STANLIB Balanced Funds

“Balanced Investing in volatile markets”

November 2010

Agenda

● Balanced Investing in volatile markets

● Portfolio Activity

● Stock Focus

● ArcelorMittal Investment Case

● Portfolio Performance

● Investment Environment & Outlook into 2011

2

Balanced Investing in volatile markets

Balanced funds offer risk diversification during periods of market volatility● A global balanced portfolio solution provides investors with exposure to a number of asset

classes, domestic and foreign, that are positively and negatively correlated. This diversification of assets provides investors with the comfort that their exposure to risk is contained without unduly compromising return

● The key to a successful global balanced solution is to combine asset allocation expertise at the portfolio construction level along with stock selection skills at the individual asset class sub-level

● The STANLIB Balanced Franchise is responsible for asset allocation decisions. However, the underlying asset classes within each balanced portfolio are managed by specialists in their field

● Asset allocation views have both a strategic and a tactical component. The strategic component is long-term and is based largely on macro-economic forecasts and how the different asset classes will perform under various conditions

● The tactical component is shorter-term and is based on the realisation that asset prices may dislocate from their fundamentals, allowing opportunities to be exploited

● Once the asset allocation views have been formulated, the underlying asset classes are then managed by the relevant specialist. This collective outcome captures the all the extensive expertise available at STANLIB

4

Balanced mandates provide diversification without unduly compromising return

5

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

SA Cash 21%

SA Equity 31%

SA Bonds 28%

SA Equity 55%

SA Equity 23%

SA Bonds 30%

Global Equity 46%

SA Bonds 29%

Global Equity 51%

SA Equity 61%

SA Listed Prop 28%

Global Bonds 61%

SA Listed Prop 20%

SA Listed Prop 41%

SA Listed Prop 41%

SA Listed Prop 50%

SA Equity 41%

SA Listed Prop 27%

Global Bonds 45%

SA Equity 32%

SA Bonds 16%

Global Equity 27%

Global Bonds 18%

Balanced 46%

Balanced 13%

Global Equity 25%

Global Bonds 35%

Global Equity 22%

Global Bonds 37%

SA Listed Prop 56%

Global Bonds 27%

Global Equity 32%

SA Bonds 16%

SA Bonds 18%

SA Equity 25%

SA Equity 47%

Global Equity 33%

SA Equity 19%

SA Bonds 17%

Balanced 17%

Global Bonds 12%

Balanced 26%

SA Cash 16%

Global Equity 36%

SA Cash 11%

Global Bonds 23%

SA Cash 16%

SA Listed Prop 21%

SA Cash 18%

Balanced 47%

SA Bonds 19%

SA Equity 29%

SA Cash 12%

SA Equity 16%

Balanced 18%

Balanced 33%

Balanced 30%

Balanced 13%

SA Cash 12%

SA Listed Prop 14%

Balanced 0%

Global Bonds 24%

Balanced 7%

SA Bonds 32%

Global Equity 11%

Balanced 16%

Balanced 14%

SA Cash 17%

SA Bonds

5%

Global Equity 31%

SA Cash 11%

Balanced 28%

Balanced -6%

Balanced 14%

SA Bonds 15%

Global Equity 23%

SA Listed Prop 28%

SA Cash 9%

SA Listed Prop -4%

SA Cash 9%

SA Equity -5%

SA Cash 19%

Global Equity

6%

Global Bonds 24%

Global Bonds

5%

SA Cash 15%

SA Equity 10%

Global Bonds

8%

SA Listed

Prop 4%

SA Bonds 29%

Global Equity

7%

SA Bonds 18%

SA Equity -9%

SA Cash 12%

SA Cash 8%

SA Bonds 11%

Global Bonds 18%

Global Bonds

7%

Balanced -7%

Global Equity

2%

SA Listed Prop -11%

SA Bonds 14%

SA Equity -

2%

SA Listed Prop 18%

SA Bonds -9%

SA Listed Prop 13%

SA Bonds 7%

Balanced 7%

Balanced 2%

SA Cash 16%

Balanced 7%

SA Cash 10%

Global Bonds -17%

Global Equity

3%

Global Equity

-2%

SA Cash 7%

SA Cash 7%

Global Equity

7%

Global Equity -18%

SA Bonds -1%

Global Equity -17%

SA Listed Prop 2%

SA Listed Prop -3%

SA Cash 13%

SA Listed Prop -10%

SA Equity 8%

SA Listed Prop -10%

SA Equity -4%

SA Equity -

10%

Global Bonds

-1%

SA Equity 0%

SA Listed Prop 8%

Global Equity -43%

Global Bonds -13%

Global Bonds

-7%

Global Bonds

7%

SA Bonds 5%

SA Bonds 4%

SA Equity -

23%

Global Bonds -16%

Various asset classes used to reduce the impact of market volatility

6

Current Exposure

Domestic listed equity

Domestic listed property

Domestic bonds - government and corporate (credit)

