the wealth perspective - PSG

THE WEALTH PERSPECTIVE SECOND QUARTER 2016

SECOND QUARTER 2016 | 1

When markets feel uncertain, it helps to stick to a disciplined long-term strategy. Our consistent approach to wealth management is a beacon for safety and peace of mind.

Contents Introduction - Marilize Lansdell

2

A word from our CIO - Adriaan Pask

3

Industry views - Lizé Visser

6

Investing and trading - Shaun van den Berg

9

Estate matters - Willie Fourie

10

Quarterly insight - Pierre Hageman

11


INTRODUCTION Marilize Lansdell CEO PSG Wealth

Given ongoing market volatility, this edition of our newsletter has a strong focus on ways to navigate turbulent times. Adriaan Pask, our Chief Investment Officer, illustrates the importance of positioning portfolios with a long-term mindset and shows that extreme conservatism, despite offering short-term peace of mind, may have detrimental long-term impacts. Lizé Visser, Executive Director of Sales and Client-centricity, considers how to avoid making emotive short-term decisions despite the negative news flow. From a different viewpoint, Shaun van den Berg, Head of Client Education, and Pierre Hageman, Senior Derivative and Equity Trader, consider how, if you have the right expertise and discipline, you can take advantage of market volatility. Shaun explains the benefits of having a share trading strategy in place and Pierre provides an overview of more sophisticated derivative instruments. Finally, in our quarterly estate planning feature, Willie Fourie, Head of Estate and Trust Services, sets out important considerations when dealing with a trust.

Welcome to the latest edition of The Wealth Perspective Yet again, this edition follows a volatile quarter in the markets and we have themed our newsletter accordingly. We hope that the insights we have collated – both to support you in managing your portfolios and to remind you that turbulent times also bring opportunity – will be of value.

A surprise vote by the British threw markets into turmoil Arguably, the defining event of the past quarter was Britain’s vote to exit from the European Union (EU) – the so-called ‘Brexit’. On 24 June, world markets opened to the news that British voters had opted to leave the EU, against general expectation. Shortly thereafter, David Cameron resigned as British Prime Minister. Global markets fell sharply, along with the British pound, South African rand and other emerging market currencies. In contrast, the gold price and US dollar – both deemed safer havens – rallied. Markets are still feeling the aftershock of the surprise vote, and general market uncertainty prevails.

On a related note, Lizé Visser shares some insights from Carl Richards, a US-based certified financial planner. Carl is passionate about helping fellow advisers and clients alike to make better long-term investment decisions, by using simple diagrams and explanations. We hope that you find the simplicity of his approach refreshing.

Volatility also offers trading opportunities

Volatility can create opportunities for traders to capitalise on temporary pricing anomalies. In his article, Shaun van den Berg sets out the necessary foundation for successful share trading: how to manage information overload, determine and stick to an investment style and strategy, and navigate market volatility. For more experienced traders, Pierre Hageman provides an overview of derivative instruments.

We welcome your feedback We hope you enjoy the read. Please share any feedback you might have – we always appreciate hearing from you.

In times like these, sticking to your long-term strategy is critical

It is easy to get caught up in the negative news flow – it’s only human nature. However, this is when your commitment to a long-term strategy becomes even more important. In his article, Adriaan Pask takes a look at the tendency investors have to allocate too great a weighting to their cash holdings in times of uncertainty. While this may offer short-term peace of mind, the article illustrates the importance of equity exposure in generating long-term returns and makes the important point that market risk is not the only risk to consider.


A WORD FROM OUR CIO Don’t sacrifice long-term returns for short-term peace of mind

Adriaan Pask CIO PSG Wealth

Market volatility and rising interest rates generally spook impatient investors. These conditions have now created an environment where many investors allocate too great a weighting to their cash holdings. Although the PSG Wealth investment division believes that cash plays a strategic role in a diversified portfolio of different asset classes, it is not ideal to invest in cash in isolation. You should be aware of the longer-term trade-offs of allocating a significant portion of your long-term investment capital to cash.

