INVESTSA Magazine April 2015 by COSA Media

R37,50 | April February 2015 2015

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2015 BUDGET TAKEAWAYS

What South African investors can take away from the 2015 Budget Speech

Social grants

Tax breaks

property duties

Investing in Africa: is the green light still glowing?

UIF relief

Making sense of derivatives in your investment strategy

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A LOT CAN CHANGE IN A DECADE. OUR COMMITMENT TO CONSISTENCY NEVER WILL. Top quartile 10 year performance: Prudential Equity Fund Prudential Dividend Maximiser Fund Prudential Balanced Fund Prudential Inflation Plus Fund Prudential Global High Yield FoF Source: Morningstar

To learn more about our philosophy based on consistency and how it can benefit you, please speak to your financial adviser or call us on 0860 105775 or visit prudential.co.za/our-funds Consistency is the only currency that matters.

Source: Morningstar data for periods ending 31 January 2015. Prudential Portfolio Managers Unit Trusts Ltd (Registration number: 1999/0524/06) is an approved CISCA management company (#29). Assets are managed by Prudential Investment Managers (South Africa) (Pty) Ltd, which is an approved discretionary Financial Services Provider (#45199). Collective Investment Schemes (unit trusts) are generally medium to long-term investments. The value of participatory interest (units) may go down as well as up. Past performance is not necessarily a guide to the future. Unit trust prices are calculated on a net asset value basis, which for money market funds is the total book value of all assets in the portfolio divided by the number of units in issue. Fluctuations or movements in exchange rates may also be the cause of the value of underlying international investments going up or down. Unit trusts are traded at ruling prices. Commissions and incentives may be paid and if so, would be included in the overall costs. Different classes of units apply to the Prudential Collective Investment Scheme Funds and are subject to different fees and charges. A detailed schedule of fees and charges and maximum commissions is available on request from the company. Forward pricing is used. All of the unit trusts may be capped at any time in order for them to be managed in accordance with their mandates. Performance figures are sourced from Morningstar and are based on lump sum investments using NAV prices with gross income reinvested. Purchase and repurchase requests must be received by the Manager by 13h30 (11h30 for Money Market and 10h30 for Dividend Income Funds) SA time each business day. All online purchase and repurchase transactions must be received by the Manager by 10h30 (for all Funds) SA time each business day. General market performance data may have been provided for illustrative and explanatory purposes. This information is not intended to constitute the basis for any specific investment decision. Investors are advised to familiarize themselves with the unique risks pertaining to their investment choices and should seek the advice of a properly qualified financial consultant or adviser before investing.

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2015 BUDGET TAKEAWAYS

What South African investors can take away from the 2015 Budget Speech

Social grants

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property duties

Investing in Africa: is the green light still glowing?

UIF relief

Making sense of derivatives in your investment strategy

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CONTENTS 06

Budget 2015: a â&#x20AC;&#x2DC;boring, middle classâ&#x20AC;&#x2122; Budget

Budget 2015 and retirement reform

Heart of Darkness to Heart of Gold

Making sense of derivatives in your investment strategy

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Post-Budget economic update

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Regional market performance across Africa

Stock picking and strong nerves key during 2015

Remuneration issues in the RDR landscape

A new investment product for South Africa: the introduction of tax-free savings

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From

the editor Having survived yet another Budget presentation, Finance Minister Nhlanhla Nene’s presentation on the state of the nation’s finances is the key theme of this issue of INVESTSA. National Budgets are scary, but so are personal budgets. We all budget, some better than others. But how effectively do we budget? It should be about more than planning to meet necessary payments and getting through the month ahead. I once worked with a colleague, a wise old guy called Vic, who told me how appalled he was that some people spent all the money they earned in a month. I thought he was speaking about me. You should always set aside money to invest and save, and leave a healthy balance in your bank account, Vic told me. This is a role that financial advisers should be, and I hope are, performing: teaching clients to budget correctly. It’s one way to grow your wealth. But back to the national Budget. Marc Hasenfuss has written an excellent Budget review, which he deems a boring Budget. But it turns out that boring Budgets are good. On the upside, this one hinted that exchange controls may be on the way out. Stanlib chief economist, Kevin Lings, provides a thorough break-down of the Budget, highlighting the good and the bad. And colleague Vivienne Fouche interviews three investment experts on what the Budget means for retirement reform. Investing in Africa is another theme this month. I take a look at the promising but difficult continent. A recent trip to Somalia again reminded me how difficult business in Africa can be. Gyongyi King, CIO at Caveo, shows the widely different performance in different regions and what may lie ahead. There’s much more, including Investment Solutions chief strategist Chris Hart’s superb column on the Greek tragedy, and what it might mean for South Africa. There’s also a great piece from Andrew Bovell and Nikolaas Delport from Riscura on making sense of and using derivatives in your investment portfolio. One article I quite enjoyed was And Now For Something Completely Different, which looks at comics – and how valuable the older editions have become. I grew up on comics. It was what I started reading as a youngster and, despite the appalling American grammar and slang, comics instilled in me a love for reading that continues today. I also still look for comics; they are hard to find nowadays. My dear wife thinks I’m crazy. “Comics at your age,” she says, “why don’t you grow up?” I’m glad I haven’t grown up. Hope this issue takes away the post-Budget blues,

Shaun Harris

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www.investsa.co.za Publisher Andy Mark Editor Shaun Harris | investsa@comms.co.za Managing editor Nicky Mark Copy editor Gemma Redelinghuys Content editor & editorial enquiries Vivienne Fouché | vivienne@comms.co.za Feature writers Shaun Harris Marc Hasenfuss Art director Herman Dorfling Layout and design Mariska Le Roux Editorial head office Ground floor Manhattan Tower Esplanade Road Century City 7441 Phone: 021 555 3577 Fax: 086 6183906

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Copyright COSA Communications Pty (Ltd) 2015, All rights reserved. Opinions expressed in this publication are those of the authors and do not necessarily reflect those of this journal, its editor or its publishers, COSA Communications Pty (Ltd). The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or products or the reliance of any information contained in this publication.

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Budget 2015:

By Marc Hasenfuss

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There seemed a good deal of fretting by investors ahead of the 2015 Budget Speech that the fiscal links holding the fragile South African economy in place would be dangerously compromised.

ocal investors, in recent years, have been prone to worrying about a more radical intervention (as hinted by President Jacob Zuma on several occasions) in South Africa’s socio-economic make-up. Certainly more than a few punters thought the tax bogey-man was going to crawl out from under the bed. There was talk of drastic changes to Value Added Tax (VAT), markedly higher capital gains tax (CGT) and income tax as well as morbid murmurings that dividends tax could be raised too. On 25 February, however, Finance Minister Nhlanhla Nene – in his maiden Budget Speech – announced none of these unpopular measures… even though the government does need to raise additional revenue at a time when the prospects for economic growth are rather muted. In a nutshell; South Africa’s larger salary earners faced a tax hike of just one per cent with the government ‘diplomatically’ boosting its tax flows from a hike in the fuel levy, the traditional sin taxes… and a slightly contentious tariff hike on electricity. The dividends tax was not touched, and the second Capital Gains Tax hike in three years was not a train smash – increasing marginally from 13.3 per cent to 13.65 per cent.

Citadel’s chief strategist Adrian Saville observed wryly, “Just like central banking, the best possible budget is a boring budget, and this is a boring one.” He added, “As a society we tend to be ultrasensitive and hyper-reactive, but the most sensible way to understand this government is to watch how it acts. It behaves like a middle class conservative party and this is a middle class, conservative budget.” Saville argued that a middle class

conservative country builds a strong economy. He stressed that this is in the best interests of investors and the minister has given no reason for capital flight. “Boring is good.” Anthea Scholtz, tax director at Deloitte, seemed to concur. “This was a Budget that calmed many nerves. Finance Minister Nene’s pronouncements gave us assurance that he would take a balanced approach.” She conceded South Africa needed to raise significant additional revenue. “But it is clear that we are not going to suddenly see a whole lot of new taxes introduced in response to that need.” Barry Visser, Grant Thornton Johannesburg’s director of tax, said that apart from the one per cent increase across the board in the income tax rate, overall the Budget announcements by the minister seem to be general adjustments and refinements rather than massive changes. But Visser’s Cape Town-based colleague Anton Kriel did raise the spectre of further income tax increases in the future. “We are pleased that the increase in the income tax rate is only one per cent, but surprised that the increase has been imposed across all brackets, which means that all income groups, except those earning less than R181 900, are subject to a slightly higher burden of tax. Is the minister preparing us for more significant increases in the top marginal rate in 2016?” Nene’s big worry, of course, is that debt servicing is the fastest growing item of expenditure. The detailed Budget review document shows that debt servicing has bloated at an annual average rate of over 10 per cent as the government has pushed up borrowing since 2008/09 to fund development promises in social and development spending. The cost is heavy. The interest bill on state debt will rise from R115 billion this year to over R150 billion in 2017/18. At a preBudget briefing with journalists, Nene openly admitted that “if we don’t do something we will be paying more interest than social grants by 2016."

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Budget 2015 •s • ou ine th a s i frican cu Social grants From April 1 old age, war, veterans, disability and care grants will increase by R60 to R1 410 a month. Child support grants will rise by R3 300 and foster-care grants will increase by R30 to R860 a month.

Tax break for SMMEs This is aimed at helping businesses with an annual turnover that’s less than R1million. Those with a turnover of less than R350 000 will pay no tax – and the maximum rates has been halved from six to three percent.

Lower duties on property New rates will mean NO transfer duties to be paid on properties that sell for less than R750 000, but for properties that sell for more than R2.5 million the rate will increase.

Unemployment fund relief Nene says he’s lowering the contribution threshold to R1 000 a month for the coming financial year. This means employers and workers will each pay just R10 a month, putting R15 billion back into their pockets.

Add your own toppings

Consolidated government expenditure is forecast to grow by around eight per cent from R1.24 trillion in 2015/16 to R1.6 trillion in 2017/18. As things stand, government debt as a percentage of gross domestic product (GDP) is around 45 per cent, compared to a far more manageable 25 per cent in 2007. Saville notes that looking in a straight line over a year or two, debt service costs overtake social spend. “We are going in the wrong direction on that.” In terms of revenue collection – read new taxes – in the years ahead, much will depend on whether South Africa can increase the pace of its economic growth. Some

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economists are contending that the official three per cent medium term growth targets might be ambitious. Reading between the lines of the Budget Review there appears to be allowance being made for further tax changes. Behind the scenes the Davis Tax Committee – convened by Judge Dennis Davis in 2013 – has suggested that, compared with rates in other countries, there appears to be scope to push up taxes on capital income, marginal personal tax income rates and indirect taxes such as fuel levies and VAT. Specific reports on VAT, estate duty, wealth and mining taxes could well have an influence on the 2016 Budget.

VAT, the smart money suggests, is likely to see some tinkering – perhaps offering the government a politically friendly option. Basic items would obviously continue to be zero-rated, but VAT could be staggered or introduced on a sliding rate that allows the government to tax ‘luxury items’ more strenuously and more essential household items lightly. In terms of inducing growth, investors might wish that Nene had shown some of the same enthusiasm for social spending for encouraging the private sector to invest in growth initiatives. With Eskom stuttering along, the private sector maybe did need reassurance that the government was supportive of efforts to secure growth in a difficult trading environment. The small to medium enterprise (SMME) sector once again was targeted in the Budget with another lowering of qualifying turnover level for tax payments. Mike Betts, a tax partner at Grant Thornton, said the reduction in tax rates for micro businesses will be beneficial to this segment of the market and may encourage more participants to avail themselves of the turnover tax regime. “However, we’re disappointed that similar benefits could not be extended to the broader small business community operating above the R1 million threshold. But we assume that budget constraints probably limited the scope for such a concession.” Arguably the best news in the Budget for local investors was the offshore allowance rising from R4 million to R10 million, the immigration allowance shifting to R20 million and corporations being able to take R1 billion offshore. Madeleine Schubert, Citadel’s tax and fiduciary expert, said it was a ‘lovely’ budget for offshore investors. “It points to the general easing of exchange controls. These are big numbers that show that the government is getting ready to lift exchange controls altogether.” What investors will be critical of in the latest Budget is that Nene did not seem to get to grips with the ongoing Eskom problem. The R23 billion funding mechanism for Eskom was reiterated with a mention of the government being willing to turn this debt into equity (which would be a technical move to help the parastatal in the international debt market in the years to come). There was a vague reference to the government selling off a state-owned enterprise to help fund Eskom, but officials refused to be drawn on the identity of the entity. One must presume it is a sizeable state-owned enterprise that the government will be dangling in front of the private sector, which adds an element of speculative intrigue to this year’s ‘boring’ Budget proceedings.

