table of contents 4 13 18 23 26 28 finding the opportunities in innovation banking on innovation sustainable sustenance: the future of food driving innovation through esg solutions innovation in financial planning hindsight is 2020 vision 2

finding the opportunities in innovation chris potgieter, md: old mutual wealth trust company (private client securities |treasury and advisory services | fiduciary) 4

finding the opportunities in innovation technologies tend to develop in separate paths until they intersect, often in unexpected ways. at the intersection, they reinforce and enable one another in a way that leads to accelerated development and growth in applications. consider how netflix was able to grow its services and subscriber base so rapidly. while content is critical, it is not the only factor, as the physical infrastructure created during the tech boom of the early 2000s effectively enabled streaming – from the fibre networks that connect server farms to households to the processors and memory chips embedded in mobile and smart devices. it is often said that we live in an age of innovation, but innovation itself is not new and has been a constant feature of human development for centuries. as investors, the greatest opportunities lie in identifying industries and companies with sustainable and profitable growth paths. in this article, we outline a few key areas of innovation that we believe have the potential to disrupt existing industries over the next decade, leading to new demand curves as industries and consumers shift to capture the benefits offered by these innovations. 6 1. connected intelligence mobile phones have changed our lives in profound ways. with the computing power of room-sized computers of the 1970s in the palm of our hands, we are now able to communicate, calculate, navigate, organise our lives, monitor our health, access news and information, transact, capture perfect images, educate and entertain ourselves. yet, it is not just the hardware that enables this. it is the connectivity to the internet via an extensive global network infrastructure and the application software connected to the cloud. even more important is the fact that everyone is participating and making useful connections possible. this is called the network effect and its premise is simple – the more people and services that are connected to a network, the more valuable that network becomes to every participant. google maps is a form of connected intelligence as the navigation guidance provided is enabled by a combination of accurate maps and real-time geo- location and intelligence collected from all its users. the rise of the machines google maps can also be considered as a form of artificial intelligence (ai), which is often overhyped and, consequently, seen as a serious threat to human relevance. however, ai has a long way to go before it can replace human input on a large- scale basis. in the meantime, we will continue to reap the benefits of incremental development through applications that improve our lives. consider ai that can identify and anticipate potential threats, facilitate cross-cultural communication and interaction, improve education outcomes, perform mundane or repetitive tasks with high levels of acuity, and help us make more informed decisions or sharpen our skills and memory. this is not pie-in-the-sky and companies such as alphabet (which owns google), facebook (which owns a number of social media platforms), microsoft and amazon are all investing significantly in ai to solve problems and improve lives. by some accounts, china may already be leading the way as far as certain applications of ai are concerned – surveillance and threat identification being prime examples. ai is a good example of a new technology whose impact

finding the opportunities in innovation of batteries, which is seen as one of the biggest hurdles towards electrification of the transport system. china is setting an example with the increased electrification of their transport system and their investment into battery technologies and manufacturing. if regulatory approval of avs is granted, we could see a rapid shift towards on- demand autonomous evs owned by fleets, not individuals. individual vehicle ownership, especially of internal combustion engine vehicles, will then enter a vicious cycle of increasing costs, decreasing convenience and diminishing quality of service. while causing pain to traditional industries over the short term, the long-term benefits to society and the planet are worth it. 3. materials science in the world of materials science, it seems that the closer we look and the smaller we go, the bigger the world of possibilities becomes. furthermore, nature presents riches open to discovery and application in human life. for example, silk has been used for aeons in the manufacture of garments and parachutes. the first production of the material in china goes back 6000 years. while cotton mostly replaced silk during the industrial revolution, followed by nylon in the 20th century, silk fibres are now receiving renewed attention as structurally superior materials. in healthcare, silk’s strength, flexibility, conductivity, bio-compatibility and bio-degradability make it a contender for more effective drug delivery, wound dressings, bone reinforcement and even replacing tendons. industrial applications of silk include replacing kevlar in the weave in bullet-proof vests and steel in thin gauge high-tensile wires and sheaths. while viscose ryon has been used as an inexpensive artificial replacement for natural silk in garments, the other combined qualities of natural silk have not been replicated by chemistry. enter the world of nanomaterials. 8 in the world of materials science, it seems that the closer we look and the smaller we go, the bigger the world of possibilities becomes. the manufacture of nanomaterials such as graphene happens at the atomic scale whereas in chemistry it occurs at the larger molecular scale. this allows for the creation of materials with novel characteristics. while graphene surpasses the physical qualities of natural silk in all respects, except aesthetics, even this aspect is a target for innovation. the production methods and applications of nanomaterials are contributing to accelerated progress in other areas of technology. thanks to these advancements, and better energy management software for larger battery installations, lithium-ion batteries now have far greater energy densities (amount of energy stored per unit mass) and faster charging cycles than only a few years ago. yet, the potential for even greater energy densities and longer battery life exists when nanomaterials find their way directly to battery cathodes and/ or anodes. this will have major and positive implications for alternative energy sources and electrification of transportation. as our ability to manipulate a vast array of materials at the atomic and molecular level continues to improve, production will become easier and more cost effective, spurring new applications across many industries in the next decade.

