ISSUE

42

Quarterly client publication by PPS Investments | Quarter 4: 2018

Protect your legacy with a will

Time to forget about New Year’s resolutions…

Fee reduction on the PPS Balanced Index Tracker Fund

Proof that it pays to top up your retirement annuity

Reasons for optimismafter a challenging 2018

Broadening the diversification spectrum

Quite an eventful year ahead. Literally!

Final quarter sends JSE to full year 10.9% loss

With complimentsfrom

PPS Investments

Ferial Haffajee on SA’s greed and malfeasance

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WANT MONEY BACK FROM

THE TAXMAN?

SIMPLE...

JUST TOP-UP YOUR RETIREMENT ANNUITY BEFORE

28 FEBRUARY 2019!

If you need more information about topping up your retirement annuity please consult your PPS Investments accredited financial adviser.

Contact us on 0860 468 777 or at clientservices@ppsinvestments.co.za.

www.ppsinvestments.co.za

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#01

Contents

Welcome 02Nick Battersby, Chief Executive

Final quarter sends JSE 04to full year 10.9% loss Reza Hendrickse, Portfolio Manager

Reasons for optimism 07 after a challenging 2018David Crosoer, Executive of Research and Investments

Quite an eventful year ahead. 09 Literally! Luigi Marinus, Portfolio Manager

Proof that it pays to top up 10your retirement annuity

Greed and malfeasance haunts 12SA’s young democracy Ferial Haffajee, Guest columnist

Broadening the diversification 15spectrum Andriette Theron, Head of Manager Research

Protect your legacy with a will 17Roy McMurchie, PPS Fiduciary Services

Fee reduction on the 18PPS Balanced Index Tracker Fund

Time to forget about 19New Year’s resolutions…Tandisizwe Mahlutshana, Executive of Marketing

Quarter 4: 2018

In this edition

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#02

Welcome

A welcome from the Chief Executive

Quarter 4: 2018

Welcome to the latest edition of Talking Points which provides commentary on the events of the past year, as well as contextual observations on our assessment of the year ahead.

Having started with a sense of euphoria at the political changes within the leadership of the ruling party and then of government, the past year turned materially negative in the context of both our local and international markets.

The events of the most recent quarter and the year as a whole are addressed in the articles from David Crosoer, Executive of Research and Investments and Reza Hendrickse, Portfolio Manager.

Those amongst our client base who have had the experience of being invested in challenging markets in the past, will be reminded of previous periods such as the global financial crisis or the dot-com bubble, and we are again reminded of the resilience of the professional community by the persistence of new contributions through these times.

Portfolios that have held SA equities and, particularly, SA property over the past 12 months have been under pressure shedding 11% and 25% respectively. Fortunately, in most portfolios asset classes are diversified and therefore these losses have been mitigated to varying extents.

Having contextualised the recent past, we move forward to what we might find in the road ahead with Luigi Marinus, Portfolio Manager, who provides a forecast of 2019, looking at some major themes expected to drive markets locally and abroad, and aptly reminds us that we in fact have cricket and rugby world cups to distract us all in a few months’ time!

As a business, PPS Investments has continued to grow throughout the past 12 months and is now responsible for the investment outcomes of over 40 000 investors and supported by a broad base of intermediaries.

Towards the latter part of the year, we expanded our range of portfolio options with the launch of the new

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PPS Partnership Fund Range featuring portfolios managed exclusively by some of the country’s most recognised boutique managers whose agility will no doubt add great value to these portfolios. Unlike the core of our portfolio range that we manage on a multi-manager basis, the portfolios in this specific range are managed by a single appointment, and we are extremely pleased to have these funds in the hands of the teams at Sasfin Asset Managers, Tantalum Capital and 36ONE Asset Management respectively.

Our Head of Manager Research, Andriette Theron, shares more detail on this range and discusses the research approach that we employed to find the managers we’ve partnered with.

Of course, the beginning of the calendar year signals the near-end of the tax year, and with it is the annual opportunity for us all to ensure that we are making the most of the Revenue Services concession on personal taxation.

We’ve included a short feature to remind investors of the value of making these end-of-tax-year contributions and of the increasingly simple process that we’ve developed to facilitate the process.

Furthermore, the start of a new year provides an ideal opportunity to ensure that one’s financial affairs are in order, which is why Roy McMurchie, Head of PPS Fiduciary Services, reminds us why it is crucial to have a will.

Given that this is also an election year, we have invited well-known journalist and author Ferial Haffajee to be our guest columnist on this edition to share with us her extensive insights into the current political landscape as we gear ourselves for the General Elections in May.

And lastly, Executive of Marketing, Tandisizwe Mahlutshana demystifies the 4000-year-old tradition of making New Year’s resolutions and provides some guidelines on how people can ensure that they stick to their resolutions. Read more about this in his Untamed Tale column.

Enjoy the read.

Welcome

Nick Battersby, Chief Executive

#04

Quarter 4: 2018 Investment Perspectives

Final quarter sends JSE to full year 10.9% lossPortfolio Manager Reza Hendrickse unpacks key events from the fourth quarter of 2018 which drove the market, and shares some insight into how our portfolios are currently positioned to weather these market conditions.

What were some of the key global developments which stood out this quarter?

Global sentiment soured during the fourth quarter, causing a spike in risk aversion and renewed volatility across international markets. Though fundamentals remained broadly similar to the previous quarter, concerns about the outlook gave rise to turbulent conditions.

Trade tensions remained an ongoing theme over the quarter, with the US and China eventually agreeing to a three-month truce. Other significant developments included the Democrats winning control of the House of Representatives in the US mid-term elections, US pressure on Iran which caused oversupply from elsewhere and a resulting oil price collapse, while US President Donald Trump threatened to keep the US government on shutdown until funding for a Mexico border wall is agreed to by the Democrats. In Europe, time is running out for a Brexit deal, with negotiations having made no progress this quarter.