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The 2015 State of the Nation Address:

Nine-point plan to ignite growth and job creation

he 2015 State of the Nation Address (SONA), swathed in memorable event-related challenges, nonetheless contained a number of the government’s plans to address South Africa’s current challenges and lead the country towards a better life. The President avoided the word ‘crisis’ when referencing the country’s electricity situation, referring to “serious energy constraints” and acknowledging that overcoming these would be the “uppermost challenge” in government programmes. For the long term, the government is finalising a comprehensive energy security master plan, a consultation process that started in 2007 and has set 2025 for the roll out. In the short to medium term, this will ensure that Eskom is adequately funded, by provisioning R23 billion for the State-owned enterprise in the next financial year. Additionally, the government is in the process of sourcing much-needed capacity from renewable energy sources (3 900 MW in total and 1 500 already delivered) and another 12 000 to 15 000 MW will be sought from neighbouring countries in the near future. Additionally, new power stations Kusile and Medupi will be connected to the grid, although the President did not commit to a time (Medupi’s synchronisation had just begun at the time of going to print). Naturally, the energy challenges pose a concern in terms of connecting more households to the grid, a

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commitment the President has been making over the past few years. He referred in his speech to the 3.4 million households that did not yet have electricity. Foreigners eligible for long-term leases The President also spent some time discussing issues of land ownership, a theme carried forward from last year’s State of the Nation Address. With rural development being a centrepiece of the National Development Plan, the President has now mentioned in more detail some of the aspects of this initiative: • Land ownership will be capped at 12 000 hectares, • Farm workers will be part of the ownership scheme for land, and • The prohibition of foreigners in owning land in South Africa, who instead will be eligible for long-term leases.

compliance of mining companies with the 2014 Mining Charter targets. The importance of SMEs in encouraging growth A significant focus has been on the role of small and medium-sized business. Up to 30 per cent of government procurement spend going forward would be from SMEs, cooperatives, and township and rural enterprises. Other subjects focused on youth development, water infrastructure programmes, road maintenance and education. Crime was also a key point, but focused more on the achievements of the police in terms of actual numbers of arrests than addressing societal and behavioural issues. No reference was made to recent violent attacks on foreigners. In terms of foreign affairs, the President, rather than reiterating the role of South Africa within the BRICS group of countries, focused on the importance of co-operation with ‘countries of the developed north’, and particularly the European Union. The President concluded that in order to achieve greater prosperity for all citizens, people needed to work together and work hard, ‘to move South Africa forward’.

He also formally announced the end of the Willing Buyer-Willing Seller method in respect of land acquisition by the State. Mining companies had been expecting some indication in terms of beneficiation, to look at a more fair taxation for those extracting minerals in South Africa to the benefit of South Africans. The President did not provide such direction; instead stating the Mineral and Petroleum Resources Development Act was being referred back to parliament to enable the correction of some constitutional shortcomings. He did, however, indicate that the government would be reviewing the

Thabang Chiloane, divisional executive: Public Affairs, Nedbank

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Allan Gray Proprietary Limited is an authorised financial services provider. investsa

Budget 2015

and retirement reform From a retirement reform perspective, this year’s Budget did not make any dramatic changes, continuing the process instituted in the Budget of 2012, when the Minister of Finance first announced the intention to reform South Africa’s savings and retirement landscapes.

By Vivienne Fouché

ccording to the 2015 Budget, draft regulations on default preservation, investment strategy and annuities will be issued early in 2015 for public comment. INVESTSA spoke to three key industry players on the topic of retirement reform as outlined – or not – in this year’s Budget. Please note that all of our interviewees pointed out the necessarily speculative nature of their answers.

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Richard Carter (RC), head of product development at Allan Gray

Steven Nathan (SN), chief executive of 10X Investments

Andrew Davison (AD), head of investment consulting at Old Mutual Corporate

What is the expected time frame for the issuing of these draft regulations? Do you expect to see different time frames for the issues of default preservation, investment strategy and annuities respectively? RC: We have no special insight into the timescales. SN: The draft regulations on fund defaults were pencilled in for early 2014, but are now only expected in the first quarter of 2015. We expect to see one paper dealing with fund default solutions, covering pre-retirement investing, and pre and post-retirement preservation, as the same principles will apply, to help deliver savers a ‘better income in retirement’. AD: Based on previous progress with retirement reform documentation, I don’t see the draft regulations being released before the middle of the year – maybe by the end of June. Treasury has indicated that they intend to release one proposal covering defaults on preservation, annuitisation and investments. However, given that these are quite different issues there is a possibility that separate documents are released for each of these. In brief, what are you expecting to see in the draft regulations for each of the separate issues? RC: We would prefer not to speculate on what will be included. Overall, Treasury wants us to save for retirement and to take less out along the way. This will ultimately lead to South Africans accumulating more retirement savings and thus enable smarter long-term choices when we retire. SN: The regulations will require funds to have default investment portfolios for the investment of retirement savings, default annuity products for members on their retirement, and default preservation rules for members leaving the fund before retirement. The Board of Trustees will have to choose the appropriate default. As Treasury has indicated, the default investment and annuitisation strategies will be required to comply with both principles and rules designed to achieve appropriate outcomes. To this end, the products chosen must be simple, suitable for members, and chosen after a robust and transparent process so that members will have confidence that the defaults have been chosen with their best interests at heart and will produce outcomes consistent with what they have been led to expect. Rules will give effect to these principles. Limited customisation of defaults will be permitted to allow the default arrangements to better meet the needs. In other words, members have to opt out of the default

solution, rather than opt in. This uses the general member’s apathy to their advantage, assuming that the defaults are appropriate. For this reason, we believe defaults will have to meet certain criteria: they must be low cost, they must be transparent (that is, full disclosure on fees and how the money is invested), the investment strategy must be logical (with increased use of passive rather than active strategies, using sensible portfolios), the products must be portable and they must be expertly supervised. In terms of Treasury’s Retail Distribution Review, financial advisers consulted by members may not receive commission payments. We believe that the draft regulations will require automatic preservation of funds on leaving the current employer, by mandating that funds follow the employer, or else remain in the old fund. Members will be allowed to opt out and transfer to their own preservation fund, with restricted access thereafter (possibly an annual limit, rather than a restriction on the number of withdrawals). AD: If we look first at preservation, the interesting thing is that initially there was a strong push towards mandatory preservation with some limited access (for example, the idea of proposing a possible ten per cent withdrawal per year). Despite the fact that lack of preservation is possibly the main reason why people fail to save sufficiently for retirement, it seems that the labour unions in particular find mandatory preservation unpalatable. In response it appears that there is now a move towards requiring funds to offer a default preservation solution aimed at ‘nudging’ people to preserve, rather than imposing mandatory preservation. In terms of annuities, the tactic of using people’s inaction to nudge them into a default annuity of some sort seems to be a possibility. It’s about making it easier for members to transfer to an annuity, without the need for advice. I think the issue of default investment strategy is more difficult to speculate on at this stage. In short, I hope that the government is not going to be too prescriptive. What would you specifically like to recommend in the draft regulations? RC: There are currently several different types of retirement savings products, with varying rules, particularly around preservation and accessing money. Treasury is aiming for fewer arrangements, with consistent treatment of active savings on the one hand, and preserved savings on the other. The devil is in the detail, though, and achieving alignment across all product types will be tricky. In my view, the most pressing area of reform needed is on preservation. We think default

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active and passive investments and I would prefer not to see an artificial incentive being created whereby passive becomes the only choice because of the need to keep costs low. It’s important to weigh up the potential for return with the costs and not make a decision on costs alone. There is also potentially a place for alternative investments like hedge funds and private equity, endorsed by the only recently revamped Regulation 28. I think it would be unfortunate if the defaults were too plain and too vanilla in the interests of keeping costs low, but again it is difficult because I do agree with the concept of simplicity. What is your comment on the government’s intention to hold discussions with key stakeholders on a mandatory retirement system to help vulnerable workers? RC: We are supportive of consultation and believe industry, labour and the government need to work together. Over the years there have been several innovative ideas put forward to put in place a system to help vulnerable workers. We would welcome joint problemsolving on this. SN: We believe that a mandatory system of retirement saving should be implemented. This will be a huge undertaking, which will require the buy-in from all key stakeholders, so it will, out of necessity, entail a huge consultative effort. In our opinion, this system should not overlap the current system, but rather be a separate solution for employers (in the manner of NEST in the UK) who do not wish to provide their employees with a corporate-sponsored retirement fund. preservation is essential and should be put in place as soon as possible. However, special care needs to be taken around the provisions for opting out of the default and for providing access to funds after preservation. The rules should acknowledge that investors may need their money desperately at particular points in time and that it is not productive or acceptable to make funds completely inaccessible. The rules should not be too onerous; they should encourage people to take out less and to preserve more. Getting the balance right is like walking a tightrope. SN: We would like to see Treasury follow through on its stated objective, which is for the industry (and by implication, default solutions) to ‘enable a better income in retirement’. With so many vested interests pursuing other objectives (higher profits by the industry, easy access to savings by unions/members), the risk is that the default solution becomes a compromise product that ultimately changes little in the way that the industry or members behave. So we would like to see Treasury firm on principles such as low costs, transparency, simplicity, sensible portfolios, limited choice and mandatory preservation, without giving the participants too many loopholes, but without becoming too prescriptive on the specifics. 14

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AD: I feel that the behavioural aspect of ‘nudging’ has merits i.e. steering people to preserve. However, for this to work, you need a preservation option to be available in the fund that people are leaving so that they don’t have to transfer to another fund. This opens up implications for a fund, for example an increase in administration costs in relation to past members, potentially with a weaker link to the employer and fund, especially as time passes. It introduces a new dynamic and could be quite onerous for funds with associated costs. It also makes umbrella funds more attractive as they are better able to deal with such past members, which is consistent with stated retirement reform objectives of having fewer, larger funds. Referring back to annuities, the difficulty here is ‘what kind of annuity’ – it is quite a tricky and complicated issue for people to understand and it’s a really important decision so we look forward to more clarity around it. It would also be useful to see specific guidelines on living annuities as defaults, because of the risks relating to such products and the need for ongoing advice and management of the aspects of the annuity such as underlying investments and level of drawdown. Looking at the issue of investment strategy, I believe that there is a place for both

AD: The discussion is necessary and we are hoping that the discussions don’t sway the government from its intentions, which we do believe are on the right track. We don’t want people to be left in the lurch in terms of retirement planning because of a lack of agreement and political reasons that might divert the government from the right action, which is putting in place the right mechanisms for people to save diligently and stay the course with limited opportunities to spend their savings prematurely. Unfortunately people don’t necessarily make the right decisions when left to their own devices regarding their retirement. Are you expecting the ‘T-Day changes’ (change of tax regime regarding retirement fund contributions) to come into effect on 16 March 2016, as currently planned, or do you think that it could be deferred? RC: Once again, we would not want to speculate on timing. We believe these changes are good, should not be contentious and should be implemented as planned. SN: We believe the changes will come into effect on 1 March 2016 as Treasury is fully aware (per the comments from our Minister of Finance in the 2015 Budget) that the current delays are the cost of retirement fund members.

AD: I see this as being one of those small steps I referred to earlier. The budget documentation did reiterate 1 March 2016 as the target date, which is encouraging. I think it makes sense for the government to get this done and I think simplifying the taxation of different types of retirement funds is a very good idea. Certainly it may be detrimental to some high-income earners, who will be affected by the cap on the contribution, but I think it makes a lot of sense as it makes things simpler.

contributions to the employee or individual, and the employer?

types, based on the higher of either annual remuneration or taxable income.

RC: Consistency of treatment allows for reduced complexity, which allows for better financial planning. Employees will be able to contribute more to RAs, which are an excellent vehicle for individuals to take control and save for their retirement. This will benefit everybody if it translates to increased retirement savings and ultimately increased retirement income.

The distinction between pensionable and non-pensionable income falls away. Employees saving through an RA no longer risk losing the tax deduction on their RA contributions when they join an employer with a pension or provident fund.

For example, having a different tax treatment, different definitions of income and allowing different access to savings, both before and at retirement, might seem like it offers people flexibility but that comes at the price of increased flexibility. This is often so daunting for people that they rather opt out of saving altogether or require advice just to open a simple retirement savings account.

SN: For employees the main benefit is that the new system is simple, and treats contributions consistently across the three types of retirement funds (pension, provident and RA funds). This should make the system less intimidating, easier to use and understand, and cheaper. This should build confidence in the system and encourage more people to save, or to save more.

We need to ensure that the major need in retirement, i.e. a continued monthly income, is also the primary focus of the funds and products available to members, rather than allowing easy access to a lump sum, which is rarely the best match for the pensioner’s goals and time horison. This is exacerbated by the fact that people are living longer than previous generations.

In future, the maximum deduction across all three types of funds will be set at 27.5 per cent, with an annual cap of R350 000. Individual savers are no longer penalised by a taxdeductible contribution cap of 15 per cent.

AD: Again, simplification is the obvious benefit. I think it will make a big difference in the lives of both employer and employee. For the average employee, the whole retirement fund landscape is so complex, with too many bewildering choices and decisions to be made, with too little knowledge of the implications of such decisions. Retirement requires everyone to take ownership. I know that it’s only one small change but the simplification will allow for more personal accountability because of better understanding.

The confusion regarding who must claim the tax deduction also falls away: in future, the employee claims the tax deduction; if the employer pays, this must be neutralised by a fringe benefits charge. Lastly, the contribution base is standardised across all three fund

Regarding the employer, I think the simplification will make a difference here too, for example in the lives of HR personnel. Importantly, vested rights will be protected so members will continue to have full access to savings they contributed to funds before the change.

