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Satrix Balanced Index Fund

You are saving for the long term and looking for a well-diversified portfolio – some shares, some listed property and some fixed interest assets. You are comfortable with fluctuations in your capital value over the short term.

This fund is suitable for long-term retirement savings and offers diversified exposure to all the key local and international asset classes, with a smart SA equity (shares) core. The fund tracks a composite index, with a long-term strategic asset allocation. This fund is best suited to investors with at least a medium-term investment horizon (3-5 years). For more information contact your financial adviser or broker.

Quick Facts About The Fund*

Satrix Balanced Index Fund

Launch Date: October 2013
Fund Size: R2 576.4 million
Benchmark: Proprietary Satrix Balanced Index
Time Horizon: 5 years
*As at 28 February 2018
Risk Profile: Moderate Aggressive
Fund Classification: SA - Multi-Asset - High Equity
Min Investment Amount: Lump sum: R10 000 | Monthly: R500
Total Expense Ratio (TER): 0.76%

*As at 30 November 2017

Launch Date: October 2013
Fund Size: R2 576.4 million
Benchmark: Proprietary Satrix Balanced Index
Time Horizon: 5 years
Risk Profile: Moderate Aggressive
Fund Classification: SA - Multi-Asset - High Equity
Min Investment Amount: Lump sum: R10 000 | Monthly: R500
Total Expense Ratio (TER): 0.76%
*As at 28 February 2018

Fund Strategy

The composite benchmark of the fund comprises the following asset class building blocks:

Asset class Index exposures

Smart SA equity core (55%) 25% Proprietary Satrix Stable Dividend Index
25% S&P Quality Index
50% Proprietary Satrix Momentum Index
SA bonds (8%) FTSE/JSE All Bond Index
SA property (6%) FTSE/JSE SA Listed Property Index
SA inflation-linked bonds (6%) Barclays SA Gov Inflation-Linked Bond Index
SA cash (5%) SA Nominal Cash
International equities (15%) MSCI World Equity Index
International bonds (5%) Barclays Global Treasury Index

The asset composition of the index aims to target a CPI+5.5% return over the long term.

Illustrative Cumulative Growth of an investment of R100

Performance

Annualised Total Return on a rolling monthly basis
(as at 28 February 2018)
Retail Class Fund (%) Benchmark (%)
1 year 16.35 17.47
3 year 6.52 7.74
5 year N/A N/A
Since inception 9.04 10.32

Annualised return is the weighted average compound growth rate over the period measured
Highest and Lowest Annual Returns since inception
Highest Annual % 18.31
Lowest Annual % -1.51

Minimum Disclosure Document (Fund Fact Sheet)

Cumulative Growth Over Time

Satrix Balanced Index Fund A1
Proprietary Satrix Balanced Index

Source of graph: Morningstar Direct

This graph illustrates how an investment of R100 would have grown had you invested for the time period displayed. 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 by this graph happened in the past and is not guaranteed. The performance is calculated by taking into account initial and ongoing fund manager fees and assumes that you reinvested all the income earned by the fund over this period.

The other line on the graph is for the performance of the designated benchmark of the fund – normally either an index or other funds in the industry that are comparable to the fund you’ve chosen.

The Manager has the right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate. The actual fund performance can be viewed on the Minimum Disclosure Document. Annualised return is the weighted average compound growth rate over the period measured.

1. Naspers -N- 7.15%
2. FirstRand / RMBH 4.30%
3. Stanbank 4.11%
4. Mr Price Group Limited 3.23%
5. Sanlam 2.81%
6. AVI 2.49%
7. Woolies 2.09%
8. Capitec 1.93%
9. Clicks Group Ltd 1.87%
10. Truworths 1.81%
Cash And Money Market Assets
Inflation Linked Bonds
International Assets
Equities
Property
Bonds
1. Naspers -N- 7.15%
2. FirstRand / RMBH 4.30%
3. Stanbank 4.11%
4. Mr Price Group Limited 3.23%
5. Sanlam 2.81%
6. AVI 2.49%
7. Woolies 2.09%
8. Capitec 1.93%
9. Clicks Group Ltd 1.87%
10. Truworths 1.81%
Application form: Satrix Individual Investors (new investors only) ENG
Application form: Satrix Tax-Free Unit Trusts (new investors only) ENG

