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Sanlam Investment Management
Inflation Plus Fund

There are many things that can affect the economy. And if you’re a cautious investor who still wants bold results, you need an investment fund that can stay the course, no matter what happens.

The Sanlam Investment Management Inflation Plus Fund is a multi asset low equity fund which aims to deliver smooth, positive real returns (adjusted for inflation) targeting CPI +4% over a rolling 3 year period. This Fund is best suited to Investors with a medium term investment horizon (3-5 yrs) who require capital stability and real income growth. For more information contact your financial adviser or broker.

Quick Facts About The Fund

Sanlam Investment Management (SIM) Inflation Plus Fund

Launch Date: 01 Apr 1999
Fund Size: R12 619.6 million
Benchmark: CPI + 4% over a rolling 3 year period
Time Horizon: 3 – 5 years
Risk Profile: Cautious
Fund Classification: SA – Multi Asset – Low Equity
Min Investment Amount: Lump sum: R5 000 | Monthly: R200
Total Expense Ratio (TER): 1.25%
Launch Date: 01 Apr 1999
Fund Size: R12 619.6 million
Benchmark: CPI + 4% over a rolling 3 year period
Time Horizon: 3 – 5 years
Risk Profile: Cautious
Fund Classification: SA – Multi Asset – Low Equity
Min Investment Amount: Lump sum: R5 000 | Monthly: R200
Total Expense Ratio (TER): 1.25%

Fund Strategy

This actively managed fund is a combination of investments in equity, bonds, money market instruments and listed property both locally and abroad. It can invest 25% offshore, while equity exposure is limited to 40%. This Fund uses derivatives to protect capital. The Fund aims to outperform inflation by a margin of 4% (after annual service fees) over any rolling 3 year period, while also aiming to prevent capital loss over any rolling 12 month period.


Illustrative Annualised Investment Performance

Performance

Annualised as at 31 Dec 2016 on a rolling monthly basis
Retail Class Fund Benchmark
1 year 4.69 10.59
3 year 8.01 9.71
5 year 10.36 9.64
10 year 8.85 10.51

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 % 15.63
Lowest Annual % -0.81

Minimum Disclosure Document (Fund Fact Sheet)

Illustrative Annualised Investment Performance

Sanlam Investment Management
(SIM) Inflation Plus Fund
Consumer Price Index (CPI) +4%

Source of graph : Morningstar

Sanlam Investment Management (SIM) Inflation
Plus Fund
Consumer Price Index (CPI) +4%

Source of graph : Morningstar

Sanlam Investment Management (SIM)
Inflation Plus Fund
Consumer Price Index (CPI) +4%

Source of graph : Morningstar

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 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 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 3.44%
2. BTI Group 1.18%
3. Steinhoff Int Hldgs N.v 1.11%
4. Sasol 1.00%
5. MTN 0.97%
6. FirstRand / RMBH 0.94%
7. Stanbank 0.83%
8. Old Mutual 0.80%
9. Anglos 0.60%
10. Mondi 0.59%
Cash And Money Market Assets
International Assets
Equities
Bonds 3 - 7 Years
Bonds 0 - 3 Years
Bonds 12+ Years
Inflation Linked Bonds
Property
Bonds 7 - 12 Years
Preference Shares
1. Naspers N 3.44%
2. BTI Group 1.18%
3. Steinhoff Int Hldgs N.v 1.11%
4. Sasol 1.00%
5. MTN 0.97%
6. FirstRand / RMBH 0.94%
7. Stanbank 0.83%
8. Old Mutual 0.80%
9. Anglos 0.60%
10. Mondi 0.59%
Cash And Money Market Assets
International Assets
Equities
Bonds 3 - 7 Years
Bonds 0 - 3 Years
Bonds 12+ Years
Inflation Linked Bonds
Property
Bonds 7 - 12 Years
Preference Shares

Philip Liebenberg

Head of Absolute Returns – Sanlam Investments

As Head of Absolute Returns Phillip currently manages all Sanlam Investments flexible income portfolios, including the Active Income Fund. He first joined Sanlam Investments in 2005 as Senior Quantitative Analyst in the fixed interest team and was responsible for quantitative analytics and specialist fixed interest portfolios.

Before joining Sanlam Investments, Philip worked at RisCura where his responsibilities included quantitative analysis and consulting to pension funds and asset managers. He also gained experience at Kagiso Asset Management as a Portfolio Manager. He started his working career at BHP Billiton as a Production Engineer.

Philip is a Chartered Financial Analyst (CFA) and holds B.Eng. and M.Eng degrees from Stellenbosch University, as well as a Ph.D. (Chemical Engineering) from the University of Melbourne.

Philip Liebenberg

As Head of Absolute Returns Phillip currently manages all Sanlam Investments flexible income portfolios, including the Active Income Fund. He first joined Sanlam Investments in 2005 as Senior Quantitative Analyst in the fixed interest team and was responsible for quantitative analytics and specialist fixed interest portfolios.

Before joining Sanlam Investments, Philip worked at RisCura where his responsibilities included quantitative analysis and consulting to pension funds and asset managers. He also gained experience at Kagiso Asset Management as a Portfolio Manager. He started his working career at BHP Billiton as a Production Engineer.

