Batseta Seminar Understanding risk

April 2016

$350bn

The global ETP inflow

2015

Global ETP cumulative flow

Source: BlackRock | ETP Landscape

The global ETP inflow

by asset class &

exposure

2015

Smart Beta, 24.9%

International, 21.3%

Vanilla, 47.0%

Sector, 6.8%

Vanilla, 50.1%

Smart Beta, 12.6%

International, 30.3%

Sector, 7.0%

Smart Beta, 19.6%

International, 25.2%

Vanilla, 49.1%

Sector, 6.2%

R53.4bn March 2016

R45.0bn December 2014

R39.5bn December 2013

The SATRIX experience

The SATRIX experience

Market cap weighted index ≠ smart beta ≠ enhanced index

And yet they are all called PASSIVE

Let’s take these points off the table…

Source: Morning Star Direct & Satrix to 31 January 2015

0.60 0.30

1.57

0.66

3.27

0.97

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Active Passive

%

Minimum Average Maximum

% of active managers underperforming the Shareholder Weighted All Share index

Based on the ASISA SA General Equity sector of funds dated to 31 January 2016 Source: Morning Star Direct & Satrix

44% 73% 83% 88%

1 year 3 years 5 years 10 years

Active outperforming Passive outperforming

13%

% of active managers underperforming the FTSE/JSE Property Index

35% 58% 85%

1 year 3 years 5 years 10 years

Based on the ASISA SA General Equity sector of funds dated to 31 January 2016 Source: Morning Star Direct & Satrix

Active outperforming Passive outperforming

Source: Morning Star Direct & Satrix to 31 January 2015

20%

Important considerations | ALSI, CAPI, SWIX

• Two additional independent factors

• Less concentration • Consistently lower

volatility and tail risk

0.02.04.06.08.0

10.0Portfolio Diversification Index

ALSI SWIX

0%1%2%3%4%5%6%

ALSI SWIX CAPI

Herfindahl-Hirschmann Index

010203040

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Absolute Volatility

SWIXALSI

Passive grows up … smart beta

70's 80's 90's 2000 2010 +

market beta

β

pure alphaα

α

β β β

smart beta β+

β+ β+

95% of total mutual fund performance is explained by market beta + smart beta Li & Qu; Financial Product Differentiation over the State Space in the Mutual Fund Industry (2010)

total return

α α

What is driving total return?

Return based style analysis | Manager A

Based on the ASISA SA General Equity sector of funds dated to 31 January 2016.. Fees applied of 60bps plus VAT Source: Morning Star Direct & Satrix

% of active managers underperforming the Momentum index

Active outperforming Passive outperforming

75% 91% 100% 100%

1 year 3 years 5 years 10 years

Smart Beta Rationale: Equity Building Block

STRATEGY INDEX EXPLAINED BIAS

DIVIDEND PLUS

• 30 high dividend yielding companies within the universe of Top 40 and Mid Cap Index

• Expected to pay the best normal dividends over the forthcoming year

• Fund will have a low correlation with other indices on the JSE

Value

EQUALLY WEIGHTED

TOP 40

• Top 40 Equally Weighted Index represents the 40 largest, most liquid shares listed on JSE

• Equal weighting methodology offers a more balanced exposure to all companies

Size

MOMENTUM

• Momentum is a composite of price and earnings momentum as measured by analyst revisions.

• Fund is negatively correlated to value investing • Momentum Fund designed to be: • Risk Controlled; • Consistent and True to Label • Robust blend of price and earnings momentum styles

Momentum

Which factors work in South Africa

Source: Satrix, MSCI, IBES, Factset, and J.P. Morgan, S&P

Momentum

Earnings Revision

Quality

Yield (Value)

The smarter beta within passive

US Market Value Momentum Low Vol

Economic Boom 8.56% 5.35% 10.68% -4.10%

Flat Economy 12.36% 5.36% 7.40% -1.30%

Economic Recession -23.92% 14.65% 8.32% 21.12%

Period: 1932 to 2013 Source: Institutional Investor - Can smart beta really outsmart the market

Providing diverse returns for portfolio construction

harvesting factors

harvesting factors …while the idea is active the implementation is passive

How do we combine factors?

Strategic allocations to premia

Contribution to absolute and relative risk are balanced.

Two defensive factors are balanced by two “offensive” factors or themes.

True equality or parity in how investors are exposed.

The Satrix advantage

Driven by passion Leverage off top fundamental team

Most experienced team in the

market

Only player objective on ETF | UT | Segregated

Growing business

in established investment core

Market understanding and relationship

Portfolio Construction and Risk

Management

Representation on FTSE/JSE

advisory committee

World class systems, dealing & compliance

The Satrix competitive advantage Portfolio Construction & Risk Management • Is the index / factor’s performance predictable, reliable and robust? • Do they understanding the drivers of risk and return? • How do I combine this into my current portfolio construct? • Does the investment manager have a track record of success? • Am I hedging out the undesired tilt and creating / enhancing the desired tilt?

Most experienced team in the market • Does the team understand index construction principles and implementation? • Has the team built a robust process from which the successful extraction of quality is likely? • Can they track the index as close as possible i.e. limit implementation shortfall. • Does the team allow for human liberties? • Is the process followed in a strict and disciplined manner?

World class systems, dealing and compliance • Is the governance and compliance culture sound? • Can they handle the turnover requirements of the strategy? • How extensive is the broker network? • Is the process supported by a sound systems environment?

Market understanding and relationships • Is the index methodology and research transparent? • Is it unique? • Is the brand stable, well known and of good repute? • Are the fees competitive?

Thank you

Disclaimer

Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium- to long-term investments. Please

note that past performances are not necessarily an accurate determination of future performances, and that the value of investments / units / unit trusts may go down as well

as up. A schedule of fees and charges and maximum commissions is available from the Manager, Satrix Managers (RF) (Pty) Ltd, a registered and approved Manager in

Collective Investment Schemes in Securities. Additional information of the proposed investment, including brochures, application forms and annual or quarterly reports, can be

obtained from the Manager, free of charge. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Collective investments are

calculated on a net asset value basis, which is the total market value of all assets in the portfolio including any income accruals and less any deductible expenses such as

audit fees, brokerage and service fees. Actual investment performance of the portfolio and the investor will differ depending on the initial fees applicable, the actual investment

date, and the date of reinvestment of income as well as dividend withholding tax. Forward pricing is used.

The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The performance of the portfolio depends on the underlying assets

and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-div date. Lump sum investment performances are

quoted. The portfolio may invest in other unit trust portfolios which levy their own fees, and may result is a higher fee structure for our portfolio. All the portfolio options

presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No 45 of 2002 (“CISCA”). International investments or

investments in foreign securities could be accompanied by additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk,

foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information. The Manager has the right to close any portfolios to new

investors to manage them more efficiently in accordance with their mandates. The portfolio management of all the portfolios is outsourced to financial services providers

authorized in terms of the Financial Advisory and Intermediary Services Act, 2002. Standard Chartered Bank is the appointed trustee of the Satrix Managers Scheme.