PAGE 1

We are pleased to present 10X’s 2016 Annual Investment Review, our ninth.

What a year 2016 was. Financially, politically, and even on the sports field, it was an energy- sapping experience for those following every news article, blog and social media post. As long-term investors, it’s best not to get too caught up in the daily, weekly and even quarterly financial noise. As you know, we avoid predicting the short-term, preferring to focus on the longer-term where we can reliably add value to our clients’ wealth.

Moderating portfolio returns from a strong Rand!

All six 10X portfolios delivered modest but positive returns in 2016, ranging from 2% for High Equity to 6,2% for Defensive. For the first time since the Global Financial Crisis (2008), our portfolios delivered returns below inflation. The key culprit driving lower returns was a strong Rand, gaining 11% on the US Dollar. This reduced returns from international assets and the JSE that is dominated by Rand hedges.

Despite lower returns, our growth portfolios are still delivering strong longer term returns, beating inflation by 7,8% and 7,7% pa over the past 5 and 7 years. It is important to bear this in mind. Despite the periodic market upheaval and sentiment

shocks, the stock market remains the optimal way to grow wealth long term, but only if you stay the course and pay low fees. Warren Buffett reiterated these investment principles at his 2016 AGM, saying, "Don’t pay for investment advice, buy a low-cost index fund instead. The basic idea is that while there are some people who might be good investors, there’s no way to identify them. So don’t even bother."

Competitive returns

10X continues to deliver competitive returns versus the large retirement fund managers, before and after taking our lower fees into account. 10X has beaten the average Large Manager return at a compound rate of 1,8% pa since January 2008 (assuming a conservative fee differential of 1% pa), a 15% outperformance simply by owning the market at low cost. Over 40 years, this would increase your final pension by almost 60%.

Industry recognition awards 10X won several accolades in 2016 recognizing the value of our unique business model. We were particularly thrilled to win the “Investment Practice” category at the 2016 Institute of Retirement Funds Africa (IRFA) Industry Awards. What makes this award extra special is that we are the only local investment company to offer just a single investment strategy –

FEBRUARY 2017

“Despite the periodic market

upheaval and sentiment shocks, the stock market

remains the optimal way to

grow wealth long term, but only if you stay the

course and pay low fees.”

Steven Nathan

LETTER FROM THE CEO

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over 90% of our clients are invested in the 10X High Equity portfolio. Our competitors offer many different and competing strategies. In this way they can always showcase a top performing fund, even if most clients are invested in other, usually underperforming, funds.

We also won the Batseta Technology Provider of the Year award for the second year running, for the quality of our reporting and retirement planning tools and the PwC Vision to Reality Award Africa for innovative companies solving important problems. Feedspot listed 10X among the top 100 investment blogs WORLDWIDE, based on Google analytics and social media. We were ranked 32, the only South African website to break into the top 50, underlining our commitment to relevant financial education and reliable planning tools.

Thank you for your trust in us

We welcome these independent validations of our business model, but even more so our new clients who have joined in 2016. Overall, the retirement fund industry has had another year of net cash outflows, but 10X’s assets and clients grew strongly. 10X’s simple investment solution, based upon time-driven portfolios and index funds is fast becoming the global standard, while investing in expensive active funds is being questioned more and more. We continue to invest substantially in our people, operations and brand. We have further simplified and automated

our administrative processes, and made it easier for our clients to access relevant fund information. We will launch our new website in February 2017, delivering a user friendly and engaging client experience that can be enjoyed via your smart phone, tablet and PC. This continues our quest to empower people to take control of their financial futures and get the best value for their long-term savings. Please visit our website and share this with family, friends and colleagues.

Our #StopDaylightRobbery marketing activations – chainsaw chop at Nelson Mandela Square and comedian Nik Rabinowitz – to raise awareness of high investment fees has reached 1.3 million South Africans on Facebook. This critical message needs to get out, so please share these as well! And finally, a special ‘thank you’ as always, to you, our clients, for your trust in 10X. We reiterate our promise to deliver an optimal retirement solution that delivers competitive long-term returns, at low cost and with full transparency. After two years of moderating returns, we are cautiously optimistic that 2017 will be a more fruitful year for investors, but even if this is not to be, we remain confident that we will still deliver value to you all.

Steven NathanCEO, 10X Investments

“Feedspot listed 10X among the top 100

investment blogs WORLDWIDE,

based on Google analytics and social media.”

