4. Balanced funds offer risk diversification during periods of market volatility
● A global balanced portfolio solution provides investors with exposure to a number of asset classes,
domestic and foreign, that are positively and negatively correlated. This diversification of assets
provides investors with the comfort that their exposure to risk is contained without unduly compromising
return
● The key to a successful global balanced solution is to combine asset allocation expertise at the portfolio
construction level along with stock selection skills at the individual asset class sub-level
● The STANLIB Balanced Franchise is responsible for asset allocation decisions. However, the underlying
asset classes within each balanced portfolio are managed by specialists in their field
● Asset allocation views have both a strategic and a tactical component. The strategic component is
long-term and is based largely on macro-economic forecasts and how the different asset classes will
perform under various conditions
● The tactical component is shorter-term and is based on the realisation that asset prices may dislocate
from their fundamentals, allowing opportunities to be exploited
● Once the asset allocation views have been formulated, the underlying asset classes are then managed by
the relevant specialist. This collective outcome captures the all the extensive expertise available at
STANLIB
4
5. Balanced mandates provide diversification without unduly compromising return
5
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
SA Cash
21%
SA Equity
31%
SA Bonds
28%
SA Equity
55%
SA Equity
23%
SA Bonds
30%
Global
Equity
46%
SA Bonds
29%
Global
Equity
51%
SA Equity
61%
SA Listed
Prop
28%
Global
Bonds
61%
SA Listed
Prop
20%
SA Listed
Prop
41%
SA Listed
Prop
41%
SA Listed
Prop
50%
SA Equity
41%
SA Listed
Prop
27%
Global
Bonds
45%
SA Equity
32%
SA Bonds
16%
Global
Equity
27%
Global
Bonds
18%
Balanced
46%
Balanced
13%
Global
Equity
25%
Global
Bonds
35%
Global
Equity
22%
Global
Bonds 37%
SA Listed
Prop
56%
Global
Bonds
27%
Global
Equity
32%
SA Bonds
16%
SA Bonds
18%
SA Equity
25%
SA Equity
47%
Global
Equity
33%
SA Equity
19%
SA Bonds
17%
Balanced
17%
Global
Bonds
12%
Balanced
26%
SA Cash
16%
Global
Equity
36%
SA Cash
11%
Global
Bonds
23%
SA Cash
16%
SA Listed
Prop
21%
SA Cash
18%
Balanced
47%
SA Bonds
19%
SA Equity
29%
SA Cash
12%
SA Equity
16%
Balanced
18%
Balanced
33%
Balanced
30%
Balanced
13%
SA Cash
12%
SA Listed
Prop 14%
Balanced
0%
Global
Bonds
24%
Balanced
7%
SA Bonds
32%
Global
Equity
11%
Balanced
16%
Balanced
14%
SA Cash
17%
SA Bonds
5%
Global
Equity
31%
SA Cash
11%
Balanced
28%
Balanced
-6%
Balanced
14%
SA Bonds
15%
Global
Equity
23%
SA Listed
Prop
28%
SA Cash
9%
SA Listed
Prop
-4%
SA Cash
9%
SA Equity
-5%
SA Cash
19%
Global
Equity
6%
Global
Bonds
24%
Global
Bonds
5%
SA Cash
15%
SA Equity
10%
Global
Bonds
8%
SA Listed
Prop 4%
SA Bonds
29%
Global
Equity
7%
SA Bonds
18%
SA Equity -
9%
SA Cash
12%
SA Cash
8%
SA Bonds
11%
Global
Bonds
18%
Global
Bonds
7%
Balanced
-7%
Global
Equity
2%
SA Listed
Prop
-11%
SA Bonds
14%
SA Equity
-2%
SA Listed
Prop
18%
SA Bonds
-9%
SA Listed
Prop
13%
SA Bonds
7%
Balanced
7%
Balanced
2%
SA Cash
16%
Balanced
7%
SA Cash
10%
Global
Bonds
-17%
Global
Equity
3%
Global
Equity
-2%
SA Cash
7%
SA Cash
7%
Global
Equity
7%
Global
Equity
-18%
SA Bonds
-1%
Global
Equity
-17%
SA Listed
Prop
2%
SA Listed
Prop
-3%
SA Cash
13%
SA Listed
Prop
-10%
SA Equity
8%
SA Listed
Prop
-10%
SA Equity
-4%
SA Equity
-10%
Global
Bonds
-1%
SA Equity
0%
SA Listed
Prop
8%
Global
Equity
-43%
Global
Bonds
-13%
Global
Bonds
-7%
Global
Bonds
7%
SA Bonds
5%
SA Bonds
4%
SA Equity
-23%
Global
Bonds
-16%
6. Various asset classes used to reduce the impact of market volatility
6
Current Exposure
Domestic listed equity
Domestic listed property
Domestic bonds - government and corporate (credit)
Domestic cash
Global listed equity
Global listed property
Global bonds - government and corporate (credit)
Global cash
Derivatives
7. Asset allocation meeting: Decisions informed by in-house specialists
Economics
RESI
Fixed Income
(Global)
Property
Equities
(Global)
INDI FINI
Balanced Team asset
allocation outcome
applied across all
