to the end of april 2018 · investment manager’s multi-asset class team. he co-manages the abax...

Investment management insightsTo the end of April 2018

ContentsIntroduction 3

Industry dynamics 4

Persuasively passive and systematically smart 13

Glossary 31

page 2 of 32 Investments I insights | 2018

In this issue’s first section, we give a qualitative update of staff and company changes within the SA investment management industry, with factual summaries of what transpired during the past year and a quarter.

In the issue’s second section, we take a closer look at particular investment managers and we highlight Momentum Investments. The focus falls on a key component of our capability set, which forms part of our outcome-based investing approach, namely our systematic strategies and structuring team. The article covers company structure, staff, investment philosophy and analyses of portfolio behaviours that typify those managed by the team.

During 2017, low volatility in global markets masked the uncertainty in the global political arena. The SA equity market returns were driven by only a handful of shares, such as Naspers, Richemont, Anglos, Billiton and Mondi. If these were excluded, or if portfolios had large underweight positions to these shares, a sub-par return relative to any benchmark was a certainty. Conversely, if these shares were included in a portfolio as overweight positions, it would have resulted in stellar outperformance relative to the market. In a normal market cycle, predictability has proven to be difficult; in these uncertain market conditions, it becomes almost impossible. The Steinhoff accounting scandal, speculation of misconduct at Resilient, real estate investment trust (REIT) misconduct and alleged corruption at EOH added to the volatility and uncertainty.

Uncertainty from mounting pressures of SA’s unfavourable budget deficit, an impending credit downgrade and the ANC’s elective leadership conference saw active investment managers positioning their portfolios for a binary outcome. In these uncertain times, investment custodians were looking beyond the traditional fundamental active investment approach, shifting their interests to passive and ‘smart beta’ investment methodologies.

The ANC’s elective leadership conference election resulted in Cyril Ramaphosa being sworn in as president in February 2018. The markets reacted positively to this change and SA Inc. companies (companies in the retail and banking sectors) benefited from renewed confidence instilled by the change in leadership of SA.

Economic growth and well-being of local and global markets have been perceived as benign by most, but not without systemic political risk. Since 2018’s beginning, markets have turned to favour the active investment managers, as volatility levels and opportunities in share selection have increased – proving the need for fundamental as well as systematic and passive investment strategies. The predictability of delivery of these remains difficult and alludes to the merits of a more robust portfolio construction approach within an outcome-based solution.

In this issue, we discuss both these investment methodologies, highlighting some of the main benefits of and the implications for portfolio construction. These aspects are covered in the context of Momentum Investments’ systematic strategies and structuring business unit.

As always, we emphasise the importance of robust portfolio construction – where the understanding and effective application of asset allocation, investment strategies, factors and their associated risk premia have become a necessity for more effective delivery on client outcomes in the longer term.

It is our aim that you gain insight into the investment industry’s dynamics and changes, as well as have a better understanding of our systematic strategies and structuring team, our overarching outcome-based investing philosophy and the workings of passive and smart beta portfolios.

Eugene Botha

Deputy Chief Investment Officer (CIO) of Momentum Investments

Introduction

Investments I insights | 2018 page 3 of 32

Industry dynamicsTatjana Raunich | Qualitative Research Analyst

An overview of industry changes (during 2017 to the end of April 2018) within the investment management landscape is discussed below, relating to the business/human capital.

36ONE Asset ManagementLouis Kruger joined 36ONE during September 2017 and replaced Nico Smuts, as portfolio manager in the hedge fund space (Smuts left 36ONE in June 2017 for the UK). Kruger articled at Arthur Andersen and KPMG, after which he joined AMB Capital, where he assisted in starting the investment manager’s hedge fund offering. At the end of 2010, he left AMB to start G3 Fund Management with the ex-AMB hedge fund team.

Abax InvestmentsPhilip Liebenberg joined Abax in August 2017, as part of the investment manager’s multi-asset class team. He co-manages the Abax Absolute Prescient Fund with Rashaad Tayob.

Before this, Liebenberg worked at Sanlam Investment Management, where he was head of absolute return mandates and the portfolio manager of the investment manager’s absolute return portfolios. Liebenberg has 18 years’ investment experience and holds a PhD in Chemical Engineering and is a CFA charter holder.

Absa Asset ManagementDuring April 2017, it was announced that Errol Shear resigned from Absa, after 11 years with the investment manager, since joining Abvest, as chief investment officer (CIO) in 2006. His roles at Absa included chief investment strategist and head of the absolute franchise. Eben Mare continues the management of the absolute franchise. Mare joined Absa in January 2016, as head of fixed income. Previously, he managed about R10 billion in absolute return investments with inflation plus 3, 4, 5 and 6 mandates. Mare has held a number of senior positions in the financial markets in the past 26 years and holds a PhD in Applied Mathematics. He was assisted by Ntobeko Stampu, who joined Absa during 2017 from the South African Reserve Bank (SARB), where he worked as a senior fixed income portfolio manager. After more than 15 years in the investment industry, he has occupied many senior positions at industry-leading organisations, as a proprietary trader, quantitative analyst and absolute return portfolio manager.

In April 2018, Ntobeko Stampu resigned from his position as portfolio manager on the Absa Absolute Return Portfolio, after a year of assisting in the realignment of the portfolio. Stampu will be relocating to Cape Town in the near future.

Kanyisa Ntontela was appointed in October 2017, as analyst/portfolio manager at Absa Asset Management, where her responsibilities extend to fundamental analysis of equities on the absolute return portfolios. Previous positions held: equity analyst at Perpetua Investment Management, where she was for two years, and, before that, at Investec Asset Management, Absa Capital Securities and Oasis Asset Management.

ALUWANI CapitalDuring July 2017, Stephen Charangwa decided to leave ALUWANI in pursuit of other opportunities, based on ALUWANI’s decision to close its Africa (excluding SA) fixed income capability. This resulted from lack of local market demand, despite ALUWANI’s belief in the long-term diversification benefits derived from this capability. The investment manager will, however, continue to be active in and grow its Africa equity and multi-asset class capabilities.

During 2017, Tebogo Naledi resigned from his position as chief operating officer (COO) of ALUWANI for personal reasons.

During September 2017, Jason Hall, which was the head of credit and a portfolio manager in the fixed income team under Conrad Wood, resigned, embarking on an entrepreneurial venture of his own.

In March 2018, Mamokete Lijane, ALUWANI’s macro strategist, resigned to pursue other opportunities within the banking sector. Lijane will not be replaced, instead, the company intends to recruit a fixed income strategist, who will focus on the fixed income team and enhance the succession planning within the team.


Ashburton InvestmentsDuring the first quarter of 2018, Ashburton decided to streamlineits investment management business and focus on transformation.

The CIO of Ashburton, Paolo Senatore, stepped down from this position after 20 years of service at the FirstRand Group, in pursuit of other interests in the investments industry (outside of the group).

Nkareng Mpobane, previously deputy CIO, was promoted to CIO of Fund Management for Ashburton Investments and his custodianship encompasses the long-only portfolio range of SA, Jersey and Luxembourg. Over time, a CIO of Private Markets will be appointed – the scope of custodianship encompasses the unlisted asset classes.

BlueAlpha InvestmentsWalter Jacobs joined BlueAlpha during June 2017, as portfolio manager. His previous employment included PPC and Barloworld from 1997 to 2002, where he was involved in various strategic projects, including target setting, valuations and capital allocation. Thereafter, he joined Credit Suisse, where he ran in-house valuation training and worked with several of SA’s leading investment managers, helping them understand the operational performance and valuation of listed and unlisted companies. He is also a guest lecturer at UCT’s Graduate School of Business.

Cachalia CapitalDuring April 2018, Cachalia Capital announced the appointment of Naweed Hoosenmia, as portfolio manager, who is working alongside Mashuda Cassim (founder and portfolio manager). Hoosenmia, previously employed at STANLIB Multi-Manager, where responsibilities included portfolio management and risk analysis, and Eminence Partners, (a Johannesburg-based long/short equity hedge fund operated under the Peregrine fund platform), where he held a position as portfolio risk analyst.

Excelsia CapitalDuring the first quarter of 2018, William Moutloatse took up the

position as head of business development at Excelsia Capital. He was the chief executive officer (CEO) at Maru Asset Managers.

Coronation Fund ManagersAt the beginning of 2017, Coronation promoted three of its senior analysts to co-portfolio manager roles on a number of the investment manager’s flagship strategies. As part of the multi-counsellor approach adopted by Coronation during 2015 and 2016, Sarah-Jane Alexander and Adrian Zetler were appointed co-portfolio managers on the Coronation house view equity and balanced portfolios alongside Karl Leinberger. Leinberger retains ultimate responsibility for the portfolios. Nic Stein was appointed co-portfolio manager of the Coronation Aggressive Equity Strategy alongside Neville Chester and Pallavi Ambekar. Chester retains ultimate responsibility for the portfolios.

Alexander joined the Coronation investment team in 2008, as an equity analyst. Her responsibilities, among others, also include the co-management of the Coronation Industrial Fund. Previously, she formed part of the investment team at JP Morgan Asset Management in London, where she was a European research analyst and then co-portfolio manager of its UK Smaller Companies Fund. She has 13 years’ investment experience.

Zetler joined Coronation, as an equity analyst in July 2009. His responsibilities, among others, also include co-management of the Coronation industrial collective investments scheme. Before this, he completed his articles with PricewaterhouseCoopers (PwC) in Cape Town and then worked as a valuation specialist with PwC in London within the company’s financial services division. He has seven years investment experience.

