THE NEWS MAGAZINE OF OLD MUTUAL INVESTMENT GROUPFUNDAMENTALS

WHAT YOU'LL FIND INSIDEBREXIT ONE YEAR ON: 6 LESSONS FOR SOUTH AFRICAN INVESTORS

EVAN ROBINS

SA FIRMLY STUCK IN A LOW GROWTH ENVIRONMENT

JOHANN ELS

FUNDING CLEAN ENERGY

FUTUREGROWTH

WAVE OF SELLING ON RISK OF RESERVE BANK MANDATE CHANGE

WIKUS FURSTENBERG

JULY 2017

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GLOBAL GROWTH GAINS A FOOTHOLDTINYIKO NGWENYA

6SA FIRMLY STUCK IN A LOW GROWTH ENVIRONMENTJOHANN ELS

8WAVE OF SELLING ON RISK OF RESERVE BANK MANDATE CHANGEWIKUS FURSTENBERG

10BREXIT ONE YEAR ON: 6 LESSONS FOR SOUTH AFRICAN INVESTORSEVAN ROBINS

13FUNDING CLEAN ENERGY 16

INSIDE THIS ISSUE

WYNAND GOUWSHead: MarketingTel: +27 21 509 5601Email: wgouws@oldmutualinvest.com

ELIZE BOTHAManaging Director: Old Mutual Unit TrustsTel: +27 21 524 4689Email: elize.botha@omwealth.co.za

REAGON GRAIGHead: Institutional DistributionTel: +27 21 509 7010Email: rgraig@oldmutualinvest.com

FOR MORE INFORMATION

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MILESTONEOld Mutual Edge28 Life Fund's assets under management have reached R5 BILLION.

FUNDING CLEAN ENERGYFuturegrowth enables investing in renewables (see page 16).

A GLOBETROTTING TEAMThe Old Mutual Global Emerging Markets investment team have visited

60 countries and held 844 meetings since February 2015.

TOP QUARTILE PERFORMEROld Mutual Managed Alpha Equity Fund is a top quartile performer from

3 to 8 years and 10 and 11 years to end of June 2017 (Morningstar Direct).

TOUCHPOINTS

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While the US Federal Reserve (Fed) is still on course to hike rates for a third time this year in the months to come, questions are being raised about whether the central bank is perhaps too bullish on the number of the rate increases it wishes to undertake through 2018.

One fundamental factor behind this view is the recent weakness in inflation data. The core personal consumption expenditure (PCE) deflator, the Fed’s preferred measure of inflation, came in at 1.4% in May, well below the Fed’s preferred target level of 2%. This follows a decline in 10-year inflation expectations implied by the bond markets from 2.1% in January to about 1.7% last month. The recent fall in oil prices adds further downside risk to inflation, raising more concerns about the Fed’s hawkish stance.

To add to the weaker inflation picture, consumer demand has been ensuring a slower trend over the last few months as US retail sales and vehicle sales came in weaker than expected, along with a slowdown in consumer expectations of better growth in the next two years. Notwithstanding the weak round of real economy and inflation data coming from the US recently, the tight labour market still warrants further policy normalisation. Still, with no clear signs of overheating in the economy and the growing concerns over policy error, the Fed will be likely to continue carefully assessing both the downside and upside risks in interest rate decisions.

MARKETS SHAKEN BY PROSPECT OF MONETARY POLICY PULLBACK The European Central Bank (ECB) rattled markets, as ECB president Mario Draghi, said that the reflation of the European economy created room to pull back unconventional stimulatory measures. Although Draghi did emphasise the need to maintain a considerable degree of accommodation until inflation was

KEY TAKEOUTS:• WEAK US INFLATION RAISES

CONCERNS ABOUT FED’S HAWKISH STANCE

• PROSPECT OF TIGHTER MONETARY POLICY IN EUROPE UNSETTLES FINANCIAL MARKETS

• TRADE-WEIGHTED DOLLAR LOSES ALL ITS POST-ELECTION GAINS

• EMERGING MARKET ECONOMIES BUOYED BY SURGING EXPORTS

GLOBAL GROWTH GAINS A FOOTHOLDTINYIKO NGWENYA | OLD MUTUAL INVESTMENT GROUP ECONOMIST

ABOUT THE AUTHORTinyiko is our young, up-and-coming and dynamic economist, working alongside Johann Els, recently appointed Head of Economic Research, and Rian le Roux, who is now a strategist in the team. It is her fresh take on everything to do with economics that adds original insight to our macroeconomic analysis.