Back home, the South African Reserve Bank (SARB) lawyers investigating VBS Mutual Bank’s collapse released an explosive report detailing its multi-billion-

rand looting, while media coverage of racially charged tensions flaring up on Clifton Beach in December drew attention to the deep-seated social challenges we, as a nation, have yet to overcome. Lastly - perhaps on a lighter note - while former President Jacob Zuma has lost presidential power, he certainly hasn’t shied away from public eye, recently elevating his social media profile by joining Twitter to do some Tweeting of his own!

How did asset classes perform over the quarter?

Growth assets such as equities and listed property sold off during the fourth quarter, discounting investor concerns about their prospects. Safe-haven assets like bonds and gold on the other hand rallied, as investors sought shelter during the flight to safety. Adding to investor anxiety this quarter was the extent of this years’ stock market decline, with both the MSCI All Country World Index (ACWI) and the FTSE/JSE Capped SWIX having declined more than 20% from peak-to-trough during the year, into “bear market” territory.

The quarter began with the MSCI ACWI stumbling in October, before a short-lived reprieve in November. Any hopes for a Santa Claus rally were swiftly dashed however, with equities dropping sharply into Christmas. Overall, the Index declined 11.3% in rand terms for the quarter, but delivered a 5.3% gain for the year.

#05

Investment Perspectives

Global equities were the worst performing asset class, after having been the best performer in the previous quarter. Global Property fared slightly better (-4.4% quarter-to-date, +9.6% year-to-date), outperforming Global Equity but both underperformed Global Bonds, which was up 3.4% and 15.2% over the quarter and year to date respectively (in rands).

Compared to offshore markets, SA equities (FTSE/JSE Capped SWIX) suffered a more muted decline of 3.8%, extending their overall loss to 10.9% for the year. Financials held up better than resources and industrials, while for the full year, resource stocks were the standout performers, supported by strong commodity prices and a weaker rand. SA Listed Property was down 4%, ending its worst calendar year in over 10 years (-25.3%).

SA bonds were the only domestic asset class to outperform cash and inflation during the quarter and for the full year, returning 2.7% and 7.7% respectively. Their strong Ramaphoria-driven start to the year, gave way to choppy conditions for much of 2018 as the spotlight was once again cast on the state of the country’s finances. Renewed interest in the compelling real yield on offer from bonds, as well as general risk off sentiment set the stage for a rally into year end and beyond.

What drove the recent global stock market sell-off?

Though the extent of the sell-off was somewhatunexpected, the reason behind it was most likely a combination of things as opposed to a single event. Growth concerns, geopolitics, global trade, softer economic data outside the US, for example, all seemed to weigh on already fragile sentiment. US Federal Reserve (US Fed) rhetoric was also a factor, which left the market uncertain about the potential path of US interest rates, while year-end low-liquidity conditions probably exacerbated the decline.

Though none of these concerns are particularly new, stock markets tend to be forward looking, and share prices adjust relatively quickly to any changes that could impact the expected longer term corporate earnings outlook. So, when future conditions appear as uncertain as they have, volatility and disorderly price discovery becomes a defining feature in markets. Perhaps more interesting though, is to consider that given the forward-looking nature of markets, whether the recent drop signals an impending shift in the macro cycle, much sooner than consensus perhaps expects?

Is global growth still strong?

Global growth has plateaued, and while the level is fairly robust, underlying growth is less synchronised, and in some cases even divergent across economies. But this is backward-looking. The most important consideration in gauging forward-looking growth however, starts perhaps with acknowledging that the tailwinds that have driven growth are on course to become headwinds (tighter financial conditions, for example), and that the chances of a further deceleration are perhaps higher than the odds of a re-acceleration. For now, though some economies outside the US have weakened, monetary conditions in developed markets remain very accommodative, and the unnecessary additional US fiscal stimulus has provided a further boost. It is not hard to envisage an environment in which the Fed tightens more than the market expects, leading to a downturn. This is not imminent, but may not be far off either. It is difficult to know however, how severe any slowdown might be, or the extent of the next contraction, and this is one of the issues the market is currently grappling with.

In short, the global economy is late-cycle. We can see this in the cooling Chinese economy, as well as in European weakness, seen recently in Germany’s output contraction. Also, the United States’ current above-trend growth and record low unemployment rate cannot realistically be sustained forever. While the US is enjoying one of its longest expansionary phases on record, evidence suggests that growth is in fact decelerating, and the risk is high that the Fed will at some point choke growth. Our overall impression is therefore that global growth has passed its peak and is likely to continue moderating. Both the International Monetary Fund (IMF) and the World Bank downgraded their global growth forecasts for 2018 and 2019, in addition to the US Fed lowering its US growth forecasts.

What about global inflation?

Inflation globally remains low, but the prospect of deflation is less of a concern than in previous years. While developed markets are operating at below target inflation rates, we expect inflation as well as policy rates to gradually keep rising. Given the strength of US growth, capacity pressures and additional employment gains will at some point become inflationary. The US Fed, which raised rates again in the fourth quarter (for the fourth time in 2018), will eventually be joined by other developed market central banks, though the lack of growth and inflation elsewhere means that we

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are probably still far from this. Outside of the US, the European Central Bank (ECB) is likely to end its asset purchase program by year-end, but both the ECB and the Bank of Japan (BOJ) are unlikely to hike rates in the near future. Has SA turned the corner having emerged from the recession?

The South African economy exited its recession according to third quarter output data, released in December. The economy grew 2.2% quarter-on-quarter in real terms, and the second quarter contraction was favourably revised to -0.4% from -0.7%. Though growth has come off a low base it is encouraging that economic expansion is back on track. While economic growth has been muted, inflation has gradually edged higher as the year progressed, due to the higher oil price and weaker rand. Inflation is currently within the SARB’s 3% to 6% target band but above the mid-point, which has been its focus in recent times. Though demand pressures are low, the SARB sees rising inflation expectations and tighter global financial conditions as a risk. The Monetary Policy Committee (MPC) therefore chose to be ahead of the curve and to hike rates in November, for the first time since March 2016.

