2010

Jul-2009

Feb-2010

Dec-2008

Oct-2007

May-2008

Mar-2007

Aug-2006

0.00%

50 million Policy

Performance

250 million Trading

Other

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% -15.00%

9 10 11

Years Source of all data: Alexander Forbes Investments

| 61

Coronation Managed 1 as at 31 December 2018

BENCHMARK

Portfolio objective

*Composite benchmark

Coronation is a fundamental research-based, bottom-up share-selecting investment manager that has a strong valuation bias and takes a long-term view on shares. 1 Its process allows for flair to filter through to investment decision-making. 2 Analysts and portfolio managers are encouraged to display conviction when recommending shares for inclusion in an investment portfolio. This means they are expected to highlight companies with the potential to add significant value to portfolios.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Asset allocation (actual)

Medium

Medium to high

Medium

Medium to high

High

Region allocation

Africa 2.1% Global 24.1% Local 73.8%

* Local: FTSE/JSE Capped SWIX ALSI 52.5%, All Bond Index 20.0%, STeFI 3 month NCD Index 7.5%. Global: MSCI AC World 17.5%, Barclays Global Aggregate Bond Index 2.5%.

62 |

Property 10.4%

Bonds 14.3%

Cash 3.0%

Alternative 0.5%

Balanced 0.8%

Manager weightings

Expected range of returns around the benchmark in any 12-month period

Low to medium

Equities 71.7%

Coronation Managed Life BB

100%

Total 100.0%

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

-7.06%

1 Year

-2.30%

0.00% –5.00%

3 Years

3.55%

5.33%

5 Years

5.18%

7.29%

–15.00%

8 Years

10.65%

10.77%

–25.00%

–

15 Years

–

13.10%

12.57%

Since inception

–30.00% –35.00% Dec-2018

–

–20.00%

Oct-1997

10 Years

–10.00%

Benchmark maximum drawdown

Cumulative returns

Portfolio maximum drawdown

Fees – total investment charge

400

1.20%

350

1.00%

300

0.80%

250

0.60%

200 150

0.40%

100 0.20%

50 Jun-2018

Dec-2018

Jun-2017

Dec-2017

Jun-2016

Dec-2016

Jun-2015

Dec-2015

Jun-2014

Benchmark

Dec-2014

Jun-2013

Dec-2013

Jun-2012

Dec-2012

Jun-2011

Dec-2011

Jun-2010

Dec-2010

Jun-2009

Dec-2009

0.00%

50 million Policy

Performance

250 million Trading

Other

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% -15.00%

Years Source of all data: Alexander Forbes Investments

| 63

Foord Asset Management as at 31 December 2018

BENCHMARK

Portfolio objective

Alexander Forbes Investable Global Large Manager Watch Median

Foord is a long-term investment manager that combines top-down, thematic macro analysis and bottom-up fundamental analysis. 1 In analysing shares the focus is on sustainability and quality earnings, and the preference is to invest in companies at below what it considers fair value.

2 In constructing a portfolio, the aim is to diversify between asset classes, while asset and equity sector allocations are determined by an investment strategy based on return and risk expectations.

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium

Low to medium

Medium

High

Medium to high

Low to medium

Medium

Africa 0.0% Global 31.0% Local 69.0%

Medium to high

Equities 61.6%

Property 5.2%

Bonds 21.3%

Cash 8.0%

Commodities 4.0%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Region allocation

64 |

Medium to high

Long-term expected return ahead of inflation

Range

Low

Asset allocation (actual)

High

Foord FDG AM

100.0%

Total 100.0%

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

1 Year

-2.34%

-1.87%

0.00%

3 Years

2.34%

4.20%

–5.00%

5 Years

5.52%

6.52%

8 Years

10.78%

10.52%

10 Years

12.38%

11.84%

15 Years

14.36%

13.84%

Since inception

14.59%

13.65%

–10.00% –15.00% –20.00%

Apr-2001

Dec-2018

–25.00%

Benchmark maximum drawdown

Portfolio maximum drawdown

Cumulative returns

Fees – total investment charge

1400

1.20%

1200

1.00%

1000

0.80%

800

0.60%

600

0.40%

400

Sep-2018

Jul-2017

May-2016

Mar-2015

Jan-2014

Nov-2012

Jul-2010

Benchmark

Sep-2011

May-2009

Mar-2008

Jan-2007

Nov-2005

Sep-2004

0.00%

Jul-2003

0 May-2002

0.20% Mar-2001

200

50 million Policy

Performance

250 million Trading

Other

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00%

10 11

Years Source of all data: Alexander Forbes Investments

| 65

Investec Asset Management as at 31 December 2018

BENCHMARK

Portfolio objective

Alexander Forbes Investable Global Large Manager Watch Median

The portfolio invests into Investec Asset Management’s best view strategy. 1 The portfolio managers in Investec’s Moderate Balanced silo focus solely on managing balanced portfolios.

