Trump vs. Clinton

Oil

Putin

Drought

O.1%growth

Chinaslowdown

Brexit

Zika

ISSUE

32

Quarterly client publication by PPS Investments | June 2016

Investing in volatile times

Enhancing the client experience

Compare apples with apples: A clearer way to disclose costs

A TFIA for your child? A few things to remember

Let investment professionals do the work for you

Fund profile: PPS Global Balanced Fund of Funds

Using business to drive social change

#2

2012: Cindy Ross, attorney at law, is fed up with the crime, alcoholism and abuse of women and children in the Diepsloot community. Her smart solution is to create The Diepsloot Mountain Bike Academy.

Cindy gathers a support group of other concerned professionals and together they provide disadvantaged and disillusioned youth with a positive outlet of expression, through cycling, life skills programmes and enterprise development.

The young cyclists in the programme are turning the wheels of opportunity for themselves, achieving both locally and internationally. The spin-off? A community with reduced levels of crime and abuse.

Cindy is another PPS member who uses her professional acumen as a transformational tool. Her story proves to us once again that professional thinkers are a unique breed with the power to change the world.

That’s why at PPS we pride ourselves on our 75-year track record, understanding the world, needs and wants of graduate professionals like Cindy Ross, so that we can tailor solutions that match their needs.

HOW AN ATTORNEY IS HELPING TO BREAK THE CYCLE OF POVERTY AND ABUSE.

For more inspirational stories like this, visit pps.co.za

Financial Planning Short-Term Insurance Medical AidInvestmentsLife Insurance

PPS offers unique financial solutions to select graduate professionals with a 4-year degree. PPS is an authorised Financial Services Provider

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#01

Subscribe today. SMS your name and email address to 40304 or email marketing@ppsinvestments.co.za to subscribe to Talking Points.

Contents

Welcome 02Nick Battersby, Chief Executive

Investing in volatile times: 04 Navigate it with multi-management David Crosoer, Executive of Research and Investments

Enhancing the client experience 07 James Fraser, Executive of Operations

Compare apples with apples: 09A clearer way to disclose costsHugo Malherbe, Executive of Product Development

A TFIA for you child? 11A few things to rememberEmma Leigh, Executive of Governance

Let investment professionals 13do the work for you Duane Littler, Executive of Business Development

Fund profile: PPS Global Balanced 15Fund of Funds Your opportunity to gain offshore exposure

Using business to drive 17social change Tandisizwe Mahlutshana, Executive of Marketing

June 2016

In this edition

2012: Cindy Ross, attorney at law, is fed up with the crime, alcoholism and abuse of women and children in the Diepsloot community. Her smart solution is to create The Diepsloot Mountain Bike Academy.

Cindy gathers a support group of other concerned professionals and together they provide disadvantaged and disillusioned youth with a positive outlet of expression, through cycling, life skills programmes and enterprise development.

The young cyclists in the programme are turning the wheels of opportunity for themselves, achieving both locally and internationally. The spin-off? A community with reduced levels of crime and abuse.

Cindy is another PPS member who uses her professional acumen as a transformational tool. Her story proves to us once again that professional thinkers are a unique breed with the power to change the world.

That’s why at PPS we pride ourselves on our 75-year track record, understanding the world, needs and wants of graduate professionals like Cindy Ross, so that we can tailor solutions that match their needs.

HOW AN ATTORNEY IS HELPING TO BREAK THE CYCLE OF POVERTY AND ABUSE.

For more inspirational stories like this, visit pps.co.za

Financial Planning Short-Term Insurance Medical AidInvestmentsLife Insurance

PPS offers unique financial solutions to select graduate professionals with a 4-year degree. PPS is an authorised Financial Services Provider

HAVASW

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#02

Welcome

A welcome from the Chief Executive

June 2016

As an organisation that is focussed on serving the graduate professional market, we frequently engage with final-year students as they prepare to launch their careers. Our engagements with students are usually primarily centred on how we strive to add value and how they can be part of this growing membership.

For young professionals coming out of tertiary education the cacophony of calls from numerous companies for their attention can be deafening and, frankly, largely indistinguishable from each other in terms of their propositions. For this reason, the stand-out message of the mutuality of the PPS Group is proving increasingly attractive to professional graduates. This is hardly surprising given the wealth that has been created for professionals by PPS over the years.

As the largest mutual company in South Africa, our message is so distinctly different to that of the other financial services firms that we operate in a highly-specialised niche market. Yet, globally, mutual businesses are far more prevalent than they are in South Africa. The recently released Global Mutual Market Share report illustrates the growing influence of mutuals by reporting that as many as 955 million people worldwide are insured by mutual firms, and that mutual insurers now enjoy a market share of over 27%. That figure is actually as high as 34% in North America, yet in Africa it is as low as 2% - fur-ther highlighting the exclusive nature of the PPS proposition to professionals in South Africa.

One of the acknowledged benefits of a mutual structure is the ability, in the absence of the relative rollercoaster of being a listed entity, to employ an appropriately long-term approach to capital allocation. It is an approach that has served the members of PPS extremely well for 75 years and is a tenet of our approach to individual financial planning.

