slide heading SIM ABSOLUTE RETURN

Natasha Narsingh November 2015

Absolute Return Funds: stable

building blocks for Medical Aid Schemes

slide heading

SAICA medical schemes seminar

better understanding the risks, to achieve better investment returns in the medical scheme environment

slide heading

key investment challenges for the medical

schemes industry

• Volatility of returns needs to be reduced as far as possible

• Downside investment risk should be minimised whilst aiming to

deliver the highest possible rate of return per unit of risk taken

• Consistent (medical) inflation-beating growth of capital (CPI+X%)

• The scheme maintains appropriate levels of liquidity with capital

preservation focus

slide heading

what return can you realistically expect

over the LONG TERM?

Assumptions for SA – LT real

returns

1.0%

1.5%

2.0%

6.0%

7.0%

0% 1% 2% 3% 4% 5% 6% 7%

Cash returns

ILB returns

Bond returns

Property returns

Equity returns

Source: Sanlam Investment Management

slide heading

real return : cash

Historic data

Global Investment Return Yearbook 2004

Excess returns of cash over inflation

slide heading

is cash enough?

Assumptions for SA – LT real

returns

1.0%

1.5%

2.0%

6.0%

7.0%

0% 1% 2% 3% 4% 5% 6% 7%

Cash returns

ILB returns

Bond returns

Property returns

Equity returns

Source: Sanlam Investment Management

slide heading

SIM Inflation Plus

risk/loss and its impact….

• Loss aversion describes the

psychological experience of

gains and losses. The

psychological experience of a

loss is typically twice that of

the equivalent gain

• Losses trigger emotional

reactions which may lead to

irrational investor behavior

• Absolute return strategies limit

the likelihood of irrational

investor behavior by limiting

downside volatility

Source: Prospect Theory and the Endowment Effect

slide heading

our philosophy

slide heading

our dual goals in absolute returns

• Explicitly targeting real returns over 3 and 5 years (returns above inflation)

• Protecting capital over any rolling one year

Two characteristics any investor should find desirable

slide heading

Pe

rfo

rma

nce

200

8 :

To

p m

inu

s B

ott

om

AA Target

ARF

Equity

General

AAA Prud

Equity

Varied Spec Special

Equity

Bonds Money

Market

60

50

40

30

20

10

0

SA ARF : widest performance range in 2008

slide heading

“only when the tide goes out do you discover who's been swimming naked”

Warren Buffett

slide heading

delivering real returns at managed levels

of risk

VOLATILITY

Infla

tio

n P

lus X

%

5

4

3

6

Low Medium High

7

slide heading

our approach / philosophy

OUR APPROACH / PHILOSOPHY

too

low

too

high

just

right

negative return

slide heading

SI principles in managing real returns

• Operate across all asset classes - diversified portfolio

• Cognisant of long-term strategic asset allocation

• Dynamic asset allocation, move between asset classes and instruments

• Use of derivatives important component

• Downside protection via tactical asset allocation and derivative strategies

slide heading

historically meeting our clients’ dual

expectations

slide heading

fund performance:

SIM Medical Aid composite

Gross time-weighted performance (%) – 30 September 2015

8.5

10.6 10.7 11.5

9.6

10.5 10.5 11.1

0.0

3.0

6.0

9.0

12.0

15.0

1 year 3 year 5 year Since Jul 2005

Fund: Medical Aid CPI+5%

slide heading

cash performance:

SIM Medical Aid composite

Gross time-weighted performance (%) – 30 September 2015

7.6

7.0 6.9

8.0

6.4

5.7 5.8

7.3

0.0

3.0

6.0

9.0

1 year 3 year 5 year Since Jul 2005

Portfolio cash STeFI

slide heading

SI abs return funds

as a stable building

block for medical

aid schemes

slide heading

Pe

rfo

rma

nce

200

8 :

