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MONTHLY INSIGHTSIn a financial landscape marked by pronouncedvolatility, market participants are acutely focused on thelatest economic data to predict when central banks willinitiate rate cuts. N E W S L E T T E RREADY, SET, BONDS?Portfolio Manager at Sequoia Capital ManagementTOPIC 01Ready, Set, Bonds?TOPIC 03TOPIC 02Economic ReportArtificial IntelligenceImpact onInvestmentManagementThis intense scrutiny of immediate data can sometimeslead to a neglect of the broader economic picture.TOPIC 04Understanding theTwo-Pot SystemMsizi MsomiTOPIC 05Helping Kids BreakThe Cycle of PovertyCentral bank rate cuts are anticipated, promisingsubstantial opportunities for bond investors.This comes at a time when recent CPI and PPI datahave drawn a sharp line between differing marketoutlooks.

MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393A trend of declining inflation at the end of the previous year had many investors expecting Federal Reserverate cuts as early as the beginning of 2024, which drove bond yields down and the prices of risk assets upsignificantly. However, persistent inflation and robust economic growth have now shelved the likelihood ofa rate cut in the first half of the year, and discussions about the Federal Reserve's transition towards amore dovish policy have temporarily stalled. For those who feared they had missed the chance to invest in fixed income towards the end of last year,this recalibration in the market presents a new entry point. In the context of rate cuts, the broader trend ismore significant than the exact timing. Monthly macroeconomic figures, such as payroll statistics and inflation rates, are inherently volatile, oftenundergoing significant revisions and subject to seasonal effects. This volatility suggests that focusing onbroader, longer-term economic trends may offer deeper insights. Current industry analyses align thesetrends with projections of declining policy rates, though not immediately. In the Eurozone, for example, headline inflation has fallen more rapidly than expected, hinting that theEuropean Central Bank might start lowering interest rates as early as this summer. In contrast, the UnitedStates is witnessing a slower disinflation process, indicating that the Federal Reserve might postponeeasing rates until at least June. Government bond yields are emerging as attractive investmentopportunities amid these shifting monetary landscapes. Generally, the bulk of a bond's long-term return comes from its yield. We anticipate a decline in yields inthe latter half of 2024, potentially elevating bond prices significantly. This rise could be substantial, giventhe over $6 trillion currently held in money-market funds, a remnant of the 2022 "T-bill and chill" strategyduring a period of aggressive rate hikes by central banks. Historically, as central banks begin easing, there tends to be a migration of cash from money markets intolonger-term debts, escalating demand for bonds and further suppressing yields. With the unprecedentedcash levels currently on the sidelines, we might see an unusually sharp increase in bond demand as ratesbegin to fall. Traditionally, in the three monthsleading up to the Federal Reserve's firstrate cut, the yield on the 10-year USTreasury has decreased by an averageof 90 basis points.Investors who have strategicallypositioned their portfolios severalmonths before the onset of an easingcycle have typically reaped the largestbenefits. While timing the market precisely ischallenging, historical patterns suggestextending duration earlier inanticipation of rate cuts may beprudent.Federal Reserve’s Rate CutThe chart below illustrates the impact of a 1% rise or fall in interest rates on different fixed-income marketsegments. Changes in interest rates can significantly affect bond prices and yields, unveiling a spectrum ofopportunities and risks across different bond categories. Government bonds, such as US Treasuries andGerman Bunds, are typically regarded as secure investments. While recent CPI and PPI data suggest a slow retreat of inflation, nothing indicates a reversal in the overalldownward inflation trend or in the Fed's eventual move to a more accommodative policy, a stancereconfirmed by Chairman Powell in his latest press conference.Source: Bloomberg, US Federal Reserve and AB

MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393However, the impact is tempered by thecreditworthiness of the issuing entity.High-grade corporate bonds generallyexperience less price volatility inresponse to rate changes than high-yieldbonds, which may see more dramaticprice movements due to their higher riskand return profiles.Nevertheless, their prices are particularlysensitive to interest rate fluctuations. Arate increase often leads to a sharpdecline in their values, while a decreasecan substantially boost their prices. Municipal bonds present yet anotherdistinct pattern, shaped by their tax-exempt status and the specific financialhealth of the issuing municipality.Corporate bonds, encompassing bothhigh-grade and high-yield variants, arealso influenced by interest ratemovements.The chart below showcases the various factors that contribute to the total returns of bonds. A keycomponent in this mix is the coupon payments, which often serve as a stable source of income andprovide a significant buffer against potential negative impacts from fluctuations in Treasury yields orspreads.Even when market conditions causeyields to rise, which typically drivesbond prices down, or when spreadswiden, indicating increased risk, thesteady income generated fromcoupons can help offset theseadverse effects. This buffering effectis crucial for investors seeking tomaintain steady returns amidst marketvolatility.By highlighting the relativecontribution of coupons versus pricechanges due to yield movements, thechart effectively demonstrates howbonds can still deliver positive returnseven in less favourable conditions.With the current market volatility and expected central bank rate cuts, bond investments are crucial. Focuson macroeconomic trends and stay vigilant. Be prepared to seize opportunities ahead of anticipated shiftsto unlock the full potential of bond investments.Source: Bloomberg, FactSet, Standard & Poor’s, U.S. Treasury, J.P. Morgan Asset ManagementSource: Bloomberg, FactSet, J.P. Morgan Asset Management

MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393South Africa’s economy remains in a perfect storm. Stagflation, meaninglow economic growth with rising inflation and sticky high unemployment,seems to dominate the outcome of the economy for the rest of the year.In the US, the dichotomy continues where the high interest rate leveldoes not help keep inflation down on the one side and has no effect onstopping economic growth prospects and employment creation on theother side. ECONOMIC REPORTSOUTH AFRICASouth African economic growth prospects for 2024 and 2025 were left unchanged by the Reserve Bank inits March 2024 Monetary Policy Committee 2024 projections. The economic growth forecast for 2024remains at 1.2%, which will increase to 1.6% in 2025. “These projections are better than the 2023 outcomebut below longer-run averages, which are around 2%,” the MPC said.According to the IMF, South Africa’s economy averaged 2.1% annual economic growth for the 42 yearsfrom 1980 to 2022. The expected poor growth in 2024 follows from the country’s economy expanding just0.1% in the fourth quarter of 2023. Growth for the whole of 2023 was only 0.6%. The main reason for thissubstandard performance was supply-side problems, particularly load-shedding and the country’sinefficient logistics system. Most global research reports on expectations for the world economy, likethe IMF and the OECD, report that the world economy will experience amodest recovery in 2024 and 2025. Therefore, the US FED expects to keep its bank rate unchanged at itsend-of-May meeting and will only start to cut during the second part ofthe year. Dr. Chris HarmseConsulting Economist atSequoia Capital ManagementAcross countries, clear signs of strong near-term momentum continue inIndia, relative weakness in Europe, and mild near-term growth in mostother major economies. Global growth, which rose by an estimated 3.1%in 2023, is projected to slow to 2.9% in 2024 and then increase to 3.0% in2025.Given the continuing risk of the weaker Rand and surging international oil prices, South Africa’s inflationremains on the upside. The annual inflation rate (% change in the CPI) increased from 5.3% in January to5.6% in February 2024, slightly above market forecasts of 5.5% and moving farther from the central bank’spreferred 4.5% midpoint of the 3–6% target range. This is the highest reading in four months due to accelerated prices for transport (5.4% vs 3.6% inJanuary) and housing & utilities (5.8% vs 5.7%). The sharp increase in petrol prices in April and in Eskomtariffs of more than 12% over the next few months will push these two main items in the inflation basketeven higher.South Africa’s retail trade fell by 2.1% in January 2024 compared to the same month a year earlier,following an upwardly revised 3.2% increase in the prior month.

