INVEST SA MAGAZINE AUGUST 2012

MONEY MARKET FUNDS why they’re better than the bank

MEDIA INVESTMENTS

An ever-changing news story HEAD TO HEAD

Glacier by Sanlam and Rezco PROFILE - James Saulez

Group CIO and Head of Online Trading at Global Trader

IRELAND/DAVENPORT 70311

1 in 6 people will live to 100. 1 in 100 will have saved enough to last that long.

At Investec Asset Management, we believe that you should do the most with your money.

R100 000 invested in the Investec Opportunity Fund ten years ago would have grown to R522 710 today. The Investec Opportunity Fund has a consistent long-term track record of beating inflation with average annualised returns of 19.6% since inception in 1997. By balancing investments in equities, bonds, cash, property and offshore investments we aim to minimise risk and maximise returns.

If opportunity is there we’ll find it.

Invest in your future today by contacting your financial adviser, calling us on 0860 555 700 or visiting www.investecassetmanagement.co.za

Source: The World Fact Book and Financial Mail: Leaking Bucket - March 2010

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All information and opinions provided are of a general nature and are not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an adviser or in a fiduciary capacity. No one should act upon such information or opinion without appropriate professional advice after a thorough examination of a particular situation. We endeavour to provide accurate and timely information but we make no representation or warranty, express or implied, with respect to the correctness, accuracy or completeness of the information and opinions. We do not undertake to update, modify or amend the information on a frequent basis or to advise any person if such information subsequently becomes inaccurate. Any representation or opinion is provided for information purposes only. Collective Investment Schemes in Securities (CIS) are generally medium- to long-term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. Commission and incentives may be paid and if so, would be included in the overall costs. Forward pricing is used. Performance is sourced from Morningstar and is based on R-class returns to 31 March 2012. The above portfolio performance is calculated on a NAV to NAV basis and does not take any initial fees into account.

Income is reinvested on the ex-dividend date. Actual investment performance will differ based on the initial fees applicable, the actual investment date and the date of reinvestment of income. Investec Fund Managers SA Ltd is a member of the Association for Savings & Investments SA.

Contents

CONTENTS

06

Money market funds Why they’re better than the bank

12

Media investments An ever-changing news story

14

PROFILE– James Saulez Group CIO and head of online trading at Global Trader

16 18

Twenty percent is the new rule of thumb for retirement savings

20

Asset management Investors debate safe havens in the wake of falling emerging market commodities

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MONEY MARKET FUNDS why they’re better than the bank

HEAD TO HEAD Glacier by Sanlam and REZCO Investment Consulting

MEDIA INVESTMENTS

An ever-changing news story HEAD TO HEAD

Glacier by Sanlam and Rezco PROFILE - James Saulez

Group CIO and Head of Online Trading at Global Trader

16

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Letter from the editor

letter from the

editor Money market funds and banks are closely connected. That’s where the funds put a lot of your money, albeit at higher returns than investors can get because they negotiate higher rates due to large deposits. But much of your money is going into the bank, the latest four-letter word among investors.

Banks are going through a negative perception crisis, maybe even an identity crisis. I’ve no doubt our banks in South Africa are in fine shape, even Absa with its delinquent major shareholder Barclays. I decided some time ago not to name the bad guys. They don’t deserve the publicity. Just like that portly young man recently expelled from the ANC is never offered the good grace of being named by me; neither will the ex-CEO of Barclays, as he probably heads off to Bermuda with his over-generous pay out and a twinkle in his eye.

Banks, whether a good investment or not (and some look worth buying now), are more than just another business in the economy. As has been demonstrated in Europe and the UK, when banks get into financial trouble, everything else in the country gets shaky. Who do you trust if you can’t trust your bank manager?

What you can rely on are some excellent articles in this issue. Sean Segar from Nedgroup Investments gives us the low-down on money markets; while Colin Sundelson from Investec Asset Management discusses how to generate additional yield on cash holdings. The ever-prescient Piet Viljoen, boss at RE:CM, advises investors to check on where your money market fund is invested. Take a look at our three fund profiles to see what different money market funds are investing in.

Maya Fisher-French tells us why the old rules for saving for retirement don’t apply anymore, and how much you should be saving. And we have Sunel Veldtman’s column on women and money. I learned a bit there.

The women in my life: wife, daughters and an old aunt, have this idea that money is there to be spent faster than I can earn it. The column will be compulsory reading for all of them.

There’s much more. One interesting little point though. Money market funds are battling, over one year, to offer you a return much above inflation. Yet the lower-cost, top-performing exchange traded funds are comfortably outstripping inflation. This is certainly something for financial advisers to consider for their clients.

EDITORIAL Editor: Shaun Harris investsa@comms.co.za Features writers: Maya Fisher- French Miles Donohoe Publisher - Andy Mark Managing editor - Nicky Mark Design - Gareth Grey | Dries vd Westhuizen | Herman Dorfling Editorial head offices Ground floor | Manhattan Towers Esplanade Road Century City 7441 phone: 0861 555 267 or fax to 021 555 3569 www.comms.co.za Magazine subscriptions Sandy Stober | subscriptions@comms.co.za Advertising & sales Matthew Macris | Matthew@comms.co.za Michael Kaufmann | michaelk@comms.co.za Editorial enquiries Greg Botoulas | greg@comms.co.za

investsa, published by COSA Media, a division of COSA Communications (Pty) Ltd.

Copyright COSA Communications Pty (Ltd) 2012, 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.

44

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To invest in the BGreen ETF in your personal capacity visit Nedbank Online Share Trading, contact your stockbroker or preferred online share trading platform or go to www.etfSA.co.za.

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Nedgroup Life offers the Guaranteed ETF Plan, which is linked to the BGreen ETF for investors requiring secure investment offerings. Email Nedgroup Life at ClientServices@nedgrouplife.co.za.

Nedbank Capital is a division of Nedbank Limited Reg No 1951/000009/06, VAT Reg No 4320116074, 135 Rivonia Road, Sandown, Sandton, 2196,South Africa. We subscribe to the Code of Banking Practice of The Banking Association South Africa , and, for unresolved disputes, support resolution through the Ombudsman for Banking Services. We are an authorised financial services provider. We are a registered credit provider in terms of the National Credit Act (NCR Reg No NCRCP16).

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Invest for good. Invest in green.

Money Market Funds

Money market funds

why they’re better than the bank

By Shaun Harris

6

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M

oney market funds generally attract the largest amounts of money from both retail and institutional investors. It’s a trend that has been in place for a number of years, certainly since the end of 2008, as nervous investors sought capital protection from volatile equity markets. The problem is the capital might be safe, but the return on that capital, remembering that income from money market funds is taxed, is unlikely to beat inflation. On a long-term investment view, capital in a money market fund will be eroded by inflation.

Yet money market funds remain very popular. Invested in for the right reasons, money market funds can be a sensible addition to an investment portfolio. But often retail investors, and in some cases nervous financial advisers, invest in the funds for the wrong reasons. The end result is lower than inflation returns and ultimately the destruction of capital over time.

African banks are not in the same camp.

They are well capitalised and, in most cases, well run. But the global indignation at what some banks have done will spread to all banks. In the case of Absa, already under scrutiny for allegedly inflating earnings in a previous financial period that led to a warning of an earnings loss in the current period, the effect will be more direct through its controlling shareholder Barclays. Taxpayer bail-outs are one thing; manipulating the London Interbank Offered Rate (Libor) looks far more serious. And Barclays is probably going to give all banks a bad name.

In many ways holding cash in a money market fund makes more sense than a deposit at a bank. Money market funds get higher interest rates from the banks because of the large deposits they make, which in turn means that the investor gets a higher return than at the bank.

And because the money is spread across a number of banks there is not the concentration risk of the investor having all their money in one bank.

“Despite the negative perceptions of banks and certain bankers, it should not have any effect on the returns earned by money market funds.”

At least a money market fund will earn a higher return than money in the bank, which is what really cautious retail investors are doing. Large deposits will earn a little over five per cent. Capitec Bank probably offers the most competitive returns, between six and 8.5 per cent.

However, to earn 8.5 per cent the client has to invest more than R100 000 for at least 49 months. A money market fund will get a lower return, in the region of six per cent depending on the fund, but the investment is flexible, with the client able to withdraw funds on one day’s notice.

Of course, the money market funds will also largely be invested in banks; the Big Four banks in South Africa as well as the more specialist banks like Capitec and African Bank Investments Ltd (Abil).

Remember when bank investments were considered safe as houses. Well, the houses are tumbling down. There’s a whole new perception on banks following the bail-outs in Europe and the UK. South

Fixed income specialist Atlantic Asset Management, in one of its recent weekly reports, suggests that the banks are perhaps being judged too harshly.

“Justified action and public participation are some of the critical pillars of a sound social contract. But the constant reaction to the newest headline, the spectacularly thin news coverage and the faux outrage by commentators to certain issues have become like the boy who cried wolf,” writes the Atlantic team.

Despite the negative perceptions of banks and certain bankers, it should not have any effect on the returns earned by money market funds. The problem is that these returns are not going to give investors an inflation-beating return.

Roshen Harry, co-manager of the Money Market Fund at Prudential Fund Managers, says in the uncertain global economic environment many investors are overly concerned about the risk of capital

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loss and opt for cash as the perceived safe choice. “But this is not the optimal investment decision. On the other hand, managing the fine balance between risk and inflation, and still receiving adequate yields, requires specialist skills and knowledge that most individual investors don’t have.”

Looking at the three asset classes typically found in a fixed income fund – cash, bonds and property – he says of money market funds: “These funds are yielding negative real returns, or returns lower than inflation. According to some economists, inflation is set to reach seven per cent by the end of 2012. Cash does not offer protection against such inflation levels eating away at your money.”

For the very cautious investor returns are not the primary objective. What they want is capital protection, the assurance that their money will be safe. It will be in a money market fund. But again Harry warns: “Cash offers capital stability in the sense that you cannot lose the nominal value, before inflation, of your investment.

Your money’s purchasing power can, however, decrease due to the effects of inflation.”

What this means is that an investment in a money market fund will in fact put an investor’s capital at risk due to the threat of inflation. Money market funds can be excellent vehicles for short-term investments, for instance if an investor wants to keep his money safe for a short period of time or if the investor has a specific short-term goal for the money. All too often, though, investors put money into money market funds and leave it there for long periods of time. This is when the capital is eroded by inflation and, together with the time value of money, the capital is actually under threat.

Harry’s advice is for investors to put their money into an actively managed fixed income fund. “Because most investors don’t want to worry about how much money to invest in bonds, corporate bonds or money market assets, but also want to remain at the lower end of the risk spectrum, it’s ideal to invest in a fixed interest solution where the risks inherent in each of these asset classes are managed for you.”

This is where financial advisers can play a critical role. They need to spell out the dangers of inflation to clients seeking to protect their capital. Many clients will be adamant that they want their money in a money market fund. The advisor needs to point out that money market funds are not the ideal solution for capital preservation, except over short periods of time.

7

MONEY MARKET FUNDS

In these tough times, is your company’s cash

Colin Sundelson | Head of Corporate Sales, Investec Asset Management

also working harder?

S

outh African corporates appear to be weathering the uncertain economic outlook and volatile market conditions relatively well, with high cash reserves of an estimated R530 billion and strong balance sheets.

While domestic companies are experiencing a drop-off in demand from trading partners in Europe and the East, the large cash reserves can be attributed to the uncertain market conditions, which have resulted in large companies holding back on capex spend or other growth initiatives.

transactional bank accounts. However, many corporates want the ability to access their cash within 24 hours for unforeseen expenses and do not have the required certainty around their cash forecasts to confidently fix for longer periods. This is where money market funds provide an attractive alternative. These funds provide same- or next-day liquidity, i.e. immediate access to your cash, while providing enhanced returns, mostly in excess of a three-month fixed deposit. They also have the added advantage of in-built diversification, spreading the cash across the top SA banks.

Given that the current macro uncertainty, coupled with lower-for-longer interest rates, are forecast to continue throughout 2012 and beyond, corporate SA would be well served to consider all the available investment options to generate additional yield on their cash holdings.

Companies typically take investment decisions on their cash based on three key criteria: Liquidity/access to funds – Are funds available for withdrawal in unforeseen circumstances? Will there be penalties for early withdrawal on investments?

Risk – Am I taking risk on a single bank/ counterparty by placing my company funds with a particular bank and, if so, how can I diversify this risk? In order to generate additional returns, do I need to invest in a different (riskier) asset class like equity or property or is there a way for me to continue investing in money market instruments and still generate higher returns?

Return/yield – How can my company invest in money market instruments to which I am accustomed, get overnight access to my funds and earn returns in excess of bank call rates?

The reality is that low interest rates mean

8

that company cash reserves are barely able to provide a real return after inflation. This has left many CFOs and treasuries looking for ways to get the most out of these assets by ‘sweating their cash’.

One way to achieve a better return from cash reserves is to segment a company’s cash into three categories: transactional cash, operational cash and strategic cash, and thereafter finding the most suitable investment vehicle for each of these categories.

Transactional cash is typically used for day-to-day expenses and would need to be available immediately. The most practical vehicle to house this kind of cash is a transactional bank account.

Operational cash usually refers to company funds that are required to fund the operating cycles of a business, for example paying creditors and purchasing inventory. Corporates who are willing to fix their cash are able to access higher bank rates through fixed deposits over

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Some corporates also hold cash for longer periods for business or strategic reasons, such as funding an intended acquisition or holding reserves for mining rehabilitation provisions. In many cases, the cash has a horizon in excess of more than 12 months. Ideally, a company would want to ensure that this money is keeping track with inflation and providing a real return until such time as it is deployed. However, capital preservation remains the main priority and many executives would not agree to take on significant risk to earn an additional return.

There are a number of low-risk, fixedincome funds that have a wider ambit and are able to achieve a return above traditional money markets. These funds seek opportunities in the wider fixed income spectrum, yet remain focused on capital preservation. While these funds invest predominantly in money market instruments to preserve capital, many are able to invest in high quality investment grade bonds if there is a good opportunity to achieve returns in excess of cash. Bond exposure may, however, not exceed a maximum average duration of three years.

The bottom line is: in this tough environment, you need to ensure you are getting the most out of your cash.