With all that transpired during 2018, how are portfolios positioned to capitalise on market opportunities?

During the fourth quarter, we advocated one change to the house view. Towards the middle of the quarter we downgraded Global Equity from “maximum over-weight” to “over-weight”, thus tempering our enthusiasm for the asset class somewhat. Our constructive view on Global Equity has been a high conviction multi-year call, which to date has stood the portfolios in good stead. However, while we remain positive on the outlook, risks have increased.

Firstly, while valuation of the MSCI ACWI became slightly less demanding during the sell-off, the US market (a major part of the Index), remains vulnerable given its elevated multiples and peak profit margins. Secondly, we have grown increasingly anxious of global macro risks, with the monetary tailwinds of previous years now reversing, alongside slowing global growth. In addition, US pro-cyclical fiscal support has pushed the region unsustainably beyond full employment, and this driver of global growth is more likely to wane than step up. Thirdly, it appears increasingly that there will be no speedy resolution to the tit-for-tat trade war, the effect of which is already appearing in disappointing results from

some multinationals. Fourth, our overriding sense is that markets will increasingly start to look beyond the recent strong global growth we’ve seen, and will characteristically begin to focus on the next phase of the business cycle (i.e. slowdown). Lastly, the progressive deterioration in price action across several markets also highlights likely continued “indigestion” for risk assets over the medium term. Taking all of this into account, we felt it was prudent to exercise a higher degree of caution going forward, and we began dialling back risk exposure.

Importantly, we remain constructive on equities overall in our house view, and while we still advocate being over-weight, positioning still reflects our preference for global over local equity exposure. SA Equity has indeed de-rated substantially in recent months, and valuations in some beaten-down parts of the market are currently attractive despite the mediocre growth backdrop, but for now we still prefer to access the better prospects and wider opportunity set that offshore equity markets have to offer.

In the fixed interest space, we are still “Neutral” on South African bonds, after having upgraded the asset class in the third quarter. The real yield of roughly 4% on offer from the ten-year bond is attractive, but we have resisted the temptation to upweight bonds more aggressively for the moment. The lingering risk of a sovereign credit ratings downgrade remains too large to ignore, and while the relevant portfolios have a healthy level of exposure, we are poised to upweight into any material weakness.

In contrast to SA Bonds, we remain negative on the outlook for Global Bonds. Though the real yield on the US ten-year bond is close to 1%, these are not yet cheap. Other developed market real yields (such as Germany and Japan) remain negative, with cyclical factors such as rising US short-term rates and inflation also not supportive of global bonds. While global bonds are unattractive, their usefulness during a global risk-off event or a flight to safety was demonstrated in the recent downdraft in risk assets. We retain our preference for global interest rate exposure via some global listed property, and some US cash.

Investment Perspectives

To watch our short quarterly video where Reza shares his views on the local and global economy, click here. Enjoy, and let us know what you think.

#07

Investment reviewQuarter 4: 2018

Reasons for optimism after a challenging 2018 What is your abiding memory of 2018? The collapse of Bitcoin? The astounding revelations from the State Capture enquiry? Or the fly-pass of Ultima Thule by New Horizon more than a billion kilometres from Pluto? Despite its many challenges, 2018 might be remembered as the year we made a decisive break with the past, and - provided you remained sensibly diversified - Bitcoin should have been just a footnote on your consciousness.

It’s easy to focus on the negatives in a year where the South African (SA) equity market fell by more than 15% from its late January peak; the listed SA property market lost a quarter of its value; and international equities in rand terms (despite a weakening currency) underperformed SA cash.

While 2018 was a highly challenging year, in hindsight we might view it as a decisive one in our history and consciousness – where we broke free from both the legacy of 2007 ANC Polokwane Elective Conference and the debilitating pull of the global financial crisis (GFC).

Cautiously optimistic

But what grounds do we have for cautious optimism? The global economy continues to heal. And in 2018 it became much clearer that the haunting spectre that advanced economies might be mired in global deflation was now a remote tail-risk possibility.

The International Monetary Fund (IMF) expects advanced economies to average 2% p.a. inflation in 2018, while the Organisation for Economic Co-operation and Development (OECD) is forecasting that all advanced economies bar Ireland and Greece are expected to have had an inflation rate above 1% p.a. in 2018.

The ability of advanced economies to inflate their economies makes their debt burden far more manageable, and eliminates a significant negative tail-risk for the global economy. Consequently, major economies, such as the US Federal Reserve and the European Central Bank made progress in 2018 in terms of normalising monetary policy from the abnormal and exceptional policy in place since the GFC. The US Federal Reserve raised interest rates by one-quarter percentage points four times in 2018 (and a cumulative 2% since it started hiking in 2015) and continues to reduce its stock of US government bonds by $50bn per month, while the European Central Bank (ECB) ended its ¤15bn monthly purchases of government bonds in December and could hike short-term rates in 2019 shortly after the European summer.

According to the South African Reserve Bank (SARB), more than one-fifth of emerging economies also raised interest rates in 2018 (compared to less than one-tenth the previous year). The gradual normalisation of global interest rates is positive for financial markets after years of distorted policy where interest rates were kept abnormally low.

Closer to home, the South African Reserve Bank (SARB) in 2018 was more confident about achieving a neutral Repo rate of around 2% above inflation, and our own expectations for this asset class were revised upwards given our conviction that after an extended period of abnormally low real interest rates, monetary policy is slowly being normalised.

Equally pertinent is that for SA the tail risk outcome of a ‘failed state’ scenario (or even a Turkey or Argentina outcome) was significantly reduced post Cyril Ramaphosa’s election to ANC President in December 2017 and South African President in February 2018).