Stein joined the Coronation investment team in 2009, as an equity analyst. His responsibilities, among others, also include the co-management of the Coronation Multi-Strategy Arbitrage Fund as well as the Coronation resources collective investments scheme. He has eight years’ investment experience.


Element Investment ManagementDuring 2017, Andrew Bishop was promoted to position of portfolio manager from his role of equity investment analyst. He shares joint responsibility for managing Element’s equity portfolios. He joined Element in 2008 and previously worked for Deloittes, where he completed his articles. He has a Bachelor of Business Science (Honours) from the University of Cape Town and is a CFA charter holder.

Fairtree CapitalIn the second half of 2017, Paul Crawford, Fairtree’s fixed income portfolio manager, moved to London to setup Fairtree’s London office.

The Fairtree London office will broaden the client base, attracting European and UK investors.

Foord Asset ManagementFoord announced Dane Schrauwen’s decision to take sabbatical leave in January 2017, due to health reasons. In June 2017, it was communicated that Schrauwen would not be returning to Foord and would be taking early retirement. He was one of the co-portfolio managers on the equity and multi-asset class portfolios. Upon application for his sabbatical, the optimality of the investment manager mix was reviewed, taking into account the skill set available and capacity utilisation of individual portfolio managers. These changes remained in place after Schrauwen’s departure. The arrangements made to supplement the South African multiple-counsellor investment manager mix during 2017 were as follows:

• William Fraser re-joined the multi-asset class portfolios team (with Dave Foord and Daryll Owen).

• Foord re-joined the SA equity portfolio manager mix (with Nick Balkin and Brian Davey). Foord has always been co-portfolio manager on the multi-asset class capabilities.

• Mike Townshend has had shared responsibility for the management of personal investment portfolios with Davey for the past five years and has built good relationships with these investors. Townshend returned to SA in the latter part of 2017, from a two-year secondment to Foord’s Singapore office, to assume the leadership of the personal investment portfolio initiative before Davey’s retirement in March 2018 (after 23 years with Foord).

• At the beginning of 2018, Owen joined the SA-equity multiple-counsellor (with Balkin and Foord) portfolio management team, replacing Davey’s function in this space.

In addition, Balkin’s sole focus is on SA portfolios and he joined the SA multi-asset class portfolio team of Foord, Owen and Fraser.

• The Foord International Fund continues to be managed by Foord and Brian Arcese, with no changes expected.

• The net effect is as follows:

- SA-equity multiple-counsellor: Daryll Owen, Nicholas Balkin and Dave Foord

- SA-multi-asset class multiple-counsellor: William Fraser, Daryll Owen, Nicholas Balkin and Dave Foord

Investec Asset Management

At the beginning of 2017, Rhynhardt Roodt, who was previously co-head of Investec’s equity and multi-asset class team (SAE&MA team) with Chris Freund, was promoted to co-head of Investec’s 4Factor Team. The SAE&MA team was simultaneously integrated into the 4Factor team, following the general trend at Investec, where investment teams are becoming more globally integrated. 4Factor and SAE&MA share significant philosophical and process overlap, as both processes combine factor-based screening with bottom-up fundamental analysis. Freund continues to lead the SAE&MA team, but within the broader 4Factor team.

This resulted in the following portfolio management changes:

• Roodt became co-portfolio manager of the 4Factor global core equity portfolios, together with Jonathan Parker.

• Samantha Hartard became co-portfolio manager of the local general equity and balanced portfolios, together with Roodt, Freund, Grant Irvine-Smith and Rudi Naumann. Hartard is also sector head of industrials and has nearly a decade of investment experience.

The rest of the SAE&MA team remained unchanged, led by Freund, who is supported by 17 analysts and portfolio managers. As co-head of the overall 4Factor team, Roodt continues to provide process and team oversight across the SAE&MA portfolios.

James Hand relinquished his role as co-head of the 4Factor team. However, he continues his work within the CIO office, together with Mimi Ferrini and John McNab, where he focuses on process reviews and research work. While Hand remains involved with the firm, the amount of time he works was reduced from October 2017 onwards.



During April 2017, Investec announced the appointment of Hannes van den Berg, as co-portfolio manager to the SA equity and multi-asset class team. Van den Berg has over a decade of investment experience, having started his career at Fairtree Capital. Before joining Investec, he was co-portfolio manager of the Fairtree Relative Value Market Neutral Equity, Relative Value Long/Short Equity and Directional Bias Long/Short Equity Funds.

During September 2017, Khaya Gobodo’s departure from Investec was announced. He decided to pursue the opportunity of deputy managing director at Old Mutual Wealth & Investment. His role at Investec included a leadership role in the investment manager’s Africa business, and he was also a strategy leader within the quality capability during the past three years. Gobodo left on good terms.

In February 2018, Investec announced its succession plan (subject to regulatory approval) with the retirement of Investec Group CEO and managing director, Stephen Koseff and Bernard Kantor respectively, on 30 September 2018.

Investec’s founder and CEO, Hendrik du Toit, will become joint CEO of the Investec Group with Fani Titi (current chairman of Investec Group), on 1 October 2018.

The company’s COO and chief financial officer (CFO), Kim McFarland,will be appointed as finance director of Investec Group on 21 April 2019, while remaining on various boards of Investec.

John Green, global head of Client Group, and Mimi Ferrini, co-CIO, have been appointed joint CEOs of Investec from 1 October 2018. John McNab will remain co-CIO with Ferrini.

Laurium CapitalBrian Thomas joined Laurium Capital from Coronation Fund Managers in September 2017, as co-portfolio manager of the balanced portfolio.

He qualified as a chartered accountant (CA [SA]), having completed his training at Deloitte in 1999. He joined Deutsche Bank in Johannesburg in 2000 and went on to run the SA equity sales desk. In 2008, Thomas was promoted to managing director and relocated by Deutsche Bank to London, where he was head of the Central and Eastern Europe Middle East and Africa (CEMEA) equity sales team. In 2013, he was approached by Coronation Fund Managers to join as the lead international client services portfolio manager, a role he fulfilled for three and a half years. In addition to his CFA charter and his South African chartered accountant qualifications,

Thomas is also a member of the Institute of Chartered Accountants of England & Wales (ACA) and holds a diploma in advanced South Africa banking law (cum laude) from the Rand Afrikaanse University.

At the beginning of the third quarter of 2017, Paul Robinson, head of Africa (excluding SA) research was appointed as co-portfolio manager of the Limpopo Africa Fund, managing this portfolio alongside Gavin Vorwerg, who has been the portfolio manager since its inception. Robinson has six years’ experience in markets and investments, including working for Merrill Lynch in London and Citibank in Dubai. Before joining Laurium in February 2009, he worked for Ralk Capital, a Johannesburg-based hedge fund, for two and a half years. Robinson holds a BSc and an MBA. He also spent four months at the University of Chicago on an MBA-exchange programme.

Marriott Asset ManagementWith the sad and unexpected passing of Marriott’s CEO, Simon Pearse, in March 2017, Neil Nothard was appointed as CEO. Nothard has been with Marriott for 30 years. Portfolios continue to be managed by the investment committee with the same income-focused investment style and team-based approach synonymous with Marriott. In addition to the appointment of the new CEO, the following key appointments were approved by the Marriott Board: • CFO: David Elliott (formerly head of projects and

investment operations at Marriott)

• CIO: Duggan Matthews (formerly head of investments at Marriott)

Matrix Fund ManagersCarmen Nel joined Matrix in July 2017, following the departure of long-serving portfolio manager, Linda Smith (co-manager Matrix Hedge Fund, Multi-strategy and Matrix Bond Fund).

Nel, with 16 years’ market experience, joined from RMB Global Markets, where she initially worked as an economist before moving into fixed income strategy. She was rated first in fixed income analysis in the JSE Spire Awards in 2011, 2012, 2013, 2015 and 2016 and first in fixed income securities in the Financial Mail awards in 2012, 2013, 2016 and 2017. Nel has honours degrees in mathematical statistics (UJ) and advanced mathematics (Wits), is a CFA charterholder and FRM charterholder.

Nel adds value as an economist, fixed income strategist and portfolio manager, with involvement in the long-only and hedge fund processes.

Makalani Management CompanyDuring the first quarter of 2018, Palvi Kalla (previously the portfolio manager at Maru Asset Management) took a position as a partner and portfolio manager at Makalani Management Company, actively managing a long-only fixed income portfolio with a focus on SA government and corporate bonds. The newly formed Makulani fixed income team forms part of the Makalani Management Company, which was established in 2005. Kalla’s previous positions held included portfolio manager at Maru Asset Management, Old Mutual Asset Management and RMB Asset Management.

Momentum InvestmentsThere have been number of changes within the Momentum Investments capability, enhancing its depth and leadership.

Fixed income team

During 2017, Zisanda Gila and Mohammed Ismail took on senior portfolio management functions, especially after the departure of Richard Klotnick (in the first quarter of 2017) and Louis Scheepers, who turned his focus to shareholder balance sheet management for MMI Group. Additionally, three credit analysts were hired to bolster the team.

Gila has 14 years’ experience in the financial services industry with four years of co-managing money market portfolios. Her previous roles include portfolio administrator, fixed income dealer at Metropolitan Asset Managers and fixed income analyst at Momentum Asset Management.

Ismail has more than seven years’ experience in the interest rate market with a special focus on fixed-income derivatives. Before joining Momentum Investments, he was head of fixed income at Sanlam Capital Markets. He holds degrees in Advanced Mathematics of Finance and Actuarial Science and is a certified FRM and CFA charter holder.