Manufacturing production in South Africa rose by 2.6% YoY in January 2024, following an upwardlyrevised 1.3% increase in the prior month and surpassing market forecasts of a 0.7% growth. That was thefourth consecutive month of increases in industrial activity and at a solid pace.USAThe US economy shows its strength despite the elevated levels of interest rates. The economy createdmore than 300,000 new jobs in March 2024, much more than the expected 200,000. The unemploymentrate remains sticky and came down from 3.9% in February 2024 to 3.8% in March 2024.Average hourly earnings for all employees on US private nonfarm payrolls increased 0.3% in March 2024.This is 4.1% higher than a year ago and far below the target of 2.0% set by the Fed. US inflation alsoremains sticky downward, with core inflation remaining around 3.8%.The indicator that is increasingly used by the FED, namely the Personal Consumption Expenditure PriceIndex (PCE), as an indication of inflation pressure, also increased from 2.4% in January 2024 to 2.5% inFebruary 2024.EUROPE AND THE UKDespite various strong economic headwinds, most countries in Europe and the UK avoided entering arecession in 2023. The outlook for the continent's economy in 2024 is more positive, notwithstandingremaining challenges. The annual core inflation rate in the US remains sticky downwards. The annual inflation rate in the US fellback to 3.1% in January 2024 following a brief increase to 3.4% in December but came higher thanforecasts of 2.9%.The sticky wage and PSCE numbers support the FED’s announcement at their meeting in March that it isexpecting to lower interest rates only during the second part of 2024. The area’s energy import dependence, geopolitical security, and inflation rates will continue to cast ashadow over Europe's economy in 2024. Although the inflation rate in the Euro area came down to 2.8% inJanuary 2024 from 8.6% in March 2024, a surge in Brent oil prices in March 2024 led to a rise to $70 perbarrel in April 2024, increasing inflation risks.In the UK, the inflation rate was 3.4% in February 2024, compared with 4.0% in the previous two monthsand much lower than 11.0% a year ago. Unemployment in Europe is at a historic low point, with forecastspredicting no major changes to this trend over the coming year.According to forecasts by the European Commission, the European Union's economy will grow by 1.7% in2024. This marks a significant slowdown compared to previous years when the EU member states grewquickly in the aftermath of the COVID-19 pandemic.EMERGING MARKETSGlobal Economic Prospects forecasts that growth in Emerging Market and Developing Economies(EMDEs) indicate significant increases in real GDP growth projections for China and India. In China, agrowth rate of 5.0% for 2024 is expected and 7.4% is now envisaged by the Indian Government, muchhigher than the 6.7% estimate in December 2023. The other ASEAN-5 EMDE’s GDP growth is expected to expand at 4.6%. Trade in EMDEs is expected toregister a slower growth of 2.3% and 1.5%, respectively, in 2024 and 2025. Among others, thestrengthening of the US dollar is projected to eventually slow trade activities, affecting EMDEs moreadversely compared to advanced economies. The outlook for growth in Latin America and the Caribbean is deteriorating. While inflation is receding inseveral economies, limited macroeconomic policy space and weak investments will continue to impede theregion’s ability to tackle social challenges and climate change, according to the UN World EconomicSituation and Prospects (WESP) 2024.MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393

MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393Daniel HanekomARTIFICIAL INTELLIGENCEIMPACT ON INVESTMENTMANAGEMENTThe landscape of investment management has experienced substantial changes due to the progress inArtificial Intelligence (AI) and Machine Learning (ML) technology. These technologies impact each aspectof the investment process, giving Asset Managers the opportunity to optimise the way they manage theirportfolios.However, they also put Asset managers in a precarious position regarding how to implement AI and MLwithout exposing them to unnecessary risk.The graph below indicates the impact COVID-19 had on Asset Managers and how they took advantage ofthe digital transformation it brought forth.Junior Investment Analyst atSequoia Capital ManagementIt also gave some Asset managers a competitive advantage over their peers who were late to take fulladvantage of artificial intelligence and machine learning and did not capitalise on the ability to add alpha totheir portfolios.

MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393Strategic Asset AllocationThe influence of AI on Strategic Asset Allocation revolves around refining decision-making throughsophisticated algorithms that scrutinise extensive data to pinpoint ideal asset distributions.Risk ManagementAI can analyse data, identify patterns, and predict potential risks more accurately. It can continuouslyrefine its understanding of market dynamics through machine learning algorithms. AI can evolvealongside new data, adjusting to fluctuating market conditions and enabling the implementation ofmore agile and anticipatory risk management tactics.Portfolio OptimisationAI algorithms can identify ideal portfolio allocations. These algorithms consider various factors,including historical performance, market trends, and risk profiles, to determine the optimal allocationstrategy.Data-Driven ModellingAI has the capacity to accumulate a substantial amount of data and, through machine learning,process the data to build complex models running from thousands of different data points, giving theasset manager the most accurate and reliable outcome for the change in certain variables. Unconventional Data IntegrationAI facilitates the integration of varied and unconventional data sources, including social media,identifying new trends and consumer behaviour data into investment analysis and decision-makingprocedures. It provides data input that asset managers usually overlook. It gives an objective viewand removes the human aspect from the equations. Automated Trading systemsThe ability to incorporate AI in the trading side of the business gives the asset manager theadvantage of removing human error and making the trading process more efficient and effective.Depending on the amount of risk the asset manager is exposed to, AI can also analyse the data andthe market and make real-time decisions while executing trades.Looking at the above capabilities of Artificial Intelligence and Machine Learning, one can only wonder whatthe future will hold. If incorporated correctly, the sky will be the limit.The graph below indicates the impact COVID-19 had on Asset Managers and how they took advantage ofthe digital transformation it brought forth.Strategic AssetAllocationRiskManagementPortfolioOptimisationData-DrivenModellingUnconventionalData IntegrationAutomatedTradingSystems

MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393Colette ForbesBusiness Administrator at SequoiaCapital ManagementUnderstanding the Two-Pot SystemWhy is the government implementing the two-potsystem?The introduction of the two-pot retirement system is apositive step towards empowering South Africans tosecure their retirement savings, even in the event ofchanging jobs or leaving employment. By providingcontrolled access to these savings during tough financialtimes, this system encourages responsible financialplanning and offers peace of mind for the future.What is the two-pot system?The two-pot retirement system is a new reform that provides greater flexibility to retirement fund members.With this system, members can now make partial withdrawals from their retirement funds beforeretirement, while still preserving a portion of their funds that can only be accessed at retirement. Thisensures that members have access to some of their retirement savings when they need it most, while alsosafeguarding a portion of their funds for their future needs. By allowing for more control over theirretirement savings, this system aims to improve retirement outcomes and provide greater financial securityfor retirees.When individuals resign, get retrenched or laid off, they typically withdraw the entire amount accumulatedin their retirement fund. This often leads to inadequate savings for their retirement years. To address thisissue, the two-pot system will enable individuals to withdraw only 1/3 of their retirement fund (provided it isabove R2 000) at any given time, while the remaining 2/3 will only be available upon retirement.The National Treasury estimates that only 6% of South Africans will be able to retire comfortably, makingthe two-pot system a much-needed change.The vested component is made up of your totalretirement savings as on 31 August 2024. Thismoney will be protected, and the two-pot ruleswill not apply to it. 10% of your retirementsavings or R30 000, whichever is the lowest, willbe transferred to the savings component.One third of your contributions from 1 September2024 will go into your savings component. Youcan tap into this component once every tax yearfor an emergency. The minimum withdrawalamount is R2000 and will be taxed at yourmarginal income tax rate. You will also pay aprocessing fee.Two thirds of your contributions from 1September 2024 will go into your retirementcomponent. You can only access thiscomponent at retirement and must use it to buy apension.Your Fund will do a once-offcompulsory transfer of 10% of yourretirement savings or R30 000,whichever is the lowest to thesavings component on the 31st ofAugust 2024. The rest of the moneywill remain in your vestedcomponent.From the 1st of September 2024,your Fund will split your retirementcontributions into two components.One-third will be allocated to yoursavings component, and two-thirdswill be allocated to your retirementcomponent.

MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393Transformational leaders boost teammorale by creating a sense ofbelonging and purpose, fosteringa positive work environment.Marginal Tax Raterefers to the highesttax bracket intowhich your incomefalls.Keep in mind that:Each time you withdraw funds from yoursavings component, the amount is added toyour gross income tax for the year and taxedat a fixed marginal rate. Thus, reducing themoney available for your retirement.If you are unemployed, you will be able towithdraw up to R95 750 from your savingscomponent tax free according to the thresholdfor South African tax residents under the age of65 years old.It is important to note that withdrawing fromyour savings component could increase yourtaxable income and push you into a higher taxbracket resulting in you paying more tax.Access to your savings withdrawal benefit pertax year can provide a helpful financial cushionin times of need. However, it is recommendedthat you consider using or setting up a separateemergency fund for this purpose, if possible.This will allow you to preserve your retirementinvestment for its intended purpose, which is toprovide you with a reliable income duringretirement.Vested ComponentSavings Component Retirement Component1/3 2/3Current Retirement Annuity =Vested ComponentAfter 10% or R30 000 has beentransferred to the savingscomponent the remainder ofthe money will stay in thevested component.When you leave your employeryou can:Stay as a paid-up member ofthe Fund.Take the money left in yourvested component.Transfer the money in yourvested component to anotherFund.Savings Component = 10%or R30 000 from VestedComponent + 1/3 of all newcontributions to the Fundfrom the 1st of September2024.You can withdraw thismoney when you retire.You can withdraw thismoney in case of anemergency. Minimumwithdrawal is R2 000 beforefees and taxes.You can withdraw once pertax year.2/3 of all new contributionsfrom the 1st of September2024.You can’t withdraw anymoney from the retirementcomponent when you leaveyour employer.The money must remaininvested until you retire.You must buy a pensionwith the money from theretirement componentwhen you retire.

MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393R90 000R10 000+R300pmR600pm10% of R100 000 is R10 000,thus R10 000 will betransferred to your savingscomponent.The remainder, which is R90000 which will stay in yourvested component.No contributions after the31st of August 2024 will beallocated to your vestedcomponent.The opening balance onthe 1st of September 2024for your savingscomponent will be R10000.In addition, R300 or 1/3 ofyour contribution will beallocated in the savingscomponent each month.R600 or 2/3 of yourcontribution will beallocated to youretirement componenteach month.10% of R100 000 is R10 000.R10 000 will be depositedinto your savings componenton the 31st of August 2024and R90 000 would be left inyour vested component.1/3 of R900 is R300. R300will be deposited into yoursavings component eachmonth from the 1st ofSeptember 2024.2/3 of R900 is R600. R600will be deposited into yourretirement component eachmonth from the 1st ofSeptember 2024.Lets use the following as an example to clarify:You currently have R100 000 in your retirement savings on the 31st of August 2024. Your monthlycontribution to your retirement savings is R900.It is imperative that the funds in your savings account are reserved solely for retirementpurposes or emergency situations. You must ensure that you keep as much money as possible inyour retirement savings to guarantee a comfortable retirement.

HELPING KIDS BREAKTHE CYCLE OF POVERTYFreedom Day, celebrated annually on April 27th, holds immense significance for South Africa. Itcommemorates the country’s first democratic elections, marking the end of apartheid and the dawn of anew era. But as we celebrate this hard-fought freedom, it’s crucial to recognise the challenges that persist,especially concerning children and poverty.Head of Business Operations atSequoia Capital ManagementThe Multidimensional Reality of Child PovertyAccording to the Multiple Overlapping Deprivation Analysis conducted by Stats SA, a staggering 62.1% ofchildren in South Africa experience multidimensional poverty. This means that six out of ten children face arange of deprivations that negatively impact their overall well-being in various ways.The Multidimensional Poverty Measure (MPM) provides a roadmap for policymakers to monitorimprovements in welfare. It goes beyond measuring poverty solely based on income. It considers abroader range of disadvantages and deprivations, such as access to education, healthcare, and basicinfrastructure. Income PovertyUsing the upper-bound povertyline, 67% of children belong tofamilies living in poverty.However, poverty is not solelydetermined by income but byaccess to necessities.Simultaneous DeprivationsMultidimensionally poor childrenexperience an average of fourout of seven deprivations,including inadequate access toeducation, healthcare,sanitation, and nutrition.Rural DisparitiesMost multidimensionally poorchildren reside in rural areas,where social infrastructure lagsbehind. Poor school facilities,distant health centers, andinadequate waste disposalservices exacerbate their plight.Gender and Race:Household heads who arefemale and Black African aremore likely to leadmultidimensionally poorhouseholds. These intersectingfactors perpetuate the cycle ofpoverty.The main findings of the study:Charnè SmithMONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393These factors are crucial in determining a person's quality of life and can contribute to poverty in variousways that people face in their lives.