What are the primary benefits of this change to the taxation of retirement fund

Employers will benefit from the reduced complexity, or potentially having to set up different funds for different groups of employees.

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Heart of darkness Heart of gold

…but investors need to keep on searching

Guinea

Mali

South Africa

Namibia

Ghana

Malawi

Chad

Zambia

Kenya

Nigeria

Egypt

Uganda

By Shaun Harris

rom ‘Heart of Darkness’ to ‘Glowing emerging market light’ for investors. That has been the perception, and part of the story, behind Africa this decade. But will it continue for the next decade? It might, but not with the same optimism expressed by investors earlier. The potential remains but, perhaps predictably, the investment pendulum has swung a full arc and is likely to settle back near the centre. There is potential aplenty in Africa, chief being the fast growing, increasingly wealthy middle class that already tops one billion people. It’s a dream for consumer-faced companies and industries, many of which have already expanded into Africa and with many more planning to do so. But there are also problems

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aplenty, from the Ebola epidemic that has swept through West Africa to civil war and conflict in many countries, often pitted between Islamic groups and governments. GDP growth in many nations is strong but is also slowing, and future growth rates are being revised down. However, there is still a strong investment story, and growth is not coming from the rich natural resources in many African countries – it now accounts for less than a third of Africa’s GDP growth – but from consumer-facing sectors. A report by global management firm McKinsey says these industries in Africa are expected to grow by more than US$400-million by 2020. “We like the consumption story in Africa, with the aspirant consumer, the growing middle class and the strong demographic that is

coming through,” says Investec Africa Public Equity Funds portfolio manager, Joseph Rohm, quoted in an article in the Financial Mail’s Investors Monthly. “There’s a growing population, with even faster GDP growth. This means per capita GDP is growing at a faster rate. Which ultimately adds to faster consumption,” he says. Investment opportunities will open up, and more economies will prosper when the rail links through Africa improve, which is already underway. South Africa’s Transnet is building railways as is Durban-based Grindrod, aimed at improving access to ports and speeding up the time taken to move goods. Companies are investing in the ‘African growth story’. Cape-based liquor producer Distell

neighbour, Somalia. Central Africa is murkier, though Uganda stands out as a home for investment opportunities. Perhaps the most potential lies in sub-Saharan Africa (SSA), partly because it tends to be better known by investors but also because many of the governments have opened up their borders to investors. For many years South Africa was regarded as the investment gateway into Africa, but the tide has recently been turning towards Nigeria. The country is at the centre of much of the growth in Africa, but this is overshadowed by conflict and power and food shortages. South Africa, on the other hand, has a sophisticated and transparent investment environment, with the JSE being a liquid stock exchange, unlike the bourses in many African countries, including Nigeria.

DRC Rwanda

Mozambique

has spent R250-million entering countries like Ghana and Kenya. Investment opportunities change as you look at the different parts of Africa. North Africa is the most developed region on the continent, and although marred by conflict in Libya and Egypt, the price of investing is higher and returns probably lower. West Africa offers plenty of opportunities, centred on Africa’s largest economy in Nigeria, a country prone to several problems, including and especially, conflict with Boko Haram. For example, major cell phone operator MTN has abandoned its networks in Boko Haram-controlled areas. East Africa is rich in oil and gas deposits. Much of the focus is on Kenya, although here too there is internal conflict and an uneasy relationship with its poor and piracy-prone

Investment prospects in Africa often get offset by natural and health crises, like the Ebola epidemic that has thus far killed 9 000 people in West Africa. Africa’s extreme climatic conditions often result in droughts or floods, as seen in Malawi and Mozambique this year. Investment manager Imara says in a report that food shortages will add to Nigeria’s woes this year. At present, no African countries are classified as being in the midst of a famine but Nigeria is classified as Phase 3, meaning it will need assistance, and that at least one in five households will face significant food gaps. One country that could perhaps be considered a rising investment star in Africa is Uganda. A consortium headed by Russian company RT Global Resources is going to build and operate a US$2.5 billion crude oil refinery in the country. Oil reserves are estimated to be around 6.5 billion barrels. Inflation is also in line in Uganda, 1.3 per cent last year although its central bank says it will rise to between four and six per cent over the next year. A large foreign investor in Africa is China, mainly to secure resources it needs for industries back home like iron ore, coal, gold and platinum. Some local companies tend to be wary of China, but they are solid investors, most often through fixed investment which brings both capital and jobs to countries it targets. In South Africa, Chinese exports of clothing recently threatened the local garment industry but this threat has now largely disappeared as China supplies clothing to its fast-growing markets at home. A large area of possible investment in Africa is power generation, mainly electricity. McKinsey, in a report titled Brighter Africa: the growth potential of the sub-Saharan electricity sector, outlines possible ways Africa could meet demand for electricity that is expected

Companies are investing in the ‘African growth story’. Capebased liquor producer Distell has spent R250-million entering countries like Ghana and Kenya. to quadruple in the next 25 years. It takes a management perspective on the energy sector across Africa, like the Grand Inga, a proposed hydroelectric dam on the Congo River at Inga Falls in the Democratic Republic of the Congo, job creation, and the role of natural gas and renewable energies. McKinsey principal Adam Kendall says that sub-Saharan Africa’s residential and industrial sectors that suffer electricity shortages also struggle to sustain GDP growth, with inadequate electricity supply slowing GDP growth by one to three percentage points annually, while leaving 600 million people without power. “National self-reliance will require more than US$830 billion in investment. However, greater focus on renewable energy, such as solar and wind, would cost US$153 billion more but save 21 per cent in CO2 emissions,” Kendall says. For local retail investors, there are a number of options for investing in Africa, including private equity funds that focus on Africa. Private equity often offers better returns than listed shares, though investors need to be patient. There are many listed South African companies with a wide footprint in Africa, but the main ones like Naspers, MTN and Shoprite already have the Africa story in their share prices. However, there are others worth looking at, including Aspen, Astral Foods, Cashbuild, City Lodge, Clover, Distell, Illovo Sugar, Grindrod, Tiger Brands, Nampak, Sanlam and Old Mutual. A cheaper and early entry into Africa could be RCL Foods, which, with recent financial results, said it intended expanding into Africa. The more affluent middle class is eating more protein, a market that RCL Foods (the old Rainbow Chicken) could supply. In Africa itself investors could look at Nestle Nigeria, Nigerian Breweries and UAC of Nigeria. Overseas possibilities include GlaxoSmithKline and HSBC. A final option is Africa-focused unit trust funds, of which nearly all the large asset managers run one or more. investsa

Making sense of derivatives in your investment strategy Derivatives are often perceived to be complicated financial contracts left only to the experienced or risk savvy investor.

erivatives are contracts, linked to various securities from which they derive their value. This being said, the actual derivative has no intrinsic value, receiving its value from its underlying investment. The vast world of the derivative markets centres around three main financial strategies, being Options, Forwards/Futures, and Swaps. Options are contracts entered into by two parties to buy or sell specific financial products highlighted through the use of a ‘Call’ or ‘Put’ option. These are options that give the holder the right (but not the obligation) to buy or sell the underlying asset at its predetermined price (referred to as a strike price) on or before expiration of the contract. The timing of

18 investsa

Alternative investment

concept. This myth is debunked by the use of derivative options in Aristotle’s writing almost 2 500 years ago. execution is determined by a strategy on the option, ‘American’ or ‘European’. An American option allows the holder to execute before and up to expiration while European options limit the holder to execution on expiration date only. A greater understanding of options can be gained through the popular graphical representation of ‘hockey stick’ diagrams, as illustrated. They aid the user in a visual representation of whether the contract should be executed or allowed to expire worthlessly. Derivative contracts do have cost implications: the premium paid is at a cost below the x-axis, and the strike price illustrated as (K). In order for the derivative to profit, the price would need to outweigh the Strike + premium, on the upside for a call, and the downside for a put. Forwards and futures are both obligated contracts entered into by two parties for an asset to be delivered or settled in cash on a future date at a predetermined price. The fundamental difference is that futures are exchange-traded standardised contracts while forwards are traded over-the-counter in a customised nature. Swaps are the exchange of one financial security for another by the parties agreeing terms, taking place at a predetermined time. Swaps are traded over-the-counter with dealings typically taken care of by banks. Currency and interest rates swaps are the two leading contributors to the swap market. Through their complex nature and lack of understanding by investors, many myths have arisen. Many people believe that the use and implementation of derivatives is a new

Some people believe that derivatives are ‘purely speculative highly levered instruments and are a form of gambling in one’s portfolio’. This is the second common myth and is in itself debunked by the rise in popularity of derivative usage by portfolio managers during the 1970s. This was used as a risk management tool to curtail a highly volatile period, brought about by the demise of the Bretton Wood exchange regime and the OPEC oil crisis. Finally, it is believed that only large corporations and banks have a purpose for using derivatives, when in fact companies of all sizes use derivatives to meet their specific risk-management objectives. Through astute implementation, businesses can protect themselves on the downside as a form of insurance. Derivatives have many uses in financial markets – through hedging out risk and managing exposures, they are frequently implemented in portfolios to bring about efficiency. An illustration of this concept can be seen through an equity-only fund manager. They are required to have a cash buffer to meet potential cash outflows on a daily basis. If it is assumed that the manager needs a three per cent cash buffer, he is limited to a maximum equity exposure of 97 per cent.

an increased cash position for an extended period of time, limiting any upside gains. Traditionally, portfolio managers would start to buy stock and gradually increase the new fund’s equity exposure over time. Preferably the manager would like to increase their equity exposure to 100 per cent immediately so that they can participate in any upside gains during the transition period. The use of derivatives through an index futures vehicle can ensure 100 per cent equity exposure through the transition. The manager will then progressively reduce the future’s exposure as shares are acquired over time. The use and implementation of financial derivatives should be one of integration within a well-managed portfolio rather than a strategy that is feared for its complex nature. The idea of derivatives as a risk management tool to limit losses, coupled with its ability to perform on the upside, should find managers aligning the use of these financial strategies to their portfolios in the future. Through proper use and simple techniques, the derivative market will open up many doors for risk management rather than speculative trading.

To mitigate this loss in exposure, as cash will have a drag on upside performance, the manager can increase his equity exposure to 100 per cent by entering into an index future with equal exposure to the cash buffer. In the case of a cash transition between two equity-only portfolios, the time taken to transition will force the new manager to hold

Andrew Bovell, multi-manager solutions and Nikolaas Delport, single-manager solutions, RisCura

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Balanced funds

Multi-asset class funds:

making sense for most ty er op pr al re

Multi-asset funds have been gaining impressive momentum in South Africa over the past decade, and now clearly dominate unit trust demand, at the expense of specialist equity funds.

Mult-asset class classes, including in-the-gap assets, which have contributed meaningfully to our portfolios over time.

his preference for multi-asset funds appears to be fairly unique in global terms and can be ascribed to the fact that there are quite a few managers in the local market who have strong track records in both asset allocation and security selection. The strong trend towards multi-asset funds is an encouraging development, in our view. We believe that investing in multi-asset class (or balanced) funds, as opposed to following a building-block strategy, makes more sense for most investors. The advantages of multi-asset funds are quite clear.

An opportunity to achieve higher returns Asset allocation is the big call in investments. Appropriately dividing your investment across a range of assets (including shares and bonds and local and foreign exposures) is absolutely key to investment success. In fact, the ultimate value added by good asset allocation decisions dwarfs the alpha (outperformance) that can be delivered in building block funds. If our expectations of lower real returns for the foreseeable future are correct, allocating your investments to the optimal mix of assets will become even more important in the years ahead. We have long argued that most investors are better served by leaving this capital allocation decision to a fund manager who has the appropriate skill set, and to then hold them accountable for those decisions. In addition to asset allocation expertise, multiasset funds also offer full use of all the asset

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Often the building-block approach involves a simple allocation to vanilla bonds, equity and cash. This means that these funds end up without meaningful allocations to important asset classes such as property, inflation-linked bonds and to some of the smaller asset classes such as commodity exchange traded funds (ETFs) and preference shares.

Enhanced risk management We believe risk is best managed by someone who has sight of the overall portfolio. In our multi-asset funds, we take great care in thinking through the risk of unintended positions that can occur in the overall portfolio from views taken in each of the underlying building blocks. We devote substantial amounts of time and resources to identify the best risk-adjusted returns across all asset classes and sectors and across the capital structure of every company. The ability to allocate capital across the full spectrum of asset classes simply gives a manager a bigger toolbox with which to add value in client portfolios.

stock

At Coronation, we believe all clients are different, each with differing needs and risk budgets. Some have the appetite and ability to make active allocation decisions, while others do not. For this reason, we offer a complete fund range that includes both building-block and multi-asset funds, empowering our clients to select the funds that best meets their needs at a specific point in time. But, for the aforementioned reasons, we also believe that clients with the opportunity to invest in a credible multi-asset fund should take it. Our fund range, therefore, includes a number of multi-asset class funds aimed at a variety of investor needs, including saving for retirement (Balanced Plus); drawing an income over a long period of time (Capital Plus and Balanced Defensive); or looking for an alternative to 36 â&#x20AC;&#x201C; 60 month term deposits (Strategic Income). We also offer unconstrained multi-asset funds for those investors who are not saving within a retirement vehicle, including Market Plus (for discretionary long-term savers) or Optimum Growth (for individuals looking for the best long-term opportunities across domestic and international markets).