Market risk is not the only risk to consider Successfully growing your long-term wealth depends to a large degree on not making emotional, knee-jerk decisions in reaction to volatile market movements. Market risks or volatility (which most investors are generally more aware of) usually result in a migration away from riskier assets such as equities to perceived safe-haven investments such as term deposits or money market accounts. However, during such times, investors caught up in the panic are notably less aware of other risks that could affect longer-term returns, such as inflation risk and longevity risk. Inflation risk is the risk that long-term inflation growth will exceed the long-term investment growth of your portfolio, thereby effectively reducing the purchasing power of your savings. Longevity risk is the risk of outliving your savings, if your long-term investment growth is insufficient to sustain your future living expenses. Due to medical advances, global average life expectancy now far exceeds 85 years – the age to which investors generally plan their investment horizons. Recent research shows that by 2030, average life expectancy will

exceed 100 years – this is already the case in seven countries. In fact, average life expectancy increases by five hours every day1. To successfully grow wealth over the longer term, you need consistent exposure to equities to hedge against both inflation and longevity risk.

Inherent risks in cash and equity investments Risks

Cash

Equity

Equity market risk

None

High

Exchange rate risk

None

Low

Interest rate risk

Low

Moderate

Longevity risk

High

Very low

Inflation risk

High

Very low

Source: PSG Wealth investment division

South African lifespans can be longer than expected Probability of reaching stated ages

65-year-old man

65-year-old woman

65-year-old couple*

50% chance

85 years

89 years

94 years

30% chance

91 years

95 years

99 years

25% chance

93 years

97 years

100 years

20% chance

95 years

99 years

102 years

10% chance

100 years

104 years

106 years

* At least one surviving Source: Sanlam


A WORD FROM OUR CIO

Don’t bet against equities The good news is that most of us will probably live longer than what we expect. This means that most of us will have more time to give our investments the required time to grow. Equities can help you to do this successfully over the longer term. While stock prices might suffer during periods of market volatility, research conducted by our investment division shows that money market accounts usually underperform the FTSE/JSE All Share (ALSI) Index over rolling 10-year periods. The graph below shows that in the 10 years preceding the peak of the financial crisis (31 March 2008), the ALSI returned

19.4%, compared to 11.2% from the money market. More recently, in the 10 years preceding 31 May 2016, the ALSI returned 13.34% and the money market 7.5%. Unfortunately, there is a perception that equity is the riskiest investment. However, this depends on your investment horizon – and the type of risk you consider. While cash will grow at a steady pace, investing in equities managed by active managers can reduce longevity risk. You may therefore well be rewarded with an ‘equity premium’ over cash returns in exchange for the shorter-term certainty you sacrifice. If you remain cognisant of the bigger picture, you will find comfort in the long-term probabilities that are stacked in your favour.

Returns delivered by the ALSI versus the money market over rolling 10-year periods 25.0

20.0

15.0

10.0

5.0

0.0 JUN ‘05

JUN ‘06

JUN ‘07

JUN ‘08

JUN ‘09

JUN ‘10

FTSE/JSE All Share TR ZAR

JUN ‘11

JUN ‘12

JUN ‘13

JUN ‘14

JUN ‘15

JUN ‘16

Alexander Forbes Money Market ZAR


Risks inherent in individual cash instruments Investing in cash instruments might seem more attractive during uncertain times, but comes with its own inherent risks. A cash instrument might be exposed to credit risk, especially if the bank issuing the instrument is not scrutinised by rating agencies. The instrument-specific risk is also very high, because the investment is in a single security as opposed to a pool of diversified assets.

The table on the following page sets out other risks associated with cash instruments, compared to a diversified cash fund – in this example, the PSG Wealth Enhanced Interest Fund. If you have a short investment horizon or your circumstances require you to prioritise the preservation of your wealth above further investment growth, such a fund may be a more suitable alternative to cash.


