MAY 2020

KZN DEFENSIVE FUND

031 322 9002Vusi.Ngcobo@durban.gov.zaSmartXchange Building | 5 Walnut Road | Durban | 4000

FRONT OFFICE CONTACT DETAILS

The KZN Defensive Fund is a low risk fund that aims to balance the needs of members that are approaching retirement; to preserve their capital, to maintain exposureto growth assets and maintain the level of income that can be secured at retirement.

The fund is well diversified between asset classes, both locally and internationally, but is managed within conservative parameters. The fund’s asset allocation is fixedand the fund makes use of specialist asset managers to select the most attractive securities to invest in within each asset class.

Due to its relatively low allocation to growth assets, the fund has a low chance of capital loss in the short term and is expected to achieve moderate real growth ofcapital over the long-term. The fund is best suited to members who have a short to medium term (1-3 years) investment horizon.

The portfolio complies with the prudential investment guidelines set out in Regulation 28 of the Pensions Funds Act.

Global economies began their slow emergence from lockdown in May,evidenced by Google’s Global Mobility Index and the Oxford StringencyIndex. Markets rallied on further fiscal support and the provision ofadditional liquidity. While a second wave of infections is a major concern,after four weeks into the relaxation process there has been little evidence ofa resurgence, and analysis by UBS and JPMorgan actually shows adecrease in the daily infection rate in most countries post-lockdown.Optimism about vaccines is also increasing, as over 160 vaccines are nowbeing researched, with five having started human trials and positive reportsabout American biotechnology company Moderna’s vaccine and Gilead’sremdesivir.

However, markets took a turn for the worse as US-Sino relations stressed,with the US Senate passing a bill barring certain Chinese companies fromlisting on American exchanges. Sentiment deteriorated further as China’slegislature approved national security laws for Hong Kong, which erodesHong Kong’s freedom, democracy and human rights.

South Africa announced a move to alert level 3 on 1 June, allowing anadditional 8 million people to return to work. The SARB cut the repo rate by50 bps to 3.75%, a record low that makes a total of 3% cuts over the lastyear. The SA consumer has had much-needed relief with low oil pricesaccumulating a reduction in fuel prices of R4/litre this year, but it may proveto be too little too late. South Africa’s small businesses are in deep trouble,with a new survey showing that as many as 75% face closure as a result ofthe Covid-19 lockdown. South Africa’s 2020 GDP growth is likely to contractby almost 10% in 2020, and we eagerly await government’s third phase of“speedy economic reforms” and a decision on SAA which has been inbusiness rescue for more than 5 months.

The Covid-19 pandemic has escalated the need for Quantitative Easing andGovernment borrowing. Not only is QE at all-time highs, but the pandemicinduced recession has also lifted sovereign debt to GDP levels to a 70-yearhigh. This is going to further slow growth over the next decade as austerityin the future is enforced to pay back debt. The FTSE/JSE SWIX Index fell1.0%, with Industrials and Financials dropping 1.6% and 4.7% respectively.The JSE All Bond Index was up 7.1%, while the rand appreciated by 4.0%relative to the US dollar.

MONTHLY COMMENTARY

ACTUAL ASSET ALLOCATION

DISCLAIMER

The information and commentary contained in this document is of a general nature and is not intended to address the circumstances of a particular individual or entity. It does not in any way constitute a solicitation,recommendation, guidance or proposal, nor does it constitute financial, investment, tax, legal or other advice. Whilst reasonable care was taken in ensuring that the information is accurate, Sygnia Asset Management doesnot warrant its accuracy, correctness or completeness and accepts no liability in respect of any damages and/or loss suffered as a result of reliance on the information in this document. No one should act upon theinformation contained in this document without having obtained appropriate and professional financial, investment, legal, tax and such other relevant advice as may be required in each instance. Sygnia Asset Managementis a licensed financial services provider (FSP 873): 7th Floor, the Foundry, Cardiff Street, Green Point, 8001 Tel: (021) 446 4940/Fax: (021) 446 4950

STATISTIC FUND BENCHMARK

FUND SUMMARY AS AT 31 MAY 2020

% Positive Months 65.0% 65.0%

% Negative Months 35.0% 35.0%

Worst Month -7.3% -11.3%

Best Month 5.3% 9.4%

Average Return 0.5% 0.4%

Median Return 0.7% 0.5%

Maximum Drawdown -9.7% -13.7%

PERIOD FUND BENCHMARK

PERFORMANCE ANALYSIS TO 31 MAY 2020

1 Month 2.2% 0.9%

3 Months -0.3% -2.0%

6 Months -1.5% -3.3%

Year to Date -2.2% -3.9%

1 Year 1.2% -1.8%

3 Years 4.3% 2.6%

5 Years 5.7% 4.1%

Since Inception 5.7% 4.1%

Inception Date: 29 May 2015. Returns prior to inception are backtested.Returns are net of the TIC.

FEES

Total Expense Ratio (TER) 0.40%

Transaction Costs (TC): 0.05%

Total Investment Charge (TIC): 0.45%

PERFORMANCE FUND BENCHMARK

CALENDAR YEAR RETURNS

2015 7.6% 7.4%

2016 7.4% 5.9%

2017 10.4% 9.6%

2018 1.1% -1.1%

2019 8.5% 7.0%

MANAGER ALLOCATION 31 MAY 2020

MANAGER PERCENTAGE

Coronation Absolute Bond - SA Bonds 22.2%

Coronation – SA Cash 14.8%

Coronation – SA Bonds 10.8%

Prudential (Int Bond) 9.6%

Stanlib Bond Fund 6.8%

MAZI Capital SA Equity (Swix) Fund 6.1%

BlackRock – International Equity 5.3%

STANLIB Property Income Fund Class B3 5.0%

SAN INST POS RET3 B1 4.8%

Mergence Equity (Swix) Fund 4.7%

Argon SA Equity Fund 3.5%

Prudential Core Capped Swix Equity Fund 3.0%

KZN Satrix SWIX Portfolio 2.7%

Avior Currency Hedge 0.8%

BENCHMARK COMPOSITION

The fund benchmark is a composite benchmark consisting of: 20% SWIX, 15% ALBI, 10% SAPY, 15% STeFI, 5% MSCI World Index, 10% Barclays Global BondIndex, 25% Barclays BEASSA Index

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV YEARDEC

HISTORICAL PERFORMANCE

YEAR

2.7% 0.7% 0.9% 1.4% -1.8% 0.1% 1.8% -0.1% 0.2% 2.9% -0.3% -1.1% 7.6%2015

-0.1% 0.7% 2.7% 0.9% 1.5% -0.1% 0.9% 1.0% -0.2% -0.9% -0.3% 1.1% 7.4%2016

1.2% 0.1% 1.1% 1.4% 0.6% -0.8% 2.2% 0.8% 1.3% 2.0% 0.1% 0.0% 10.4%2017

-0.6% -0.6% -0.7% 2.5% -1.1% 1.2% 0.4% 2.2% -1.4% -1.1% -0.8% 1.2% 1.1%2018

1.7% 1.1% 0.9% 1.9% -0.8% 1.4% -0.6% 0.4% 0.9% 1.1% -0.4% 0.7% 8.5%2019

0.7% -2.6% -7.3% 5.3% 2.2% -2.2%2020

CUMULATIVE INVESTMENT PERFORMANCE