MONEY MARKET FUNDS

Investors need to make their money work in low interest rate environments Sean Segar | Head of Product: Nedgroup Investments Cash Solutions

W

hile the lowest interest rates in 38 years may be providing welcome relief to the overindebted consumer, many cash flush investors find themselves having to settle for lower income returns.

According to Sean Segar, head of product: Nedgroup Investments Cash Solutions, in an investment environment where capital growth is likely to slow after several boom years, investors need to take yield more seriously than ever. “Losing out on one per cent when interest rates were 12 per cent was not as big a deal as forfeiting one per cent of yield with call at five per cent, which effectively means giving up 20 per cent of the potential return,” he says.

The impact of an additional one per cent yield on a R100 investment over 30 years results in a significant 33 per cent lift in investment value. Such a large differential would certainly not be overlooked by a professional money manager.

“The volatile markets have highlighted the need for investors to take account of risk, liquidity and that high interest rates should not just be accepted at face value, as they are a reflection of the state of the lender and their ability to make interest and capital repayments,” says Segar.

this amount by a factor of around 10 times.

Money market funds and bank deposits yield less than income funds due to the fact that they offer immediate access to investor cash,” he says.

Segar explains that Citi Bank is offering Japanese Yen investors 0.03 per cent per annum for a one-year fixed deposit.

However, investors are demanding around 26 per cent per annum for investing in 10year Greek Government paper, post-bail out. “This highlights the wide spectrum of available returns as determined by the capital markets once risk has been factored in,” says Segar. According to him, the subprime crisis resulted in numerous borrowers defaulting on their interest and capital obligations, but after a period of post-crisis reflection and restraint, this reckless yield chasing is reappearing.

“Fortunately, South Africa has largely avoided participation in the hazardous pastime of indiscriminate yield chasing, the blood sport of the investment world.

Ignorance, greed and desperation are the main causes of this tragedy which can be avoided by investors utilising credible, wellmanaged and regulated income funds and accepting the fact that interest rates are low at present,” he says.

There is a good spread of interest-bearing investment options available, ranging from bank deposits to property funds.

“The domestic unit trust fixed income range includes 111 funds excluding real estate. The bulk of income investor assets comprises the R230 billion residing in money market funds. Bank deposits dwarf

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However, in a surprisingly high percentage of cases, investors are incurring an opportunity cost in terms of forfeited yield for the luxury of having immediate access to the cash. Most of the time this is neither needed nor utilised and hence the investment is considered lazy. “There is a jump in complexity, risk and yield from money market funds to income funds that many investors are reluctant to make. This results in investments not working as hard as they could and yielding sub-optimal income,” Segar says.

One relatively new solution available to retail investors are funds that adopt the strict credit guidelines prescribed by the Financial Services Board for money market funds, but are able to invest in slightly longer-dated paper to enhance yield. Segar gives the example of the Nedgroup Investments Core Income Fund, which was made available to retail investors in January and enjoyed excellent flows since September last year.

The fund has almost quadrupled during this period attracting net flows of around R3 billion and has the attributes of both money market and income funds, enabling investors to improve their yields without taking on additional credit risk. Investors also have easy access to their funds with only a day’s notice required.

“With low interest rates set to continue for the foreseeable future, low risk investors looking to optimise their income, sweat their cash and retain the ability to access their funds at short notice must look at some of the more innovative solutions on the market today,” says Segar.

9

MONEY MARKET FUNDS

THE RISKS ASSOCIATED WITH

MONEY MARKET INVESTING

Piet Viljoen | RE:CM Executive Chairman

A

ccording to valuation-based asset manager RE:CM, investors need to be well informed about the risks associated with money market investments. The primary objectives of a money market fund are capital protection and provision of liquidity.

While most investors perceive money market investments to be very low risk or even risk-free, this is by no means the case. In order to target higher yields, portfolio managers take on additional risk and investors in money market funds should check that their fund manager has implemented appropriate strategies to mitigate these risks.

There are a number of investment risks associated with money market funds including reinvestment risk, counterparty risk, instrument risk and liquidity risk.

Reinvestment risk Reinvestment risk is the risk of investing maturing funds at a lower interest rate and getting a lower yield than on the maturing investment.

If inflation is rising, the MPC will typically raise short-term rates and vice versa.

Although inflation has been rising in the past year, the MPC has kept interest rates unchanged. This has affected interest rate expectations, resulting in uncertainty and volatility in short-term interest rates. The task of managing reinvestment risk can be cumbersome if short-term interest rates are highly volatile.

RE:CM executive chairman Piet Viljoen says, “RE:CM takes advantage of low reinvestment risk opportunities presented by the yield curve, even in times of uncertainty, by investing in short-dated instruments when the yield curve is flat, or further along the yield curve when it

10

is steep to benefit from higher yields.

We allocate capital where money market instruments offer value relative to their base-case interest rate scenario. This focus on value enables us to manage reinvestment risk even when there is volatility in the market.”

Counterparty risk Counterparty risk is the risk that the counterparty or issuer of the debt will fail to fulfill its obligation to pay back the borrowed amount. This risk was highlighted particularly by the Lehman Brothers bankruptcy in September of 2008 that resulted in money market funds having to write-off Lehman commercial paper.

To manage counterparty risk, RE:CM invests only in counterparties with strong balance sheets and analyses their prudential liquidity requirements, as required by the Reserve Bank, to identify banks that are facing potential liquidity pressure. Viljoen explains, “Even though poor quality counterparties generally pay higher yields, we generally avoid them.

Our goal is to generate steady interest income at low risk rather than the highest possible income.”

Instrument risk Instrument risk arises when the instrument does not perform as promised, due to adverse events in the market such as counterparty defaults or an increase in underlying credit risk. Money market instruments comprise a variety of instruments, including plain fixed deposits, tradable certificates of deposit, treasury bills, asset-backed securities and commercial paper. These instruments have different risk characteristics, depending on the issuer and term.

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When selecting money market instruments, it is important for managers to balance yield and risk and to know the nature of the underlying instruments. Managers could invest in high quality instruments like bank deposits, which offer capital safety albeit at slightly lower yields, and avoid instruments that offer limited security such as poor quality commercial paper or assetbacked securities.

Liquidity risk Liquidity risk arises when a money market fund experiences unexpected large cash outflows and has insufficient liquid assets to fund the outflows. Selling illiquid instruments such as fixed deposits before maturity usually results in an additional cost, which reduces a fund’s income.

RE:CM manages liquidity risk by maintaining five per cent exposure in overnight deposits. Additionally, instruments like step-up deposits (in which the fund is significantly invested) are also relatively more tradable than fixed deposits or asset-backed securities, and provide an opportunity for the fund to realise additional liquidity at no cost when cash is needed.

“Although the money market asset class generally preserves capital in comparison to equities and bonds, we feel it is important that investors are mindful of the potential risks associated with reaching for the highest yields,” says Viljoen.

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MONEY MARKETS FUNDS

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11

SHAUN HARRIS

MEDIA

INVESTMENTS W

An ever-changing news story

ealthy people cherish owning media companies. So do political parties. It’s a rather strange desire because, from a business perspective, media companies are not always a sound investment. Sometimes they can be a very good investment, but just as the news changes quickly so does the operational performance of newspapers, magazines, radio stations and even the more stable television platforms. Why then do people and organisations seek control of the media?

It’s all about power. Perhaps when it comes to individuals who want to own media companies there’s a touch of vanity as well. But the perception is that owning part of the media gives you the power to influence people, for a number of reasons, though political influence is often the main motivation. At least that’s the perception and perceptions can often be wrong. Yet this drives individuals and institutions to ridiculous lengths to gain control of a media company. And to often pay inflated prices for control.

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Some media companies do have tangible assets, like printing presses, perhaps property, sometimes fleets of vehicles for distribution. But what the would-be owners are really paying for is that far less tangible asset, content. The idea is that they can control the content and thereby influence the market, or audience, at which the particular media asset is aimed.

Nowhere has this been better summed up than in the ongoing Leveson Inquiry, since it started in November last year. While essentially looking at two things, the phone hacking scandal around News Corporation’s News of the World and the culture and ethics of the British media, the investigation has become broader. There was the powerful media owner, Rupert Murdoch, failing miserably to defend what was going on at his newspapers. There were politicians, including present British Prime Minister David Cameron, forced to answer very uncomfortable questions (amazing how often they claimed they could not remember what happened).

Though far removed, the Leveson Inquiry has an effect on the media in South Africa. In July, we heard the National African Federated Chamber of Commerce (Nafcoc) talking about looking for opportunities to invest in the media. “We still need to participate in print media. As a chamber we need to intervene in these things,” says Nafcoc president Lawrence Mavundla. The choice of word – intervene – is chilling.

The aims and ideals of a media owner, especially when it is a public company listed on a stock exchange, and minority or potential new shareholders are often at odds. For one it’s about power; for the other about an investment that will make money. The two may be linked but the lines become very blurry for investors and financial advisers. Investing in media companies is not an easy game.

Then the rules of the game change as ownership of the media changes. An investment that the investor and adviser had perhaps just figured out becomes something different. It’s

not just back to square one; it’s a whole new equation.

staggering under a mountain of ill-conceived debt that has to be repaid soon before creditors take action. Selling the South African operations, which include newspapers like Business Report, Cape Times and Pretoria News, is one way of paying some of that debt. Media operations in Australia could be sold as well.

Look at Avusa, owner of several titles including the Sunday Times. It has been in play for a long time, with a number of interested, potential new owners. Finally it looks like a deal for new ownership has been done. The consequences of new ownership are yet to be played out.

Investors are again in the air. A likely result, though, is that Avusa will be delisted from the JSE.

Potential buyers are lining up. Apart from the hints from Mvela, there is Cyril Ramaphosa’s Shanduka Investment Holdings, and Sekunjalo headed up by Iqbal Survé. The possible, almost certain sale of Independent in South Africa has also raised the political debate. The SA Communist Party is bemoaning what it sees as monopoly control of a media group. The media trade unions, however, are welcoming the return of the Independent to local investors.

The perceived political power that comes with owning a media group, or just a single title, seems to be focusing on the Independent.

What is now called Avusa has had quite a few different names as owners have changed over the years. It clearly illustrates how much control of a media company is sought after.

The latest deal, still being concluded at the time of writing, should see the Mvelaphanda Group (Mvela) take control. It’s a complex, step-by-step transaction, but the final result for investors, the minority shareholders in Avusa, should be a cash offer of R24/share for part of the shares they hold and the exchange of the rest of their shares in a special purpose vehicle called Richtrau, which will be listed on the JSE, as Avusa is delisted. Is this a good deal for investors in the old Avusa? In terms of the cash offer, probably not. Former large shareholder Allan Gray concluded a deal in the earlier stages at about twice the price. While investors will still have indirect exposure to the delisted Avusa, the whole investment complexion has changed, as it has with this media group a few times before.

Here’s the interesting part. Andrew Bonamour, interim CEO of Mvela, said during the transaction that the new group might look at buying certain titles from Independent News and Media South Africa. Once again this shows how media assets are sought after and how quickly a media investment changes.

Independent, not listed in South Africa, is controlled by a foreign, listed parent, Independent News and Media based in Ireland.

The controlling shareholder is in a lot of trouble,

It’s been seen before. Back in the apartheid days the ruling National Party launched The Citizen newspaper. More recently the wealthy Gupta family, supporters of President Jacob Zuma and the ANC, launched The New Age newspaper. The Guptas might also be after some Independent newspapers. Should this happen, it reaches the point where political influence through the media becomes possible.

The Citizen and The New Age were and are known for what they are: newspapers supporting a political party. But a title like the Cape Times or Pretoria News would be a far more subtle way of trying to politically influence large parts of the population.

These are the complexities facing investors in media companies. Investment possibilities are made even more difficult with all the JSE-listed media groups trading on demanding ratings.

Yet media groups can be good investments.

Crucially, though, investors must remember that their investment aims might not be the same as the owners of the media.

TIME

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PROFILE

“I don’t think investors know what derivatives are, full stop. As the pioneer of CFDs in South Africa, our customers have predominantly remained long only.”

Why do you believe South Africans should be looking towards selfinvesting?

You are able to manage your wealth only once you take a conscious decision to understand and learn the basics of financial markets and products. The move towards self-investing is not about making a binary decision to manage your entire portfolio. If you are able to find the discipline to manage even a 20th of your portfolio, you will become more actively involved, aware and responsive to your third-party managed portion. The key objective is to stay on top of your financial well-being. A move to partial self-investment plays a huge role in this.

Thereafter, you will be able to assess the benefits of self-managing a larger portion.

Do the benefits outweigh the risks?

Yes, and in equal proportion to whether or not the risks involved in being advised/ managed outweigh its benefits. Interestingly the default South African opinion is that self-investment is more risky. This is both inconclusive and the reason why self-investment is regarded as taboo or reckless. A culture of self-investment will never foster within a market that reinforces the taboo via enormous spend on marketing messages and business models that support an ever-growing IFA profession. The majority as a collective is in control of the current model. Looking at the economics, why would they want to invest in providing an alternative?

What role has technology played in making self-investment an option for retail investors?

Anything short of huge is an understatement. Access to information and

decision support tools are readily available to those seeking it. Unit trust, hedge fund and money market performance insight are already a Google search away. Strangely enough though it has not necessarily promoted all mainstream financial service providers to pass on their investment into technology and information for the benefit of transparency and insight for their customers. The ones that have (no banks mentioned) are gaining market share. The providers that let go of their data most readily will promote and attract those seeking self-service advisory platforms.

The Euro crisis continues to impact on global markets. What is your advice for investors during this period?

There are always opportunities for short-term profit making regardless of macro-economic conditions. You need to know what you are doing though. On the long term and preservation of wealth front, the Euro crisis will continue to play with investor’s emotions and logic.

The inevitability of the big crash should, however, not force you to question your original motives behind investing in longterm value (certainly in equity markets). Sit tight, these things happen.

Do investors understand how derivatives can fit into a portfolio?

I don’t think investors know what derivatives are, full stop. As the pioneer of CFDs in South Africa, our customers have predominantly remained long only.

This indicates that they understand and appreciate the cost, tax and gearing benefits of CFDs but not necessarily the practical applications of the instrument.

We have seen very little evidence of sophisticated portfolio hedging, for example.