2 Like all other silos in Investec, Moderate Balanced leverages off the company’s research platform, but is responsible for making the asset-allocation and share-selection decisions.

3 The equity component within Moderate Balanced is constructed by blending macro-thematic views with bottom-up fundamental research on companies.

4 Companies with a strong valuation underpin, positive earnings revisions, as well as those with improving growth prospects on reasonable valuations are favoured in this silo.

Asset allocation (actual)

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Low to medium

Medium

High

Medium to high

Low to medium

Medium

Africa 0.1% Global 26.1% Local 73.8%

Medium to high

Property 3.7%

Bonds 17.7%

Cash 6.0%

Commodities Alternative 3.3% 2.6%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Region allocation

66 |

Medium to high

Long-term expected return ahead of inflation

Range

Low

Medium

Equities 66.9%

High

Investec Asset Management

100%

Total 100.0%

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

-0.44%

1 Year

-1.87%

0.00% –5.00%

3 Years

4.82%

4.20%

5 Years

8.73%

6.52%

8 Years

11.98%

10.52%

–10.00% –15.00% –20.00% –25.00% –30.00%

11.84%

15 Years

15.31%

13.84%

Since inception

14.21%

13.04%

–35.00% Dec-2018

13.52%

Oct-1997

10 Years

Benchmark maximum drawdown

Portfolio maximum drawdown

Cumulative returns

Fees – total investment charge

2000

1.20%

1800

1.00%

1600

0.80%

1400

0.60%

1200

0.40%

1000 800

0.20%

600

0.00%

50 million

400 200

Policy

Performance

Trading

Other

Oct-1997 Sep-1998 Aug-1999 Jul-2000 Jun-2001 May-2002 Apr-2003 Mar-2004 Feb-2005 Jan-2006 Dec-2006 Nov-2007 Oct-2008 Sep-2009 Aug-2010 July-2011 Jun-2012 May-2013 Apr-2014 Mar-2015 Feb-2016 Jan-2017 Dec-2017 Nov-2018

Benchmark

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00%

10 11

Years Source of all data: Alexander Forbes Investments

| 67

Investec Cautious Managed as at 31 December 2018

BENCHMARK

Portfolio objective

*Composite benchmark

Investec Cautious Managed is a global low equity balanced portfolio. 1 The investment approach is one where they prefer quality companies with strong business models and management teams.

2 The fund is positioned to grow capital over time with a low propensity for capital loss. 3 Despite the conservative nature of the portfolio, the stock positions will be concentrated if the manager has high conviction.

Asset allocation (actual)

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Medium to high

High

Long-term expected return ahead of inflation

Low to medium

Range

Low

Medium

Medium to high

Equities 26.0%

Medium

Medium to high

High

Region allocation

Africa 0.0% Global 23.9% Local 76.1%

* Local: FTSE/JSE Capped SWIX ALSI 30.0%, STeFI Call Deposit Index 22.5%, All Bond Index 22.5%. Global: MSCI AC World (RID) 15.5%, Citi WGBI 5.0%, US Treasury Bill 2.3%, French Treasury Bill 2.3%.

68 |

Bonds 42.2%

Cash 27.3%

Commodities 2.5%

Manager weightings

Expected range of returns around the benchmark in any 12-month period

Low to medium

Property 2.0%

Investec Cautious Managed AM

75.68%

Global Balanced BB

24.32%

Total 100.0%

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

2.27%

3 Years

5.19%

5.82%

5 Years

6.94%

7.40%

8 Years

8.58%

9.88%

10 Years

–

15 Years

–

8.73%

9.85%

Since inception

0.00% –1.00% –2.00% –3.00% –4.00% –5.00% –6.00% Dec-2018

4.29%

Nov-2010

1 Year

Benchmark maximum drawdown

Cumulative returns

Portfolio maximum drawdown

Fees – total investment charge 0.40%

250

0.30%

200

0.20%

150

0.10%

100

0.00%

50 million

50 Policy

Benchmark

Performance

Trading

Other

Dec-2018

May-2018

Oct-2017

Mar-2017

Aug-2016

Jan-2016

Jun-2015

Nov-2014

Apr-2014

Sep-2013

Feb-2013

Jul-2012

Dec-2011

May-2011

Oct-2010

Portfolio

Meeting the objective Over time, the chances of meeting the objective improve substantially. 20.00%

