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

Retail Class (%)

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.

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.

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 from 01 April 2017 to 30 April 2018. 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.

Market review

The FTSE/JSE SA Listed Property Index (SAPY) delivered a total return of -19.6% during the three months to the end of March 2018, mainly due to company-specific concerns. Relative to other asset classes, the SAPY materially underperformed equities (FTSE/JSE All Share Index: -6.0%; cash: 1.8%; bonds: 8.1%) over this period. On a rolling 12-month basis, the sector’s total return is -7.1% due to the negative first quarter of 2018.

Due to the idiosyncratic nature of the SAPY’s performance for the year to date, the typical correlation between property stocks, government bonds and the forex market has broken down.

The best-performing shares in the SAPY for the quarter included the likes of higheryielding domestic mid-caps such as Accelerate, Arrowhead and Emira, as well as larger caps such as Growthpoint and Redefine, all materially outperforming the index with returns of between 5% and 15%. The rallies in these domestic names were driven largely by the change in the SA presidency, which in turn drove our local bond yields lower and the rand stronger. Of the rand hedges, Echo Polska also rebounded this year (about 10%) after its sell-off in 2017 on news of a director being arrested.

By contrast, the worst-performing shares in the quarter (which drove the average index down close to 20%) were the shares which were by far the best performers in 2017. Their sell-off was very dramatic, offsetting all the previous year’s gains and more. The derating of Resilient, Fortress, Greenbay and NEPI Rockcastle - on concerns that these property counters entered into off-balance sheet loans, crossholdings between the entities, possible insider trading, and aggressive capital raising at high multiples - explains the decline in the SAPY index. A rough estimate is that the SAPY would have delivered a return of about 3.5% excluding the four companies in question.

While there may be merit to the above concerns and hence a sell-off in these shares were justified, perhaps it has taken these particular shares, but also the average index with it, from one extreme (overvaluation) to the other (undervaluation). Performance and actions The quarter was very quiet on the corporate action front. With the March 2018 FTSE/JSE SAPY rebalance there were no additions to or deletions from the index, but the weightings of MAS Real Estate and Echo Polska increased while Resilient decreased in the index. The one-way turnover came to 0.7%. Your fund outperformed its benchmark slightly mainly due to cash holdings in the portfolio (strong down market).

Outlook

Following the weak first-quarter returns, the SAPY derated from a 6.8% clean forward yield at the end of 2017 to well over an 8% clean forward yield, with a twoyear expected growth in dividends of about 7% p.a. and, in our view, longer-run growth in the CPI range of 4 - 6% p.a. This yield is now, for the first time in quite a while, at a discount (i.e. above) the SA long bond yield, which has rerated to around 8%.

At a macroeconomic level, a further 25-basis point cut (50 basis points over the past year) in domestic interest rates also benefits the sector. Indirectly this makes other competing asset classes, such as cash and bonds, less attractive for investors, which could lead to increased demand for riskier assets such as property and general equities.