Philip is a Chartered Financial Analyst (CFA) and holds B.Eng. and M.Eng degrees from Stellenbosch University, as well as a Ph.D. (Chemical Engineering) from the University of Melbourne.

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

  • Advice initial fee (max.) 1.14%
  • Manager initial fee 1.14%
  • Advice annual fee (max.) 1.14%
  • Manager annual fee 1.14%
  • Total Expense Ratio (TER) 1.25%

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

Total Expense Ratio (TER) | PERIOD: 1 July 2013 to 30 June 2016
Total Expense Ratio (TER) | 1.25% 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) | 0.08% 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) | 1.33% of the value of the Financial Product was incurred as costs relating to the investment of the Financial Product.

When you invest online

Traditionally, investment advice come with a fee of up to 1.14%. But our smart online system is working to make investing cheaper and more profitable for you and hence no initial or annual advice fees will be charged. 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 2.28%.
  • 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: 1.14%

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 year 2016 will be remembered for a few big geopolitical surprises, namely Brexit and the election of Donald Trump as US president. Both of these events were largely driven by populism and protectionism. One could call it the ‘revenge of the middle class’. The election of Donald Trump led to a sharp increase in US treasury yields (and global yields) as markets priced in possible fiscal stimulus from the US, deregulation and a possible increase in trade barriers. We saw a global sell-off in previously loved asset classes like property and bonds, while value stocks started to outperform substantially in the aftermath of the US election results.

On the domestic front we had to deal with ongoing political infighting, which led to frequent bouts of currency volatility. We started 2016 dealing with the aftermath of the ‘Nenegate’ episode and a weak currency. Fortunately, South Africa managed to retain its investment grade rating for the time being. The rand recovered some lost ground over the course of the year and closed at R13.68/$ from R15.49/$ the previous year. This off course affected all portfolios with offshore exposure significantly and reminded investors that the rand is not always a one-way bet, unlike the previous couple of years. One could argue that stabilising growth in China and significant infrastructure spend from the US will support commodity prices and hence currencies like the rand; the counter argument could be that rising global yields might exert a bit more pressure on emerging market currencies as a whole.

We maintain that we are close to the top of the domestic tightening cycle with the repo rate at 7%. The RSA 10-year bond yield closed the year at 8.92%, down from 9.69% at the beginning of 2016. Nominal bonds had a fantastic year following the terrible 2015 and posted an annual return of 15.5%. Inflation-linked bonds returned +6.3% for the year, while cash delivered +7.4% for the year. The FTSE/JSE All Share Index (ALSI) ended 2.1% lower for the quarter, but +2.6% higher for the year. For the year, the SA Resources Index gained a massive 34.2%. In dollar terms, the MSCI World Index was 1.9% higher over the quarter (+7.5% for the year) while the MSCI Emerging Markets Index posted a return of -4.2% (+11.2% for 2016). Global bonds, as measured by the Barclays Capital Aggregate Bond Index, declined by 7.1% (+2.1% for the year).

Asset allocation

Over the quarter the overall fund duration stayed fairly constant with little changes between the different fixed-income asset classes. We continued the process of yield enhancement although corporate credit looks expensive relative to bank credit spreads. Our clear preference for fixed-rate negotiable certificates of deposit (NCDs) and nominal bonds over inflation-linked bonds paid dividends over the calendar year, although, admittedly, we started 2016 at very attractive nominal yield levels.

The overall strategy of maintaining downside protection for the domestic equity component of the Absolute Return funds worked well in 2016. The funds’ domestic equity exposure increased over the quarter due to the rolling of some protective overlays. We reduced our international equity exposure somewhat as global equities are starting to look expensive, especially the US component. The lack of other attractively valued offshore investments prevented us from implementing a more aggressive view. For funds with international exposure, the maturities of currency hedges led to an increase in offshore exposure. This strategy worked well as we saw the rand strengthening over the course of the year.

Investment strategy

Sanlam Investment Management Inflation Plus Fund December 2016 (Fund Fact Sheet) As stated last quarter, South African fixed-income assets remain attractive as an investment case, despite very good 2016 performances. Real yields of between 2% and 3% are still on offer in the fixed-income space. Although breakeven inflation levels have come down from the first quarter levels, we still prefer nominal bonds over inflation-linked bonds over the medium term. Some of the possible headwinds for the local fixed-income market could be rising global inflation expectations, rising global bond yields and currency weakness from unexpected political surprises.

The price-to-earnings (PE) ratio of the local equity market looks expensive printing above 20. Given the increase in commodity prices the earnings of the resources companies are expected to make a significant recovery and should bring the PE to below 15 by year-end. However, this is still above our estimate of a fair PE of 12 to 13. The US market is expensive on a current rolled PE of 20 and a price-to-book ratio of 2.8, but the lack of other attractively valued offshore investments is preventing us from reducing global equities further. Rising global bond yields might give us an opportunity in 2017 to reassess our relative global bond/equity position.

