NEDGROUP INVESTMENTS PROPERTY FUND - Portfolio Update March 2018 - Investonline

NEDGROUP INVESTMENTS
      PROPERTY FUND
         Portfolio Update

                 March 2018

UPDATE ON SA LISTED PROPERTY SECTOR

Since the start of the year, South Africa’s listed property sector has been making headlines for all the wrong reasons.
Although the headlines have been dominated by the Resilient group of companies, the rest of the sector has failed to
respond positively to the improving political situation in South Africa and has not experienced the substantial rerating
enjoyed by our banks, retailers and insurance companies, despite the obvious correlations. Bond yields have also fallen
substantially and this too has not benefited the South African listed property companies as it normally does. Against this
backdrop, investors have been asking how our Payers & Growers® portfolios have performed and more importantly, how
the Nedgroup Investment Property Fund has weathered this storm. I am pleased to say that we have absolutely no
exposure to the Resilient group and our property allocations have actually increased in value since the start of the year
(the FTSE/JSE SA Listed Property (SAPY) index has declined by 18.64% since the start of the year).

The Nedgroup Investments Property Fund is up 2.53% since the start of the year, outperforming the SAPY index by
21.17% in 2018. As a result, the Nedgroup Investments Property Fund is now outperforming the SAPY index by 1.1% per
annum and has delivered that outperformance with less than 70% of the volatility of the SAPY index.

            Source: IRESS & Bridge Fund Managers

Not only have investors enjoyed market-beating returns with significantly lower volatility, but the fund has also significant
downside protection (i.e. when the market goes down the Nedgroup Investments Property Fund falls by less or in many
instances, actually delivers a positive return). The chart below depicts relative performance of the Nedgroup Investments
Property Fund in the months when the SAPY index return was negative. Since launch, in July 2010, the Nedgroup
Investments Property Fund has outperformed the SAPY index in 19 of the 24 months when the SAPY return is negative
and the cumulative outperformance exceeds 56%.

            Source: IRESS & Bridge Fund Managers

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THE ROAD AHEAD
South Africa currently finds itself very much on a high road scenario. In November, we assessed the possible outcomes for
South Africa in terms of a high road or low road. Thanks to Moody’s decision to put a sovereign credit rating downgrade on
hold and Cyril Ramaphosa’s narrow victory at the ANC’s elective conference in December last year, we started 2018 very
firmly on the high road scenario. To stay on the high road, Jacob Zuma needed to be removed or had to resign as
President of South Africa before the State of the Nation Address and the Finance Minister (whoever it was) needed to table
a budget that restored fiscal discipline and was not populist. With both of these positive outcomes now behind us and
newly-elected President Ramaphosa’s commitment to tackling corruption within the government and the ANC, South Africa
continues to enjoy a smooth ride on the high road scenario. A positive cabinet reshuffle, removing cabinet ministers
implicated in state capture and installing quality cabinet ministers of the ilk of Pravin Gordhan, Mcebisi Jonas and Derek
Hanekom and a further reprieve from Moody’s in March would firmly entrench the high road scenario in South Africa.
Under this scenario, the rand would continue to strengthen, interest rates would be cut, investor, consumer and business
confidence would be restored and economic activity would accelerate. SA-focussed businesses stand to benefit as this
high road scenario plays out and the positive share price momentum we’ve seen since the ANC’s elective conference can
be maintained for most of 2018, particularly when foreign investors start making more meaningful allocations to South
Africa.

In particular, South African-focussed listed property companies, which have not yet experienced the positive share price
momentum, will benefit from a combination of improved confidence, higher economic growth and lower official interest
rates and bond yields. The current yield-gap between the mid-sized and smaller South African-focussed listed property
companies represents the best buying opportunity since 1998, when the market was recovering from the Asian debt crisis
and the devaluation of the Russian rouble. Today, most of the listed property companies we own offer initial income yields
of between 10% and 13%, offering a yield pickup of between 2% and 5% over government’s benchmark R186 bond, which
is now yielding less than 8% for the first time since May 2015. The improving political and economic backdrop should see
those yields reduce and together with an acceleration in distribution growth rates should lead to total returns in excess of
20% per annum in 2018 and 2019. The Nedgroup Investments Property Fund stand to benefit significantly over the next 2
years, as capital values rise and distribution growth rates accelerate following a tough year last year.

IAN ANDERSON, CFA, CAIA
Chief Investment Officer
Bridge Fund Managers
26 February 2018

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DISCLAIMER

WHO WE ARE
Nedgroup Collective Investments (RF) Proprietary Limited, is the company that is authorised in terms of the Collective Investment Schemes Control Act to
administer the Nedgroup Investments unit trust funds. It is a member of the Association of Savings & Investment South Africa (ASISA).

OUR TRUSTEE
The Standard Bank of South Africa Limited is the registered trustee.
Contact details: Standard Bank, Po Box 54, Cape Town 8000,
Trustee-compliance@standardbank.co.za, Tel 021 401 2002.

PERFORMANCE
Unit trusts are generally medium to long-term investments. The value of your investment may go down as well as up. Certain unit trust funds may be subject
to currency fluctuations due to its international exposure. Past performance is not necessarily a guide to future performance. Nedgroup Investments does not
guarantee the performance of your investment and even if forecasts about the expected future performance are included you will carry the investment and
market risk, which includes the possibility of losing capital.

PRICING
Funds are valued daily at 15:00. Instructions must reach us before 14:00 (12:00 for Nedgroup Money Market Fund) to ensure same day value. Prices are
published daily on our website and in selected major newspapers.

FEES
Certain Nedgroup Investments unit trust funds apply a performance fee. For the Nedgroup Investments Flexible Income Fund and Nedgroup Investments
Stable Fund, it is calculated daily as a percentage (the sharing rate) of total positive performance, with the high watermark principle applying.

For the Nedgroup Investments Bravata World Wide Flexible Fund it is calculated monthly as a percentage (the sharing rate) of outperformance relative to the
fund’s benchmark, with the high watermark principle applying. All performance fees are capped per fund over a rolling 12-month period. A schedule of fees
and charges and maximum commissions is available on request from Nedgroup Investments.

DISCLAIMER
Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. Nedgroup Investments has the right to close unit trust funds to new
investors in order to manage it more efficiently. For further additional information on the fund, including but not limited to, brochures, application forms and the
annual report please contact Nedgroup Investments.

NEDGROUP INVESTMENTS CONTACT DETAILS
Tel: 0860 123 263 (RSA only)
Tel: +27 21 416 6011 (Outside RSA)
Fax: 0861 119 733 (RSA only)
Email: info@nedgroupinvestments.co.za
For further information on the fund please visit: www.nedgroupinvestments.co.za

OUR OFFICES ARE LOCATED AT
Nedbank Clocktower, Clocktower Precinct, V&A Waterfront, Cape Town, 8001

WRITE TO US
PO Box 1510, Cape Town, 8000

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