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Sanlam Investments Management Enchanced Yield Fund Sanlam Investments Management Enchanced Yield Fund

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Sanlam Investment Management
Enhanced Yield Fund

Not everybody is comfortable with the ups and downs of the share market. If you’re a conservative investor looking for returns a bit better than that offered by your bank, and don’t mind some fluctuation in the value of your investment, you may sleep better with an interest-bearing fund.

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Quick Facts About The Fund

Sanlam Investment Management (SIM) Enhanced Yield Fund

Launch Date: 03 May 2011
Fund Size: R3 120.8 million
Benchmark: STeFI+0.5% p.a.
Time Horizon: 3 – 5 years
Risk Profile: Conservative
Fund Classification: SA - Interest Bearing - Short Term
Min Investment Amount: Lump sum: R5 000 | Monthly: R200
Total Expense Ratio (TER): 0.42%
Launch Date: 03 May 2011
Fund Size: R3 120.8 million
Benchmark: STeFI+0.5% p.a.
Time Horizon: 3 – 5 years
Risk Profile: Conservative
Fund Classification: SA - Interest Bearing - Short Term
Min Investment Amount: Lump sum: R5 000 | Monthly: R200
Total Expense Ratio (TER): 0.42%

Fund Strategy

The fund aims to enhance yield by investing in a blend of floating rate note and credit instruments in a range of maturities. The fund is mandated to invest in unlisted financial instruments (derivatives) for efficient portfolio management. This portfolio may also invest in participatory interests of underlying unit trust portfolios.


Illustrative Annualised Investment Performance

Performance

Annualised as at 30 Jun 2016 on a rolling monthly basis
A1- Class Fund (%) Benchmark (%)
1 year 8.36 7.35
3 year 7.45 6.68
5 year 7.28 6.40
Since inception 7.24 6.39

Annualised return is the weighted average compound growth rate over the period measured
Actual highest and lowest annual figures for rolling 10 years
Highest Annual % 8.36
Lowest Annual % 6.26

Minimum Disclosure Document (Fund Fact Sheet)

Illustrative Annualised Investment Performance

Sanlam Investment Management (SIM) Enhanced Yield
Sanlam Investment Management (SIM) Enhanced Yield          Benchmark

Source of graph : Morningstar

This graph illustrates how an investment of R100 would have grown had you invested in 2010 until 2016. Like everything in life, all investments can change and come with some degree of risk. That’s why we need this disclaimer, to tell you that past performances are not necessarily a guide to future performances, and that the value of investments/units/unit trusts may go down as well as up. The performance shown in the table above is a graphical representation of your selection (of the benchmark’s past performance of the fund you selected) – including your investment objective, risk profile and fund choice – and is based on the past performance of the fund in relation to your investment. This performance is indicative and not guaranteed. The graph is for illustrative purposes only and investment performance is calculated by taking into account initial fees and all ongoing fees that you have to pay and the income reinvested on the reinvestment date. The actual fund performance can be viewed on the Minimum Disclosure Document. The Manager has the right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate

1. ES23 Eskom 10.0% 4.7%
2. R208 RSA 6.75% 3.5%
3. MTN04 Mobile Telephone Networks Holdings (Pty) Ltd 10.13% 3.02%
4. MQB02 Macquarie Securities 8.485% 2.74%
5. SBK26 Standard Bank 12.25% 2.53%
6. DV22 Development Bank 9.45% 2.43%
7. SNT01 SNT 8.25% 2.29%
8. LGL02 Liberty Group Limited 7.67% 2.2%
9. TL20 Telkom SA 6.00% 2.2%
10. Netcare 1.93%
1. ES23 Eskom 10.0% 4.7%
2. R208 RSA 6.75% 3.5%
3. MTN04 Mobile Telephone Networks Holdings (Pty) Ltd 10.13% 3.02%
4. MQB02 Macquarie Securities 8.485% 2.74%
5. SBK26 Standard Bank 12.25% 2.53%
6. DV22 Development Bank 9.45% 2.43%
7. SNT01 SNT 8.25% 2.29%
8. LGL02 Liberty Group Limited 7.67% 2.2%
9. TL20 Telkom SA 6.00% 2.2%
10. Netcare 1.93%
Cash And Money Market Assets
Bonds 3 - 7 Years
Bonds 0 - 3 Years
Inflation Linked Bonds
Bonds 7 - 12 Years