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What can be done to educate investors on perceived complex terms such as ETFs, shorting and CFDs? A lot more can be done than is happening at present. The gross sum of business and institutional investment into retail education is rather meagre. The JSE has realised that its approach over time has been flawed. Primary and higher learning intuitions are not paying it much attention either. Online brokers are investing into this space (some more than others). The solution lies in a collaborative effort from all three players. While there have been continuous discussions to get such an effort going, there has been little success.

We are looking at new ways of handling the education gap; our methods involve blending high touch human support with innovative use of technology and learning interfaces. We see support from the retail market for this.

If you had R100 000, how would you invest it?

Africa. Now. I hold a belief (albeit somewhat philanthropically grounded) that returns on investment into Africa will be sheltered from Western and Eastern volatility and uncertainty. I would look to create a basket of companies (South African or other), that have a documented and committed African strategy with proven early success. It would include those entranced in African consumerism; communication, basic financial services, retail and entertainment. That said a portion of the R100 000 would be well placed in a European or US hedge fund seeking a return from fundamentally strong sectors that have been dragged over the coals.

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MAYA FISHER-FRENCH

20 % IS THE

NEW RULE OF THUMB

by Maya Fisher-French

N

ew research from Alexander Forbes has thrown the old rule of thumb out the window with latest figures suggesting that a 25-year-old needs to save nearly 20 per cent of their salary in order to have a net retirement replacement ratio of 75 per cent. These figures are a result of declining market returns, lower interest rates resulting in lower annuity income in retirement as well as the fact that a 25-year old is expected to live much longer than current retirees.

As part of this study, Alexander Forbes

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launched a pensions index which indicates how the income of a typical person is projected to show that what they should receive in retirement has changed since January 2002. The index tracks three indices based on three savers and it reflects the impact of market conditions, longevity as well as savings rates across generations.

The findings are disturbing and suggest that the state of our retirement savings is even worse than expected. The index shows that today’s average 40-year old will have 30 per cent less income in retirement than the

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previous generation due to the changes in the investment environment. Apart from lower returns and lower annuity income rates, we are also facing rising healthcare costs. Butsi Tladi, head of Alexander Forbes Health, argues that the average 40-year old will need R1.2 million in today’s value simply to provide comprehensive medical cover for both him and the spouse in retirement.

The deteriorating investment environment is not only affecting the younger generation, the index also showed that the 60-year

the retirement savings landscape has changed.

Prinsloo adds that the investment outlook today is considerably gloomier than it was 10 years ago and younger members are expected to be invested in these less favourable markets for longer. In addition, salary inflation has been high relative to investment returns in recent years. This decreases the index because past savings are proportionately lower relative to the current salary and this effect is amplified over time to retirement when final salaries are expected to be significantly higher for younger members.

Most retirement planning works on the assumption that if you save 15 per cent of your salary from the age of 25, you will have enough in retirement to provide you with an income equal to 75 per cent of your final salary.

old born in 1952 is now expected to receive an income of only 57 per cent of final salary in retirement while the 40-year-old saver is expected to receive a replacement value of only 40 per cent of their final salary.

Michael Prinsloo, head of best practice at Alexander Forbes Research and Product Development, says all three savers were invested the same way; however, the saver born in 1952 has a considerably better index value than the saver born in 1972 due to the fact that

For members who are only five years away from retirement, an effective drop in expected retirement income of 24 per cent over the last 10 years has serious consequences. They have only five years to boost their reduced savings; alternatively they will have to work longer where possible or seriously reduce their lifestyle in retirement.

Alexander Forbes says although younger members do have time on their side to rectify problems, the index shows that they are sensitive to weaker market conditions and also face two additional challenges: longevity and higher consumption rates.

In terms of longevity, the costs of purchasing an annuity in retirement are expected to increase as insurers price for the average member to live longer. At the same time, younger people have much higher rates of consumption than the previous generation which not only leaves less money to save, but also increases the cost of their lifestyle which they wish to maintain in retirement.

On a more positive note, the recent Old Mutual Retirement Monitor suggests that people are becoming more aware of the need to save for retirement. The survey, which included interviews with 1 000 South Africans across various income groups and ages, saw a marked improvement around the general awareness of the importance of retirement savings. The Old Mutual survey suggests that people would prefer to preserve their retirement funds, with 81 per cent indicating that if they were to leave their company in the future they would not take the cash, and 62 per cent saying they would preserve their pension if they were retrenched. However, it seems that when the crunch comes we opt to take the cash as financial pressures and human behaviour prevent us from making the right decisions.

Forty-five per cent of the respondents who would take their money said that they would use their retirement cash to settle debt and 17 per cent would use it to pay for living expenses and furniture and appliances. Interestingly 43 per cent said that they would not spend the money but invest it in a short-term fixed deposit.

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The choice to invest in short-term vehicles would appear to be counter-intuitive as tax is paid on retirement withdrawals, and retirement savings should be in a long-term vehicle invested in growth assets, not cash.

However Hugh Hacking, head of retirement fund solutions at Old Mutual, says the survey showed a significant shift towards short-term savings goals in general, such as paying off debt, saving for a house or car and appliances. This has resulted in a decrease in the number of people saving through long-term savings plans such as endowment policies and insurance-linked products.

Unsurprisingly the survey showed that lower income people have far more pressing needs than saving for retirement as they focus on meeting day-to-day challenges and that retirement savings are largely a luxury they cannot afford. The requirement of lower income earners to fund short-term needs and a general trend toward short-term savings may challenge National Treasury’s plan of making preservation of retirement funds compulsory.

The survey suggested that there may be other ways to encourage people to preserve their pensions. Those people who received advice tended to opt for preservation while 89 per cent of people who made their own decisions opted to cash-out which suggests that good advice plays a critical role in retirement savings. Therefore, it is very concerning that only 34 per cent of respondents had received any advice from their fund or employer when leaving the fund, despite this being an opportunity to educate members on making the right financial decisions.

A figure that remains constantly surprising is that a third of people across all income brackets believe that the State will take care of them in retirement.

Currently, the government provides a basic pension of only R1 820 per month to people who have a retirement income of less than R45 000 per year and it would therefore not be available to most middle income South Africans.

For those who realise that there is no State support and that their current retirement provisions are not sufficient, the only solution may be to work past retirement age. Hacking says this is leading to an increase in the number of people who believe that they would have to work past retirement age. “Retirement is now seen as a change in financial status rather than stopping work,� says Hacking.

Ultimately younger people need to reconsider the amount they put away for retirement which will need to increase significantly in order to make up the shortfall in market returns. It is also very unlikely that a 40-year old today will be able to afford to retire at age 65, especially if they are expected to live into their 90s.

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HEAD TO HEAD

GLACIER

BY SANLAM J ean

L ombard

Head of Business Integration and Research at Glacier by Sanlam

How is the European crisis different, or potentially different, from the last crisis in 2008/09?

The key difference this time is that corporate balance sheets are looking quite healthy. In contrast, the 2008/09 crisis was caused by large institutions that had lost a lot of money and needed government intervention to rescue them as the implications of these too-big-to-fail companies actually failing were severe.

Although corporate balance sheets are looking strong, countries such as Greece, Spain, Portugal and Italy currently have large debt burdens and it is uncertain how they will service their debt in future.

What are the main risks that South African retirement funds, and their members, face from the crisis in Europe?

As one of South Africa’s largest trading partners, Europe remains important to our economy and a continued crisis in Europe will undoubtedly have a negative effect locally. Should investors become risk averse, they could potentially disinvest from emerging market economies such as South Africa.

This, in turn, could have a significant weakening effect on the currency. In addition, the equity market could remain undervalued for a significant length of time.

So in the short term, there could be some contagion through currency weakness and/ or declines in the equity market.

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How can South African retirement funds mitigate these risks?

Where do you think retirement funds should be looking for growth?

By definition, retirement funds are designed to be long-term focused savings instruments. As with the previous financial crisis of 2008/09, markets will recover once countries have put measures in place to counter their debt.

The key objective of any retirement fund should still be to outperform inflation.

Assets that provide a real return over the long term should always form the foundation of any retirement fund portfolio.

As a result, equities and property will remain important building blocks in a diversified portfolio. Within these asset classes, a retirement fund should have a spread of local and foreign investments.

The foreign investments can be further diversified between developed and emerging economies.

Retirement funds often offer member choice and members with a longer time horizon should stick to their investment strategy, provided they have sufficient exposure to growth assets within a well-diversified portfolio. Exposure to offshore assets will also enable investors to benefit from a weakened currency.

Members close to retirement should ideally have less exposure to equity markets and should therefore not be significantly impacted by the conditions in Europe.

Should retirement funds be repositioning their investments?

As mentioned, key for retirement funds is to ensure exposure to a well-diversified portfolio. It is near impossible to try to predict what will happen next in the overseas market or even whether the European Union will continue to exist in its current format. Positioning portfolios based on a particular viewpoint can be dangerous. In time, economies and markets will recover and, as always, the principle of diversification will help to protect retirement funds against potential adverse effects as well as enable the funds to benefit from the subsequent recovery.

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“As with the previous financial crisis of 2008/09, markets will recover once countries have put measures in place to counter their debt.�

HEAD TO HEAD

REZCO

Investment Consulting W indall

B ekker

Partner at REZCO Investment Consulting

How is the European crisis different, or potentially different, from the last crisis (2008/09)?

Our view is that the current European crisis is a direct result of the 2008 crisis, in that, at a very basic level, it is a result of countries and groups of countries being over-indebted. The magnitude of the problem is significantly bigger, as it now involves the whole Eurozone. This, together with the fact that the US and China are already showing signs of stress and slowing growth, has consequences for the entire global economy. A further complication is that many of the leaders of these countries are currently facing elections in the next 12 to 18 months, on the back of slow growth and austerity measures that have caused significant hardship among the electorate.

The current global environment is currently very uncertain from a technical market perspective.

What are the main risks that South African retirement funds – and their members – face from the crisis in Europe?

Europe is South Africa’s largest trading partner and a recession in Europe will affect local and international growth negatively. Over the past few months we have begun to see how the local growth rate has been revised downwards. This European slowdown has been softened slightly by the Rand depreciation but we believe local retirement funds face another period of very low or negative growth over the next 12 to 24 months. This will affect the funds’ ability to meet members’ expectations, with a corresponding decrease in members’ replacement ratios (a member’s monthly pension expressed as a percentage of their final salary) and

members will retire with less security in the future. The European crisis will further exacerbate the position of the so-called ‘sandwich generation’: those fund members who are caught between subsidising their parents’ retirement as well as providing for their own children’s needs. Many of these sandwich generation members will retire with significantly less than they actually require, as they have been unable to contribute at adequate levels as well as having experienced significantly lower market growth for longer periods of time than may have previously been the norm.

“Many of these sandwich generation members will retire with significantly less than they actually require.”

Should retirement funds be repositioning their investments?

The fund’s allocations should be as a result of its having matched its target replacement ratio to its investment objective. This long-term investment objective requires a long-term strategic asset allocation that will provide members with the highest probability of achieving their target replacement ratio. The relatively short-term market volatility and downside risk means that some trustees might consider a shortterm tactical asset allocation overlay that is more focused on downside protection and less focused on growth. Trustees should have a very clear understanding of their investments and whether the current asset allocation is in line with the long-term strategic asset allocation, or if the manager has a short-term tactical overlay on the exposures.

How can South African retirement funds mitigate these risks?

Where do you think retirement funds should be looking for growth?

Our view is that trustees should aim to protect against loss as well as participate in any market upside. With current market levels being so high, we believe that trustees should have a very clear and measureable risk management strategy in place that will ensure the achievement of their long-term goals during this period of relatively short-term volatility and downside risk. Trustees need to understand the investment strategy, process and philosophy of the managers and products that they have chosen and how these fit into their fund’s objective. Trustees also need to have a very strong communication policy, encouraging members to take an interest in their retirement fund matters and provide additional retirement funding for themselves.

Our consultancy believes that growth will mainly be found in the emerging markets over the next 24 to 36 months and we are generally in favour of a higher offshore allocation. The difficult part for the trustees is understanding the economic footprint of their investment. For example, BMW might be listed on the DAX in Frankfurt, but more than half of its growth comes from Asia and will therefore be significantly affected by the Asian markets. We expect managers with exposure to local property to benefit over the next 12 to 24 months.

We think that an overweight exposure to this asset class will significantly benefit those funds with CPI+ medium and CPI+ high investment objectives.

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ASSET MANAGEMENT

INVESTOR CONCERN MOUNTS OVER EMERGING MARKET SLOW DOWN

Investors debate safe havens in the wake of falling emerging market commodities.

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F

ollowing the recent sell-off of commodities in emerging markets over recent months, there is concern that the celebrated growth of emerging market economies is slowing down. This begs the question: what do investors do in this environment?

According to Peter van der Ross, head of strategy at Momentum Asset Management, commodity prices are a good indicator of emerging market growth because, unlike financial assets, commodity prices do not represent the present value of a stream of future cash flows. “Therefore, aside from some exchange traded fundbased investment activity, commodity prices largely represent the current state

impetus for cheap developed market capital to search for yield globally.

“Domestically, commodity weakness will reduce our government’s ability to afford a welfare state and will weaken the Rand.

There are many more consequences than these and, in the short term, their effects will be painful, but they are ultimately required for the next global upturn to be on a firmer footing,” he says.

Meanwhile, Urvesh Desai, fund manager at Old Mutual Investment Group MacroSolutions, says if the Chinese economy does have a hard landing, as a small, relatively open economy South African investors will be impacted.

currently very expensive and with hard currency cash rates at close to zero per cent, the long-term real returns available to investors outside of equity are very limited. “What this means for investors is that they require diversification in their investments with the ability to gain some downside protection.”

Van der Ross, on the other hand, says South African investors would benefit from a position in gold, mostly from the currency effects of a stronger US Dollar/ weaker Rand and not necessarily from a stronger US Dollar gold price. “More gradual losses from equities could be hedged with a position in inflation-linked bonds. In a weak equity environment,

THE OFFSHORE DEBATE: IS IT TIME TO INVEST ABROAD? Momentum Asset Management The success of cross-border investments is heavily determined by relative currency movements. Our work suggests that the Rand is fairly valued to the US Dollar, between about R7.80 and R8.50/US Dollar, so there is no compelling currency reason to deviate from strategic offshore exposures at current levels.