Tailored saving solutions In the 1990s, the multi-asset category only offered the classic balanced fund, which risk budget reflected the requirements of the typical pre-retirement investor. The category expanded over the past decade to include absolute return multi-asset funds. The risk budgets of these funds are aimed at meeting the requirements of those investors already in retirement. In addition, many multi-asset managers now also manage bespoke funds with risk budgets and return targets that differ from the classic pre- or post-retirement funds.

Pieter Koekemoer, head of personal investments, Coronation Fund Managers

WOULD YOU PUT YOUR LIFE IN HIS FURRY PAWS? Day after day, you witness their tail-wagging devotion. They lend their big, brown eyes to safely show their owners the world. Once again proving that the things you trust most never stop working to earn it.

NET#WORK BBDO 8017054/E/DG

To find out how Coronation can earn your trust, speak to your financial advisor or visit www.coronation.com

Coronation Asset Management (Pty) Ltd is an authorised financial services provider. Trust is Earned TM.

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Barometer

HOT

NOT SA taxpayers to pay more taxes Finance Minister Nhlanhla Nene stated in his maiden 2015 Budget speech in February 2015 that South African taxpayers will pay an additional one per cent in personal income tax in order for the government to raise an extra R12-billion in 2015, and another R15-billion in 2016.

Manufacturing confidence levels downbeat

Tourism sector outperforming other sectors Following the January visitor statistics for the Western Cape, MEC for Economic Opportunities, Alan Winde, announced that tourism across the region is generating more money and jobs than any other sector within the province. The tourism sector is now estimated to be worth R17 billion and employing 240 000 people in the formal sector, and many more in the informal sector.

Japan’s economy grows The Japanese economy recorded its first growth in three quarters in the October to December 2014 period. Expanding at an annualised rate of 2.2 per cent during the period, the Cabinet Office stated in a preliminary report that private consumption had increased 0.3 per cent quarter-on-quarter, while corporate investment rose by 0.1 per cent after a drop of 0.1 per cent in the Julyto-September period.

60 per cent of firms surveyed by the Manufacturing Circle Survey in the fourth quarter of 2014 are increasingly pessimistic about business conditions over the next year to two years, and indicated that manufacturing business conditions over the period had ranged from ‘fragile and weak’ to ‘poor’. Electricity shortages, regulatory hurdles and an uncertain global economy were cited among the reasons for downbeat outlook.

South African consumers remain under financial pressure The consumer financial vulnerability index issued by credit solutions firm MBD declined to 51.2 in the fourth quarter of 2014, from 51.4 points in the previous quarter. It revealed that consumers’ debt-servicing capabilities remained their biggest concern and cause for financial vulnerability during the quarter, and was largely as a result of the cumulative 75-basis-point increase in interest rates during 2014.

Improved business conditions continue The February 2015 Business Confidence Index (BCI) by the South African Chamber of Commerce and Industry (SACCI) accelerated by 3.5 index points to 92.8, from 89.3 in January 2015. This rise follows the 1.0 index point increase the previous month. This was attributed to higher import and export volumes.

s y a w e Sid 22 investsa

Repo rate unchanged The South African Reserve Bank has left the repo interest rate unchanged at 5.75 per cent since September last year. The monetary policy committee in January 2015 cited that the lower oil prices enabled it time to pause the interest rate hiking cycle it started in January 2014.

Economic commentary

Post-Budget economic update

The South African economy has slowed appreciably over the past year, growing by a mere 1.5 per cent in 2014, down from 2.2 per cent in both 2013 and 2012 and 3.2 per cent in 2011.

outh Africa has achieved an average annual growth rate of only two per cent growth a year over the past seven years, which has been insufficient to lead to sustained job creation in the private sector. In fact, private sector employment has been largely unchanged since 2010, having lost around one million jobs during the global financial market crisis in 2008/2009. The recent weakness in the South African economy reflects a combination of factors including the extensive labour market unrest in the mining and manufacturing sector, regular electricity outages, rising levels of corruption and policy uncertainty. These have all led to a fall-off in business confidence. The decline in business confidence has been aggravated by South Africa’s recent international credit rating downgrades. Consumer spending, which has underpinned much of the growth in the South African economy over the past few years, is also slipping, but has fortunately avoided recession. This slowdown in consumer spending reflects the fact that consumer income growth has eased. In addition, many middle-income earners have become much more indebted in the past two to three years and have struggled to meet their debt repayment commitments despite sustained low-interest rates.

More positively, South Africa is experiencing a tourism boom with record foreign tourism inflows. This appears to be supported by a combination of factors, including the relatively weak rand as well as the delayed benefits of hosting the Soccer World Cup in 2010. There has also been a very welcome improvement in South Africa’s exports to the rest of Africa, even though South Africa’s overall exports performance remains disappointing. Lastly, the residential property market is gaining traction with some improvement in mortgage activity, a pick-up in building plans passed and an improved level of confidence within the building industry. Unfortunately, these positive factors are not yet substantial enough to offset the drag from a slump in private business fixed investment as well as the moderation in consumer activity. This is reflected in the recent downward revision by National Treasury to their GDP growth projections, which were contained in the February 2015 National Budget. According to the government’s budget, GDP growth for 2015 has been revised down to only 2.0 per cent, well below the 3.2 per cent expected a year ago. Equally, the growth outlook for 2016 has been revised significantly to 2.4 per cent, down from 3.5 per cent previously. Furthermore, National Treasury revised down its forecast of fixed investment spending in 2015 to a very modest

2.2 per cent. This compares with a 2015 fixed investment growth forecast of 5.3 per cent a year-ago. As I expected, the Minister of Finance tried to balance a range of competing objectives in his first National Budget in February 2015, and I think he essentially delivered a very measured Budget that focused on further consolidating the fiscal deficit. This, unfortunately, meant that there were very few new spending initiatives. Instead, the minister announced that personal taxes would be increased for the first time in twenty years. Clearly, the increase in government debt remains a significant concern. Consequently, it is critical that the government’s expenditure ceiling is not breached, the public sector wage increase is contained and a concerted effort is made to raise South Africa’s growth rate through the encouragement of private sector business. Looking forward, South Africa’s policy officials will increasingly need to focus on implementing measures that ultimately encourage employment in order to broaden the tax base. Without a rapid and sustained rise in tax revenue it is going to become increasingly difficult for the South African Government to satisfy the demands of the population.

We are giving away five copies of The Missing Piece: Solving South Africa’s Economic Puzzle by Kevin Lings. To stand a chance of winning, e-mail us at investsa@comms.co.za. Kevin Lings, chief economist, STANLIB

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Investment Forum 2015:

Seeing is believing By Vivienne Fouché

It was once again a conference featuring the cream of South Africa’s asset managers and investment experts, and attended by around 800 delegates. The theme of the 2015 Investment Forum – dubbed South Africa’s very own Davos – was ‘Seeing is believing’. The conference, held at Sun City, took place on 17 and 18 March. Day11 Day MC Lindsay Williams from CNBC hosted the first day’s presentations. The presentations included:

Seeing the world: a look at offshore funds

Seeing what lies ahead: the global macroeconomic overview

Rory Maguire, along with a panel of international experts, offered their input and expertise.

STANLIB’s Kevin Lings plus an international panel of experts discussed what lies ahead and the big question: “Are we out of the woods?” Seeing the difference: asset allocation: looking at balanced funds Rory Maguire, co-founder of FundHouse, specialist investment advisers, introduced a lively discussion on balanced funds. The table gives his analysis of the varying investment approaches of the companies represented on the panel: Seeing the stars: a look at some of the star performing equity funds Lindsay Williams quizzed top portfolio managers on their stock picks.

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Event organisers Thunder Mark concluded the day with an evening of St Patrick’s daythemed entertainment. Rory Maguire’s analysis of the investment approach of the following companies High sector deviation Biggest AA shifts Get out soon Lower drawdowns Absolute mindset Allan Gray Investec

Modest sector deviation Smallest AA shifts Ride it out Higher drawdowns Relative mindset Coronation Foord

Prudential

pares Lindsay Williams pre

xt guests to introduce the ne

Unwinding after a brain-intensive day

Day 22 Day The presentations on 18 March were run parallel to one another, under the theme of ‘Seeing things our way’. Delegates chose from a total of six presentations to attend, each hosted by the following companies: Allan Gray, Coronation, Foord, Investec, MET CI, Nedgroup, Prudential, PSG, Prescient, RECM, REZCO Asset Management and STANLIB. A few nuggets of wisdom gleaned from the morning’s sessions: • Coronation shared their seven principles of building portfolios: valuation trumps all else; never forget you are managing retirement capital; build high conviction portfolios that survive stress tests of alternative scenarios; don’t hug the benchmark; think carefully about unintended bets; don’t obsess with the number of counters; a disciplined approach to selling shares is critical to our process. • Nedgroup Investments warned that nominal return expectations must be lowered and added that dislocations in currencies can create investment opportunities. • Rezco gave tips and advice on wrestling with a bear market. Hint: best not to ‘duke it out’. • Allan Gray thinks that Chinese iron ore demand has peaked and that the Chinese

are moving into a recycling phase. • Prudential quoted Benjamin Graham with this famous quote: ‘The essence of investment management is the management of risks, not the management of returns.’ Something to think about! Favourite tweets • @lingskevin Divergence becoming increasingly NB in today’s global financial world. Countries not in same cycles. Sources of growth changed. • @lingskevin Govt can’t be consumption stimulus any more. Increasing taxes? Tax base too narrow, would hurt the driver of economy. • @LindsayBiz what keeps you up at night #CyJacobs @36ONE domestic situation: resolve electricity crisis and put labour force back to work. • #Orbis Oil’s significant price correction. We think a classic opportunity to step back and stay focused on the long term. • Rory Maguire @fundhouse NB issues when looking at investment manager: team members, level of

encouragement & client orientation, succession. • “Currencies are the toughest asset class after commodities” – Marc Beckenstrater, Prudential • Rory Maguire @fundhouse How the managers think differently – Allan Gray, Nedgroup most defensive re equities, Foord most aggressive. • @Investec We try to participate in up markets but we really hit our stride in down or sideways markets. • #STANLIB Robin Eagar we take positions on businesses we think have structural advantage. We generate alpha in context of business cycle. • #Orbis Oil: no cure for low prices like low prices! High short-term volatility, attractive long-term opportunities exist in energy sector. • #AllanGray resources investing: Sustainable earnings through the cycle earnings, normal commodity prices, free cash flow – growth interplay. • #Rezco Own managers with track record of managing through a bear market. Be in balanced funds. Let the portfolio managers control the risk. See you next year!

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Event

iStructure brings institutional

investing to retail investors By Vivienne Fouché

INVESTSA attended the launch of the iStructure investment product range from iTransact (South Africa’s only exchange traded products investment platform for independent financial advisers), which offer varying levels of capital protected fixed-term investment products from well-known local and international banks, Barclays Africa, Investec, Societe Generale and BNP Paribas are product providers to iTransact.

he structured products will be available to investors for as little as a R10 000 lump sum allowing financial advisers and investors to access markets that have traditionally been the domain of corporations and high net worth individuals only. Initially, the structured products are wrapped in an endowment policy, offering investors access to the performance of well-known indices or baskets of stocks, such as the FSTE/JSE, Top 40 Index and in some cases Apple, Google and Coca-Cola. iTransact says that due to the low R10 000 minimum, iStructure products are aimed at retail investors through their national network of independent financial advisers. Ideally, investors should not need access to their invested capital

before five years allowing the structured product to meet its objectives. Introducing the event, Dr Iraj Abedian of the iTransact Board of Directors, who is also a professor of economics at the Graduate School of Business Sciences (GIBS) of University of Pretoria, said that the iStructure offering was the first independent platform for independent financial advisers. He commented, “ iTransact’s mission – making the market simple – can be summed up in the following four points: keep it simple, as this reduces costs; be different; be first, and be daring.” iTransact was, and is still, the first exchange traded products investment platform in South Africa offering low cost ETFs, ETF Portfolios and ETF Retirement Annuities.

Dr Abedian had some interesting thoughts on how much of the world today is showing issues relating to intergenerational dynamics and the way that the youth of the globe, particularly through their embrace of technology, are challenging and changing traditional ways of doing things. He mentioned Eqypt and Tunisia, the Middle East, China, Europe and South Africa as countries in which ‘a blend of youth and technology’ means that, increasingly, learning itself is changing, with the overall result that the youth of today need to be increasingly factored into tomorrow’s spending patterns. “The new dynamics have changed the definition of power and this is just the beginning of a new consciousness. The youth are active, the new tribes are being formed, the impact on planning and financial planning must be taken seriously,” he said.