finding the opportunities in innovation 5. food technology when neil armstrong set foot on the moon just over 50 years ago, the population on earth was less than half of the current 7.7 billion. the animal population, however, was double what it is today and this decline is largely as a result of our food system. currently, we rely on nine plants for two-thirds of food production; 40% of arable land has been depleted because we have compromised natural regeneration to restore soil health and diversity in our fields; and the united nations estimates that 1.3 billion tons of food are lost or wasted annually, equating to roughly one-third of global food production. fertiliser and pesticide run-off has contaminated rivers and oceans. freshwater use for food production stands at 70% of available resources. water use has tripled since the 1950s and demand continues to soar. under current trends, demand for water will exceed supply by 40% in 2030. the global population is set to increase by one billion over the next decade and reach nearly 10 billion by 2050, while calorie intake per person is set to increase as middle classes expand and starvation is addressed (today between 800 million and 1 billion people are starving). food production will have to increase by nearly 50% by 2050 to keep pace with demand growth. all of this has to happen while the climate is changing in ways that will limit our ability to produce food by traditional means. necessity is the mother of invention in the early 1800s, british economist thomas malthus warned that the earth could not feed any more people. however, he missed the contribution of two key technological advancements: the production of fertilisers and steam- powered transportation. today, precision farming and precision biology hold the promise to revolutionise food production. precision farming refers to how new technologies are used to increase productivity in food production. advances include networked environment sensors, satellite and drone imaging, precision application of fertilisers and pesticides, precision irrigation, and the iot, which brings it all together. animal health is also advancing with improved 10 medicines and vaccinations. innovative companies to watch include zoetis, novozymes, xylem, trimble and deere & co. there is also increased recognition that, apart from grain farming, open field farming is suboptimal in most cases and that farming within a controlled environment – such a greenhouse or using crop covers – yields superior results. one does not need a lot of land to produce food. holland is about the size of the kruger park but is the world’s second largest exporter of agricultural products. as a case in point, dutch farmers are achieving double the yield on potatoes (20 tons vs nine tons per acre) with 10% of the water compared to open field farming. vertical farms and hydroponics may appear to be some way from making a material impact, but the enabling technologies, such as energy-efficient spectra-specific led lighting, are developing rapidly and will find application in many areas of food production to increase efficiency and yields. precision biology relates not just to the well-known (and contentious) genetic modifications to plants and animals, but also to the application of micro- organisms in novel ways to support plant and animal health and growth. related to this, and with the potential to fundamentally disrupt the way protein is produced and consumed, are the technologies employed by companies such as beyond meat and impossible foods to emulate the qualities of animal protein through plant-based or lab-grown alternatives. precision fermentation is another related process that allows us to program micro-organisms to produce almost any complex organic molecule, including proteins. notably, precision fermentation has already replaced the production of many important proteins including insulin and milk