A WORD FROM OUR CIO

Risk exposure of bank deposits versus diversified cash funds Bank deposit

PSG Wealth Enhanced Interest Fund

Credit risk

Specific to the bank issuing the instrument, which may or may not be rated by agencies, and may or may not be investment grade credit

Mandated to only invest in investment grade credit

Security-specific risk

Large – only one security

Minimal, as assets are pooled within a diversified portfolio

Sector-specific risk

Exposed to the banking sector in isolation

Banking credit is blended with credit from other sectors to spread sector-specific risk

Liquidity

Usually restricts liquidity to a specific term or notice period

Readily available

Regulation

Not explicitly approved by the FSB

Explicitly FSB-approved

Governance

The Board has to manage the bank’s balance sheet risk within its operating environment

Assets monitored by independent trustees on a daily basis

Active management

None – one asset held to maturity

Portfolio managers actively manage assets to improve returns


Follow sound investment principles It is easy to get fixated on investment factors that are beyond your control, such as market volatility. We believe that paying careful attention to sound investment principles is of far greater value. There will always be some level of volatility in the markets. The secret to successfully navigating this volatility remains to start investing as soon as possible and to be patient. No one can predict with certainty when a market will turn, but professional money managers have the knowledge and skill to approach different market cycles sensibly.

For the PSG Wealth investment division, three key wealth management principles have increased in importance this year: diversification, managing investor expectations and investing in appropriate products (considering both time horizons and risk). Although these principles have always been the cornerstones of our wealth management success, tough times demand placing even greater emphasis on them. 1

Sanlam research, 2016


INDUSTRY VIEWS What changes should you be making to your portfolio right now?

Lizé Visser Executive Director Sales and Client-centricity PSG Wealth

If you have been reading the latest news, you may be feeling quite concerned. The negative news flow seems to be endless: Brexit, ongoing market volatility, a volatile global political environment, central banks that are grappling with tough decisions about the few tools they have left at their disposal to stimulate economies out of low-inflation and low-growth environments, and here in South Africa, a rand that has reached new lows. So, should we be making significant changes to our portfolios to adapt to this new environment?

Too much information is challenging The amount of information that we are able to access can trigger action, based on fear or a false sense of confidence, and this compels us to make short-term decisions. We tend to believe that if we have enough information, we will know what to do The fear and anxiety created by the latest news can urge us on to seek more and more information, so we read more and more news. We invest precious time doing more and more research (which just feeds our sense of unease) rather than stopping to take stock and focus on the foundation of our long-term plans. We love hearing information that supports our view This becomes a self-fulfilling prophecy because at any one time, opinions in the media about how bad things are support our fears and therefore our desire to act. We are terrified of missing an opportunity, or being left behind. This is because we forget that doing nothing is also a decision. Doing nothing is a form of action.

Our most important aim is to grow our long-term wealth In times like these, short-term decisions can undermine these efforts materially. So how should we react? We all know academically that we need to bring some rational thought to what is an emotionally charged time. However, as we know, it is hard to make good decisions when we are feeling emotional. Carl Richards is the director of investor education for the BAM ALLIANCE, a community of over 130 independent wealth management firms throughout the US, and runs a website, www.behaviorgap.com. He uses the site and his blog to share his insights using simple drawings and explanations to help financial advisers and investors make better long-term investment decisions. None of this is dramatically new, but we hope that some of the practical pointers in his drawings help you to refocus on making optimal decisions.

In this environment, how do we make the right investment decisions? Money is such an emotionally loaded concept for us all. It represents hard work and the trials and tribulations of what it took to earn it. It also represents what we will or won’t achieve in terms of our life goals, the security and safety of our family and the potential to achieve our dreams, or not. During the global financial crisis, many investors made bad decisions and many are still waiting to get back into the market. Our fundamental role at PSG is to help investors make good money decisions.