To

p m

inu

s B

ott

om

AA Target

ARF

Equity

General

AAA Prud

Equity

Varied Spec Special

Equity

Bonds Money

Market

60

50

40

30

20

10

0

know your asset manager

slide heading

weekly drawdowns for SIM Inflation Plus

SIM Inflation Plus has a very

competitive drawdown profile

Source: Morningstar Direct | SI

3 Years to 30 September 2015

SIM Inflation Plus (CPI+5%):

competitive drawdown profile

SIM Inflation Plus:

competitive drawdown profile

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

07/1

0/2

01

2

17/1

1/2

01

2

29/1

2/2

01

2

09/0

2/2

01

3

23/0

3/2

01

3

04/0

5/2

01

3

15/0

6/2

01

3

27/0

7/2

01

3

07/0

9/2

01

3

19/1

0/2

01

3

30/1

1/2

01

3

11/0

1/2

01

4

22/0

2/2

01

4

05/0

4/2

01

4

17/0

5/2

01

4

28/0

6/2

01

4

09/0

8/2

01

4

20/0

9/2

01

4

01/1

1/2

01

4

13/1

2/2

01

4

24/0

1/2

01

5

07/0

3/2

01

5

18/0

4/2

01

5

30/0

5/2

01

5

11/0

7/2

01

5

22/0

8/2

01

5

Pe

rce

nta

ge

Dra

wd

ow

n (

We

ekly

data

)

SIM Inflation Plus STANLIB Inflation Plus 5% A Coronation Capital Plus Cadiz Inflation Plus Prudential Inflation Plus A

SIM Inflation

Plus:

competitive

drawdown

profile

slide heading

5 year risk vs return scatterplot:

Medical Aid AR

Source: Alexander Forbes

Medical Consumer Price Inflation

Momentum Medical Provider

OMIG Capital Builder

Prescient Medical Aid

SIM Medical Aid

Stanlib Medical

Prudential Medical Aid

Coronation Medical

IS Medical Schemes

OMIG Macro Medical

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%

Retu

rn

Volatility (p.a.) Standard Deviation

Volatility vs Return Scatterplot on Absolute Return Medical Aid Managers for

the 5 Years ended 30 September 2015

slide heading

why SI absolute return funds?

Volatility of returns needs to be reduced as far as possible

Downside investment risk should be minimised whilst aiming to

deliver the highest possible rate of return per unit of risk taken

Consistent (medical) inflation-beating growth of capital (CPI+X%)

The scheme maintains appropriate levels of liquidity with capital

preservation focus

slide heading

when it comes to fulfilling our purpose

we know that there is a time to be bold and a time to be cautious, knowing when to be which makes us…

23

slide heading

bold and cautious

slide heading

thank you

25

slide heading

slide heading

disclosure

Although all reasonable steps have been taken to ensure the information in this document is accurate, Sanlam Investment Management (Pty) Ltd does not accept any

responsibility for any claim, damages, loss or expense, however it arises, out of or in connection with the information in this document. No member of Sanlam gives any

representation, warranty or undertaking, nor accepts any responsibility or liability as to the accuracy of any of this information. This document is intended for information

purposes only and the information in it does not constitute financial advice as contemplated in terms of the FAIS Act. Use or rely on this information at your own risk.

Independent professional financial advice should always be sought before making an investment decision.

The contents of this document remains the property of Sanlam Investment Management (Pty) Ltd and may not be reproduced without the written permission of Sanlam

Investment Management (Pty) Ltd.

Sanlam Investment Management (Proprietary) Limited is a Licensed Financial Services Provider. Sanlam is a full member of ASISA. Please note that past

performances are not necessarily an accurate determination of future performances, and that the value of investments / collective investment units / unit trusts may go

down as well as up. Commission may be paid and, if so, would be included with the brokerage charges, securities transfer tax, auditor’s fees, bank charges, trustee

fees and levies in the overall costs, which will be levied against the fund. A schedule of fees and charges and maximum commissions is available from the manager,

Sanlam Collective Investments(RF) Pty Ltd. Collective investment schemes are generally medium- to long-term investments. 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 value of all assets in the

portfolio including any income accrual and less any permissible deductions from the portfolio. Portfolio performance is calculated on a NAV to NAV basis and does not

take any initial fees into account. An annualised growth rate is used for all performance data of 12 months or longer. Income is reinvested on the ex-dividend date. Total

return performances are published. The source of performance data and risk statistics is Morningstar. Actual investment performance will differ based on the initial fees

applicable, the actual investment date and the date of reinvestment of income. Forward pricing is used.