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banking on innovation the struggle to remain relevant innovation within the banking sector is certainly not new, as there have been notable advances over the last century. consider the countless novel financial products currently available or technology that was transformative in its day: wired money transfers, automated teller machines (atms) and bankcards – all of which have made our lives more convenient. however, despite these advances, there is a strong sense that traditional banking is somewhat broken and ripe for disruption. this is regularly confirmed by numerous surveys highlighting banking customers’ main gripes such as system downtimes, onerous paperwork, and long queues in branches and on customer care hotlines. according to analytics and advisory firm gallup, only 30% of americans have high confidence in their bank – a number that has not improved much since 2008. from the banks’ perspective, operating post the global financial crisis has been challenging, perhaps more so than for any other industry. over the decade, unspectacular economic growth and persistently low (or negative) interest rates have resulted in muted revenue growth for the sector. on the cost side, ever-increasing regulatory burdens i.e. compliance and higher capital requirements have capped profitability at below pre- crisis levels in most regions. faced with these headwinds, management teams have focused extensively on cost discipline, and cuts in the number of branches and employees have been the most visible consequences. a digital challenge in contrast, banks have universally been allocating more funds to their it budgets, thereby accelerating the shift from physical to digital delivery of banking services. in the us, for example, the banking sector now spends more on technology than any other industry – approximately us$150 billion annually. locally, each of the big four banks (firstrand, standard bank, absa and nedbank) have steadily increased their annual it expenditure over the last five years, with it now making up an average of 21% of total expenses versus the global average of 18%. while a portion of this expenditure is to maintain the banks’ current it systems, a growing share is to better position them against the fierce competition that has emerged from the banking sector’s newcomers – challenger banks1. graph 1: european banks’ full-time employees forecast +11% -16% base - 23% bull - 45% 3,600 3,200 2,800 2,400 2,000 1,600 1,200 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 e 0 3 0 2 source: ecb, citi research graph 2: us number of branches branches per 1,000 households s e h c n a r b f o r e b m u n 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 number of branches biggest decline in history 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 0 5 9 1 6 5 9 1 2 6 9 1 8 6 9 1 4 7 9 1 0 8 9 1 6 8 9 1 2 9 9 1 8 9 9 1 4 0 0 2 0 1 0 2 6 1 0 2 e 2 2 0 2 e 8 2 0 2 source: wells fargo graph 3: it expenditure for south african banks rand million 20 000 16 000 12 000 8 000 4 000 fy14 fy15 fy16 fy17 fy18 nedbank firstrand absa standard source: jp morgan 1 a challenger bank refers to new competitors in the banking sector with a model that primarily uses technology and digital channels to deliver a better digital experience. 14

banking on innovation five minutes with no documentation to open a new account at tyme kiosks, which can be found in pick n pay stores nationwide. this is an impressive feat given the rigorous sa fica requirements. tymebank uses biometrics linked to the department of home affairs to authenticate applicants’ particulars. importantly for our local market, the bank offers high interest rates on savings and transactions are either at no cost or notably lower than those of competitors. given that competitor local banks have lowered their bank charges in response to tymebank’s growing client numbers, it is evident that the new entrants are disrupting the status quo. tymebank’s immediate plans include venturing into personal loans, a segment of the market that continues to experience high growth within the country. the bank will get basket data from pick n pay that will feed into its credit granting process and allow for real-time risk-based pricing. the eventual goal is for loan disbursements to be completed within two minutes, a high benchmark for traditional banks to match. management believe that the bank can break even with three million clients, which is expected by 2022. discovery bank, the banking arm of discovery limited, poses a threat to legacy banks’ upper income customer base. discovery’s intention is to be a multiproduct behavioural bank that links rewards, savings and lending rates directly to a clients’ financial habits. the group already has about three hundred thousand credit card holders and over three million health insurance members. much of the bank’s early success will rely on the extent to which it is able to convert these insurance and credit card customers to bank clients. initial migration has been slow, largely due to the bank on-boarding a limited number of clients a day – an indication of the complexity in scaling its innovative rewards framework across multiple sectors. embracing the digital age today, tomorrow, together in response to the changing dynamics within the sector, traditional banks around the globe have been spending significantly on technology to improve their customer experience and increase their efficiency (i.e. lower costs and higher profitability). bank of america, the us’s second largest bank, is widely regarded as one of the most digitally savvy banks. in 2018, the bank received more patents than any other competitor and more blockchain patents than any other company, globally. in the most recent financial year, more than a third of mortgages and half of client direct loans were originated through the bank’s mobile app or website. furthermore, 27% of total deposits were completed via the mobile app, i.e. scanning a cheque using the bank’s app. the number of cheques written by its customers has declined by 40% to about 600 million in five years and the saving has been enormous. it costs the bank us$5 to process a cheque within a physical branch, us$0.50 at an atm and us$0.05 via the mobile app. despite these commendable exploits, there is a limit to how much traditional banks can do relative to new entrants. the critical inhibitor is often their core banking technology infrastructure, which was built decades ago and tends to operate in product silos. a simple example of this is when clients update their personal details on their cheque account at a local bank branch but the update does not filter through to their mortgage account. this partly explains why manual intervention by branch staff tends to be high, which slows down the system’s operating speed and increases costs and downtime – all the while frustrating the queuing clients. making core system overhauls is too risky and almost impossible without any downtime, which is why most legacy banks will have to be content with gradual improvements to their clients’ digital experience. interestingly, some incumbents have opted to set up their own challenger banks that operate on different technology stacks and are therefore better positioned to compete with start-ups. marcus by goldman sachs, hello bank by bnp paribas and ing-diba are a few examples. in every aspect, these are challenger banks, but they have the advantage of being funded by the mammoth balance sheet of a traditional bank. nevertheless, this does not necessarily guarantee success, particularly if customers fail to see the new bank’s key differentiator. as a case in point, jp morgan recently closed its no-fee digital service, finn, which targeted millennials. the reasons cited for finn’s failure included slow customer uptake and little differentiation between the services it offered and what its parent company was pursuing on the digital front. simpler, better, faster? just a decade ago, global banks were solely focused on how they would recover from the depths of the global financial crisis. today, how they compete against new entrants and innovate their legacy businesses to meet their clients’ rising expectations is the key focus. while reducing costs to streamline operations is always laudable, the old adage “you can’t cost-cut your way to prosperity” comes to mind. in our view, innovative banks that strategically position their business models to compete with new sector entrants will be the winners over the next decade. 16