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Investment review

So, while the Ramaphosa rally in terms of renewed consumer and business confidence in 2018 was short-lived, it would be churlish not to acknowledge that today we are in a much better place than one year ago, given the significant changes implemented in 2018 to repair its institutional framework. Boards at State Owned Enterprises (SOEs) have been stabilised, key institutions (SARS, National Treasury, SARB) have been strengthened, and supposedly captured individuals side-lined.

At the same time, despite mediocre growth for much of the Zuma regime, the SA consumer has significantly deleveraged with consumer debt as a percentage of disposable income falling from 87.8% in 2007 to 70.9% in 2018, and real credit growth negative since 2014 despite increases in real disposable income.

Consequently, despite the SARB expecting the economy to have grown by just 0.6% in 2018 (and 1.9% in 2019 and 2020) it is not unreasonable to think economic growth could exceed these relatively low expectations in subsequent years, especially given our trading partners grew at 3.6% p.a. in 2018 and are expected to grow at 3.5% in the subsequent two years.

South African inflation was lower than expected in 2018 on subdued food price increases and a more muted inflationary response to the VAT increase in April. CPI is expected to average 4.6% y/y for 2018, although sustained fuel price increases and a materially weaker rand have impacted negatively on the SARB’s medium term forecast (which importantly is still within the 3%-6% band).

So even under relatively conservative inflation assumptions, South African nominal bonds offered investors an enticing real yield of above 4% in 2018 as investors concerns around further downgrades grew on the back of weaker-than-expected economic growth and continued funding issues at Eskom.

Similarly, the negative re-pricing of South African equities in 2018 (down -10.9% for the calendar year) have made them more attractive should earnings recover and positive sentiment return.

Our portfolio managers consequently were buyers of South African bonds in 2018, and we are now neutral in SA bonds across our house view portfolios. In addition, we have since inception of our funds after the Resilient-led sell-off in early January (again, to a neutral position) while in the fourth quarter we reduced our international equity position remained neutral in SA equities despite recent market weakness as our conviction grows around its attractiveness.

We also bought South African property for the first time but are still overweight this asset class. One beneficiary of our extensive research capability was the launch of our partnership funds strategy. While this marks an important evolution in our investment strategy, it is consistent with our ethos of having long-lasting and enduring relationships with exceptional managers. Our Head of Research comments in more detail on the three partnership funds we launched in 2018, and hints at what is to come, in a separate article in this publication.

Two of our more recently launched funds also obtained their three-year track records in 2018. The PPS Global Balanced Fund of Funds ended the year top of its class, while the PPS Balanced Index Tracker Fund is now at sufficient scale to have announced a significant fee reduction at the end of the year.

The PPS Balanced Index Fund tracks an index that was modified in 2018 to align to amendments to the Pension Funds Act and further diversify its equity allocation, while in the PPS Global Balanced Fund of Funds we made material additional allocations to Baillie Gifford and Lansdowne over the course of the year. Our allocation to international managers not readily available in SA has been a significant source of returns for the strategy.

The inflation-targeting Fund of Funds have compelling longer-term track records, remain sensibly diversified across managers and strategies, and have stood up well through recent market volatility. These Fund of Funds have benefitted from the launch of the new partnership funds by utilising the exclusive opportunities they present.

Human ingenuity sent an unmanned spacecraft 5 billion kilometres through space to fly past a rock not more than 50km wide. This result was not achieved by chance but by a disciplined team following a predefineded process. Similarly, with investing, it is crucial to remain disciplined and focused. Our portfolios remain appropriately invested for the challenges ahead of us, through a rigorous and thorough investment process.

David Crosoer, Executive of Research and Investments

#09

Quarter 4: 2018 Investment view

Quite an eventful year ahead. Literally!For many, 2018 was a tumultuous year laden with market events that shook the market in so much that it yielded negative double-digit returns. Over the last 58 years, this has only happened on the JSE All Share Index during seven calendar years, including 1969/70 and 1975/76 where this occurred in consecutive years.

This begs the question: will history repeat itself? Should we brace for another negative year or are we faced with an opportunity to buy at lower prices? While there is no way of predicting the outcome of the market for 2019, we can highlight some of the important events which may influence stock market returns either negatively or positively. Let’s unpack some of these key events to watch in 2019 that may affect the market.

An election year that may be a turning point for South Africa

One could naively argue that elections are political and not financial events, but the reality is that the lead up to and the outcome of the South African National Elections in May this year will carry economic significance. Raging issues, such as the land expropriation debate and effective financial budgeting on the part of National Treasury will need to be addressed during this time. Both global and local investors will be encouraged by a perceived business-friendly outcome and equally discouraged by any uncertainty in the outcome of the

elections, as will the ratings agencies that are keeping a close eye on SA.

SA GDP growth may impact markets indirectly

In 2018, South Africa experienced its first technical recession since the global financial crisis and unfortunately came at a time when global GDP grew at 3.7% and developing economies GDP grew at 4.7%, according to the International Monetary Fund annual real GDP growth. The technical recession was announced following two consecutive quarters of negative GDP growth in quarter one at -2.6% and -0.4% in the second quarter of 2018.

Fortunately, SA recovered quickly from the recession with positive third quarter GDP growth at 2.2%. What is of increasing concern for 2019 is the view that world GDP has plateaued and will no longer serve as a tailwind to local GDP growth.

The relationship between annual GDP growth and calendar year market returns in SA has an almost zero correlation (since 1960 to 2017 the correlation has been -0.08) when looking at statistics. While this could imply that the short-term effect of GDP growth on stock market returns may be spurious, the effect on the consumer base in SA is likely to result in insufficient job creation to ease unemployment rates.

