Classification of South African regulated collective investment portfolios

Classification:

The first tier of classification is as follows:

Domestic Funds:

These are collective investment portfolios that invest at least 70% of their assets in South African investment markets at all times.

Worldwide Funds:

These are collective investment portfolios that invest in both South African and foreign markets. There are no minimums set for either domestic or foreign assets.

Foreign Funds:

These are collective investment portfolios that invest at least 85% of their assets outside South Africa at all times.

Each of these categories is sub-categorised into the second tier of classification, namely:

i)  Equity portfolios,
ii) Fixed interest portfolios,
iii) Real Estate portfolios; and
ii) Asset Allocation portfolios.

The second tier of classification is further sub-categories in the following detailed sub-categories:

Equity Portfolios:

• Equity - General portfolios
• Equity - Growth portfolios
• Equity - Value portfolios
• Equity - Large cap portfolios
• Equity - Smaller companies portfolios
• Equity - Resources & Basic Industries sector portfolios
• Equity - Financial sector portfolios
• Equity - Industrial sector portfolios

Asset Allocation Portfolios:

• Asset Allocation - Prudential Low Equity portfolios
• Asset Allocation - Prudential Medium Equity portfolios
• Asset Allocation - Prudential High Equity portfolios
• Asset Allocation - Prudential Variable Equity portfolios
• Asset Allocation - Flexible portfolios
• Asset Allocation – Targeted Absolute and Real Return portfolios

Fixed Interest Portfolios:

• Fixed Interest - Bond portfolios
• Fixed Interest - Income portfolios
• Fixed Interest - Money market portfolios
• Fixed Interest - Varied Specialist portfolios

Real Estate Portfolios:

Real Estate – General portfolios

Sector Definitions

DOMESTIC PORTFOLIOS

These are collective investment portfolios that invest at least 70% of their assets in South African investment markets at all times.

Equity Portfolios

Equity portfolios are collective investment portfolios that invest predominantly in shares listed on the Johannesburg Stock Exchange. These portfolios invest a minimum of 75% of the market value of the portfolios in equities at all times and generally seek maximum capital appreciation as their primary goal. All equity and derivative investments must conform 100% to the defined investment requirement of each category.

However,

1. a minimum of 80% of the equity portfolio must, at all times, be invested in the JSE Securities Exchange South Africa sector/s as defined by the category, and
2. a maximum of 20% of the equity portfolio may be invested outside the defined JSE Securities Exchange South Africa sector/s provided that these investments comply fully with the category definition.

Equity – General portfolios - These portfolios invest in selected shares across all economic groups and industry sectors of the JSE Securities Exchange South Africa as well as across the range of large, mid and smaller cap shares. These portfolios do not subscribe to a particular theme or investment style. The portfolios in this category offer medium to long-term capital growth as their primary investment objective.
Benchmark: FTSE/JSE All Share Index (J203T)

Equity - Growth portfolios - These portfolios that seek maximum capital appreciation as their primary objective through investment in growth companies. Growth companies can be defined as those whose earnings are on or are anticipated to enter a strong and sustainable upward trend and typically trade on high price to earnings ratios (PE ratios). These portfolios are invested in growth companies across all Economic Groups of the JSE Securities Exchange South Africa.
Determination of a company as “growth share” takes into consideration the company’s sustainable earnings growth on the basis of a combination of:

(a) The 2 year historical earnings growth and

(b) 1-year consensus I-Net forecasts.

Benchmark: FTSE/JSE Style All Share Growth (J331T)

Equity - Value portfolios - These are portfolios that seek medium to long-term capital appreciation as their primary investment objective. The portfolios seek out “value” situations by typically investing in shares with low relative PE ratios as well as shares that are trading at a discount to their net asset value. These portfolios frequently offer a higher than FTSE/JSE All Share Index average level of income. These portfolios are invested in selected “value” shares across all Economic Groups of the JSE Securities Exchange South Africa.

Determination of a share as “value share” takes into consideration:

• The current PE trading at a discount to the average PE of the market.
• The dividend yield of the company significantly exceeding the dividend yield of the market.