Events of the past few months serve to reinforce the value of having a long-term approach, based on a well-constructed financial plan and underpinned by well-diversified investment portfolios.

The articles that my colleagues have written in this edition of Talking Points provide brief commentary and explanations to help you construct appropriate outcome-based financial plans.

In his Investment Perspectives commentary, David Crosoer, Executive of Research and Investments, recounts the experience of financial markets in recent months, describing the impact of the unexpected outcome of the British referendum that led to the decision for Britain to leave the European Union (EU). The repercussions of that decision on the British economy, the European economy and the South African economy (being a European trading partner) have been immediate, but will only be fully understood with the passing of time and clarity on whatever arrangements result from this and any other potential and similar moves.

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Welcome

Nick Battersby, Chief Executive

One of the benefits that we enjoy through being a mem-ber-owned organisation is that our clients are highly engaged with our business providing valuable feedback to us when the opportunity arises. In the interest of eliciting greater volumes of client feedback, James Fraser, Execu-tive of Operations has initiated a technology-based Voice-of-the-Client solution which is already proving fruitful. James provides an update on this programme in his article, “Enhancing the client experience” including feedback on the most commonly raised suggestions.

All financial plans need to be constructed cognisant of the costs incurred in the solutions that are used. Our Executive of Product Development, Hugo Malherbe, has been integrally involved with peers in the industry to develop a universal disclosure methodology to provide better comparisons of the impact of different product and fee structures. In his article “A clearer way to disclose costs” he provides a taste of what to expect when this new measure is implemented throughout the industry later this year.

At the beginning of the year, we launched the PPS Tax-Free Investment Account – the opportunity to save up to R30 000 per year and up to R500 000 over your lifetime without incurring tax on the growth of the savings. It is an excellent opportunity that we’d certainly expect most clients to utilise either through an annual contribution or a monthly debit order. In the article “A TFIA for your child? A few things to remember” Emma Leigh, Executive of Governance, provides some guidelines for consideration to parents who would like to ensure that their children realise the most benefit from this tax-efficient structure.

All investment decisions require a great deal of consideration, particularly given the plethora of invest-

ment options available for clients to invest in. It may not always be easy to make these important investment deci-sions. However, clients do not have to take on this difficult task which requires special skill but can rely on investment professionals to do it all for them. Duane Littler, Executive of Business Development, tells us more in this article “Let investment professionals do the work for you.”

Finally, in light of Mandela DayTM, we spent some time at Kannemeyer Primary School in Grassy Park, doing some much-needed refurbishment and repainting.

To close out the publication Tandisizwe Mahlutshana, Executive of Marketing reflects on the role of business in bringing about positive social change in his article “Using business to drive social change.”

Enjoy the read

“Events of the past few months serve to reinforce the value of

having a long-term approach.”

#04

Investment Perspectives

Investing in volatile times: Navigate it with multi-management

David Crosoer, Executive: Research and Investments shares insight into the global economy, the local picture and just how PPS Investments has diversified its portfolios to minimise risk for clients and help them generate long-term wealth.

Volatile and challenging times

Financial markets have had a volatile and challenging start to the 21st century. We witnessed the technology bubble of 2000, the global financial crisis of 2008/9, and the unprecedented monetary policy stimulus from all the major global central banks over the past seven years.

More recently the rise of populist politicians like Donald Trump in the US and the Brexit movement in the UK, and even the Economic Freedom Fighters closer to home, has increased concern that the global liberal order of free trade upon which much of the post-war economic prosperity is placed is under threat.

It is very easy to be spooked by the current economic

environment. The global economy is still battling with the aftermath of the global financial crisis and is bogged down by weak growth and rising inequality. At times like these it is particularly important to take a long-term focus and invest appropriately.

An unexpected Brexit

The Brexit decision in the week leading up to the end of the second quarter is undoubtedly a shock to the global economic system. In terms of the relationship between the United Kingdom (UK) and European Union (EU), it is sim-ply too early to say with any conviction whether authorities will be able to quickly negotiate a mutually-beneficial arrangement, although the market reaction (in both the currency and bond markets) suggests it is pricing in the risk of some unforeseen complications. We do know however that this isn’t the first time a political event has impacted financial markets and it won’t be the last time either. Often, such shocks are temporary, but occasionally they are more profound and could have a more lasting impact.

June 2016

Trump vs. Clinton

Oil

Putin

Drought

O.1%growth

Chinaslowdown

Brexit

Zika

#05

Certain thoughtful commentators have linked the Brexit decision to a potential retreat from free trade that could be felt not just in the UK and EU but also in other parts of the globe including the US. Such a retreat to protectionism will undoubtedly come at an extensive economic cost.

