It is worth noting that, in the particularly uncertain environment that characterised the year, we became progressively more cautious in our response to the markets, increasing our exposure to both local and global cash while simultaneously reducing our exposure to property and equity. Our funds delivered strong peer-relative returns in the year. The PPS Balanced Fund of Funds, PPS Managed Fund, as well as the PPS Defensive Fund have a five-star rating from Morningstar, and the PPS Moderate Fund of Funds and PPS Conservative Fund of Funds received four stars. The year was a welcome reminder that South African assets could add value to a portfolio relative to their global counterparts, with local assets continuing to offer investors a good entry point throughout the period. At the start of the year, our domestic and foreign managers had widely divergent views around the attractiveness of the South African equity market, with most foreign managers being far more cautious about emerging market equities than their South African counterparts. We nevertheless maintained a positive view of South African bonds and equities throughout the year, primarily premised on attractive valuations. The bond market, in particular, offers investors double-digit yields well more than inflation. We also used the strong market rally towards the end of 2022 to move to a neutral allocation in relation to South African equities. Our performance during the reporting period is attributable to various factors, including the ongoing transition of the PPS Profit-Share Account assets managed by third-party asset managers to PPSI, the growth in the number of clients, new inflows, well-managed operating costs and, not least, sound investment decisions. Due to our longer-term focus, we remained invested throughout the periods of volatility that occurred during the year, which allowed our asset managers to benefit from market disruptions. Members have benefited materially from the strong growth of PPS Investments over recent years in terms of Profit-Share allocation. In fact, allocations to qualifying members fully invested in PPS Investments solutions increased by 100% between 2019 and 2022. While economic conditions remain challenging – and with inflation and interest rates rising in parallel – the markets are vulnerable to short-term corrections. The size of our equity holdings across many of our portfolios nevertheless means that we are well-positioned to continue to benefit from all the opportunities our asset managers have identified. Looking ahead Market expectations at the start of 2023 are that the global slowdown will be relatively mild, inflation will fall rapidly, and the US Federal Reserve (Fed) could be cutting rates by the end of the year. Having said that, the consensus is often wrong and there are several tail risks that could drive market volatility this year, including escalating geopolitical risks and central bank and government policy error. Last year, the Fed hiked short-term interest rates seven times and the South African Reserve Bank six times. The market consensus is that further rate hikes are warranted to bring inflation back towards their target bands. These interest rate increases work with a lag effect and in a recessionary outcome could well drive global economic growth below 2%, especially if China unsuccessfully manages its COVID-19-exit strategy or the war in Ukraine escalates. PPS and PPSI will continue to follow a diversified investment strategy to mitigate various risks, including South Africa’s low economic growth rate. We nevertheless believe that restoring consumer, business and investor confidence in the country is crucial for economic growth and we are committed to playing a constructive role in doing so. After 15 years in operation, we have consistently demonstrated excellent peer-relative investment performance. Our pre- and post-retirement solutions offer some unique and compelling benefits and we continue to grow the business materially. However, in our view we remain a “best kept secret” for graduate professionals, their families and intermediaries. Having met the audacious target we set ourselves at the beginning of the previous five-year period, we are now implementing a new five-year strategy. This increased scale will have numerous benefits for members in terms of further cost reduction within the business and the PPS Funds, enabling growing and sustainable Profit-Share allocations to members. We intend to do this by ensuring that graduate professionals, their families and their financial advisers understand the purpose and long-term benefits of being invested with a financial services group with a unique mutuality operating model; by increasing awareness of our superior asset management and investment platform’s capabilities; and by being the global investment partner of choice for professionals, their families and their advisers. PPS GROUP PERFORMANCE AT A GLANCE 36 PPS Group performance at a glance
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