Domestic cash

Global listed equity

Global listed property

Global bonds - government and corporate (credit)

Global cash

Derivatives

Asset allocation meeting: Decisions informed by in-house specialists

Economics

RESI

Fixed Income(Global)

PropertyEquities (Global)

INDI FINI

Balanced Team asset allocation outcome applied across all

mandates

Balanced Team asset allocation review

and decisions

SA Equity Sector Review

7Quarterly Meetings

Strategic Mandates

Best Investment

View Mandates

Global Best Investment View Mandate:maximum & minimum asset allocations over last 3 years

8

Asset Class Max Min

SA Equities 69 54.2

SA Listed Property 5.4 1.9

SA Bonds 18.4 2.4

SA Cash 15 2.2

Global Equity 15.9 0.9

Global Bonds 7.1 0.0

Global Cash 8.9 0.0

Current asset allocation (%)

9

Asset Class

Fund Weight

Current

BM Weight

SA Equities 58.9 60

SA Property 3.6 0

SA Bonds 6.1 25

SA Cash 16.7 0

Global Equity 14.4 9

Global Bonds 0 6

The Balanced Fund The Balanced Cautious Fund

Total Equity Exposure is 39.6%

Total Equity Exposure is 73.4%

Asset Class

Fund Weight

Current

BM Weight

SA Equities 29.4 25

SA Property 4.9 5

SA Bonds 10.4 15

SA Cash 41.9 45

Global Equity 10.2 4

Global Bonds 3.9 6

Portfolio Activity

Market performance as at 30 September 2010 (%):

Local (Rand) 3 Month 1 Year 3 Year

Equities: SWIX 14.3 21.8 4.2

Listed Property: SAPY 13.7 30.8 10.9

Bonds: ALBI 8.0 15.3 10.1

Cash: STEFI Comp Index 1.7 7.2 9.6

Global (US Dollar)

Equity: MSCI World Index 13.8 6.8 -8.3

Bonds: Barclays Global Aggregate Index 7.3 6.1 7.4

11

Portfolio activity: global assetsSwitched bonds into equities as bond yields dropped

12

Asset Class %30

June30 Sep

Global Equity 70.9 100.0

Global Bonds 29.1 0.0

Global Cash

0.0 0.0

Jan

-60

May-6

1S

ep

-62

Jan

-64

May-6

5S

ep

-66

Jan

-68

May-6

9S

ep

-70

Jan

-72

May-7

3S

ep

-74

Jan

-76

May-7

7S

ep

-78

Jan

-80

May-8

1S

ep

-82

Jan

-84

May-8

5S

ep

-86

Jan

-88

May-8

9S

ep

-90

Jan

-92

May-9

3S

ep

-94

Jan

-96

May-9

7S

ep

-98

Jan

-00

May-0

1S

ep

-02

Jan

-04

May-0

5S

ep

-06

Jan

-08

May-0

9S

ep

-10

0

2

4

6

8

10

12

14

16

18

Comparison of S&P 500 Dividend Yield and 10-Year Treasury Yield

10-Year Treasury Billl S&P 500 Dividend Yield

yie

ld (

%)

Changes in US mutual fund assets

13

Global equity portfolio regional and sector exposures

14

Europe ex UK

United Kingdom

North America

Japan

Asia ex Japan

Cash

Emerging Markets

-10% -5% 0% 5% 10% 15% 20% 25%

Regional Exposure vs MSCI World as at 30 September 2010

Financials

Services

Cash

Industrials

Consumers

Technology

-20% -15% -10% -5% 0% 5% 10% 15%

Sector Positioning vs MSCI World as at 30 September 2010

Portfolio activity: SA assets

● Increased the duration of the bonds to a neutral ALBI

● Bought the long end (greater than 12 years) of the curve by

switching short dated bonds

● Reduced exposure to bonds as yields dropped

● Continued foreign demand for bonds

● Improving inflation data increased the possibility of further rate

cuts

● Proceeds from bonds into cash – favorable risk adjusted

return

● Marginal buyers of equity – remain overweight

15

Asset Class %

30 June 30 Sep

SA Equity 69.7 69.3

SA Prop 4.2 4.2

SA Bonds 11.0 7.0

SA Cash 15.1 19.4

Current equity sector allocation (%)