Benchmark: FTSE/JSE Style All Share Value (J330T)

Equity – Large cap portfolios – These portfolios seek long-term growth as their primary objective through investment in large market capitalisation shares which fall within the top 40 JSE Securities Exchange South Africa listed shares ranked by market capitalisation, i.e. included in the FTSE/JSE Top 40 Index.
Benchmark: FTSE/JSE Top 40 Index (J200T)

Equity – Smaller companies portfolios – These portfolios invest in established smaller companies as well as in emerging companies that are in the initial phase of their life. New investment by the portfolios are restricted to fledgling, small and mid-cap shares only and at least 75% of the portfolio will be invested in fledgling, small and mid cap shares at all times. Due to both the nature and focus of these portfolios, they may be more volatile than funds that are diversified across the broader market.
Benchmark: FTSE/JSE Mid Cap Index (J201)

Equity - Resources and basic industries portfolios – These portfolios invest in companies whose principal business operations involve the exploration, mining, distribution and processing of metals, minerals, energy, chemicals, forestry and other agricultural and natural resources or where at least 50% of their earnings are derived from such business activities and excludes service providers to these companies.
These portfolios invest primarily in securities listed in the FTSE/JSE Resources and Basic Industries economic groups and may be more volatile than portfolios that are diversified across a wider range of FTSE / JSE economic groups.
Benchmark: FTSE/JSE Minning Index (J177T)

Equity – Financial portfolios - These portfolios invest in shares of financial services companies including banks, insurance companies, brokerage firms and other companies whose principal business operations involve the provision of various financial service or where at least 50% of their earnings
Association of Collective Investments Code of Practice 20080916 Page 13 of 28 Fund Classification for South African Regulated CIS Portfolios are derived from the provision of such financial services. The portfolios invest primarily in companies listed in the FTSE/JSE Financials Economic Group. These portfolios may be more volatile than portfolios that are diversified across a wider range of FTSE / JSE economic groups.
Benchmark: FTSE/JSE Financials Index (J580T)

Equity – Industrial portfolios – These portfolios invest in selected industrial companies listed on the JSE Securities Exchange South Africa but excludes all companies listed in the FTSE / JSE Resources and Financial Economic Groups.
Benchmark: FTSE/JSE Industrial (J257T)

Equity – Varied specialist portfolios - These portfolios invest in a single Economic Group or Industrial Sector or in companies that share a common theme or activity as defined in their respective mandates. However due to the unique nature of their mandates they cannot be categorised into any of the afore-listed categories. The performance of these portfolios cannot be compared to others in this category. Due to both the nature and focus of these portfolios, they may be more volatile than portfolios that are diversified across the broader market.

Should it be considered appropriate, where five or more portfolios share a common focus or theme as defined in their mandates, a new category will be created and the portfolios transferred, provided that a suitable benchmark can be established or index is published.

Asset Allocation Portfolios:

Asset Allocation portfolios are portfolios that invest in a wide spread of investments in the equity, bond, money and property markets.

Asset Allocation – Prudential Low Equity portfolios - These portfolios invest in a spectrum of investments in the equity, bond, money, or property markets. These portfolios tend to display reduced short term volatility, aim for long term capital growth and would have an effective equity exposure (including international equity) below 40% at all times. These portfolios conform to legislation governing retirement portfolios, (Regulation 28 of the Pension Funds Act) and are thus suitable as investment vehicles for retirement portfolios. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolios mandate and stated investment objective and strategy.

Asset Allocation – Prudential Medium Equity portfolios - These portfolios invest in a spectrum of investments in the equity, bond, money, or property markets. These portfolios tend to display average volatility, aim for medium to long term capital growth and would have an effective equity exposure (including international equity) between 40% and 65% at all times. These portfolios conform to legislation governing retirement portfolios, (Regulation 28 of the Pension Funds Act) and are thus suitable as investment vehicles for retirement portfolios. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolios mandate and stated investment objective and strategy.

Asset Allocation – Prudential High Equity portfolios - These portfolios invest in a spectrum of investments in the equity, bond, money, or property markets. These portfolios tend to have an increased probability of short term volatility, aim to maximise long term capital growth and would have an effective equity exposure (including international equity) above 60% at all times. These portfolios conform to legislation governing retirement portfolios, (Regulation 28 of the Pension Funds Act) and are thus suitable as investment vehicles for retirement portfolios. The underlying risk and return objectives of individual porfolios may vary as dictated by each portfolios mandate and stated investment objective and strategy.