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GLOBAL ECONOMIC OVERVIEW AND OUTLOOK

on a more durable footing, the comments were seen as more

hawkish, causing bond yields around the world to surge and

strengthening the euro.

Draghi’s growing confidence in the economy could imply a

reduction in due course of the monthly €60 billion bond-buying

programme. An announcement on this is now generally

expected by September. However, interest rate increases

are only likely much later − and only well after the pace of

quantitative support (bond buying) has begun to slow. One key

obstacle in the way of policy normalisation is the Eurozone’s

annual inflation rate, which, at 1.3%, still remains stubbornly

below the ECB’s target of 2%.

The potential for tighter policy in Europe and a cautious Fed

have undermined the US dollar, which has been softening for

some time now. In fact, by late June, the trade-weighted dollar

had lost all its post-election gains. The softer US dollar has lent considerable support to emerging markets through both stable emerging market currencies and higher commodity prices.

RECOVERY IN EMERGING MARKETS ON GLOBAL GROWTHEmerging market economies continue to benefit from improved external factors, such as the firm global growth momentum, which has supported a surge in exports, the key driver behind the strong first quarter growth numbers experienced within emerging markets, particularly in Asia. Although in Asia the China risk remains, improved global demand, particularly from Europe, should balance a slowdown in China and not undermine the recovery in emerging markets.

This sets the global economy on course for a solid end to the second quarter.

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SA FIRMLY STUCK IN A LOW GROWTH ENVIRONMENTJOHANN ELS | HEAD OF ECONOMIC RESEARCH

ABOUT THE AUTHORJohann was recently appointed Head of Economic Research and is responsible for all local and global macroeconomic research. Specific focus areas include the rand, inflation, interest rates and fiscal matters.

KEY TAKEOUTS:• NEGATIVE FIRST QUARTER GROWTH A

BIG SURPRISE

• MARKET RECEIVES ANOTHER SURPRISE, THIS TIME FROM THE SARB

• INFLATION IS PRINTING LOWER THAN EXPECTED

• CURRENT ACCOUNT DEFICIT IMPROVES SHARPLY TO -2.1% IN QUARTER ONE

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It was another exciting month in South Africa! Amid all the political noise – including #Guptaleaks, ANC National

Executive Committee meeting, talk about a judicial commission of inquiry into state capture, ongoing Eskom and SAA issues, and the Constitutional Court ruling, which allowed the Speaker of Parliament to decide whether the upcoming motion of no confidence vote could be held in secret – the rand was remarkably stable.

On the economic front, the first quarter GDP data shocked, with the economy unexpectedly recording negative growth. The consensus forecast was for +1.0% annualised growth, but the actual number came in as -0.7%. This was one of the biggest surprises – actual versus expected – in my 30 years as an economist. This, of course, meant that the economy is now in recession, as the last quarter of 2016 also recorded negative GDP growth. But an even bigger shock awaited in the detail of the GDP numbers – the broad-based nature of the contraction was totally unexpected. Eight of the ten sectors in the economy recorded declines in the first quarter! Positive growth numbers were recorded only in agriculture and mining.

Weak growth – albeit a bit better than the 0.3% measured in 2016 − was already expected for 2017, but many analysts have subsequently revised GDP forecasts even lower. We now expect growth for 2017 of around 0.7% versus our previous forecast of just above 1%. The weak first quarter was also reflected in real growth in household consumption spending, which declined 2.3% at an annualised rate. Even though this will probably not be an extended or a very deep recession, we are firmly stuck in a (very) low growth environment. Sustained weak or sub-par growth – as we've frequently discussed in previous Fundamentals – has serious consequences for fiscal sustainability and thus sovereign credit ratings.

SIGNIFICANT RISK OF FURTHER LOCAL CURRENCY DOWNGRADESMore widely expected was the news that Fitch and S&P kept SA’s ratings unchanged at the levels of the early April downgrades. Also, the Moody’s downgrade of SA’s foreign and local currency ratings by one notch from Baa2 to Baa3 (but still investment grade) was widely expected and had little market impact. The comments made by all three agencies

LOCAL ECONOMIC OVERVIEW AND OUTLOOK

still imply that if political uncertainty, policy uncertainty and

a lack of serious economic reform persist, then there is

significant risk of further downgrades of SA’s local currency

rating to sub-investment grade.