View more Satrix forms

All portfolios are managed and monitored by the Satrix investment team, a group of individuals highly skilled in portfolio management, quantitative research, risk management and portfolio solutions. The Satrix team offers unparalleled experience in efficiently managing index-tracking portfolios. Under leadership of CIO Kingsley Williams and its head of Portfolio Management, Johann Hugo, the team manages index tracking assets in excess of R70 billion.

All portfolios are managed and monitored by the Satrix investment team, a group of individuals highly skilled in portfolio management, quantitative research, risk management and portfolio solutions. The Satrix team offers unparalleled experience in efficiently managing index-tracking portfolios. Under leadership of CIO Kingsley Williams and its head of Portfolio Management, Johann Hugo, the team manages index tracking assets in excess of R70 billion.

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

A1-Class (%)

Advice initial fee (max.) N/A
Manager initial fee N/A
Advice annual fee (max.) 1.14%
Manager annual fee 0.40%
Total Expense Ratio (TER) 0.76%
Transaction Cost (TC) 0.23%

Advice fee | Any advice fee is negotiable between the client and their financial advisor. An annual advice fee negotiated is paid via a repurchase of units from the investor.

Where this fund invests into other unit trusts, it does so into zero fee classes except for offshore equity (0.30%) and offshore bonds (0.12%).

Total Expense Ratio (TER) | The Total Expense Ratio (TER) is the charges incurred by the portfolio, for the payment of services rendered in the administration of the CIS. The TER is expressed as a percentage of the daily NAV of the CIS and calculated over a period of 1 year. The TER is calculated since inception from 1 January 2017 to 31 December 2017. A higher TER does not imply a poor return nor does a low TER imply a good return.

The Transaction Cost (TC) is the cost incurred by the portfolio in the buying and selling of underlying assets. This is expressed as a percentage of the daily NAV of the CIS and calculated over a period of 1 year. Obtain the costs of an investment prior to investing by using the EAC calculator provided at www.satrix.co.za.

Satrix is a South African ETF pioneer and caused a shake-up in the SA investment space when it introduced the country to ETFs in 2000 by launching the first ETF listed on the JSE. The Satrix TOP 40 ETF needs no introduction and serves as the go-to broad market exposure investment option for professional and amateur investors alike. So transformative have the Satrix product set and access options been to South Africans that people often (erroneously) refer to all index trackers as Satrix.

Since 2000 Satrix has listed 12 more ETFs. In fact, in 2017 alone it added a property ETF, an inflation-linked bond ETF, a Quality factor ETF and three offshore ETFs to its range. You can now build a completely diversified portfolio of local asset classes using only low-cost Satrix ETFs.

To make investing ever easier and cheaper (and online) we started working with the ground-breaking team at EasyEquities. The low-cost, no-minimum, online platform they had developed, which allowed fractional share trading, is perfect for our clients too. In no time at all we had our very own www.SatrixNOW.co.za platform up and running, which allows you to do everything online with no annual fees and extremely low trading costs. With SatrixNOW there really are no excuses as you can invest as little as R10.

Macro review

In the US, the fourth quarter saw two Republican defeats in Senate contests spur House and Senate Republicans into action, resulting in the long-awaited tax reform bill. Markets rallied on the news, with big permanent cuts for corporations as the centrepiece of the package. US equities were largely also supported by generally positive macroeconomic data, including better-than-expected third-quarter GDP growth of 3.0% (annualised) and stronger-than-expected non-farm payrolls. As had been widely anticipated, the US Federal Reserve (Fed) lifted interest rates by 25 basis points (bps) in December. The Fed also raised its growth forecasts for 2018 to 2.5% from 2.1%. The quarter also saw robust corporate earnings, particularly from the technology sector.