Structured products are pre-packaged, fixed-term investment products that contain financial instruments such as single securities and/or baskets of securities that are structured to benefit from most markets and market conditions. Structured products offer four key investment benefits, namely: capital protection, the potential for returns in most markets and market conditions, tax efficiencies and reduced market risk and volatility.

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Global economic commentary

Structural changes needed for

sustainable global economic growth South Africans need to position themselves for a subdued global economy and continued rand weakness. Because the future can surprise, however, portfolios should remain diversified in an effort to accommodate unanticipated scenarios.

he global economic recovery has been weak since the global financial crisis, despite central bankers slashing interest rates to stimulate demand.

According to the International Monetary Fund (IMF), the strength of the recovery has consistently surprised on the downside, with the global economy growing at least one per cent per annum slower than it did prior to the crisis. To what extent are these trends likely to continue into 2015? Outside the United States (US), the global recovery continues to be weak, despite record-low interest rates. The International Monetary Fund, for example, expects the world economy to grow by just 3.3 per cent in 2015 with subdued growth from Europe and many emerging markets. This year will be significant, however, because economies may no longer be able to rely on record-low interest rates to keep things on an even keel. This is because it looks increasingly likely that the US will start raising rates this year. This is not necessarily a bad thing. Low-interest rates have allowed economies to avoid making hard choices, and other reforms need to be implemented in order to achieve a sustained recovery. While the prospect of US interest rates increasing has been well publicised, other central bankers have still been cutting rates (South Korea being the most recent example) or embarking on further quantitative easing, given the weaknesses in their economies. An environment of increasing US interest rates could make their low-interest rate policy less effective, as it will however be much more difficult for economies to keep things loose when the US raises rates.

It is also quite clear that a monetary response alone is insufficient to get economies properly back on track, despite this still being the preferred option for most authorities. Increasingly, commentators are calling for a profound fiscal response (focused on infrastructure spend) and other structural reforms to help set the global economy on a higher growth path. How economies attract capital to implement this despite higher US interest rates is possibly the fundamental challenge facing them today. It is likely that this will require more than just interest rate increases, but also structural changes to make the rest of the world more attractive to capital. These changes have largely been avoided so far. Arguably the most crucial requirement for more balanced long-term growth is to shift the developed world away from debt-fuelled consumption, and to move the developing world away from export-driven growth. This response so far has been ineffective as â&#x20AC;&#x201C; despite record-low interest rates â&#x20AC;&#x201C; developed consumers have battled to deleverage in the absence of jobs and real wage increases, and emerging economies have not effectively taken advantage of capital flows to implement the necessary structural reforms to re-orientate their economies towards the domestic consumer. South Africa, with its stark inequalities and energy-intensive growth path, stands out in this context as highly vulnerable to a more challenging global environment, but it is certainly not alone. The US Dollar has already appreciated materially against the euro and most emerging currencies including the rand this year in anticipation that US interest rates will rise. We would

anticipate further rand currency weakness when the US raises rates. Policy makers need to be innovative and courageous in implementing important structural changes to achieve sustainable global economic growth. We think there is a strong possibility that they will not achieve this. Consequently our base-case scenario remains subdued economic growth and significant market volatility as financial assets re-price to higher US interest rates, and the likelihood of sharply higher South African interest rates in response. Record-low interest rates have been the dominant response to the global financial crisis so far. There is an increasing need for a fiscal response too and a much more measured view of what is meant by inclusive growth. Policy makers have not tackled what is needed to get economies on a more balanced growth path. In 2015, they might not have a choice.

David Crosoer, investments and research executive at PPS Investments

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Investing in Africa

Regional market performance across Africa

2014 was an interesting year for African equity markets and in turn the performance of specialist funds investing in those markets.

he difference between the best and worst performing markets was significant, and in many respects this again demonstrates the need for diversification.

USD 2014 Return

FX-Rate Move 2014

Country

Egypt Hemes Index

19.9

-2.9

Egypt

NSE Ghanaian All Share

-22.5

-26.4

Ghana

NSE Kenya 15

19.1

-4.7

Kenya

It is important to note that while international and macro issues are important, the drivers behind individual country performances remain largely determined by local factors. This article looks at regional market performance last year and the landscape in 2015.

Mauritius Index

-6.5

-5.5

Mauritius

Moroccan All Share

-4.5

-9.5

Morocco

Nigerian SE Index

-26.7

-12.6

Nigeria

DSE All Share

22.7

-9.1

Tanzania

Tunisia All Share

2.8

-11.6

Tunisia

African equity markets 2014

Lusaka All Share

0.3

-13.7

Zambia

MSCI EFM AFR ex ZA

-9.0

S&P 500

11.4

MSCI EFM AFRICA

1.0

MSCI EM

-4.6

MSCI WORLD

2.9

African equity market performance in 2014 was very mixed, with both local and international factors influencing outcomes. The dramatic fall in the oil price over the year was naturally a crucial factor in sentiment across the continent, alongside local economic and political concerns. The best performing markets included Egypt and Kenya, both up 19 per cent in US Dollar terms, while the Nigerian market had a volatile and difficult year, ending 27 per cent down (USD). The table shows the performance of the top African equity markets and key international markets, all in USD. African equity markets 2015 There is no reason to believe that performance across the continent will be in sync, and it’s very likely the year will end again with significant divergence in performance across the countries. As usual, there are a number of factors our managers need to consider, both locally and internationally, including the following: • The oil price and the separation of importers and exporters • Economic outlook for Europe, particularly relevant for North and West Africa • Chinese growth, most significant for Central and East Africa • Local election cycles and political outlook • Domestic consumer outlook • Equity valuations • Corporate activity. 28 investsa

Index Name

All the key African currencies depreciated against the US Dollar over the year, following the global trend of US Dollar strength. The magnitude of depreciation across the individual currencies largely reflects the economic impact of the oil price declines. As exporters, Nigeria and Ghana were particularly hard hit with the importers (Egypt and Kenya) experiencing more modest declines.

Looking at the largest market (ex South Africa), the situation in Nigeria remains uncertain, and there seems to be a small likelihood of an immediate market rebound. The impact of the lower oil prices is still being evaluated, both at the macro and consumer level. Once the price reaches a floor, there may be clarity but with an election looming (at the time of writing), investors’ sentiment remains quite negative. Regarding the election, all the commentary points to a close race, which adds to the uncertainty. The Moroccan equity market has underperformed other African markets over the last few years, which may continue given the close link between the fortunes locally and that of the Eurozone. As for Kenya, in addition to lower energy costs, good rains last year are benefitting the agricultural sector, and these factors are likely to feed through to lower inflation and ultimately lower interest rates. The equity market is still presenting opportunities despite the strong performance last year and with an improving consumer backdrop.

Twenty fifteen is likely to produce as diversified a stream of returns across the equity markets as we have seen in recent years. The larger markets tend to attract the bulk of investment capital for obvious reasons, but the important point is that careful evaluation of the individual countries and companies is crucial to the return generated to investors.

Gyongyi King, chief investment officer, Caveo Fund Solutions

Investment solutions

Hypothetically speaking

The Greek tragedy continues to unfold with its new anti-austerity government battling to avert further austerity. However, the new government is discovering that austerity is not a policy choice but a policy consequence. welfare transfers for poverty alleviation, but at the expense of poverty reduction. High unemployment would persist, placing the government under pressure to expand the public sector wage bill.

hich set of politicians would willingly choose a policy path that assures electoral defeat? To avoid austerity, Greece must try to get ‘someone’ to pay for continued profligacy. The queue to support the country without reform is quite short. Greece has so far chosen to remain within the common currency zone. It has had to accept loans with conditions that keep the government on a very short leash. This has led to deflationary conditions akin to depression. Greece has borrowed too much money, and much of it has been to meet unsustainable welfare commitments made in better times. The country could choose to default, but that would mean its budget would have to be placed on a cash basis. Trade would become very difficult without access to trade finance and austerity would deepen. Greece could also choose to exit the Eurozone. But that means it would have to reissue its original currency, the drachma. This would quickly vanish in a hyperinflation, as the Greek Government has no resources to back it. The country would still have to default on its debt, and printing money to make up budget shortfalls would simply cause the currency to collapse. Trade would still be difficult, with widespread shortages, as importers would have to pay upfront in a hard currency. The fundamental problem in Greece is a crisis of its welfare state. This is a problem across the developed world, as welfare commitments have exceeded the ability of overstretched tax bases to support them. The political establishments

have chosen to kick the proverbial can down the road rather than face electoral defeat by reducing the promises made. The result is escalating state-spending profligacy and welfare extension that has led to an upward explosion of debt – incurred for consumption purposes – and has raised systemic risks. The Greek debacle is the first to emerge, but many developed countries face a debt crisis in their futures. Even the UK and US have unsustainable debt trajectories. The big difference is they can still print money to cover their shortfalls. Countries with unsustainable and unpayable debts face either deflation or inflation to ultimately ‘settle’ their debts. The common euro currency merely exposed the Greek Government sooner rather than later, as the country was unable to print money to mask its insolvency. The South African Government, fortunately, is very solvent. This is important for investors, as asset prices suffer under insolvent governments. But hypothetically speaking, what if the South African Government were to face a solvency crisis? The confidence in the currency would be under pressure as external deficits would hamper the ability to finance imports. Shortages of imported goods would be commonplace, and inflation would be running much higher than current levels. The stock market would be under considerable pressure, in complete contrast to the record levels of today. Bond yields would shoot higher as investors sought adequate compensation for default risk, which would probably manifest in significantly higher inflation. Yet growth would struggle due to the erosion of capital by inflation. The government would probably see a need to increase

And, hypothetically speaking, what are the chances of South Africa facing a solvency crisis? Recent low growth is a concern. Consequently, government finances have come under increasing pressure. Government spending remains buoyant, but the tax base appears exhausted. There is a triple deficit of the current account, budget and households. Yet the government’s spending looks set to continue rising rapidly, with four expenditure bombs that could take South Africa to a solvency crisis, namely: the public sector wage bill; National Health Insurance; parastatal capital requirements and the nuclear deal. Without growth, the economy will not generate the resources for the spending ambitions of the South African Government. Despite the urgent need for growth to balance the budget, the recent budgets have been decidedly anti-growth. This is important, especially as the government now accounts for one-third of our economy. Tax increases, increased government burden, spending inefficiency, and the taxation of capital formation are all anti-growth elements of the budget. Hypothetically speaking, what if South African Government finances are on an unsustainable trajectory? From an investment perspective, this would turn the current buoyant investment conditions decidedly sour. Fortunately, it is only hypothetically speaking!

Chris Hart, chief strategist, Investment Solutions

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Investment strategy

Stock picking and

strong nerves key during 2015 At the start of 2014 we said to our clients that we felt 2014 was a year where 10 per cent returns could be expected as opposed to the high returns of previous years.

he main reason for this was that we felt valuations of equities had become stretched and that investors would have to accept lower returns for the year unless they wished to take on excessive risk.

much different and that quite a number of such events could occur. Investorsâ&#x20AC;&#x2122; nerves will be tested in 2015, so we would recommend having a portfolio that is robust and able to withstand these downdrafts.

Expensive market

Bonds

We are now almost six years into the bull market, which, going on history, is near expiry. This has made shares that are attractively priced and display value hard to find in our local market.

Bonds have been the surprise star outperformer. We have retained our position in not holding any longer durations and remain focused exclusively on high-quality issuers only.

In cricket parlance, this will prove to be a low scoring pitch. Take runs where you can get them, but swinging for the stands is likely to result in a humbling walk back to the team bench. In short, we feel that this will be a stock-pickers market. Flexibility and manoeuvrability will be deciding factors.

Impact of the low oil price

Quality shares are expensive, but low-interest rates and lack of alternatives will force investors to invest in this asset class. Markets, however, return to intrinsic value over time and, therefore, overpaying for equities is a dangerous exercise.

The financial press has commented extensively that the fall in the oil price from $110 per barrel to under $50 per barrel is highly deflationary and thus bad for the world economy. We strongly disagree. The $60 fall in the price of oil essentially translates into a $1.5 trillion per year economic stimulus. It is extremely powerful in that much of it is instantly in the consumerâ&#x20AC;&#x2122;s pocket. Further it enables central banks to keep interest rates lower for longer. This is important as a fast rising interest rate environment will not be good for equities.

spend it on goods and services. As a result the consumer driven economy of the USA will accelerate and Europe may even be lifted out of recession. The world keeps printing money The European Central Bank (ECB) has joined the world of large-scale quantitative easing or money printing. While the longer-term impact of this programme must certainly give investors pause, the shortterm impact will certainly extend the equity bull market. Conclusion Investors can again expect lower returns this year with increased volatility. Opportunities exist, but stock picking will be key, along with strong nerves to manage the expected volatility in the market.

