Morningstar South Africa Fund Observer Q2 2016

2Q

Fund ObserverSouth Africa

Morningstar Fund Observer | 2nd Quarter 2016

7Commentary: Quarterly Market Summary

8Analysis: Morningstar Rating Analysis of South African Domiciled Managers

5Data: Fund Houses

6Data: Market Performance

3Data: Individual Funds

4Data: Fund Categories

Contents

©2016 Morningstar, Inc. All rights reserved. The information, data, analyses, and opinions contained herein (1) include the confidential and proprietary information of Morningstar, Inc., (2) may not be copied or redistributed, (3) do not constitute investment advice offered by Morningstar, Inc., (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar, Inc. shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use.


Morningstar

Rating*

Return (Past

Quarter)

Mstar Category

Quartile RankReturn (1 Year)

Fund Level AUM

(R Mil)

Quart Est Net

Flow (R Mil)

Short Term Bond

Coronation Strategic Income 5 2.6 21 8.9 22 235 -628

STANLIB Income 4 2.2 57 7.9 20 439 190

Cautious Allocation

Prudential Inflation Plus 5 1.6 37 8.2 38 864 -113

ABSA Absolute 3 1.5 43 6.2 16 862 -1 185

Coronation Capital Plus 3 1.4 19 4.6 19 851 -1 197

Coronation Balanced Defensive 4 1.4 51 7.2 39 365 -378

Allan Gray Stable 5 1.3 56 15.0 40 002 1 528

Nedgroup Inv Stable 4 0.7 88 7.2 33 122 -1 451

Moderate Allocation

Allan Gray Balanced 5 1.3 24 14.9 118 559 1 657

Investec Opportunity 5 1.3 23 15.9 42 026 1 338

Prudential Balanced 4 0.3 75 5.5 13 959 239

Foord Balanced 5 0.1 82 5.5 48 992 -489

Coronation Balanced Plus 4 - 0.1 88 4.3 82 740 -1 098

Discovery Balanced 4 - 0.4 92 5.6 16 833 897

South African Equity

Coronation Top 20 3 0.9 30 - 0.9 17 660 -619

Allan Gray Equity 4 0.9 32 10.8 39 292 -729

Old Mutual Investors 4 0.6 41 3.4 13 556 -156

Nedgroup Inv Rainmaker 3 0.6 42 4.2 15 318 -495

Foord Equity 5 - 0.1 62 0.7 12 345 -394

Global Equity

Allan Gray - Orbis Global Equity FF 5 1.3 9 17.8 15 580 -225

*Morningstar rates investments from 1 to 5 stars based on risk-adjusted performance relative to similar investments over a minimum of 3 years

Performance and Estimated Net Flows for Largest 20 Funds by AUM

©2016 Morningstar, Inc. All rights reserved. The information, data, analyses, and opinions contained herein (1) include the confidential and proprietary information of Morningstar, Inc., (2) may not be copied or redistributed, (3) do not constitute

investment advice offered by Morningstar, Inc., (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar, Inc. shall not be

responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use.

AG Balanced

AUM: R115bn

AG Equity

AUM: R40bn

AG Stable

AUM: R38bn

Coro Bal Defensive

AUM: R39bn

Coro Bal Plus

AUM: R84bn

Coro Capital Plus

AUM: R21bn

Foord Balanced

AUM: R48bn

Investec Opportunity

AUM: R40bn

Prudential Inf Plus

AUM: R38bn

0

50

100

150

200

250

300

350

400

450

0 50 100 150 200 250 300 350

Avg Mkt

Cap

(R bn)

# of holdings

10 Largest Funds: Market Cap vs # of holdings

Nedgroup Stable


ASISA Categories Return (1 Month)Return (Past

Quarter)1 Year Return

Category AUM

(Rm)

Quart Est Net

Flow (Rm)

