the weekly focus 25 november 2013

8/13/2019 The Weekly Focus 25 November 2013

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25 November 2013


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Contents

Contents .................................................................................................................................... 2

Market Comment............................................................................................................................................................ 3

Other Commentators ......................................................... ........................................................... .................................. 5

Economic Update ....................................................................................................................... 7

Weekly Market Analysis ............................................................................................................. 9

Standard Bank Money Market Fund ...................................................... ........................................................... ............ 10

STANLIB Enhanced Yield Fund ...................................................................................................................................... 10

STANLIB Income Fund ........................................................ ........................................................... ................................ 10

Liberty Investments Life Annuities .............................................................................................................................. 11


3/15

Newsflash

The US stock market gained 0.3% last week - to a new record high

Market Comment

While the US stock market gained 0.3% last week - to a new record high - and both the MSCI World Index andMSCI Emerging Market Indices were flat in dollars, the JSE All Share Index lost 1.6% in rands or 0.6% in dollars

last week, as the rand gained about 1%.

The JSE Resources Index lost a hefty 4.2% last week, driven by a fall in the big mining shares, the platinumsand the golds.

There are some growth concerns about our SA economy, which has been held up over the past few years byconsumer spending. Lately numbers like retail sales have been disappointing (up just 0.2% year-on-year in

September, after deducting inflation) and that is a material part of consumer spending, which in turn

contributes at least 66% to our economic growth.

MINING SHARES

As for the mining side, theses shares are very volatile. Referring to our recent comment that the JSEResources Index appeared to be breaking its 5-year down-trend, I would not give up on this just yet, even

though the index is threatening to break down again. It is not unusual for a break of trend to occur, followed

by a pullback to the trend-line for what is called the goodbye kiss! Usually, but not always, the index then

begins its upward move.

See the graph below of the JSE Resources Index pulling back sharply last week after its initial breakout a fewweeks ago. I am holding thumbs very firmly now that this index behaves itself and turns around over the

next week or two and continues with its recovery.

Source:I-Net Bridge

Bank of America Merrill Lynch showed research recently that indicated that foreign investors are the mostunderweight in mining and material shares of any sector. This indicates that most of any selling to be done by

global investors has probably already occurred.

The question is when will they start buying and buying seriously. For that we need signs of a continued pick-up in the top four global economies.


4/15

Credit Suisse notes that for the past 12 or so years commodity prices have been highly correlated withgrowth in emerging market industrial production, with the developed world playing a much reduced role.

They say that despite a strong rebound in global industrial production growth over recent months, EmergingMarket growth has continued to lag, which they suspect in large part explains the relatively muted rebound

in commodity prices.

So they remain sceptical about commodity prices, saying that the combination of increased supply of manycommodities and continued structurally weaker EM growth is likely to cause many prices to continue tostagnate through 2014.

If so, then this is not good news for mining shares or our JSE Resources Index. Meanwhile on the global stage, year-to-date in 2013 Greek equities have given the best return in dollars, can

you believe it, of 56.3% (but are still down 87% from their pre-crisis levels), followed by Greek government

bonds with 54.7%, then Irish equities with 39.1%, US equities with 27.7%, Japanese equities with 27%,

Spanish equities with 25.7%, then Swiss equities with 25.6%, German equities with 25.2%, French equities

with 24%.....then the MSCI World Index with 20.5%.

South African equities, being the MSCI South Africa Index, are way down the list in dollar terms at -6.5%. Ourgovernment bonds are -16.5% in dollars. Australian government bonds have done -9.7% in US dollars, while

their stock market is +9.8%.

The average investor in emerging markets is holding 6.1% in SA shares, versus the benchmark of 7.4%.

The big question facing us over the next few months is what will happen to the rand, our bonds and propertyshares and our stock market once the US Fed actually starts its tapering.

WHAT ABOUT TAPERING AND ITS POTENTIAL EFFECT ON OUR BONDS AND RAND?

Some will argue that because Mr. Market has had 6 months since the first announcement of tapering tothoroughly chew the cud on this issue that it is pretty much in the price.

After all, the subject has been thoroughly discussed for some 6 months by now. That could well be, including for the US 10-year bond yield. Today the US 10-year yield is at 2.75%, exactly

half way between its recent high of 3% and low of 2.5%, even though there is some anticipation that the Fedmay actually start to taper from next month (taper refers to cutting back of its monthly $85bn bond-buying

program, known as quantitative easing, which is in effect increasing the quantity of money by that amount

every month in an effort to stimulate the economy and thereby decrease unemployment).