Portfolio solutions and research teams

In 2017, Eugene Botha, previously head of portfolio solutions, was promoted to the position of joint deputy CIO of Momentum Investments, shared with Mike Adsetts. Botha focuses on enhancing practitioner research on the outcome-based investing philosophy, as it relates to portfolio

construction. Botha’s previous roles include quantitative research analyst, portfolio manager, head of quantitative research and head of research at Momentum Investments and its predecessor companies. He holds an MSc in Quantitative Risk Management from North-West University, and still actively pursues studies in Actuarial Science.

Nina Saad was hired as joint head of portfolio solutions, relating to the management of institutional portfolios. Saad previously held the role of deputy chief investment officer at Investment Solutions, head of portfolio management at Advantage Asset Managers. She has a BSc from the University of Witwatersrand and is CFA Charterholder.

Jako de Jager was promoted to joint head of portfolio solutions relating to the management of retail portfolios. De Jager has 17 years of investment industry experience, all within Momentum Investments and its predecessor companies, starting in 2001. Previous positions include analyst, portfolio manager and senior portfolio manager. He holds a BCom (Hons) degree in Investment Management, which he obtained from the University of Johannesburg in 2002.

Gerrit le Roux was appointed as a senior portfolio manager, with responsibility for segregated and customised clients.Le Roux was one of the founders (1997) and later chief investment officer of PSG Escher Investments, one of the first South African multi-manager firms. Escher ultimately evolved into Momentum Outcome-based Solutions. During 2012, he joined Alexander Forbes Asset Consulting (AFAC) as a principal consultant. He holds a BSc (Hons) from the University of Pretoria.

During 2018, Mohammed Sibda rejoined the portfolio solutions team, as senior portfolio manager managing corporate portfolios. Sibda has 20 years of investment experience and previous roles include senior asset consultant at Alexander Forbes; Portfolio Manager at Momentum Investments and predecessor companies. Earlier employers include Carsons Escher, mCubed and Absa. He holds a BCom degree.

In the portfolio solutions and the research teams, three analysts were hired in the portfolio solutions team and one in the research team.



Northstar Asset ManagementAt the beginning of 2017, Northstar announced the appointment of Matthew Bertram and Rory Spangenberg to the positions of COO and portfolio manager/analyst respectively. Bertram works on various projects to further enhance client servicing and reporting. Spangenberg was appointed to manage Northstar’s offshore portfolios.

Matthew Bertram’s previous positions held were at Deloitte, Goldman Sachs (UK), Smith & Williamson (UK) and, more recently, Learn to Earn (SA).

Spangenberg was the previous managing director and portfolio manager at SignalHill Investment Management. Before forming SignalHill, Spangenberg spent 10 years with Investec, managing value and income growth strategies. His experience before that included being head of the SA research sales desk at Investec London, research sales for Barnard Jacobs Mellet and equity portfolio manager of the Sasol Pension Fund.

Old Mutual Investment Group During September 2017, Old Mutual Investment Group (OMIGSA) announced the appointment of Khaya Gobodo, as deputy managing director of the Wealth and Investment Cluster with effect from 1 January 2018.

His appointment aids the investment manager’s quest in becoming the preferred wealth and investment manager on the African continent. Gobodo reports directly to Wealth and Investment Cluster managing director, Dave Macready. His initial focus is on the investment management division, where his perspectives on the alignment of investment management, platforms and distribution are most valuable.

During July 2017, Bernisha Lala joined the OMIGSA customised solutions team, as senior passive portfolio manager. Lala has 12 years’ investment industry experience, including being the lead portfolio manager on the passive portfolios at Taquanta Asset Managers.

Kingsley Williams, CIO of customised solutions indexation, resigned in August 2017, after being with the company for nine years. Williams joined OMIGSA in March 2008, as an investment analyst and was responsible for servicing clients and the overall indexation portfolio management process. Williams has 18 years’ investment-related work experience.

The broader passive portfolio management team remains unchanged and is responsible for the day-to-day management of the investment portfolios, with Kingsley having had oversight of the team and primarily engaging with clients. OMIGSA is confident this team will continue to deliver to the high standards expected from OMIGSA customised solutions.

Perpetua Investment ManagersDuring July 2017, Perpetua Investment Managers recruited Mahesh Cooper, as its deputy COO. In the first quarter of 2018, he assumed the role of COO, enabling Logan Govender (a founder of Perpetua) to turn his focus to the alternative investments space. Govender retains remaining executive responsibilities on the risk and finance side.

Cooper is a qualified actuary, where most of his investment experience was gained at Allan Gray, where he was employed for close on 14 years and held the position of head of institutional clients for many years. During his time at Allan Gray, Cooper served as a director across several boards, including executive director of Allan Gray for more than 10 years (from 2006 until his departure).

During April 2018, Perpetua announced that Christine Fourie will be joining as a fixed income portfolio manager on 1 August 2018. Fourie will join Perpetua from Coronation, where she has been in the fixed income team since 2007. Previous positions include RMB in equities and derivatives structuring for three years and, before that, head of product development in Momentum for four years. Fourie is a qualified actuary.

Prescient Investment ManagementIn February 2018, Prescient Holdings announced the appointment of Cheree Dyers, as CEO of Prescient Investment Management, replacing Herman Steyn. Dyers started her career at Prescient 12 years ago, as an analyst, covering the JSE financial services sector, and held several leadership positions within the Prescient Group, including CEO of Prescient Securities. Her understanding of the broader financial services industry adds to the advancement and growth of the SA financial services industry. Steyn continues to hold his position as executive chairman of the Prescient Group, providing support to Dyers and the Prescient Investment Management team.

Guy Toms, a founder of Prescient and current chief strategist, took over the role of CIO at Prescient Investment Management from Raphael Nkomo, who, in turn, took on the responsibility of expanding the company’s investment management capability into the UK.

St John Bunkell was appointed during February of 2018, as head of the equity team. He has over 20 years’ industry experience, including hedge funds, structured products and risk management, and was a principal of Absa Alternative Asset Management within Barclays Africa Group (since September 2009).

SalientQuantsKobus Esterhuysen was appointed director and key individual of SalientQuants, after the announcement in February 2017 by Paul van Rensburg (founder of SalientQuants) of the 50% stake holding of Peregrine Holdings in SalientQuants.

Esterhuyzen is an executive director at Peregrine Securities and previous positions include executive director at Mercury Financial Services, Sanlam/Gensec Investment Management (development of structured products) and Sanlam Employee Benefits (Valuations and Marketing). Van Rensburg continues to manage and develop his portfolios, also focusing on research and product development.

Sanlam Investment ManagementDuring May 2017, Sanlam Investment Management (SIM) announced the appointment of Natasha Narsingh, as head of absolute return, after the resignation of Philip Liebenberg, whose recent positions at Sanlam included head of absolute return since 2009 and senior quantitative analyst in 2005.

Narsingh joined the absolute return team shortly after Liebenberg’s appointment and worked together with Liebenberg

until his departure. The multi-asset class teams (absolute return and balanced) were merged and operate as a single unit, with a derivatives specialist servicing both areas. There was no philosophical change to the portfolios and the management of the fixed interest component of the portfolios was moved to the specialist fixed interest team within SIM. Similarly, the management of the equity component was moved to the equity specialists within SIM.

Narsingh joined Sanlam in July 2007. In addition to her responsibilities at SIM, she served as a member of the investment committee of the Botswana Insurance Fund Management (BIFM) from 2007 to 2012. She started her investment career as an investment analyst at Greenwich Asset Management in 1998. She has, during the course of her career, served in many roles, including resource analyst, head of resource/mining, portfolio manager of a resource portfolio, general equity portfolios, balanced, absolute return and multi-manager portfolios. She has 17 years’ industry experience and has been managing several third-party portfolios in the institutional and retail space. Before her new role at SIM, she was the portfolio manager of the SIM Managed Solution Funds and co-portfolio manager of the SIM Absolute Return Funds, including the flagship SIM Absolute Return retail offering, the Inflation Plus Fund.

Sanlam Investments – SatrixDuring May 2017, Satrix communicated Jason Liddle’s resignation from his position as CIO. He left Satrix to become head of the institutional clients at Absa Investments. Satrix has the advantage of multi-skilled team members, who are able to move between roles. Jason Swartz, previously investment strategist at Satrix, assumed the role of head of portfolio solutions (responsible for bespoke client solutions, quantitative research and institutional client engagements). Johann Hugo, previously senior portfolio manager, assumed responsibility for the portfolio management function, across passive, smart beta, enhanced index, local and international.

During November 2017, Satrix announced the appointment of its new CIO, Kingsley Williams, after the departure of Jason Liddle.

Williams previously held the position of CIO at Old Mutual Customised Solutions and has 20 years of industry experience, which includes indexation, portfolio management, quantitative research, product development and information technology.


Sasfin WealthDuring April 2017, Sasfin Wealth announced the appointment of Errol Shear to the position of head of value equity and absolute return. Shear assumed the position on 2 May 2017.

Previous experience includes his most recent role as CIO at Absa Asset Management. Shear’s more than 30 years’ industry experience includes a decade at Absa. Before that, he spent more than 20 years’ at STANLIB, managing the absolute return portfolios with a value of more than R10 billion. Additionally, Shear was responsible for the management of the Liberty Group and Liberty Active (Charter Life) life portfolios as well as certain segregated portfolios. The appointment is in line with the company’s strategy to further expand its investment management capability to be a stronger competitor in attracting institutional clients.