It’s worth stressing again that more than one third of global investment grade government bonds are trading at negative nominal yields post-Brexit. This astounding result (i.e. investors paying governments for the right to lend to it) suggests at the very least an unstable equilibrium sustained by a short-term focussed marginal investor and the highly distortionary actions of monetary authorities. While the current equilibrium of exceptionally low short-term interest rates and a heightened ‘search for yield’ theme looks unstable (by driving down government bond yields and ‘quality’ equities to very expensive levels) there is no indication what catalyst could cause it to unwind - particularly if a return to global trend growth or a normalisation of US interest rates remains on the backburner.

Rate hikes kept on hold, but hikes still expected

Both the US Federal Reserve (Fed) and the South African Reserve Bank (SARB) paused in their interest rate hiking cycle this quarter. The Fed raised interest rates in December 2015 and market expectations for further rate hikes have fallen sharply following a poor US May payroll number and the unexpected decision of the UK voters to back the decision to leave the EU. However, a case could be made for further policy tightening given that US unemployment remains below 5% and US core inflation is in excess of 2% p.a.

Locally, the SARB also kept short-term interest rates on hold at 7% at its May Monetary Policy Committee (MPC) meeting. This is despite CPI remaining outside its 3% to 6% target band, and the expectation that it will stay there for a number of quarters. Fortunately, rand strength in the subsequent period has made excessive inflation less probable and may allow the SARB to be less hawkish than previously indicated. Market expectations at quarter-end were for just one further 0.25% hike this year.

Ratings downgrade still priced in South African bonds are still pricing in the prospect of a ratings downgrade to sub-investment grade, although this was avoided last quarter. South African government debt has ballooned to close to 50% of GDP since the global financial crisis (mainly spent on public sector wage increases). Under a low-growth scenario, this could breach 60%. The latest International Monetary Fund (IMF) forecast for SA economic growth is just 0.1% for 2016 – substantially less than that of National Treasury which has yet to adjust downwards its 0.9% forecast made in February this year. Unless government can get a decisive handle on unnecessary state expenditure and stabilise prospects of state-owned enterprises (contingent liabilities

from SOEs now account for an additional 14% of GDP), a downgrade to sub-investment grade still looks like the most likely outcome.

Muted investment returns

Global equities still look expensive given current valuations and the lack of economic growth, despite global equity returns having disappointed for more than a decade. Bond yields likewise have been driven downwards to levels not previously observed, with more than $11 trillion of government debt now trading at negative nominal yields. Cash rates have remained stubbornly low as no central bank feels sufficiently confident to assertively raise interest rates anytime soon.

When measured from the perspective of a US investor, global equities have returned just 1.6% p.a. above inflation in the 21st century so far, global bonds a staggering 4.9% p.a. and US cash an insufficient -0.4% p.a. Such returns contrast unfavourably with the very long-run returns since 1900 of these asset classes of approximately 5% p.a. for global equities, 1.8% p.a. for global bonds and 0.8% for cash1 . In contrast, South African assets (when measured in local currency, but allowing for SA inflation) have had a much better 21st century with SA equities compounding at 9% p.a., SA bonds at 4.9% p.a. and SA cash at 2.2% p.a.

For the quarter (when measured in rands) SA and global equities both returned 1.3% and lagged global bonds (up 1.6%) and SA bonds (up 4.4%). SA cash returned 1.7%. Within local equities, financials (down 6.1%) and property (down 0.4%) were both negative over the quarter, while resource stocks continued to rally (up 6.5% for the quarter and 20.5% year-to-date). The rand has weakened marginally against the US dollar over the quarter (but is up 4.9% over the past six months) and strengthened materially against the British pound over both the quarter (7.25%) and past six months (13.25%).

In these circumstances, retain a long-term perspective

The past quarter’s investment returns have an immediate impact on all of us invested in the market, but the past century’s investment returns are arguably more important in helping to frame our own investment strategy. This is because next year’s investment return is arguably the least important investment horizon for almost all of us.

No matter what our current circumstances are, most of us have a far longer investment horizon than we realise – whether we’re just starting out, are in the middle of our working careers, are approaching retirement, or are already in retirement. And the longer the investment horizon the less relevant the most recent returns are in understanding what is likely to happen next.

Investment Perspectives

1 See Credit Suisse Global Investment Returns Yearbook accessed at http://publications.credit-

suisse.com/tasks/render/file/index.cfm?fileid=80603618-9230-382D-C51FF70FAF7A4A65 on

12th July 2016 which looks at returns from financial markets over the past 115 years.

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Investment Perspectives

To watch our short quarterly video wherein David shares his views on the local and global economy, click here. Enjoy, and let us know what you think.

So while it is highly relevant for short-term returns that the equity market in aggregate still looks expensive, our economic growth outlook looks poor, and bonds and cash rates only offer a modest return above inflation, these considerations are less important the longer our investment horizon.

One could frame this point with two deceptively simple questions.

1. Do you take more notice of what investment markets returned over the past quarter or the past century?2. When you think about future investment returns do you think more about the next year or the next 50 years?

We’d argue that the long-term historical returns of 5% p.a. in excess of inflation for equities, 2% p.a. for bonds, and around 1% p.a. for cash are the most relevant for most investors in framing their investment strategies, given these forecasts are average periods that span periods of both market elation and despondency. In the short term, however, returns could (and probably will) be quite different.