Inflation has surprised many analysts – printing lower

than expected over the last few months. Already down

from 7% in February last year (and more recently, 6.7%

in December 2016) to the 5.1% recorded in June, we expect

a further decline to about 4.6% by July. Apart from the sharp

decrease in the petrol price in July, lower food inflation and

continued slowing in consumer goods inflation numbers

contribute to our expectation of inflation remaining around,

or slightly below, 5% for the next 18 months or so. Core

inflation (i.e. headline inflation excluding food, non-alcoholic

beverages, fuel and energy) has also surprised – easing from

5.9% in December 2016 to 4.8% in June 2017.

LOWER INTEREST RATES – AT LASTLower inflation, combined with a very weak economy and

a tighter fiscal stance, created an environment over the last

several months within which we have argued that the

South African Reserve Bank (SARB) should start an easing rate

cycle. There is currently a window of opportunity to cut interest

rates, namely while the global economy is still supportive of

local economic conditions through the sharply reduced funding

need on the current account, with the deficit having improved

from around -6% in 2012/2013/2014 to -2.1% in the first

quarter of this year. This is why we have stressed recently that

the Reserve Bank could run the risk of making a policy error

by not cutting. In the event, the SARB surprised the market by

cutting rates in July – despite a still very hawkish tone in the

weeks leading up to the policy meeting.

Clearly politics, policy uncertainty and potential further

downgrades do pose a risk to the currency (and thus inflation),

but this window of opportunity might not be open for long as

we are likely to reach the peak in global growth within the next

year or two. While two or three interest rate cuts of 25 basis

points each will not have a huge impact, on the margin they

will certainly support confidence. We expect one further rate

cut later this year and another two next year.

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WAVE OF SELLING ON RISK OF RESERVE BANK MANDATE CHANGE

WIKUS FURSTENBERG | PORTFOLIO MANAGER AT FUTUREGROWTH

ABOUT THE AUTHORWikus manages a range of institutional and retail fixed income portfolios, which include income, core bond and flexible interest rate funds. He also heads up the Interest Rate team at Futuregrowth Asset Management.

The second quarter got off to a bad start as the South African bond market was still reeling from the cabinet reshuffle that cost Pravin Gordhan the post of Finance Minister. This event served as a catalyst for sovereign credit rating downgrades by both S&P and Moody’s. In the case of the former, its foreign currency rating is now aligned with the Fitch non-investment grade category ratings. In light of the low economic growth trap in which the country finds itself and heightened concerns about policy stability, both S&P and Moody’s retained a negative outlook on the respective foreign and local currency ratings.

This means that the next ratings action is either a change to a stable outlook or for all ratings to become non-investment grade. We believe circumstances favour the latter.

SUB-PAR ECONOMIC GROWTH CONCERNS EXACERBATEDIn support of this view, the release of first quarter GDP data confirmed that the country officially entered a technical recession (negative rates of growth for two consecutive quarters). This served to exacerbate concerns about persistent sub-par economic growth, with an array of implications for the creditworthiness of the country in the long run. In the short term, sustained weak economic growth will negatively impact plans to consolidate the fiscal situation, as low growth limits tax collection. The impact of the worsening, already weak, growth backdrop partly offset the good news that the current account deficit had narrowed further. In the meantime, the rate of inflation kept grinding lower in response to lower food prices, a stronger rand compared to a year ago and weak consumer demand. This combination of weak growth and lower inflation is what will spur the South African Reserve Bank (SARB) to reduce the repo rate.

After ending the first quarter at a yield of 8.84%, the benchmark R186 government bond weakened to 9.0% in early April, at which point the global reach for yield, once again, came to the rescue. Other external developments helped, namely a weaker US dollar and sharply falling US Treasury yields, which, in turn, were the result of fading optimism about the strength of the US

KEY TAKEOUTS:• LOW GROWTH TO LIMIT

GOVERNMENT’S TAX COLLECTION

• WEAK GROWTH AND LOWER INFLATION SPUR RATE REDUCTIONS

• GLOBAL REACH FOR YIELD COMES TO THE RESCUE OF LOCAL BOND MARKET

• FOREIGN OWNERSHIP OF SA BONDS REACHES AN ALL-TIME HIGH

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economic recovery and its implications for the path of official interest rates. Global bond bulls also received support from sticky inflation at relatively low levels in most of the developed world. Against this backdrop, yield-seeking foreign investors brushed aside local political developments and the sovereign rating downgrades. This demand drove local bond yields sharply lower and the R186 yield reached an intra-quarter low of 8.39% by the middle of June.