mandates
Balanced Team asset
allocation review
and decisions
SA Equity Sector
Review
7
Quarterly Meetings
Strategic
Mandates
Best
Investment
View
Mandates
8. Global Best Investment View Mandate:
maximum & minimum asset allocations over last 3 years
8
Asset Class Max Min
SA Equities 69 54.2
SA Listed Property 5.4 1.9
SA Bonds 18.4 2.4
SA Cash 15 2.2
Global Equity 15.9 0.9
Global Bonds 7.1 0.0
Global Cash 8.9 0.0
9. Current asset allocation (%)
9
Asset
Class
Fund
Weight
Current
BM
Weight
SA Equities 58.9 60
SA
Property 3.6 0
SA Bonds 6.1 25
SA Cash 16.7 0
Global
Equity
14.4 9
Global
Bonds
0 6
The Balanced Fund The Balanced Cautious Fund
Total Equity
Exposure is 39.6%
Total Equity
Exposure is 73.4%
Asset
Class
Fund
Weight
Current
BM
Weight
SA Equities 29.4 25
SA
Property 4.9 5
SA Bonds 10.4 15
SA Cash 41.9 45
Global
Equity
10.2 4
Global
Bonds
3.9 6
11. Market performance as at 30 September 2010 (%):
Local (Rand) 3 Month 1 Year 3 Year
Equities: SWIX 14.3 21.8 4.2
Listed Property: SAPY 13.7 30.8 10.9
Bonds: ALBI 8.0 15.3 10.1
Cash: STEFI Comp Index 1.7 7.2 9.6
Global (US Dollar)
Equity: MSCI World Index 13.8 6.8 -8.3
Bonds: Barclays Global Aggregate Index 7.3 6.1 7.4
11
12. Portfolio activity: global assets
Switched bonds into equities as bond yields dropped
12
Asset Class % 30 June 30 Sep
Global Equity 70.9 100.0
Global Bonds 29.1 0.0
Global
Cash
0.0 0.0
0
2
4
6
8
10
12
14
16
18
Jan-60
Jan-64
Jan-68
Jan-72
Jan-76
Jan-80
Jan-84
Jan-88
Jan-92
Jan-96
Jan-00
Jan-04
Jan-08
yield(%)
Comparison of S&P 500 Dividend Yield and 10-Year Treasury Yield
10-Year Treasury Billl S&P 500 Dividend Yield
14. Global equity portfolio regional and sector exposures
14
-10% -5% 0% 5% 10% 15% 20% 25%
Europe ex UK
United Kingdom
North America
Japan
Asia ex Japan
Cash
Emerging Markets
Regional Exposure vs MSCI World as at
30 September 2010
-20% -15% -10% -5% 0% 5% 10% 15%
Financials
Services
Cash
Industrials
Consumers
Technology
Sector Positioning vs MSCI World as at
30 September 2010
15. Portfolio activity: SA assets
● Increased the duration of the bonds to a neutral ALBI
● Bought the long end (greater than 12 years) of the curve by switching
short dated bonds
● Reduced exposure to bonds as yields dropped
● Continued foreign demand for bonds
● Improving inflation data increased the possibility of further rate cuts
● Proceeds from bonds into cash – favorable risk adjusted return
● Marginal buyers of equity – remain overweight
15
Asset
Class %
30 June 30 Sep
SA Equity 69.7 69.3
SA Prop 4.2 4.2
SA Bonds 11.0 7.0
SA Cash 15.1 19.4
16. Current equity sector allocation (%)
16
23.5
19.6
13.5
12.9
8.2
8.2
8.0
6.1
0 5 10 15 20 25
Financials
Basic Materials
Consumer
Services
Telecommunica
tions
Oil & Gas
Industrials
Consumer
Goods
Health Care
Technology
17. Biggest over-weights and under-weights versus the SWIX
17
Top 5 Overweight Fund Weight % Benchmark Weight %
Investec Ltd 4.2 1.0
Sasol 8.2 5.4
Woolworths Holdings 3.6 0.8
ArcelorMittal South Africa Ltd 3.4 0.7
Massmart Holdings 3.8 1.1
Top 5 Underweight Fund Weight % Benchmark Weight %
Naspers - 3.7
Anglo Platinum - 2.5
Shoprite - 1.9
Remgro - 1.9
Standard Bank Group 3.3 4.8
19. 19
The certainties
● Steel economics
● Prices
● Volumes
● Costs
● Cash flow adequacy
● Valuations
Key considerations
● Buy was executed after agreement, facilitated by the DTI, was reached with Kumba
● This agreement stabilised iron ore input costs and sustainability of Saldanha Steel
● Correlated to SA economic recovery and GDFI
The uncertainties
● Kumba iron ore dispute
● ICT acquisition
● BEE deal
● ZISCO acquisition
● Competition Commission fines
25. 25
Uncertainties
● Kumba iron ore dispute
● Referred to arbitration
● Worst case scenario priced-in, substantial upside potential
● ICT acquisition & BEE deal
● Previously announced structure under review
● Subject to mining rights clarification
● Alternatives could emerge
● Risk to fair value muted
● ZISCO bid
● Long-term synergies marketing and raw material sourcing
● Competition Commission fines
● ACL is co-operating fully
● Partially provided for and cash on hand
27. Latest performance -30 September 2010 (%)
27
Balanced Fund
Peer Group Quartile
