Investments

BCI Global Conference

6 June 2016

Vanessa van Vuuren

“Has the SA equity investment opportunity set

evolved to a case of rand-hedge versus non-

rand-hedge”?

GLOBAL FINANCIAL MARKETS

BCI Global Conference 2016

LONG RUN REAL EQUITY RETURNS

Sanlam Investments 3

0

1

2

3

4

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8

Sou

th A

fric

a

Au

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New

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Euro

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Ger

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y

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Au

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a

Real Annualized Equity Returns (Local Currency) for 115 Years (1900-2015)

For the South African investor investing in Rand, South Africa has been the best performing equity market globally

Long Run Equity Returns Source: Credit Suisse – Global Investment Returns Sourcebook 2016

BCI Global Conference 2016

LONG RUN REAL EQUITY RETURNS

Sanlam Investments 4

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Sou

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Swed

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US

No

rway

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Ital

y

Au

stri

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Real Annualized Equity Returns (USD) for 115 Years (1900-2015)

For the foreign investor investing in USD, South Africa is the best performing emerging market and 3rd globally

Long Run Equity Returns Source: Credit Suisse – Global Investment Returns Sourcebook 2016

JSE- LONG TERM RESILIENCE DESPITE MAJOR CRISES

Sanlam Investments JSE- Long Term Resilience Despite |Major Crises 5

1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015

FTSE/JSE All Share Index 1925-2016

1929 Great Depression

1960 Sharpeville Massacre

1970 Tech-Stock Crash

1980 U.S Recession

1987 Stock market crash as a result of the savings and loans crisis in the US

1999 Emerging markets crisis (Rand volatility)

2003 SARS outbreak & the Iraq war begins

2009 Credit Crunch & Great Recession

100

1000

10000

50000

BCI Global Conference 2016 Source: SIM Equities Research

THE CASE FOR RAND HEDGE INVESTING?

Sanlam Investments The Case for Rand Hedge Investing 6BCI Global Conference 2016 Source: SIM Economics Team

51,2%

48,8%

Large Cap Universe

21 counters

22

JSE LANDSCAPE: RAND HEDGE VERSUS SA INC

Sanlam Investments JSE Landscape 7

MARKET CAP

STOCK COUNT39% RH

61% NRH/SA Inc

MARKET CAP70% RH

30% NRH/SA Inc

83,2%

13,5%

2,8%0,5%

JSE Universe

Large

Mid

Small

Fledgling

Source: SIM Equities Research

75,6%

24,4%

Large Cap Universe

R2.2tn48,1%

51,9%

Mid Cap Universe

R777billion

R720bn

36,6%

63,4%

Small Cap Universe

R209bn

R120bn

44,3%

55,7%

Mid Cap Universe

34

27 33,3%

66,7%

Small Cap Universe

40

20

BCI Global Conference 2016

R7trillion

44,1%

55,9%

Fledgling Universe

R57bn

R45bn

35,0%

65,0%

Fledgling Universe

36

67

BEHAVIOURAL FINANCE: HEURISTIC BIASES

Sanlam Investments Behavioural Finance 8

Defined as a simple thinking strategy that often allows us to make judgements and solve problems efficiently – “rule-of-thumb” derived from experience that has no guarantee of accuracy or usefulness

Example: Racial profiling or stereotyping…ALL BLONDES ARE DUMB!

BCI Global Conference 2016

BEHAVIOURAL FINANCE: HEURISTIC BIASES

Sanlam Investments Behavioural Finance 9

Defined as a simple thinking strategy that often allows us to make judgements and solve problems efficiently – “rule-of-thumb” derived from experience that has no guarantee of accuracy or usefulness

Example: Racial profiling or stereotyping…ALL BLONDES ARE DUMB!

JK Rowling

(Author: Harry Porter)

Ginni Rometty(CEO: IBM)

Hillary Clinton

Meg Whitman (CEO: HP)

Marissa Mayer (CEO: Yahoo!)

BCI Global Conference 2016

HEURISTICS IN PRACTICE

Sanlam Investments Heuristics in practice 10

Rand weakens

Rand strengthens

Rand HedgeInvesting

BCI Global Conference 2016

RAND HEDGE VERSUS RAND LEVERAGE

Sanlam Investments Rand Hedge vs. Rand Leverage 11

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0,50

1,00

1,50

2,00

2,50

3,00

1960

1961

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1963

1964

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Relative Strength of Indices

Industrials Resources

Rand-HedgeAnglo AmericanImpala Platinum

BHP BillitonAnglo Gold

Lonmin

Rand-HedgeSAB

NaspersRichemont

BATSteinhoff

BCI Global Conference 2016Source: SIM Equities Research

42 44

3439

36

4439

48

3540 42

53

6872

58

6762 61

42

60

4541

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-Q1

Stocks Outperforming SWIX

Rand Hedge Non-Rand Hedge

Source: SIM Equities Research

SA INC DEFIES RULE-OF-THUMB EXPECTATIONS

Sanlam Investments SA INC Defies Rule-of-Thumb Expectations 12BCI Global Conference 2016

Company Economic Sector CAGR in HEPS (2011-2016) Total return (2011-2016) Annualised return %

Capitec Niche financial services 31% 272.58% 22.4%

EOH IT 32% 786.37% 39.9%

FBR Food services/QSR 18% 212.20% 19.1%

ITE Niche retail 19% 254.24% 21.5%

CSB Niche retail 19% 312.01% 24.3%

COH Education 34% 680.30% 37.2%

CLH Hotels/leisure 9% 117.47% 12.7%

CONCLUDING THOUGHTS

Sanlam Investments Concluding Thoughts 13

• The rand is a single FACTOR when understanding and selecting an individual investment – not THE factor when constructing a portfolio