A handy framework for thinking about your decisions during scary markets We appreciate that each of you has your own way of handling these situations – that you know your portfolio and needs best. So without any intention to offend or patronise, we thought it would be interesting, if nothing else, to share some of Carl’s diagrams and the investment lessons they hold.

It is critical to do as little as possible when market uncertainty creates short-term fear In closing, once you have developed a plan for your investments, structured a portfolio and implemented it, one of the best things to do is nothing! It can sound counterintuitive until you consider one of Warren Buffett’s perspectives on investing: ‘Benign neglect, bordering on sloth, remains the hallmark of our investment process.’


INDUSTRY VIEWS

Three simple diagrams explain the dangers of following emotions and reacting to the latest news 1. Be careful not to focus on the short term when you decide to make changes to your portfolio Over the short term, the market tends to look and feel a lot scarier than it is in reality over the long term.

5 YEARS

5 DAYS

YOU DECIDE WHICH ONE TO FOCUS ON...

BEHAVIOR GAP

Source: http://www.behaviorgap.com

2. Don’t sell low and buy high Be very careful of making a decision that will crystalise a loss when the market is at an extreme low. The recent Brexit announcement is a case in point. The UK market dropped significantly, but then rallied soon thereafter. If you had been invested in UK equities and had panicked and sold, you would not have benefited from the subsequent rally.

HOW NOT TO DEAL WITH A SCARY MARKET -

I WANT TO SELL HERE, BUT I PLAN TO GET BACK IN WHEN THE MARKET “CLEARS UP”... ABOUT HERE. BEHAVIOR GAP Source: http://www.behaviorgap.com


INDUSTRY VIEWS

3. Unless you are a professional share trader, it doesn’t pay to trade frequently The trading costs and tax impact of doing so will undermine your long-term wealth. It will also prevent you from letting the power of compounding work for you – which takes time!

INVESTMENT RESULTS

ACTIVITY Source: http://www.behaviorgap.com


INVESTING AND TRADING Successful trading: putting the basics in place Shaun van den Berg Head of Client Education PSG Wealth

The advent of the internet in the late 1980s levelled the playing field between private and institutional investors. As a private investor you can now access a company’s financial statements and detailed operational information on its website – a far simpler and faster way of conducting research than ordering financial reports by post. Technical analysis software also helps you to identify market trends and scan the market for buying and selling opportunities. Freely available information and research functionality offers significant benefits.

Managing information overload Many private investors feel overwhelmed by an information overload, as it is almost impossible to keep up to date with all the news being generated by the market daily. Many stockbroking platforms (such as the PSG Wealth trading platform) therefore make additional research tools available to help you filter out stocks that meet certain fundamental criteria. This is a big time saver, as you can create smaller and more manageable lists of shares to investigate further. Depending on your investment strategy, it can also help you focus on undervalued, quality or growth stocks. A focused watch list of prospective winners also allows you to collate all relevant share information into a single page. This includes related Stock Exchange News Service (SENS) announcements, for which you can set up SMS and/or email alerts.

Determining your investment style and strategy Contrarian investing When the market sells off heavily, contrarian investors see opportunity. They use an investment strategy that is based on the principle of rationality: they recognise that markets may overreact to negative news with distrust and fear, and be overly optimistic when news is good. When everyone is selling, the contrarian investor is buying – and vice versa. At the top of the market cycle, a rational, contrarian investor would use fundamental analysis to find those shares that still present good growth prospects and retain healthy balance sheets. They also incorporate technical analysis or charts to establish trends and time their buying decisions correctly. Bargain hunting Another name for a bargain hunter is a value investor. A value investor searches for shares that they believe the market has sold off far enough to put them into undervalued territory, based on certain financial ratios. They believe that the price movements

of such shares do not correspond with the related companies’ long-term fundamentals, and use these opportunities to lock in future growth opportunities. At the same time, they avoid shares that they feel are overpriced compared to their assessments of value. Currently, the FTSE/JSE All Share Index is still considered to offer fair value, as it is trading on a price-earnings (P/E) ratio of about 21 times. However, there are many overvalued shares included in the index, especially amongst heavyweight industrial rand hedge shares such as British American Tobacco, SABMiller and Richemont. With the exception of Richemont, these shares have experienced a good run, as investors have taken advantage of rand weakness. In contrast, the list of undervalued shares is rather limited, and consists mostly of mid-cap and small-cap shares.