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THE YEAR IN REVIEW: 2016’S BELIEVE IT OR NOT

2016 ANNUAL INVESTMENT REVIEW

“... this year so full of sound

and fury will not register even a

blip on long-term charts. The

moral of the story: don’t react

to the noise!

FEBRUARY 2017

Much of what happened in 2016 went against form or forecast, be it the UK’s Brexit vote, Donald Trump’s election victory, or the rally in commodity prices and emerging markets. For the first time since 2010, the rand ended the year stronger against the dollar, despite the dollar reaching a 14-year high against a basket of major peers. For the first time since the Global Financial Crisis, Resources outperformed Industrials on the JSE and for the first time in thirteen years, US bond yields sold off sharply. OPEC countries agreed to their

first oil output cut in eight years. And US equity markets, long deemed

over-valued, pushed 10% higher just before year end. As

Simon Cowell might have put it: “I wasn’t expecting

that.”

But then, few people did. As many professional investors align their portfolio to their expectations, these surprises did not serve them well; rather it was the value and commodity investors who stuck to their long-range guns who finally prospered.

To recap, stock markets the world over had the worst new-year start ever, down 10% or more before most of us had even returned to work. Investors were concerned by the prospect of US rising interest rates in the face of low global growth, and rang the bell on a bear market. But the US Federal

Reserve denied further rate hikes any time soon, so markets bounced back immediately.

This knee-jerk sell-off and recovery set the tone for the rest of the year, at least on

the JSE. Although the FTSE/JSE All Share Index stubbornly traded in a narrow band between 50,000 and 54,000, it regularly tested both levels, as sentiment ebbed positive and negative on the prospect and outcome of local elections, political infighting and rating reviews.

If there is one word that best captured the prevailing economic mood, it was “flat. The local economy virtually stagnated, business confidence was at its worst since the Global Financial Crisis and consumer sentiment sank to a 15-year low. “Flat” also describes the market’s performance. In the end, the JSE All Share Index closed at 50,653, a mere 40 points lower than in 2015. Which means

PAGE 4

that this year so full of sound and fury will not register even a blip on long-term charts. The moral of the story: don’t react to the noise!

Internationally, the UK’s decision to withdraw from the European Union also caused a sharp sell-off, but these losses, too, soon reversed, because investors simply had no idea how and how much Brexit would impact. Seven months later, they still don’t. The prevailing sense is that the likely stand-off with the EU will hurt the UK more, hence the weaker pound. But the political uncertainty in Brexit’s wake encumbers the entire Eurozone.

By the end of Q3, the likelihood of a US rate hike increased, except that this was now seen as a confirmation of economic recovery, and thus good news for risk assets, value shares, commodity prices, and for commodity-exporting economies and their currencies. We saw some of this in the strengthening of the rand and the Resource sector, which ended the year as the top-performing sector on the JSE. Yet the JSE did not see the same uptick as other emerging markets, for the same reason it held up better than its peers during the prior two years: the dominance of the large dual-listed shares and internationally-diversified companies on the JSE. Only around half of the earnings generated by JSE-listed companies are geared to the local economy.

In the last quarter, US markets rallied on the election of Donald Trump and the prospect of more US jobs, corporate tax

cuts, increased spending on infrastructure, more favourable trade deals, less regulation and more protectionist policies. The likely pay-back for this will be higher inflation, a bigger deficit (i.e. more government debt), lower growth in global trade, and higher interest rates. But then that is the way of populist policies: it’s all fun and games until everyone gets hurt.

MODERATE YOUR EXPECTATIONS

The above scenario appears bullish for US (and hence world) growth, with improved prospects for resource-focused emerging market economies, such as Brazil, Russia and possibly even South Africa. To the extent that President Trump will make China the public enemy du jour and Brexit talks will undermine confidence in Europe, these two regions, along with perennial sluggard Japan, are unlikely to accelerate their economic growth.

Investment strategists have the unenviable task of overlaying this very basic global growth outlook with their expectations of what will happen to inflation, interest rates, currencies and commodity prices, this in order to predict which asset classes, markets, sectors, and securities will benefit, and how investors should position their portfolio. Such top-down analysis feeds into the active management process, but with all these moving, co and inter-dependent

“ ...top-down analysis feeds into the active

management process, but with all these

moving, co and inter-dependent and as yet

unknown parts, it is an exercise that has

intellectual, but no real practical merit. The market has already discounted what we

know so far.”

PAGE 5

and as yet unknown parts, it is an exercise that has intellectual, but no real practical merit. The market has already discounted what we know so far.