FOREIGN BOND OWNERSHIP REACHES ALL-TIME HIGHThe latest non-resident bond buying spree saw the foreign ownership of total outstanding rand-denominated South African government bonds, including both nominal and inflation-linked bonds, reach an all-time high of almost 40%. In the case of nominal fixed rate RSA government bonds, the foreign share is now a whopping 48%, well above the 20% held by local pension funds. To us, this large foreign holding endangers future market stability, considering the weak local fundamental situation, negative ratings momentum and its impact on global index changes. Moreover, a future correction to extremely loose global monetary policy still holds a significant risk to overvalued bond markets in general.

LOCAL BONDS SELL OFF ON TALK OF SA CENTRAL BANK MANDATE CHANGE This risk came to the fore in the last week of June when

influential central banks, including the European Central Bank

and the Bank of England, suggested that the extent of monetary

policy accommodation requires reconsideration. This forced

bond holders to rethink and lighten up on exposure. The rise

in global bond yields, as well as unwelcome speculation about

possible changes to the SARB’s mandate, caused a wave of

bond selling late in the quarter. As a result, the R186 yield

retraced to 8.78%, just 6 basis points lower than the closing

yield at the end of March. More importantly, the slope of the

bond yield curve steepened as long-dated bond yields rose

by more than short-dated bonds. Nonetheless, the ASSA JSE

All Bond Index still managed to render a positive return of

1.5% for the quarter, the result of fairly stable returns offered by

short-dated nominal bonds. Even so, cash delivered a slightly

better return of 1.7%.

The re-pricing of inflation-linked bonds gained momentum on

the back of lower inflation during the second quarter. Reduced

demand for inflation protection and the weekly primary issuance

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of inflation-linked bonds, as part of the financing of the national budget deficit, pushed real yields higher. As a result, the ASSA JSE Government Inflation-linked Bond Index only managed to eke out a return of 0.9%. In an environment of lower inflation and rising concern about a possible future higher national government financing requirement, the relatively poor performance of this asset class makes perfectly sense.

FUTUREGROWTH VIEW With the exception of the US, and more encouraging signs of some improvement in other G10 countries, the global growth recovery remains fragile. This sets the scene for a modest rise in inflation, as well as continued monetary policy divergence. It also implies a steady tightening cycle for the few economies that are in a position to normalise monetary policy, especially the US. Nonetheless, we are of the view that the US Treasury market is now underestimating the extent of monetary policy tightening by the Federal Reserve, leaving investors vulnerable to fast-rising bond yields from current low levels. We believe the US 10-year Treasury bond yield should be closer to 3%, as opposed to its current 2.2%. Moreover, any movement by other influential central banks to reduce the extent of the excessive monetary policy assistance will force bond investors to re-price the risk of future higher short-term rates.

Locally, the downward trend to inflation is entrenched, supported mostly by significantly lower food price increases and with weak consumer demand also playing a role. Although the newly appointed Finance Minister is doing his best to downplay risks to the previously carefully managed fiscal consolidation,

40%

25%

27%

29%

31%

33%

35%

37%

39%

41%

July 2011 July 2012 July 2013 July 2014 July 2015 July 2016 May 2017

it would take far more than a political undertaking to convince us that all is indeed well. We remain particularly concerned about the inability to lift the underlying economic growth rate to the much higher levels required. Persistent sub-trend economic growth and macro policy uncertainty have negative implications for fiscal consolidation and eventually sovereign credit ratings.

Negative ratings momentum in the medium to longer term caused mainly by sustained sub-trend economic growth, as well as uncertainty about the fiscal outlook, does not match the continued aggressive accumulation of local currency bonds by foreign investors. This mismatch presents a potential lethal mix for the local bond market. Considering this, we shall continue to approach the market with extreme caution.

FOREIGN OWNERSHIP OF RAND-DENOMINATED RSA GOVERNMENT BONDSTotal (Nominal fixed rate and inflation-linked bonds)

Source: National Treasury, Futuregrowth

Performance figures are sourced from Futuregrowth and I-Net Bridge (Pty) Ltd

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BREXIT ONE YEAR ON: 6 LESSONS FOR SOUTH AFRICAN INVESTORSEVAN ROBINS | PORTFOLIO MANAGER

ABOUT THE AUTHOREvan is the member of the MacroSolutions team responsible for the listed property investments. He also manages the institutional and unit trust SA Quoted Property portfolios.

On 23 June 2016, 52% of UK referendum voters defied the pollsters and elected to leave the European Union (EU). This hit UK stock and currency markets hard, and reverberated south onto the JSE. There are a number of UK-listed companies with a material weight in our market that have a secondary listing on the JSE − these include companies such as Intu Properties and Capital & Counties Properties (Capco). As we lick our wounds and reflect on the devastating impact on these dual-listed shares, there are lessons that can be learned from Brexit that are relevant to South African investors.