Our managers invest in attractively-priced and successful companies

As equity investors we have the opportunity to be joint owners of the companies tasked with driving economic growth in the 21st century. The managers we invest in all have the opportunity to find attractively-priced companies that they believe will successfully grow over time. Investing in the companies that will drive global capitalism forward remains, we believe, the most effective way of coping with the distortionary impact that monetary authorities are exercising by keeping short-term global interest rates at such low levels. Most importantly, we all probably have an investment horizon longer than we realise. This means most of us can afford to hold an appropriately diversified portfolio of asset classes and managers despite current market prospects. In time, we will be compensated for this. The companies our managers invest in are attractively priced, dynamic and successful, and offer our members the best prospect of growing their savings over time.

We remain appropriately positioned

We continue to carefully balance the need to be invested in the equities of underlying companies with the need to protect at a time of stretched valuations and difficult

economic conditions. The managers we employ with an explicit capital protection focus are underweight equities relative to their strategic allocations, while our more growth focused managers are not overweight this asset class. Our funds consequently remain modestly underweight equities relative to their strategic allocations. Within local equities, we have introduced a manager focussed on upward earnings revisions into the portfolio which should improve the consistency of our returns, and replaced a value-based manager. The funds have maintained a neutral position in longer-dated South African fixed interest assets over the quarter, although bond yields have fallen significantly since this position was established, and could be reassessed should bond yields continue to fall. Finally, the stronger rand has given us the opportunity to top up our international exposure which has underperformed relative to its South African equivalent. We continue to keep this international allocation close to 25% in our funds with such constraints.

Enhancing portfolios by introducing two new managers

Investec and Perpetua are the two newly-appointed managers in the PPS Equity Fund. Both will manage bespoke domestic-only equity mandates. Investec brings a focus on earnings momentum into our funds, while Perpetua is a well-established value manager that has established its own distinctive style. Our equity mandates with Absa and Kagiso were both terminated.

Multi-management important in volatile times

As multi-managers our starting point is always to find and back exceptional asset managers who we believe can add value over market returns and protect in difficult times. Such a strategy looks especially important today where market returns are likely to remain subdued and economic conditions difficult.

#07

Client servicesJune 2016

Enhancing the client experienceWe’re always looking for new ways to improve our service to clients – and there is no better way to find fresh ideas than asking you, our clients, directly. As such we have im-plemented a Voice-of-the-Client (VoC) solution to enable you to tell us about your experiences with us and share your ideas for things we can improve to meet your needs.

Hopefully by now you will have had the opportunity to share your experiences too. Over 25 000 requests for feedback have been sent out to clients since the start of the year. The feedback and ideas you have provided have been very informative. The range of feedback is broad - from small tweaks on the transaction forms to requests for new products. We are using this feedback to make enhancements to the service and products we offer to you.

The VoC programme is an ongoing initiative. You provide initial feedback and we listen and implement the required improvements. You may then provide us with additional feedback once the changes have been implemented to help us track whether our changes meet your needs or not. This cycle continues and enables us to focus our time and resources on delivering the things that you need most.

How does it work?

Three key client journeys were identified and you are able to provide feedback after each one. The journeys are:

The day after the transaction is complete, we will send you a request to complete a short survey via email. The surveys consist of between five and ten multiple choice questions about your experience. The last question provides you with an opportunity to suggest how we can improve our offering to you. In addition we request feedback from all clients in their anniversary month even if they have not interacted with us directly. We limit the requests for feedback to four every six months to ensure we do not burden you. You may also opt out at any time.

Youprovide

feedback

Welistenand

implement

1. Setting up a new investment

2. Changing an existing investment

3. Calling our Client Service Centre

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What do we do with your feedback?

If you have a poor experience with us we will contact you to resolve any outstanding issues and to understand in more detail what we could have done better to improve your experience.

The ratings you provide allow for detailed analyses of the interactions you have with us. We can then identify what is working well and what can be improved. We can also monitor how the changes we make impact your experience.All your ideas for enhancements are used to guide how our service and product offering is developed and refined going forward.

What have you been telling us?

Please continue to share your experiences and preferences with us. We are encouraged by your participation and remain confident that we can deliver products and services that better meet your needs.

James Fraser, Executive of Operations

Client services

“Too much paperwork. I want to transact online”

Our response: Our Secure Online Services portal enables you to process new and adhoc investments, switches, debit order

changes and withdrawals. In the longer term we are investigating digital signatures

and process improvements to make the experience

more seamless.

“Please make forms and requirements simpler.”

Our response: This is a challenging task due to the regulatory

environment of the financial services industry and the growing

sophistication of fraudsyndicates. However we are busyreviewing all transaction forms to

remove non-essential information and make the requirements as clear as

possible. These will be made available in the

coming months.

“I’d like feedback on the progress of my

transactions via SMS.”

Our response: This is our most common request.

We will be implementing SMS notifications by

the end of September.

