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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.
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 Cumulative Growth of an investment of R100
Minimum Disclosure Document (Fund Fact Sheet)
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.
Head of Absolute Return - Sanlam Investments
Natasha joined Sanlam Investments as a senior portfolio manager in 2007 and has been involved with the Absolute Return Funds and the SIM Managed Solution Funds. Since joining the Absolute Return team in 2009, Natasha now leads the Absolute Return efforts within Sanlam Investments. In addition to her responsibilities at Sanlam Investments, she also served as a member of the Investment Committee of Botswana Insurance Fund Management from 2007 to 2012.
Natasha started her career as an investment analyst at Greenwich Asset Management in 1998. She has served in many roles over the course of her asset management career, including resources analyst, head of resources/mining, and portfolio manager of resources, general equity, balanced, absolute return and multi-manager funds. She has 19 years of industry experience and has been managing multiple third party funds in both the institutional and retail fund space at SIM.
Natasha holds a B.Sc. (Chem) and a Master in Business Administration (MBA). She completed her MBA degree in 1997 taking top honours in the Investments and Portfolio Management and Advanced Industrial Relations streams.
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.
Sanlam Reality members may qualify for a discount on the Manager annual fee.
Total Expense Ratio (TER) | PERIOD: 1 October 2014 to 30 September 2017
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) | 0.07% 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) | 1.32% 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. Fluctuations or movements in exchange rates may cause
the value of underlying international investments to go up or down.
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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 end of the quarter brought a number of unknowns to the fore, leading to some sharp share
price dislocations. We knew about the precarious financial position of state-owned enterprises
(SOEs), but did not know that it would be Steinhoff International that would make the ignominious
headline as possibly one of the largest collapses in the history of corporate South Africa. We also
knew that South Africa’s credit rating was on a knife-edge, but did not know that Moody’s would
decide on a stay of execution. And finally, we have become accustomed to expect the unexpected
when it comes to global political events. And yet, it still came as a surprise that one of the longestserving
African presidents, Robert Mugabe, was deposed in a bloodless coup and Cyril
Ramaphosa was chosen to lead the ANC, 27 years after standing next to Nelson Mandela on the
balcony of the Cape Town City Hall.
The FTSE/JSE Shareholder Weighted Index (SWIX) had a strong close to the year, up by some
9.6% in the final quarter to end the year up 21.2%. This is also a reflection of very positive risk-on
sentiment towards emerging markets globally with the latter also up a whopping 37.4% in dollars
in 2017, which led global equities up by over 20%, the best returns we have experienced since
2009. Globally, politics played a key role to drive markets higher with US President Trump’s tax
reform plan driving the S&P up 21.8% for the year, while Emmanuel Macron’s unexpected victory
at the French presidential elections helped inspire European equities (up 22%) and Japanese
Prime Minister Shinzo Abe’s landslide victory fuelled the Japanese market (up 22%) to anticipate
more reflationary policies.
Bond market developments in the final quarter were dominated by the Medium-Term Budget
Policy Statement (MTBPS) delivered by the minister of finance on 25 October 2017. The MTBPS
disappointed deeply as it projected deficits of more than 4% for the current fiscal year due to a
revenue shortfall of around R50 billion and increased spending in support of South African
Airways, the South African Post Office and other SOEs. The minister also projected spending of
R3 billion in excess of the expenditure ceiling, thus going against an earlier undertaking to keep
support for SOEs ‘budget neutral’. The MTBPS alerted on much wider deficits over the forecast
horizon and a deterioration in the net debt-to-GDP ratio to 60.8% in 2022 from current levels of
about 52.3%. Failure to stick to the previously outlined fiscal consolidation path was the main
reason why S&P downgraded South Africa further into junk status on 24 November. On the same
day Moody’s placed South Africa on review for a downgrade, which must be resolved within 90
days. In Moody’s judgment the election outcome of the ANC president could have a material effect
on the policy direction of the ruling party and thus the country and as a result they decided to delay
the rating action. For now, our sovereign debt remains part of the Citi World Government Bond
Index, which has an estimated US$6 - 10 billion in mandates tracking our bonds via that index.