High volatility At the depth of the market plunge last October, we stated that this was not the start of a bear market but rather a case of amplified market volatility. We took our own advice and used it as an opportunity to increase our equity holdings. We expect that 2015 will not be

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Lower fuel prices may be just what the world economy needs to accelerate global growth. The oil exporting countries have, over the past five years, been hoarding a significant portion of the windfall from high oil. Much of this $1.5 trillion has now been transferred into the hands of consumers who are likely to

Rob Spanjaard, director, Rezco Asset Management

Morningstar

2015 Morningstar South Africa  Fund Awards 

orningstar Research (Pty) Limited, a subsidiary of leading independent investment research provider Morningstar, Inc, has announced the winners of its 2015 South Africa Fund Awards. Morningstar annually recognises unit trusts that have delivered excellent risk-adjusted returns for investors. The Morningstar Awards are designed to help investors identify the country’s most exceptional funds and fund managers for the previous year. Tal Nieburg, managing director for Morningstar in South Africa, said, “This is the sixth year we’ve awarded fund and fund groups in South Africa for adding the most value to investors. “As part of our mission to help investors reach their financial goals, we recognise the fund options that have excelled in delivering outstanding risk-adjusted outcomes in their categories, and the fund houses that have achieved impressive returns for their investors.”

The winners of the 2015 Morningstar South Africa Fund Awards are:

• Best Regional Offshore Equity Fund db x-trackers MSCI USA

• Best Aggressive Allocation Fund Nedgroup Investments Core Diversified

• Best Sector Equity Coronation Industrial

• Best Cautious Allocation Fund Prudential Inflation Plus

• Best Short-Term Bond Fund Coronation Strategic Income

• Best Diversified Bond Fund ABSA Multi-Managed Bond

• Best South Africa Equity Fund Harvard House BCI Equity

• Best Flexible Allocation Fund Centaur BCI Flexible

• Best South Africa Small-Cap Equity Fund Nedgroup Investments Entrepreneur

• Best Global Bond Fund STANLIB Global Bond Feeder Fund • Best Global Equity Fund Old Mutual Global Equity • Best Indirect Property Fund ABSA Property Equity • Best Moderate Allocation Fund 27four Balanced Prescient Fund of Funds

• Best Fund House: Larger Fund Range Coronation Fund Managers • Best Fund House: Smaller Fund Range Foord Asset Management You can read more on the awards methodology on http://awards.morningstar.com.

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Due

diligenceâ&#x20AC;Ś

an everyday job for advisers?

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Company

Independent financial advisers can decide which companies they want to do business with. However, they need to base their decisions on some form of due diligence.

hile regulation requires advisers to conduct a due diligence, the real reason it should be done is because it is central to the care with which professional advisers treat their clients. Also, it significantly reduces risk in their businesses. In its simplest form, due diligence is about gathering sufficient information in order to make informed decisions about the providers and/or products you wish to support. I believe that when deciding to do business with a company, there are four main areas where advisers should be gathering information, namely company, products, service and relationships.

The company refers to the fact that you need to gather information about the product provider you want to do business with. Areas to consider should include: • Regulatory environment of the provider: Is the provider regulated and if so, by whom? Where providers are not regulated, the level of due diligence will need to be greater as there will not be as much protection for clients. • Structure of the provider: Who are the owners? What is the staff complement and what are the different divisions? The shorter the track record of a provider, the more due diligence will be needed. • Reputation: Has there been any publicity about them, good or bad? A simple Google search will tell you. What is the culture of their business?

Products Ask questions such as: • What are the product features, benefits, pricing or charging structures? Cheapest price is not always best. • Do these features and benefits meet the needs of your business and do they suit your target market? • Do the provider’s products do what they promise? What is the investment performance track record? • What are the risks attached to the product/fund, for example, risk profiles on investment funds? If there are guarantees, who underwrites this; what is it really worth? • Many PI providers specifically exclude certain types of products. If this is the case, then you would need to carefully consider the financial exposure and risk to your business. Should a product which is not covered by your PI Insurance Policy pass your due diligence test, then it will be important to inform your clients of this fact.

• What administrative support and capability do they offer to advisers, e.g. commission/fee reporting, client investment reports? • How easy do they make it to take on business?

Relationship Consider how you interact and build a professional business relationship with providers by assessing aspects such as: • Attitude: do you feel you are valued and your client is central to the provider’s organisational objectives? • Accessibility: how easy is it to engage with the provider and with specific departments or with management? • Responsiveness: how quickly and consistently do they respond to queries? • Openness, transparency: how clearly and understandably do they share information? • Terms of business: are they balanced between the interests of the client, the provider and the adviser or are they onerous, rigid or one-sided? • Client relationships: what is their stance on your relationship with your client? Is this respected? How do they communicate with you and your clients? I recommend three simple rules of thumb that should help you meet your due diligence requirements and manage the risk in your business: • Do not blindly accept what you are told or what you read about a company or product. • The further you move away from mainstream regulated providers, the deeper your due diligence investigations need to be. • Keep an audit trail of what you did to understand the provider and the product.

Service Does the product provider have the capacity, capability and expertise to deliver in a manner which will support the objectives of providing a professional and fair service to your clients? • Are they client service friendly? • What is their service record for new business and what is their record on post-sale servicing? What are their turnaround times?

Ian Middleton, managing director, Masthead

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Christo Malan Autus chairman

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Profile

Congratulations on your Raging Bull Award win in 2015. You’ve come close a few times before – what helped you to secure the win this year for the first time?

Christo Malan receiving the Raging Bull Award.

It is a great honour to win a Raging Bull Award. After having had a few second places over the past few years, I think we can ascribe our win to persistence, having passion for what we do and working in a great environment. It is also important to mention that, although ‘resources’ might be the buzzword in the world of asset management right now, we approach things differently. We sold all our resources shares during mid-2014 and that contributed to the fund’s success.

What would you describe as your major challenges in your role? The challenge is to perform over the short, medium and long term. Over all these timeframes, the fund’s performance remains in the first quartile. We work mainly with private investors’ money – they work long and hard for it. It’s, therefore, important to us to continue to perform over all time frames. We also note the need to stay humble!

What is it about your job that most excites you as you come to work every day? There is never a dull moment! Every day is different and challenging. I am fortunate to operate in a dynamic environment that is enhanced by working with so many great colleagues. Things can change really quickly and then decisions have to be made and actions carried out very fast. I also love the great team spirit running through the business. Also, having come from a big corporate originally, I like to think that we appreciate the benefit of being small and efficient. At Autus, we like to think that we offer the asset management version of a home-brewed coffee versus an instant! As a boutique manager, Autus is owned and managed by the founders and shareholders. The investment team consists of six key players and only four decisionmakers. This allows for quick reactions and more movement. Our smaller size also counts in our favour when choosing stocks.

What would you describe as being your greatest personal success to date? I would say that this is the overall success of Autus as a business and the growth we’ve

experienced since inception. I am also extremely pleased with our Raging Bull Award win this year. As I said earlier – it’s a great honour.

If you had R100 000 to invest, what would you do with it (besides investing in Autus products)? I would buy three to five blue chips, given that this would be a long-term investment. I would consider Naspers, SAB, Richemont, PSG and maybe EOH.

How do you strike a balance between your personal life and your work schedule? When I started this business I had coffee with Mervyn Mellett – one of the founders of BJM Asset Managers. I asked him if he had any words for me to carry after starting this business, and he said “24/7”. I’ve been happily married for more than 35 years – my wife understands the necessity of my work ethic, and that is already rewarding enough. It’s also rewarding to have the freedom to do what I want, when I want and how I want it. I have the freedom to work or spend time with my family in such a way that I can enjoy my life. If you go back to the 24/7 part of it, it means that even on holiday you will be on your iPad trading and making decisions. My family accept this and that I have to balance between the need for freedom and also the required responsibility.

Autus Fund Managers secured its first Raging Bull Award this year. The Autus BCI Opportunity Fund won a Certificate Award for Best South African Multi-asset Flexible Fund on a straight performance basis for the three-year period ending 31 December 2014. The Autus BCI Opportunity Fund outperformed 70 other funds in the category South African Multi-Asset flexible fund. The fund’s investment strategy means the asset classes consist of five per cent property, 85 per cent shares and a portion of cash. The Autus team always considers the risk. It registered this specific fund in the multi-asset flexible category, so that it could include other asset classes, not just shares, giving flexibility if necessary. Although the fund mandate focuses on shares, the Autus team decided to take a slightly different approach. It looked at companies chiefly based in the Western Cape, alternatively a very focused company, such as Mr Price. The Autus team also looked at companies that represent South Africa internationally, but with strong links to the Cape, for example, Remgro and MediClinic. The team conducted thorough research, noting whether the owners were still actively involved in the running of the business – strategising, managing and making decisions.

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Regulatory development

Remuneration issues in the RDR landscape

ince 2012 the Financial Services Board (FSB), together with the industry, have been in the process of reforming the way financial products are sold under the auspices of the Retail Distribution Review (RDR), in recognition that consumers still suffer from excessive costs and mis-selling. This Review has the aim of enhancing trust between financial advisers and consumers, mainly by improving clarity around the fees, services, and associations of financial advisers for potential clients. Most recently, in November 2014 the FSB released a discussion paper outlining the intent of the RDR, proposing a number of widereaching reforms. Of the RDR’s 55 proposals, those regarding intermediary remuneration are among the most important. They are shaped by certain key principles, including: • Intermediary remuneration should not contribute to conflicts of interest that may undermine suitable product advice and fair outcomes for customers. • All remuneration must be reasonable and commensurate with the actual services rendered. • Remuneration structures should strike a balance between supporting ongoing service and adequately compensating intermediaries for up-front advice and intermediary services. • Ongoing fees and/or commission may only be paid if ongoing advice and services are indeed rendered. • All fees paid by customers must be motivated, disclosed and explicitly agreed to by the customer. Recently, CoreData Research, a global specialist financial services consultancy, investigated the following: how prepared South African advisers are for changes to the way they are 36 investsa

remunerated; whether their business practices are already likely to be in line with changes introduced by the FSB; and how far they thought they would have to update the way they charge clients. They conclude that financial advisers are not confident in the financial regulator’s ability to provide guidance related to the impending RDR changes. Over four in 10 (43 per cent) say the FSB is not competent to offer the industry this key support. Among other findings, the survey also revealed that more than three in five advisers (63 per cent) are concerned by the prospects of a complete ban on commissions, and their clients’ resistance to paying direct fees (65 per cent). Should the regulator choose to take the strictest stance on commission payments – which would mean banning them completely – then nearly 80 per cent of the advisers in South Africa face a very significant challenge. Only 21 per cent of advisers currently work on a fee basis, according to CoreData. Advisers servicing the affluent investor segment could face the most pressure in this regard. Almost three-quarters (73 per cent) say a commission ban will impact on their business negatively. This is also the segment that has fewest advisers already using a fee-based business model. If the UK’s reform experience is used as a model, certain South African advisers do have reason to be worried about their remuneration. The 2014 CoreData study on UK adviser fees and business models finds that lower-end advisers, who historically were highly reliant on commission payments, are slowly being squeezed out of the market. By contrast, those who have been resilient are those willing to charge clients a premium for the services they offer – in other words, the elite. The number of ‘restricted’ advisers – those selling the financial products

of only 1 or 2 product providers (termed ‘tied’ advisers in South Africa) – is also on the rise. In the new landscape, among the many issues South African advisers will have to consider are their unique value proposition and the cost of that value proposition to clients. This means advisers will need to demonstrate the value of the services they are providing to their clients. Perhaps the industry has struggled to articulate the value of advice, making it difficult for consumers to conclude that professional advice is something worth paying for. Many of the aspects which make advice so important are somewhat intangible. Luckily for advisers, the RDR proposals are likely to take some time to be legislated. There should be enough time for them to analyse their business models and implement best practices aimed at helping them run their businesses as efficiently as possible, while also improving client satisfaction. It is Prudential’s view that those advisory businesses that are already built around robust, sustainable models need have little to fear. Indeed, these businesses may well be the winners in a postRDR environment.