sustainable sustenance: the future of food sameer singh, research analyst: old mutual wealth private client securities the human population has doubled in under 50 years, the percentage of people living in extreme poverty has declined from 42% to 10% over the same period, and global gdp per capita has grown from us$871 to us$11 3121. while a confluence of factors have contributed to these key strides, technological and scientific progress in the field of food production stand out. 1 world bank data, 2020 18

sustainable sustenance: the future of food a vicious cycle the main source of agricultural growth has changed from the intensification of inputs (using more labour, capital, and materials per acre of land) to getting more output from existing inputs. in this way, agricultural productivity drove growth and improvements across societies on a global scale. as a result of higher yields per crop and increased food security, societies saw increased population growth, greater life expectancy, higher labour productivity owing to the shift from the agricultural sector to the non-agricultural sector, and greater disposal income due to lower food prices. while we have much to be grateful for thanks to the industrialisation of agriculture, it is becoming evident that the benefits are giving rise to the malthusian trap2 i.e. as our populations continue to grow, urbanise and gain greater purchasing power, our needs and demands move in lockstep, with the requirement for sustenance being most critical. this is already manifesting itself as an interwoven collection of environmental and health-related complications that potentially threaten the future viability of humankind and the world. according to the world economic forum’s 2020 global risks report, the top long-term risks all concern severe threats to our climate. the report lists biodiversity loss, climate action failure, extreme weather, human-made environmental disasters and natural disasters as being the most likely to materialise and having the greatest impact. of these long-term risks, four can point to agriculture as a significant contributing factor. this is critical considering the negative feedback graph 1: world agricultural total factor productivity 195 175 155 135 115 95 1 6 9 1 3 6 9 1 5 6 9 1 7 6 9 1 9 6 9 1 1 7 9 1 3 7 9 1 5 7 9 1 7 7 9 1 9 7 9 1 1 8 9 1 3 8 9 1 5 8 9 1 7 8 9 1 1 9 9 1 3 9 9 1 5 9 9 1 7 9 9 1 9 9 9 1 1 0 0 2 3 0 0 2 5 0 0 2 7 0 0 2 9 0 0 2 1 1 0 2 3 1 0 2 5 1 0 2 source: us department of agriculture graph 2: lower food prices how much food can you buy for working one hour in the manufacturing sector? 12% 10% 8% 6% 4% 2% 0% eggs (1 dozen) flour (5 lbs) milk (1/2 gallon) butter (1 lb) pork chops (1 lb) bacon (1 lb) round steak (1 lb) 1901 1920 1940 1960 1980 2003 source: us bureau of labour statistics (2015) loop where climate change will affect every aspect of food production3. we are at a crossroads where the current methods and trajectory are not sustainable, particularly in the context of 10 billion people on earth by 2050. however, just as in the past, innovations in food production are opening new possibilities and opportunities and are finding solutions that, if promoted and institutionalised, could transform the way we consume. introducing meat 2.0 without a doubt, the hottest property in the field of food innovation is alternative protein, i.e. any protein that replaces farmed animal proteins such as beef, chicken, pork and lamb. the rationale is obvious: agriculture accounts for 24% of total greenhouse gas emissions and contributes even more to climate change when considering land and water usage. 2 the malthusian trap or population trap is a condition whereby excess population would stop growing due to shortage of food supply leading to starvation. it is named after thomas robert malthus, who in 1798 suggested that while technological advances could increase a society's supply of resources, such as food, and thereby improve the standard of living, the resource abundance would enable population growth, which would eventually bring the per capita supply of resources back to its original level. 3 the future of food and agriculture: trends and challenges. food and agriculture organisation of the united nations 20

