MARKET OVERVIEW

The JSE All Share index shed 6% in rand terms during Q1 2018. The best-performing sectors were Oil & Gas (+0.0%), Industrials (-1.7%), and Health Care (-1.9%). The worst performing sectors were Technology (-30.5%), Consumer Services (-10.3%) and Consumer Goods (-7.5%). During the period the rand gained 4.2% against the US dollar.

THE NEDGROUP INVESTMENTS PRIVATE WEALTH EQUITY FUND Q1 2018: +0.81% RELATIVE TO BENCHMARK

The Fund outperformed its Swix40 index benchmark by 0.81% in the first quarter. Positive contributors for the quarter included Naspers, Steinhoff Africa Retail and software group, Adapt IT. The Fund's performance benefited from an underweight position in Naspers. Naspers constitutes in excess of 25% of the Swix40 index. Detractors for the period included the Fund's positions in IT services group, EOH Holdings, education group, Curro and investment holding company, Reinet.

PORTFOLIO ACTION UNDERTAKEN DURING THE PERIOD: REDUCED SA INC. POSITIONS IN RESPONSE TO RAMAPHOSA RALLY

In response to a resurgent rand and moderating domestic interest rate expectations, a broad basket of SA Inc. stocks posted a strong rally over the period. The Fund took the opportunity to reduce certain positions in response to this "Ramaphosa rally". Examples of positions reduced included The Foshini Group, Bidvest, and RMH Holdings.

Focus areas in the Fund: EOH announced a particularly weak trading statement during the period for the six months ending 31 January 2018. The interim performance reflected the knock-on financial consequences of the 2017 news flow relating to unfounded adverse media coverage. Going forward, EOH will now need to rebuild market confidence which will require evidence of a return to business as usual. In addition, an internal restructuring exercise is also underway in a bid to enhance transparency and efficiency within the Group.

Reinet also remained under pressure during the quarter which reflected the performance of its largest investment, British American Tobacco (BAT). The tobacco industry has entered what has been dubbed "the FDA bear market". The US Food and Drug Administration (FDA) has recently adopted a more proactive strategy in a bid to discourage the appeal of smoking. In particular, the FDA is targeting a reduction in flavours, menthol and nicotine levels in cigarettes and has embarked on a process of public consultation. The market has adopted a cautious stance and BAT has in turn de-rated to a low teens multiple and a dividend yield approaching 5%.