The US 10-year bond is the most traded instrument in the world and is therefore usually pretty efficientlypriced, based on available information; and available information includes a very strong likelihood of

tapering, especially by March 2014.

Many investment strategists are forecasting that the US 10-year yield will most likely rise to 3.25% andpossibly even 3.5% within a year, as the tapering progresses and as the economy recovers. This would lead

to capital losses in government bonds and many corporate bonds too. There is not historic precedence of

quantitative easing, followed by tapering, so this is only a judgement call and with inflation so low in the

developed world, it may not happen this way. After all, if Mr. Market is aware of all of this, why is the US

10-year still at 2.75%?

If US yields do rise as anticipated, then our SA 10-year yield will likely rise from its current 7.85% to, say, 8.3%or even 8.5% in a years time, because our yields tend to follow those of the US, at least direction-wise, as do

most bond yields around the world. This would lead to capital losses on our bond market and negatively

affect listed property shares too.

But there is no certainty of this happening. Our 10-year bond yield did briefly rise to 8.45% in August thisyear. At that time our SA Listed Property Index dropped to its low for the year of 460 on the index. Today it

is back at 510 and is showing a total return of 9% so far in 2013 (including dividends).


5/15

STANLIBs economist, Kevin Lings, said this morning he thinks the rand (and possibly some other emergingmarket currencies) may well take another dip once tapering is actually announced, because of a possible lack

of new buying of our bonds, possibly even some selling of our bonds.

However, it is interesting that foreign investors have sold about R8.7bn net of our bonds plus R8.5bn net ofour equities so far in November. Thats a total of R17.2bn flowing out, yet the rand has so far absorbed that

without losing further. In fact the rand is still trading at Junes level.

So all-in-all, investors need to be aware of the possibilities; however, no-one knows exactly how it will turnout. Will the bond yields rise much at all?

As things stand right now, foreign investors are already very underweight in South African shares relative tothe 7.3% that the MSCI South Africa Index comprises of the MSCI Emerging Markets Index.

Other Commentators

Garza says her proprietary stock market indicator composite rose to 80% from 78.5% last week. She says therise in the ECRI indicator (Economic cycle research institute weekly index) offset the increase in the

percentage of bullish advisors.

US MARKET COMMENTATOR, ELAINE GARZARELLI

So even despite the recent strong rally in US shares, her quants system remains bullish. If US bond yields were to rise to 4-5% from the current 2.75%, then equities would be fully valued, because

equity performance longer-term is related to the level of interest rates, not to their direction.

Her PE model suggest an 8% gain over the next 6 to 12 months for the S&P 500 Index - to fair value. The number of bullish investment advisors rose a point last week to 53.6%. A level above 53% is considered

bearish, since the current reading shows a high level of optimism, which usually means portfolios are fully

invested (not much cash left to invest).

She thinks that it is still likely that tapering will begin in March, although a December or January start date isnot out of the question. Novembers economic data will tell us more.

The fact that headline CPI inflation is up only 1% in the past year and core CPI is up only 1.7% points more toMarch.

Garza says the US consumer is one of the strongest and under-reported parts of the US economy currently,which is key, because consumer spending accounts for 66% or more of GDP.

Chen Zhao from BCA notes that there are plenty of sceptical investors and asset managers out there aboutthe current equity bull market.

BCA RESEARCH

He says although the US market has gained strongly this year (27%), which is causing some to call it a bubble,a large chunk of the gains in 2013 have come from a contraction in the risk premium associated with equities,the so-called equity risk premium, which was very high owing to a series of terrible economic, financial and

political shocks of the last several years.

Chen says if the US market ends up 27% in 2013, it would be above the average return, but definitely not atail event (an incredibly unusual event).

Chen believes the bull market in global equities has further to go. He sees the global economic macrolandscape likely dominated by three stories in the coming months and even years, namely global growth

resynchronisation, profound economic restructuring in Asia and possible price declines in the industrialised

world. All of these themes will have strong financial market implications.

On the first story, the US economy continues to grow slowly but steadily, Europe has stopped contracting andChinas economy is beginning to strengthen anew. Also, although uncertainties abound, most economic

indicators suggest the Japanese economic recovery remains on track.