Chris Hamman

Head of Fixed Interest - Sanlam Investment Management

The Fixed Interest Investment team specialises in the South African market but also manages investments in Europe, Namibia and the UK. Chris became head of the team in 2010, taking on management of institutional and retail portfolios with a market value of more than R105 billion. He has an MA in Economics with distinction from the University of the Orange Free State and an MSc in Finance from the University of London. Before joining Gensec as an Investment Economist in 1999, he was also a member of the Macroeconomic Policy Unit at the South African National Treasury.

Chris Hamman

Head of Fixed Interest - Sanlam Investment Management

The Fixed Interest Investment team specialises in the South African market but also manages investments in Europe, Namibia and the UK. Chris became head of the team in 2010, taking on management of institutional and retail portfolios with a market value of more than R105 billion. He has an MA in Economics with distinction from the University of the Orange Free State and an MSc in Finance from the University of London. Before joining Gensec as an Investment Economist in 1999, he was also a member of the Macroeconomic Policy Unit at the South African National Treasury.

Traditional Investing (When you invest via a Financial Adviser or other)

  • A1-Class (%)
  • Advice initial fee (max.) 0.34
  • Manager initial fee N/A
  • Advice annual fee (max.) 1.14
  • Manager annual fee 0.47
  • Total Expense Ratio (TER) 0.49

Income funds derive their income from interest-bearing instruments as defined. The yield is a current yield and is calculated daily.

Total Expense Ratio (TER) | PERIOD: 1 April 2013 to 31 March 2016
Total Expense Ratio (TER) | 0.49% of the value of the Financial Product was incurred as expenses relating to the administration of the Financial Product. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER may not necessarily be an accurate indication of future TER’s.

Transaction Cost (TC) | 0.05% of the value of the Financial Product was incurred as costs relating to the buying and selling of the assets underlying the Financial Product. Transaction Costs are a necessary cost in administering the Financial Product and impacts Financial Product returns. It should not be considered in isolation as returns may be impacted by many other factors over time including market returns, the type of Financial Product, the investment decisions of the investment manager and the TER.

Total Investment Charges (TER + TC) | 0.54% of the value of the Financial Product was incurred as costs relating to the investment of the Financial Product.

The portfolio manager may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. This fund is also available via certain LISPS (Linked Investment Service Providers), which levy their own fees.

In April 2016 African Bank’s curatorship effectively ended. The old African Bank (ABIL) was split into a ‘good’ (ABK) and ‘bad’ (RDS) bank. 80% of all senior unsecured exposure to ABIL was rolled into instruments issued ABK, while a 10% cash repayment was received and 10% of nominal exposure remains in RDS. The ABK bonds will receive interest at the same rate as previous ABIL instruments and start to mature after a 2 year interest-only period. Recovery expectations w.r.t the 10% exposure in RDS is low at this stage, although recent results from African Bank were more positive than expected.

When you invest online

Traditionally, investment advice come with a fee of up to 1%. But our smart online system is working to make investing cheaper and more profitable for you. The management fee you do pay is based on the fund selected and calculated on your total contributions, and then applied to the overall value of your portfolio.

YOUR INVESTMENT WILL NOT CHARGE THE FOLLOWING FEES

  • No initial account set-up fees – usually charged at 1.14%.
  • No switching fees
  • No exit fees
  • No account changes fees
  • No rebalancing fees
  • No commissions
  • No debit order fees
  • No fund manager rebates

SO YOU’RE ONLY CHARGED THE RELEVANT FUND-MANAGEMENT FEE

  • Total Annual Fee: 1.0%

Sanlam Investment Management (SIM) is the local active asset management house within Sanlam Investments. When choosing a fund managed by us, you have on your side one of SA’s largest and most reputable, risk conscious investment teams, consistently meeting or exceeding our benchmarks. Sanlam Collective Investments has appointed SIM as the asset manager for its unit trust funds, catering for the full spectrum of risk profiles.