Multidimensional poverty significantly influencesthe poverty cycle (a phenomenon where poorfamilies remain impoverished for at least threegenerations). When individuals lack thenecessary resources to break free, they becometrapped in a cycle of deprivation. For children,this can have lifelong consequences, creating acomplex interplay that perpetuates hardship. Poverty Trap:Reinforcing Cycles:Multidimensional poverty reinforcesthe poverty trap by perpetuatingdisadvantage across generations.Non-Monetary Deprivations: Non-monetary deprivations (like lackof education or infrastructure) cankeep families trapped.Interconnectedness: Deprivations in education, health, andinfrastructure compound poverty,making it harder to break free.Factors that contribute to the poverty cycleLack of EmploymentOpportunitiesThe scarcity of job opportunities, especially in areas with high unemployment rates, perpetuatespoverty.Limited economic growth exacerbates the situation.Insufficient Accessto ResourcesPoverty restricts access to essential resources such as healthcare, clean water, and nutritiousfood.PsychologicalFactorsChronic stress, hopelessness, and low self-esteem can reinforcethe poverty cycle.Poor financialdecisionsLack of Education: Parents who lack financial literacy or education may struggle to make informeddecisions. Without understanding budgeting, saving, or investing, they may fall into debt or missopportunities for financial growth.High Debt: Accumulating debt due to overspending or borrowing without a clear repayment plancan strain family finances. Children witness this stress and may internalise unhealthy financialhabits.Limited Savings: Parents who don’t prioritise savings may face emergencies without a safety net.This instability affects children’s access to education, healthcare, and nutrition.Unstable Employment: Parents in precarious jobs with irregular incomes find it challenging toprovide consistent support. Children experience the uncertainty firsthand.Lack of Investment in Children: When parents prioritise immediate needs over long-terminvestments (such as education), children miss out on opportunities to break the poverty cycle.Poverty often leads to inadequate access to quality education. Without quality education,individuals struggle to acquire skills and knowledge needed for better job opportunities.Limited Access toEducationFinancial literacy is an important tool that can help reduce poverty and improve the financial well-being ofindividuals. Poverty often passes from one generation to the next, but education can break this cycle. Byproviding people with the knowledge and skills needed to make informed financial decisions, navigatefinancial systems, and build a foundation for stability, financial literacy can empower individuals and pavethe way for economic empowerment and brighter futures.MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393

InformedDecision-Making:Financial literacy: equips individuals with essential knowledge aboutbudgeting, saving, investing, and managing debt.Skills: Understanding financial concepts empowers people to makeinformed decisions about their money.BreakingGenerationalPatterns:Long-Term Impact: Financial literacy breaks the cycle of poor financialmanagement passed down through generations. When parentsunderstand finances, they can guide their children more effectively.HolisticEducation:Earning and Entrepreneurship: Teaching learners how to earn money,explore entrepreneurship, and make informed financial decisionsempowers them.MONTHLY INSIGHTS APRIL 2024Sequoia Capital Management is an authorised financial services provider, FSP 49393Breaking the cycle of poverty and empowering families requires holistic efforts, with financial educationplaying a pivotal role in achieving this goal.Ending the Multidimensional Cycle of Poverty