Since our sovereign bonds had sold off ahead of the downgrade and were already anticipating a
double downgrade, this was a positive surprise. Initially our currency weakened slightly from below
R14 to the US dollar by some 30 cents, but subsequently staged a rally, which was also fuelled by
the outcome at the ANC elective conference.
As soon as the credit downgrade event was out of the way, markets started focusing on the ANC
elective conference. Given the spectacular failure of polls to predict political outcomes globally
over the past few years, the leadership race threatened to be another embarrassment for the
pundits. Early on, it appeared that market participants favoured the more market-friendly Cyril
Ramaphosa and the rand and domestic stocks strengthened slightly ahead of the conference.
That trend accelerated when indication of a Ramaphosa win emerged with domestic financials
experiencing an 8.4% rally in December with the rand being one of the strongest currencies in
December, gaining 9.6% against the greenback. Bonds followed the currency stronger, with the
yield on the R186 benchmark bond rallying from 9.20% to 8.60%, surpassing pre-MTBPS levels.
As market participants, we were more interested in the policy pronouncements at the conference.
The announcement of free tertiary education for the poor will have long-term benefits, but details
of the funding model for the R12 billion per annum needed and conditions attached to such a
project to ensure deserving students gain access to further education while maintaining the quality
of outcomes, remain key. Last year there were some 150 000 applicants for 100 000 tertiary
places, showing the chronic undersupply of available capacity. In addition, it is key that scarce
skills needed to boost economic growth get prioritised. There was also a declaration on
redistribution of land without compensation. Again, a dovish view is that our constitution already
makes provision for such a pronouncement.
For the quarter to December, the rand strengthened from R13.50 against the US dollar to R12.38.
Nominal bonds returned 2.2%, cash returned 1.8% and inflation-linked bonds 1.5%. On the
international front, the MSCI Emerging Markets Index was 7.3% firmer in US dollar terms and the
MSCI World Index returned 5.5%. Locally, the SWIX rose 9.6% quarter-on-quarter with all major
equity sectors delivering positive returns. Within equities, SA Financials rose 16.0%, SA
Resources increased 4.9% and SA Industrials were 4.7% higher over the quarter.
We slightly increased our position in conventional bonds as the asset class offers an approximate
3% real yield, which is attractive when compared to domestic bonds of similarly rated countries.
Inflation remains under control and well within the target inflation band. Cash continued to be
enhanced over the quarter via the addition of select credit assets at attractive yield pick-ups over
money market rates.
The fund’s gross and effective equity exposures were higher, largely due to the strong equity move
over the three-month period to end December. Given estimates of earnings growth, the local
market is now fairly priced with the one-year forward price-earnings (P/E) at 13.5 if we exclude
Naspers, which now makes up 25% of the SWIX. If we include Naspers the one-year forward P/E
is at 16.
On the international front, we retain our preference for equities and property over fixed-income
assets, with a favourable bias to European assets from a relative valuation perspective. The
backdrop for developed market bonds remains poor as central banks remain on course to
While markets have discounted a view that economic policy will become more market-friendly,
corruption will be halted and credit downgrades postponed, there is still a lot of water to flow under
the proverbial bridge. There is no doubt that the business experience of the new ANC president
will bring in more rationality to some of the policy debate, but we believe that the minister of
finance will find it tough to meet expectations of ‘radical social economic transformation’ while
striking a conservative tone and finding R40 billion in expenditure cuts/tax hikes to satisfy the
rating agencies come March.