In the Eurozone, data showed the region’s economic recovery continuing. GDP grew by 0.6% in the third quarter, albeit a slight slowdown from 0.7% in the second quarter. In October, the European Central Bank (ECB) announced that quantitative easing would be extended to September 2018 but that the pace of purchases would be reduced from €60 billion per month currently to €30 billion. In Germany, coalition talks collapsed, while in Spain, Catalonia held a regional election which failed to resolve the independence issue. In the UK, despite a sluggish economy, the Bank of England (BoE)’s monetary policy committee raised interest rates for the first time in 10 years as annual CPI reached 3.1% in November, breaching the BoE’s upper target. Furthermore, hopes rose around progress with Brexit negotiations, with an agreement struck to allow talks to proceed to the future of trade arrangements. Emerging markets experienced largely positive political developments. In South Africa, pro-reform candidate, Cyril Ramaphosa, was elected as leader of the African National Congress. This development increased the prospect for a return to more orthodox policy after elections in 2019. In Greece, agreement was reached with international creditors over reforms, paving the way for the dispersal of further bailout funds, while India also announced plans for a major recapitalisation for statecontrolled banks.

Global and local market review

For the first time on record, global equity markets rallied in all 12 months of a year, advancing +5.8% in US dollars in the fourth quarter and 24.6% over 2017, one of the strongest years since 2009. The S&P 500 Index ended a strong year with a fourth-quarter gain of +6.6%, buoyed by hopes of tax reform, while Eurozone equities declined amid some profit-taking and simmering political risk, although economic data remained positive. The UK’s FTSE All Share Index also saw positive returns, supported by gains for resource stocks and progress on Brexit negotiations. Emerging market (EM) equities however outperformed their developed world counterparts, returning +7.5% during the fourth quarter and 37.8% in 2017. Top EM performers in the fourth quarter were South Africa (+21.5%), Greece (+13.6%) and India (+11.8%). The MSCI South Africa Index rallied +36.8% in US dollar terms in 2017 broadly in line with EM, driven by Media (Naspers) and a metals rally, while a Ramaphosa win buoyed SA domestic-demand sectors into year-end. However, the MSCI SA ex Naspers was up only +16%.

The yields on the US 10-year Treasury note rose marginally from 2.33% to 2.40% over the quarter, but for a brief period when they touched 2.5%. However, the curve flattened aggressively as shorter maturities sold off in anticipation of the December rate hike and continued tightening of monetary policy by the Fed in 2018. Yields on German bonds rallied slightly from 0.46% to 0.42%.

The Bloomberg Commodities Index posted a robust return in the fourth quarter of +4.7%, underpinned by a rally in industrial metals and energy. In industrial metals, nickel (+22%), copper (+12%) and iron ore (+12%) posted the strongest gains as Chinese demand remained firm. Together with measures aimed at lowering environmental emissions, which have led to an increase in supply discipline, this put upward pressure on prices. In the energy segment, Brent crude surged +18.2%, primarily driven by an agreement among OPEC and a number of non-member countries such as Russia to extend production cuts to the end of 2018. By contrast, agricultural commodities lost value, notably wheat and palm oil. In precious metals, gold gained +1.8% while silver was up +1.7%.

Domestically, SA equities (Capped SWIX) delivered a healthy 16.5% during 2017, outperforming bonds (+10.2%) and cash (+7.5%). Over the quarter, the Capped SWIX return was +8.4%, driven by Industrial Metals (+62.7%), Banks (+27.1%) and General Retail (+22.3%). Underperforming sectors over the quarter were Household Goods (-92.3%), Fixed Line Telecommunications (-18.8%) and Paper (-9.9%).

SA equities recorded outflows of US$2.5 billion during 2017, significantly lagging inflows into EM equities of US$77.2 billion. However, dissecting the flows, it appears that, excluding the outflows from dual-listed stocks, the Barclays and Vodacom selldown, SA equities saw inflows of just more than R60 billion in 2017.