Surprise! Surprise! Managing market volatility Private investors generally hate uncertainty, as they do not know in which direction the market is expected to move. Uncertainty leads to panic, which ultimately results in volatility and greater risk. A recent example is the unexpected vote by the British to leave the European Union and British Prime Minister David Cameron’s subsequent resignation.

Consider getting professional advice and expertise It can be difficult to navigate market volatility on your own. Unless you are a seasoned investor who outperforms the markets consistently, it may be worth considering appointing a qualified financial adviser to help you make investment decisions. Their expertise can give you the peace of mind of knowing that your hard-earned savings are in capable hands.


ESTATE MATTERS Placing your trust in a trust Willie Fourie Head of Estate and Trust Services PSG Wealth

Over the years, trusts have become an almost automatic consideration by financial and fiduciary advisers when advising on estate and financial planning. However, this does not necessarily guarantee the appointment of qualified and suitable trustees. When dealing with a trust – either directly or with the assistance of an adviser – it is critical to ensure that its trustees have the necessary authority to approve and conduct the transaction.

A requirement for fit and proper trustees The Master of the High Court requires that the nominees put forward to be appointed as trustees of a trust be fit and proper to hold the position. This includes a requirement for honesty and integrity, as well as the necessary competencies (experience and relevant qualifications). In addition, at least one trustee must be independent. Although it is currently not a prerequisite for independent trustees to possess a certain level of expertise, it can reasonably be expected that minimum qualification and experience levels will sooner or later become the norm. Finally, no individual may act as the sole trustee of their family trust if they are also one of the trust beneficiaries.

Trustee responsibilities All trustees and individuals nominated to act in this capacity must carefully consider the duties that accompany the appointment, and ensure that they are able to perform these successfully. This includes the duties set out in the Trust Property Control Act as well as in the individual trust deed. The trust deed is an important legal document that sets out the rights of beneficiaries and the obligations of trustees. It must therefore be drafted with the specific needs and unique circumstances of each beneficiary (or group of beneficiaries) in mind. Trustees need to ensure that they read and understand the provisions of the trust deed, and in particular that they understand why estate planners need to sacrifice control over the assets in the trust and what that actually means for beneficiaries. The incorrect interpretation or application of the trust deed can have dire consequences for its beneficiaries – and for you when dealing with the trust. This has been highlighted in a recent court case, where trustees were held liable for a financial loss incurred by the trust under their oversight. The trustees had erroneously paid income from the trust to the spouse of the deceased founder. It later emerged that she was not a trust beneficiary. This supports the view of PSG Wealth’s estate and trust services department that trust deeds must only be drafted – and trusts must only be administered – by someone with the required expertise in estate, trust and tax law.

Importantly, the dereliction of duty by a trustee carries with it personal liability. The legal system is currently inefficient in ensuring compliance with the many duties and responsibilities attached to the office of trustee. However, the courts have recently expressed the view that trustee appointments be scrutinised by the office of the Master of the High Court, and stringent compliance is on the cards. It is likely that the appointment of a professional trustee will soon become the norm.

Transacting with a trust When transacting with a trust, you must be aware of the legal requirements. It is imperative that the trustees have the necessary authority to act on behalf of the trust and that the trust deed allows the transaction you want to process. How then can you determine if a trustee has the necessary authority to enter into an agreement on behalf of the trust? Unfortunately, you cannot always rely on what individual trustees may think they are allowed to do on behalf of the trust. As such, it is advisable to obtain and scrutinise at least one of the following documents: • a copy of the trust deed (which should contain an express or implied provision that allows the specific transaction) • a copy of the letter of authority, in which the trustees are named and authorised to act on behalf of the trust • a resolution by the trustees that authorises one or more trustees to enter into a specific agreement on behalf of the trust

Specialised planning may require specialist expertise Estate planning has developed into a specialised field where in-depth knowledge of the various laws relating to all aspects – including any trusts – is required. It is always advisable to obtain guidance from a fiduciary practitioner if you have any doubt that everything is in order. Our specialist fiduciary advisers are on hand to assist.


