1 PSG Asset Management March 2017

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3 Introduction to PSG Asset Management

4 PSG Corporate StructurePart of a successful listed company PSGK Listed: June 2014

5 PSG Asset Management Company background PSG House, Cape TownFirst unit trust launched: Jan 1998 Pure asset management business: R32bn Assets under administration: R82bn Staff compliment: 77 Investment professionals: 14

6 Simple, comprehensive product suitePSG Equity PSG Flexible PSG Balanced PSG Global Equity Returns PSG Stable PSG Global Flexible PSG Diversified Income Wide enough and focused range of funds PSG Money Market 0% Max 10% Max 40% Max 75% Between 0% - 100% Fully invested Average risk (Equity Exposure)

7 Our primary role: stewardship“Is this in the best long-term interests of our investors?” Our framework for answering this question: Think and act long-term Be prudent in deploying our clients’ assets Have an obsessive focus on research Primary Role: Stewardship of our clients capital. Stewardship especially relevant to “existing” investors. LT: Risk is usually with ST rushed decisions Prudence and Research (important is size of team and how much you spend on having the optimal team)

8 A quick snapshot of the past 18 months

9 2016: a lesson in grey thinking

10 US elections Investor sentiment in the market is at the lowest it has ever been. There is a lot of noise, a lot of fear, and a lot of volatility In such times, investors make bad investment decisions. The inherent dangers of trying to make macroeconomic forecasts Focus on the client’s investment objective Think long-term Diversify Buy with a margin of safety Grab the opportunities that arise in times of panic

11 European elections Italy, Germany and the NetherlandsInvestor sentiment in the market is at the lowest it has ever been. There is a lot of noise, a lot of fear, and a lot of volatility In such times, investors make bad investment decisions. The inherent dangers of trying to make macroeconomic forecasts Focus on the client’s investment objective Think long-term Diversify Buy with a margin of safety Grab the opportunities that arise in times of panic “Brexit could be followed by Grexit, Departugal, Italeave, Czechout, Oustria, Finish, Byegium. Only Remania will stay”

12 A challenging environment for making investment decisionsInvestor sentiment in the market is at the lowest it has ever been. There is a lot of noise, a lot of fear, and a lot of volatility In such times, investors make bad investment decisions. The inherent dangers of trying to make macroeconomic forecasts Focus on the client’s investment objective Think long-term Diversify Buy with a margin of safety Grab the opportunities that arise in times of panic

13 ANC: NEC elections A tough battle

14 Treasury Investor sentiment in the market is at the lowest it has ever been. There is a lot of noise, a lot of fear, and a lot of volatility In such times, investors make bad investment decisions. The inherent dangers of trying to make macroeconomic forecasts Focus on the client’s investment objective Think long-term Diversify Buy with a margin of safety Grab the opportunities that arise in times of panic

15 Two factors that could impact future returnsUncertainty 1 Asset Valuations 2 No.1 seems to be the biggest concern of every investor at the moment, however, Investors should be concerned with current asset valuations where they see opportunity in the market.

16 Looking back at Equity Markets

17 The impact of the 2008 crisisInvestor sentiment in the market is at the lowest it has ever been. There is a lot of noise, a lot of fear, and a lot of volatility In such times, investors make bad investment decisions. The inherent dangers of trying to make macroeconomic forecasts Focus on the client’s investment objective Think long-term Diversify Buy with a margin of safety Grab the opportunities that arise in times of panic

18 The yield conundrum continuesUnprecedented monetary conditions Source: Bloomberg

19 End Of 2015 – Very Consensual ViewsBlack or white thinking & extrapolation of recent conditions Interest rates will be low for a very long time Own quality and growth (especially tech) Avoid cyclical businesses

20 Our portfolios offer a margin of safetyP/E ratios indicative of margin of safety 27.1 22.8 17.9 16.0 13.5 11.0 PE is not always the best metric to measure price, but over a long period of time it does give a good indication. We have used the PSG Flexible Fund since it had the longest data. Over time we’ve held quality companies with very good prospects, but significantly lower than the market. SABMiller exit from the FTSE/JSE All Share Index will translate to more concentration risk. Naspers weighting in the Top40 will move from xxx to xxx Richmont - The next big weighting in the Top40 index is Impala. The next big weightings in the Indi25 index is AVI. Source: PSGAM, I-Net * Using PSG Flexible fund data

21 The Rand: Still relatively undervaluedDollar/rand on a purchasing power parity basis ? Source: RMB

22 How do we manage money in volatile times?

23 Investing in times of turbulenceDon’t forecast Think long-term Patience Grab the opportunities that arise in times of panic Buy with a margin of safety (Price)

24 Our equity philosophy A simple checklist to keep us focused MoatManagement Margin of Safety QUALITY ASSESSMENT PRICE

25 Buying with a margin of safetyThe market cycle creates opportunities Greed Intrinsic value Fear Margin of safety – difference security is worth and the price you pay. Sufficient discount and your estimate of intrinsic value turns out to be correct – good investment. Vice versa. Key – lots of things know you don’t know – appraisals of IV as conservative as possible. Oscillates between fear and greed – price paid and intrinsic value as irrational. Buying early and buying wrong. Fear and uncertainty – best place to find bargains. Dislocation between the economic environment or the apparent prospects for that company. The investors in our funds often struggle with this – buying when the macro environment is poor. We often end up buying early – believe there is a margin of safety – just don’t know where the bottom is. However significantly more upside than downside – often multiples more. When a value investor gets its wrong – typically be because your estimate of intrinsic value tends to be wrong. Think you are buying with a margin of safety turns out to be wrong. Two examples from our past. Source : PSGAM, Bloomberg