sustainable sustenance: the future of food security around the world, and will continue to gain prominence as populations and nutritional demands grow. as consumers demand higher performance and greater quality from food purchases. related to bio-fortification is microbial research applied to farming. while medical microbes have been mainstream for a while (e.g. the use of synthetic probiotics to help people with stomach disorders or the prescription of yoghurt to replenish good bacteria in the human gut), agricultural microbes are increasingly being seen as the new gold rush in this sector. at the cutting edge are investigations into how the intricate connections between bacteria and plants could make farming more sustainable. the key here is to replace decades-old use of chemicals with safe, natural communities of microbes that help crops grow in difficult environments. researchers from converte, an australian agri-company leading in this space, believe this market could be worth as much as the current chemical pesticide market. it is therefore unsurprising that companies like bayer are spending on research in this field too. companies involved with food flavours and ingredients are increasingly beginning to leverage microbial research. while these players are mainly unseen, they are critical in the food value chain as they work with producers to ensure that our favourite meals or drinks look, taste and smell the way we like and expect. kerry group is at the forefront of food research, offering clients innovative applications like cell nutrition, microbial systems, food fortification, yeast extracts and specialty enzymes. other companies, like synthetic biology start-up gingko bioworks, use data analytics to discover and create new organisms for use in food production and agriculture. currently a us$25 billion market, the sector is expected to see significant growth optimising the value chain as the world continues to digitise, not even the traditional farm is immune from its influence – enter agritech or agtech. agritech is the application of the latest technologies to improve the efficiency and output of agriculture. while innovations like lab-grown meat and the impossible burger could be considered products of agritech, it is more commonly associated with incorporating technology into existing methods of production. in this form, it encompasses water and soil analytics using internet of things devices, advanced machinery including drones to monitor crops and connected robots for picking, and grocery supply chain management for quality and safety tracking. many of these innovations are already mainstream while some are currently being tested. an evolving example is the ibm food trust, a first-of-its-kind blockchain- connected ecosystem of producers, suppliers, manufacturers, retailers and other supply chain participants. by collecting various data through the supply chain, permanently etching it into the blockchain (essentially codifying and then encrypting it) and finally sharing it across all participants, transparency and traceability throughout is achieved. this enables businesses to realise supply chain efficiencies, institute better waste management, more intensively monitor food safety and promote a brand’s reputation, among other potential benefits. it is not too far off where, as with organic produce, blockchain-verified ethically sourced produce will carry a higher mark-up to standard goods. partners who are already part of the ibm food trust include walmart, albertsons companies, carrefour, s-group and nestlé. a form of agritech that will seamlessly integrate with the blockchain is vertical farming. inspired by rooftop gardens, vertical farms encompass towers of farms, with each level of the tower housing future produce. they typically fall into one of two categories: hydroponics (where plants are grown in nutrient-rich water), or aeroponics (with roots exposed and sprayed with nutrient-rich mist). neither method uses soil and both tend to rely on artificial lighting where sunlight is not optimal. additionally, hydroponics can be combined with aquaculture (fish farming) to create a system where fish excrement is used to fertilise plants. vertical farms have meaningful advantages over traditional agriculture, as land use is minimised (old buildings close to urban nodes suit this well), perennial farming is possible, and the need for chemicals and pesticides is negated. further innovation is taking place in japan where spread, a vertical farming company, is including robotics to create a self-managing indoor farm that can compete on cost with traditional farming. an appetite for innovation from eating insects to farms in buildings and everything in between, the progression witnessed across the food innovation landscape are not passing fads but necessities that will inevitably form a part of our future consumption habits. by leveraging science and technology, humans are once again empowered to rewrite the narrative towards a healthier, sustainable and more food secure world. 22

