The South African equity market performed well in March with the FTSE/JSE Shareholder Weighted Index (including dividends) returning 2.2%. The Sanlam Select Flexible Equity Fund returned 1.3% over the period, with the 10% Naspers restriction (the NPN share price rose by 10.6% in March) being the greatest detractor (-0.8%) from performance versus the index. Excluding the weighting limitations, the Fund would have performed in line with the market. A relatively positive month for local markets was rattled at month end as Jacob Zuma implemented a rather unpopular Cabinet reshuffle. The 5% stronger rand through March reversed sharply on the news to end the month down 2.2%, resulting in some late gains in rand hedges namely Naspers, British American Tobacco, Reinet and Anheuser Busch. The US S&P index traded flat in March despite Donald Trump..s health policy being rejected, putting in doubt future tax reforms on which Trump's election campaign was built. A revision of Q4 growth showed the US economy was actually growing faster than initially estimated, which resulted in the dollar rebounding at month end clawing back half its losses earlier in the month. The main contributors to performance in March were: '

ØNaspers ....Naspers performed well in March despite what the market deemed lacklustre Tencent results. Since the rand weakened on the cabinet reshuffle, Naspers has moved a further leg up and remains a core holding in our portfolio given the significant upside in Tencent..s ability to monetise its client base and products.
ØSappi ....The market continues to recognise the ever transforming Sappi business. Sappi..s rand hedge characteristics served it well when the rand declined at month end resulting in Sappi increasing 11.3% in March. We have maintained our Sappi holding and continue to see the stock gaining further traction in a favourable weaker rand environment.
ØDiscovery ....Post Discovery..s results we..ve seen the stock continue to rally as the market gets greater sight of its blue sky potential in Ping An Health. Discovery gave back some of those gains at the cabinet reshuffle, which saw a sell-off of all financial assets in South Africa.

The main detractors from performance for March were:

ØNaspers Stub ....Despite the strong Naspers share price it has not been able to outperform the rand value of its Tencent holding. We believe the Naspers rump holds significant value and is likely to unwind its discount to its Tencent holding.
ØSteinhoff ....Steinhoff continued to trade backwards with the stronger rand working against its earnings momentum. Additionally, sales data out of France disappointed in Q1, and France is a key market for Steinhoff's European footprint. Steinhoff remains a core holding and will likely benefit from the weaker rand post the cabinet reshuffle and rating downgrade. ØNetcare ....Netcare provided a trading update significantly below market expectation, pointing to earnings reversing 10% year-on-year. This was an unexpected outcome with the market pricing in single digit growth in the first half of 2017. We have since exited our position as the general healthcare space look unexciting with structural headwinds ahead.

Looking ahead, we expect local political instability to create a volatile trading environment in the next month and expect further movements within the ANC as Cyril Ramaphosa and others in leadership positions within the ANC stand up against Jacob Zuma. The S&P downgrade will likely continue to favour the rand hedge stocks, which we chose strategically