#1 A FLOATING CURRENCY IS A SHOCK ABSORBERFollowing Brexit, the British pound lost around 10% of its value against the US dollar and the euro − falling to levels that prevailed 30 years ago. At the time of writing, it had weakened 25% against the rand .

As a result, British exports became more competitive and imports more expensive: a bonanza for UK trade. UK goods exports are now significantly cheaper, even if they were subject to maximum World Trade Organisation (WTO) tariffs (the worry is with services). The weaker pound has cushioned the UK economy. If Brexit is as bad as feared, the currency could fall even further to compensate. Ironically, countries in trouble in the Eurozone, like Greece, have to try and stabilise the hard way – without the benefits of their own currency.

With sterling depreciation comes inflation, lower real consumer spending power and more expensive imported goods. This is bad for UK retail and the UK property companies listed in SA that are exposed to shopping centres.

Similarly, at home, the rand acts as the stabiliser in times of crisis. Our Economic Research Unit has argued that it is probably the only pressure valve in South Africa because the appetite to significantly raise interest rates or cut spending is limited and greater capital restrictions would be harmful. Rand volatility is a blessing and a curse. We would do well to remember this.

SHOCK ABSORBER: BRITISH POUND LOSES GROUND AGAINST US DOLLAR AND EURO (31 January 1973 - 15 June 2017)

US dollar/British pound (US$1.28)Euro/British pound (€1.14)

0.9291.000

1.200

1.400

1.600

1.800

2.000

2.250

2.5002.700

0.9291.000

1.200

1.400

1.600

1.800

2.000

2.250

2.5002.700

1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017

Source: I-Net

Currency data as at 14 June 2017

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KEY TAKEOUTS:• BREXIT HIT UK STOCK AND CURRENCY

MARKETS HARD

• CURRENCY VOLATILITY IS BOTH A BLESSING AND A CURSE

• HINDSIGHT CONFIRMS THE RISKS IN PANIC SELLING

#2 ECONOMIC PUNDITS CAN BE VERY WRONGIt’s not just the political pundits that predicted a “remain”

outcome from the referendum who have egg on their faces.

Prior to and in the immediate aftermath of Brexit, many

economists gave a very grave assessment of the near-term

economic consequences. One year on, and the UK economy

has not been devastated. In fact, it grew by 1.8% in 20162.

Over the longer term, the “I told you so” warnings may indeed

be borne out (and recent data has been weak), but the need to

eat humble pie would still be required. Perhaps forecasters did

not consider other moving parts like the sterling depreciation

we discussed. Some forecasters may also have allowed their

political distaste to cloud their assessments.

This sentiment still prevails with regard, to UK property companies. The shares trade at wide discounts to net asset value (NAV). That means the market expects investment grade commercial property values to fall materially. To date, this has not happened, but the market is still pricing in the “day of reckoning”. There is money to be made if the current transactional evidence is correct and the market is wrong.

South African crystal-ballers need to learn this lesson: political views should not cloud economic assessments. Politics is not the only force working on an economy. The rand is stronger now than many would have expected, because global conditions are supportive of currencies in countries offering high yields. A shock commodity boom would do a lot to improve the South African outlook, even in the absence of any improvement in the political environment.

UK Office for National Statistics.

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£280.00

£290.00

£300.00

£310.00

£320.00

£330.00

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#3 CURRENCY VOLATILITY CAN OVERWHELM SHORT-TERM RETURNSEven if a UK share held its value in sterling terms, South African investors experienced a significant loss. For instance, in sterling, UK mall owner Intu’s total return has declined 12% since Brexit – bad, but no train smash. In rand terms, due to both pound weakness and, more so, rand strength, Intu’s total return is down almost triple that, falling 33%3. That hurts. So while Intu has mostly been the victim of rand strength on the JSE, Brexit has just compounded matters. That is no solace for investors.

For mandates that allowed, we hedged some of our UK property currency exposure prior to Brexit. Not because we expected Brexit or rand strength, but because we bought the shares for their local value, not with a currency view, and wanted to mute currency risk. However, for many funds, mandate restrictions meant this was not possible.

#4 EVERYBODY HATES UNCERTAINTYThe post-Brexit market reaction, certainly within property, is not just negative economic expectations, but also the uncertainty, which itself can cause the weak economic outcome. The market may be fearing the dark more than it fears falling down the stairs in the dark. This brings to mind investment legend Peter Lynch’s statement: "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."