Sentio Capital ManagementSanveer Hariparsad and Yashin Gopi joined the Sentio Capital Management team during the first quarter of 2017. Hariparsad joined as fixed interest portfolio manager, previously portfolio manager at Prescient, where he managed retail and institutional mandates at a combined assets under management of R20 billion. Portfolios ranged from close tracking to no-duration limits and tactical asset allocation. Other previous positions held include Future Growth and Old Mutual Investment Group, where he was responsible for building valuation models, portfolio optimisers and portfolio stress testing for the fixed interest asset class. Gopi was hired to be head of the Sentio quantitative team and his experience includes quants analyst positions at BNP Paribas and Cadiz, and was rated top quants analyst by the Financial Mail.

STANLIBIn 2016, STANLIB decided to consolidate its equity offerings into a single equity franchise with a single investment philosophy and process. The equity franchise is led by Herman van Velze, who has more than 20 years’ portfolio management experience, ably assisted by portfolio managers, Theo Botha and Ndina Rabali. Consistent with this process, the decision was taken to integrate equity research into the franchises namely equity, absolute return (led by Marius Oberholzer) and multi-asset class (led by Robin Eagar). The investment manager believes end-to-end franchise accountability and total alignment of the franchises’ investment processes to the research efforts, leads to better investment outcomes for clients. Multiple investment specialists have been connected across

a broad range of asset classes to enable them to make more informed decisions in their specialist areas for the benefit of clients. These steps strengthen individual franchise accountability, while retaining the benefit of drawing on the insights available across the different capabilities.

During February 2017, Seelan Gobalsamy (CEO of STANLIB South Africa) was appointed as the CEO for the emerging markets cluster within the Liberty Group. His responsibilities include STANLIB Africa, Group Arrangements (Liberty Corporate, Liberty Africa and Liberty Health), as well as new businesses (as and when established). Gobalsamy continues to serve as a director on the STANLIB board. During Gobalsamy’s time as STANLIB CEO, he was responsible for the enhancement of its investment capability, which included the listing of Liberty Two Degrees and Fahari I-REIT in Kenya, as well as the expansion of STANLIB’s alternatives offering. He was instrumental in growing STANLIB Multi-Managers and strengthening the quantitative investments capability.

Executive: Asset Management is a position that was created to afford a greater focus on STANLIB’s expanding investment capabilities. Giles Heeger was appointed to fill this role. Heeger co-founded LibFin and was responsible for de-risking the Liberty balance sheet and managing the shareholders’ portfolio. He focuses on STANLIB’s multi-specialist capabilities, which include quantitative investment solutions and STANLIB’s new credit capability.

In March 2017, STANLIB announced the appointment of Derrick Msibi, as CEO of STANLIB South Africa. Msibi has 17 years’ experience and a proven track record in the investment management industry. Msibi’s responsibilities are to drive strategy and provide leadership to the combined LibFin and STANLIB teams. He is a member of the STANLIB board and the Liberty group executive committee. Msibi joined from the Alexander Forbes Group, where he held the positions of managing director of Alexander Forbes Investments (previously Investment Solutions) and joint head of the institutional businesses. With more than an eight-year tenure, Msibi had a number of achievements, including driving profits above target, implementing strategic change initiatives to enhance efficiencies and supporting new business. He continues to contribute to selected boards and public organisations. Before Alexander Forbes Investments, he held various senior positions at Old Mutual for more than ten years.


Terebinth CapitalIn February 2017, Nicole le Riche joined Terebinth Capital, as head of operations. Positions previously held included investment support manager at Blue Ink Investments (2012 to 2017) and manager of the dealing and settlement team at Maitland (2007 to 2012).

In September 2017, Nomathibana Matshoba joined Terebinth Capital, as lead portfolio manager on the fixed income money market portfolios with seven years’ experience in fixed income. Previous experience includes investment analyst at Catalyst Fund Managers, co-portfolio manager/portfolio manager, fixed income analyst, credit analyst at Coronation Fund Managers and various positions held at Old Mutual including junior actuarial analyst, finance product owner and senior strategy analyst.

Truffle Asset ManagementAt the beginning of 2018, Truffle Asset Management appointed Craig Sampson, as COO of Truffle Asset Management. Sampson is a Chartered Accountant and has an MCom degree in taxation.

He spent eight years at Standard Bank, providing security services solutions to investment managers, global banks, pension funds and the collective investments industry. Thereafter, he designed, developed and implemented portfolio administration operations for two Nigerian Banks as well as an SA CIS management company. It was in the latter role that he was responsible for providing Truffle with an outsourced portfolio administration and management company service for many years. More recently, Sampson advised Truffle on various product-related strategies, from a structural and a tax point of view.


Persuasively passive and systematically smart Tatjana Raunich | Qualitative Research Analyst

There are many debates about active and passive investment management. A few salient benefits of both investment management approaches have been highlighted below.

Index (or truly passive) investing affords an investor a cost-effective exposure to a broad set of individual securities, which capture the diversification benefits and the return profile of the market (market ‘beta’).

Smart-beta investing affords the investor a cost-effective exposureto specific risk-return drivers (such as value or price momentum).These have expected return profiles, which can be extracted from the market, by holding a portfolio of shares with associated characteristics that generate the required return profile. A systematic approach is used for smart-beta investing to do exactly this. In addition, transaction costs can be controlled by a predefined set of rules, making for easier modelling and monitoring, resulting in cost-effective, ultimately active, portfolios.

A well-designed smart-beta model can give more certainty to expected return profiles. Smart-beta portfolios are useful when

used as building blocks that form part of a broader portfolio construct, where cost efficiency is an important requirement.

Active investment management relies on the continual macro- and micro-economic research by its investment managers to inform their investment decisions. This makes the process more subjective and more adaptive in constantly changing markets. Active investment managers are required to meet return targets, which are set relative to a specified benchmark. If the active investment manager is a skilled share selector and/or asset class allocator, alpha generated can be superior to returns generated from smart-beta strategies.

Momentum Investments believes there is a case for the use of active and passive investment approaches, as they give exposure to different sources of return.


Simple descriptions of active, passive and smart-beta management(For the sake of simplicity, this article makes reference to the equity asset class only)


Active investingActive investing is where an investment manager identifies a universe of instruments and, with thorough research and skilful share selection, aims to outperform a chosen benchmark, or from an absolute perspective, outperform an inflation-plus target. This involves fundamental research into companies or issuers in terms of macro- and micro-economics. Active investment managers focus on a predefined philosophy, which is implemented through an investment process, where specific fundamental criteria are used to capture drivers of returns. Analysts are employed to identify the drivers of expected returns and calculate valuations for the companies through a research process, which also involves interaction with company management. The portfolio manager makes the final decision on the shares and corresponding weightings to be included in the portfolio, constantly reviewing risk at a portfolio level.

Traditional passive investingThis is where the investment manager aims to extract a specific beta from the market. The most common being exposure to equity, listed on a securities exchange of a particular country, to benefit from collective returns of the constituents listed on that exchange (equity market ‘beta’). Indices are constructed to measure a group of representative shares chosen from a particular exchange.

The indices can be described as baskets of shares, where shares are weighted into the basket according to a chosen metric. Typically, shares are weighted in the index by using their market capitalisation, which is the product of freely-traded shares and their current market price. The investment manager aims to replicate this index, by purchasing physical shares or instruments in the combinations defined by the index.

These portfolios are commonly referred to as passive index-tracking portfolios, because they aim to track or replicate indices by investing in the physical underlying instruments.

The management of these passive index-tracking portfolios requires a different skill set to that of active investment management. The quest to achieve ‘the ideal volume at an ideal price, at an ideal point in time’ is in no way a less-gruelling task. When a tracker portfolio tracks an index identically and at the lowest possible cost, the portfolio manager is not showered in glory for this feat! Passive investment management is thus often a thankless job, but it is a valuable service to the investment community.

Smart betaIn the longer term, the equity market is largely driven by underlying company fundamentals. Differences in rates of growth and profitability drive differences in the returns of shares in companies on an exchange. Investment theory and practice have evolved to a point where the drivers of return can be isolated through the identification of associated characteristics (factors) in a systematic way (which involves the specification of rules guiding share selection) to capture the related premia (reward above a risk-free rate of return for investing into a risky investments). The rules-based method of extraction of characteristics associated with a specific factor, as a means to capture related premia, can be referred to as smart beta.

It has become popular to extract market premia, using smart-beta methodology. Well-known equity premia recognised in the SA market, are the value and Momentum premia. Other factors include size, quality and low volatility.

Individual shares’ characteristics will rotate between the likes of factors such as momentum, value and quality over time, because perceived drivers of share prices vary, over shorter time periods; therefore, they depict different risk premia through different market cycles.

Financial and price metrics are used to identify shares of companies, which display particular characteristics, where such characteristics are synonymous with an underlying driver of the share price, which translates into a premia. For example, value shares are identified based on measures such as the price-to-earnings or price-to-book ratios, while momentum shares are identified through their price returns in the last year. Based on these variables, shares can be ranked and portfolios constructed, which contain shares that exhibit the desired characteristics or combinations of characteristics. Portfolios are then created to replicate these value or momentum smart beta indices.

It is important to note that the range of premia in the SA market is limited, as SA has a fairly narrow market, because it is dominated by sector-specific companies and has less listed constituents on its exchange, relative to its developed-market counterparts. SA’s equity Johannesburg Stock Exchange (JSE), as measured by the FTSE/JSE All-Share Index (ALSI), has about 160 constituents relative to the US large-cap equity exchange measured by S&P500, with about 500 constituents. This leaves the SA market with less latitude for certain of the market premia to play out. Thus, it is important for portfolio managers to test the strength of the premia they intend capturing in the context of the SA market.

In short, smart-beta indices and portfolios are a systematic way of capturing perceived systematic biases or inefficiencies in the market, in terms the following:

• Screens or filters are designed to isolate the desired betas from the market.