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Investment view

2018 Global trends that will permeate into 2019

Two major global uncertainties that are set to continue in 2019 are the trade wars, (primarily between the US andChina), and the Brexit negotiations between Britain and the European Union. As we enter 2019, at least a few things are certain. Brexit must be concluded by the end of the first quarter, whether a deal has been struck or not. Neither of these situations are positive for globalisation. There is little doubt that the world has benefitted from the ease in which the factors of production has shifted due to globalisation and any moves away from this is almost certain to be inflationary. Will consumers be satisfied to pay higher prices for goods only because they are locally produced, or will companies need to tighten their margins to not pass on all costs to consumers? Only time will tell.

Will investors only be interested in equity returns?

Even though views on stock market return expectations are most debated, especially after a disappointing 2018, the yield offered by local fixed interest assets should not be ignored. The SA 10-year nominal government bond continues to offer yields in excess of 300 basis points above inflation, which could serve as a strong anchor to performance if short term volatility can be tolerated. In addition, the SA Reserve Bank has consistently alluded to the goal of keeping inflation near the mid-point of the 3%-6% target band, which tempered the market’s surprise when interest rates were hiked in the last quarter of 2018. This certainly proves the Monetary Policy Committee objective of keeping inflation subdued. Globally yields have been edging higher as well with the yield on the US 10-year reaching above the 3% level in the second half of 2018, although it has declined somewhat since.

What does this mean for investors in 2019?

Regardless of global trends and market uncertainties the most popular question is whether the market, both locally and globally has offered a buying opportunity or will it be more of the same for 2019. Some investors are adamant about the outcome and are prepared to take a binary view; some will get it right and some will get it wrong. The prudent approach will be to continue to gather as much information as possible to tilt the balance of probabilities in your favour. Every investor should hold a portfolio aligned to their specific risk profile, which could mean an aggressive approach may be warranted, but it could also mean that a more measured, diversified approach is appropriate. Well, if markets do disappoint in 2019, at least we’ll have the Cricket World Cup and Rugby World Cup to look forward to.

Luigi Marinus, Portfolio Manager

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Quarter 4: 2018 Retirement savings

Proof that it pays to top up your retirement annuity Proof that it pays to top up your retirement annuity Investing for retirement through a retirement annuity (RA) is probably the most effective and rewarding way to save for retirement because of the unique benefits offered.

The most significant benefit is the fact that you can enjoy unparalleled tax savings which you can use to boost your retirement savings.

To get these great savings you can top-up your RA to the limits set by SARS before the end of each tax year. The current tax year ends on 28 February 2019.

You can contribute up to 27.5% of your annual taxable income in a RA, subject to a maximum tax deduction limit of R350 000 per annum.

Furthermore, SARS will not penalise you for contributions that exceed the allowable limits. Instead, you will be allowed to add the excess onto the following year’s tax returns. The proof is in the pudding

Twins, Thabo and Thando earn annual salaries of R500 000. Both contribute 7.5% of taxable income into their respective retirement annuities. They earn an annual bonus of R100 000 each. Thabo goes on a spending spree. Instead of splurging her entire bonus, Thando takes 30% of her bonus to top-up her RA annually. After 15 years, Thando has 80% more in retirement savings than Thabo.

Thabo (does not top

up his RA)

Thando (takes 30% of annual bonus

to top-up her RA)

R0 RA top up from the annual bonus R30 000

R36 207 Tax on bonus R25 200

R37 500 Total RA contributions per annum R67 500

R750 884 Total RA savings over 15 years R1 351 592

The investments grow at an average of CPI+4% while the earnings are adjusted for inflation.

Making a decision not to top-up your retirement annuity in favour of having more disposable income can be tempting but in the long run the benefits of topping up your retirement annuity far outweigh the decision not to.

Topping up your RA is as easy as 1, 2, 3…

1. Use our Retirement Savings Tax Calculator to get an idea of your maximum allowable RA top-up contribution and how much tax you could get back. Login to the calculator using your current PPS Investments Secure Online Services login details, or use the calculator as an ‘Anonymous’ user. If you do not have login details you can register at www.ppsisecure.co.za

2. After logging in at www.ppsisecure.co.za you can process your top-up as an ad hoc contribution on your RA.

3. You can also use the RA top-up functionality on the PPS for Professionals mobile app. If you have not downloaded the App yet, you can find it on your App store

For any assistance please speak to your PPS Investments accredited financial adviser or call our Client Contact Centre on 0860 468 777 or email clientservices@ppsinvestments.co.za.

Thando saved

80% more than Thabo

after 15 years.

#12

Quarter 4: 2018 Retirement savings

DON’T FORGET TO TOP UP YOUR RA

TODAY!

All contributions and forms need to reach us by Monday 25 February 2019 in order

to reflect in our bank account by 14:00 on Thursday 28 February 2019.

Already maxed out your RA contributions? No problem! You still have an opportunity to get great tax benefits by investing in the PPS Tax Free Investment Account. If you need more information about topping up your retirement annuity or investing in the PPS Tax Free Investment Account please consult your PPS Investments accredited financial adviser. Contact us on 0860 468 777 or at clientservices@ppsinvestments.co.za. www.ppsinvestments.co.za

#13

Guest column

Greed and malfeasance haunts SA’s young democracySometimes, sitting in the cavernous hall that hosts the Commission of Inquiry into state capture headed by the deputy chief justice Raymond Zondo, my hope leaves the room.

In the four months that the probe into grand corruption has sat in Johannesburg, the testimony has unveiled greed and malfeasance of a degree that has had the nation on the edge of its seat.

The probe has, thus far, focused on the Gupta family and the Watson family, both of which attempted to capture different parts of the state. They did this by trying to influence who was placed on the Cabinet, in the case of the Gupta family, and in the Watson’s family practice, they bribe-bombed to anybody with influence.