At 10X, we do not make economic forecasts, nor do we align our portfolios to speculative predications. To do so would belie the very essence of what 10X – and our one optimal retirement solution - stands for.

We do however take a view on return prospects, based on how much markets have delivered in the recent past, relative to what they delivered long term. We do this because we believe in mean reversion, that asset class returns (net of inflation) ultimately trend back to the long-run average return (reflecting economic fundamentals rather than investor sentiment).  

Fig 1 above shows the real (after-inflation) annualised return of the 10X growth asset classes over different periods (1, 3, 5 and 10 years). The dotted lines represent the long-term mean return for that asset class. Short term returns (up to 5 years) can deviate markedly from the mean but over longer periods (10 years or more), we would expect returns to tend back towards the historical average.

We see this ‘reversion’ in our SA Equity asset class. Two years ago, when the

10-year annualised return was 11,7%, we cautioned this was unsustainably high. The class has since delivered negative real returns, so much so that the longer-term returns have reverted back to below the mean. This does not automatically indicate a recovery in 2017 (long-term returns can also fall below the mean), but it does make us more optimistic about future prospects.

The long-term (5 and 10-year) returns for SA Property (10% pa) remain well above average. The current high inflation rate (outside the Reserve Bank’s target band) does not auger well for the sector, so unless inflation surprises on the downside, we expect more modest returns ahead.

The International Equity asset class has benefited from the steady decline in the rand (which has lost more than half its value against the US dollar over the last ten year). This was due to both cyclical and structural reasons. Some of the cyclical negatives (the negative outlook for commodities and emerging markets as a whole) have abated, which caused the rand to strengthen and this asset class to deliver a negative real rand return for the first time since 2010. As the long-term performance on this asset class remains well above average, we expect further modest returns in future.  

-15%

-10%

-5%

0%

5%

10%

15%

SA Equity SA Property International Equity

1-year 3-year 5-year 10-year

Fig 1: Growth asset class returns: Actual

versus long term average real

return (% pa)

Source: Stats SA, 10X Investments

“At 10X, we do not make economic forecasts, nor do we align our portfolios to speculative predications.”

PAGE 6

SA Bond returns bear the brunt of South Africa’s political infighting, rising inflation expectations and credit downgrade fears. In our opinion, the rally in 2016 was more a sign that the 2015 sell-off was overdone rather than of renewed confidence in our country. Despite the increased volatility, this asset class remains an important asset class for long-term investors.

The opportunity cost of holding SA Cash has been enormous: the ten-year annualised real return is barely above zero (0,3% pa). In the current low growth environment, it’s hard to envisage that cash returns will revert back to the long-term mean (around 1%) any time soon.

International Cash returns mainly mirror rand weakness, which is why holding dollars has been such a good investment in recent years. Despite the 2016 rand rally, the long-term return remains far above the mean, suggesting that rand weakness (or dollar strength) is overdone, and will have to correct. It is simply not sustainable for local investors to earn a 4% pa real return simply by holding cash in another currency.

-18%

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

SA Bonds SA Cash International Cash

1-year 3-year 5-year 10-year

“ In our opinion, the rally in 2016 was more a sign that the 2015 sell-off was overdone rather than of renewed confidence in our country.”

Fig 2: Defensive asset class returns: Actual versus long term average real

return (% pa)

Source: Stats SA, 10X Investments

PAGE 7

We noted last year that returns were moderating after two years of exceptional performance. This extended into 2016.

Source: 10X Investments * Between 1 Dec 2011 and 28 Feb 2013, this benchmark contained 20% International Cash and was called the International Composite benchmark.

SA Equity again shows a modest but positive 12-month return of 2,9%. Unlike 2015, when a few large multi-nationals propped up returns (underpinned by currency weakness), this year the exact opposite happened as local mid and small cap stocks kept the total market return (which includes dividends) positive.

This is borne out by the rand return (+3,5%) of the MSCI South Africa index (which excludes dual-listed counters) versus the more-inclusive Top 40 index (-1,5%). The Small and Mid-cap sectors returned 21,1% and 27,7% respectively.

Another feature was the rally in the Resources sector (+34,3%), while Industrials lost 6,3%. This is the first time Resources outperformed Industrials since 2008; over the last seven years these two sectors returned -1,7% and 27,4% pa respectively, an enormous divergence over such a long time period.

All of this signifies a shift in investor preference, away from defensive shares with moderate growth but high earnings

visibility and attractive dividend yields, to cyclical shares whose earnings are more geared to economic growth.