UK exit negotiations with the EU could drag on longer than the two-year deadline initiated by the Article 50 trigger on 29 March 2017. Who wants to make big long-term capital decisions (and property investment is all about big long-term capital decisions) when so much is up in the air, including whether non-British staff will be allowed to live in the UK. Investors demand a higher return as a risk compensation and share prices must fall to provide that enhanced return.

This is amply evident in South Africa. The political and policy uncertainty, with binary potential outcomes, has resulted in little investment from local companies or foreign direct investors. This is both a cause and a symptom of the weak economic environment in South Africa. A positive is that this is something that can be resolved.

#5 A YEAR IS A LONG TIME IN POLITICS

The June 2017, UK snap elections were announced to strengthen the Conservative Party’s majority and its Brexit negotiating position. It was widely hailed by the erstwhile pundits as a particularly shrewd move. Then, over the space of a few weeks, the Conservative Party lost their majority. Brexit may now be softer and, at the time of writing, there was talk of “no May after June”. Everything is up in the air again – refer to #4 Everybody hates uncertainty. In South Africa, political developments over the next year will be critical, with numerous twists and turns along the way. It will be difficult not to be distracted by the noise of the machinations.

#6 DON’T PANICInvestors may have been better off had they not sold their UK property stocks straight after Brexit, but rather waited. As the saying goes: “If you are going to panic, panic first,” but the panic-first window is a short one.

BREXIT PANIC, RECOVERY, SLUMP: INTU PLC SHARE PRICE IN GBP (21 June 2016 - 16 June 2017)

JSE-listed UK property companies offer diversification and value, despite retail and economic headwinds and uncertainty. However, any position size must reflect the risk involved, especially those that are unpredictable and not hedgeable.

Source: FactSet

Intu returns to 14 June 2017. Source: FactSet.

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The Kathu Solar Park is a 100 megawatt-peak (MWp) concentrated solar power (CSP) plant currently being built 10 km outside the town of Kathu near the Sishen iron ore mine in the Northern Cape. The developer of the project is Engie (formerly known as GDF Suez), one of the largest independent power producers in the world, with 117 gigawatt (GW) installed power of which 21.5 GW is from renewable energy sources. This is approximately three times the installed capacity of Eskom.

PROVIDING INFLATION-LINKED DEBTFuturegrowth Asset Management is part of the lender consortium, which is predominantly made up of the major local banks and development finance institutions, providing the project with inflation-linked debt. This inflation-linked debt enables the project to better match its debt repayments to the tariff received from generating electricity, as both are linked to the Consumer Price Index (CPI). As such, the project is better able to optimise its capital structure, thus enabling it to charge a lower energy tariff to Eskom.

THE PROJECTThe Kathu project was awarded preferred bidder status in the Round 3 CSP bidding window of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). In order to be awarded this status, Kathu Solar Park

had to be one of the 17 projects selected out of 93 bids submitted in the third bid window. Projects were evaluated on the basis of both tariff charged for energy generated and local content (procurement and employment).

HOW IT WORKSThe project applies CSP technology – specifically, parabolic trough technology. This technology uses a field of curved mirrors that focus the sun’s heat onto a thin pipe with heat transfer oil running through it. The oil is heated to over 350 C. This heat is used to create steam that, in turn, generates power in a similar way to a typical thermal power plant using a steam turbine. In other words, the key difference between a coal-fired power station and the parabolic trough CSP power station is the way in which the steam is produced: one from coal, the other from the Pic below: Cap C 'Condenser' .

FUNDING CLEAN ENERGY

A GAME CHANGERBeing a CSP plant, Kathu Solar Park has a key feature that differentiates it from other renewable energy technologies: storage. The plant is able to generate power at maximum power output for 4.5 hours after the sun has set. This is achieved by heating up molten salt during daylight hours, taking the 228 C cold salts to 382 C. The hot salts are stored in thermal storage tanks that maintain the high temperature. After sunset, the plant then uses the molten salt to generate steam instead of the heat transfer fluid.

KEY TAKEOUTS:• KATHU SOLAR GENERATES ENERGY IN

THE DARK

• BUILT-IN STORAGE CAPACITY IS A DIFFERENTIATOR

• FUTUREGROWTH ENABLES INVESTING IN RENEWABLES

Source: CSP World

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FUTUREGROWTH FACILITATES INVESTING IN RENEWABLE ENERGYFuturegrowth aims to provide investors with a vehicle that facilitates infrastructural, social, environmental and economic development in Southern Africa through investments in energy-related businesses and sectors.