The Fund reached its five-year track record during the second quarter of 2016. The performance ranks favorably compared to the peer group and the benchmark, indicative of strategies employed in the Fund which aim to deliver sustainable outperformance. Yield enhancement is pursued by using a combination of both interest rate and credit opportunities. The Fund’s track record so far demonstrates that it is possible to outperform during both increasing and decreasing interest rate cycles, as well as favourable and unfavourable credit market environments. Credit spreads have been widening since the end of 2014, and during the last year we have been able to identify opportunities for the Fund which offer significant value. Spreads in the secondary market have been trending higher, but in particular new issuances in the primary market have been pricing at levels which offer value compared to previous years and we have been investing for the Fund in some of these opportunities during the course of the year. We have also been able to source and participate in a number of private placements for the Fund which we believe will offer an added level of relative value.

The South African Reserve Bank’s Monetary Policy Committee decided to keep the repo rate unchanged at 7.0% at their scheduled meeting in May after previously increasing interest rates at both their scheduled meetings in January and March by a total of 75 basis points. Compared to 2015, interest rates at the shorter end of the curve have been trading 120 basis points higher so far this year while currency weakness and inflationary pressures have led to the aforementioned two policy rate hikes - both in the first quarter of 2016. The market subsequently started pricing in a lower probability of further interest rate increases towards the end of the second quarter.

During the second quarter the major credit rating agencies reviewed their credit rating for South Africa. All three affirmed their investment grade ratings: Moody’s (reviewed 6 May) and S&P (reviewed 3 June) attached a negative outlook while Fitch (reviewed 8 June) has a stable outlook attached to their rating. The same or similar issues are echoed by each of the credit rating agencies: the economic growth outlook, stabilisation of government debt ratios, political stability and the strength of South Africa’s institutions, reliable sources of energy, labour reform and regulatory policies that serve to attract investment activity in the country rather than deter it. The importance of the local policy responses taken irrespective of credit rating downgrades that may (or may not) materialise are important to monitor. With the spotlight on policymakers and threat of credit rating downgrades looming, the pressure is rightfully on to implement reforms and address the legitimate concerns that credit rating agencies are highlighting.

SIM strategy

Local yields increased significantly towards the end of 2015 and we have been waiting for the appropriate time to adjust the interest rate risk exposure in the Fund. The market offered a good opportunity to do so during June when interest rates traded at more favourable levels. The statements and forecasts of the South African Reserve Bank’s Monetary Policy Committee (MPC) appears to signal that we are now nearer to the end of the hiking cycle, while the market is also pricing in a lower probability of significant further policy rate increases. Following the May MPC meeting and with credit rating agencies’ reviews at bay for the time being, the curve positioning of the Fund was adjusted and the interest rate risk was increased during June, which was timeously executed and has already been to the benefit of the Fund’s performance during the month.

During the quarter investments were made in subordinated debt issued by FirstRand Bank and Standard Bank. We were able to secure levels which are now more reflective of the risks associated with the regulatory framework as well as investing lower down the capital structure. Bank funding spreads have almost doubled over the last three years and are offering better value. In particular subordinated paper is now available at levels we believe is reflective of the risks involved. We restricted the term risk and the exposure to these investments to limit concentration risk. We believe South Africa’s banking sector is well capitalised with relatively strong balance sheets to withstand adverse shocks - even in the event of a downgrade of the South Africa’s sovereign credit rating and the associated potential for an increasing interest rate environment.

We invested in government guaranteed Eskom debt for the fund after having very limited exposure for the last two years. Funding spreads (the interest rate premium above South African government bonds) of state-owned entities has roughly doubled over the last two years and the Fund benefitted from decreasing exposure in mid-2014 and having limited exposure during the subsequent period. At current levels we believe it is an appropriate time to re-enter into a position. We acknowledge the potential impact of a sovereign credit rating downgrade on South African State Owned Enterprises (SOEs), which would be detrimental from a funding point of view: if South African government bond yields increase further then this could lead to a material increase in borrowing costs for these entities. National Treasury surveyed the SOEs during the first half of 2016 to assess the potential impact of a sub-investment grade downgrade on their debt: roughly half of creditors raised concerns on the back of a downgrade, while some indicated that they require additional government guarantees or cash transfers, which adds to government’s contingent liabilities. We believe that the current spreads on government guaranteed Eskom debt are sufficient compensation for the risks involved and present an attractive investment opportunity for the Fund.

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