• All rand hedges DO NOT behave in the same way as is the case with all non-rand hedges/“SA Inc” stocks

• The rand is materially undervalued and a reversion of this strength is a very real UNTIMEABLE risk at this point

• SA Inc shares offer a vast and diverse opportunity set, but careful research and analysis is required

• Inflation-beating return sources:• Go down the size curve (retail investors CAN)• Select industries or sectors that offer resilience to macro headwinds (education, IT, niche retail, food services)• Select robust company fundamentals and understand the long term investment case

• Competitive advantage and unique proposition• Structural growth• Quality management• High returns on capital

BCI Global Conference 2016

thank youTerms of use:This document is for internal use only and is intended for training purposes for Account Managers and Brokers in South Africa only. The information in the document is intended to serve as general information only. Nothing contained in this document is intended as financial or investment advice, or an offer to do business and should notbe construed as such. While we will take care to provide accurate information, the information set out in this document is provided without any express or implied warranty of any kind whatsoever. In particular, we do not warrant that it is appropriate or suitable for any particular purpose, that it is complete and accurate, or that is virus-free. We will not be responsible for any loss incurred or damages suffered (whether direct, indirect, special or consequential) to you or any third party that may be attributable, directly or indirectly, to the use of, or reliance upon, this document by you. You may not reproduce, modify or create derivative works from, publish, distribute,transmit, or display, or license or transfer any of the content contained in this document, unless you have obtained our prior written authorisation. This document and all its content (text, graphics, icons, hyperlinks, private information and designs) are owned by or licensed to Sanlam. As such the intellectual property rights in the contentare protected against infringement by local and international legislation and treaties, it may not be used in any way without our or the licensor’s consent. You may not (under no circumstances whatsoever) distribute this document to end clients. Distribution of this document may lead to enforcement action by the Financial Services Boardwhich may lead to penalties on the management company (SCI/Satrix). You may only use APPROVED marketing material or the Minimum Disclosure Document when advising clients. We reserve the right to refuse you further access to this document or documents of this nature in future if you breach any of the terms of use or if we believethat your use of the document is illegal or places us in disrepute. We reserve the right to claim damages for all loss and damage suffered by us and expenses we incur as a result of your breach of these terms of use. You agree to indemnify us and hold us harmless, as well as any member of the Sanlam Group and its respective directors,officers, employees, agents, licensors, suppliers, and any third party information providers from and against all losses and expenses (including attorney-and own client costs), resulting from any failure to adhere to these terms of use by you.

Sanlam Investments consists of the following authorised Financial Services Providers: Sanlam Investment Management (Pty) Ltd (“SIM”), Sanlam Multi Manager International (Pty) Ltd (“SMMI"), Satrix Managers (RF)(Pty) Ltd, Graviton Wealth Management (Pty) Ltd (“GWM”), Graviton Financial Partners (Pty) Ltd (“GFP”), RadiusAdministrative Services (Pty) Ltd (“Radius”), Blue Ink Investments (Pty) Ltd (“Blue Ink”), Sanlam Capital Markets (Pty) Ltd (“SCM”), Sanlam Private Wealth (Pty) Ltd (“SPW”) and Sanlam Employee Benefits (Pty) Ltd (“SEB”), a division of Sanlam Life Insurance Limited; and has the following approved Management Companies as defined in theCollective Investment Schemes Control Act, No 45 of 2002 (“CISCA”): Sanlam Collective Investments (RF)(Pty) Ltd (“SCI”) and Satrix Managers (RF)(Pty) Ltd (“Satrix”).

Although all reasonable steps have been taken to ensure the information on this presentation is accurate, the Sanlam Collective Investments (RF) (Pty) Ltd / Satrix Managers (RF)(Pty) Ltd (Sanlam Collective Investments) does not accept any responsibility for any claim, damages, loss or expense; however it arises, out of or in connectionwith the information. No member of Sanlam gives any representation, warranty or undertaking, nor accepts any responsibility or liability as to the accuracy of any of this information. The information to follow does not constitute financial advice as contemplated in terms of the Financial Advisory and Intermediary Services Act, No 37 of2002 (“FAIS”). Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision. The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium- to long-term investments.Please note that past performances are not necessarily an accurate determination of future performances, and that the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available from the Manager, Sanlam Collective Investments (RF) Pty Ltd / Satrix

Managers (RF) (Pty) Ltd, a registered and approved Manager in Collective Investment Schemes in Securities. Additional information of the proposed investment, including brochures, application forms and annual or quarterly reports, can be obtained from the Manager, free of charge. Collective investments are traded at ruling prices andcan engage in borrowing and scrip lending. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in the portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of the portfolio and theinvestor will differ depending on the initial fees applicable, the actual investment date, and the date of reinvestment of income as well as dividend withholding tax. Forward pricing is used. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The performance of the portfolio dependson the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-div date. Lump sum investment performances are quoted. The portfolio may invest in other unit trust portfolios which levy their own fees, and may result is a higher fee structure for ourportfolio. All the portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No 45 of 2002 (“CISCA”). The fund may from time to time invest in foreign instruments which could be accompanied by additional risks as well as potential limitations on the availability of marketinformation. The Manager has the right to close any portfolios to new investors to manage them more efficiently in accordance with their mandates. The portfolio management of all the portfolios is outsourced to financial services providers authorized in terms of the Financial Advisory and Intermediary Services Act, 2002. Standard Bankof South Africa Ltd is the appointed trustee of the Sanlam Collective Investments scheme/Standard Chartered Bank is the appointed trustee of the Satrix Managers Scheme.