Asset Allocation – Prudential Variable Equity portfolios - These portfolios invest in a spectrum of investments in the equity, bond, money, or property markets. These portfolios tend to have an increased probability of short term volatility, aim to maximise long term capital growth and would have an effective equity exposure (including international equity) between 0% and 75% at all times. These portfolios conform to legislation governing retirement portfolios, (Regulation 28 of the Pension Funds Act) and are thus suitable as investment vehicles for retirement portfolios. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolios mandate and stated investment objective and strategy

Asset Allocation – Flexible portfolios - These portfolios invest in a flexible combination of investments in the equity, bond, money and property markets. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolio’s mandate and stated investment objective and strategy. These portfolios are often aggressively managed with assets being shifted between the various markets and asset classes to reflect changing economic and market conditions to maximise total returns.

Domestic – Asset Allocation – Targeted Absolute and Real portfolios – These portfolios invest in a combination of equity, bond, money market, property or derivative instruments. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolios mandate and stated investment objective and strategy. These portfolios tend to display below average short-term volatility and are mandated to manage towards a predetermined, explicit benchmark. These portfolios may not conform to legislation governing retirement portfolios, (Regulation 28 of the Pension Funds Act) and do not necessarily offer capital or performance guarantees.

Fixed Interest Portfolios:

Fixed Interest Portfolios are collective investments that invest in bond, money market investments and other income earning securities.

Fixed Interest - Bond portfolios – These portfolios invest in bonds, fixed deposits and other interest-bearing securities. These portfolios may invest in short, intermediate and long-dated securities. The composition of the underlying investments is actively managed and will change over time to reflect the manager’s assessment of interest rate trends. These portfolios offer the potential for capital growth, together with a regular and high level of income.
Benchmark: BEASSA All Bond Index

Fixed Interest - Income portfolios – These portfolios invest in bonds, fixed deposits and other interest earning securities which have a fixed maturity date and either have a predetermined cash flow profile or are linked to benchmark yields, but excluding any equities. To provide relative capital stability, the average modified duration of the underlying assets is limited to a maximum of two years. These portfolios are less volatile and are characterised by a regular and high level of income.
Benchmark: BEASSA All Bond 1 to 3 year split Index

Fixed Interest - Money market portfolios - These portfolios seek to maximise interest income, preserve the portfolio’s capital and provide immediate liquidity. This is achieved by investing in money market instruments with a maturity of less than one year while the average maturity of the underlying assets may not exceed 90 days. The portfolios are typically characterised as short-term, highly liquid vehicles.
Benchmark: Money Market Index

Fixed Interest – Varied Specialist portfolios– These portfolios invests in bonds, fixed deposits, structured money market instruments, listed debentures and other high yielding securities, provided that not more than 5% may be invested in ordinary equities. They seek to maximise income with either preservation and stability of capital, or an offer of potential growth of capital. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolios mandate and stated investment objective and strategy. However, in terms of the investment mandates of these portfolios, they fall outside the existing sub-categories of the Fixed Interest sector. Should it be considered appropriate, where five or more portfolios have a similar focus, a new category will be created and the funds transferred.

Real Estate Portfolios:

Real Estate - General portfolios – These portfolios invest in listed property shares, collective investment schemes in property and property loan stock. The objective of these portfolios is to provide high levels of income and long-term capital appreciation. Due to liquidity constraints in the Real Estate sector on the exchange these portfolios must maintain a minimum effective exposure to real estate securities of 50% and may include other high yielding fixed interest and other securities from time to time.
Benchmark: FTSE/JSE SA Listed Property Index (J253T)

WORLDWIDE PORTFOLIOS

These are collective investments that invest in both South African and foreign markets. No minima are set for either domestic or foreign assets.

Equity Portfolios:

Equity portfolios are collective investments that invest predominantly in shares listed on stock exchanges. These portfolios invest a minimum of 75% of the market value of the portfolio in equities at all times and generally seek maximum capital appreciation as their primary goal. All equity investments must conform 100% to the defined investment requirement of each category.

Equity – General portfolios - These portfolios invest in selected shares from equity markets across the globe including South Africa. These portfolios will invest across countries and industry sectors as well as across the range of large, mid and smaller cap shares. These portfolios do not subscribe to a particular theme or investment style. The portfolios offer medium to long-term growth as their primary investment objective.
Benchmark: Morgan Stanley Capital World Index

Equity – Varied specialist portfolios - These portfolios invest in a single industry or sector or in companies that share a common theme or activity as defined in their respective mandates. These portfolios may invest in selected shares across all sectors. Should it be considered appropriate, where five or more portfolios focus on a common theme, a new category will be created and the portfolios transferred.