Equities

Over the last quarter, the FTSE/JSE All Share Index (ALSI) was down 2.1%, with the SA Industrial sector under severe pressure (down 4.7%) as the rand strengthened versus the major European currencies, which weighed heavily on dual-listed stocks. SA Resources too declined (down 1.2%) while SA Financials managed to buck the trend with a gain of 2.9% as South Africa averted a sovereign credit rating downgrade.

The fund benefited from the strong performance from Sappi, which was up 26.7%, with profits almost doubling over the past year. The company was buoyed by strong pulp markets, solid packaging sales and cost cutting. Our largest holding, Naspers, delivered a poor -15.2% return during the quarter. This is despite solid performance from its Chinese associate, Tencent. With the stake in Tencent being worth more than the Naspers market cap, the Naspers valuation remains solidly underpinned.

SIM equity strategy

The ALSI delivered a return of +2.6% for the 2016 calendar year. This hides the massive outperformance of value shares vs growth shares over the year, breaking a 10-year trend of value underperforming. Value’s recent outperformance was partially driven by the surprise reflation of the Chinese economy, causing a significant rally in the SA Resource Index (+34.2%) for the year. While a pullback in the relative performance of value vs growth stocks is expected, a number of indicators point to the potential for value stocks to continue outperforming over the longer term.

During the quarter we added to select resource shares, which, despite the recent rally, were not fully pricing in the cash flow benefits of very strong commodity prices. New positions were established in high-quality retailers such as Mr Price (offering value for the first time in years) and Dis-Chem (a new listing). A number of domestic cyclicals have been sold off and are looking attractive. This includes financial stocks and domestic retailers. However, the local environment remains challenged with low economic growth meaning that earnings growth is likely to be subdued in the coming year. That said, we believe a lot of this is already discounted in the price.

Equity outlook

Looking ahead, investors’ choice of investment style will be key in determining outperformance in very uncertain equity markets, with the Value style offering the most potential. So far, lead indicators globally continue to remain positive and this should support the earnings momentum for cyclical stocks. For the JSE, we expect earnings to grow by a robust 20%+.

The historical PE ratio of our equity market is above 20. Given the increase in commodity prices the earnings of the resources companies are expected to make a significant recovery. If this materialises the PE would fall to below 15 by year-end. However, this is still above our estimate of a fair market PE of 12 to 13, given our long-run real required return of 7% for South African equities. Whilst not expensive in absolute terms, we continue to find the aggregate level of emerging market and some developed market equities to be relatively cheaper than the JSE.

International

The unexpected outcome of the US presidential election and speculation on its likely implications dominated global financial markets in the final quarter of 2016. Since the election of Donald Trump on 8 November as the 45th US president, global investors have grappled with the consequences for the world economy, global monetary policies and global trade. Still with the US, the Federal Reserve raised the key federal funds rate target range by 0.25% to 0.5% - 0.75%. In China, economic activity was strong with industrial production higher over the quarter and manufacturing investment growth picking up. In Europe, the European Central Bank left key policy rates unchanged in December, stating that they are set to remain at Page 2 This monthly Minimum Disclosure Document should be viewed in conjunction with the Glossary Terms Sheet. Issue Date: 17 Jan 2017 left key policy rates unchanged in December, stating that they are set to remain at present or lower levels for an extended period of time.

In dollar terms, the MSCI World Index was 1.9% higher over the quarter while the MSCI Emerging Markets Index posted a return of -4.2%. Global bonds, as measured by the Barclays Capital Aggregate Bond Index, lost a massive -7.1% over the quarter. The rand barely moved (up 0.4%) over the quarter to end the year at R13.68 to the US dollar. For the 12 months to December, the rand strengthened 11.7% against the US dollar from the oversold levels seen post-Nenegate a year prior.

Looking to the international investment universe, we have over the quarter reduced some of our US equity exposure on valuation grounds. We, however, remain of the view that developed market equities continue to offer comparatively better real returns than most other competing offshore assets. Our international property holdings at an average dividend yield of close to 5.5% are attractively priced, especially relative to offshore cash.

Bonds

We maintain that we are close to the top of the domestic tightening cycle with the repo rate at 7%. Hopefully we’ll also get some reprieve from a slowdown in especially food inflation during the course of the year. The RSA 10-year bond yield closed the year at 8.92%, down from 9.69% at the beginning of 2016. Nominal bonds had a fantastic year following the terrible 2015 and posted an annual return of 15.5%. Inflation-linked bonds returned +6.3% for the year, while cash delivered +7.4% for the year.

Over the quarter the overall fund duration stayed fairly constant with little changes between the different fixed-income asset classes. Our clear preference for fixed-rate negotiable certificates of deposit (NCDs) and nominal bonds over inflation-linked bonds paid dividends over the calendar year, although, admittedly, we started 2016 at very attractive nominal yield levels. As stated last quarter, South African fixed-income assets remain attractive as an investment case, despite very good 2016 performances. Real yields of between 2% and 3% are still on offer in the fixed-income space. Although breakeven inflation levels have come down from the first quarter levels, we still prefer nominal bonds over inflation-linked bonds over the medium term.

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