#09

Investment costs

Compare apples with apples:A clearer way to disclose costsComparing the costs of investment products from different financial services providers has always been a challenge for investors because there has never been an industry stand-ard to disclose costs. Different cost disclosures have been applied to different investment products making it difficult to compare, and the assumptions behind illustrating costs were not used consistently across all investment products.

To help investors make more informed decisions when choosing investment products, the Association for Savings and Investment South Africa (ASISA) has developed the Effective Annual Cost (EAC) disclosure method. It allows investors to compare costs on most investment products, and their impact on investment returns. The first phase of implementing the EAC will be concluded by 1 October 2016 at which time investors should be able to request the EAC.

The EAC illustrates all charges that an investor is likely to incur when taking out an investment product. The EAC will ensure that investment cost implications of different products can be compared irrespective of the differing cost structures.

With this standardised disclosure methodology, investors are able to see upfront the impact of individual cost items (administration, investments and advice) and the total cost of the investment.

Furthermore, the EAC will illustrate the cost investors would incur when exiting an investment policy prematurely so investors are fully aware of the impact of termination charges or the impact of loss of loyalty bonus schemes. In the past exit fees were not disclosed in a way that allowed for ease of comparison, and the EAC aims to alleviate this.

Before making an investment decision, investors will, from 1 October 2016, be able to request the EAC from any product provider. All investment companies will be required to include the EAC in point of sale client documentation such as quotes and proposals.

June 2016

“The EAC illustrates all

charges that an investor is

likely to incur when taking

out an investment

product.”

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Investment costs

The introduction of the EAC is very much in line with TCF, which places a great deal of emphasis on positive client outcomes – a principle that has always been heavily ingrained in the way we do business. We are of the view that the EAC disclosure is a big step in the right direction for investors and for the industry in its entirety.

In the next edition of Talking Points

We will provide an example of an EAC in the next edition of Talking Points. It will explain how the EAC can help you interpret and compare costs of products when considering a new investment or transferring retirement savings to another product.

Hugo Malherbe, Executive of Product Development

“We are of the view that the EAC

disclosure is a big step in the right

direction”

#11

Tax free investingJune 2016

A TFIA for your child? A few things to rememberSince the launch of the PPS Tax Free Investment Account (TFIA), there has been huge interest in the offering because of the significant tax benefits offered to investors. In fact some parents or legal guardians are also opting to invest in a TFIA on behalf of a minor child, and use it as a springboard to create wealth for their children or grandchildren over the long term.

As you may be aware, a TFIA is a long-term savings vehicle with significant tax benefits. You may contribute up to a maximum of R30 000 per tax year and R500 000 over your lifetime without paying tax on dividends, on interest income, on withdrawals or on switches. The tax benefits will allow the investment to grow tax free, and all proceeds will be tax free in the hands of the investor.

While this could be a great addition to your portfolio and can have noteworthy benefits for both you and your family, before you invest in a TFIA for your children there are a few things to remember.

Investing in your child’s name does not impact your limits…

…but it will impact theirs. By having a TFIA in their names, their annual or lifetime limits will be used. In other words, all contributions into this account will form part of their R30 000 a year and R500 000 lifetime cap. If you invest the maximum allowable amount per year in your child’s name, your child would reach their lifetime cap after 16.7 years.

Withdrawals cannot be replenished

Refraining from unneccessary withdrawals is important because, later in their lifetimes, your children will not be able to replenish amounts that you have withdrawn, and these amounts still impact your child’s maximum contribution limits. But that’s not the only reason to refrain from unnecesary withdrawals.

“A TFIA is a long-term

savings vehicle with

significant tax benefits.”

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By keeping all the funds invested, you give your child a better chance of uninterupted investment growth. Assuming you invest the maximum allowable amount per year with a return of more than 12% per year on the TFIA (with no withdrawals), the investment could be worth more than three times the capital contribution when your child reaches their lifetime cap in 16.7 years.

Be wary not to exceed contribution limits

You may contribute up to R30 000 per year (R2 500 per month) and R500 000 in total into a TFIA. It is important not to breach these limits as SARS imposes a 40% penalty on over-contributed amounts. For example, if you invest

R35 000 it means you have exceeded your child’s annual limit by R5 000. The penalty, which is R2 000 in this case (i.e. 40% of R5 000), must be paid to SARS. It would have been far more beneficial to have invested the extra R5 000 in an investment account instead!

If you invest for multiple children, you may be liable for donations tax

You may donate up to R100 000 a year to a natural person free of donations tax, so this would cover a R30 000 contribution to a child’s TFIA. However, if you invest for multiple children on their behalf and exceed this R100 000 donations tax cap, this would result in you exceeding your donations tax limit and may be subject to donations tax. A flat rate of 20% donations tax is imposed by SARS when exceeding the threshold.

Their investment will belong to them

There is no minimum age requirement to invest and since your child may not yet have the capacity to make investment decisions, you are able to make the decision to invest on their behalf. However, even if you are the contributor, you may not transfer the funds into an account other than one held in the name of the minor, or that is part of their deceased estate.

It always helps to make informed decisions and to make sure that if you do intend to invest in a TFIA you are fully aware of the implications and how to make optimal use of this powerful tool for your children’s future.