• The selection criteria are usually quantitatively based, where the investment manager will use various metrics, whose outcomes, once applied to the financial statements of the company, will signal whether inclusion of the company share will capture the desired beta premia or not. The filtered shares are then weighted into the portfolio based on predetermined rules, which assists in optimising the inclusion of a share into a solution. This is usually based

on the strength of the signal of the premia compared to its effect on portfolio-construction risk and turnover cost.

• The investment manager also needs to consider the inherent weaknesses of the beta strategy that is being harnessed and may choose to add constraints to minimise this risk. An example of this would be where a portfolio manager puts in constraints or criteria to prevent a value beta strategy from owning companies that have high probabilities of becoming value traps to exclude shares that are losing money. (The risk inherent in the value investment strategy is referred to as a ‘value trap’, where a company share is bought at a relatively low market price [cheap] and the market price correctly reflects its low intrinsic value; that is, the company is cheap for good reason and there is no value to be unlocked from the current price. Value traps destroy value risk premia and need to be avoided.)

• The metrics used in the share selection process and constraints that are applied in the portfolio construction are the differentiating aspects between smart beta portfolios. This is where intellectual capital enters into the process and embodies the ‘smartness’ of the beta portfolio, which can either detract from or enhance beta returns. Risk arises when the construction of the smart beta model generates return profiles that are less reflective of the strategy than what they originally intended to capture; thus, contradicting the purpose for which the beta strategy is used.

• The process is continual and must be rerun to update the portfolio with constituents that signal the strongest in terms of the beta strategy the investment manager intends capturing. The portfolio manager will increase or decrease positions in constituents or effect new buys or outright sells based on the signals received from the financial metrics. This process is referred to as rebalancing.

Rebalancing triggers brokerage or trading costs, which detract from portfolio returns. The portfolio manager has to evaluate trading cost compared to the rebalancing benefit before a rebalance is performed. Investment managers often design proprietary systems to optimise the costs and benefits of rebalancing.

• Liquidity of the share or constituent is also important, as it must be easily traded on the market to uphold the efficiency of the portfolio to the extent the share can be bought or sold timeously, so beta is not diluted by holding sub-optimal constituents (that is, when the portfolio is not holding the constituents that best represent the desired beta).


Momentum Investments uses actively managed, smart-beta and passive index-tracking portfolios in various investment offerings. The company’s investment philosophy revolves around the achievement of a client objective over a specific time period, usually expressed through an inflation target or predetermined return and risk objective. With a risk budget in mind, a blend of asset classes that optimally achieve the investment objective is strategically weighted into the portfolio. Within each asset class, there are carefully chosen investment strategies that represent the best opportunity captured by various risk premia.

Among the strategies sourced for the equity asset class, value and Momentum factors are no strangers. The premia delivered by these two factors are well understood by the investment team; therefore, portfolios have a measured exposure to both these factors in a portfolio construct. Value and Momentum smart-beta portfolios are commonly used to extract these factors because they systematically isolate these two premia in a cost-effective manner. Passive portfolios that replicate the overall market beta are used as a cost-effective base to contribute to the build-up of the total premia expected from an asset class.

The use of passive or smart beta in Momentum Investments’ multi-strategy portfolios

OriginsThe team was formed in 2016, after the unbundling of Momentum Asset Management, to facilitate the creation of ALUWANI Capital Partners (MMI’s black economic empowerment partner). Momentum Asset Management

was a business unit within Momentum Investments that resulted from a merger between Rand Merchant Bank (RMB) Asset Management and Metropolitan Asset Managers in 2010.

At this juncture, a slice of Momentum Investments’ in-house talent is introduced: The systematic strategies and structuring team, with a focus on systematic strategies

Group structureFigure 1.1: Group structure


Jeanette MaraisDeputy CEO of MMI and CEO of Momentum

Investment

Executive leadership

André NortjéCOO Enablement

Theo TerblancheCFO

Bongi SokhelaHuman Capital

Sonja SaundersonCIO

Martin RiekertHead: Product

Solutions

Daleen LessingCRO Governance

Nesi ChettyHead: Growth

through Capital

Nina Saad/Jako de Jager/

Head: OBI PortfolioSolutions

Institutional/Retail

Herman van Papendorp

Head: Research & Insights

Motlatsi Mutlanyane

Head: Alternative Investment

VacantFixed Income

Strategies

James Klempster

Global

Eugene BothaDeputy Chief Investment

Officer

Mike AdsettsDeputy Chief Investment

Officer

Investment team

Loftie BothaPortfolio Manager

Imtiaz Mohammed Alli

Portfolio Assistant Manager

Rekha BawaIndex Tracing

Specialist

Jacques Senekal

Head: Assetliability Management

Jaco PotgieterAssetliability Management

Specialist

Oganga UsehAssetliability Management

Specialist

Larissa NaidooAssetliability Management

Specialist

Kobela RangataAssetliability Management

Specialist

Carol TaylorPortfolio Manager

Systematic Strategies and Structuring Team

Wayne Dennehy

Head: Systematic Strategies & Structuring

Norman Mackechnie

Head: Transition Management

Wayne DennehyDistribution

The systematic strategies and structuring team is one of theinvestment capabilities, among others, that fall under Momentum Investments, headed by Jeanette Marais. Sonja Saunderson is the (CIO), custodian of the outcome-based investing philosophy and all the teams within the investment capability. Wayne Dennehy is the Head of the Systematic Strategies and Structuring team.

Passive and smart-beta portfolios have been co-created by the systematic strategies team, with input from various members of the portfolio solutions team. This ensures that the strategies represented and used in the multi-asset class client offerings are aligned to the required profile.

Investment philosophyThe OBI philosophy is the investment premise behind every investment capability within Momentum Investments. This philosophy supports the MMI vision, which is ‘to enhance the lifetime financial wellness of people, their communities and their businesses’. The goal behind the philosophy is to keep clients invested and to maximise the probability of achieving clients’ investment goals that will meet their needs.

Assets under managementFigure 1.2 Total assets under management at 31 March 2018

was R21.9 billion

Smart Beta Indexation

Key investment professionals

Dennehy is a qualified actuary and pension fund valuator, having worked at Momentum Actuaries and Consultants for 11 years, as a pension fund valuator and asset consultant. He switched to investment banking in 2003, where he was the Head of the Inflation Derivative Desk at Rand Merchant Bank (RMB) for four years, before joining Absa Corporate and Investment Banking at the end of 2007. Dennehy successfully ran a structured sales team in the markets business before being asked to help set up a structuring team within the company’s markets business. Before leaving Absa, he took management responsibility of the exchange-traded portfolio business and was responsible for driving its passive businesses across Barclays Africa Group Limited. Dennehy re-joined MMI in January 2016 to become Head of Passive Investments and Systematic Strategies.

Botha has experience in managing institutional and retail portfolios over a wide product range and diverse market conditions since 1999. During his tenure as CIO at Umbono Fund Managers (later renamed OMIGSA Global Index Trackers), he was responsible for indexation, enhanced-indexation, smart-beta and absolute-return portfolios. In this position, he was part of the team that built a world-class indexation business and saw assets under management grow from R7 billion to R50 billion. Botha joined Metropolitan Asset Managers in 2010, as the Head of Absolute Strategies. In 2011, he was appointed Portfolio Manager for Absolute Return Portfolios and Index Portfolios at Momentum Asset Management.


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Loftie BothaPortfolio ManagerBachelor of Engineering (B.Eng.) (Industrial) (University of Stellenbosch [SU])Bachelor of Commerce Honours (BCom [Hons]) in Investment Management (University of Johannesburg [UJ])Master of Commerce (MCom) in Business Management (University of Johannesburg [UJ])

Wayne Dennehy Head of Systematic Strategies and StructuringFaculty and Institute of Actuaries (FIA)Financial Risk Manager (FRM)Bachelor of Science Honours (BSc [Hons]) (Actuarial)

Alli started his career in the industry in 1996 at Absa Consultants & Actuaries. In 2000, he joined the Momentum Group in the Wealth business, as a collective investment schemes dealer. He moved to Momentum Investments in 2004 and started co-managing investment portfolios, including absolute return portfolios from 2008. In 2011, his role expanded to include tracker portfolio management.

Bawa worked at Old Mutual Global Index Trackers (OMGXT) trading as Dibanisa Fund Managers from June 2008, as a portfolio implementation specialist, where she managed a wide range of index-tracking portfolios in the local and global space. She has experience in working with a large number of constituents in the index as well as managing the workflow and trade process. Bawa also contributed to the development and implementation of various investment strategies at OMGXT. She is registered by the Financial Sector Conduct Authority (FSCA) as an authorised financial representative. Before joining OMGXT, Bawa was a Safex administrator and financial accounts administrator at Brisen Commodities for three years. Bawa has eight years’ experience in the financial services sector.

The above-mentioned members of the systematic strategies team responsible for managing smart beta and indexation portfolios, have particular characteristics, which enable them to work effectively within an indexation or smart beta environment, namely:

• Attention to detail

• Adherence to procedures with an attitude of zero tolerance for errors

• Excellent skills in arithmetic

• The ability to work under pressure within a

structured environment


Imtiaz Mohammed Alli Portfolio Manager Assistant

Bachelor of Commerce (BCom) (Unisa)

Rekha Bawa Portfolio Manager (Index Specialist)Bachelor of Commerce (BCom) in Investment Management

Indexation processThe indexation team is responsible for aligning the investment process with client mandates to ensure investment objectives are achieved with a high degree of certainty. This involves initial engagement with the client during mandate specification, tailoring and calibrating the investment process to address each portfolio’s specific requirements, as well as continual managing, monitoring and improvement of this process. Loftie Botha, Imtiaz Mohammed Alli and Rekha Bawa are involved in day to day portfolio management activities in line with the investment process.