These include electricity generation from renewable, alternative and traditional sources, power distribution and reticulation, and supporting industries and sectors.

11 SOLAR PHOTOVOLTAIC PLANTS

3 CONCENTRATED SOLAR POWER PLANTS

Futuregrowth has approved debt finance totalling R3 billion invested across 24 renewable energy projects to date.

10 WIND FARMS

CSP plants like Kathu address the major drawback to traditional

renewable energy plants, namely the more consistent provision

of power. The intermittent nature of the wind and solar resources

results in power being generated at times when it is not

necessarily required. For instance, solar photovoltaic (PV) plants’

peak production is at noon, while South Africa’s peak electricity

demand time is after 5 pm. In order to “transfer” this energy

generated to the peak demand time, a pump storage facility

is required. But this comes at an additional cost that is not often

factored in.

Through its built-in storage capacity, the Kathu project is able

to produce at peak capacity during this peak demand time.

In effect, the plant is able to bridge the gap between traditional renewable energy technologies (solar PV and wind) and “dirty” base load power such as coal. The Kathu project is able to generate electricity when the economy requires it and is able to do this in an environmentally sustainable way!

ALIGNMENT WITH PENSION FUNDSInvesting in this project via an inflation-linked debt instrument gives our clients the advantage of protecting purchasing power while earning appropriate risk-adjusted returns. Given that the Futuregrowth forecast for medium-term inflation in South Africa is around 6%, this remains an important consideration for our pension fund clients.

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MARKET INDICATORS

Sources: JSE, Iris, I-Net

*Total return index percentage change

AS AT 30 JUNE 2017

DISCLAIMER: The content of this document does not constitute advice as defined in FAIS.

The following entities are licensed Financial Services Providers (FSPs) within Old Mutual Investment Group Holdings (Pty) Ltd, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide advisory and/or intermediary services in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS). These entities are wholly owned subsidiaries of Old Mutual Investment Group Holdings (Pty) Ltd and are members of the Old Mutual Investment Group.• Old Mutual Investment Group (Pty) Ltd (Reg No 1993/003023/07), FSP No 604.• Old Mutual Alternative Investments (Pty) Ltd (Reg No 2013/113833/07), FSP No 45255.• Futuregrowth Asset Management (Pty) Ltd (Futuregrowth) (Reg No 1996/18222/07), FSP No 520.• Old Mutual Customised Solutions (Pty) Ltd (Reg No 2000/028675/07), FSP No 721.

The investment policies are market linked. Products are either policy based or unitised in collective investment schemes. Investors’ rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance. Unit trusts are generally medium- to long-term investments. Unit trusts can engage in borrowing and scrip lending. Fund valuations take place on a daily basis at approximately 15h00 on a forward pricing basis. The fund’s TER reflects the percentage of the average Net Asset Value of the portfolio that was incurred as charges, levies and fees related to the management of the portfolio. A schedule of fees is available from Old Mutual Unit Trusts Ltd, a registered manager in terms of the Collective Investment Schemes Control Act 45 of 2002. For more information please refer to the Fund’s Minimum Disclosure Document (MDD), www.omut.co.za.

Personal trading by staff is restricted to ensure that there is no conflict of interest. All directors and those staff who are likely to have access to price-sensitive and unpublished information in relation to the Old Mutual Group are further restricted in their dealings in Old Mutual shares. All employees of Old Mutual Investment Group are remunerated with salaries and standard short-term and long-term incentives. No commission or incentives are paid by Old Mutual Investment Group to any person. All inter-group transactions are done on an arm’s length basis. In respect of pooled, life wrapped products, the underlying assets are owned by Old Mutual Life Assurance Company (South Africa) Limited, who may elect to exercise any votes on these underlying assets independently of Old Mutual Investment Group. In respect of these products, no fees orcharges will be deducted if the policy is terminated within the first 30 days. Returns on these products depend on the performance of the underlying assets. Old Mutual Investment Group has comprehensive crime and professional indemnity insurance, as part of the Old Mutual Group cover. For more detail, as well as for information on how to contact us and on how to access information, please visit www.oldmutualinvest.com.