Balanced Cautious Fund
Peer Group Quartile
6 month
4.8
1st
4.7
2nd
1 Year
16.4
1st
12.1
1st
5 Year
11.5
2nd
na
na
30. SA Outlook
● Economic recovery to gain momentum, saw moderate GDP acceleration in Q3 2009
● Export volumes to continue to rise
● Inflation contained within the target range
● Rates to remain on hold well into 2010
● Supportive Rand factors to continue until at least June 2010
30
Global Outlook
● Sustained economic recovery from a deep recession
● Synchronised global growth
● Continued monetary and fiscal policy stimulus
● Sustained global liquidity
Investment environment – what we said at the start of the year
31. Key global macro themes for 2011
● Fed continues with liquidity programme for most of 2011, but starts to ease-up
towards year-end leading to a sell-off in global bonds. Fiscal austerity programmes to
continue
● Some re-balancing of global capital flows, investors looking for under-valued assets in
developed markets. Emerging market currencies weaken, but not collapse
● Longer-term growth differential between emerging and developed economies
becomes more entrenched despite the re-balancing of global flows
● M&A activity increases more noticeably in 2011, helped by the low cost of capital
● Commodity prices supported by supply constraints and solid demand from emerging
economies.
31
34. Key SA macro themes for 2011
● SA consumer activity set to improve in 2011, helped by real wage increases and growth
in consumer credit
● Inflation and interest rates expected to drift sideways for most of 2011, but concerns
about food inflation on the rise.
● Fixed investment spending expected to remain subdued for most of 2011 except for
some public sector projects. A pick-up in private sector investment is a theme for 2012
● SA policy debate remains a focus, including nationalisation, inflation targeting, Rand
strength, land claims, NHI. Don’t except much actual change
● Rand remains well supported over the coming months, but the factors supporting the
Rand should slowly dissipate in 2011
34
35. SA growth in consumer spending vs disposable income
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
%, q/q
Consumer spending
Disposable Income
Debt servicing costs at historical lows
35
39. Portfolio positioning summary
39
• Equities remain our preferred asset class
• Notably global equities
• We have down-weight bonds
• Bearish on global bonds
• Retained SA listed property as a fixed interest proxy –
distribution growth and stable bond yields
• 12 month cash return of 6.4% favorable relative to bonds
Asset Class
Portfolio
Weight %
Current
Benchmark
Weight %
SA Equities 58.9 60
SA Property 3.6 0
SA Bonds 6.1 25
SA Cash 16.7 0
Global
Equities
14.4 9
Global
Bonds
0.0 6
41. Legal Notice
Information and Content
The information and content (collectively 'information') provided herein are provided by STANLIB Asset Management (“STANLIBAM”) as
general information for information purposes only. STANLIB does not guarantee the suitability or potential value of any information or
particular investment source. Any information herein is not intended nor does it constitute financial, tax, legal, investment, or other
advice. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Adviser. Nothing
contained herein constitutes a solicitation, recommendation, endorsement or offer by STANLIBAM.
Copyright
The information provided herein are the possession of STANLIBAM and are protected by copyright and intellectual property laws. The
information may not be reproduced or distributed without the explicit consent of STANLIBAM.
Disclaimer
STANLIB has taken care to ensure that all information provided herein is true and accurate. STANLIB will therefore not be held responsible
for any inaccuracies in the information herein. STANLIBAM shall not be responsible and disclaims all loss, liability or expense of any nature
whatsoever which may be attributable (directly, indirectly or consequentially) to the use of the information provided.
STANLIB Asset Management Limited
Registration No: 1969/002753/06. A Financial Services Provider licensed under the Financial Advisory and Intermediary Services Act, 37 of
2002. FSP license No: 719.
41