The Watson’s businesses were arranged in the company called Bosasa, now Africa Global Operations Group, and through that, they sought to establish a monopoly in facilities management, mainly in the public sector. The Gupta family, on the other hand, tried to repurpose state-owned enterprises by influencing the appointment of boards and to have malleable ministers appointed toboards so that they could expand their business into every area where there was a substantial state spending ticket.

When former deputy finance minister Mcebisi Jonas revealed that he had been offered the job of finance minister at the Gupta family’s showy mansion in Saxonwold, that triggered a domino effect and soon others told their stories. Within the Bosasa fold, the com-pany’s bribe paymaster and COO Angelo Agrizzi held South Africa spellbound in January when he sang like a canary as he laid out an encyclopaedia of how the corruption production line had worked at Bosasa.

He told Judge Zondo how officials, politicians and often the children of both were gratified as part of a multi-million payment scheme. In his first week’s testimony, Agrizzi showed how the family scion Gavin Watson used a personal vault as his pack-house where he personally packed out and ran a bribe system to build the family conglomerate.

By the second week, Agrizzi’s revelations reached higher into the political system as he revealed that Minister of Women Nomvula Mokonyane had received a monthly payment as well as alcohol, meat and other goodies so that she opened doors and facilitated deals for the company.

Quarter 4: 2018

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The revelations in this and three other commissions of inquiry means that South Africa is agog with the revelations and the country is in a festival of truth. All that we did not know about how corruption worked in South Africa is now known and every day, the murkiness clears and the lines of the patronage state are revealed under the scrutiny of retired judges who have been selected to chair the four probes. The other three are commissions inquiring what broke the South African Revenue Services (SARS), the Public Investment Corporation (PIC) and the National Prosecuting Authority, all institutions which have suffered in the years of state capture.

While the inquiries and their shocking revelations can be depressing and dampen the national mood, they are also important because sunlight is a good disinfectant. Unfortunately, South Africa is not in a festival of justice to match the waltz with the truth.

Despite all the revelations, the National Prosecuting Authority has not been able to bring a single successful prosecution, never mind winning a conviction. That may be all about to change.

Shamila Batohi, a former head of the prosecutorial service in KwaZulu-Natal has jetted her way back into South Africa from The Hague where she has been a legal advisor to the International Criminal Court.

A lot rests on her shoulders as the country’s eyes turn to whether Ms. Batohi can fix the National Prosecuting Authority to turn truth into justice.

While all the firebombs out of the inquiries hold the country spellbound, a vital election campaign is on the go. We can see that from the posters festooning lamp-poles with politicians vying to get our vote.

The governing ANC is running at the top of the leader board with 61% support in the latest Ipsos poll. The DA is in second position and the EFF third. Smaller parties trail far behind the top three. Both the ANC and the DA are campaigning on messages of unity. The ANC campaign is called “Let’s grow South Africa together” while the DA’s is “One South Africa for all”. After years of division, this political messaging is important as it signals a political intent in slogan if not in practice yet.

The EFF, on the other hand, is a party that uses discontent as an asset – its campaign is likely to be radical in rhetoric and to posit the ideal society as a socialist one.

In 2019, South Africa will have been democratic for 25 years, a milestone by which to assess our freedom. The election will be a moment to retrieve hope too as it will be South Africa’s sixth national and provincial poll and not one of those have been disputed or violent as we regularly see in many nations. This tells a story of a sustained democracy – there is still a long walk to better freedom and a long walk to rid the country of corruption, but this twenty-fifth is a moment to take a pause before continuing the journey.

Ferial Haffajee, Journallist

Guest column

#15

Fund update

Broadening the diversification spectrumAs an investor, you may be seeking additional opportunities for diversification within your portfolio to benefit during different market environments. We recently augmented our range with three new single-manager funds by partnering with three of South Africa’s most reputable asset managers to offer exclusive access to the PPS Partnership Fund Range, namely:

• The PPS Defensive Fund managed by Sasfin Asset Managers’ Errol Shear. • The PPS Stable Growth Fund managed by Tantalum Capital’s Rob Oellermann and Melanie Stockigt. • The PPS Managed Fund managed by 36ONE Asset Management’s Cy Jacobs and Evan Walker.

By investing in our new range, you gain access to top quality managers in mandates typically not yet available in the retail market. These funds are suitable for retirement investments and comply with the Regulation 28 (under the Pension Fund Act) that sets out limits that retirement funds may invest in particular assets and asset classes.

Partnering with reputable asset managers

Through our multi-manager investment process, we have access to asset managers ranging from large institutions to smaller owner-managed houses with

expertise and experience across the different asset classes.

In a bid to find asset managers to partner with for this range we focussed our attention on boutique asset managers with well-established, proven investment philosophies and processes coupled with solid, long-term track records.

For this reason, the portfolio managers of the PPS Partnership Funds are all well-known and seasoned professionals in the investment industry. With more than two decades of asset management experience, each of these managers have a wealth of experience and importantly have navigated various market cycles and events that shook the market, such as the 2008/9 financial crisis, Nenegate and the collapse of prominent SA businesses.

These managers were identified through our rigorous manager research process, which encompasses both a qualitative and quantitative assessment. The quantitative analysis involved analysing past performance of the manager within the environment in which such performance was achieved. Understanding the environment is crucial, given that different investment styles are better suited to take advantage of market opportunities at different times in the cycle.

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Fund update

The qualitative assessment is more subjective. This involves robust engagements with managers to test the outcomes from the quantitative analysis. This includes unpacking various aspects of their business, the investment strategy, and the macro-economic environment to ascertain how performance could be impacted going forward. Following the detailed assessment of the managers’ capabilities, these managers were specifically selected to manage the portfolio within the PPS Partnership Fund range most suited to their unique investment approach.

A risk-conscious approach to investing for the PPS Defensive Fund

We selected Sasfin Asset Managers to manage the PPS Defensive Fund, which aims to outperform the ASISA SA multi-asset low category average over a rolling three-year period. Key in achieving this objective is the manager’s risk-conscious approach to investing and a focus on capital preservation. Shear has managed to deliver a positive return over every rolling 12-month period since the inception of him managing multi-asset low-equity strategies (including the global financial crisis in 2008/9).