Our SA Bonds equity class is split equally between government bonds (+15%) and inflation-linked bonds (+6%). The combined return (+10,5%) was above average and almost neutralised the dismal return of 2015 (0,4%). Government bonds returned -3,4% in 2015, for fear of a credit rating downgrade helped on by the abrupt dismissal of our then Finance Minister.

Sudden sharp rand weakness raises inflation expectations, which drives away foreign investors, further weakening the rand and further exacerbating the inflation fears. In this way, negative sentiment can quickly become a self-fulfilling prophecy. Countries do well to not set off such a spiral but South Africa has yet to learn this lesson.

However, this can also work in reverse: a stronger currency can improve the inflation outlook, attracting offshore investors to our bond market, thereby boosting the currency even more. We saw some of this positive momentum in 2016.

Inflation-linked bonds (+6% in 2016, +3,7% in 2015) act as a hedge against rising inflation expectations, which tends to offset the government bond return both on the up and the down. This diversification protects our investors (especially those near retirement) from deteriorating inflation expectations.

SA Property held up well, delivering almost the same return (8,2%) as in 2015. This asset class is inversely geared to interest

Fig 3: 10X benchmark asset

class returns (before fees) to 31 Dec 2016

10X ASSET CLASS PERFORMANCE

2016

2015

2014

3 years

5 years

7 years 7 years

SA Equity 2,9% 3,0% 13,0% 6,2% 13,3% 13,0%

SA Bonds 10,5% 0,4% 10,3% 7,0% 7,6% 8,5%

SA Property 8,2% 8,0% 26,6% 13,9% 16,8% 17,4%

SA Cash 7% 6,1% 5,7% 6,2% 5,8% 5,9%

International Equity* -3,3% 28,5% 15,3% 12,7% 19,3% 16,0%

International Cash -11,5% 33,7% 10,5% 9,4% 11,1% 9,2%

SA inflation (CPI) 6,8% 5,3% 5,3% 5,4% 5,5% 5,3%

PAGE 8

2.9%3.5%

-20% -10% 0% 10% 20% 30% 40% 50%

MSCI TurkeyFTSE 100 (UK)

Dow Jones Euro Stoxx 50MSCI ChinaMSCI India

Dax 30 (Germay)Hang Seng (Hong Kong)

MSCI PacficNikkei 225 (Japan)

Cac 40 (France)KOSPI 200 (South Korea)

Nasdaq 100 (US)MSCI World Free

MSCI Emerging MarketsS&P 500 (US)

Dow Jones Industrial 30 (US)10X Top 60 SA Share Index

MSCI South AfricaMSCI Russia

Bovespa (Brazil)

Fig 4: 2016 international equity

returns (in ZAR)

rate and inflation expectations, which rose and fell during the year but essentially ended where they started. The sector’s exposure to the UK property market (and thus the softer British pound) presented a headwind for some of the underlying stocks.

SA Cash delivered 7%, barely beating CPI inflation (6,8%).

International Equity. The US dollar lost 12,6% against the rand over 2016, which from a South African perspective translates into an 11,2% gain. This rand strength explains the negative return on International Equity (-3,3%) as in US dollar terms, most international markets, both developed and emerging, were up. Without the currency drag, International Equity would have returned around 8%.

Source: Datastream, Deutsche Bank

International Cash. Global interest rates are still close to zero. The loss on International Currency (-11,5%) is almost entirely due to rand strength.  

“ The US dollar lost 12,6% against the rand over 2016, which from a South African perspective translates into an 11,2% gain.”

PAGE 9

Each 10X portfolio blends the returns of the various asset classes in proportion to its asset allocation.

With the local equity market tracking sideways, and International Equity returns hampered by rand strength, it was the lower equity portfolios that outperformed in 2016. Portfolios with higher equity allocations show gradually reducing returns.

Equity returns have steadily moderated over the past four years, which reflects

in the declining returns for the 10X High Equity portfolio. Inflation ended at 6,8% for the year, which means that none of the 10X portfolios generated a positive real (after-inflation) return in 2016. This is the first time since the Global Financial Crisis (2008) that even one 10X portfolio has delivered a negative real return.

Most importantly, the higher growth portfolios are still delivering strong real returns over the longer term, with High Equity beating inflation by 7,8% and 7,3% pa over the past 5 and 7 years respectively.