South African IB Variable Term 3.6 4.2 5.7 44 415 -1 586

South African IB Short Term 0.7 2.0 7.3 85 054 53

Global RE General - 5.4 1.5 29.8 8 802 -42

South African MA Low Equity - 1.3 1.4 6.7 236 675 2 773

South African EQ Mid/Small Cap 0.4 1.1 1.6 6 704 -55

South African MA Medium Equity - 2.0 0.9 5.6 48 468 -685

South African MA High Equity - 2.5 0.6 5.3 426 532 5 069

South African MA Flexible - 2.3 0.5 2.4 55 534 1 683

South African EQ General - 2.2 0.4 1.3 285 087 -424

Global MA Low Equity - 7.0 0.2 19.9 3 728 322

Worldwide MA Flexible - 5.4 0.0 8.9 23 346 257

South African RE General - 0.4 - 0.4 9.6 64 654 -829

Global MA High Equity - 8.0 - 0.5 14.6 11 342 744

Global MA Flexible - 8.0 - 0.5 13.3 18 285 862

Global EQ General - 9.4 - 1.7 11.6 71 081 1 050

Morningstar Categories Return (1 Month)Return (Past

Quarter)1 Year Return

Category AUM

(R m)

Quart Est Net

Flow (R m)

Diversified Bond 3.6 4.2 6.0 47 433 1 507

Flexible Bond 0.9 2.4 7.9 55 784 2 929

Bond - Short Term 0.9 2.3 7.6 85 885 1 688

Bond - Ultra Short Term 0.7 2.1 7.2 55 146 3 340

Global Bond - ZAR/NAD - 4.5 1.5 25.1 1 117 18

Cautious Allocation - 1.5 1.4 7.6 252 217 726

Property - Indirect Global - 5.4 0.8 27.8 9 653 784

Moderate Allocation - 2.8 0.8 6.5 427 573 4 385

Aggressive Allocation - 2.8 0.7 6.2 60 352 2 128

South Africa & Namibia Equity - 2.1 0.6 2.2 282 089 701

Flexible Allocation - 3.7 0.3 6.3 101 193 3 736

South Africa & Namibia Small-Cap Equity - 0.4 - 0.2 - 0.3 8 748 -103

Property - Indirect South Africa & Namibia 0.0 - 0.3 10.3 65 339 -451

Global Large-Cap Blend Equity - 9.1 - 1.6 12.7 60 035 1 293

Africa Equity - 9.5 - 1.9 - 7.7 2 201 -68

Performance and Estimated Net Flows by Fund Category

©2016 Morningstar, Inc. All rights reserved. The information, data, analyses, and opinions contained herein (1) include the confidential and proprietary information of Morningstar, Inc., (2) may not be copied or redistributed, (3) do not constitute investment

advice offered by Morningstar, Inc., (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar, Inc. shall not be responsible for any trading

decisions, damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use.


AUM (R Mil)

(30/06/2016)