The benchmark SA 10-year bond yield declined from 8.9% at the beginning of the year to 8.6% at the end of December, given expectations of a political and policy shift in South Africa, post a Ramaphosa win at the ANC elective conference. For the quarter, the FTSE/JSE All Bond Index (ALBI) returned 2.25%, outpacing cash returns of 1.78% on the STeFI Composite. The 5.66% rally in December resulted in bond returns of 10.22% for the year.

The FTSE/JSE SA Listed Property Index (SAPY) returned a total of 8.3% in the fourth quarter of 2017 and 17.2% for the calendar year 2017. Over the 2017 calendar year, the SAPY outperformed bonds (10.2%) and cash (7.5%), but underperformed the FTSE/JSE All Share Index (ALSI), which returned 21% over the last 12 months. Interestingly, over a trailing five- and 15-year period, SA listed property is still the best-performing major SA asset class, including equities. For the calendar year, the best-performing shares in the SAPY were those with a 100% foreign exposure, such as MAS Real Estate (35%), Sirius (41%) and Greenbay Properties (60%). The best-performing local share was Equites Property Fund (32%).

During the fourth quarter, and in particular December 2017, following the outcome of the ANC conference where Cyril Ramaphosa was elected the new party leader, it was actually the more pure SA stocks that delivered superior returns. The rand hedge stocks, such as Growthpoint, Redefine and Hyprop, came off their intra-year highs on the back of the stronger rand in December.

Momentum: Despite some rotation which started in November (which can largely be explained by usual year-end profit-taking), globally, the Momentum factor (particularly Price Momentum) has led factor performances for 2017. Factors such as Growth and Quality/Profitability have also been solid strategies to be exposed to last year, but Price Momentum has benefited most from US tax reform and global synchronised growth.

In South Africa we’ve seen an alignment with global outcomes, as Price Momentum has been the strongest signal domestically for 2017 and the prior quarter. Earnings revisions (a sub-component of headline Momentum), on the other hand, has not performed in line with Price Momentum, delivering only mildly positive alpha, while defensive factors such as ROE and Dividend have been exceptionally strong during 2017, largely back-end loaded.

In our view, the earnings revisions factor was not well rewarded given high levels of domestic economic and policy uncertainty flowing over to uncertain corporate earnings estimates. However, with the domestic policy environment seemingly improving at the margin, cyclical stocks with positive forward earnings momentum should perform well.

As an overall factor however, the Momentum signal has translated into a topperforming factor-based strategy relative to the SWIX in 2017, after a testing environment in 2016. Over the prior quarter, the strategy’s outperformance was attributed to exposure to a diverse range of sectors, with the largest contributors to relative performance generated from overweight positions in Kumba Iron Ore (KIO), Assore (ASS), Exxaro (EXX), Capitec (CPI) and Imperial (IPL). The underweight position in Steinhoff (SNH) also significantly bolstered the strategy’s performance, after the share fell 92.3% over the quarter due to accounting irregularities. On the other hand, the largest detractors were overweight positions in Richemont (CFR), Reinet (REI) and British America Tobacco (BTI), and underweight positions in Barclays (BGA), Truworths (TRU) and Mr Price (MRP).

At the last rebalance date (mid-December), we transitioned the portfolio based on the evaluation of new factor signals and the risk levels in the portfolio. Based on these signals, Steinhoff (SNH), Blue Label Telecoms (BLU) and Supergroup (SPG) were removed, and Discovery (DSY), Mr Price (MRP) and Northam (NHM) were added. Exposures to Bidcorp (BID) and Glencore (GLN) have also been reduced while exposures to Assore (ASR) and Richemont (CFR) were added in line with the risk objective of the fund.

Quality: The S&P Quality Index experienced a challenging first three quarters of the year, as the market grappled with interchanging risk-on and risk-off environments. Predictably, during the months of February and June where the South African equity market (SWIX) experienced deep negative returns, the S&P Quality Index provided meaningful protection. Over the fourth quarter however, the strategy hit a definitive turning point in performance, provided by a few notable catalysts.