Speak to your PPS Investments accredited financial adviser if you’d like to invest in a TFIA for your child, or feel free to contact us directly at 0860 468 777.

Tax free investing

Emma Leigh, Executive of Governance

“If you invest the maximum allowable amount per year in your child’s name, your child would reach their lifetime

cap in 16.7 years.”

#13

Personal finance

Let the investment professionals do all the work for you In the investment world investors have to make some important decisions. One of these is to choose underlying investment options that would be suited to their invest-ment objectives.

Making this decision is becoming more and more diffi-cult for investors due to the many options available in the market.

The latest Collective Investment Scheme (CIS) industry statistics for the year ending March 2016 showed that there were 1360 unit trusts available for investors to choose from.

Therefore, in order to make this task easier, consider the points below when selecting unit trusts for your portfolio. As with any financial decision it is recommended that you consult your financial adviser.

1. Know why you are investing

There are many reasons why people choose to invest their hard-earned money. Some people would like to save for a family holiday, a dream wedding, or invest money so that they can enjoy a comfortable retirement. In fact, investing for retirement is an investment goal that everyone should work towards. Once people know why they want to invest,

it then becomes easier to choose investment options that would support that objective.

2. Know your investment time horizon

An investment time horizon refers to the amount of time from the moment an investor starts investing to the day the investment matures. This can be determined by the investment goal. Short-term goals like a family holiday in a year’s time will require a different portfolio to saving for university fees in 15 years’ time. The investment horizon greatly influences the type of investment options that would be suitable. Generally an investor would want to invest in a more risky investment option if they have a long time horizon. Less risky investment options are generally more suitable for shorter time horizons.

Within unit trusts the growth assets are equities, while money market and bond instruments are considered to be non-growth assets because they generate interest which is unlikely to keep pace with the return of equities over the long term. However, to ensure a diversified portfolio, an investor would generally have a combination of assets in a portfolio. Always bear in mind that a low-risk, low-return investment is very different to a higher-risk investment that requires an investor to remain invested for a long enough horizon to see the long-term gains.

June 2016

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Personal finance

3. Know the costs

Over the long term costs can negatively affect investors’ investment outcomes. It is therefore important to know and understand the costs charged by the unit trust pro-vider. Investors should ask their unit trust providers to provide them with a breakdown of the costs they incur in their portfolios and explain how the investor pays these costs - weekly, monthly or annually. Understanding costs will be a lot simpler with the introduction of the Effective Annual Cost (EAC) disclosure method.

4. Understand the unit trust funds

It is important that clients do sufficient research on the provider of the unit trusts before choosing to place their hard earned savings with that provider. Investors have to be confident that the unit trust manager has the experience, resources, expertise and skills to manage the unit trust according to its mandate.

Furthermore, do not select unit trusts based on past performance. Past performance is not a guide to future performance. Always try to understand what drives the performance of the unit trust and the accompanying risk

that it has to take to deliver those returns.Various unit trust managers employ different investment styles and philosophies. Clients need to familiarise themselves with these and understand what kind of style works best in a particular market cycle.

The reality however is that most investors do not have the time, skill or resources to do all of the above. The best way for clients to ensure that all of this research is done properly is to invest through a multi-management company. A multi-management company is an investment company, such as PPS Investments, with skilled and

experienced professionals who constantly research the universe of unit trust providers and are able to make key investment decisions on behalf of the client.

In other words, by choosing to invest with a multi-manager, clients do not have to worry about any investmentdecisions. All of that is done for them.

Duane Littler, Executive of Business Development

“Always try to understand what drives theperformance of the unit trust and the

accompanying risk that it has to take to deliver those returns.”

#15

Fund profileJune 2016

PPS Global BalancedFund of FundsThis is an actively managed fund that exclusively invests with well-established international managers with proven long-term track records. The portfolio is carefully constructed to provide investors with a suitably diversified solution while aiming to outperform a composite industry benchmark over time.

What thefund offers: • Exposure to exceptional global asset managers not always readily available to local investors • Improved consistency of returns by combining managers with different styles and investment philosophies that will outperform at different times • Ongoing monitoring of manager strategies and outsourced manager selection • Appropriate diversification across regions and markets and is backed by well-researched investment ideas

What YOUneed to know: • Available on the PPS Investments platform across most products and offers daily liquidity

• Can be used as a standalone solution or a building block in a Reg. 28 South African portfolio

• Focussed on growth assets but won’t hold more than 75% in equities excluding property

• Total equity allocation will depend on the underlying multi- asset class managers’ perception of the attractiveness of this asset class relative to the alternatives

• Priced in rands, but underlying funds are all priced in international currencies

Our managers: We’ve invested with two exceptional multi-asset class managers and two exceptional global equity managers to deliver outperformance to our clients.

All four selected active managers have demonstrated the ability to outperform their benchmarks over time, partly because they have been prepared to take high conviction positions and back their ideas.

We also have an allocation to a global index tracking manager and global property manager to improve the consistency of returns and provide additional diversification benefits. Both these managers are also leaders in their respective classes.