Hamilton van Breda, head of retail distribution at Prudential Investment Managers

2015 SAVCA Private Equity

in Southern Africa Conference Held every year in February, the SAVCA Private Equity in Southern Africa Conference is the longestrunning and largest private equity event in the region. It is hosted by the Southern African Venture Capital and Private Equity Association (SAVCA), the industry body for the asset class in the region.

his year’s conference, held in February at Spier Wine Estate in Stellenbosch, enjoyed a bumper attendance with 330 delegates and good representation from local and institutional investors. The one-day conference programme was preceded on the previous afternoon by a halfday investor master-class exclusive to institutional investors. This year’s programme, which featured over forty local and international speakers, addressed many of the key themes that shape and affect the private equity industry in Southern Africa. These included deal making and exits, talent management at the private equity firm level, the importance of environmental, social and governance factors in the portfolio management process, and insights from institutional investors on fund manager selection. The conference started with a scene-setting speech by SAVCA chairman Dave Stadler, which centred on the challenges and opportunities faced by the local industry. These included the availability of new deal flow, market uncertainty and the need to attract new investors to the asset class. The conference keynote address was delivered by the inimitable Jannie Mouton,

Erika van der Merwe, CEO of SAVCA, Dave Stadler, founding partner of Paean Private Equity and SAVCA chairman, with conference keynote speaker Jannie Mouton, non-executive chairman of the PSG Group.

non-executive chairman of the PSG Group. Mouton recounted how he was forced to re-evaluate his life after he was fired as CEO by his partners at stockbroking firm Senekal, Mouton & Kitshoff – a company he had helped build for twenty years. Today, the PSG Group, which Mouton founded, is one of South Africa’s most successful investment groups, with stakes in Capitec Bank, Curro Holdings and Distell, amongst others. Mouton is positive about the opportunities that South Africa and the broader region offer for discerning entrepreneurs. A conference highlight was the panel discussion titled the Evolution of Private Equity in South Africa, featuring industry stalwarts André Roux, founder of Ethos Private Equity, Antony Ball, Rockwood Private Equity Chairman and Paul Boynton, CEO of Old Mutual Alternative Investments. Moderated by SAVCA CEO Erika van der Merwe, the panel reflected on the industry’s journey over the past three decades. In line with the conference theme Investing for Growth, Investing for Good, the agenda included the launch of the first SAVCA Case Study Compendium. Representatives from a diversity of SAVCA member firms brought this publication to life with their examples of how private equity investment goes handin-hand with uplifting environment, social

and governance criteria. The sixteen case studies were taken from across the industry spectrum, including agriculture and food, infrastructure, retail, services and manufacturing. Each case study demonstrates how smart investing, careful planning and considered management can have far-reaching and meaningful influence. Professor Jonathan Jansen’s after-lunch keynote address was an impassioned plea for South Africans to work towards a better education system for all. He challenged the audience to make a difference by playing a more active role in supporting our schools. SAVCA took up the challenge, pledging over R20 000 to the Professor’s grassroots initiative to get copies of his self-help guide, How to Fix our Schools into all South African high schools. The formal conference proceedings closed with an inspiring address by young energy entrepreneur and engineer Siya Xuza. He enthralled the audience with his account of how he overcome obstacles to become an acclaimed innovator. At age 26, Xuza already has a minor planet, ‘Siyaxuza’, named after him. He called on the audience to set seemingly impossible goals, and then to work towards achieving these. investsa

A new investment product for South Africa:

the introduction of tax-free savings By Vivienne FouchĂŠ

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Tax-free savings

On 1 March 2015, the National Treasury introduced the long-awaited legislation allowing discretionary tax-free savings for individuals. As well as playing a role in traditional savings, this could be an excellent way for individuals to supplement their retirement income, and/or save for medical expenses in retirement.

hose individuals who choose to save in a tax-free savings account will not pay any tax on their investment of up to R30 000 per year and a lifetime limit of R500 000. No tax is payable on interest, dividends or capital gains. New beginnings Rupert Giessing, head of product development at PSG Wealth, says, “Treasury has given South Africans a wonderful opportunity to save on a tax-free basis, and we believe that every investor who can should take advantage of this opportunity. This type of tax-free product has been available in the UK and the USA for some time, and PSG is delighted that it has come to South Africa. This is really a milestone in the financial services industry; there hasn’t been a new class of investment product available to investors for some time.” Bradley Drury, research & product development, Alexander Forbes Financial Services, explains that the government has introduced tax-free savings accounts to incentivise South Africans to be savers rather than spenders. Drury comments, “While the introduction of these accounts is a step in the right direction, some issues need to be considered, such as who benefits from these accounts, what are some of the considerations in taking advantage of the tax benefits, and when will the benefits be realised?” Maximising the new offering Bongani Mageba, STANLIB retail managing director, says, “Although investing R30 000 a

year may not sound like a substantial amount, the compounding effect – together with the fact that all the income is tax-free – proves significant over time. We believe the national savings product is an efficient and powerful way to build up one’s savings pool over the long term. It is especially potent when combined with a retirement annuity, which also gives investors tax benefits.” Drury says the initial starting point is obviously the approximately five million taxpayers who would gain a tax advantage. “Those individuals who are currently putting aside savings which are subject to tax will feel the immediate benefits by redirecting their future savings into these accounts. To consider the overall benefits of these accounts, one needs to allow for the variety of tax exemptions and deductions that are currently offered to individuals.” Best practice advice for most individuals would be to consult a financial adviser when looking at the tax-free savings products as part of their holistic financial planning needs. John Kinsley, MD of Prudential Unit Trusts, says, “It is important for investors to remember that the maximum contribution limits imposed by the FSB are R30 000 in a year and R500 000 over the individual’s lifetime. Investors should keep close track of their contributions because they face a stiff penalty from SARS should they exceed these limits – 40 per cent of the excess contribution.” The real benefits of the tax-free savings account are felt in the longer term when the benefits of compound interest come through. Drury says, “For this reason it is most suited for individuals who can attach the savings account to a long-term goal with savings terms of at least eight years. These goals may include saving for children’s university education, supplementing retirement funding, post-retirement medical expenses or even a life-goal like the overseas holiday of a lifetime.”

Number crunching Drury says, “Given that exemptions and deductions already existed to a certain degree, how would this new account provide an incentive that was not previously there? Individuals under the age of 65 are currently allowed R23 800 in interest income tax-free per year. This will no longer be increased in line with inflation and will effectively be replaced by the tax-free savings account. “Individuals are also currently exempt from paying tax on the first R30 000 of any capital gains. Comparing the level of these exemptions to the annual limit available in the tax-free savings account of R30 000, it is apparent that the account isn’t suitable for all types of savings a person may have.” Seugnet van der Merwe, Investment Analyst at Nedgroup Investments, says, “To give an example, a taxpayer who pays R2 000 per month over 20 years into a low-cost unit trust, earning inflation plus five per cent (i.e. 11 per cent) per annum on their investment, will have a total contributions amount of R480 000 over the period. The fact that income on investments is tax-free amounts to an estimated additional R166 000. Based on this broad estimation an investor will earn 3.4 times their initial investment, thanks to compounding investment returns, low fees and tax savings over 20 years. “We believe the ideal product for tax-free investment is one which offers an expected return and tax saving ranging from moderate to high, as this will allow you to capitalise your tax saving, effectively increasing your invested assets annually. Less money spent on taxes means more money that will work towards your savings goal, while lower fees allow even more of your capital to compound over a longer time.’ STANLIB, Nedbank, PSG and Prudential are among those companies which now offer appropriate vehicles that fall under the new tax-free savings banner. Different funds and products are designed to suit different clients’ needs, including where they are in their life stage, their appetite for risk and their ultimate investment goals.

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NEWS intention being that the additional planes could then form part of a portfolio of physical assets that could generate returns via leasing. “On the surface, this has the potential to be a viable business model for investors with sufficient capital to secure really good aircraft prices when buying in bulk.

Global market for aircraft leasing set to continue With performance generally having been down across all markets in recent years, James Geldenhuys, head of aircraft finance at Nedbank Capital, said that investors have been actively seeking out alternative avenues through which to generate decent returns.

the aircraft leasing market over the past 24 months or so. Much of this activity has taken the form of aircraft orders placed by lessor companies, backed by these investors looking for blue sky opportunities wanting to start commercial aviation businesses.”

“For many, this search has involved looking to the skies, literally, as evidenced by the fairly significant and steady capital flows into

Geldenhuys stated that typically, these orders have deliberately been for more aircraft than required by the specific enterprise, with the

Aircrafts are one of the truly globally appealing liquid and movable assets, and with the recent stellar increase in demand for passenger flights, particularly across Asia, most businesses have not found it too difficult to attract international lessees for their planes,” he said. He explained that if it is managed correctly, this type of lease transaction can be a real win-win situation in that it effectively enables the establishment of much needed commercial aviation to drive economic activity in Africa, while giving global investors a low-risk opportunity to participate in, and benefit from, the growth story that is unfolding on the continent, albeit from a historically low base.

Gtrax and Nedgroup Beta Solutions enter amalgamation agreement Grindrod Bank, via its Exchange Traded Funds (ETF) management company, Grindrod Index Tracker Managers (GTrax), has entered into an amalgamation agreement with Nedgroup Beta Solutions (NBS) to migrate its ETF suite to GTrax. GTrax will incorporate the funds of NBS’s BettaBeta Collective Investment Scheme in its ETF suite. The portfolios, namely the Top40 Equally Weighted ETF (BBET40) and BGREEN ETF (BGREEN), will be rebranded,

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but the investment objectives and cost structures will remain unchanged. Gareth Stobie, head of capital markets at Grindrod Bank, said the transaction is one of the steps the bank is taking to grow its low-cost, passive investment offering. “GTrax currently manages five ETFs spanning listed property, preference shares and general equity. ETFs have proven to be an excellent mechanism to build wealth and save over time. The global ETF market had another

record year in 2014 in terms of cash inflows, and we would like to mirror this trend in South Africa.” According to Stobie, “Nedbank has made an excellent contribution to the ETF landscape by introducing the equally weighted, alternative index concept and promoting sustainable investing. We look forward to continue building on the solid track record these portfolios have achieved.”

New South African stock market – 4 Africa Exchange A consortium of multinational companies is making an application to the Financial Services Board (FSB) to register as a licensed stock exchange. Should the licence be granted to 4 Africa Exchange (4AX), it will be the second licensed exchange in South Africa, next to the JSE. The consortium, led by Bravura, is in the process of applying for a licence to become an exchange for trading in shares of companies that are currently trading over-the-counter (OTC), shares in B-BBEE schemes as well as limited participation share entities. The other stakeholders in the consortium include Trifecta Capital™, Intercontinental Trust, Capital Markets Brokers, NWK and Global Environmental Markets (GEM), a developer of electronic exchange trading platforms, whose owner has

been involved in developing more than 30 exchanges in 22 countries. Stephan van der Walt, spokesperson for 4AX, said the aim of 4AX is to provide an infrastructure and service that will meet the needs of issuers with specific requirements about ownership as well as the needs of investors, while adhering to the regulatory oversight provided by the FSB and meeting the requirements and the principles of the Financial Market Act 2012.

shares on a licensed exchange, such as what 4AX is in the process of establishing. Van der Walt believes that the unique 4AX technology and business model will also address the issues facing ‘Restricted Shares’ – the restrictions on share trading embedded into the founding documents of some companies.

The application to register a securities exchange follows a directive issued by the FSB in July 2014 which stated that companies must either licence their OTC platforms as a regulated exchange, cease the illegal unlicensed exchange activities or obtain the appropriate exemption to continue with such activities.

“This will give the companies and share issuers comfort over the fact that their shares are being traded by appropriate investors but at the same time, award such companies the ability to unlock value for their shareholders and give them a liquid market on which they can trade their shares in a cost-effective manner,” he says.

In effect, the directive means that the companies who want to continue trading their shares as they have been traded in the past, must apply to become a licensed stock exchange, or list their

4AX will have its own listing requirements and exchange rules to protect investors, which will provide security to shareholders and investors in companies listed on 4AX.

David Kop

Recent promotions at the Financial Planning Institute The Financial Planning Institute of Southern Africa (FPI) recently announced that David Kop, Sherma Malan and Lelane Bezuidenhout have been promoted into new positions.

Sherma Malan David Kop, CFP®, previous head: membership and corporate relations is now the head: advocacy and consumer affairs. Sherma Malan MBA, the previous senior certification manager was promoted to the head: membership and corporate relations and Lelane Bezuidenhout, CFP®, former certification manager is now the senior certification manager.

Lelane Bezuidenhout Godfrey Nti, FPI CEO, said the appointments and promotions of these individuals support the strategic objective of positioning the Institute as the financial planning professional body that sets the standards for competent, ethical and professional financial planners that act in the interest of the public.

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Products

Investec Asset Management to use Stock Connect in the ucits Fund range Investec Asset Management has announced that funds within its flagship Luxembourgdomiciled UCITS Global Strategy Fund range will now have the capability to invest in the Chinese domestic equity market using Shanghai – Hong Kong Stock Connect. It is believed that Investec Asset Management is the first global investment manager of UCITS Funds set up to invest using Stock Connect. This news follows the award of an Renminbi Qualified Foreign Institutional Investor (RQFII) licence by the China Securities Regulatory Commission (CSRC) and the allocation of its RQFII investment quota by the Chinese State Administration of Foreign Exchange (SAFE). These developments allow Investec Asset Management to provide clients with direct access to mainland Chinese equity markets across both global and

regional products in a product structure offering both flexibility and liquidity. Greg Kuhnert, manager of the Investec Asian Equity Strategy, said the A share market represents the other 50 per cent of the China pie previously closed to foreign investors. “Because of our long-term investment in the region and investment hub on the ground, this market appears rich with opportunities for investors like us who are focused on companies demonstrating improving profitability, return on capital, capital discipline and valuations.” “In the near future, Investec Asset Management intends to utilise its RQFII licence and quota to launch two new daily dealing UCITS funds in its GSF range, one focusing on Chinese equity exposure and the other on onshore Chinese bonds, concludes Kihnert.

Momentum raises $50 million for African Real Estate Fund

Momentum GIM, in conjunction with Eris Property Group, has successfully closed the first tranche of its African Real Estate Fund with $50 million of institutional, family office and HNW investor capital. The fund will focus on the development of retail, commercial and light industrial real estate in sub-Saharan Africa outside South Africa, offering investors access to Africa’s strong economic growth and its emerging consumers. The fund is aimed at long-term institutional investors and it has a $250 million fund raising target for its final close on 30 June this year. According to David Lashbrook, head of Africa Investment Strategies at Momentum

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GIM, the launch of the Momentum Africa Real Estate Fund is in response to client demand to capitalise on Africa’s growing need for quality retail, office and industrial real estate. “We believe that investing in the development of commercial real estate is an exciting way for investors to support and participate in the rise of the African consumer. The fund seeks to mitigate the key risks of property development prior to commencing construction and it targets a minimum internal rate of return of 18 per cent in USD net of all fees over its eight year life.”