6/15

As for reforms in China and Japan, they should prove to be key macro events that should produce importanteconomic and financial market implications. China is refocusing on large scale supply-side reforms, while

Japan is pushing through aggressive demand-style restructuring. Chen sees these reforms as unambiguously

bullish for shares.

He says the Chinese leadership has presented a very ambitious blueprint, or master plan, aimed at re-energising and/or revamping the entire socio-economic model that has underpinned Chinas economic

success since the late 1970s. Chen likes Chinese President Xi Jinpings leadership style and is bullish on his ideas. Private businesses and consumers will be the prime beneficiaries of his policies. Hence small cap shares in

China have been outperforming the big shares.

Paul Hansen

Director: Retail Investing


7/15

Economic Update

Last week, October 2013, headline CPI inflation rose by only 0.2%m/m, with the annual rate of inflation dropping to

5.5%y/y from 6.0%y/y in September 2013. This was below market expectations for the rate to ease to 5.7%y/y

(STANLIB 5.7%y/y). The annual rate of inflation was helped by favourable base effects in food inflation. Elsewhere,

there is very little evidence of any significant upward pressure on SA inflation. In many respects, this reflects thecurrent global trend in consumer inflation. For 2012 as a whole, SA CPI inflation averaged 5.7%, up from a more

respectable 5.0%y/y in 2011 and 4.3% in 2010. For 2013 we expect SA inflation to average 5.8%, easing slightly to an

average of 5.7% in 2014. Food prices rose by a significant 0.9%m/m in October, although the annual rate of food

inflation eased further to 4.2%y/y from 6.0%y/y in September, 7.4%y/y in August and 7.1%y/y in July 2013, largely due

to base effects. Globally, food inflation remains well contained, having declined in recent months. This has helped to

offset some of the effects of currency weakness. SA agricultural inflation has actually moderated recently and is now

well into deflation. In October 2013 the Rand/Dollar exchange rate averaged almost exactly R10.00 per Dollar. This

compares with R8.70 per Dollar in October 2012, a decline of 13%y/y.

Historically, a 13% sustained decline in the Rand would have resulted in approximately 1% higher consumer

inflation. Amazingly, the pass-through from Rand weakness into consumer inflation appears far more muted than

in the past. This could reflect the general lack of pricing power given the weakening economic conditions. It also

suggests that companies are absorbing a larger portion of the cost increase. Unfortunately, this has probably

contributed to their general unwillingness to take on additional staff. Petrol inflation fell by a welcome 1.4%m/m in

October, reflecting the 20c/l decline in the petrol price. The petrol price declined by a further 28c/l in November,

which will also help next months inflation outcome. Over the past year to November, petrol prices remain 7.6%

higher than a year-ago. There is current a modest daily under-recovery on the petrol price of 11c/l. The introduction

of toll fees in Gauteng during December will have a fairly small effect on overall consumer inflation given the low

weight. CPI excluding food and petrol is still well within the inflation target at 5.4%y/y, unchanged over the past three

months. Core inflation (CPI excluding food, fuel and electricity) also remains contained at 5.3%y/y, unchanged from

last month, but up slightly from 5.1%y/y in August. Services inflation, unfortunately, remains at the top-end of the

inflation target at 6.0%y/y, while administered price inflation is up at 7.8%y/y (but well off the peak). The inflation rate

for pensioners has eased back inside the target range at 5.7%, down from 6.7%y/y in August. The risks to the inflation

forecast remain to the upside, and largely depend on the pass-through from currency weakness. Despite some upside

risks to inflation, the Reserve Bank is unlikely to consider hiking rates given the weakness in the domestic economy,

and instead will probably look to keep interest rates on hold for an extended period. Interestingly, the lower than

expected inflation rate, coupled with a fall-off in consumer activity, will raise the debate about a possible rate cut.

While, on the surface, this has a certain appeal, the large current account deficit (even after the recent revision to the

trade account), the risk imposed by QE tapering, and the limited benefit of a rate cut (especially given the electricity

constraints) suggests rates should simply be left unchanged.

The SA Reserve Bank opted to leave the Repo rate unchanged today at 5.00%. This was in-line with market

expectations (all 23 analysts surveyed by Bloomberg expected no rate change). The Reserve Bank last adjusted

interest rates in July 2012, when they cut rates by 50bps. The prime interest rate is the lowest prime rate since

January 1974.In making the decision to leave rates unchanged, the Reserve Bank highlighted the following:

Inflation: upside risks

While food price inflation may continue to moderate in the short term, upside pressures can be expectedfrom the exchange rate.