This is a well-diversified fund that is managed around a strategic asset allocation as an initial step to risk mitigation while high-quality, low volatility securities are preferred within each asset class.

A real-return mindset for the PPS Stable Growth Fund

For the PPS Stable Growth Fund that targets a return in excess of the ASISA multi-asset medium category average over a rolling five-year period, we partnered with Tantalum Capital. This manager has successfully managed multi-asset high-equity mandates for our funds for some time. Given their real return mindset, individual securities are assessed and included in the portfolio based on its potential for real capital growth over the medium to long term.

Tantalum is one of the few boutique asset managers in South Africa with both specialist equity and fixed income capabilities. The PPS Stable Growth Fund is therefore well placed to deliver moderate returns while preserving capital over the medium to long term in order to meet its investment objective over time.

PPS Managed Fund is more aggressively managed than the traditional balanced fund

For the PPS Managed Fund, we partnered with 36ONE Asset Management. The fund’s primary objective is to achieve capital growth of at least CPI +5% per annum over a rolling six-year period. It is intended to be more aggressively managed than the traditional balanced funds within the ASISA multi-asset high-equity space. 36ONE Asset Management, known for managing equity-centric mandates, is expected to run the fund with a relatively high allocation to growth assets with the balance of the portfolio invested in cash and cash-like instruments.

Key to the manager’s investment approach is its strong stock-picking ability by successfully combining in-depth bottom-up company research with top-down macro analysis. This high conviction manager is willing to take advantage of opportunities presented by changing market environments in a very short period of time.

Opportunity for added diversification backed by skilled professionals

While the PPS Partnership Fund Range was recently launched, it is managed by experienced, skilled professionals backed by their respective specialist teams. The range offers an opportunity for added diversification to your portfolio by gaining access to top quality managers in mandates typically not available in the market. For more information about the PPS Partnership Fund Range, visit www.ppsinvestments.co.za or contact your PPS accredited financial adviser.

Andriette Theron, Head of Manager Research

#17

Fiduciary ServicesQuarter 4: 2018

Protect your legacy with a willToo many people die without a will in place. In fact, it’s estimated as many as 86% of South Africans pass on without a current will in place. And it’s not just South Africans. This is a problem experienced worldwide.

Aretha Franklin’s funeral bore the hallmarks of someone who had planned every detail down to the last sequin. Yet even as presidents and legends of the music industry paid tribute, one question remained unanswered: What was going to happen to the fortune that the Queen of Soul had amassed over her incredible career? The sad truth is that Aretha Franklin died without a will.

What happens if your will is outdated or there is no will when you pass away?

Firstly, all your assets are handed over to an executor appointed by the Master of the High Court. This executor will then distribute your assets among your beneficiaries, according to the Law of Intestate Succession. This is often the point where things start to go wrong, with court action potentially rearing its ugly head.

So many people pass away without a valid or current will in place and the result is that you’re not able to decide how your assets should be distributed.

This state of affairs creates a delay in the distribution of assets, and can even diminish the value of the estate, as additional fees such as legal costs start to eat away at it. Notwithstanding the undue stress placed on the impacted loved ones. In addition, they have no control

over the situation as they are not authorised to deal directly with the South African Revenue Service (SARS), attorneys, insurance providers, etc. These institutions deal exclusively with the executor, once formally appointed by the Master of the High Court.

A big concern for a parent is that he/she will not be able to select and appoint the guardian for their child/ children. Dying intestate creates uncertainty regarding the children’s guardianship and if there are custody battles, or a lack of potential guardians, then the state is responsible for where they’re placed.

The release of funds will also be restricted and assets that heirs expected to receive may not necessarily be forthcoming. A minor’s inheritance will be placed in the Master of the High Court’s Guardian’s Fund until they’re 18 years of age.

How to ensure that your last wishes are respected

You’re able to draft a will from the age of 16. Not only should you draft a will, but you should update it every time a major life event occurs, such as marriage, birth, buying a new house, etc. Your financial adviser can help you to draft your will in conjunction with your overall financial plan. For more information about our fiduciary services and to create wealth that spans many generations, contact your PPS Financial Planner.

Alternatively, you can contact PPS Fiduciary Services on (011) 644 4200 or email: fiduciary@pps.co.za

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Fund updateQuarter 4: 2018

Fund showcase: PPS Balanced Index Tracker FundAt PPS Investments, we continually seek ways to offer a fund range that is relevant and competitive. Staying true to this objective, we launched our first passive offering, the PPS Balanced Index Tracker Fund, in 2015.

A passive approach for assertive investors

The PPS Balanced Index Tracker Fund is a multi-asset high equity portfolio that works well as either a standalone index-tracking portfolio or combined with active managers. This fund is suitable for assertive investors seeking passive exposure with a long-term investment time horizon of seven years or longer.

Furthermore, it is suitable for retirement investments, as the fund is compliant with Regulation 28 (a regulation under the Pension Funds Act which limits the extent to which retirement funds may invest in particular assets or asset classes).

Fees reduced on the fund

As markets evolve and client preferences change, we strive to stay abreast of such trends and continue to offer appropriate and flexible solutions to our clients within competitive and transparent fee structures.

With this in mind, we have taken the decision to reduce the annual management fees across all the fee classes in the PPS Balanced Index Tracker Fund from 1 January 2019 and as a result, clients can

benefit from 0.15% reduction in fees for both the Original and Select fund range.

Other recent enhancements to the fund

In addition, in 2018, due to changes to the maximum offshore allowance under Regulation 28 and a skewed allocation within the underlying domestic equity index, it was decided that it would be prudent to amend the asset allocation.