We do not think that global equities are cheap enough to override the currency view, but there are interesting asset classes offshore, like high-yield corporate bonds, that South Africans could benefit from as there is no real domestic equivalent.

In summary, at extreme levels of Rand over- or under-valuation, one could make a blanket statement about it being a good or bad time to invest offshore. Since now is not one of those times, our focus

of demand, given that their supply is inelastic in the short term. There is, of course, some forward-looking element embodied in their prices inasmuch as commodity consumers periodically re- or de-stock their inventories in anticipation of near-term fluctuations in demand for their products,” he says.

Furthermore, emerging markets, and China, in particular, are among the largest consumers of commodities per unit of GDP, so observing commodity prices gives real-time insight into the strength of these economies. Van der Ross says a cyclical slow down in emerging market growth will have knock-on effects, such as stronger developed market currencies and reduced

is on identifying asset classes that have reasonable return prospects, i.e. not too expensive and are good diversifiers for our South African holdings.

Old Mutual Investment Group MacroSolutions Our analysis shows that there is selective value to investors offshore. Global developed market bonds and global cash do not offer long-term real returns. Real assets such as global equities and property offer the best long-term real returns.

Emerging market debt also offers better long-term returns and exposure to countries that are less indebted and have stronger balance sheets.

However, these assets come with greater volatility and risk and ensuring a balanced exposure across asset classes is important.

Within equities, companies can no longer

“Commodities make up around two-thirds of our exports. The likely fall in commodity prices would exacerbate the trade deficit.

So far this year there has been R36 billion of inflows into the South African bond market and these flows would be vulnerable in such a risk-off environment.

A deteriorating current account combined with a poor outlook for growth and commodity prices will likely cause capital flight and the Rand could stand to weaken significantly.”

According to Desai, the only safe havens for investors that have been developed are world government bonds, in particular those issued by the US and Germany.

However, he warns that these assets are

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rely on the economic cycle to bail them out. There will be more differentiation between good companies and bad, and this is more likely to be a stock-picking environment. Investors therefore need active management.

Investment Solutions The Rand has already weakened fairly materially over the past few months. If risk-off/trouble continues, the Rand could fall further. This supports the case for more offshore investment; however, the opposite is true, too. We think the global financial system is severely challenged and hence, over time, the risk-off scenario is more likely to prevail. This would make the Rand more vulnerable.

Conversely, the likes of Africa and South Africa may appear to be a safe haven to those in Europe.

a government-guaranteed 2.4 per cent real return at a four per cent annualised volatility is very attractive. However, both gold and inflation-linked bonds have had very low to negative correlations to equity over the past few years, so they are good safe havens for equity investors.”

Jean-Pierre Verster, investment analyst at 36One Asset Management, advises investors that offshore equities could offer an opportunity, especially in a weakening Rand environment. “We believe, however, that the best option is to invest in profitable strategies that hedge against market declines, i.e. hedge funds with above-average track-records,” he says.

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MONEY MARKET FUND PROFILE

Cadiz

Money Market Fund Gus Louw | Portfolio Manager at Cadiz Asset Management Please outline your investment strategy and philosophy for the fund.

The Cadiz Money Market Fund aims to deliver high levels of income in excess of returns available through fixed-term deposits and call accounts offered by banks. The fund offers stable monthly returns and high levels of liquidity, and has a 100c unit price which provides investors with capital protection. The fund’s average maturity may not exceed 120 days.”

What are your top five holdings at present?

As at 30 June 2012: Inguzi Floating Rate Note 5.52% Synthesis (Nedbank Conduit) 4.90% Resilient Promissory Note 4.46 % Inguzi Promissory Note 4.28% Blue Titanium (Standard Bank Conduit) Promissory Note 4.10% Who is the fund appropriate for?

The fund is appropriate for investors who require higher returns than those offered by bank savings accounts/term deposits; capital protection; high levels of liquidity; a parking bay/emergency fund (up to six times monthly income); and a phasing- in vehicle.

Have you made any major portfolio changes recently?

Money market rates and the associated derivatives have rallied significantly from the highs set at the end of Q1 2012 (as a result of 12-month JIBAR rates which fell 42 basis points). This was driven by an improved inflation outlook and realisation that the Reserve Bank would be reluctant to raise the repo rate in light of continued global uncertainty. We feel that the market has overreacted on the down side and,

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as a consequence, we have switched our preference from longer dated fixed rate instruments to the equivalent floating rate instruments.

How have you positioned the fund for 2012?

Since Q4 2011, our qualitative assessment of the economy suggested that the repo rate will remain unchanged for an extended period of time, contrary to market consensus, which at the time was convinced of repo rate increases towards the end of 2012. Consequently we positioned the fund overweight in the longer area of the money market curve, targeting fixed rate instruments, thereby maximising the attractive investment opportunities offered by the steep money market curve. After the strong rally in rates, in particular at the longer end of the money market curve, we have switched our preference to floating rate instruments.

equity derivatives trader. Louw joined Cadiz Asset Management in September 2005.

Louw is supported by the Cadiz Asset Management fixed interest team, which is headed up by Jonathan Myerson (MSoc. Sci. (Econ.)). Jonathan joined Cadiz Asset Management in November 2008.

Please provide performance of the fund over one, three and five years (please include benchmark).

RETURN

BENCHMARK STeFI

1 year

5.69%

5.68%

3 years

6.66% p.a.

6.46% p.a.

5 years

8.54% p.a.

8.23% p.a.

Please outline fee structure of the fund.

Please provide some information around the individual/team responsible for managing the fund.

The fund is managed by Gus Louw (BSc Mathematics, BSc. (Hons) (Applied Mathematics)). He completed his postgraduate studies in applied mathematics at the University of Pretoria, after which he lectured mathematics at the University of Pretoria. He started his career in the financial markets in 1997 at Genbel Securities (later to become Gensec Bank Ltd) as an equity derivatives trader. In 1999, he left to pursue his career as an interest trader with Investec Bank.

His role as interest rate trader saw him trade derivatives over all capital market instruments, both in domestic and central European markets. By 2003, he was lured back to the equity derivatives market and ended his career at Investec as a senior

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The fund charges an annual management fee of 0.25 per cent (excl. VAT).

Why would investors choose this fund above others?

• Comparatively low annual management fee, which is performance enhancing.

• Top quartile performing money market unit trust fund over all management periods.

• The only money market unit trust fund with an overall five-star Morningstar rating.

MONEY MARKET FUND PROFILE

THE RISKS ASSOCIATED WITH

MONEY MARKET INVESTING

Lisa MacLeod | Portfolio Manager, Investec

Please outline your investment strategy and philosophy for the fund.

The Investec Money Market Fund is a conservative money market offering for retail, institutional and corporate investors. It aims to earn a higher level of income than short-term fixed deposits and call deposits over time with a primary objective of capital preservation and bank diversification. Investments are only made in highly rated (F1 and F1+) short-term securities such as negotiable certificates of deposits (NCD), promissory notes and fixed deposits issued predominantly by South African banks.

The fund may only invest in money market instruments with a maturity of 13 months and its average duration may not exceed three months.

Have you made any major portfolio changes recently?

We added longer dated money market instruments to the fund, increasing duration over the last quarter. Having locked into longer dated instruments at higher rates, we were thus well positioned for the rally in interest rates.

Who is the fund appropriate for?

The fund is tailor-made for the conservative investor looking to maximise yield on surplus cash while still maintaining easy accessibility, capital preservation and counterparty diversification. The fund is one of the few money market funds to be rated by Fitch Ratings and has been awarded the highest possible rating that an SA money market fund can achieve.

Please provide some information around the individual/team responsible for managing the fund?

Our fund range is managed by our 37 member-strong fixed income team based in Cape Town and London with an average of 13 years in investment industry experience.

Lisa MacLeod is directly responsible for managing the Investec Corporate Money Market Fund. She has overall responsibility for managing the short duration funds at Investec Asset Management and has over

What are your top five holdings at present? As at 12 July 2012.

Nedbank

24.20%

24.20%

Absa

19.28%

19.28%

Standard Bank

11.5.8%

11.5.8%

African bank

8.51%

8.51%

Investec Bank

7.00%

7.00%

16 years of investment industry experience.

Investec was named Cash Manager of the Year at the Imbasa Yegolide Awards for Professional Excellence 2011. In addition, we won the award for Investment Excellence in Global Fixed Income at the Global Investor Awards 2010.

Please outline fee structure of the fund.

• Initial fee (excl. VAT) is zero per cent.

• Annual management fee (excl. VAT): • R class: 0.50 per cent • Other fee classes: Negotiable on fund size between 0.15 per cent and 0.50 per cent.

How have you positioned the fund for 2012?

Although our base case is for interest rates to remain on hold for longer, with a deterioration in the global growth outlook the risk of a further rate cut in South Africa has increased. We have protected the fund against lower interest rates by having locked into longer dated instruments at higher rates, but remain neutral overall.

Why would investors choose this fund above others?

We have been running bond and money market mandates since our launch in 1991 and have proven our ability to provide clients with significant outperformance over the longer term without putting capital at risk. For a conservative investor, the fund is an attractive alternative to call accounts or fixed deposits and an opportunity to take advantage of Investec Asset Management’s specialist fixed income capability. The fund is one of the few money market funds to be rated by Fitch Ratings and has been awarded the highest possible rating that an SA money market fund can achieve.

Please provide performance of the fund over one, three and five years (please include benchmark). As at 30 June 2012 (gross of fees). The fund is benchmarked against the STeFI three-month index.

FUND

BENCHMARK

1 year

6.07%

5.501%

0.57%

3 years

6.97%

6.153%

0.82%

5 years

8.84%

8.010%

0.83

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OUTPERFORMANCE

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MONEY MARKET FUND PROFILE

RE:CM

Money market fund Please outline your investment strategy and philosophy for the fund.

Our investment philosophy is derived from our mantra: ‘Your capital first’. Our aim is to preserve capital and provide investors with liquidity and incremental income at the lowest possible risk. We identify suitable instruments that allow the fund to generate sustainable low-risk yields by analysing the money market and forward yield curves in the context of the current inflationary environment. Our investment process is based on allocating capital to investments which offer value relative to our understanding of the interest rate cycle.

The fund invests only in high quality, lowrisk counterparties with strong balance sheets, such as top-tier banks, investment grade corporates, National Treasury and the South African Reserve Bank.

What are your top five holdings at present?

Investment

Percentage Invested

Absa Step Up Notes

25%

Nedbank Step Up Notes

20%

Investec Step Up Notes

13%

Firstrand NCD

5%

Standard Bank NCD

4%

Who is the fund appropriate for?

The fund is ideally suited for investors seeking capital preservation; interest income and liquidity. More risk-averse investors interested in a temporary safe holding for cash reserves during times of uncertainty will also benefit from investing in the fund.

Have you made any major portfolio changes recently?

We have increased our exposure to step up notes over the last few months given the pricing of these instruments in the market, as well as the long-term yield benefit they generate for investors. The fund is currently invested in both one-year notes (which steps up monthly) and three-year notes (which steps up quarterly). Step ups offer good value by providing widening yield spreads over over-month Jibar on a monthly or quarterly basis, depending on the maturity of the note.

The interest rate effectively steps up on the monthly or quarterly reset dates and rewards long-term investors with increasing yield if held to maturity. Step ups also enhance liquidity as the fund has the option to redeem these deposits at no cost prior to reset. The total fund exposure of R765 million to the notes is limited to top-rated banks and comprises approximately 60 per cent of the money market portfolio.

How have you positioned the fund for 2012?

The fund has benefited from historical investment into step up notes which were acquired at attractive yields. The majority of three-month step up notes held by the fund are now earning the equivalent of 12 months’ yield in the market, and the additional investment into these instruments over the last few months will assist the fund in maintaining yields at competitive levels.

While the possibility of a decline in short-term rates does present some downside risk on these step up notes, the increasing spread to maturity allows investors to benefit from the yield pick up over the full term of the investment. These notes ultimately reward long-term investors.

Please provide some information around the individual/team responsible for managing the fund.

The fund is jointly managed by Piet Viljoen and Sean Neethling. Viljoen has over 25 years of industry experience. He started out as a lecturer at the University of Pretoria, and then joined the Reserve Bank as an economic analyst. He became a portfolio manager at Allan Gray Investment Counsel in 1991 and, in 1995, he moved to Investec Asset Management. Viljoen founded RE:CM in 2003 and is our executive chairman.

Neethling graduated with a BCom honours degree in financial analysis and portfolio management from UCT in 2003. He has nine years’ corporate and investment banking experience.

Please outline fee structure of the fund.

Management fee: 0.15 per cent (excl. VAT).

There are no switch costs to move funds within RE:CM funds. In other words, a client switching from one RE:CM fund to the money market fund or vice versa does not pay a switching fee.

Why would investors choose this fund above others?

Although we manage the fund ultraconservatively, we make up for this by charging the lowest fee in the market. The net result is a relatively high performing money market fund, with the low risk. Truly the best of all worlds.

Please provide performance of the fund over one, three and five years (please include benchmark). The fund was launched in October 2010.

Performance

One month

Three months

Six months

Year to date

One year

Since inception

RE:CM Money Market Fund (gross)

0.47%

1.47%

2.95%

2.95%

5.94%

5.67%

STEFI Call (benchmark)

0.42%

1.29%

2.61%

2.61%

5.31%

5.35%

Active

0.04%

0.18%

0.34%

0.34%

0.63%

0.33%

24

INVESTSA

TJDR (CT) 39203/E

The world’s best global fund manager, for 3 years running, could work for you.

The prestigious UK-based publication, Investment Week, has awarded Kokkie Kooyman the Global Fund Manager of the Year (Category: financials) award in 2010, 2011, and 2012. This year, his team received another: Best Specialist Fund for the Sanlam Global Financial Fund. It’s an extraordinary performance against other international funds, and all judged on the impressive return on our clients’ investments. For more information, speak to your financial intermediary, or the Sanlam Collective Investments call centre at 021 916 2000.

Sanlam Investment Management Global. As ambitious as you are.

www.simglobal.co.za SANLAM INVESTMENT MANAGEMENT (PTY) LTD IS A LICENSED FINANCIAL SERVICES PROVIDER

Investment Management Global

Collective Investment Schemes (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future.