The headline inflation forecast of the Bank is more or less unchanged since the previous meeting of the MPC. Inflation is expected to remain within the target range for the entire forecast period, with a peak of 5.9% in

the second quarter of 2014

The upside risks to the inflation outlook remain high, dominated by uncertainties primarily relating to boththe timing and the speed of the tapering of the US Feds bond purchasing programme.


8/15

Economic growth: downside risks

The domestic growth outlook remains fragile, with third quarter growth expected to have been adverselyaffected by the protracted work stoppages in the motor vehicle sector in particular, which also contributed to

a decline in exports.

Following a rebound of growth to an annualised 3.0% in the second quarter of 2013, the third quarteroutcome is expected to be significantly lower, and more in line with the 0.9% recorded in the first quarter of

this year.

Both business and consumer confidence remain at low levels. The Banks forecast for growth in 2013 has been revised down from 2.0% to 1.9%, while the forecasts for

2014 and 2015 have been revised down to 3.0% and 3.4% respectively, from 3.3% and 3.6%.

The downward trend of household consumption expenditure is indicative of relatively weak demandconditions in the economy, and slower bank credit extension to households is likely to reinforce this trend.

Exchange rate: risk of further weakening

Speculation regarding tapering has been the main driver of rand exchange rate volatility since the previousmeeting of the MPC.

The challenge facing the MPC is not only to anticipate the timing and speed of Fed tapering, but also to try toassess the extent to which tapering is already priced into the exchange rate.

There is a risk that, should there be a stronger or more disorderly response by the markets to actual Fedtapering, the reaction of the exchange rate could be more extreme.

Compounding the risks to the exchange rate is the stubbornly wide current account deficit, notwithstandingrecent revisions to the trade data. The deficit increases South Africas sensitivity to global spillover effects.

Overall, while the Reserve Bank remains concerned about the growth outlook, they are clearly extremely concerned

about the possible impact of QE tapering on the Rand exchange rate and inflation . Overall, todays decision by the

Reserve Bank to leave rates unchanged seems appropriate given the current circumstances and the fact that rates are

already at their lowest level since 1974. We still expect SA interest rates to remain on hold for a considerable period.

In the emerging markets, the Central Bank of Nigeria announced on 19 November 2013, that it will keep interest

rates on hold at the record high of 12%. This was largely expected by the market. The Monetary Policy Committee

decided to adopt a 6% to 9% inflation target in 2014 as the central bank tries to keep inflation under control.

Consumer inflation eased to 7.8%y/y in October, the lowest level since March 2009. However, Governor Sanusi hasindicated that this is not necessarily the end of the tightening cycle as some risks remain. Some of the risks mentioned

were: the tapering of the Quantitative Easing in the United States,which could cause more volatility in the Naira; the

upcoming elections,which have caused some uncertainty in the Nigerian markets; an unexpected increase in inflation;

and the susceptibility of the Nigerian markets to external shocks. The economy grew by 6.8% y/y in the third

quarter, up from 6.2% in the second quarter and better than market expectations.The growth came mainly from the

non-oil sector, which continues to lag, and was mainly boosted by the agricultural sector at 5.1%y/y. The agricultural

sector is Nigerias largest at 42% of the economy and this was its highest growth rate in the sector in eight quarters.

In Mozambique voting in the local government elections held on the 20 November 2013 were mostly peaceful. There

were concerns of violence marring the elections as there were tensions before the elections between the ruling

parting Frelimo and its main opposition Renamo, some of which were violent. What was different about these

elections was the rise in the number of votes for the Mozambique Democratic Movement (MDM). The MDM is abreakaway party formed by former Renamo members and this could mark the end of the traditional two-horse race in

Mozambique politics. The presidential elections will be held on October 2014.