The effective management of indexation portfolios requires the continual presence of portfolio managers to implement the necessary portfolio changes to match the market, simultaneously ensuring the margin for error is kept as low as possible. The team has been cross-skilled and members act as back-ups for one other. They also review each other’s tasks to ensure completeness and accuracy.

Risk management is core to the process and essential in tracking index returns. Key aspects mentioned below are incorporated into the investment process and addressed on a continual basis, which, if not handled correctly, will show up in the tracking error, as being unacceptably high or in the total return from the tracker portfolio over a specific time period being materially different to the index it aims to track. (Tracking error is a return-based risk statistic, which is a measure of how closely a portfolio follows an index to which it is benchmarked or aims to track.)

Index dynamics Benchmark indices change over time and, when these changes occur, tracker portfolios need to act appropriately. Examples of index changes include changing of ground rules, inclusions or deletions of shares, changes of shares in issue, free-float or factor changes of the FTSE or JSE Shareholder-weighted Index and corporate actions (for example, rights issues and share splits).

Changes to indices (for example, changes in calculation methods,

inclusions or deletions of shares, etc.) that will be made at a future date, are communicated to the industry by the JSE in advance. This information is used by the portfolio managers to calculate quarterly and intra-quarterly index changes, so the changes that are applicable to portfolios can be made as close as possible to the effective date when changes to the index occur. As a measure to mitigate risk, forecasts from stockbrokers on index changes are used by the portfolio managers for confirmation purposes.

Data The portfolio managers continually receive live index constituents compiled by the JSE from their service providers. The service providers have built-in accuracy checks to confirm the information provided is correct. Portfolios are monitored daily for tracking-error deviations from their benchmarks.

Volatility Increasing market volatility can result in material deviations of the tracker portfolio away from the index, where erratic price movement in certain of the shares in the portfolio results in large under/overweights of the constituents relative to the index. The portfolio manager needs to balance the position through the purchase or sale of shares in the portfolio, so the imbalance of the portfolio relative to the index is addressed.

Cash flows (inflow/outflow) and rebalancingCash allocations/redemptions from investors flowing into/out of the tracker portfolio need to be strategically allocated/sold, to/from the tracker portfolio, so the tracker portfolio still correctly reflects the index it aims to track. Theoretically, the task of allocating/reducing cash proportionally across the underlying constituents of the index is a simple process. However, practical implementation presents challenges when the index being tracked includes illiquid shares of smaller companies: for example when a portfolio manager needs to purchase more shares of an underlying constituent, there has to be a seller/number sellers of those particular shares to match the demand, but there may not be any willing sellers. (This could be solved for by purchasing the share above the bid-offer spread. However, it would add to costs and would therefore be a sub-optimal decision for the portfolio).

Indexation and smart beta investment processes


Similar types of challenges are encountered when a portfolio manager needs to rebalance the portfolio, as this may also require the buying or selling of illiquid shares. The portfolio managers take measures to manage cash flows, which include the use of futures (representing the larger shares). The future will be traded, as opposed to trading the physical underlying shares, which saves costs. Instead of trading illiquid shares, the portfolio manager runs the portfolio through an optimisation process that calculates a transaction list, effectively rebalancing the portfolio to the lowest possible tracking error, using only liquid shares (which are correlated to individual illiquid shares) and including a small portion of cash. This practise also prevents many small trades from being executed.

Other portfolio challenges are addressed in a similar fashion, such as reinvestment of dividends and corporate actions (rights issues and share splits). The portfolio managers believe in partnering with clients to receive early warnings of sizable future cash inflows or outflows, which also assist in efficient portfolio management.

A small portion of cash is held by the tracker portfolio for trading on the margin, re-alignment of the portfolio after large price movements, payment of brokerage fees or allocation/liquidation of shares to accommodate cash flows. The cash held in the portfolio is usually insufficient for the required day to day portfolio management and holding too much cash will result in cash drag (some mandates allow for the cash to be partially neutralised with futures contracts).

ImplementationImplementation encompasses three dimensions, namely:

• Trading excellence

• Error prevention

• Post-trade analysis

Trading excellence

In the indexation business, every basis point counts; therefore, deal or transaction execution is a key success factor. The way in which transactions are traded and executed can increase or decrease the probability of achieving ‘the ideal volume at an ideal price, at an ideal point in time’, ultimately affecting the level of accuracy at which the index is tracked. Having a

dedicated and experienced dealer, which partners with brokers and can quickly trade relatively illiquid shares without moving the market, is a great advantage. The team uses a dealing desk within Momentum Investments.

Error prevention

Once a transaction has been executed, the error cannot easily be reversed, so multiple cross checks are instituted. In addition to the review process that takes place between portfolio managers (where majority of errors are detected), there is also an automated pre-trade compliance system in place.

Furthermore, if transactions are relatively large in value, the portfolio managers will customise additional risk-mitigation measures. Emphasis is placed on preparation for quarterly index re-balancing, to avoid stress and possible errors. Trade lists are often prepared the day before the rebalancing date.

Post-trade analysis

This occurs first thing each morning to check the previous day’s transactions were executed correctly, portfolio cash positions and tracking errors are compared with their respective targets and corrective transactions are taken swiftly if necessary.

Portfolio monitoringThis is a continual process and there are specific parameters that have been incorporated into the investment process to detect deviations of the portfolio from the benchmark. When a specified magnitude of the parameter is breached, it is automatically flagged, which prompts the portfolio manager to investigate causes of the breach and then rebalance the portfolio to adjust for the deviation. Critical parameters defined by the portfolio manager are cash levels and forecast tracking errors of each portfolio.

Investment return analysisReturns are measured independently by Momentum Investments’ risk insights and performance team against benchmarks, and this information is provided to the portfolio managers monthly. Material return differentials are identified and measures to eliminate these are implemented. In the day to day management of the portfolios, the portfolio managers also identify sources of potential return differentials and preventative measures are introduced.


UniverseBy excluding less liquid shares, the investment manager reduces the universe of shares listed on the JSE from about 160 shares to 70 shares.

Selection criteriaThe constituents (listed companies) are scored, based on a basket of weighted metrics. Metrics have been researched and chosen, so that they are complementary in terms of their information transfer co-efficients and are consistent and robust across economic cycles within the SA market. The value smart beta portfolio uses eight such metrics.

Weightings are assigned to the basket of metrics, so the portfolio captures a strong tilt towards value factors and inherent risks associated with value factors are minimised (excluding exposure to companies, which are value traps). Metrics are continually tested for their explanatory power, which affects their weighting in the basket.

Two metrics, which are awarded a higher weighting on a consistent basis are free cash flow yield and dividend yield.

Free cash flow yield is calculated from the cash flow statement of a company and measures cash generated from operations, investments and financing activities, showing the net cash flow for the business over a specific time period. Net cash flow is divided by market capitalisation (shares outstanding multiplied by market price per share). This metric is a good measure for the assessment of the fundamental soundness of a company.

A positive free cash flow yield indicates a company is generating cash, over and above the level needed to run the business; therefore, it implies that there is less of a requirement for capital raising through external financing. Free cash flow is a more reliablemeasure of returns from a company than earnings, as earningsfigures are subject to manipulation and accounting assumptions.

Timing differencesIt is worth mentioning that the time at which the closing price is calculated for the portfolio and the time at which the closing price of the index is calculated by the JSE, should ideally be the same. If this is not the case, there will be timing differences that affect portfolio returns to the extent of the period over which returns are measured. Underlying securities that are continually traded and repriced by the market will trade at different levels during a business day. If different points in time are chosen to value the same basket of securities, there will be differences in value, which, over time, will average out. The shorter the period

over which a security is measured, the more pronounced the effect of the time difference. Administrators of collective investment schemes have a daily cut-off time of 15:00, whereas the JSE’s cut-off time is at 17:00. Thus, daily values will differ, but over longer periods of time, the difference eventually averages out or diminishes.

Tracker portfoliosTop 40, SWIX, mid- small cap and property are tracker-type portfolios managed by the systematic strategies team.


Investment process in terms of the value smart beta portfolio

Net cash flow

Market capitalisationFree cash flow yield =

Dividend yield indicates the percentage of cash dividends paid out to shareholders relative to the market value per share.

It should be compared to the industry average to determine whether the dividend is attractive on a relative basis.

Free cash flow yield and dividend yield are affirmations of one another. A company is unlikely to pay attractive dividends, if it there is no excess cash in the business

Another one of the metrics used to identify shares that display the value factor characteristic, is the price-to-book ratio (p:b ratio). The p:b ratio measures the price of a share relative to its net asset value. It measures what the market is prepared to pay for the equity of the company. The higher the ratio, the higher the value the market has placed on the company’s equity in terms of the price it is willing to pay.

• Market capitalisation = Shares outstanding multiplied by market price per share

• Book value of equity = Book value of assets minus book value of liabilities

The lower the p:b ratio, the stronger the value signal for a particular share.

The process is designed to be forward-looking through the inclusion of well-researched forecast metrics such as forward earnings and forward dividend yields.

An average of consensus forecasts for the chosen metrics is generated from widely used sell-side stockbrokers and is calculated for each constituent.

Portfolio construction and liquidityThe 70 shares selected out of the complete universe of about 160 shares, are those with better relative liquidity. In essence, listed liquid shares are selected, which have comprehensive coverage by sell-side analysts. This limits risks associated with smaller companies (such as liquidity risks).