Quarterly Net-

Flow (R Mil)Net-Flow Rank

# of 4 & 5

Star** Rated

Funds

Total # of Star

Rated Funds

% of Funds

rated 4 & 5

Stars

ABSA Fund Managers 36 235 -1 088 35 8 60 13%

Allan Gray Unit Trust Mgmt 216 053 2 614 5 11 12 92%

Ashburton Management Company 10 422 411 15 8 21 38%

Boutique Collective Investments 60 058 5 099 1 50 152 33%

Cadiz Collective Investments 1 300 19 23 1 12 8%

Ci Collective Investments 5 917 -204 33 9 39 23%

Community Growth Mgmt Co 765 6 24 0 2 0%

Coronation Management Co 226 288 -4 735 37 29 62 47%

Discovery Life Collective Inv 29 679 1 263 9 2 10 20%

Element Unit Trusts 876 -68 30 3 15 20%

FNB Unit Trusts 280 -4 25 0 1 0%

Foord Unit Trusts 74 768 338 17 21 21 100%

Grindrod Collective Investments 3 101 75 22 1 6 17%

H4 Collective Investments 9 527 131 21 0 9 0%

Investec Fund Mgrs SA 130 927 4 418 2 68 136 50%

Investment Solutions UTs Ltd 17 392 -51 29 6 16 38%

IP Management Company 5 643 177 19 14 61 23%

Kagiso Collective Investments 2 080 -51 28 0 6 0%

Marriott Unit Trust Mgmt Co 9 052 -104 31 7 17 41%

MET Collective Investments Limited 34 286 1 505 7 50 136 37%

Momentum Collective Investments 42 303 -1 259 36 100 242 41%

Nedgroup Collective Investments 114 472 1 453 8 57 111 51%

Oasis Crescent Management Co 13 772 -195 32 14 32 44%

Old Mutual Unit Trust Mgrs 71 136 191 18 23 83 28%

Personal Trust Intl Mgmt Co 5 108 -4 26 2 5 40%

PPS Management Company (Pty) Ltd 11 795 343 16 4 21 19%

Prescient Management Co 49 501 2 217 6 72 168 43%

Prime CIS Mgmt Co 4 046 140 20 7 12 58%

Prudential Portfolio Managers 88 263 636 13 25 38 66%

PSG Collective Investments 25 965 434 14 12 46 26%

RECM Collective Investments 1 334 -49 27 0 5 0%

Rezco Collective Investments 9 304 1 093 11 3 8 38%

Sanlam Collective Investments 103 881 2 674 4 87 265 33%

Satrix Managers (Pty) Limited 11 219 3 640 3 0 16 0%

STANLIB Collective Investments 102 190 1 180 10 49 176 28%

STANLIB Multi-Manager 33 569 -948 34 6 42 14%

Sygnia Collective Investments 6 197 749 12 4 6 67%

*Figures are estimates which exclude Money Market and Fund of Funds

**Morningstar rates investments from 1 to 5 stars based on risk-adjusted performance relative to similar investments over a minimum of 3 years

2nd Quarter Net Flows* and Morningstar Ratings by Fund Company

©2016 Morningstar, Inc. All rights reserved. The information, data, analyses, and opinions contained herein (1) include the confidential and proprietary information of Morningstar, Inc., (2) may not be copied or redistributed, (3) do not constitute investment advice

offered by Morningstar, Inc., (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar, Inc. shall not be responsible for any trading decisions,

damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use.


Market Performance *Local Market Indices 1 Month Quarter/YTD 1 Year 3 Years 5 Years

JSE All Share

JSE All Share SWIX

JSE Top 40

JSE SA Listed Property

JSE Small Cap

JSE Mid Cap

STeFI Composite

Beassa ALBI

-1.27

-3.02

1.17

-4.12

0.44

1.31

0.10

-0.43

3.83

4.12

2.63

11.04

13.03

14.80

12.77

14.32

13.81

15.68

13.35

18.54

2.270.10 17.534.58 15.36

1.84 11.073.24 14.03 15.75

6.85 5.906.180.59 1.78

4.04 4.40 5.24 6.30 7.90

Global Market Indices 1 Month Quarter/YTD 1 Year 3 Years 5 Years

MSCI World

S&P 500

FTSE 100 TR GBP

Nikkei 225 Average

Shanghai SE Composite

-0.55

0.26

4.72

1.19

2.46

6.54

-3.17

3.99

3.80

6.60

11.66

5.33

5.95

12.10

5.67

-9.47 -6.89 -21.56 6.25 11.73

13.970.45 1.18-2.47 -31.51

Top 10 Stocks by Market Cap QuantitativeMoat

QuantitativeFair-ValueEstimate

QuantitativeValuation

QuantitativeValuation

Uncertainty

QuantitativeFinancial

Health

Naspers

SABMiller

Richemont

BHP Billiton

British American Tobacco

Steinhoff

Sasol

MTN

Old Mutual

Standard Bank

Narrow 89.56 Fairly Valued Medium Strong

Wide 760.51 Overvalued Low Strong

None 345.85 Overvalued High Moderate

Wide 108.99 Undervalued High Strong

Wide 1 984.01 Overvalued High Moderate

None 173.76 Fairly Valued Very High Moderate

Wide 809.77 Overvalued Low Strong

None 41.44 Undervalued High Strong

None 162.59 Undervalued High Strong

Narrow 154.49 Undervalued High Moderate

*All Returns are in base currency

JSE Sector Indices-2.5

6.4-1.8

-9.3-5.3

17.8

-1.95.8

10.7

-2.1-4.3

-2.8

5.36.2

3.3

3.05.0

4.8

0.0-5.3

-18.7

14.67.0

-23.1

-25.0 -22.5 -20.0 -17.5 -15.0 -12.5 -10.0 -7.5 -5.0 -2.5 0.0 2.5 5.0 7.5 10.0 12.5 15.0 17.5 20.0