Returns

15.00% 10.00% 5.00% 0.00% -5.00%

Years Source of all data: Alexander Forbes Investments

| 69

Oasis Asset Management as at 31 December 2018

BENCHMARK

Portfolio objective

Alexander Forbes Investable Global Large Manager Watch Median

The portfolio invests into Investec Asset Managementâ&#x20AC;&#x2122;s best view strategy. 1 Oasis is a value investment manager whose objective is to deliver low-volatility, superior returns at below-market risk.

2 To achieve this, the portfolio managers seek to identify shares with an undervalued stream of sustainable cash flow. 3 Once in-depth fundamental research confirms a share offers value, it is added to Oasisâ&#x20AC;&#x2122;s investment portfolios. However, the size of the investment depends on liquidity and risk factors.

4 Value managers such as Oasis are not benchmark cognisant when constructing portfolios.

Asset allocation (actual)

Risk profile Capital

Low

Probability of a capital loss or negative return in any 12-month period

Low to medium

Inflation

Low

Low to medium

Medium

High

Medium to high

Low to medium

Medium

Africa 0.0% Global 28.2% Local 71.8%

Medium to high

Property 8.4%

Bonds 25.0%

Cash 2.9%

Manager weightings High

Expected range of returns around the benchmark in any 12-month period

Region allocation

70 |

Medium to high

Long-term expected return ahead of inflation

Range

Low

Medium

Equities 63.7%

High

Oasis Asset Management

100%

Total 100.0%

Portfolio

Benchmark

Maximum drawdown

Portfolio returns

From inception to 31 December 2018.

1 Year

-1.31%

-1.87%

0.00%

3 Years

4.85%

4.20%

–5.00%

5 Years

6.32%

6.52%

8 Years

10.88%

10.52%

–20.00%

10 Years

12.04%

11.84%

–25.00%

15 Years

–

13.45%

13.24%

Since inception

Cumulative returns

–10.00%

Dec-2018

May-2005

–15.00%

Benchmark maximum drawdown

Portfolio maximum drawdown

Fees – total investment charge 1.20%

700

1.00%

600

0.80%

500

0.60%

400

0.40%

300

0.20%

200

0.00% 50 million

100 Policy

Performance

Trading

Other

Apr-2005 Nov-2005 Jun-2006 Jan-2007 Aug-2007 Mar-2008 Oct-2008 May-2009 Dec-2009 Jul-2010 Feb-2011 Sep-2011 Apr-2012 Nov-2012 Jun-2013 Jan-2014 Aug-2014 Mar-2015 Oct-2015 May-2016 Dec-2016 Jul-2017 Feb-2018 Sep-2018

Benchmark

Portfolio

Meeting the objective

Returns

Over time, the chances of meeting the objective improve substantially. 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00%

9 10 11

Years Source of all data: Alexander Forbes Investments

| 71

ALEXANDER FORBES INVESTMENTS

Disclaimers

Alexander Forbes Investments Limited is a licensed financial services provider, in terms of section 8 of the Financial Advisory and Intermediary Services Act 37 of 2002, as amended, FAIS licence number 711. This information is not advice, as defined and contemplated in the Financial Advisory and Intermediary Services Act 37 of 2002, as amended. The information reproduced here, has been compiled by, or arrived at, by Alexander Forbes Investments from sources believed to be reliable. However, Alexander Forbes Investments does not accept liability for any consequences arising from its use, nor make any representation as to its accuracy or completeness. Past investment returns are not indicative of future returns. These products are not guaranteed. Forecasts and examples are for illustrative purposes only. Please be advised that there may be supervised representatives. Company registration number: 1997/000595/06. Pension Fund Administrator number: 24/217. Insurer number: 10/10/1/155. Postal address: PO Box 786055, Sandton 2146. Physical address: 115 West Street, Sandown 2196. Telephone: +27 (0) 11 505 6000. The complaints policy and conflict of interest management policy can be found on the website: www.alexanderforbesinvestments.co.za.