The changes made to the fund, which were approved by the investors via a balloting process, served to reinforce the fund objectives. Total equity exposure increased from 65% to 67.5%, diversification improved by adding emerging markets as an asset class and by changing the domestic equity exposure to the Capped SWIX Index the exposure to a single stock was reduced to a more palatable level. The PPS Balanced Index Tracker Fund holds a high equity, diversified asset allocation, with reasonable exposures to different asset classes at all times. The fund is therefore still poised to deliver on the objectives set out when the fund was launched nearly three years ago, at a more competitive fee. For more information, speak to your accredited PPS Investments financial adviser. Alternatively, you can access the latest fund fact sheets on our website www.ppsinvestments.co.za or via the Secure Online Services www.ppsisecure.co.za.

#19

Quarter 4: 2018

Time to forget about New Year’s resolutions…By now, most people have made New Year’s resolutions as most enjoy indulging in this 4000-odd year tradition at the start of each year. But how many people actually stick to and achieve their stated goals?

Research shows that only about 8% successfully achieve their resolutions or goals. This could be partly due to the fact that very few people actually consider the possibility of not achieving their resolutions because they have a sense of overconfidence in their ability to achieve their goals. But the sooner we forget about the buzzword ‘New Year’s resolutions’ and focus on our goals as personal life missions, the better!

We’ve compiled some effective guidelines to help you stick to and achieve your New Year’s resolution, or rather your personal life mission.

Set specific goals

So, your new personal mission is to exercise more. That’s great! But what exactly are you going to do to

achieve your goal? Being specific about your preferred exercise will first and foremost keep you focused.

Once you have this bedded down you can set your sub-goals that you must achieve in order to accomplish your mission, such as how many times and for how long you are going to exercise.

Be clear on the reasons “why” you want to achieve these goals

Extraordinary things can be achieved when the reason motivating you is clear from the start. Having a crystal- clear purpose ensures that you stay on track, despite any obstacles along the way.

A truly motivational story that bears testimony to the power of motivation can be drawn from Team Hoyt – a father and son duo from Holland, Massachusetts who have competed in 1130 endurance events, including Ironman. Triathlons together despite the son being wheelchair bound! The mind truly is a powerful thing!

The Untamed Tale

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Have a support system

If your personal mission is to run or cycle or enter a triathlon, you will have a better chance of success if you train alongside and learn from those who have participated in the event before.

Through their experience, they can share invaluable insights into, among other things, the training, hacks and eating regime required.

Accountability is key

Many people would prefer to keep quiet about their missions for a number of reasons. One of these is so that no-one would call them a failure if they didn’t accomplish their missions.

By communicating your missions, you are giving those close to you, those who would be supporting you along the journey to achieving your goals, the right to ask about the progress of your goals. This way you become accountable not only to yourself but to those who also want you to achieve your missions – whether it is family or training buddies.

Track your progress

Make your progress tangible and visible to remain motivated to keep going. There are some really useful apps and fitness gadgets to help keep track of fitness goals and celebrate reaching various milestones.

Tracking progress provides a sense of reward and in fact some achievement already, this includes reaching sub-goals as an indication that you are moving in the right direction to achieve your main goal.

Share your progress with your support group so that they can also celebrate your success with you. Failing is part of life.

Believe it or not people start failing before they even know what an achievement is. Toddlers don’t just get up and walk. They try to get up and they fall. This happens many times, but they will not stop trying until they get it right. Are we really going to let toddlers teach us about perseverance?

Enjoy the journey

Remember to have fun while working towards accomplishing your personal mission. Create memories. Take pictures to preserve these memories and share with your loved ones, support group or training buddies.

This will not only make the journey easier but will also inspire you to stick to your goal, or better referenced as your personal mission.

Tandisizwe Mahlutshana, Executive of Marketing

The Untamed Tale

#21

Get in touchIf you need more information

or would like to make an investment,please consult your PPS Investments

accredited financial adviser.

Alternatively, feel free to contact us directly. We are ready to assist with

any queries you may have.

Contact us on 0860 468 777 or at clientservices@ppsinvestments.co.za.

www.ppsinvestments.co.za

DISCLAIMER:

All information and opinions provided are of a general nature and are not intended to address the circumstances of any Financial Service Provider’s (FSP) clients. Kindly note that this does not constitute financial advice. In terms of the Financial Advisory and Intermediary Services Act, an FSP should not provide advice to investors without an appropriate risk analysis and a thorough examination of a particular client’s financial situation. The information, opinions and any communication from the PPS Investments Group [PPS Investments Proprietary Limited, PPS Multi-Managers Proprietary Limited, PPS Investment Administrators and PPS Management Company (RF) Proprietary Limited] whether written, oral or implied are expressed in good faith and are not intended as investment advice, neither does it constitute an offer or solicitation in any manner. If you need more information or would like to make an investment, please consult your PPS Investments accredited adviser. Alternatively, feel free to contact us directly on 0860 468 777 (0860 INV PPS) or at clientservices@ppsinvestments.co.za. For more information on any of our funds please refer to the Minimum Disclosure Documents of the specific fund available on the PPS Investments website www.ppsinvestments.co.za.

Professional Provident Society Insurance Company Limited, the ultimate holding company of PPS Management Company, is a member of the Association for Savings & Investment SA (ASISA). As such we are committed and adhere to the General Codes, Standards and Principles of the ASISA as updated from time to time.

PPS Investments (39270), PPS Multi-Managers (28733) and PPS Investment Administrators (45924) are licensed Financial Services Providers operating under the supervision of the Financial Services Board (FSB) to provide a service to our investors in line with regulation and industry standards.

PPS Management Company is a licensed collective investment scheme manager, in terms of which it is duly authorised and governed by the Collective Investment Schemes Control Act 45 of 2002, to operate unit trust portfolios.

PPS Investments and its subsidiaries will not be held liable or responsible for any direct or consequential loss or damage.

#22