26 Our process protects capital over the long-termManaging risk is embedded in our process Undervalued Inherent quality Well diversified Long term capital protection. Do not have a risk committee. / Our process is managing risk and “putting risk first”. Embedded in our process is risk management Invest according to “Price”, “Assessing the Quality” of a company AND is it “Diversified”. - Price is what you pay, value is what you get (Warren Buffett) - Diversified with high quality shares, risk should already be low

27 Areas of potential mispricing'sA review of what we said at the beginning of the year and our current thinking 2016 (Jan) 2017 (Jan) High quality/blue chip SA equities are expensive Government bonds Property Offshore equities Local cyclical equities (SA Inc.) Cash

28 Our track record: PSG Flexible Fund

29 PSG Flexible Fund Equity like returns at lower levels of riskFlexible asset allocation mandate​ Equity exposure can vary between 0% to 100%​ Able to invest up to 25% directly offshore​ Asset allocation is done based on opportunity:​ If we can find many undervalued shares, we have a higher equity exposure and lower cash exposure​ Benchmark: The fund aims to achieve high returns (inflation + 6% after fees) while maintaining relatively low levels of risk​ “Equity-like returns at lower levels of risk”​ Fund size: R10bn as at 29 Feb 2017​ Received three Raging Bull Awards​

30 Margin of Safety applied consistentlyOur equity portfolio is above average quality at below average prices Source: PSG Asset Management Research PE of Fund has always been lower than that of the JSE All Share Index (“ALSI”). Current PE of 11.5 is in line with the long term average PE of 10.9. Source: I-Net

31 The importance of capital protectionBenchmark beating returns Source: PSG Asset Management Research During the ‘08/’09 financial crisis the PSG Flexible Fund fell less than the JSE All Share Index (incl. dividends) and reached a new high after 15 months, whereas the JSE All Share Index took 30 months

32 Delivering on our clients’ objectives over the long runAnnualised performance to 31 December 2016 after fees, including income: PSG Flexible Fund Fund Sector Rank Ave cash FTSE/ JSE ALSI Since inception (1 Nov 04) 17.2% 1st out of 13 26.5% 16.1% 10 years 14.1% 2nd out of 30 25.3% 10.5% 5 years 15.7% 5th out of 48 28.4% 13.0% 3 years 11.5% 5th out of 57 31.7% 6.2% 1 year 17.6% 3rd out of 65 27.9% 2.6% Volatility (5 years) 7.8% Source: Morningstar, Inc. All Rights Reserved; PSG Asset Management Research

33 Portfolio PositioningPSG Flexible Fund – December 2016 Company 31 Dec 16 Discovery 5.63% FirstRand 4.38% Old Mutual 3.96% Sainsbury 3.84% Brookfield Asset Management 3.56% Glencore 2.94% Super Group 2.62% Grindrod 2.46% Cisco Systems 2.42% PSG Group 2.39% TOTAL – TOP 10 34.20%

34 PSG Wealth Fund of Funds

35 PSG Wealth Fund of FundsExposure to PSG Asset Management Risk Profile Benchmark (PSG AM) PSG Wealth Fund of Funds PSG Asset Management Aggressive CPI + 6% Creator FoF PSG Equity Moderate CPI + 5% Moderate FoF PSG Balanced Conservative CPI + 3% Preserver FoF PSG Stable Fixed Interest CPI + 1% Enhanced Interest PSG Diversified Inc Source: Morningstar, Inc. All Rights Reserved; PSG Asset Management Research

36 Conclusion

37 Conclusion Disciplined Diversified portfolios Cash Long-termFor various market conditions Do no take binary macro bets Cash Protection and firepower: its value is underappreciated Long-term Patience when investing Our clients should do the same to benefit from our process

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39 Investment Opportunities:Equities & Fixed Interest

40 FirstRand: a great company at a great priceRemains attractive 4.3% dividend yield Best in class returns on capital (24% RoE) R14bn surplus capital Significant management and strategic shareholder investment Source: Bloomberg

41 NCDs - fire power with benefitsRising real yields from our NCD portfolio 8.79% 5.62% Cash Duration < 1 year Yielding app 8.5% (1 year) and 9.4% (5 years) – up 30 bps since Hawks and 7.9% (6 months) – 20 bps Attractive real yield with immediate liquidity Buying 1 year, and 3 to 5 years Always had exposure to NCD’s. Running yield – daily calculated yield to maturity Now: attractive real yields / pushed duration out from 6 months to 2 & 5 years Based on inflation being in the region of 6% in 3 years Thekwini (SA Home Loans - Repackaging of Loans) - SPV Structure (Owned by PIC & Standard Bank) Source: Bloomberg, PSG AM

42 Equity Opportunities Glencore favoured within resourcesQuality financial franchises at very good prices: Discovery, First Rand, Old Mutual Quality mid and small cap cyclicals at very good prices: Super Group, Tongaat, Grindrod, Hudaco Strong USD long term returns expected from high conviction Global ideas: Brookfield, Sainsbury, Cisco