driving innovation through esg solutions professional service par billionaires have become signatories of the united nations-backed principles for responsible investment (pri). since then, esg has evolved and moved from the sidelines to the forefront of decision-making for asset managers and institutional investors. increasingly, esg considerations are being integrated into investment mandates, requiring careful consideration of these risks when making investment and stewardship decisions. in addition, globally, consumers are becoming increasingly aware of the impact of runaway climate change, resource depletion and pollution on planetary well-being. this has led to an escalation in demand for more sustainable goods and services from companies, including investment products. our approach to responsible investing at old mutual investment group, our approach to responsible investment is motivated by a clear understanding that esg issues can and do impact returns. we fully embrace the fiduciary duty we have towards our clients to address these issues and, importantly, we are driven by a belief that it’s both the right and smart thing to do. we began the journey in 2010 and focus on two priority areas: 1. deepening our esg research and integration practices. 2. focusing our capabilities on investment solutions that address long-term sustainability issues (for example, renewable energy, education, esg indices). harnessing esg data in listed equity leveraging both quantitative and qualitative insights means that we can stay on top of esg issues as they arise in the listed markets. we have been an active consumer of esg data since 2011 and have developed our own proprietary esg risk scoring approach that allows us to quantitatively screen for high risk companies. we use the esg score to direct our qualitative esg research across our fundamental equity strategies. listed equity stewardship another important component of our responsible investment commitment is our listed equity stewardship programme, which cuts across some r300 billion of client holdings. in july 2018, we set out a clear position concerning our expectations of listed companies in relation to ethical leadership, tackling transformation and integrating esg issues into their long-term business strategies. our position was communicated in an open letter to the ceos of the largest listed companies in south africa and is continuously being supported by direct engagements. driving green growth through alternatives across old mutual alternative investments (omai), old mutual specialised finance and futuregrowth – all part of old mutual investment group – we manage approximately r122 billion of our clients’ capital in green economy investments, both debt and equity. these businesses are a constructive voice across a range of national interest issues such as renewable energy, land reform and governance at state-owned entities. across omai, we further enhanced our esg integration practices by investing in additional specialist skills, and through investments in the systems to track and report 24

innovation in financial planning ferdi booysen, head of client solutions at old mutual wealth the new integrated wealth planning (iwp) tool advances in technology and the rise of artificial intelligence (ai) had a significant impact on the wealth management industry. almost a decade after the first robo-advisers emerged and fears increased around advisers being replaced by robots, we seem to finally have an answer. it is clear that humans need to use technology to optimise wealth services but robots will not replace the role of the planner. old mutual wealth’s integrated wealth planning (iwp) tool, launched in 2011, has taken integrated financial planning to the next level. this tool shows clients how their decisions and all the different elements in their financial plan could impact their financial well-being. equipped with the latest technological developments, it recently had a revamp to make it even simpler and easier to model different financial planning trade-offs and conversations live with clients. this can be done at the office on a big screen or on your tablet while having coffee with a client. clients and planners can see the impact of their decisions in real time. wealth management is underpinned by lifestyle the traditional approach to financial planning has been under a lot of scrutiny in recent years. while it can be 26