Equity – Technology sector portfolios - These portfolios seek capital appreciation by investing in companies whose principal business operations involve, or are expected to benefit from, changes in scientific or technological advances. These portfolios may be more volatile than funds that are diversified across many industry sectors.

Asset Allocation Portfolios:

Asset Allocation portfolios are portfolios that invest in a wide spread of investments in the equity, bond, money and property markets to maximise total returns (comprising capital and income growth) over the long term.

Asset Allocation – Flexible portfolios - These portfolios invest in a flexible combination of investments in the equity, bond, money, or property markets to maximise total returns over the long term. The portfolios have complete or stipulated limited flexibility in their asset allocation both between and within asset classes, countries and regions. No minimum or maximum holding applies to domestic or offshore investment. These portfolios are often aggressively managed with assets being shifted between the various markets and asset classes to reflect changing economic and market conditions to maximise total returns.

Fixed Interest Portfolios:

Fixed Interest Portfolios are collective investments that invest in bond, money market investments and other income earning securities.

Fixed Interest – Varied Specialist portfolios– These portfolios invests in bonds, fixed deposits, structured money market instruments, listed debentures and other high yielding securities. They seek to maximise income with either preservation and stability of capital, or an offer of potential growth of capital. The underlying risk and return objectives of individual portfolios may vary as dictated by each portfolios mandate and stated investment objective and strategy. However, in terms of the investment mandates of these portfolios, they fall outside the existing sub-categories of the Fixed Interest sector. Should it be considered appropriate, where five or more portfolios have a similar focus, a new category will be created and the funds transferred.

FOREIGN PORTFOLIOS

These are collective investment portfolios that invest at least 85% of their assets outside South Africa at all times.

Equity Portfolio:

Equity portfolios are collective investment portfolios that invest predominantly in shares listed on stock exchanges. These portfolios invest a minimum of 75% of Association of Collective Investments Code of Practice 20080916 Page 18 of 28 Fund Classification for South African Regulated CIS Portfolios the market value of the portfolio in equities at all times and generally seek maximum capital appreciation as their primary goal. All equity investments must conform 100% to the defined investment requirement of each category.

Equity – General portfolios - These portfolios invest in selected shares from equity markets across the globe. They do not subscribe to a particular theme or investment style and will be invested across all market sectors, as well as across the range of large, mid and smaller cap shares. The portfolios offer medium to long-term growth as their primary investment objective.
Benchmark: Morgan Stanley Capital World Index - (Total Return)

Equity – Varied specialist portfolios - These portfolios invest in a single industry or sector or in companies that share a common theme or activity as defined in their respective mandates. These portfolios may invest in selected shares across all sectors of stock exchanges. Should it be considered appropriate, where five or more portfolios focus on a particular theme a new category will be created and the funds transferred.

Asset Allocation Portfolios:

Asset Allocation portfolios are portfolios that invest in a wide spread of investments in the equity, bond, money and property markets to maximise total returns (comprising capital and income growth) over the long term.

Asset Allocation – Flexible portfolios - These portfolios invest in a flexible combination of investments in international equity, bond, money, or property markets to maximise total returns over the long term. The portfolios have complete or stipulated limited flexibility in their asset allocation both between and within asset classes, countries and regions. These portfolios are often aggressively managed with assets being shifted between the various markets and asset classes to reflect changing economic and market conditions to maximise total returns.

Fixed Interest Portfolios:

Fixed Interest portfolios are collective investments that invest in bond and money market investments and those which seek to maximise interest and rental income.

Fixed Interest - Bond portfolios – These portfolios invest in bonds, fixed deposits and other interest-bearing securities from markets around the world. These portfolios may invest in short; intermediate and long-dated securities. The composition of the underlying investments is actively managed and will change over time to reflect the manager’s assessment of interest rate trends. These portfolios offer the potential for capital growth, together with a regular and high level of income.

Fixed Interest – Varied specialist portfolios – These portfolios invest in bonds, fixed deposits and other high income-earning securities in international markets.