Over the very long run, conventional SA government bonds gave a 2% real return. In the third
quarter of 2017 we increased our long-run real required return for SA long bonds from 2% to 3%
due to the deteriorating position in state finances. Bonds currently trade marginally above this 3%
real return assuming inflation remains well behaved within the target range. We see nominal
bonds as fairly valued and prefer nominals over inflation-linked bonds on relative valuation
measures over the medium term.
We believe the SA equity market to be selectively attractive, offering reasonable upside from
current levels. Given the current market valuation together with capital protection over a 12-month
rolling basis being one of the key fundamental goals of our Absolute Return offering, we believe it
prudent and necessary to continue our strategy of explicitly protecting a portion of our local equity
exposure through derivative overlays. Internationally, we believe US markets to be overpriced on
most valuation metrics while European equities remain relatively cheaper on several key valuation
metrics. We therefore maintain a positive outlook and fund position with respect to Europe through
our global equity and property allocation.
The SWIX had a strong close to the year, up by 9.6% in the final quarter to end the year up 21.2%,
delivering exceptionally strong returns against a politically and economically challenging backdrop.
Within equities, SA Financials rose 16.0%, SA Resources increased 4.9% and SA Industrials were
4.7% higher over the quarter.
Financial stocks experienced a Santa Claus rally driven by a strengthening of the rand and net
inflows into domestic stocks of approximately R63 billion for the year (while the overall market
recorded net outflows of some R35 billion). Industrials had a challenging final quarter as the
Steinhoff International debacle weighed on sentiment but nonetheless was up by 22.5% for the
year. On a relative basis for the year, Resources stocks lagged after a bumper 2016, up 17.9%
over the 12-month period.
The SIM house view portfolio was up 19% this year with our position in Steinhoff International,
down 92%, hurting performance in the final quarter of the year. This was an extremely
disappointing outcome with value as a philosophy underperforming this year and our position in
Steinhoff being the main detractor from performance, costing over 1% of outperformance in the
past year. The largest position in the portfolio remains Naspers, which was up over 71.8% this
year. Within the resources space, we were pleased that our overweight position in Anglo American
delivered a 34.2% return for the past year. However, despite being relatively overvalued and
delivering lacklustre results, Discovery led the way in the financial space, up by 64.1% in the year.
We remain concerned that at 100% premium to embedded value, the downside risk to owning the
stock is even larger. Capitec, another underweight in the portfolio, was up 59.9% and remains very
expensive at a price to book of 6x!
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 with the SWIX up 21.2% in 2017. This is also
a reflection of very positive risk-on sentiment towards emerging markets globally. As contrarian
investors, we are the most cautious when market participants become overly bullish and discount
potential risks. 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.
December saw the Steinhoff International share price collapse as auditors held back on signing off
its financial statements and its CEO abruptly departed. This could well be one of the worst cases
of value destruction that corporate South Africa has witnessed as the market value of Steinhoff
International, a global company ranking second in Europe in the household goods sector to IKEA,
with over 130 000 employees, dwindled from R242 billion to R20 billion in a matter of days. We
don’t know yet what will emerge from the Steinhoff debacle but remain cautious of its potential
ripple effects. The value destruction inflicted is nonetheless disturbing and we will pursue all
possible avenues to rescue some value for our investors.
The fund remains focused on investing in companies with clear moats and diversified franchises
with the muscle to stay the course in the long term.
The local market is now fairly priced with the one-year forward price-earnings (P/E) at 13.5 if we
exclude Naspers, which now makes up 25% of the SWIX. If we include Naspers the one-year
forward P/E is at 16.
In this past year the risk of a China hard landing appears to have abated but there are continued
concerns about the path of the US economy and future Fed actions. Emerging markets, SA
included, benefited from a buoyant global growth environment but valuations have now
That being said, as fundamental value investors, although the market (at an aggregate level)
appears to be trading at fair value, we still see selective value in local equities.