hindsight is 2020 vision izak odendaal, investment strategist: old mutual multi-managers when asked to write an outlook for 2020, i couldn’t resist the pun in the title. still, it does highlight a key problem with investing: the future is always uncertain and unknowable. but with hindsight, everything is always obvious. we are bound to be surprised in 2020, just as we were last year and the years before. building an investment case on a forecast is risky. therefore, your investment approach should be focused on making sure your portfolio is appropriately diversified so that no outcome can cause material damage to it. in other words, don’t keep all your eggs in one basket! also, do not overreact when things don’t go according to script, and when the headlines cause your pulse to race. remember, newspapers are in the business of selling copies, not giving investment advice. with that said, here are five things that i’ll be paying close attention to in 2020: budget 2020 south africa is on a slippery slope as far as government’s finances are concerned. government is still 28 borrowing too much. the october 2019 mini-budget revealed that because of a weak economy and eskom bail-outs, the pace of borrowing is increasing and not decreasing. high interest rates are causing government's interest bill to skyrocket, thus crowding out other spending areas. the february 2020 budget is expected to contain some measures to limit the increase in government borrowing, but will it be enough? failure to stabilise government debt will almost certainly lead to credit ratings downgrades, and this is clearly what is priced into the local bond market. ultimately, the solution is faster economic growth, which will increase government’s tax revenue without the need to hike tax rates. long-awaited economic recovery therefore, the second key issue is whether the economy will pick up some speed. most economists only expect growth of between 1% and 1.5% in 2020, but this would represent a substantial increase from around 0.5% in 2019. the bigger question is whether government will push ahead with reforms to make it easier and cheaper to do business in south africa, and how quickly these reforms gain traction. during 2019, many steps have already been taken. but there is still much to be done, while uncertainty remains around some of the more controversial policy ideas (such as land expropriation). a common refrain among a surprisingly broad front of south africans is that confidence among ceos, investors and ordinary folks alike will only pick up once there are prosecutions of those involved in state capture. this might be overstating things, but there is no doubt that it is a key step to restoring trust between government and the people. rate cuts one thing that will help local growth is lower interest rates. the sa reserve bank’s repo rate at 6.25% (last cut on 16 january 2020, from 6.5%) is much higher than inflation of around 4%. this amounts to a "real" interest rate of almost 2%. it’s important to note that you and i don’t borrow at the repo rate, but the prime rate, which is even higher. the official reason for the high interest rates is to get south africans to permanently lower expectations of future inflation to

the authors chris potgieter md: old mutual wealth trust company chris joined old mutual wealth at inception and was responsible for establishing old mutual wealth private client securities (pcs). he also heads up our treasury and advisory services and fiduciary capabilities. chris is passionate about investments and is a lead portfolio manager of the pcs global equity portfolio. he has over 20 years of experience in the financial services industry and fulfilled senior and diverse roles within a number of investment businesses. chris is a cfa charterholder, fellow of the association of chartered certified accountants (uk) and holds a bachelor of mechanical engineering (cum laude) from the university of stellenbosch and an mba (cum laude) from the university of stellenbosch business school. victor mupunga research analyst private client securities victor joined pcs in 2016 and was previously employed as an investment analyst at maestro investment management, where in addition to equity research, he was responsible for managing a number of private client equity portfolios on a discretionary basis and managing the client relationships. prior to that, he was a fund accountant at investment data services where he prepared and reviewed valuations and accounting records of hedge funds. victor graduated from the university of cape town with a bachelor of business science (hons) in finance in 2007. he is also a cfa charterholder. sameer singh research analyst private client securities sameer joined pcs in march 2016 and was previously employed as an investment analyst at old mutual multi-managers where he was responsible for absolute return and fixed interest asset class and asset manager research. prior to that, he was a trainee investment analyst at sym|metry multi-managers. sameer holds a bachelor of commerce degree in business management from unisa. jon duncan head of responsible investment jon heads up the sustainability research and engagement function at omig where he is involved in industry esg research, the analysis of green growth opportunities and engagement on regulatory issues and local industry initiatives, such as the code for responsible investing south africa (crisa). he also leads the responsible investment programme at old mutual. this programme is focused on driving the systematic integration of material environmental, social and corporate governance (esg) issues across the group’s c£380 billion of funds under management. ferdi booysen head of client solutions ferdi oversees client solutions pulling together all elements of the customer value proposition (advice, implementation, product, fund and platform) that we take to market through financial planners. prior to this role, he was head of strategic relationships. ferdi was head of fairbairn capital, one of several businesses to become part of old mutual wealth in 2012. before that, he headed up greenlight, old mutual’s retail risk product range, and has held actuarial positions in retail finance and group assurance. he was appointed as a marketing actuary in retail product management in 2007, where he headed up research on retail investment and risk products.. ferdi is a qualified actuary and certified financial planner®. izak odendaal investment strategist: old mutual multi- managers izak started his career at old mutual in cape town as an intern in the strategy team, before joining old mutual corporate's business intelligence unit. he later became an investment analyst for fairbairn capital and when that business was absorbed into old mutual wealth in 2013, he joined old mutual multi-managers as investment strategist. in this role, he is responsible for economic research and investment analysis that feeds into the tactical asset allocation process. izak holds an mphil in politics, philosophy and economics from the university of cape town. he writes regular commentary on investment-related matters for clients and advisers, and is frequently quoted in the media. 30

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