16

Financials

Basic Materials

Consumer Services

Telecommu-nications

Oil & Gas

Industrials

Consumer Goods

Health Care

Technology

0 5 10 15 20 25

23.5

19.6

13.5

12.9

8.2

8.2

8.0

6.1

Biggest over-weights and under-weights versus the SWIX

17

Top 5 Overweight Fund Weight % Benchmark Weight %

Investec Ltd 4.2 1.0

Sasol 8.2 5.4

Woolworths Holdings 3.6 0.8

ArcelorMittal South Africa Ltd 3.4 0.7

Massmart Holdings 3.8 1.1

Top 5 Underweight Fund Weight % Benchmark Weight %

Naspers - 3.7

Anglo Platinum - 2.5

Shoprite - 1.9

Remgro - 1.9

Standard Bank Group 3.3 4.8

ArcelorMittal Investment Case

“Fundamentals are attractive – sentiment not so”

19

The certainties

● Steel economics

● Prices

● Volumes

● Costs

● Cash flow adequacy

● Valuations

Key considerations

● Buy was executed after agreement, facilitated by the DTI, was reached with

Kumba

● This agreement stabilised iron ore input costs and sustainability of Saldanha

Steel

● Correlated to SA economic recovery and GDFI

The uncertainties

● Kumba iron ore dispute

● ICT acquisition

● BEE deal

● ZISCO acquisition

● Competition Commission fines

2009

/06/

22

2009

/07/

04

2009

/07/

16

2009

/07/

28

2009

/08/

09

2009

/08/

21

2009

/09/

02

2009

/09/

14

2009

/09/

26

2009

/10/

08

2009

/10/

20

2009

/11/

01

2009

/11/

13

2009

/11/

25

2009

/12/

07

2009

/12/

19

2009

/12/

31

2010

/01/

12

2010

/01/

24

2010

/02/

05

2010

/02/

17

2010

/03/

01

2010

/03/

13

2010

/03/

25

2010

/04/

06

2010

/04/

18

2010

/04/

30

2010

/05/

12

2010

/05/

24

2010

/06/

05

2010

/06/

17

2010

/06/

29

2010

/07/

11

2010

/07/

23

2010

/08/

04

2010

/08/

16

2010

/08/

28

2010

/09/

09

2010

/09/

21

2010

/10/

037000

8000

9000

10000

11000

12000

13000

Recent share price history

20

Portfolio holding

reduced to zero.

Kumba dispute over Sishen Mine

Reintroduced stock into portfolio at

2% overweight

21

SA steel volumes

• Volumes and capacity utilisation are recovering

1Q02

4Q02

3Q03

2Q04

1Q05

4Q05

3Q06

2Q07

1Q08

4Q08

3Q09

2Q10

1Q11

E

4Q11

E

3Q12

E

2Q13

E

1Q14

E

4Q14

E0

200

400

600

800

1000

1200

1400

1600

1800

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Export sales Domestic sales Domestic sales % total

Con-struction

25%

Converters9%

Service centres21%

Energy, mining and chemicals

7%

Furniture and ap-pliances

2%

Machinery8%

Packaging6%

Pipe and tube14%

Transportation2% Automotive

6%

22

Operating margin recovery

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

E

1Q11

E

3Q11

E

1Q12

E

3Q12

E-10%

0%

10%

20%

30%

40%

50%

23

Attractive valuation

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

AK Ste

el

Nucor

Seve

rsta

l

US St

eel

Arcel

orMitt

al S

A

Tern

ium

Arcel

orMitt

al

Evra

z

Stee

l Dyn

amics

JFE

Avera

geSA

IL

Posc

o

Nippo

n

Gerda

uTa

ta

0

500

1000

1500

2000

2500

EV / EBITDA (CY2010)

EV / ton (US$)

24

2009a 2010e 2011e 2012e

EPS -88.9 815 1180 1760

EPS growth % 1017 45 49.2

PE -93.4 10.2 7 4.7

DPS 0 300 400 600

DPS growth % 33 50

DY % 0 3.6 4.8 7.2

NAV cps 5180 5100 5300 5500

FreeCFps 730 795 1250 1836

RoE % -1.4 12.4 17.8 21.1

Financial forecasts

25

Uncertainties

● Kumba iron ore dispute

● Referred to arbitration

● Worst case scenario priced-in, substantial upside potential

● ICT acquisition & BEE deal

● Previously announced structure under review

● Subject to mining rights clarification

● Alternatives could emerge

● Risk to fair value muted

● ZISCO bid

● Long-term synergies marketing and raw material sourcing

● Competition Commission fines

● ACL is co-operating fully

● Partially provided for and cash on hand

Portfolio Performance

Latest performance -30 September 2010 (%)