Fluctuations or movements in exchange rates may cause the value of underlying investments to go up or down. CIS are traded at ruling prices and can engage in borrowing and scrip lending. Forward pricing is used. Commission and incentives may be paid by investors to third-party intermediaries and, if so, would be included in those investors’ overall costs in investing in the Funds. A schedule of fees and charges are available on request from the manager. Sanlam Collective Investments is a member of ASISA. A prospectus and short form prospectus is available to be viewed at www.sanlam.ie. Sanlam Asset Management is a registered business name of Sanlam Asset Management (Ireland) Limited. Sanlam Asset Management (Ireland) Limited is a UCITS IV Management Company regulated by the Financial Regulator in Ireland.

The names of entities mentioned on this advertisement are the commonly known “brand names” of those entities rather than the legal entities as contracted. Full details of all contracted parties are available in the fund prospectus. This award is valid for 2012 and full details and the basis of this award is available from Sanlam Investment Management Global.

ALTERNATIVE INVESTMENT

Hedge funds

a risk tool In an uncertain world, diversification is the first defence of the prudent investor.

Carla de Waal | Head of Funds of Hedge Funds at Novare Investments

D

iversification, however, is about more than merely combining different managers who could potentially do the same thing.

Instead, the goal should be to build a portfolio around a diversified blend of sources of risk and sources of return.

Investing in hedge funds is a strategy that will provide a diversified source of return.

Most investors need equities as a core building block in their portfolios. This applies especially to those with a long-term investment horizon, for example, saving for retirement. Investing in equities, however, introduces downside risk, as markets have clearly shown over the years.

Investors who want to protect their portfolios against extended drawdown periods, while still participating meaningfully in the upside and outperforming cash, should consider including hedge funds as part of their portfolio. Hedge funds have demonstrated their ability to withstand downside risk in severe market conditions, thus enabling investors to avoid negative compounding.

This is because of how hedge funds operate, with strategies like equity market neutral not dependent on the direction of the equity market to produce a return.

As a result, this differentiated source of return complements the portfolio’s long only (buy-and-hold) equity portion that is dependent on the direction of the market.

Other hedge fund strategies, such as fixed interest arbitrage, also provide asset class diversification without necessarily taking a directional view on interest rates, making them a potentially good fit with the bond portion of a portfolio. This means that hedge funds can play an important role in the portfolio construction process as a tool to fine-tune asset allocation. They

26

can be used to reduce directional risk in the portfolio, while also providing an additional source of risk diversification.

In addition, hedge funds can extract value from the market that is not easily obtainable by long-only investment.

For example, they offer investors the opportunity to profit from the relative value between two companies. For example, in the case where one company is perceived to have better management than another, even though both operate in the same economic sector, a hedge fund can enter a pair trade to capitalise on this view without taking on market risk.

To be able to efficiently blend investment strategies to achieve risk diversification requires a thorough understanding of the strategies to be included in the portfolio.

This is especially true when investing in hedge funds, as they bring some unique risks that investors should be aware of.

Following a prudent approach, most of these risks can be mitigated, but investors need to do their homework first. One approach is to use a fund of hedge funds.

In addition to the upfront due diligence

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process, funds of hedge funds continuously monitor their underlying portfolios once invested, to check that the investments made by individual hedge funds are in line with their mandates and that no undue risk is introduced to the portfolios.

In the past it was difficult to obtain information from hedge funds, but this is changing fast.

In South Africa especially hedge funds offer investors extensive disclosure, with funds of hedge funds having been instrumental in establishing reporting standards by local hedge funds that far surpass that of their global peers. This degree of transparency into portfolio holdings enables funds of hedge funds to not only monitor mandate compliance, but also track the performance of the portfolio independently in addition to monitoring risk exposures.

Funds of hedge funds make it their business to ensure they understand the investment strategies followed by the hedge funds they invest in, to achieve proper risk diversification by blending different strategies together.

blue ink

Chris Hart | Chief Strategist at Investment Solutions

CHRIS HART

Markets buffeted by the economy and policy

J

une PMI manufacturing data in key countries confirmed the global economy is facing yet another generalised slowdown. A number of economies are already in recession, particularly in Europe. China and the other BRICs are also slowing, with PMI numbers either already recording contraction or anaemic growth at best.

In response, markets have been struggling.

Following a significant nine per cent drop in May, the MSCI managed an unconvincing 4.9 per cent rally in June. The MSCI is in the process of confirming a long-term bear market is in force. The 2011 high fell well short of the 2007 peak and the May 2012 peak fell short of the 2011 peak. At the same time, there has been a loss of momentum.

Europe is also continuing to struggle with its debt problems. Greece remains a problem child, its crisis yet to be resolved as it grapples with unstable politics and an economic depression. Cyprus and Spain have now also capitulated and requested bailout assistance. Italy may not be far behind and Spain’s request for 100 billion Euros should be considered just a sample.

The big requests are still ahead. The situation seems to be unravelling rapidly and yet the political establishment is moving at a glacial pace.

The combination of rising problematic debt levels and recessionary economies has resulted in the debt crisis remaining unstable and continuing to deteriorate.

Economic growth is clearly the most desirable way out of problematic debt but this seems increasingly elusive. Fiscal policy is exhausted and is being forced to be cut back, leaving central banks to try to generate some growth.

Central banks have been focusing on easing policy for some time and this has intensified in recent weeks. The US Fed has extended its ‘twist’ programme to the end of the year despite indicating at the

“Essentially, assets that have their own intrinsic value, such as property, precious metals and solid blue-chip industrials, may prove to provide the best strategy.” previous meeting that it did not have much conviction on further stimulus. The ECB has cut rates further from 1.0 per cent to 0.75 per cent; the People’s Bank of China has also cut rates and reserve requirements; and the Bank of England has extended its quantitative easing (QE) by a further £50 billion. Many more central banks have acted, including the Danish, which has set negative nominal rates.

Central banks may well see the need to escalate their efforts after market reaction to the latest measures was rejection. Clearly more is expected. The need to stabilise the economy and financial markets is seen as increasingly pressing while markets become more sceptical. Central banks are already out of conventional ammunition and having to resort to unconventional measures. Over the next few weeks, central banks may well be preparing for a nuclear option. This means QE3 from the Fed or LTRO3 from the ECB, but in a quantum bigger than their previous efforts.

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The question is whether more of the same, just bigger, will work. QE1 and QE2 already have a track record; big effect for the first but diminishing for subsequent efforts and never with any durability. Monetary and fiscal policies have merely been measures that kick the can down the road.

From an investment perspective, the macro environment presents an interesting challenge. The measures central banks and governments have taken pose a big risk to conservative investors who depend on bonds and cash for safety. Negative real rates prevail and printing of money erodes value from the investments. However, volatility in equities and macro uncertainty also generate risk. Assets that depend on confidence for their value (principally bonds and cash) are increasingly risky in the face of current and expected policy measures.

Essentially, assets that have their own intrinsic value, such as property, precious metals and solid blue-chip industrials, may prove to provide the best strategy.

27

Industry Associations

SECURING YOUR CLIENT’S FINANCIAL FUTURE

AHEAD OF MARRIAGE Gavin Came | Chairman of the Financial Planning Committee at the Financial Intermediaries Association of Southern Africa (FIA)

D

espite the fact that one of the main causes of the breakdown of a marriage is concern over financial matters, newly engaged couples often forget about the financial consequences of marriage while their attention is focused on the wedding, reception, honeymoon and other matters. As a result, financial advisers should stress the importance of sound financial planning to clients ahead of their marriage.

For example, if one of the spouses has incurred significant business or other debt or is exposed to large personal sureties, this could affect the couple’s ability to take on further debt to buy a family home.

These financial history factors could also play a vital role in determining the type of marriage contract to be entered.

There are basically three financial marital regimes available: community of property; antenuptial contracts excluding community of property; and antenuptial contracts providing for community of accrual. However, there are many variations of an antenuptial contract.

A decision about which of these regimes to enter is sometimes difficult to determine for a young couple marrying for the first time. There are also important considerations for second marriages where the spouses may have accumulated assets prior to the wedding.

A recent study from the US revealed that 32.9 per cent of women and 28.7 per cent of men cite financial problems as the cause of their divorce.

While there are no local statistics, these figures reveal the importance of providing proper financial advice to clients before their marriage in order to help them avoid serious problems in the future. Many of these issues also need to be considered in same-sex unions and decisions about living together.

From the beginning, inform your client that they need to consult with a financial adviser as soon as possible so that they can structure a joint financial plan before the wedding. When it comes time to structure the new financial plan, clients should feel as comfortable talking about their financial situation with their new partner as they are when it comes to discussing the social formalities of a wedding.

Often the stress in a marriage arises from disparities in the spouses’ views on saving and spending. Invariably one spouse tends to be more of a saver and the other a spender, which can quickly give rise to conflict. It is the role of the financial adviser to assist the couple to agree and maintain a comprehensive financial plan that includes a budget.

“Often the stress in a marriage arises from disparities in the spouses’ views on saving and spending.

Invariably one spouse tends to be more of a saver and the other a spender, which can quickly give rise to conflict.”

It is critical that both partners are open and honest about their financial history.

28

INVESTSA

Following the wedding, there are many changes to the financial situation that need to be considered and planned for. There are usually two incomes and one house and lifestyle to finance; or in the case of a second marriage, there may be issues from previous relationships, such as maintenance and decisions to be made about children, such as education, healthcare and other additional expenses. Older newlyweds will need to consider retirement plans.

The long-term structure and financial arrangements of the partnership will determine many future decisions of the marriage, so it is vital for clients to have cohesive plan in place that can be reviewed on an annual basis.

It is crucial that your client discusses and plans the financial future of the marriage with you so that you can help determine the best plan and, ultimately, better ensure a financially successful future for your clients.

Fund profile

| Emperor Asset Management

What are your top five holdings at present?

1.

2.

3.

4.

5.

Kumba 9.79 per cent Mr Price 7.20 per cent Exxaro 7.05 per cent Shoprite 6.94 per cent Remgro Ltd 6.02 per cent

Who is the fund appropriate for?

Flynn Robson | Head of Asset Management, Emperor Asset Management

Please outline your investment strategy and philosophy for the fund.

Our investment philosophy is to deliver superior returns with moderate risk profile, aiming to be the best in what we do.

We are a niche player; very focused and we strive for limited diversification but always ensure that we maintain intimate relationships with our clients Emperor Asset Management has a unique, algorithm-based quantitative strategy. The strategy targets two classes of companies: those with high dividend yields and those with high momentum. High-momentum stocks are stocks with high returns over the past three to 12 months and high dividend stocks are identified through historical and forecasted dividend yields.

A risk profile assessment undertaken by all clients determines the percentage of cash to be held, as well as the gearing level. For a conservative client, we would consider investing 50 per cent of the capital in shares with high dividend yields and the remaining 50 per cent of capital in shares with high momentum which delivers capital growth.

Retired investors with insufficient capital to earn an income from conventional sources and those investors who are in a position to take calculated risks.

Golden age investors (80+ years) who desire only income while pledging capital to children as inheritance. This is attainable through a 12 per cent income yield, 75 per cent tax free, growing far above inflation rate, allowing for capital growth which exceeds inflation even after income withdrawals.

Young professionals starting out who are prepared to take risks, and what to use income to enhance lifestyle, while capital growth enhances retirement planning.

Please provide some information around the individual/team responsible for managing the fund.

Tom de Lange, CIO of Emperor Asset Management, is a metallurgical engineer by profession. He has been an active investor on the JSE since 1981 and, over the last 25 years, has averaged a compound annual return of 20 per cent and 35 per cent over the last 15 years.

Flynn Robson, head of Asset Management, worked at London’s HSBC Investment Bank and a number of other leading investment banks in the city before moving back to South Africa to join Emperor Asset Management.

Why would investors choose this fund above others?

The traditional one-size-fits-all asset management approach and attitude to clients, costs, risk, information and transparency needs revision. Our approach challenges the market participants at all levels and delivers extraordinary investment returns to our clients.

How have you positioned the fund for 2012?

The investment in equities, be it the Alsi40 index or Emperor, is by necessity a long-term investment. Currently trading/ investment activity has been lowered and we have moved to a more conservative phase in our strategy. We are monitoring the markets and anticipate that the current downtrend will continue until the end of the third quarter, where we will be waiting for a buy opportunity.

We have positioned our fund in such a way that a balanced investor (somebody who takes both risk and returns into account) who typically makes decisions on the 75 per cent confidence level (25 per cent uncertainty), will substantially outperform the market over a four-to five-year investment period.

“We have positioned our fund in such a way that a balanced investor will substantially outperform the market over a four-to five-year investment period.�

Please provide performance of the fund over one, three and five years including its benchmark. Figures as of June 2012

Emperor Asset Man JSE ALSI40

One year (annualised return)

Three years (annualised return)

Five years (annualised return)

43.8%

28.9%

13.6%

8.4%

14.4%

3.0%

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29

Responsible Investing

RETIREMENT INVESTING

South Africans waking up but still underproviding, Old Mutual retirement survey shows Bongani Madikiza | MD of Old Mutual Corporate

F

indings of the recently released 2012 Old Mutual Retirement Monitor suggest that despite increasing financial pressure from the recent financial crisis, many South Africans are showing improved levels of savings for retirement.

“There seems to be a growing awareness that they are not adequately prepared for their retirement,” says Bongani Madikiza, MD of Old Mutual Corporate. “A notable finding from the survey is the reduction in the number of people who anticipate relying on cash savings in retirement. When asked about the savings, investments and other sources they will draw on in retirement, respondents said that they expected only 20 per cent of their retirement funding would come from cash sources. This figure dropped from 21 per cent in 2011 and 29 per cent in 2010. “It looks as if the realities of the past few years have made people much more aware of the impacts that market conditions can have on cash savings,” says Madikiza.

This growing realisation, coupled with 2012’s slightly improved economic conditions, has largely reversed the decline in the use of formal retirement savings products witnessed in 2011. “Usage appears to have been restored to 2010 levels,” he says.

According to the data, 33 per cent of respondents own a retirement annuity, up from 24 per cent of respondents in 2011.