Once each of the 70 shares has been scored based on the basket of weighted value metrics, they are ranked by score from highest to lowest. Shares whose scores fall within the highest 25 are selected and given almost equal weightings in the portfolio, where active positions relative to the FTSE/JSE Capped Shareholder-weighted Index(Capped SWIX) benchmark are limited to 5%. This ensures risks are spread more evenly across the 25 shares, limiting unnecessary concentration risk within a portfolio.

If a share has a market cap greater than 5%, it will be held in the portfolio irrespective of its value ranking. The weighting at which it is included in the portfolio, will be at an estimated 4% plus the difference between its market-capitalisation weighting (in the Capped SWIX) and 5%. This rule serves to prevent the exclusion of relative out or underperformance by a large cap that has an excessively large weighting in the benchmark, where its exclusion would result in a tracking error (relative to the Capped SWIX) outside the specified tolerance limits.

The portfolio is fully invested in equity; therefore, it is not exposed to the risk of not capturing the value factor when the market rewards the value style. The portfolio manager also uses derivatives within the portfolio to add more beta exposure to limit tracking error relative to the benchmark at a share or sector level.


Dividend per share

Market price per shareDividend yield = × 100

Market capitalisation

Book value of equityp:b =

RebalancingRebalancing is performed monthly, but this does not imply the entire portfolio is turned monthly, or that monthly rebalancing is compulsory (there are months when no rebalancing is required). The portfolio managers will only rebalance when necessary, as they do not want the portfolio to incur unnecessary trading costs. The model will flag constituents that need to be sold or bought when they no longer score well or have higher scores relative to other constituents, after being evaluated according to the basket of weighted metrics and will consequently move out of or into the highest 25 ranking, respectively.

The effect of possible trades on the portfolio is monitored in terms of risk at portfolio-construction level and are analysed using a system called ‘BARRA’. The model will flag shares to be sold or bought to re-align the portfolio to comply with portfolio-construction constraints.

The value and momentum smart beta portfolios have only recently been launched and have only a few months of actual data available; hence, back-tested returns have been used to assist in the explanation of the investment process.

Risks of back-tested returns:Where a model is designed to deliver favourable outcomes, to the extent that its success is dependent on data, there is a risk that the investment process will be biased to a specific set of past economic circumstances, which are unlikely to be repeated in the same form in the future. Back-tested returns are theoretical and are unable to take into account the effect of decisions that might have been made during the actual operation of the smart beta model. Therefore, actual returns may differ from, and may be lower than, back-tested returns. The portfolio managers are aware of these biases and have performed multiple scenario analyses to test their models, also assuming stringent cost hurdles to minimise biases. Nevertheless, back-tested data should always be analysed with caution.

Value smart beta portfolioPortfolio managers: Loftie Botha and Imtiaz Mohammed Alli

Benchmark: Capped SWIX

Objective: This type of portfolio would typically be aimed at maximising returns above the Capped SWIX over time, using a smart beta investment methodology, which applies a value-based investment strategy to shares listed on the JSE. The process is systematic, capturing equity market returns enhanced by the value risk premium, by deliberately targeting exposure to shares that trade for less than their intrinsic value. The portfolio’s equity exposure will typically be greater than 99% of the portfolio’s net asset value and it will have no global exposure.

The value-based investment strategy is an investment approach describing the purchase of shares that are priced cheaply relative to their intrinsic value (where the fundamental value of a company is not being reflected in the market price; that is, the shares are being undervalued by the market) and the sale of shares, when the market begins to over price these shares relative to their fair-market value. Value opportunities also arise due to normal cyclical behaviour when themes or sectors become mispriced.

The share selection process in the smart-beta investment methodology is systematic. From the time the share is bought to the time when it is sold, it can be assumed the market, during this time, rerated the share to a point where it no longer met the value criterion (criterion that deems the share to be undervalued by the market).

A traditional value investment manager in the active space will study the fundamentals of a company and calculate the fair value for its share, where the share will be purchased below its fair value (when it is undervalued by the market) and sold when it reaches or rises above its fair value.


40%

35%

30%

25%

20%

15%

10%

5%

0%

-5%

-10%

-15%

-20%

-25%

Figure 1.3: One-year rolling returns from April 2012 to March 2018 (refers to a typical value smart beta portfolio)

Notes:

1. Benchmark: Capped SWIX.2. FTSE/JSE Value Index (Value Index): This index was designed by the JSE to reflect portfolios focusing on the price and value

characteristics of securities, weighted towards those companies with identifiable value characteristics.3. The competitor portfolio is a similar smart beta portfolio.4. Source: Momentum Investments, Morningstar and INET BFA.5. Actual portfolio returns are used in calculations and returns before June 2017 are back-tested returns.

Figure 1.3 shows outperformance of the portfolio relative to its benchmark and the competing portfolio, when value as a style was rewarded (for the year ending October 2016 to August 2017, indicated by the return from the Value Index). Similarly, when value as a style was penalised by the market (which is for most of the period under analysis – barring the time frame – of the year ending October 2016 to August 2017), indicated by the Value Index, the portfolio mostly outperformed the competing portfolio and the value index. This highlights the proper functioning of the risk measures in place.


Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18

Table 1.1: Six-year returns and risk statistics from April 2012 to March 2018

Portfolio BenchmarkCompetitor

portfolioS&P Momentum

Index

Cumulative return 161.87% 99.97% 72.90% 49.73%

Annualised return 17.40% 12.24% 9.55% 6.96%

Annualised standard deviation 12.36% 9.97% 12.46% 12.50%

Maximum drawdown -18.97% -9.59% -18.30% -24.14%

Sharpe (RFR) 0.82 0.53 0.25 0.06

Sortino (RFR) 1.27 0.79 0.28 (0.00)

Percentage positive months 70.8% 65.3% 56.9% 56.9%

Months to recovery from drawdown 11.00 3.00 12.00 23.00

Tracking error 7.37% 0.00% 6.67% 6.80%

Information ratio 0.70 - (0.40) (0.78)

Note: Actual portfolio returns are used in calculations and returns before June 2017 are back-tested returns.

Maximum drawdowns of both smart-beta portfolios (portfolio and competing portfolio) are far less relative to that of the Value Index, demonstrating the benefit of risk parameters in place within the smart beta models.

The Sharpe and Sortino ratios of the portfolio are favourable relative to the benchmark and to the competing portfolio.

The high annualised tracking error of the portfolio of 7.37% (relative to the benchmark) indicates a particular investment style is being extracted, which will skew returns away from the Capped SWIX benchmark.

The value strategy applied to the portfolio is aggressive (in terms of the latitude the portfolio manager is given) relative to the Capped SWIX benchmark, to ensure the purity and magnitude of value premium captured. The portfolio can have a tracking error of up to 10%. Given that this portfolio was designed to be included as a component of a broader multi-strategy portfolio construct, the value premium the portfolio aims to capture, must be large enough to enhance the total portfolio return when the value style is in vogue. The value smart beta portfolio can be tailored to reduce risk to meet different client objectives.


Figure 1.4: Risk/return scatter plot calculated from April 2012 to March 2018 (six-year period)

Investment process in terms of the Momentum smart beta portfolio

UniverseBy excluding less liquid shares, the portfolio manager reduces the universe of shares listed on the JSE from an estimated 160 shares to 70 shares.

Selection criteriaFor a metric to be included in the process, it needs to qualify on a stand-alone basis as a viable indicator after considering risk and transaction costs, which have proved to be critical parameters due to high trading volumes that are inherent in momentum strategies.

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Earnings revision is one of the main metrics, which sell-side analysts of brokerages use to reflect their forecasts of company performance. These are continually being revised based on their research and analysis of a company’s financial statements. Investors use these forecasts as part of their investment decision-making process to varying degrees. Given this practise, earnings revision is a dominant driver of share prices. One can see how both economic agents (investors and sell-side analysts), at times, can feed off one another’s decisions – so share price and earnings revisions become self-fulfilling prophecies, to a point where company fundamentals can no longer be ignored. To the extent that earnings revisions and share prices are correlated within business cycles or economic cycles, consensus earnings revisions and share price returns are two of the metrics the portfolio managers will incorporate into the investment model of the momentum smart beta portfolio.

The two metrics, namely ‘consensus earnings revisions’ and ‘share price returns’ are calculated over varying time periods, resulting in a total of five metrics being used to extract the momentum factor from the constituents of a specified universe.

Metrics are continually tested for their explanatory power, which affects their weighting in the basket. Specifically for the momentum style, a buffering strategy is incorporated to eliminate trades that have a relatively low effect on the strength of the momentum factor.

The use of consensus earnings revisions, which are an average of individual earnings forecasts generated from widely used sell-side stockbrokers, automatically affords the process a forward-looking characteristic (as opposed to historical earnings, which would be seen as backward looking).

Annualised standard deviation



Figure 1.4 shows the risk-return scatter plot, which indicates a high portfolio return with slightly lower volatility relative to the competing portfolio and the value index.

FTSE/JSE Value Index

Portfolio construction, liquidity and rebalancingPortfolio construction and rebalancing is the same for momentum smart beta portfolios as its value smart beta counterpart. Please refer to the portfolio construction and rebalancing described in the investment process of the value smart beta portfolio section above.

Momentum smart beta portfolioPortfolio managers: Loftie Botha and Imtiaz Mohammed Alli

Benchmark: Capped SWIX

Objective: This type of portfolio would typically be aimed at maximising returns above the Capped SWIX over time, using a smart beta investment methodology, which applies a momentum-based investment strategy to shares listed on the JSE. The process is systematic, capturing equity market returns enhanced by the momentum risk premium, by deliberately targeting exposure to shares that exhibit robust price-and-earnings momentum, as measured by analyst earnings revisions. The portfolio’s equity exposure will typically be greater than 99% of the portfolio’s net asset value and it will have no global exposure.