Kevin Lings, Laura Jones & Kganya Kgare

Please follow our regular economic updates on twitter @lingskevin

(STANLIB Economics Team)


9/15

Weekly Market Analysis

Currencies/ Indices/ Commodities Fridays Close

22/11/13

Weekly Move

(%)

YTD

(%)

Indices

*MSCI World US Dollar 1623.15 0.10 21.26

*MSCI World Rand 16329.49 -0.80 44.32

*MSCI Emerging Market US Dollar 1009.17 0.40 4.41

*MSCI Emerging Market Rand 10152.61 -0.51 13.76

All Share Index US Dollar 4415.70 -0.74 -5.52

All Share Index Rand 44435.61 -1.63 13.21

All Bond Index 434.98 -0.22 0.23

Listed Property J253 1402.86 2.16 8.96

Currencies

US Dollar/Rand 10.06 -0.90 19.07

Euro/Rand 13.65 -0.44 22.37

Sterling/Rand 16.32 -0.20 18.64

Euro/US Dollar 1.36 0.45 2.72

Commodities

Oil Brent Crude Spot Price ($/bl) 110.21 2.14 -0.81

Gold Price $/oz 1244.35 -3.55 -25.67

Platinum Price S/oz 1385.50 -3.85 -9.97

Source:I-Net Bridge

* MSCI - Morgan Stanley Capital International


10/15

Rates

These rates are expressed in nominal and effective terms and should be used for indication purposes ONLY.

Standard Bank Money Market Fund

Nominal: 5.08% per annum

Effective: 5.20% per annum

STANLIB is required to quote an effective rate which is based upon a seven-day rolling average yield for Money

Market Portfolios. The above quoted yield is calculated using an annualised seven-day rolling average as at 24

November 2013. This seven- day rolling average yield may marginally differ from the actual daily distribution and

should not be used for interest calculation purposes. We however, are most happy to supply you with the daily

distribution rate on request, one day in arrears. The price of each participatory interest (unit) is aimed at a constant

value. The total return to the investor is primarily made up of interest received but, may also include any gain or lossmade on any particular instrument. In most cases this will merely have the effect of increasing or decreasing the daily

yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio.

STANLIB Enhanced Yield Fund

Effective Yield: 5.75%

STANLIB is required to quote a current yield for Income Portfolios. This is an effective yield. The above quoted yield

will vary from day to day and is a current yield as at 22 November 2013. The net (after fees) yield on the portfolio will

be published daily in the major newspapers together with the all-in NAV price (includes the accrual for dividendsand interest). This yield is a snapshot yield that reflects the weighted average running yield of all the underlying

holdings of the portfolio. Monthly distributions will consist of dividends (currently tax exempt) and taxable interest.

Interest will also be exempt from tax to the extent that investors are able to make use of the applicable interest

exemption as currently allowed by the Income Tax Act. The portfolios underlying investments will determine the split

between dividends and interest.

STANLIB Income Fund

Effective Yield: 6.43%

Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of

participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A

schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can

engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the

overall costs. The above quoted yield will vary from day to day and is a current yield as at 22 November 2013.


11/15

STANLIB Extra Income FundEffective Yield: 5.81%

Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of

participatory interests may go down as well as up and past performance is not necessarily a guide to the future. A

schedule of fees and charges and maximum commissions is available on request from the company/scheme. CIS can

engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the

overall costs.

Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or

down. The above quoted yield will vary from day to day and is a current yield as at 22 November 2013.

Liberty Investments Life Annuities

Current Rates for 25th

November 2013 29th

November 2013

Payments are assumed to be paid monthly in advance with no guarantee period or annual escalation in income. Ages

indicated assume client is the exact age shown. No tax has been deducted.

Gender Male Female

Age last birthday 55 60 65 55 60 65

Contribution R 100,000 R 790 R 829 R 888 R 717 R 750 R 798

R 250,000 R 2 061 R 2 158 R 2 304 R 1 877 R 1 959 R 2 079

R 500,000 R 4 179 R 4 373 R 4 665 R 3 811 R 3 974 R 4 213

R 1,000,000 R 8 414 R 8 803 R 9 386 R 7 678 R 8 004 R 8 482

The table above shows the monthly annuity that an annuitant will receive for life in return for the single premium in

the left hand column. Note that the annuity depends on the annuitants exact age and gender.

The rates above were calculated assuming maximum commission and will be enhanced if a commission discount is

selected.


12/15

Glossary of terminologyBonds A bond is an interest-bearing debt instrument, traditionally issued by governments as part of

their budget funding sources, and now also issued by local authorities (municipalities),

parastatals (Eskom) and companies. Bonds issued by the central government are often

called gilts. Bond issuers pay interest (called the coupon) to the bondholder every 6

months. The price/value of a bond has an inverse relationship to the prevailing interest rate,

so if the interest rate goes up, the value goes down, and vice versa. Bonds/gilts generally

have a lower risk than shares because the holder of a gilt has the security of knowing that

the gilt will be repaid in full by government or semi-government authorities at a specific

time in the future. An investment in this type of asset should be viewed with a 3 to 6 year

horizon.