It’s encouraging that approximately 58 per cent of respondents belong to a pension or provident fund, an increase from 51 per cent of respondents in 2011 and 57 per cent of respondents in 2010, says Madikiza.

“However, the fact remains that about one-third (31 per cent) of respondents do not have any formal retirement product at all.” The results of the 2012 Old Mutual

30

Retirement Monitor also indicate a bounce back in the uptake of short-term insurance and medical aid policies.

According to the data, 33 per cent of respondents had some form of short-term insurance, an increase from 24 per cent of respondents in 2011. Meanwhile, 54 per cent of respondents have medical aid savings in place, which is a marked increase from both 2010 (40 per cent and 2011 (39 per cent). The results of the 2012 Retirement Monitor also suggest a slight increase in awareness of issues around their retirement funds.

“A notable finding from the survey is the reduction in the number of people who anticipate relying on cash savings in retirement.”

The proportion of respondents who indicated that they were not sure if they would have enough money to retire on declined from 23 per cent in 2011 to 20 per cent in the latest measure. “The fact that more respondents are willing to take a view on their retirement funding adequacy points to an increasing recognition of the need to take ownership of their retirementsaving responsibilities,” says Madikiza.

There is also greater awareness among retirement fund members of who their trustees are. “In the latest survey, 57 per cent of respondents are able to identify their trustees either by name or by company, up from only 35 per cent in 2011,” says Hugh Hacking, head of retirement fund solutions at Old Mutual Corporate. Hacking agrees that the shock effects of the financial crisis are the likely reason for this increased awareness. However, he stresses that this figure is still too low and there is a dire lack of member engagement from their retirement funds.

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“There is very little inclination among members to involve themselves in the trustee election process. Ninety per cent of respondents who are fund members indicated that they did not vote in their most recent trustee election. However, in spite of this, members remain very trusting of their trustees and are mostly confident of their abilities and willingness to act in their best interests,” he says.

Another concern is that 64 per cent of respondents said they usually spend all the income they earn and are unable to save anything. This figure increased dramatically from 39 per cent of respondents in 2011 and could have major consequences on the growth of the economy in the future.

“As the pressure of rising costs weighs on South African households, respondents are increasingly relying on their children and the government to support them after retirement. This reliance on future generations only entrenches the cycle of poverty,” says Hacking. Also, an increased number of people plan to work past retirement.

Meanwhile, despite most people taking cash withdrawals, there appears to be a growing realisation that preservation is important.

“As was the case in the past two Retirement Monitors, the vast majority (66 per cent) took their entire available benefit when withdrawing from their fund. This remains an area of major concern for the South African retirement industry. Unfortunately economic realities see these retirement benefits spent on immediate needs,” says Hacking.

What is interesting to note, he says, and which corresponds with our own experience, is that preservation is more likely to occur when the respondent received some form of financial advice.

Regulatory Developments

Social and Ethics Committees

Alun Rich | Director at Statucor

A

new requirement under the Companies Act, which sees State-owned companies, listed public companies and any other companies that scored above 500 points having to establish a social and ethics committee, has been met with much resistance by those who feel that such a committee is unnecessary.

Are social and ethics committees a mere nuisance; another hoop for SA businesses to jump through in a time of increasingly onerous legislation? Alun Rich, a director at Statucor says not. According to Rich, social and ethics committees are an important component of a business’s management function and protect an organisation from any unscrupulous behaviour.

“Take the recent debacle with Auction Alliance as an example. If Auction Alliance had a functional social and ethics committee in place, it would have undoubtedly avoided this major scandal.”

Rich explains that a social and ethics committee is designed to monitor a company’s activities, ensuring they comply with legislation and legal requirements or prevailing codes of best practice. The committee will also ensure that a business is a good corporate citizen: promoting sponsorships and donations; equality; the prevention of unfair discrimination; the reduction of corruption; contribution to the development of communities; protection of the environment; ethical consumer relationships; fair labour and employment; and to then draw matters within its mandate to the attention of the board as the occasion requires; and to report to the shareholders.

“With the introduction of such social and ethics committees, we will see a shift in focus to include and consider all

Good news at the end of the day for shareholders stakeholders. Organisations will be forced to become more stakeholder-centric.

Larger organisations are now forced to look at their behaviour and address any issues. No longer can businesses focus just on optimising profits and making money. They have to consider how they affect the communities in which they operate,” says Rich. Companies will have to demonstrate how they maintain their status as good citizens. “However, in this case, size really does not matter and smaller organisations should also make the decision to voluntarily adopt an ethics policy and apply these practices to their businesses as well, even without a formalised committee.”

The board of an organisation will be responsible for ensuring that a social and ethics committee is functioning effectively and it is this board that will be held liable for the consequences should things go wrong. For this reason, the establishment and efficient functioning of this committee is not to be taken lightly.

Rich advises that businesses looking for help with their social and ethics committees look towards professionals who can advise the board on their roles and responsibilities going forward.

“Statucor can assist with setting up the committee, drafting the correct charter, drafting the immediate and long-term goals and concerns, setting up the agenda, advising the board and just generally holding the hand of a business. SA businesses

INVESTSA

cannot afford to have something go wrong. The benefits of a long-standing image of good ethics are invaluable in ensuring the success of an organisation.

The forced establishment of social and ethics committees in larger organisations is also good news for shareholders who will benefit from an organisation’s longstanding good image,” concludes Rich.

“No longer can businesses focus just on optimising profits and making money.

They have to consider how they affect the communities in which they operate.”

31

Economic Commentary

Great

expectations Adenaan Hardien | Chief Economist: Cadiz Asset Management

T

he Reserve Bank Monetary Policy Committee (MPC) left the repo unchanged at 5.5 per cent on 24 May, as was generally expected. The benchmark repo rate has been unchanged since November 2010. Rate expectations have changed substantially over the course of 2012. At the beginning of the year, expectations were that the MPC would start hiking the repo rate by the fourth quarter of 2012, according to the median expectations of the monthly Reuters Econometer Poll. The latest poll shows that the MPC is expected to start hiking rates in the fourth quarter of 2013. We expect that a combination of relatively weak domestic growth, ongoing concerns about downside risks to global activity, and a more favourable local inflation outcome, would continue to weigh on monetary policy over the remainder of 2012 and 2013. Under this backdrop, we think that the MPC is likely to keep the repo rate unchanged until 2014, with a gradual hiking cycle commencing in that year.

Economic data releases published over the second quarter have confirmed a general softening of activity over the first quarter, with high-frequency data showing that this looks to have intensified over the second quarter, and inflation continued to moderate at a faster-than-expected pace.

Local economic activity lost momentum over the first quarter, with growth moderating to an annualised 2.7 per cent, after growth of 3.2 per cent over the last quarter of 2011. A contraction in mining activity was central to the weaker performance over the quarter, although services sectors showed moderations in growth. Both domestic and foreign demand were weaker, with public sector investment bucking the weaker trend.

The slow down in private investment was particularly sharp, with growth of 1.8 per cent annualised over the quarter compared to 6.2 per cent over the fourth quarter of 2011.

Other data releases show that activity generally remained weak in April, with

32

mining, manufacturing and electricity production down on an annual basis.

Confidence surveys like the BER’s business confidence and purchasing managers’ surveys suggest an intensification of the weakness in coming months. Likewise, the Reserve Bank’s leading indicator suggests further moderation in the pace of the expansion over the next couple of quarters.

“South Africa’s inflation picture has remained very encouraging, despite the recent weakness in the currency.”

The second quarter has not been kind to the Rand. As has become customary, the currency was sold off in sympathy with other risk assets. After a strong first quarter that saw it gain 4.4 per cent on a tradeweighted basis, the Rand lost 4.8 per cent over the second quarter. While the Rand sell-off coincided with a weakening Euro, the local currency lost ground against all major currencies including the Euro.

If sustained, a weaker Rand is generally supportive of growth and fuels inflation.

But if the Rand’s sell-off is vindicated by much weaker global activity, such as would be the case if Greece exits the Euro, this would negate the impact of a weak Rand on growth, as has happened in 2009. And, while the weak Rand would fuel inflation, this would be offset by weaker commodity prices and a global disinflationary environment. Under this scenario, the Reserve Bank may well be forced to

INVESTSA

consider easing rates despite a weak Rand.

If Greece avoids an exit and risk appetite improves, it would be reasonable to expect the Rand to regain some of the ground that it has lost. While this remains our base case, the probability of the alternative scenario remains high.

South Africa’s inflation picture has remained very encouraging, despite the recent weakness in the currency. Consumer inflation has been on a declining trend since its peak at 6.3 per cent in January, falling to 5.7 per cent in May. Likewise, producer inflation has remained on a declining trend since its peak at 10.6 per cent in October 2011, falling to 6.6 per cent in April and May. Both consumer and producer inflation is expected to remain on a declining trend, with consumer inflation likely falling to below five per cent by the fourth quarter of 2012, and remaining well within the target range over the Reserve Bank’s policy horizon. Inflation is expected to remain well behaved in a generally lacklustre growth environment with a restraining output gap, subdued global inflation and a combination of food and petrol price disinflation and lower electricity tariff increases.

Our base case view that the repo rate will remain unchanged until 2014 assumes an orderly, albeit protracted resolution of the Euro crisis. Under this scenario, a lacklustre global recovery will continue, with global growth remaining hostage to bouts of market volatility. Our alternative risk view sees the Reserve Bank cutting the repo rate further, as an emergency response to severe market dislocation precipitated by an extreme event such as a disorderly exit from the Euro by one of the southern European states currently mired in sovereign funding difficulties. The most likely candidate for such an exit remains Greece, even after the second round of elections on 17 June that led to the formation of a coalition that is more amenable to honouring a reform agenda agreed to by the pre- vious government.

SUNEL VELDTMAN

Women

&money

Sunél Veldtman, CFP CFA is the author of Manage Your Money, Live Your Dream, a guide to financial wellbeing for women. She is also a presenter and facilitator. Sunel is currently the CEO of Foundation Family Wealth and has more than 20 years of experience in financial services, most of which as a private client adviser.

M

y eight-year-old daughter asked me the other day, “ Mommy, why does it take so long to get divorced? Why can’t they just agree and leave?” My answer to her came in the form a song: “It’s all about the money, money, money...”

It strikes me as incredibly sad that most marriages, some that have lasted for decades, end with a piece of paper that dictates how the money (by that I also mean material possessions and financial assets) should be split up.

However, it also raises the issue of the importance of money in relationships.

Money becomes the currency of power, especially in distressed relationships.

The earner and controller of the finances is often able to manipulate the ‘lesser’ partner to yield during negotiations, about who gets what during and at the end of a relationship. Despite legal contracts, dictating that their assets should be equally split, the most powerful person in the relationship often ends up with more. Time and again this happens by emotionally wearing out the less powerful partner.

Mrs Blank’s marriage of 20 years is on the rocks. The Blanks are married in community of property, which entitles her to half the money. The unspoken agreement was that she would support her husband in his high-profile career and manage the home and children, especially since he travelled extensively. When they got married, they had nothing, but now they are worth hundreds of millions.

Nevertheless, she has no access to the bank accounts, investments or tax returns.

The marriage appears irredeemable and the Blanks have opted for divorce.

He has cut off her access to funds and is dragging out the process. Mr Blank has offered her a substantial but entirely insufficient settlement. She is tired and just wants to end it as quickly as possible. Does she have the emotional energy to fight for her half? Some people might think that she

is not even entitled to her half. After all, wasn’t he the one who worked for it?

The formation of women’s rights has been advancing for decades. Unfortunately, women still end up as the less-powerful partner in most relationships. This is especially true of the older generations.

What do we advise women on money and relationships? I hear similar women telling their daughters to never depend on a man.

Is this the right advice to be giving the next generation?

Men and women are different. Essentially, a woman’s intuition to nurture sets her apart. This nurturing role is not merely created by the physical realities of producing babies, but due to nurturing hormones that subconsciously, strongly dictate women’s priorities. This means that women often willingly or unwillingly sacrifice their earning potential. Research in the USA has shown that single and childless women earn on par with men, but mothers earn significantly less than the rest. Many women, sometimes subconsciously, choose financial independence over happy relationships or having children.

Even subconsciously focusing on money can put strain on a relationship. Kathleen Vohs, an associate professor at the University of Minnesota, has produced some remarkable research focused around money and relationships. She found that people who are reminded of money (money-primed) become more independent, self-reliant and selfish.

Vohs’ money-primed participants chose to remain noticeably more distant from the other participants and showed a greater preference for being alone.

Vohs’s research confirms my suspicion

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that focusing on money and financial independence in relationships can do more harm than we think. If we prepare women to have financial independence as their primary goal, we set them up for failure in relationships.

We should rather advise women about financial interdependence, the give-andtake in relationships that is necessary to sustain them. We should teach young girls negotiation skills and how to be assertive, rather than highlighting financial independence from their partner, as their most importance goal. Money can buy happiness only to the point that it fulfills our basic needs. It cannot buy the joy of a fulfilling relationship. Where there is an unhealthy focus on money, unhappiness will follow.

At the end of your life, what would be your biggest regret – financial dependence or the failure to discover happy relationships?

So what should we advise women on money?

1. If you are dependent on your partner’s money, for your current or future welfare, it is yours. Act like it is, not by spending it, but by taking responsibility for it.

2. Stay informed on what is happening in the world and with your family’s money. If you know what’s there, you’ll know how to negotiate for it, if you have to.

3. Fulfilling relationships bring happiness.

33

morningstar

Do your unit trust’s portfolio managers have their skin in the game?

David O'Leary | CFA, MBA, Morningstar

I

n last month’s issue, I wrote a piece entitled, ‘Performance Fees: Heads I win, tails we flip again’. In that article I discussed why many performance fee structures are actually a raw deal for investors, despite the unit trust industry’s claims that performance fees help align the interests of fund managers with those of investors.

I concluded by suggesting that a better alignment of interests could be achieved by simply having fund managers invest heavily in the unit trusts that they run; what we like to call fund manager co-investment. After all, what more incentive could fund managers need than having their savings on the line, too?

Unfortunately, most fund companies don’t disclose the investing habits of their managers. South Africa isn’t unique; in fact, there’s only one country – the United States – that requires it.