As regards our holding in Steinhoff International, the company is presently caught in an
information vacuum. There have been no pronouncements as to what was inflated or omitted from
the past financial statements and we will have to await the release of new information to know the
full extent of over- or under-statements of the accounts. In addition, the company is now caught up
in a liquidity squeeze with the risk that funders are unlikely to roll further funding and credit
agencies having downgraded the company’s rating to sub-investment grade. Finally, various
directors such as billionaire Christo Wiese and former CEO Markus Jooste had borrowed against
the security of Steinhoff International shares and the collapse of the share price has led to margin
calls, which have triggered further selling as covenants were breached and lenders took hold of
the collateral, exacerbating the share price decline.
Our view is that the group will have to be restructured, broken up and its structure
simplified. New management will have to be brought on board to regain investor confidence and
those guilty of wrongdoing will have to be held responsible legally with the commensurate
punishment. Until then, the stock is likely to remain highly speculative and a value trap. We
have therefore curtailed our position to neutral in the portfolios notwithstanding the potential
upside that we see in a breakup scenario.
The rand strengthened over the quarter from R13.50 against the US dollar to R12.38 at the end of
December. The local bond market endured a tumultuous ride and yields sold off more than a 100
basis points as the market anticipated a negative mini-budget and Finance Minister Malusi Gigaba
revealed the extent of the fiscal deterioration in the MTBPS. 2017 foreign inflows into the bond
market reversed sharply from a high of R73 billion in October to around R45 billion just before the
ANC conference, before recovering to R53 billion on confirmation of a Ramaphosa win.
The FTSE/JSE All Bond Index returned 2.2% for the quarter, outpacing cash returns of 1.8% on the
STeFI Composite. The 5.7% rally in December resulted in bond returns of 10.2% for the year. The
benchmark SA 10-year bond yield rallied from 9.2% to 8.6% over the quarter.
The local corporate bond markets saw very robust issuance in 2017, with final gross issuance for
the year achieving an all-time record of R142 billion, driven by record bank and corporate
issuance, despite muted SOE issuance. The event that rocked the market, however, was the
announcement by Steinhoff International of possible ‘accounting irregularities’ with respect to the
annual financial results released by the group since at least 2015. The announcement kicked off a
92% decline in the share price and a downgrade by Moody’s from BBB- to CCC+. Our portfolios
had about 80 basis points exposure to Steinhoff bonds and spreads on Steinhoff bonds issued in
the local market widened, resulting in bond prices of 10% to 15% below par. Despite this, we have
decided to maintain our holdings of these bonds in the absence of any definitive news from the
company, and with no reasonable bids in the market for the bonds.
November saw S&P downgrade the sovereign’s foreign currency rating to BB and its local
currency rating to BB+, i.e. sub-investment grade. The knock-on effect of this was that several
local borrowers with international scale ratings (mainly banks and SOEs) also faced rating
downgrades or reviews for downgrades, at least in line with that of the sovereign. The possibility
exists that these downgrades, as well as the adverse news from Steinhoff International (previously
exists that these downgrades, as well as the adverse news from Steinhoff International (previously
a significant borrower in local markets) will result in softer corporate bond market conditions at the
start of 2018.
For our funds, cash continued to be enhanced through investments in select corporate debt as
specific opportunities presented themselves at decent yield pick-ups over money market rates.
Nominal bonds were marginally increased earlier in the quarter on valuation grounds. We believe
that local fixed-income assets remain an attractive investment to consider if compared to the
domestic bonds of similarly rated countries. Locally, we see real yields of some 3% on offer
against a contained inflation target range background. That being said, we err on the side of
caution. We agree that political risk is now lower and, in fact, should President Jacob Zuma be
recalled by the ANC, local assets could rally further given positive sentiment. But the medium- and
longer-term outlook are more challenging owing to the deteriorated fiscal situation and the political
stalemate in the ANC that could potentially hinder much-needed fundamental reforms. Nominal
bonds are preferred to inflation-linked bonds on a relative value basis.