QUARTERLY INSIGHT Derivative trading: how to benefit from market volatility

Pierre Hageman Senior Derivative and Equity Trader PSG Wealth

Derivative instruments such as single stock futures (SSFs) and contracts for difference (CFDs) enable experienced traders to make profits by taking positions on likely movements in the local equity market without owning the underlying share. International derivatives (IDXs) offer similar opportunities on international markets. Knowing what is available is the first step in understanding how to use these advanced instruments and learning how to capitalise on short-term market fluctuations.

Derivative trading: back to the basics

Single stock futures

Long and short positions A departure point for investors looking to broaden any trading activities with the use of derivatives, is understanding the basic principles underpinning these instruments. A derivative is a contract between two parties that derives its value from an agreed-upon underlying instrument or index – and the movements in the market value of this instrument or index. In simple terms, when you purchase a derivative contract, you are purchasing the difference in cost between the opening and closing value of the underlying shares. The key to benefiting from these products therefore lies in correctly predicting the direction of movement of the underlying share. For example, if you expect the price of a share to rise, and hope to profit from this, you would open a long position. This involves buying the shares to secure an underlying position in the market and agreeing to accept the shares at the future date (at the future price). You can close the long contract at any time before the expiry date by simply selling the number of contracts bought. In contrast, if you hope to make money on a falling share price, you would open a short position.

SSF contracts are entered into between buyers who undertake to pay a specified price for 100 shares of a single stock on an agreed future date, and sellers who undertake to deliver the shares at that point.

Margins Trading margins are essentially trading ‘collateral’ that you pay to your broker to cover some of the trading risk you take on. An initial margin is required for all derivative trading, before any contracts are opened. This is calculated as a percentage of the purchase price of the derivative in which you want to trade, and must be paid from the cash available in your trading account. Ongoing margin requirements refer to the minimum balance required in your trading account.

If the SSF contract expires or closes out, or physical settlement is impossible or impractical, the contract will be settled in cash.

If the price of the underlying shares making up a derivative contract falls, and you have gone long on the contract, your trading account goes into the red and you will receive a margin call. You will have until 16h00 on the following business day to either pay in enough money or close out enough contracts to bring your account back into the black. Mark to market All derivative contracts are ‘marked to market’ (MTM) daily at 17h00. This means that all open positions are revalued. This is done by calculating the difference between the closing price of the underlying instrument on a specific day and its closing price the previous day.

SSF trading takes place on the Equity Derivatives Market (EDM), formed in 1988 (formerly known as SAFEX). SSF margins are calculated by the EDM every two weeks and all SSF contracts are settled (either physically or in cash) through the EDM. Physical settlement takes place when the buyer of the contract accepts the agreed number of shares at the agreed price from the seller on the set date. This is normally on the day after a quarter close-out, which is the third Thursday of every quarter and marks the cut-off date for SSF contracts. For example, the SSF contract may be 1SOLQ SEP16 @ future price of 41474. Here, the buyer must accept 100 Sasol (SOL) shares at a price of R414.74 each on 16 September 2016 from the seller.

An example may be a West Texas Intermediate (WTI) contract, which is made up of 100 barrels of oil. In this case, the buyer would receive the agreed value of the shares in cash, instead of taking delivery of the barrels of oil. You can close your SSF contracts at any time before the expiry date by simply closing out the contract (i.e. selling shares if you have gone long, or buying shares if you have gone short). The profit or loss will be the number of contracts x 100 x the price difference between the opening (purchase) and closing (selling) price of the contract. The initial margin will be returned to you.