Disclaimer for Alexander Forbes Investments QI Hedge Fund Scheme Risks (portfolio specific)

Hedge fund of funds: A hedge fund of funds is a portfolio that invests in portfolios of collective investment schemes (unit trusts) that levy their own charges, which could result in a higher fee structure for the fund of funds. Drawdown: The potential magnitude of loss - the largest peakto-trough decline in returns over the period, also known as the maximum drawdown. Liquidity: The risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit). Equities: The value of equities may vary according to company profits and future prospects, as well as more general market factors. In the event of a company default, the owners of their equity rank last in terms of any financial payment from that company. Bonds: The value of fixed income investments (e.g. bonds) tends to decrease when interest rates and/or inflation rises. Bonds issued by major governments and companies, will be more stable than those issued by emerging markets or smaller corporate issuers. If an issuer experiences financial difficulty, there may be a risk to some, or all, of the capital invested. Any historical or current yields quoted should not be considered reliable indicators of future performance.

Derivatives: There is no assurance that a portfolioâ&#x20AC;&#x2122;s use of a derivative strategy will succeed. A portfolioâ&#x20AC;&#x2122;s management may employ a sophisticated risk management process, to oversee and manage derivative exposures within a portfolio, but the use of derivative instruments may involve risks different from, and, in certain cases, greater than, the risks presented by the securities from which they are derived.

For a detailed description of these risks, and other risks that are relevant to the portfolio, please refer to the CIS RISK DISCLOSURE DOCUMENT, available on the website: (https://www. alexanderforbesinvestments.co.za/for-you/forms-and-docs/unittrusts)

Exposure to foreign securities: Foreign securities within portfolios may have additional material risks, depending on the specific risks affecting that country, such as: potential constraints on liquidity and the repatriation of funds; macroeconomic risks; political risks; foreign exchange risks; tax risks; settlement risks; and potential limitations on the availability of market information. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Investors are reminded that an investment in a currency other than their own may expose them to a foreign exchange risk.

Collective Investments (unit trusts) are generally mediumterm to long-term investments, but a hedge fund may have short-term strategies and practices. The value of participatory interests (units) or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. Hedge funds trade at ruling prices and prices may fluctuate post publication. Hedge funds can engage in scrip borrowing and scrip lending. The manager does not provide any guarantee, either with respect to the capital or the return of a portfolio. Any forecasts and/or commentary in

72 |

General

DISCLAIMERS

this document are not guaranteed to occur. Different classes of participatory interests apply to these portfolios and are subject to different fees and charges. A SCHEDULE OF FEES AND CHARGES, with maximum commissions, is available on request from us or from your financial adviser. Collective Investments (unit trusts) are generally medium-term to long-term investments, but a hedge fund may have short-term strategies and practices. The value of participatory interests (units) or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. Hedge funds trade at ruling prices and prices may fluctuate post publication. Hedge funds can engage in scrip borrowing and scrip lending. The manager does not provide any guarantee, either with respect to the capital or the return of a portfolio. Any forecasts and/or commentary in this document are not guaranteed to occur. Different classes of participatory interests apply to these portfolios and are subject to different fees and charges. A SCHEDULE OF FEES AND CHARGES, with maximum commissions, is available on request from us or from your financial adviser. Forward pricing is used. Hedge funds are CIS with a strategy that allows for leveraging and short-selling strategies. Hedge fund strategies can result in losses greater than the market value of the fund, but investors’ losses are limited to the value of the investment or contractual commitments. Hedge funds can also invest in illiquid instruments. While CIS in hedge funds differ from CIS in securities (long-only portfolios) the two may appear similar, as both are structured in the same way, and are subject to the same regulatory requirements. Further risks associated with hedge funds include: investment strategies may be inherently risky; leverage usually means higher volatility; short-selling can lead to significant losses; unlisted instruments might be valued incorrectly; fixed income instruments may be low-grade; exchange rates could turn against the fund; other complex investments might be misunderstood; the client may be caught in a liquidity squeeze; the prime broker or custodian may default; regulations could change; past performance might be theoretical; or the manager may be conflicted. For a detailed description of these risks, please refer to the HEDGE FUND RISK DISCLOSURE DOCUMENT, available on the website: (https://www. alexanderforbesinvestments.co.za/for-your-company/forms-anddocs)

Redemptions A Qualified Investor Hedge Fund (QIHF) can borrow up to 10% of the value of the portfolio, for redemptions of participatory interests. The ability of a portfolio to repurchase, is dependent upon the liquidity of the securities and cash of the portfolio. A manager may, in exceptional circumstances, suspend repurchases for a period, subject to regulatory approval, to await liquidity, and the manager must keep the investors informed about these circumstances.