Basic Materials

Consumer Goods

Consumer Services

Financials

Health Care

Industrials

Technology

Telecommunication

Total Ret 1 Mo (Qtr-End) Total Ret 3 Mo (Qtr-End) Total Ret 1 Yr (Qtr-End)

Kyle CoxInvestment Analyst

Morningstar Investment Management

2016 has, so far, been characterised by high levels of market volatility, with notable events both locally and abroad having a strong impact on asset class returns during the second quarter. The UK's decision to leave the European Union fuelled uncertainty in markets which helped buoy bond returns as investors sought out safe-haven assets, including gold. On the local front, a stronger Rand and relatively attractive bond yields resulted in bond inflows which in turn led to domestic income-focused categories producing the strongest performance over the quarter.

It was an interesting quarter for local markets as asset classes and sectors exhibited divergent performance through the impact of differing underlying drivers. To this extent, rising commodity prices contributed to healthy gains from the resources, weak growth expectations pushed financials lower, and a strengthening Rand negatively impacted most of the large rand-hedge shares (which make up a significant portion of the FTSE/JSE All Share Index). Fixed income assets and gold benefited from increasing risk aversion. As a result, the trend of lower returns from the largest unit trust categories continued, with those more focused on income generation actually outperforming those with higher proportions invested in equity. The range of returns apparent in assets and asset classes led to very similar performance from the multi-asset categories. For instance, compared to the FTSE/JSE All Share Index 's return of 0.4%, the South African Multi-Asset categories all experienced similar, low returns: Low Equity (1.4%), Medium Equity (0.9%), High Equity (0.6%) and Flexible (0.5%). The General Equity category matched the index, with a return of 0.4% for the quarter.

Global markets were notably resillient during an eventful quarter, however the impact of Brexit towards the end of June erased some of the earlier quarter gains. In US dollar terms, developed markets outperformed their emerging peers as investors' risk appetite stalled. Continued Rand strength over the quarter pushed Rand returns from most offshore categories into negative territory. Global Real Estate General was an exception and benefited from the strong gains in global property markets during the quarter.

As with the first quarter of 2016, local categories dominated the list of best performing categories in the second quarter. South African Interest Bearing Variable Term was top of the list with a healthy return of 4.2% in the second quarter, as significant bond inflows led to declining yields and rising prices of fixed income assets. The next best performing categories were South African Interest Bearing Short Term and Global Real Estate General with returns of 2.0% and 1.5% respectively. With bonds outperforming equity in an environment of increased risk aversion, the categories with lower risk budgets produced better relative returns over the quarter. In addition, Rand strength and market movements negatively impacted the Rand returns of offshore allocations, which affected category performance.

The worst performing category for the quarter was Global Equity General with a return of -1.7%. Indeed, the impacts of Brexit towards the end of the quarter coupled with a strengthening Rand negatively impacted all offshore categories in the second quarter. The next worse performing category was Global Multi-Asset Flexible with a quarterly return of -0.5%.

The best performing funds in second quarter of 2016 were the Investec Global Gold fund (36.2%), the Old Mutual Gold fund (18.9%) and the Ashburton Global Energy fund (18.0%). These results are not suprising, with higher levels of market uncertainty tranlsating into a higher US dollar price of gold. There were also strong gains in the US dollar prices of iron ore and oil during the quarter which helped portfolios with commodity exposure.

Meanwhile the worst performing funds included the Sanlam Pan-Europe fund(-7.2%), ABSA Global Value fund(-6.4%) and the Aluwani Africa Equity fund (-6.3%). Rand strength as well as unfavourable market movements were the key drivers of underperformance of the above mentioned funds over the quarter.

2016 has continued to deliver high levels of volatility which has been exacerbated by unprecedented events in global markets. Investors have increasingly sought safe-haven assets such as bonds and gold, and, with economic growth faltering, these traditionally less risky assets have outperformed equity in the second quarter.

*unless otherwise stated returns are quoted in Rand terms

Commentary

Local bonds show decent gains on the back of inflows, while local equities struggle in an environment of low growth, a strengthening Rand and rising commodity prices.