Contracts for difference CFD contracts are entered into between you and your broker, where you either make or lose money based on the movement of the underlying share without ever actually owning the underlying shares.


QUARTERLY INSIGHT

For example, the CFD exposure may be 100 SOL at R396 bought on 17 June 2016. If the share price increases by R10 on 20 June and you sell the CFD contract (100 SOL @ R406), you make a profit of R1 000 (the number of shares x the difference in the share price). The opposite will be true if the share price drops by R10. As with SSFs, the initial margin is returned to you when the contract is closed. CFD margins are set by the issuers of the contracts. CFD margins are currently set at 15% for Top 40 shares and 17.5% for Top 41 to Top 100 shares.

International derivatives (IDXs) IDX contracts are similar to CFDs, but give you exposure to the share price movements of internationally listed shares such as

Apple (listed in the US) or Unilever (listed in the UK). A major advantage of these contracts is that you do not require a foreign trading account, as all contracts are cash settled in rands (these contracts are never physically settled). You can therefore benefit from offshore exposure without taking local currency abroad, meaning that your foreign exchange allowance is not affected. IDX margins are calculated by the EDM every two weeks.

Derivatives offer experienced traders an attractive value proposition Derivative instruments allow you to take advantage of any market movement – up or down – to maximise returns with minimal capital outlay. They are also a good way to diversify and hedge your trading portfolio. This makes them excellent vehicles for short-term trading strategies of experienced traders with the necessary risk appetite.


Disclaimer PSG Wealth is a brand underneath PSG Konsult Ltd, which consists of the following legal entities: PSG Multi-Management (Pty) Ltd, PSG Securities Ltd, PSG Fixed Income and Commodities (Pty) Ltd, PSG Scriptfin (Pty) Ltd, PSG Invest (Pty) Ltd, PSG Life Ltd, PSG Employee Benefits Ltd, PSG Trust (Pty) Ltd, and PSG Wealth Financial Planning (Pty) Ltd. Affiliates of the PSG Konsult Group are authorised financial services providers. The opinions expressed in this document are the opinions of the writer and not necessarily those of PSG Konsult Group and do not constitute advice. Although the utmost care has been taken in the research and preparation of this document, no responsibility can be taken for actions taken on information in this document. Should you require further information, please consult an adviser for a personalised opinion. Collective Investment Schemes in Securities (CIS) are generally medium- to long-term investments. The value of participatory interests (units) may go down as well as up and past performance is not a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and scrip lending. 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. Fluctuations or movements in the exchange rates may cause the value of underlying international investments to go up or down. A schedule of fees and charges and maximum commissions is available on request from PSG Collective Investments (RF) Limited. Commission and incentives may be paid and if so, are included in the overall costs. Forward pricing is used. The portfolios may be capped at any time in order for them to be managed in accordance with their mandate. Different classes of participatory interest can apply to these portfolios and are subject to different fees and charges. Figures quoted are from I-Net, Stats SA, SARB, © 2016 Morningstar, Inc. All Rights Reserved for a lump sum using NAV-NAV prices net of fees, includes income and assumes reinvestment of income. PSG Collective Investments (RF) Limited is a member of the Association for Savings and Investment South Africa (ASISA) through its holdings company PSG Konsult Limited. Conflict of Interest Disclosure: The fund may from time to time invest in a portfolio managed by a related party. PSG Collective Investments (RF) Limited or the Fund Manager may negotiate a discount on the fees charged by the underlying portfolio. All discounts negotiated are reinvested in the fund for the benefit of the investor. Neither PSG Collective Investments (RF) Limited nor the Fund Manager retain any portion of such discount for their own accounts. PSG Multi-Management (Pty) Ltd (FSP No. 44306), PSG Asset Management (Pty) Ltd (FSP No. 29524) and PSG Collective Investments (RF) Limited are subsidiaries of PSG Group Limited. The Fund Manager may use the brokerage services of a related party, PSG Securities Ltd.