Firstly, the emergence of news in December that an accounting irregularity had occurred at Steinhoff had investors scrambling. Not often has one stock moved the entire benchmark that much, as companies with strong balance sheets, cash/quality earnings and high returns benefited from the flight to quality. Notwithstanding this seismic shift, any portfolios (such as our strategy which follows the S&P Quality Index) that managed to have less exposure than benchmarks - or even better, zero exposure - were treated to substantial relative performance outcomes after the Steinhoff share price plummeted.

Secondly, leading up and subsequent to Cyril Ramaphosa’s election as the new ANC president, the rand rallied strongly relative to the dollar (appreciating 10.9% over 2017), with investors beginning to price in a positive macroeconomic impact supporting a cyclical recovery. To this end, shares with domestic cyclical exposure rallied hard during the fourth quarter, including General Retail (+15.9%), Banks (+15.2%) and Industrial Transportation (+8.9%). The Quality strategy had substantial exposure to all these sectors through its strong rand exposure.

Thirdly, the valuation gap between Quality and the market has been closing since its peak in 2015, and now the premium is closer to normalised levels. While the valuation spread has increased given Quality’s recent run, our view is that the Quality basket still presents value to investors who seek the strategy’s diversification benefits within this factor portfolio construct.

In terms of stock selection, the largest relative outperformance over the quarter came from the overweight positions in a broad range of sectors such as Mr Price (MRP), Kumba Iron Ore (KIO), Capitec (CPI), Bidvest (BVT), Sanlam (SLM) and Tiger Brands, as well as underweight positions such as Steinhoff (SNH), British American Tobacco (BTI) and Richemont (CFR). By not holding Naspers (NPN), FirstRand (FSR) and Barclays (BGA), the fund detracted value relative to the SWIX, while holdings in Adcock Ingram (AIP) and South32 (S32) also diminished the strategy’s value-add. There were many constituent changes (eight deletions and 10 additions) to the S&P Quality Index over the prior quarter, as this index rebalances in June and December each year.

The index and portfolio remain focused in its extraction of Quality and should markets give way to further risk aversion, the defensive character of the basket should prove rewarding while not meaningfully compromising returns during up markets.

Stable Dividend: After a fantastic performance during the 2016 calendar year, Value measures have experienced a disparate 2017. The divergence between deep value measures (e.g. price to book) and yield measures (e.g. dividend yield) has been substantial, with the former struggling, and the latter continuing to perform well as investors seek defensive qualities during a period of high levels of uncertainty and flight to safety, particularly during the fourth quarter. As mentioned above, the Steinhoff debacle caused investors to seek out companies with defensive characteristics and high dividend yields. Also, this strategy had some meaningful exposure to the rand rally through constituents in domestic sectors such as Banks and General Retail.

During the fourth quarter, exposure to Kumba Iron Ore (KIO), Foschini (TFG), Barclays (BGA) and Exxaro (EXX) played a strong positive role here, while an underweight position in British American Tobacco (BTI) also added excess return. The concentrated nature of our market index proxies and its Naspers exposure also largely contributed to the relative underperformance; this index holds no Naspers exposure. Holdings in Steinhoff (SNH), Telkom (TKG) and AECI (AFE) detracted from the index’s relative performance.

There were no changes to the Satrix Stable Dividend strategy during the prior quarter.

This portfolio strategy maintains a sector-neutral position, and thus any relative sector performances would not adversely impact the portfolio’s performance. In addition, the portfolio construction approach is designed to optimise the reliability of high dividend yields, which the portfolio successfully has managed to achieve.

In Closing

We remain convinced of all equity factors’ medium- to long-term significance and the premium they offer in the South African capital market and remain disciplined in our implementation and extraction of all factors.

The outlook for markets is again uncertain. A year ago, there was general apathy towards SA equities and the focus on political and economic downside risks in South Africa meant that many investors sat on the sidelines, which teed up the strong relief rally we witnessed at the end of the year. In South Africa, the danger is that too much, too soon may be expected from the new ANC leadership and, also, global risks from Fed tapering may now be underestimated.

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