None of the managers’ periods of outperformance will always coincide with each other - reflecting the differences in their investment approaches.

Ourapproach: • We invest with global rather than regional managers

• We target understandable strategies and high- conviction portfolios

• We undertake extensive qualitative engagement

• We focus on managers with different investment styles and strategies

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Fund profile

EGERTON CAPITAL (UK) LLP manages a global equity portfolio with a focus on large and liquid equities with a significant perceived upside to their current price, and brings an earnings focus. • Invests in strong balance sheet companies that are highly cash-generative and have considerable potential for short- term upside• Holds a highly-concentrated portfolio of around 20 core positions, but is willing to exit positions quickly in shares and re-rate if ideas don’t work out• Founded in 1994 by its current chief investment officer John Armitage who remains responsible for all investment ideas and analysts employed by the firm

VERITAS ASSET MANAGEMENT LLP manages a global equity portfolio targeting companies with an expected 10% p.a. US dollars return and brings a real return mind set. • Invests in high-quality companies with a history of generating strong cash flows• Highly-disciplined process that will default to cash if the perceived upside is not sufficiently attractive• Thematic-based approach to ideas generation from a proprietary or universe of 200 stocks that leads to concentrated portfolios of 30-40 attractively-priced best ideas• Founding partners and portfolio managers Andrew Headley and Charles Richardson remain actively involved in the firm

Manager exposure in the fund

RUFFER manages a global multi-asset portfolio with a focus on capital protection and real returns and brings an absolute return focus. • Top-down macro focus that constructs portfolios that aim to deliver real returns and not lose money over any 12-month period• Makes use of conventional asset classes (equities, bonds and cash)• Explicit focus on balancing risk with opportunities leads to very different looking portfolios from the typical (peer-focused) balanced manager• Chief investment officer, Johnathan Ruffer, is the founding partner of the business founded in 1994

ORBIS INVESTMENT MANAGEMENT LIMITED manages a global multi- asset portfolio driven by its contrarian value-based approach to equity investing and brings a valuation-based focus. • Invests in the companies offering a significant margin of safety relative to their intrinsic value• Disciplined process to incorporate analysts’ ideas into the portfolio, and are prepared to back select analysts with large off-benchmark positions• Global and regional teams of equity analysts with asset allocation and fixed income capabilities run from Bermuda• Consistently applied its investment philosophy through a number of investment cycles since it was founded in 1989

OLD MUTUAL CUSTOMISED SOLUTIONS manages a global equity index- tracking portfolio focused on companies rated highly on ESG grounds and provides effective and low-cost exposure to global equities. • Tracks the MSCI World ESG Index which contains the top half of global companies rated above average on Environment, Sustainability and Governance (ESG) grounds• Old Mutual has excellent IT infrastructure and substantial assets to cost-effectively track global equity market indices • Has successfully tracked market indices since 2001

CATALYST FUND MANAGERS manages a global real estate portfolio with a focus on developed markets and sustainable earnings growth and brings an explicit property-focus. • Invests in listed real-estate companies with specialist capabilities in large, transparent, liquid markets• Favours companies with strong management teams and quality assets• Sensible risk management processes to limit extreme positions in particular stocks, sectors or regions• Has been a privately-owned investment company investing in global property since 2005. It is run by property specialists with a prior background in real estate

Global equity mandates

Global multi-asset class mandates

Global specialist mandates

#17

June 2016 An untamed tale

Using business to drive social changeFor centuries the future sustainability of businesses was solely built around the ability to produce profits and keep only the shareholders smiling all the way to the bank. However, over the past few decades there have been some notable changes in how corporations are run, particularly in respect of their responsibilities to the societies they serve. On 23 July we celebrated Mandela DayTM, an opportune time to reflect on the strategic imperative that is Corporate Social Responsibility (CSR).

CSR has evolved since the 60s to become an important strategic issue for companies. Today most companies have a CSR department or a foundation which invests in initiatives that are meant to improve and sustain the communities in which they operate. This is not simply to gain favour from those communities but rather intended to be a genuine endeavour to ensure that the markets in which they operate remain sustainable.

In the 21st Century the United Nations-supported Principles for Responsible Investment Initiative officially launched the framework for incorporating environmental, social and corporate governance (ESG) issues into investment practices across asset classes.

It has been reported that over 1300 signatories represent-ing $45 trillion in assets under management have signed up to the Principles.

In the 2000s we saw the adoption of the Treating Customers Fairly (TCF) principles which are mostly observed by financial services providers.

As an investment company we strictly adhere to the principles of TCF and ESG in our general business andinvestment practices. Since our inception in 2007 our clients, their unique circumstances and their communities have always been at the centre of our existence and business model because without them we cannot be successful.“Our clients, their unique

circumstances and their communities have always been at the centre of our existence.”

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Tandisizwe Mahlutshana, Executive of Marketing

An untamed tale

That is why we are encouraged by initiatives such as Mandela DayTM, an initiative that was launched by the UN General Assembly in 2009 in recognition of Nelson Man-dela’s birthday on 18 July. The initiative is a global move-ment to honour Mandela’s legacy of selflessness and act in a way that will change the world for the better.