Warren Schultze, CEO of Eris Property Group, a property services and development company focused on sub-Saharan African markets, said that in recent months they have been working on developing relationships in countries such as Ghana, Mozambique and Rwanda in anticipation of the launch of the fund. Projects earmarked for development include an office complex in Accra, Ghana; a retail centre in Maputo, Mozambique, and an office/hotel in Kigali, Rwanda. The plans for the Kigali project include the use of plant life as organic air conditioning that will reduce environmental impact and running costs.

The world

RUSSIA, ZIMBABWE, INDIA, ZAMBIA, CHINA, GREECE, BRITAIN

$35 Billion anti-crisis plan for Russia Russia has announced its $35 billion ‘anticrisis’ spending plan to assist its economy and bail out banks and big companies. This comes after Russia’s economy was negatively affected by Western sanctions as well as the decline in the oil price. The plan is said to cut ‘the majority’ of its planned expenditures by 10 per cent in 2015, except for defence, social spending and debt repayments, with a view to balancing the budget by 2017. Challenges in various sectors hamper Zimbabwe’s economy Challenges in Zimbabwe’s manufacturing and mining sectors – the country’s biggest source of foreign exchange – continue to weigh down the economy’s growth potential. This is according to John Mangudya, Zimbabwe’s central bank governor. Mangudya says the economy will not increase much from last year and that inflation will “remain in negative territory for most of 2015”. The country’s economy is struggling to improve, with foreign exchange declining in 2014 and consumer spending remaining weak. India stands as most attractive BRIC country for global investors The International Monetary Fund predicts that the economy of India, the poorest member of the BRIC nations, will grow faster than each of its BRIC (Brazil, Russia, China) counterparts for the first time since

1999. So far, more than R80 billion rand has been put into the country’s stocks and bonds this year. According to India’s Prime Minister, Narendra Modi, India plans to keep inflation contained and make investing in the country an easier process for businesses. Zambia to take back hike in mining royalties In an effort to recuperate investments within the mining sector, Zambian President Edgar Lungu has announced his plan to take back the hike in mining royalties which was implemented by his predecessor, former President Michael Sata. After the new hike came into effect in January this year, threats were made by various mining companies, indicating that production and jobs would be scaled down in a sector which is arguably the country’s economic lifeblood. However, the plans to reverse the hike in mining royalties may come too late to revive investment in the sector, with foreign investor confidence having been shaken and eyes now on the neighbouring Democratic Republic of Congo as being a potential ‘better bet’. Chinese economy lowest in over two decades Slow growth is expected for China in 2015 as a result of 2014 having been recorded as the country’s slowest annual growth period in 24 years, due to property prices decreasing and companies and local governments not being able to cope with their debt. Consequently, the government has chosen to rely on a ‘more consumption-

based growth model’, according to Olivier Blanchard, chief economist of the International Monetary Fund (IMF). The IMF has predicted a 6.8 per cent increase in the Chinese economy in 2015. Greece reform proposals approved by Eurozone finances ministers Eurozone finance ministers have approved reform proposals submitted by Greece in order to obtain a four-month extension of its bailout. The measures offered by Greece include combating tax evasion and reforming the public sector. However, the head of the International Monetary Fund said they lacked ‘clear assurances’ in key areas. Fresh funding will not be released until Greece’s proposals are approved in detail. The stakes of talks over continued financial aid have been high because of fears of a Greek default that could push it out of the euro, triggering turmoil in the EU. Low CPI benefits Britain The British Government announced in February that the consumer price inflation (CPI) had fallen to a record low of 0.3 per cent year-on-year in January. The main factors contributing to this drop included the decline in food and oil prices. Chancellor George Osborne said the record-low inflation was “a milestone for the British economy.” This drop is a positive turn for British consumers, but, due to the uncertainty within the global economic environment, the British Government will still remain alert to any risks that could affect the CPI.

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They said

A collection of insights from industry leaders over the last month

considered a strategic asset, not a shortterm trade. Given this historical uptrend, gold’s recent dip might well prove to be another strategic buying opportunity.” Dave Levenstein, founder and owner of Johannesburg-based bullion dealer Lakeshore Trading, speaking to the current gold price and latest trends for 2015. “Many other funds are boosting their distributions by various methods which can be seen as financial engineering. While these are legitimate, they are not sustainable, in my opinion. Our 7.5 per cent growth is at the top end of our seven to 7.5 per cent market guidance and comes at a time when we have hit critical mass in terms of our portfolio in SA.” Growthpoint CEO Norbert Sasse speaking on growing Growthpoint’s portfolio sustainably. “There is pressure all round. The market is saturated. We have to rationalise, optimise our business. We have to manage the transition that we are seeing.” Vodacom CEO Shameel Joosub, telling the Financial Mail that the past year had been one of the industry’s toughest.

“It's no surprise to see that banks are having to raise compensation particularly for their juniors and graduates. Given the hammering the reputation of banking has taken in the last few years, it no longer has the automatic ‘career of choice’ status it once enjoyed among ambitious graduates.” MD of executive search firm Purcell & Co, John Purcell, comments on European lenders seeking to attract more junior bankers to an industry that has been hurt by scandals tied to misconduct, with regulators increasing scrutiny and banning bonuses of more than twice fixed pay across the region. In the US, banks have been cutting work hours and improving conditions to stem a loss of talent to the less-regulated private-equity and hedge fund industries. “We have been buying shares in companies where the optics at the moment look horrible, where anybody in the street can point to everything that’s wrong and why they are risky, and while that sentiment is pervasive, we have been accumulating, because that is what value managers do.” Jan van Niekerk, current CEO and in-

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coming CIO at RECM, speaking following the departure of out-going CIO, Danie Malan. “The report shows that there are now 15.3 million people who are employed in South Africa. Jobs grew by 203 000. Our investment in youth employment is also paying off. The Employment Tax Incentive, which was introduced last year directed mainly at the youth, is progressing very well. Two billion rand has been claimed to date by some 29 000 employers, who have claimed for at least 270 000 young people.” President Jacob Zuma speaking at the 2015 State of the Nation address referring to a report published by SARS which highlighted South Africa’s employment figures for the last quarter of 2014. “I believe robust demand from the East will continue, particularly from China and India, which comprise about 70 per cent of the world’s physical gold demand. Over the past year, physical gold has moved from the US and Europe to China, where gold is

“The mining sector remains absolutely vital for Africa’s future, and even with the sharp declines in [commodity] prices, there are tremendous opportunities and there will be, no doubt, an adjustment and reshaping of the face of mining within Africa over these next few years.” Former Prime Minister Tony Blair’s keynote address, during the 2015 Mining Indaba which took place in Cape Town, South Africa “…this has been a challenging budget to prepare, under difficult economic circumstances. The resources at our disposal are limited. Our economic growth initiatives have to be intensified…. Our collective future depends on the energy and enterprise of all of us. The 2015 Budget takes forward our National Development Plan and medium-term strategic framework, recognising that the gains of our democracy have to be shared more equally and our economy has to be given greater impetus.” South African Finance Minister Nhlanhla Nene’s 2015 Budget Speech which took place in Cape Town on 25 February 2015.

You said

A selection of some of the best tweets as mentioned by you over the last four weeks.

@RudyHavenstein: “The line between gambling and investing is artificial and thin.” – Michael Lewis’ Rudolf E. Havenstein – ReichsBank®President from 19081923; consultant to the Fed, BOE, BOJ. ‘My way of joking is to tell the truth’ - GB Shaw. Tweets are for my own amusement.

@BaragwanathBiz: “Half the world trying to revive economies by weakening currencies, other half scrambling to defend currencies to revive growth. Both failing” Tom Robbins – Occasionally a financial journalist. Always opinionated. Food writer. Disclosure: owns shares in some JSE listed companies.

@akeembailey: “EmergingMarket Stock Valuations Jump to

Highest in Four Years boosted by India” Akeem Bailey – Tracking investment trends in emerging markets and #FrontierMarkets w/ occasional focus on SubSaharan Africa.

@RussLamberti: “Tax hikes in SA might appease bond markets short term, but only worsen longer term fiscal health & entrench structural decline. #bearish” Russell Lamberti – Economist. Freedom-Lover. Chief Strategist,

ETM Analytics. Mises Institute South Africa. Co-author: When Money Destroys Nations.

@ceesbruggemans: “Markets are no longer a clear indicator of economic wealth but of future expectations...” Cees Bruggemans – Consulting Economist.

@chrislbecker: “If SA govt bans foreigners from owning “arable” land in SA, can I sell my house to foreigner if it has veggie garden out back?” Chris Becker – Lead Economist & Strategist at African Alliance Securities. Contrary-minded. Macro junkie. Investment banking in Africa.

on equity after the Euro liquidity and fall in inflation\oil. Also the biggest exposure to banks ever!” Wayne McCurrie – Portfolio Manager – Momentum Wealth.

@Julesiejules: “Don’t chase cheap assets. Chase growth assets and strategise for favorable exits. #SAVCA2015” Julia Woods – Banker. Entrepreneur enthusiast. Adventurer. Occasional triathlete. Private musician. Fascinated by tech. Love all things old.

@mcleodd: “Telkom’s share price has pierced R80. It’s up 575% in less than two years” Duncan McLeod – Founder and editor of @TechCentral, Sunday Times columnist, prog rock fan, bulldog owner and trail runner.

@WayneMcCurrie: “SA fund managers a lot more bullish

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And now for something completely different

Amazing Fantasy, in which Spider-Man was unveiled on the cover, is worth $280 000. Even more famous is the 1938 series, Action Comics issue No. 1, which features Superman for the first time and, on average, is valued at around $350 000. What makes the Action Comics issue so valuable is that it is estimated that there are only around 100 copies of the comic left in existence, with approximately only 50 having been restored.

Nothing comical about comic book investing

Comic books represent an important component of the collectibles market and can prove to be incredibly lucrative for collectors holding highly sought after and rare items. But, in order to carry a large price tag, the comic books must also be in near-mint condition. Condition and scarcity have a huge impact on the comic book market. Missing pages, loose centrefolds and other defects will devalue a comic book, as will page quality. Comic books that mark the first appearance of a popular character are pricey, as are comic books with important storylines.

he billion dollar world of superheroes, supervillains and adventure characters was first introduced to the world in the ‘Golden Age’ of comic books, which spanned from the late 1930s into the early 1950s. While comic book production has declined significantly over the last few decades, collecting rare and vintage issues is not just something for avid fans and collectors.

Very few comic books from the ‘Golden Age’ have survived, largely due to the fact that they were actively read by kids at the time, shared with their friends and eventually thrown out with the garbage. However, the comics that do still exist could easily fetch hundreds of thousands of dollars, if not more. Among the most expensive comics are the ones that tell the story of a superhero’s first adventures.

1938 Action Comics issue No. 1 – $3.2 million

1939 Detective Comics issue No. 27 – $2.57 million

1962 Amazing Fantasy issue No. 15 – $1.1 million

Detective Comics is the longest continuously published comic book in U.S. history. However, it was only in its 27th issue of the comic book that its most iconic hero appeared.

Originally sold for 12 cents, Amazing Fantasy issue No. 15 was the last of the series before being cancelled. What made this such a significant issue, however, was that it was the first time that the Amazing Spider-Man was introduced.

That superhero would eventually become the star of the title, the cover logo of which is often written as Detective Comics featuring Batman.

With a CGC grading of 9.2, the sale of this issue broke the record for Silver Age comics.

The most valuable comic book of all time is a first issue of the 1938 copy of Action Comics, which features Superman for the first time. Sold for a staggering $3.2 million during an online auction on eBay in August 2014, the comic book broke the previously held record for the same issue sold in 2011 for $2.1 million. The issue was awarded a grade of 9.0 from the CGC, the highest grade ever assigned to a copy of Action Comics No. 1 issue by CGC and a sign that the 76-year-old comic is still in top condition.

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As an example, the 1960 No. 15 issue of

In order to help determine the value and worth of comic books, the Certified Guaranty Company (CGC) was established in 2000. The CGC has been grading comics on a ten-point scale that has allowed collectors to independently verify how much comic books are worth. While superheroes may not be real, it is possible that Superman can still save the day.

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Old Mutual Investment Group (Pty) Limited is a licensed financial services provider. Unit trusts are generally medium to long-term investments. Past performance is no indication of future performance. Shorter-term fluctuations can occur as your investment moves in line with the markets. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Unit trusts can engage in borrowing and scrip lending. Fund valuations take place on a daily basis at approximately 15h00 on a forward pricing basis. The fund’s TER reflects the percentage of the average Net Asset Value of the portfolio that was incurred as charges, levies and fees related to the management of the portfolio. *Performance periods to 31 December 2014. Since inception 1994.

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