Fig 5: 10X life-stage portfolio returns

(before fees) to 31 Dec 2016

Figure 6: 10X High Equity portfolio

gross real (after-inflation) annual

returns, 2008 to 2016

10X PORTFOLIO PERFORMANCE

2016

2015

2014

3 years

5 years

7 years

High Equity 2,0% 9,1% 12,9% 7,9% 13,5% 13,1%

60% Equity 2,4% 9,1% 12,8% 8,0% 13,0% 12,7%

Medium Equity 3,1% 9,0% 12,6% 8,1% 12,6% 12,3%

40% Equity 3,8% 9,1% 11,5% 8,1% 11,7% 11,4%

Low Equity 4,7% 9,0% 10,2% 7,9% 9,9% 9,8%

Defensive 6,2% 8,1% 8,5% 7,6% 8,8% 8,7%

SA Inflation (CPI) 6,8% 5,3% 5,3% 5,4% 5,5% 5,3%

Source: 10X Investments.

Source: 10X Investments.

- 20.8%

15.6%12.7%

1.5%

18.5%15.6%

7.7%3.8%

- 4.8%

2008 2009 2010 2011 2012 2013 2014 2015 2016

PAGE 10

10X performance relative to competitors

How does our performance measure up against that of competitors in the South African retirement fund industry? To find out, we regularly compare the performance of the 10X High Equity Fund (held by over 90% of 10X fund members) against the average return delivered by the large retirement fund managers, as published monthly in the Alexander Forbes Large Manager Watch Survey (LMW).

10X’s goal is to beat the median fund manager’s return over time after fees. To quantify the impact of lower fees, we reduce the average fund manager return by 1% pa. This is a reasonable

(and conservative) estimate, especially for small and medium-sized funds, many of which pay total fees well in excess of 2% pa (versus the average 10X fee of well less than 1% pa).

The table above shows that the 10 High Equity Fund has beaten the median Large Manager by 1,7% pa or more over time periods of seven years or longer, after an allowance for our lower fees. As we have shown before, the power of compound interest over an average working period of 40 years means that this difference could produce up to 60% more money at retirement, and up to 150% more by the end of an average lifetime (i.e. factoring the post-retirement investment period).

Returns to 31 December 2016

10X High Equity

(before fees)

Large Managermedian return (before fees)

Large Managermedian return

(after fees)

10X excess

return

1 year (%) 2,0% 3,5% 2,5% -0,5%

3 years (% pa) 7,9% 7,7% 6,7% 1,2%

5 years (% pa) 13,6% 13,0% 11,9% 1,7%

7 years (% pa) 13,1% 12,5% 11,3% 1,8%

Inception Jan 2008 (% pa) 11,1% 10,4% 9,3% 1,8%

Fig 7: Return comparison: 10X

High Equity versus median Large

Manager

Source: Alexander Forbes Global Manager Watch (to December 2016), 10X Investments Umbrella Pension Fund. *annualised

PAGE 11

As 10X tracks an index of its own design, we regularly measure and compare its performance against the other indices broadly quoted in our market.

The composition of the JSE is not optimal for index investors. The All Share Index presents concentration risk for a market-cap weighted index fund, due to the dominance of a few large multi-national companies. Large secondary listing on the JSE distort the investible free-float and do not offer material exposure to the South African economy. And the universe of large, liquid stocks is actually quite small.

Different indices adjust for these complications. Whereas the All Share Index measures the market-cap weighted return of the top 160 or so shares listed

on the main board, the Top 40 tracks just the largest (most investable) 40 shares. The capped indices limit the weighting per share to 10%. The SWIX (shareholder-weighted) indices are based on the local free float (the portion of a company’ share capital registered on the South African share register), and MSCI South Africa excludes the dual-listed counters.

The 10X Top 60 SA Share index is a variation on these themes. It invests in the 60 largest shares listed on the FTSE JSE All Share Index, with the exposure to individual shares capped at 6% on re-weighting – this lowers concentration risk to acceptable levels and improves diversification. Dual listed shares are not excluded as they also improve diversification. The aim is not to deliver a higher return, but to follow a more risk-appropriate benchmark.

RUNNING THE INDICES

PAGE 12

In Fig 8, we base the return of the different indices to 100, at 1 January 2010. The legend on the left identifies and ranks the annualised return over the past seven years.

The Swix All Share Index leads by some margin (5 percentage points cumulatively). The 10X Index is part of the second group, along with the SWIX Top 40 and the Capped All Share Index. The fully-market-cap weighted indices lag, and the SA-focused MSCI South Africa Index trails by some distance.