It is in this spirit that each year we adopt a school based on the view that its facilities need improvement. Our entire business is invited to spend some time at the school to help make the necessary improvements to ensure that we enhance the learning environment for the learners. This is also another contribution towards creating the next generation of professionals.

Mervyn King, renowned commentator on corporate governance, once wrote: “Companies are far greater agents for change than governments, if for no other reason that there are millions of companies in the world and only a few hundred governments. They have a duty to their stakeholders to act and to be seen to be acting as good corporate citizens. Governance of companies has consequently become of critical importance in the twenty-first century, more particularly as it has been called the ‘Century of the Environment’ or the ‘Century of Land, Air and Water’…”

Remember to continue using Mandela Month as an opportunity to touch the lives of those around you and to drive social change.

#19

LinkingJune 2016

As a qualifying PPS member you now qualify to link your child(ren) and/or spouse’s assets held with PPS Investments to your PPS member number.

What is PPS member Linking?The qualifying assets used to calculate your annual profit contributions from PPS Investments can now include the assets of an investor(s) linked to your PPS member number, allowing you to boost your allocations due to the increased asset size.

Who qualifies for PPS member Linking? PPS members with an active PPS Profit-Share Account or Vested PPS Profit-Share Account also holding investment and savings products with PPS Investments qualify for PPS member linking.

How do you apply for PPS member Linking?The PPS Member Application for Linking Form is available on the PPS Investments website at www.ppsinvestments.co.za. To receive allocations on linked assets for the 2016 financial year, remember to submit a Linking form on or before 31 December 2016. Proof of relationship to your spouse and/or child(ren) is required as part of the application process. PPS may also request additional proof of relationship at any stage thereafter.

Important information to note about PPS member Linking:The linking of your PPS member number to the PPS Investments client number of your spouse and/or child(ren) will only apply to the profit contributions related to qualifying assets with PPS Investments. It will not apply to any other PPS Group products.Your linked spouse and/or child(ren) will have no claim to any historical or future profit allocations made to you as the PPS member.The status of actively-linked accounts will be determined on the last business day of the financial year irrespective of the status during the relevant financial year. PPS will remove the linking upon receipt of a written request, completed in the format as prescribed by PPS from time to time, from a spouse and/or child(ren) (or his/her parent or legal guardian).PPS holds the right to reject linking applications and to remove the linking status in future should sufficient proof of the relationship not be provided upon request.

Linking explained

You

as the qualifying PPS member

with an investment with PPS Investments

Linking for increased profit-share

Linked family assets

are now included as

part of your

qualifying assets

Your spousewith an investment

with PPS Investments

Your child/renwith an investment

with PPS Investments

and / or

Link your family for boosted

profits via their

OPN investments

boost your profit allocation

Link

Link

June 2016

Notes

DISCLAIMER:

All information and opinions provided are of a general nature and are not intended to address the circumstances of any Financial Service Provider’s (FSP) clients. Kindly note that this does not constitute financial advice. In terms of the Financial Advisory and Intermediary Services Act, an FSP should not provide advice to investors without an appropriate risk analysis and a thorough examination of a particular client’s financial situation. The information, opinions and any communication from the PPS Investments Group [PPS Investments Proprietary Limited, PPS Multi-Managers Proprietary Limited, PPS Investment Administrators and PPS Management Company (RF) Proprietary Limited] whether written, oral or implied are expressed in good faith and are not intended as investment advice, neither does it constitute an offer or solicitation in any manner. If you need more information or would like to make an investment, please consult your PPS Investments accredited adviser. Alternatively, feel free to contact us directly on 0860 468 777 (0860 INV PPS) or at clientservices@ppsinvestments.co.za. For more information on any of our funds please refer to the Minimum Disclosure Documents of the specific fund available on the PPS Investments website www.ppsinvestments.co.za.

Professional Provident Society Insurance Company Limited, the ultimate holding company of PPS Management Company, is a member of the Association for Savings & Investment SA (ASISA). As such we are committed and adhere to the General Codes, Standards and Principles of the ASISA as updated from time to time.

PPS Investments (39270), PPS Multi-Managers (28733) and PPS Investment Administrators (45924) are licensed Financial Services Providers operating under the supervision of the Financial Services Board (FSB) to provide a service to our investors in line with regulation and industry standards.

PPS Management Company is a licensed collective investment scheme manager, in terms of which it is duly authorised and governed by the Collective Investment Schemes Control Act 45 of 2002, to operate unit trust portfolios.

PPS Investments and its subsidiaries will not be held liable or responsible for any direct or consequential loss or damage.

Get in touchIf you need more information

or would like to make an investment,please consult your PPS Investments

accredited financial adviser.

Alternatively, feel free to contact us directly. We are ready to assist with

any queries you may have.

Contact us on 0860 468 777 (0860 INV PPS)or at clientservices@ppsinvestments.co.za.

www.ppsinvestments.co.za