The US fund industry is far from perfect but in this regard it is exemplary. US fund companies are legally required to disclose the Dollar amount (within a range) a fund manager has invested in each fund that they manage.

Unit trust firms that decline to disclose co-investment information typically cite the concern that it would compromise the personal privacy of their portfolio managers. This is understandable. Not many people want to share their personal financial details with the world.

But to my mind, positions of great responsibility demand the highest level of transparency and scrutiny.

We don’t think twice about asking politicians to reveal certain personal and financial details. We are paying their salaries after all.

“In every other country investors are left in the dark. The irony is rich when firms refuse to disclose this information.”

In every other country investors are left in the dark.

The irony is rich when firms refuse to disclose this information. We often speak with portfolio managers at these same firms who tell us that before they buy stock in a company, they look to see whether its executives are also owners of the company. Many portfolio managers simply won’t invest in a company where the people running it don’t have skin in the game. After all, how comfortable would you be eating at a restaurant where the chef refuses to eat his own cooking?

Stock investors often enjoy this disclosure while unit trust investors do not. The reason for this disparity is that stock investors know that it’s important information and they demand it. Since they typically control large amounts of money they can exert considerable influence. By contrast, unit trust investors often don’t

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think to ask for it and individually don’t control enough money to have any real bargaining power anyway.

In the absence of a clearly defined regulatory requirement, even curmudgeonly firms could choose to disclose meaningful co-investment information without compromising the privacy of any individual. For instance, a firm could choose to disclose how much fund managers have invested as a percentage of their base salary. This wouldn’t reveal anything but the relative size of the manager’s investment. As an investor I’d feel better about investing in a fund run by a manager who had co-invested three times his base salary than a fund run by a manager who didn’t invest at all. Excluding the Bill Gateses of the world, not many people can afford to lose three years worth of salary.

Hopefully one day regulators will mandate the disclosure of co-investment information. Until then, it would be nice to see firms voluntarily disclose it for the simple reason that it’s useful information to the investors whom they are in the business of serving. Knowing whether your fund manager has his skin in the game tells you a lot about the incentives they have. After all noone washes a rental car.

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Responsible Investing

ETFs – Retirement Investing

A new paradigm for the management of retirement fund assets Nerina Visser | Head of Beta & ETFs at Nedbank Capital

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he investment landscape is changing. In particular, there are increasing pressures to redirect efforts from chasing excess returns to controlling costs. To reflect this change in focus, the investment process needs to change. Liability-driven investing offers the tools to change these processes and helps to demonstrate how both ‘beta’ and ‘alpha’ investing have a place in meeting the needs of the investor in a challenging, changing environment.

Key changes in the investment landscape include: • Changes in the regulatory environment in addition to the reform process, e.g.

Regulation. 28 of the Pension Fund Act, the Collective Investment Schemes and Control Act of 2002 (CISCA), the Security Services Act of 2004 (SSA), FAIS, etc.

• Look-through principles have been entrenched at both fund level and member level. This will arguably result in substantial increases in fund administration costs which would be passed on to members.

• Single-digit returns cannot sustain high costs/fees.

All of these mean that costs need to be controlled. National Treasury’s white paper, ‘Strengthening retirement savings – An overview of proposals announced in the 2012 Budget’, specifically discusses the need to reduce costs and consider less expensive passive investment solutions. It also emphasises the responsibilities of trustees, particularly of umbrella and retirement annuity funds.

Liability-driven investing (LDI) The primary aim of LDI is to focus on meeting the liability obligations in an optimal way, rather than chasing or targeting superior

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returns, especially if these were to come at either an unacceptable level of risk or at a prohibitive cost (especially of hedging or guarantees).

The basic principles of liability-driven investing are as follows: • Capital preservation with lower volatility risk in delivering returns.

• Consistently grow assets greater than liabilities over the typical liability investment horizon.

• Diversify investments to buffer against changing market conditions.

• Aim for cash risk and equity performance.

• No surprises, bank predictability.

• Know what you are paying for – no need to overpay.

Volatility is a negative force in an investment portfolio. It affects the stability of returns and increases the risk of capital loss.

Portfolio construction – a new paradigm Liability-driven investments construct portfolios by matching risk factors, rather than asset classes.

It is a process that focuses on performancecost optimisation rather than mean-variance optimisation.

Portfolios are constructed from the bottom up.

• The liability profile of the fund represents the starting point, as it defines the obligation of the fund/asset owner.

• Specific cash flow liabilities may be hedged using bespoke bond portfolios or swaps, if required; near-term liabilities may also be met through guarantees.

• The next step is to select a diversified basket of risk-defined assets, optimised to meet the remaining liability obligations over the

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longer term. This is best achieved using passive building blocks such as ETFs or index-tracking portfolios.

• Finally, if the risk budget allows it, alpha, or excess return opportunities may be identified and pursued, but not at the risk of failing to meet the liability obligations.

This approach to portfolio construction can be applied to any type of liability profile or obligation. At Nedbank Capital we have established a series of such portfolios aimed at broad-based generic liabilities, including inflation-referenced obligations.

The BettaBeta Preserver Fund aims to preserve the purchasing power of assets over time by achieving targeted returns of three per cent in excess of the level of inflation (as measured

by CPI) over rolling three-year periods, while reducing the volatility associated with marketlinked investments.

Similarly, the BettaBeta Accumulator Fund provides targeted returns of five per cent in excess of CPI, over rolling three- year periods. The performance of these, relative to the benchmark or hurdle rates are shown alongside.

What this demonstrates is that passive tools can be used in intelligent ways that allow pension fund trustees to build portfolios matching the liabilities they need to cover and controlling costs, in accordance with the emerging regulation. Retirement fund trustees can neither afford to underestimate the impact of costs, nor delegate the fiduciary responsibility of meeting the fundlng obligation to an opaque investment process or product any longer.

etfSA.co.za

Quarterly ETF/ETN Performance Survey for period ended 29 June 2012 Mike Brown | Managing Director | etfSA.co.za

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n the first six months of 2012, property sector ETFs, Proptrax SAPY and Proptrax TEN, with returns of 17.39 per cent and 13.73 per cent respectively, were among the top performers. The financial sector also performed well; NewFunds eRAFI FIBI 15 ETF (15.59 per cent total return) and Satrix FINI 15 ETF (14.80 per cent total return).

Best performing ETF/ETN – Short-term Total return* (% change over period)

In the second quarter of 2012, commodity ETNs (Standard Bank Wheat and Corn ETNs) and NewGold were among the top performers. Again property ETFs showed up well.

3 Months Standard Bank Wheat-Linker ETN Standard Bank Corn-Linker ETN Proptrax SAPY ETF Proptrax TEN ETF NewGold ETF NewWave US$ ETN NewFunds GOVI ETF NewFunds NewSA ETF

Index tracking products that outperform the market

*

The growing popularity of ETFs/ETNs in South Africa, plus the calls by the authorities for greater use of passive products in construction of retirements and other investment funds, is focusing attention on the use of passive tracker funds to provide market-beating performance at low cost and limited risk.

Source:

(%) 19.98% 17.21% 10.04% 6.73% 5.81% 5.66% 5.59% 5.27%

6 Months Proptrax SAPY ETF NewFunds eRAFI FINI 15 ETF Satrix FINI 15 ETF Proptrax TEN ETF Satrix INDI 25 ETF DBX Africa Top 50 ETN NewFunds NewSA ETF BettaBeta EWT 40 ETF Satrix DIVI Plus ETF Price changes plus reinvestment of dividends. etfSA.co.za Monthly Performance Survey (29 June 2012).

Data supplied by Profile Media.

A number of index tracking products have provided alpha performance, i.e. better than the general market performance in recent years.

(%) 17.38% 15.59% 14.80% 13.73% 12.71% 12.47% 11.97% 8.75% 8.39%

The list below shows the ETFs/ETNs that have been able to outperform the benchmark FTSE/JSE Top 40 index over the past two years.

Benchmark beating index tracking funds (over past two years) Total return with dividends reinvested (% change p.a.) (for period ending 29 June Type 2012) ETF 25.40% ETF 21.41% ETF 19.65%

Fund Satrix INDI 25 Proptrax SAPY NewGold DBX Tracker MSCI USA

ETF

18.98%

NewFunds eRAFI INDI 25 Satrix FINI 15 BettaBeta EWT 40 Satrix DIVI Plus Satrix RAFI 40 Satrix SWIX Top 40 NewFunds eRAFI FINI 15 FTSE/JSE Top 40 Index Source: etfSA.co.za Monthly Performance Survey.

ETF ETF ETF ETF ETF ETF ETF ETF

18.54% 17.27% 16.62% 16.11% 16.06% 15.97% 15.85% 14.96%

Now, for the FIRST TIME ever, all South Africa’s ETFs & ETNs on a SINGLE WEBSITE. • Everything you need to know about each ETF/ETN • Absa (NewFunds), BIPS (RMB), DBX Trackers, Investec, Nedbank, Proptrax, Satrix, Standard Commodity Linkers • Transact online all ETFs/ETNs • Low costs • Easy access and switching • From R300 per month • From R1 000 for lump sums

Visit the website: www.etfsa.co.za or call 0861 383 721 (0861 ETFSA1)

INDUSTRY NEWS

Appointments

Chris Botha has been appointed as senior fund manager at Imara Asset Management. Botha has been in the broader stock broking and investment industry since 1990 working for many of the established brand names in the industry such as First National Trust, Kagiso, Tlotlisa Securities, SG Securities, Fedsure and African Life. Most recently he has worked closely with Imara in his last role at Afrifocus Stockbrokers.

Investment Solutions has appointed Mark Davids as the company’s client servicing account manager to various blue-chip companies.

Davids will be responsible for building and maintaining relationships with institutional clients on retirement and investment opportunities. With this addition, the institutional business team is well positioned to provide service to over 1 900 retirement funds.

Marsh finalises acquisition of Alexander Forbes Risk Services Uganda Marsh has announced the completion of its acquisition of Alexander Forbes Risk Services’ operations in Uganda.

The transaction, the terms of which were not disclosed, follows Marsh’s acquisition earlier this year of Alexander Forbes’ South African insurance broking operations, Alexander Forbes Risk Services (AFRS) and ancillary operations, as well as Alexander Forbes’ insurance broking operations in Botswana and Namibia.

Brian Blake, vice-chairman of Marsh Africa, says Uganda’s strong economic growth and rapid development, especially in the mining and energy sectors, increasingly requires companies to adopt more advanced risk management practices and insurance solutions to meet their particular requirements.

“Together with our respected and knowledgeable team in Uganda, we will draw upon Marsh’s global resources and placement skills to enhance the service we can offer to local companies. In addition, clients will benefit from the broad range of risk management expertise Marsh Africa offers to companies across the sub-Saharan region.”

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STANLIB has appointed Ben Kodisang as managing director of its asset management division. Kodisang joins with many years of investment experience, and a strong reputation in the industry. He began his investment career in January 1996 as an industrial analyst and previously worked at Liberty Asset Management, Prodigy Asset Management, African Harvest Fund Managers and most recently at Old Mutual.

Investment Solutions shines in its 15th year During its 15th anniversary, Investment Solutions has reached a number of significant milestones.

Investment Solutions was recently voted the Manager of Managers of the Year by the Principal Officer’s Association (POA) as part of the 2012 Imbasa Yegolide awards ceremony. In addition, in June, Investment Solutions reached the milestone of R200 billion in assets under management.

The multi-manager is also making great strides towards transformation, recently achieving Level 2 BBBEE status.

“We are truly proud to have achieved R200 billion in assets under management in the same year that we celebrate 15 years of fund management. The POA award along with our Level 2 BBBEE status is testament to our commitment to service excellence, delivery and social transformation,” says Derrick Msibi, managing director.

FPI awards Efficient Advise

The Financial Planning Institute (FPI) has awarded Efficient Advise with its inaugural FPI Professional Practice certification for its high quality of professional standards.

The Professional Practice certification is a new undertaking by the FPI with the aim to raise financial planning standards. By allowing qualifying practices to obtain professional financial planning accreditation, clients are guaranteed a continued high standard of professionalism and expertise.

Financial planning practices in which at least 75 per cent of the financial planner or advisory staff hold the Certified Financial Planner (CFP) designation, or will be certified within three years, are eligible for the new FPI Approved Professional Practice certification.

Investec AM scoops Global Manager of the Year for the third time Investec Asset Management was recently awarded the Global Manager of the Year at the annual Imbasa Yegolide Awards ceremony for the third consecutive year, in addition to its recognition as Balanced Fund Manager of the Year.

The annual Imbasa Yegolide Awards is the only institutional industry awards ceremony in South Africa and gives principal officers the chance to acknowledge those service providers who have provided their funds with excellent service.

Peter Hewett, the managing director of Efficient Advise, says the company is honoured to be the recipient of this newly established certification. “The Professional Practice certification is demonstrative of the exceptionally high standards that Efficient Advise has set as a business and clearly supports our commitment to delivering world-class service and advice to our existing and prospective clients.”

Anthony Campher, CFP, head of certification and membership services at FPI, is confident that the new Professional Practice certification will serve to further enhance the overall standards of South Africa’s financial planning industry and grow the number of highly qualified financial planning professionals to meet the steadily increasing demand for these unique services.

Hendrik du Toit, CEO of Investec Asset Management, says these awards endorse both its strong position in the industry and its commitment to deliver the best possible performance to clients. “As a global investment manager proud of our African roots, it is gratifying that after 21 years in business, Investec Asset Management continues to get recognition for investment performance both at home in Southern Africa and in the global markets we serve.”

“... after 21 years in business, Investec Asset Management continues to get recognition for investment performance both at home in Southern Africa and in the global markets we serve.”

JSE Millennium Platform set to speed up trades The Johannesburg Stock Exchange (JSE) has launched its new equity trading platform Millennium Exchange, developed by technology solutions provider MillenniumIT. It follows the move of the platform from London, where the trading engine has been situated for 10 years, to the JSE building in Johannesburg.

Leanne Parsons, director of the JSE’s Equity Market, says the new platform provides exceptional levels of performance, functionality and capacity. “The JSE’s move to the new equity system, which we have nicknamed Project Jaya meaning ‘victory‘ in the language of Sri Lanka, is a victory for the market.”

Speed is becoming increasingly important in the exchange industry as exchanges cope with the rapid rise of automated trading.

