NEDGROUP INVESTMENTS RAINMAKER FUND - Quarter 2, 2018

NEDGROUP INVESTMENTS
      RAINMAKER FUND

            Quarter 2, 2018
         For the period ended 30 June 2018

Nedgroup
                                                                               ASISA category
    Performance to 30 June 2018                   Investments                                                     FTSE/JSE ALSI
                                                               1                  average
                                                Rainmaker Fund

    3 months                                           -0.5%                           1.1%                          +4.5%

    12 months                                           7.7%                           7.9%                          +15.0%

PORTFOLIO COMMENTARY
The fund’s top five performing positions for the quarter added +5.8% to our return while the bottom five
detracted -2.8%.

                                         Total      Performance                          Ave.weight        Total      Performance
     Winners          Ave.weight                                          Losers
                                        Return      contribution                                          Return      Contribution

    Naspers               13.3%           20.5%           2.5%         Std Bank               6.4%         -10.1%         -0.7%
    Sasol                  5.6%           24.7%           1.2%         Truworths              2.2%         -28.2%         -0.7%
    BHP Billiton           4.4%           31.9%           1.2%         MTN                    4.9%          -9.3%         -0.5%
    Mondi                  2.8%           23.0%           0.6%         Vodacom                2.4%         -17.1%         -0.5%
    Anglos                 2.8%           11.3%           0.3%         Sanlam                 2.5%         -14.8%         -0.4%
                                                          +5.8%                                                           -2.8%

Thus far 2018 has been a tale of two quarters. This is most evident when you assess the top contributors and
detractors to the fund’s performance. Standard Bank and Truworths which were the primary contributors to the
fund’s outperformance in Q1 2018, proved to be the largest detractors in Q2 2018, a notable reversal of
fortunes.

The first quarter was characterised by strong performance in domestic oriented businesses benefiting from a
further appreciation of the rand and a surge in business and consumer confidence caused by the election of
Cyril Ramaphosa as head of the ANC and the commencement of a program to dismantle and prosecute the
individuals involved with the corruption related damage done to practically every state institution - the details of
which we are starting to learn.

Sadly, much of this unwound in the second quarter as an appreciation for the enormity of this task as well as
the time it will take sank in, and some doubt around its eventual success as allies of the perpetrators continue
to occupy positions of political power. Domestic concerns intensified by ongoing disappointments in economic
activity data and sentiment surveys. By way of example, South Africa’s first quarter GDP contracted by -2.2%
and the BER’s business confidence index retreated to 39 in Q2 2018 from 45 in Q1 2018. In contrast, the
index measured 34 in Q4 2017, which signals that businesses are hardly more optimistic than they were prior
to the ANC’s December 2017 conference. Added to this, South Africa is struggling with vexed matters of
important state policy on land expropriation without compensation, a perpetually incomplete Mining Charter as
well as the long unresolved matters of poor education, labour inflexibility, the never-ending demands for
greater BEE transformation and the overwhelming cost of the state employee base and social welfare burden
on the tax base.

1
    Net return for the Nedgroup Investments Rainmaker Fund, A class. Source: Morningstar (monthly data series).

Page 2

The global backdrop has also become more challenging. Emerging market assets faced headwinds as global
risk appetite retreated due to a multitude of factors including rising US rates, trade tensions and crises in
economies such as Argentina, Turkey and Italy.

Predicting the impact of sentiment on equity prices in the short term considering how widely they have swung
in the last 6 months alone is a very challenging task. Our approach at Abax is always to try and remove the
emotional aspect of what one sees, hears and reads and analyse each company’s prospects on the facts we
have to hand. This will remain the case, and we remind our clients of our long-term approach of investing in
economically robust businesses, at reasonable prices, run by competent management teams and which we
believe will produce consistent compounding growth in profits and dividends. Thus, it shouldn’t come as a
surprise that there has been little change to the top holdings in the portfolio since the end of the last quarter.
The most notable changes in the portfolio are a reduction in the size of the Truworths position (no longer in the
top 10 due to a combination of taking profits and share price underperformance) and the overall increase in
our rand-hedge exposure.

The strength of the rand in the first quarter of 2018 had caused several high-quality businesses with non-
South African generated profits to under-perform. At the same time, we were skeptical of the sustainability of
the strong rally we had seen in select sectors and reduced our exposure to some of the top performers (such
as Truworths, Mr Price, Massmart and FirstRand). A substantial portion of the proceeds from these disposals
were rotated into rand-hedges. We added to several existing positions including Anglos, Sasol, Richemont
and British American Tobacco. It is interesting to note that at quarter end, the rand-hedge versus purely South
African composition of the portfolio had swung back in favour of rand-hedges. Rand-hedge shares represent
approximately 50% of the fund at June 2018, notably higher than at the end of the first quarter (Mar 2018:
45%) as well as at the start of the calendar year (Dec 2017: 47%).

STEINHOFF
During the quarter we made the decision to sell out of the last Steinhoff shares that we owned. This was not a
decision we took lightly, as since December 2017 we have had the view that substantial value still remained
within the group. As new news became available it became evident that conditions for the firm had continued
to deteriorate to a point where the future of Steinhoff as a going concern became very precarious. Any
eventual value was assessed to be uncertain, and should it materialise, it was expected to be limited and to
take a long time to realise. In the intervening period, Steinhoff will have to contend with and fund several costly
law suits which will further erode much of the possible remaining value.

The incremental negative news points that drove our decision were:
1. Continued asset sales to fund operational working capital requirements. This included the sale or partial
   sale of STAR, PSG, KAP as well as certain of their key properties and additional peripheral assets. These
   sales were all done at discounts to fair value for those assets.
2. During a presentation to lenders in May 2018, it became clear that the company was under severe liquidity
   constraints and unable to convince their creditors to extend lending terms for more than one month at a
   time. At the same time it was revealed that historic profitability of many of the underlying businesses was
   much worse than previously reported. This significantly impacted the confidence of our valuation of their
   European businesses.
3. In addition to all the class action claims against Steinhoff, new claims emerged from Christo Wiese, GT
   Ferreira and Braam van Huysteen.

Page 3

Together with the other South African institutions exposed to Steinhoff prior to the December 2017 revelations,
we have actively engaged with several Dutch class action law suit service providers and have selected a
highly qualified and experienced provider to pursue a claim against the company and its auditors on our
clients’ behalf. We will be engaging with clients within the next quarter to elaborate on this exercise and to
advise on our recommended route of legal action and the alternatives available.

As we begin the third quarter of 2018, political turbulence and uncertainty around trade disputes has increased
and we remain on guard that this may undermine confidence levels and impact financial asset prices. We are
mindful that while South Africa’s long-term prospects are greatly improved by the appointment of Cyril
Ramaphosa as president, the enhanced governance and structural change needed will take time to take full
effect.

We remain focused on equity selection and believe that the diversified portfolio structure, built around a core
of the highest quality companies will prove resilient.

The portfolio currently trades on a forward rolling Price/Earnings (P/E) ratio of 13.7x and a dividend yield of
3.4%.

Page 4

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

Page 5