Cash An investment in cash usually refers to a savings or fixed-deposit account with a bank, or to

a money market investment. Cash is generally regarded as the safest investment. Whilst it is

theoretically possible to make a capital loss investing in cash, it is highly unlikely. An

investment in this type of asset should be viewed with a 1 to 3 year horizon.

Collective

Investments

Collective investments are investments in which investors funds are pooled and managed

by professional managers. Investing in shares has traditionally yielded unrivalled returns,

offering investors the opportunity to build real wealth. Yet, the large amounts of money

required to purchase these shares is often out of reach of smaller investors. The pooling of

investors funds makes collective investments the ideal option, providing cost effective

access to the worlds stock markets. This is why investing in collective investments has

become so popular the world over and is considered a sound financial move by most

investors.

Compound Interest Compound interest refers to the interest earned on interest that was earned earlier and

credited to the capital amount. For example, if you deposit R1 000 in a bank account at 10%

and interest is calculated annually; your balance will be R1 100 at the end of the first year

and R1 210 at the end of the second year. That extra R10, which was earned on the interest

from the first year, is the result of compound interest ("interest on interest"). Interest can

also be compounded on a monthly, quarterly, half-yearly or other basis.

Dividend Yields The dividend yield is a financial ratio that shows how much a company pays out in dividends

each year relative to its share price. The higher the yield, the more money you will get back

on your investment.

Dividends When you buy equities offered by a company, you are effectively buying a portion of the

company. Dividends are an investors share of a companys profits, given to him or her as a

part-owner of the company.

Earnings per share Earnings per share is a measure of how much money the company has available for

distribution to shareholders. A companys earnings per share is a good indication of its

profitability and is generally considered to be the most important variable in determining a

companys share price.


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Equity A share represents an institution/individuals ownership in a listed company and is the

vehicle through which they are able to share in the profits made by that company. As the

company grows, and the expectation of improved profits increases, the market price of the

share will increase and this translates into a capital gain for the shareholder. Similarly,

negative sentiment about the company will result in the share price falling. Shares/equities

are usually considered to have the potential for the highest return of all the investment

classes, but with a higher level of risk i.e. share investments have the most volatile returns

over the short term. An investment in this type of asset should be viewed with a 7 to 10 year

horizon.

Financial Markets Financial markets are the institutional arrangements and conventions that exist for the issue

and trading of financial instruments.

Fixed Interest Funds Fixed interest funds invest in bonds, fixed-interest and money market instruments. Interest

income is a feature of these funds and, in general, capital should remain stable.

Gross Domestic

Product (GDP)

The Gross Domestic Product measures the total volume of goods and services produced in

the economy. Therefore, the percentage change in the GDP from year to year reflects the

country's annual economic growth rate.

Growth Funds Growth funds seek maximum capital appreciation by investing in rapidly growing companies

across all sectors of the JSE. Growth companies are those whose profits are in a strong

upward trend, or are expected to grow strongly, and which normally trade at a higher-than-

average price/earnings ratio.

Industrial Funds Industrial funds invest in selected industrial companies listed on the JSE, but excluding all

companies listed in the resources and financial economic groups.

Investment Portfolio An investment portfolio is a collection of securities owned by an individual or institution

(such as a collective investment scheme). A funds portfolio may include a combination of

financial instruments such as bonds, equities, money market securities, etc. The theory isthat the investments should be spread over a range of options in order to diversify and

spread risk.

JSE Securities

Exchange

The primary role of the JSE Securities Exchange is to provide a market where securities can

be freely traded under regulated procedures.

Price to earnings

ratio

Price to earnings ratio or p: e ratio is calculated by dividing the price per share by the

earnings per share. This ratio provides a better indication of the value of a share, than the

market price alone. For example, all things being equal, a R10 share with a P/E of 75 is much

more expensive than a R100 share with a P/E of 20.

Property Property has some attributes of shares and some attributes of bonds. Property yields are

normally stable and predictable because they comprise many contractual leases. These

leases generate rental income that is passed through to investors. Property share prices

however fluctuate with supply and demand and are counter cyclical to the interest rate

cycle. Property is an excellent inflation hedge as rentals escalate with inflation, ensuring

distribution growth, and property values escalate with inflation ensuring net asset value

growth. This ensures real returns over the long term.