27

Balanced Fund

Peer Group Quartile

Balanced Cautious Fund

Peer Group Quartile

6 month

4.8

1st

4.7

2nd

1 Year

16.4

1st

12.1

1st

5 Year

11.5

2nd

na

na

Quartile Performance – It’s been a good year to date

28

Funds 3 Month 6 Month YTD 1 Year 3 Year 5 Year

Risk Profiled

STANLIB Conservative FoF 2nd 1st 1st 1st 2nd 2nd

STANLIB Moderately Conservative FoF 1st 1st 1st 1st 4th 1st

STANLIB Moderate FoF 1st 1st 1st 1st 3rd 3rd

STANLIB Moderately Aggressive FoF 1st 1st 1st 1st 4th 3rd

STANLIB Aggressive FoF 1st 2nd 1st 1st 4th 3rd

Balanced

STANLIB Balanced Cautious 1st 2nd 1st 1st - -

STANLIB Balanced 1st 1st 1st 1st 4th 3rd

Investment Environment&

Outlook into 2011

SA Outlook

● Economic recovery to gain momentum, saw moderate GDP acceleration in Q3 2009

● Export volumes to continue to rise

● Inflation contained within the target range

● Rates to remain on hold well into 2010

● Supportive Rand factors to continue until at least June 2010

`

30

Global Outlook

● Sustained economic recovery from a deep recession

● Synchronised global growth

● Continued monetary and fiscal policy stimulus

● Sustained global liquidity

Investment environment – what we said at the start of the year

Key global macro themes for 2011

● Fed continues with liquidity programme for most of 2011, but starts to ease-up towards year-end leading to a sell-off in global bonds. Fiscal austerity programmes to continue

● Some re-balancing of global capital flows, investors looking for under-valued assets in developed markets. Emerging market currencies weaken, but not collapse

● Longer-term growth differential between emerging and developed economies becomes more entrenched despite the re-balancing of global flows

● M&A activity increases more noticeably in 2011, helped by the low cost of capital

● Commodity prices supported by supply constraints and solid demand from emerging economies.

31

Fixed income flows into emerging market funds

32

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

%, weight in index

Emerging market equity’s weight in MSCI All Countries Index

33

Key SA macro themes for 2011

● SA consumer activity set to improve in 2011, helped by real wage increases and growth in consumer credit

● Inflation and interest rates expected to drift sideways for most of 2011, but concerns about food inflation on the rise.

● Fixed investment spending expected to remain subdued for most of 2011 except for some public sector projects. A pick-up in private sector investment is a theme for 2012

● SA policy debate remains a focus, including nationalisation, inflation targeting, Rand strength, land claims, NHI. Don’t except much actual change

● Rand remains well supported over the coming months, but the factors supporting the Rand should slowly dissipate in 2011

34

SA growth in consumer spending vs disposable income

-8-7-6-5-4-3-2-10123456789

10111213

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

%, q/q

Consumer spending

Disposable Income

Debt servicing costs at historical lows35

R billion, month-on-month, 3-month moving average

SA consumer credit

-2-10123456789

1011121314151617

2006 2007 2008 2009 2010

36

-14-12-10-8-6-4-202468

101214161820

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

20105

7

9

11

13

15

17

19

21

23

25

%y/y

Current level of interest rates should result in

more investment spending into 2012

%

Private sector investment (lhs)

Prime interest rates (rhs)

Growth in private sector fixed investment spending vs prime interest rates

37

80

120

160

200

240

280

320

360

400

440

480

2003

2004

2005

2006

2007

2008

2009

2010

Index Q1 2003 = 100

Private sector

General government

SA fixed investment spending by institutional group

Public corporations

38

Portfolio positioning summary

39

• Equities remain our preferred asset class

• Notably global equities

• We have down-weight bonds

• Bearish on global bonds

• Retained SA listed property as a fixed interest proxy – distribution growth and stable bond yields

• 12 month cash return of 6.4% favorable relative to bonds

Asset Class

Portfolio Weight

%Current

Benchmark

Weight %

SA Equities 58.9 60

SA Property 3.6 0

SA Bonds 6.1 25

SA Cash 16.7 0

Global Equities 14.4 9

Global Bonds 0.0 6

Thank You

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STANLIB Asset Management LimitedRegistration No: 1969/002753/06. A Financial Services Provider licensed under the Financial Advisory and Intermediary Services Act, 37 of 2002. FSP license No: 719.

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