The momentum-based investing strategy describes an investment approach, where shares that are continually rerated by the market (through their share prices) will be purchased and then sold before the perceived competitive advantage (which exerts upward pressure on earnings expectations) is eroded or seen to be eroded, followed by a fall in the share price.

The fact that some company share prices continue to trend upwards, beyond fair value, is attributed to behavioural biases, which the momentum investment strategy is said to take advantage of. Behavioural biases referred to above are investor herding (investors copying one another’s decisions), investor over- and under-reaction to information and confirmation bias. These biases tend to be emotive and are used by investors to simplify their investment decision-making processes, which can lead to inefficient or sub-optimal choices (upon which the momentum strategy capitalises).

The risk inherent in the momentum investment strategy is the strategy will continually switch into higher trending shares, which means purchasing shares that are at more expensive prices than they were previously.

The share selection process in the smart beta investment methodology is systematic. From the time the share is bought to the time when it is sold, it can be assumed the market, during this time, rerated the share to a point where it no longer met the momentum criterion (criterion that deems the price of a share to be on an upward-trending trajectory).

A traditional momentum portfolio manager in the active space will look for opportunities from shares, where expectations of future profits are being revised upwards, and will purchase these shares in anticipation of an improvement in company earnings. The portfolio manager will assess macro and fundamental factors that affect future earnings and price of the company share.


Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18

Figure 1.5: One-year rolling returns from April 2012 to March 2018 (refers to a typical momentum smart-beta portfolio)

Notes:

1. Benchmark: Capped SWIX. 2. S&P Momentum South Africa Index (S&P Momentum Index): This index is constructed from the constituents of the S&P South Africa composite (which includes local and global-domiciled companies with significant operations in SA). The index solely comprises constituents with high risk-adjusted return momentum scores, with the objective to provide exposure to

the momentum factor. 3. The competitor portfolio is a similar smart beta portfolio.4. Source: Momentum Investments, Morningstar and INET BFA.5. Actual portfolio returns are used in calculations and returns before June 2017 are back-tested returns.

Figure 1.5 shows the outperformance of the portfolio relative to the benchmark, since the existence of the competing portfolio and for the period when Momentum as a style was rewarded (for the year ending March 2013 to January 2016, as indicated by S&P Momentum Index).

The S&P Momentum Index is a proxy for the return profile of the momentum style. When momentum as a style was penalised by the market (for the year ending January 2016 to February 2018, indicated by the S&P Momentum Index), the portfolio underperformed the benchmark for the most part, but to a far lesser extent (in aggregate) relative to the S&P Momentum Index. This highlights the proper functioning of the risk measures in place.


40%35%30%25%20%15%10%5%0%-5%-10%-15%-20%-25%

S&P Momentum South Africa Index (proxy for the returns from the momentum style)


Table 1.2: Four-year period from April 2014 to March 2018

Portfolio BenchmarkCompetitor

portfolioS&P Momentum

Index

Cumulative return 48.83% 31.63% 49.89% 14.92%

Annualised return 10.45% 7.11% 10.65% 3.54%

Annualised standard deviation 13.47% 9.79% 12.00% 13.23%

Maximum drawdown -15.97% -9.59% -10.07% -24.79%

Sharpe (RFR) 0.30 0.06 0.34 (0.19)

Sortino (RFR) 0.37 0.02 0.47 (0.35)

Percentage positive months 56.3% 60.4% 54.2% 52.1%

Months to recovery from drawdown 11.00 3.00 - -

Tracking error 7.16% 0.00% 4.86% 8.52%

Information ratio 0.47 - 0.73 (0.42)


Maximum drawdowns of both smart beta portfolios (portfolio and competing portfolio) are far less relative to that of the S&P Momentum Index, demonstrating the benefit of risk parameters that are in place within the smart beta models.

The Sharpe and Sortino ratios of the portfolio are favourable relative to the benchmark.

The high annualised tracking error of the portfolio of 7.16% (measured relative to its Capped SWIX benchmark) indicates a particular investment style is being extracted, which will skew returns away from the benchmark.

The momentum strategy applied by the portfolio is aggressive (in terms of the latitude the portfolio manager is given) relative to the Capped SWIX, to ensure the purity and magnitude of the momentum premium captured. The portfolio can have a tracking error of up to 10%. Given that this portfolio was designed to be included as a component of a broader portfolio construct, the momentum premium the portfolio aims to capture, must be large enough to enhance the total portfolio return when the momentum style is in vogue.

The positive information ratio of the portfolio illustrates the additional risk taken relative to the benchmark has benefitted portfolio returns.

Figure 1.6: Risk/return scatter plot calculated from April 2014 to March 2018 (four-year period)

Annualised standard deviation

Actual portfolio returns are used in calculations and returns before June 2017 are back-tested returns.

Figure 1.6 shows a risk-return scatter plot, indicating a higher return relative to the benchmark and greater volatility relative to the benchmark and competing portfolio.



Strengths• Loftie Botha has more than 17 years’ experience in the management of portfolios. He has recently co-created smart beta portfolios for

Momentum Investments and is backed by competent individuals in his team.

• Being part of the greater MMI organisation, with large assets under management, provides scale in terms of deal flow, which increases liquidity necessary to effect efficient rebalances in the indexation and smart-beta space.

• The ability of the systematic strategies and structuring team to co-create customised solutions is an advantage.

• Portfolio construction is robust, which is very important in the systematic design of indexation and smart-beta portfolios.

• Risk is addressed at every level of the index and smart beta investment processes, minimising the portfolio drawdowns, reducing tracking error (for tracker portfolios) and maximising the information ratio or extent to which a selected strategy is captured from the market beta (in terms of smart beta portfolios).

• The rebalancing process is efficient, as futures are used to assist in the seamless rebalancing process.

• Through the inclusion of certain metrics and/or variants in the construction of smart beta models, the smart beta portfolios have forward-looking characteristics.

• Environmental, social and governance (ESG) factors are incorporated into indexation and smart beta portfolios through shareholder activism programmes run by ESG analysts, who vote on governance issues on behalf of the systematic strategies and structuring team.

WeaknessThe systematic strategies and structuring team does not compete in the global space and does not have the economies of scale of established global players; for example Vanguard, State Street and Black Rock.

Strengths and weaknesses

These statistics represent different methods of analysing risk and returns of portfolios. They must be interpreted in conjunction with one another and not read in isolation.

Annualised returnThe conversion of a rate of return for any period, reflected on an annual basis.

Cumulative return The aggregate amount an investment has gained or lost over time, presented as a percentage.

DrawdownThe percentage change in the return measured during a period of declining returns from peak to trough.

Information ratio Measures a portfolio manager’s ability to generate returns above a benchmark, relative to the volatility of those excess returns. A higher information ratio implies that for every unit of additional risk taken, the portfolio achieved higher excess returns.

Months to recovery from drawdownThe amount of time it takes the portfolio to recover from the date of the maximum drawdown (through) to the date of the previous high.

Risk-free returnA proxy for the return generated by an investment, which, in theory, has zero risk. The risk-free rate used for risk statistics is 7%.

Sharpe ratioIndicates the excess return (relative to a risk-free return) per unit of risk, where risk is measured as standard deviation. A higher Sharpe ratio indicates a greater return per unit of risk.

Sortino ratioIndicates the excess return (relative to a risk free-return) per unit of risk, where risk is narrowed down to include only the downside price volatility. A higher Sortino ratio indicates a greater return per unit of downside risk.

Standard deviationMeasures the degree of variation of returns around the mean return. The higher the volatility of the investment returns, the higher the standard deviation will be. For this reason, standard deviation is often used as a measure of investment risk. A higher standard deviation indicates higher volatility.

Tracking errorA measure of how closely a portfolio follows an index to which it isbenchmarked. It is the root-meansquare of the difference betweenthe portfolio and index returns. The closer the value is to zero, the closer the match between the returns of the portfolio and the returns of the index.

Glossary of risk and return statistics

DisclosureThe investment portfolios are managed by Momentum Investments. Investment returns for periods exceeding one year are annualised. All returns quoted are before deduction of fees, except where a portfolio includes underlying investments where fees are deducted from the return, but after the deduction of performance-based fees. All returns are daily timeweighted returns. The return for the global component of a portfolio is generated at month-end using the global component’s last known price. The return for Consumer Price Index (CPI) is to the end of the previous month. Given that past returns may not be indicative of future returns and the value of investments will fluctuate over time, independent professional advice should always be sought before making an investment decision. The information and opinions are purely for information purposes and do not constitute advice as contemplated in the Financial Advisory and Intermediary Services (FAIS) Act. No one should act on the basis of any information in this document without considering and taking the necessary advice for their own specific circumstances. The information used to prepare this document includes information from third-party sources. Although reasonable steps have been taken to ensure the validity and accuracy of the information in this document, the company does not accept any responsibility for any claim, damages, loss or expense, howsoever arising, out of or in connection with the information in this document, whether by a client, investor or intermediary.

268 West Avenue Centurion 0157 PO Box 7400 Centurion 0046T +27 (0)12 671 8911 F +27 (0)12 684-5869 [email protected] www.momentuminv.co.za

Momentum Investments is a division of MMI Group Limited, which is an authorised financial services and credit provider (FSP6406)

to the end of april 2018 · investment manager’s multi-asset class team. he co-manages the abax...

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