A host of factors will explain these differences, but two stand out. The first is that the All Share Index has outperformed the Top 40; this is expected as the JSE’s Small and Mid-Cap sectors have had much higher returns over the past seven years. Were it not for the fact that the Top 40 shares already account for 80% of the JSE’s market capitalisation, this outperformance would have been much more pronounced.

Secondly, the Swix indices outperformed the market cap-weighted indices, underlining the extent to which many dual-

listed counters (predominantly Resource stocks) have dragged down the broad market.

The 10X Top 60 SA Share Index offers a compromise on both fronts. By holding the top 60 rather than the top 40 shares, it is more diversified, and provides more exposure to mid-cap stocks; and by applying a 6% cap on reweighting, it has less exposure to the Resources sector than the market-cap weighted indices.

It is impossible to say which of these indices will outperform in future. The more pertinent issue is: which benchmark is most risk-appropriate for investors? For 10X investors, we believe that the 10X Top 60 SA Share Index is optimal in terms of diversification and concentration risk. Ideally, we would want more exposure to small cap shares, but the low liquidity in this sector makes this impossible. This handicaps not just us, but also the larger actively-managed general equity funds, who cannot easily trade in and out of such shares in material size.

Fig 8: South African equity

benchmarks

244,8

232,3

223,4

214,5

186,2

100

120

140

160

180

200

220

240

2009 2010 2011 2012 2013 2014 2015 2016

SWIX All Share Index (13,6% pa)

SWIX Top 40 (12,9% pa)

10X Capped Top 60 Index (12,8% pa)

Capped All Share Index (12,7% pa)

All Share Index (12,3% pa)

Capped Top 40 Index (12,2% pa)

Top 40 Index (11,5% pa)

MSCI South Africa (9,3% pa)

Source: Bloomberg Finance LP; 10X Investments

PAGE 13

-1,0%

-0,8%

-0,5%

-0,3%

0,0%

0,3%

0,5%

10X HighEquity

10X 60%Equity

10X Medium Equity

10X 40%Equity

10X LowEquity

10X Defensive

Trading expenses Tracking error (cash drag) Net tracking error

10X PORTFOLIO TRACKING ERROR AND EXPENSE RATIOS

Fig 9: 10X Life-stage trading

expenses and tracking error (last 12

months)

10X’s indexed investment strategy aims to deliver the investment type (asset class) performance at very low cost. We monitor our performance by comparing the 10X portfolio return to the benchmark return (i.e. the asset class return multiplied by its actual weighting in the portfolio over the period). This difference in performance is called the tracking error. It is our goal to keep the tracking error – positive or negative – as low as possible.

The tracking error has two main sources. Firstly it relates to trading costs (brokerage), securities tax when buying shares (0.25%), the costs of investing internationally and ancillary trading-related expenses. Secondly, it reflects the time delay between receiving funds (contributions and dividends) and (re)investing these funds. This is called the cash drag and represents the opportunity cost of not being fully invested in an asset class (e.g. equity markets). Cash drag can be positive (i.e. improve the return) or negative (reduce the return).

In the graph below we have broken the tracking error down into trading costs (dark blue columns) and cash drag (light blue columns). The blue line shows the net tracking error (trading costs and cash drag combined).

This year, the cash drag was negative across all but the low equity portfolios, ranging from -0.79% for the 10X High Equity Defensive portfolio to 0.54% for the 10X High Equity portfolio.

The cash drag for the higher equity portfolios was unusually severe this year, due to the recurring sharp equity market rallies around month end. In a more typical year, such market moves tend to cancel each other out over the year. While this is disappointing, we note that the cumulative cash drag of the 10X High Equity portfolio is a mere -0,03% pa, compound over the past seven years (-0,21% in aggregate).

The 10X Funds’ trading expense percentage for 2016 ranged from 0.15% for Defensive to 0.16% for High Equity, well within our target range of between 0.10% and 0.20%. Our funds’ trading costs are typically much lower than that of actively managed funds as indexing is largely a ‘buy and hold’ strategy. The high equity portfolios tend to have higher trading costs as it cost more to trade equities – especially International Equities – than the other asset classes.

The net tracking error ranged between 0,38% for 10X Defensive and -0,94% for 10X High Equity. The returns published by 10X in this Annual Review (as well as on its Fact Sheet and in your Benefit Statement) are net of this tracking error.

Source: Stats SA, 10X Investments