Bonds outperform other asset classes as investors seek safety amidst growing concerns in capital markets


Analysis Morningstar Rating Analysis : South African Domiciled Asset Managers

Methodology

The Morningstar South African Rating Analysis of unit trusts is designed to compare managed fund ranges across South African asset managers by aggregating their Morningstar Ratings. The research format is calculated on a quarterly basis. It provides a quantitative assessment of the risk-adjusted return of all South African domiciled unit trusts carrying a Morningstar Rating.

The Morningstar Rating for funds, often called the “Star Rating”, debuted in 1985 and was quickly embraced by investors. The Morningstar Rating is a quantitative assessment of a fund’s past performance, both return and risk and is measured from a minimum of one to a maximum of five stars. The methodology rates funds based on an enhanced Morningstar Risk-Adjusted Return measure.

The Morningstar South African Rating Analysis aggregates the rankings of providers by brand name and thus provides a useful insight into the strengths and weaknesses of a firm’s fund range. It is, however, not designed as a forward-looking tool and does not indicate the future positioning of asset managers. This follows the line that the Morningstar Rating is intended for use as the first step in the fund evaluation process.

The Morningstar South African Rating Analysis is a quantitative calculation. It delivers an Overall-Weighted and Asset-Weighted ranking of asset managers and their South African domiciled funds. The rankings also show the percentage of assets sitting in 4 and 5 Star rated funds across all rated assets.

The rankings by Overall-Weighted and Asset-Weighted Ratings both have their merits. The ranking by Overall-Weighted Morningstar Rating mirrors the average quality of the overall fund range given that all funds are weighted equally. The Asset-Weighted ranking gives a realistic assessment of an asset manager’s weakness and strength, in light of how investors allocated assets between available investment options within the fund range.

The Morningstar Rating Analysis of Unit Trusts includes all South African retail domiciled funds with a Morningstar Rating. This implies that funds belonging to several broad categories are excluded since they are not eligible for a Morningstar Rating. This includes, amongst others, alternative funds, money market funds and commodity funds.

The Morningstar South African Rating Analysis includes 2 tables updated quarterly.

Table 1 shows the top asset managers in South Africa, ranked by Equal-Weighted Rating. Assets include rated South African domiciled Unit Trusts. The column Equal-Weighted Rating shows the simple arithmetic mean of the overall Morningstar Rating.

Table 2 shows the top asset managers in South Africa, ranked by Asset-Weighted Rating. Assets include rated South African domiciled Unit Trusts. The columns showing the Asset-Weighted Rating represent the asset-weighted Morningstar Rating average by the broad categories of equity, fixed income and allocation.

For both tables the column at the far right shows the percentage of assets sitting in 4 and 5 Star rated funds as a percentage of total rated assets.



Table 1: Top Asset Managers in South Africa ( minimum R5 Billion, Equal-Weighted Rating)

Table 1: shows the top asset managers in South Africa, ranked by Equal-Weighted Rating. Assets include rated South African domiciled unit trusts. The column Equal-Weighted Rating shows the simple arithmetic mean of the overall Morningstar Rating. The column at the far right shows the percentage of assets sitting in 4 and 5 Star rated funds as a percentage of total rated assets.



Table 2: Top Asset Managers in South Africa ( minimum R5 Billion, Asset-Weighted Rating)

Table 2 : shows the top asset managers in South Africa, ranked by Asset-Weighted Rating. Assets include rated South African domiciled unit trusts. The columns showing the Asset-Weighted Rating represent the asset-weighted Morningstar Rating average by the broad categories of equity, fixed income and allocation. The column at the far right shows the percentage of assets sitting in 4 and 5 Star rated funds as a percentage of total rated assets.


©2016 Morningstar, Inc. All rights reserved. The information, data, analyses, and opinions contained herein (1) include the confidential and proprietary information of Morningstar, Inc., (2) may not be copied or redistributed, (3) do not constitute investment advice offered by Morningstar, Inc., (4) are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (5) are not warranted to be correct, complete or accurate. Morningstar, Inc. shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, this information, data, analyses or opinions or their use.

Morningstar South Africa Fund Observer Q2 2016

Economy & Finance

Transcript of Morningstar South Africa Fund Observer Q2 2016