Performance fees Performance fees are not levied on the portfolio, although they have been provided for. Investors will receive three months’ written notice, if performance fees will be levied in the future. The rate of return is calculated on a total return basis, and the following elements may involve a reduction of the investor’s capital: interest rates, economic outlook, inflation, deflation, economic and political shocks or changes in economic policy.

Prices PRICES are published daily in the Business Report (South Africa’s National Financial Daily) and are made available on the website.

Valuation and cut-off times The QIHFs are valued on the last day of each calendar month. The pricing date is the last day of each calendar month. The withdrawal instruction must be received before 13:00, at least five business days (or shorter, as determined by the manager) prior to the pricing date, failing which, the pricing date in the following calendar month will apply.

Closure of the portfolio The manager shall, in its absolute discretion, without notice or on such notice as it may determine, be entitled from time to time to close the portfolio to new investments and/or to close the portfolio to investments from new investors and/or to accept new investments only from certain persons or groups of persons and/or to limit or suspend the creation and issue of new participatory interests, in each case on such terms as it may determine, if such restrictions will, in the manager’s view, benefit the portfolio or the effective management thereof or for any other reason whatsoever. The manager shall, in its absolute discretion, determine the date from which any such restrictions shall take effect, the date from which any such restrictions shall cease to apply and/or the date on which any such amended restrictions shall apply.

Structure of the portfolio The portfolio was established as a collective investment scheme trust arrangement on 26 May 2016, with the conversion process being completed on 1 November 2016. All prior information was in an unregulated environment. The portfolio will not change its investment strategy or investment policy without prior approval from the Financial Sector Conduct Authority and investors. The ballot procedure, as prescribed in CISCA and the Deed, will be followed.

| 73

ALEXANDER FORBES INVESTMENTS

Counterparties and prime brokers We do not enter into counterparty or prime broker arrangements, but the underlying portfolios may enter into such arrangements. We receive reporting on counterparty exposure levels from the underlying portfolio managers and this information can be provided on request.

Additional information For more information on the portfolio, refer to the following documents, available from your financial adviser, or on request from the manager, at no additional costs.

Minimum disclosure documents Portfolio summary Annual report Fees and charges schedule Application forms Complaints The COMPLAINTS POLICY AND PROCEDURE, and the CONFLICTS OF INTEREST MANAGEMENT POLICY are available on the website. Associates of the manager may be invested within certain portfolios, and the details thereof are available from the manager.

Contact details Management Company (Manager) Alexander Forbes Investments Unit Trusts Limited is registered as a manager, in terms of the Collective Investment Schemes Control Act, and is a subsidiary of Alexander Forbes Limited, which is a member of the Association for Savings and Investment South Africa (ASISA).

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Registration number: 2001/015776/06 Physical address: 115 West Street, Sandown, 2196 Postal address: PO Box 786055, Sandton, 2146 Telephone number: + 27 (0)11 505 6000 Email address: afinvestments@aforbes.com Website: www.alexanderforbesinvestments.co.za Board members: M Ramplin, S Mtemererwa, M Denenga, L Stott. Trustee, Custodian and Depository FirstRand Bank Limited, acting through RMB Trustee Services Registration number: 1929/001225/06 Physical address: No. 3 First Place, Corner Jeppe and Simmonds Streets, Johannesburg, 2001 Postal address: PO Box 7713, Johannesburg, 2000. Telephone number: +27 (0) 87 736 1732 Email address: info@rmb.co.za The trustee is registered, as a trustee, in terms of the Collective Investment Schemes Control Act.

Investment Manager Caveo Fund Solutions (Pty) Limited, registration number 2003/017504/07, is a licensed authorised Financial Services Provider (FSP), as a hedge fund FSP, in terms of section 8 of the Financial Advisory and Intermediary Services Act 37 of 2002, as amended, FAIS licence number 24297. The address is the same as the manager. This information is not advice, as defined in the Act. Please be advised that there may be representatives acting under supervision.