The Nedgroup Investments Entrepreneur Fund had a another reasonable month in August 2017 appreciating by 2.4% in comparison with its benchmarks, the JSE Mid-Cap Index up 4.5% and the JSE Small Cap Indices +2.1%.

Primary contributors to the fund’s performance in the month were Supergroup (solid results especially from separately listed Australian fleet leasing business), Italtile (eventually received Competition Commission approval for acquisition of Ceramic Industries minorities), Barloworld (encouraging news of accelerating activity in DRC where associate has been loss making) and KAP (another set of very encouraging financial results and a positive outlook communicated).

The fund’s under-performance against one of its benchmarks - the JSE Mid-Cap Index - over the last two months is primarily attributable to our tobacco exposure which has under-performed in the short term for reasons discussed last month; as well as zero exposure to gold shares, notably Sibanye and Gold Fields, which are heavy weightings in that benchmark. We do not see any value in these highly unpredictable, risky and difficult to manage businesses which are unlikely to ever be included in the fund and as a result we caution investors against drawing investment conclusions based on the short-term relative performance of the fund against this benchmark.

As we look to the future we note the recent very weak trading updates from Pioneer Foods (not owned), Rhodes Food (not owned) and Oceana Fishing (2.3% position) as a guide to just how tough things are for the South African consumer. While each of these companies have specific problems varying from currency translation effects, poor raw material acquisition decisions, management changes and weak commodity prices which have had an impact on the poor trading performance, we also read that a very weak consumer demand environment even for basic foodstuffs is a guide to just how much pressure the local consumer is currently experiencing. This continues to inform our South African consumer exposure in the fund which remains very limited.

As at the end of August 2017 the Nedgroup Investments Entrepreneur Fund’s weighted Price to Earnings, dividend yield and Price to Book ratios were 12.4X, 3.1% and 1.9X respectively.

Abax Investments


As we look back on 2016, the scoreboard reflects the following:

- JSE All Share Index +1.0%
- JSE Mid-cap Index +27.5%
- JSE Small-cap Index +21.0%
- Nedgroup Investments Entrepreneur Fund +8.4%

We have discussed the reasons for the fund's underperformance against its most logical benchmark indices at length during the course of 2016, which for
the sake of completeness was largely due to:

- a very underweight exposure to gold and platinum producers in the first half of the year; and

- a relatively overweight exposure to select rand hedges which (although in the most part had a very successful financial year) were undermined by the strength of the rand off the very weak base of December 2015 following the shock removal of the then Finance Minister by President Jacob Zuma.

As we look ahead to 2017, we do so without a great deal of optimism. Economic growth in South Africa remains weak, albeit expected to be slightly stronger than 2016. Government policies are not supportive of growth and political surprises motivated by self-interest remain a high risk and will be keenly felt by our currency. Despite the confident promises and bluster of Donald Trump, what will actually be delivered remains to be seen and the UK and Europe are likely to remain mired in their own problems for the year.

We continue to worry about the sustainability of the stimulus that has been applied to the Chinese economy in the desire to maintain economic growth. In the context of the above we remain focused on finding and building meaningful positions in businesses driven by competent, shareholder return-minded management that are reasonably priced and in which we have a high degree of confidence in their ability to grow notwithstanding the economic circumstances. We believe all the fund's larger positions all reflect these characteristics and welcome investor interest to discuss any of these in more detail.

As at the end of December 2016 the Nedgroup Investments Entrepreneur Fund's weighted Price to Earnings, dividend yield and Price to Book ratios were
11.2X, 3.8% and 1.9X respectively.