Old Mutual Investment Group (Pty) Ltd. Physical address: Mutualpark, Jan Smuts Drive, Pinelands 7405. Telephone number: +27 21 509 5022

DY % PE Ratio 1 Month % * 12 Months % *FTSE/JSE All Share Index 2.9 19.7 -3.5 1.7FTSE/JSE Resources Index 2.9 15.4 -3.1 1.9FTSE/JSE Industrial Index 2.8 15.6 -4.2 1.7FTSE/JSE Financial Index 4.7 13.1 -2.1 2.6FTSE/JSE SA Quoted Property Index 6.2 16.1 0.3 2.8ALBI BEASSA Bond Index -1.0 7.9STeFI Money Market Index 0.6 7.6MSCI World Index (R) -0.2 6.3MSCI World Index (US$) 0.4 18.9

Economic Indicators Latest Data Previous YearExchange RatesRand/US$ June-17 13.06 14.70Rand/UK Pound June-17 16.97 19.56Rand/Euro June-17 14.92 16.31Rand/Aus$ June-17 10.04 10.97Commodity PricesGold Price ($) June-17 1 241.6 1 321.9Gold Price (R) June-17 16 220.7 19 526.4Oil Price ($) June-17 48.8 50.1Interest RatesPrime Overdraft June-17 10.5% 10.5%3-Month NCD Rate June-17 7.3% 7.4%R186 Long-bond Yield June-17 8.8% 8.8%InflationCPI (y-o-y) May-17 5.4% 6.2%Real EconomyGDP Growth (y-o-y) March-17 0.6% -0.6%HCE Growth (y-o-y) March-17 0.8% 0.6%(Household Consumption Expenditure)GFCF Growth (y-o-y) March-17 -0.9% -3.1%(Gross Fixed Capital Formation)Manufacturing Production (y-o-y) April-17 1.7% -0.5%(seasonally adjusted)Balance of PaymentsTrade Balance (cumulative 12-month) May-17 $9.5 $18.4Current Account (% of GDP) March-17 -2.1% -5.0%Forex Reserves (incl. gold) May-17 $620.2 $725.6

Siboniso NxumaloJoint Boutique HeadOld Mutual Global Emerging Markets

I’M INVESTING FOR YOUR FAMILY’S FUTURE.AND MY OWN.

We believe that when you are personally invested in something, you are even more driven to make it succeed. That’s why Siboniso Nxumalo invests his own money alongside yours.

Siboniso is a fund manager of the Old Mutual Global Emerging Market Fund and is joint boutique head of the Old Mutual Global Emerging Markets boutique. Emerging markets are fast becoming a driver of global growth and we offer exposure to quality listed companies across a diverse range of global emerging markets. This, coupled with the team’s focus on sound corporate governance and on-the-ground analysis of potential investments, contributes to their success. But this is more than just Siboniso’s success, it’s yours too.

Old Mutual Investment Group (Pty) Ltd is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Unit Trust Managers (RF) (Pty) Ltd is a registered manager in terms of the Collective Investment Schemes Control Act 45 of 2002. The fund fees and costs that we charge for managing your investment are accessible on the relevant fund’s minimum disclosure document (MDD) or table of fees and charges, both available on our public website, or from our contact centre. Old Mutual is a member of the Association for Savings & Investment South Africa (ASISA).

Invest where the fund managers invest by contacting an Old Mutual Financial Adviser or your Broker, call 0860 INVEST (468378) or visit www.oldmutualinvest.com/asinvested

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Siboniso NxumaloJoint Boutique HeadOld Mutual Global Emerging Markets

I’M INVESTING FOR YOUR FAMILY’S FUTURE.AND MY OWN.

We believe that when you are personally invested in something, you are even more driven to make it succeed. That’s why Siboniso Nxumalo invests his own money alongside yours.

Siboniso is a fund manager of the Old Mutual Global Emerging Market Fund and is joint boutique head of the Old Mutual Global Emerging Markets boutique. Emerging markets are fast becoming a driver of global growth and we offer exposure to quality listed companies across a diverse range of global emerging markets. This, coupled with the team’s focus on sound corporate governance and on-the-ground analysis of potential investments, contributes to their success. But this is more than just Siboniso’s success, it’s yours too.

Old Mutual Investment Group (Pty) Ltd is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Unit Trust Managers (RF) (Pty) Ltd is a registered manager in terms of the Collective Investment Schemes Control Act 45 of 2002. The fund fees and costs that we charge for managing your investment are accessible on the relevant fund’s minimum disclosure document (MDD) or table of fees and charges, both available on our public website, or from our contact centre. Old Mutual is a member of the Association for Savings & Investment South Africa (ASISA).

Invest where the fund managers invest by contacting an Old Mutual Financial Adviser or your Broker, call 0860 INVEST (468378) or visit www.oldmutualinvest.com/asinvested

LB 114441L/6