Resources and Basic

Industries Funds

These funds seek capital appreciation by investing in the shares of companies whose main

business operations involve the exploration, mining, distribution and processing of metals,

minerals, energy, chemicals, forestry and other natural resources, or where at least 50

percent of their earnings are derived from such business activities, and excludes service

providers to these companies.


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Smaller Companies

Funds

Smaller Companies Funds seek maximum capital appreciation by investing in both

established smaller companies and emerging companies. At least 75 percent of the fund

must be invested in small- to mid-cap shares which fall outside of the top 40 JSE-listed

companies by market capitalisation.

Value Funds These funds aim to deliver medium- to long-term capital appreciation by investing in value

shares with low price/earnings ratios and shares which trade at a discount to their net assetvalue.

Growth Funds Growth funds seek maximum capital appreciation by investing in rapidly growing companies

across all sectors of the JSE. Growth companies are those whose profits are in a strong

upward trend, or are expected to grow strongly, and which normally trade at a higher-than-

average price/earnings ratio.

Sources: Unit Trust and Collective Investments (September 2007), The Financial Sector Charter Council, Personal Finance (30 November 2002),

Introduction to Financial Markets, Personal Finance, Quarter 4 2007, Investopedia (www.investopedia.com) and The South African Financial

Planning Handbook 2004.


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DisclaimerThe price of each unit of a domestic money market portfolio is aimed at a constant value. The total return to the investor is primarily made up of

interest received but, may also include any gain or loss made on any particular instrument. In most cases this will merely have the effect of

increasing or decreasing the daily yield, but in an extreme case it can have the effect of reducing the capital value of the portfolio. Collective

Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as

up and past performance is not necessarily a guide to the future. An investment in the participations of a CIS in securities is not the same as a

deposit with a banking institution. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and

maximum commissions is available on request from STANLIB Collective Investments Ltd (the Manager). Commission and incentives may be paid and

if so, would be included in the overall costs. A fund of funds is a portfolio that invests in portfolios of collective investment schemes, which levy

their own charges, which could result in a higher fee structure for these portfolios. Forward pricing is used. Fluctuations or movements in exchange

rates may cause the value of underlying international investments to go up or down. TER is the annualised percent of the average Net Asset Value

of the portfolio incurred as charges, levies and fees. A higher TER ratio does not necessarily imply a poor return, nor does a low TER imply a good

return. The current TER cannot be regarded as an indication of future TERs. Portfolios are valued on a daily basis at 15h30. Investments and

repurchases will receive the price of the same day if received prior to 15h30. Liberty is a full member of the Association for Savings and Investments

of South Africa. The Manager is a member of the Liberty Group of Companies.

As neither STANLIB Wealth Management Limited nor its representatives did a full needs analysis in respect of a particular investor, the investor

understands that there may be limitations on the appropriateness of any information in this document with regard to the investors unique

objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes onlyand STANLIB does not guarantee the suitability or potential value of any information contained herein. STANLIB Wealth Management Limited does

not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment

objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial

adviser in this regard. STANLIB Wealth Management Limited is an authorised Financial Services Provider in terms of the Financial Advisory and

Intermediary Services Act 37 of 2002 (Licence No. 26/10/590)

Compliance No.: D4403R

17 Melrose Boulevard, Melrose Arch, 2196

P O Box 202, Melrose Arch, 2076

T 0860123 003 (SA Only)

T+27(0)11 448 6000

[email protected]

STANLIB Wealth Management Limited

Reg. No. 1996/005412/06

Authorised FSP in terms of the FAIS Act, 2002 (Licence

No. 26/10/590)

STANLIB Collective Investments Limited

Reg. No. 1969/003468/06

24 Ameshoff Street, Braamfontein, 2001

P O Box 10499, Johannesburg, 2000

T 0860 456 789

[email protected]

Websitewww.liberty.co.za

Liberty Group Limited

Reg. No. 1957/002788/06

Authorised FSP in terms of the FAIS Act (Licence No.

2409)
mailto:[email protected]://www.stanlib.com/mailto:[email protected]://www.liberty.co.za/http://www.liberty.co.za/mailto:[email protected]://www.stanlib.com/mailto:[email protected]

the weekly focus 25 november 2013

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