Those exchanges that have trading systems with the lowest latency – the time between when an order is received, processed and acknowledgement sent – will retain and grow market share.

These changes are aimed at enhancing operational efficiencies for market participants, who are expected to benefit from executing transactions almost 400 times faster than the present trading solution. The platform is housed within the JSE’s recently completed new stateof-the-art data centre based on Tier 3 specifications and is designed to ensure 99.98 per cent availability.

Parsons says that the adoption of Millennium Exchange could have a significant impact on trading volumes by attracting a greater share of high frequency trading when collocation and the appropriate billing models are in place.

In future, the JSE will manage and operate the trading engine itself. This allows the JSE to grow trading volumes and contain trading software costs.

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EVENTS

international Financial Planning Standards Board Regulatory Advisory Panel and the executive head of strategy at financial planning company, acsis, told the convention that based on discussion documents released

by National Treasury and regulation that has been introduced in other countries, he expects that South Africa will ban brokers and advisers from earning commission on investment products sold to clients if they are in the middle- to upper-income bands.

Instead they will have to remunerate their financial adviser for their services by paying a professional fee.

Meyer said Treasury was aware that it will not be easy or even possible to scrap commission earned on financial products sold to low-income earners because they do not have the means to pay the fees. Large upfront commissions on risk products will definitely be banned too in due course, Meyer says.

FPI Annual Convention 2012 an educational success for members

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he Financial Planning Institute Annual Convention took place from 20–21 June at the Sandton Convention Centre which was attended by over 900 delegates, showcasing the best of South Africa’s financial planners and what they have to offer the financial planning industry.

The keynote sessions from industry experts covered a wide range of financial planning topics and included practical workshops and a choice of informative panel discussions with exhibition stands affording companies the opportunity to showcase their products.

Billingham, shared useful tips on building better and more profitable relationships with clients.

• Celebrated mountaineer Sibusiso Vilane spoke about reaching the top of your mountains whatever they are.

• Barrie Brambley challenged delegates on the way they think about the future and provided insights into what social media can do for your business.

• Scenario planner, Clem Sunter, provided a rare gaze into the future.

The programme included the following presentations by international and local speakers:

• Other expert speakers include - Errol Meyer, Jerry Botha, Walter Geach, Gerhardt Meyer, John Campbell, Kim Potgieter and Marius Botha.

• Dr David Rock, one of the thought leaders in the human performance coaching field who focused on how to transform one’s thinking and performance through neuroleadership.

This year’s message to delegates was: ‘Put yourself a decade ahead of the pack and learn how you can adapt your mind-set and embrace change to succeed in an everchanging world.’

• The UK strategy consultant, Phil

Gerhardt Meyer, CFP®, a member of the

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Phil Billingham, CFP®, director of the Institute of Financial Planning in the United Kingdom, a member of the international Financial Planning Standards Board’s Regulatory Advisory Panel, and an expert in the Treating Customers Fairly (TCF) legislation that was implemented in the UK, elucidated on how the TCF legislation will oblige financial product providers, intermediaries and advisers to treat customers fairly.

Andrew Crawford, CFP®, chairperson of the Financial Planning Institute’s social security working group, touched on how initiatives like national health insurance could aid national economies and the use of grants on local services.

In addition to all the presentations, JanCarel Botha, CFP®, who is a member of the financial planning team at Ultima Financial Planners, was crowned 2012 Financial Planner of the Year. He has also previously been nominated in 2010 and 2011 as one of three finalists for this award. Shaun Latter, CFP®, and Colin Long, CFP®, were announced as the finalists for the Financial Planner of the Year 2012.

Louis van Vuren, CFP®, received the 2012 Chairman’s Award; and Paul Leonard, CFP®, was announced as the 2012 Media Award winner. Natalie Wood and Elaini Schreuder were both named as the Top Students in the RFP board examination; and Martin Marx was named as the 2012 Top Student in the CFP® Professional Board Examination.

Godfrey Nti, CEO of the FPI, “On behalf of the FPI, I would like to extend a warm thank you to the staff, partners, delegates, speakers and members for attending the event ensuring that the 2012 convention was a complete success.”

PROFIDA

PROFIDA TEAM TAKES HOME

SILVER AWARD AGAIN

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ROFIDA, a leading technology provider of financial services and insurance software solutions, took home an award for its stand at the recent 2012 convention of the Financial Planning Institute (FPI). The company won the same award last year.

PROFIDA invested in a custom-designed exhibition stand that won the silver award in the category Design and People. The exhibition excellence awards recognise companies that demonstrate the importance of including exhibiting as an integral promotional component in their annual plans. According to Daniel Putra, MD of PROFIDA: “Having spent over a decade establishing our software solutions and building relationships in the financial services industry, PROFIDA has over recent years placed greater emphasis on marketing and building our brand as a preferred developer of software solutions.”

Putra adds that exhibitions facilitate direct personal interaction, allowing it to communicate personally with its target audience – life

and non-life financial services and insurance sectors – that are able to experience software products in a tangible way. “It is important that our diverse client base of underwriters, broker administrators and intermediaries identify with our marketing messages.”

PROFIDA is the only software solution which provides a desktop, web-based and combined edition for the financial planning sector.

For the short-term insurance sector, PROFIDA has a comprehensive insurance management suite and sets the pace as a technology leader in the competitive financial needs analysis (FNA) and insurance management software market.

“It is important that our diverse client base of underwriters, broker administrators and intermediaries identify with our marketing messages.”

Software Solutions

PR

O

FI

Whether you operate as a financial planner or as a large fully integrated financial services firm, PROFIDA provides Financial Planning & Practice Management Software for you. Our leading technology gives you an option of using either the PROFIDA desktop or web-based solution. Large size clients even have the choice of employing a combined application, extending logins to advisers and policyholders alike. PROFIDA follows “best practice”, basing its financial planning process on actuarial calculations and modern school of thought. It incorporates CRM, Astute-downloads, record keeping, to-do-lists, data mining, bulk newsletter campaigns, customised reports and letters. Its unique extension framework means it can grow with you and adapt as your business changes. PROFIDA manages life and non-life insurance as well as investments on one platform to accommodate your entire product spectrum now and in future.

Visit the website: www.etfsa.co.za call 0861 383or721 (0861 ETFSA1) Visit usor at www.profida.co.za phone (021) 975 0215

The Technology Leader

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PRODUCTS

OASIS CRESCENT OPENS UK OFFICE AND LAUNCHES SIX FUNDS With the aim to attract Britain’s estimated two million Muslim citizens, South African firm Oasis Crescent – one of the world’s largest Shari’ah asset managers – has opened a branch in London and launched six funds including bond, equity and property funds, which all adhere to Islamic principles including a ban on interest.

are being undersupplied and Oasis Crescent sees great potential in offering tailored products and services for this market. The investment in a new London office recognises the importance of the UK market.”

Adam Ebrahim, founder and CEO of Oasis Crescent, said the launch of the UK business was an exciting opportunity to offer its products to Muslim investors. “We are delighted to finally launch our UK business and make our funds and products available to the UK’s Muslim investors. We genuinely feel the current needs

According to Ebrahim, the current size of the Islamic investment market in the UK is under £1 billion and has the potential to be between £120 and £160 billion. “There is massive demand and Oasis Crescent sees the opportunity to meet this demand through providing its products directly to the UK Muslims.”

PRESCIENT LAUNCHES TWO NEW UNIT TRUST FUNDS Prescient Investment Management, the leading quantitative investment management house launched in 1998, recently brought two new unit trust funds to the market; the Prescient Equity Income Fund and the Prescient Equity Defender Fund.

Both funds are managed by Adriaan van Niekerk with the benchmark for Prescient Equity Income Fund being the FTSE/JSE Africa Shareholder Weighted All Share Index (SWIX), while Prescient Equity Defender Fund benchmark is 70 per cent SWIX and 30 per cent STeFI Call Index.

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Oasis Crescent celebrated its 15th birthday this year. Its fund products will be managed by Ebrahim who has extensive experience of the industry. Its Oasis Crescent Global Equity Fund has returned 121.9 per cent since inception. It has over 60 000 clients and 120 000 direct and indirect clients.

The Prescient Equity Income Fund is 100 per cent invested in equity and aims to provide an income from dividends that is greater than the SWIX by investing in shares that offer an attractive yield relative to the benchmark. The fund also aims to outperform the benchmark over the long term.

Described by Prescient as high risk, the fund is suitable for investors seeking broad exposure to income-generating South African equities. They should have a longterm investment horizon.

Adriaan van Niekerk explains: “The fund uses quantitative techniques to build a high-income equity portfolio that aims to

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deliver superior income and performance relative to the benchmark. In terms of the investment process, this involves identifying high yield shares which are in favour with the market.” With a medium to high risk profile, the Prescient Equity Defender Fund aims to give investors equity-like returns on the upside, but with much lower drawdowns than the equity market.

“The fund allows investors to participate in the upside, but with some protection against market declines. Importantly, we strive to maintain as high as possible exposure to equities, and add some extra value by employing our equity active quant process when selecting shares,” adds Van Niekerk.

BAROMETER

HOT SIDEWAYS

South Africa 14th for investment According to the 2012 World Investment Report by the UN Conference on Trade and Development, South Africa has been placed 14th out of 20 countries by international companies as a future investment destination for 2012 and 2014. This rating has been credited to South Africa’s good infrastructure and liberal investment regime.

Increase in investor interest for SA’s listed property sector The local listed property sector is attracting global interest due to the on-going economic uncertainty in Europe and has resulted in an influx of institutional and retail money into the sector. Since the beginning of the year, the JSE property index is up 14.5per cent, outperforming the JSE all share index which is up 5.2 per cent.

World’s biggest brewer buys out Modelo Anheuser Busch InBev, owner of Budweiser and Stella Artois beers, has bought Mexico’s Grupo Modelo for 20.1 billion Dollars, making it the biggest foreign buyout of a Mexican company in over 20 years. Modelo, owner of Corona, is Mexico’s biggest brewer, thereby giving AB InBev dominance in Latin America’s second-largest economy.

Ghana economy shows growth The first quarter of 2012 saw a year-on-year increase of 8.7 per cent for Ghana’s economy, thereby surpassing analyst forecasts of around eight per cent growth. The year-on-year growth was attributed to an increase in gold and bauxite production.

NOT

Absa’s fall Absa recently announced that his headline earnings have dropped by 10 per cent. This shocking announcement saw Absa’s share price plummet in the market place, which resulted in an R8bn decline in his market capitalisation. Absa attributed the poor results on impairments on the mortgage book and its insignificant revenue growth.

Talks of Nationalisation damage investor confidence Fitch, Moody’s and S&P have given South Africa a negative outlook, while two agencies have warned the ANC that the talks of nationalisation in South Africa could lead to an official downgrade. Such a move will escalate South Africa’s cost of borrowing and damage the inflow of investment into this country.

SAB retrench and hire SAB will be retrenching 6% of their overall staff and will lose a total of 285 employees.

However, the company has announced that they will be hiring 152 people in new marketing and sales positions. The move forms part of SAB’s streamlined and efficient business strategy.

Microsoft out of pocket $6.2 billion Microsoft was recently forced to absorb a $6.2 billion charge.

The loss has been attributed to the ill-performing ‘aQuantive’, which was bought for $6.3 billion in 2007. The charge will result in Microsoft’s first quarterly loss in 20 years.

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BRITAIN, china, France, ZIMBABWE, ISRAEL, EGYPT

EUROZONE LEADERS AGREE ON RESCUE PLANS FOR STRUGGLING BANKS Eurozone leaders, who recently met at the Eurozone summit, have jointly come to an agreement on bailout schemes that will rescue banks without putting debt-ridden countries deeper in debt. The agreement will see two European bailout funds to boost money into troubled European banks. It will also allow use of bailout money “ in a flexible and efficient manner to stablise” European government bond markets.

EGYPT LOOKS TO SECURE $3.2 BILLION LOAN Egyptian President, Mohammed Morsi, is looking to secure a $3.2 billion loan from the International Monetary Fund (IMF), to boost capital into what has become the country’s worst economic slowdown.

According to the IMF the slow down is not only attributed to the central bank sending more than half its foreign reserves to defend its currency, but is also a result of last year’s uprisings that have discouraged investors and tourists.

FRANCE INCREASES MINIMUM WAGE France has announced a two per cent rise in the minimum wage for the next six years and limited the rise to 0.6 percentage points. The socialist government also announced ways to meet its targets of cutting the budget deficit to 4.5 per cent of gross domestic product this year and three per cent in 2013. These include the introduction of a three per cent tax on company dividends, the increase of wealth and inheritance taxes and the abolishment of a tax shield for the wealthy.

However, the CGPME representative of small and medium-sized businesses, said it was a “political decision that will have negative economic consequences”, adding to the burden of France’s high labour

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costs and threatening investment and employment.

IMF TURNS DOWN ISRAEL’S BRIDGE LOAN REQUEST FOR PALESTINE Israel’s request for a bridge loan of $1 billion, on behalf of Palestine, has been rejected by the IMF on the grounds that the monetary lender does not offer financial support to non-state bodies. Palestine is facing the worst economic crisis since its founding in 1994 and is in dire need for a loan to help prevent its financial collapse.

ZIMBABWE TARGETS INTERNATIONAL BANKS Zimbabwe has ordered international banks working in the country to hand over 51 per cent of shares – a move that will force all foreign-owned businesses to surrender majority control to local black Zimbabweans. This is according to a government notice released last week that stated all foreign-owned banks with a minimum net value of $1 had one year to reduce their shareholding to 49 per cent.

Zimbabwe’s reserve bank and finance ministry has argued that such a move could damage the economy.

NATIONALISING OF SA MINES MAJOR CONCERN Talks of nationalising South Africa’s mines at the African National Congress (ANC) policy conference has spurred on warnings by Fitch Rating and S&P, saying the situation is concerning and is likely to affect investor confidence in SA. According to Carmen Altenkirch, sovereign director at Fitch Ratings, “The failure to put a nail in the coffin of nationalisation and agree on a way forward for the mining sector will continue to harm a sector that has already suffered from a lack of policy clarity.”

IMF WARNS US NOT TO SLICE THE DEFICIT TOO FAST The IMF has cautioned the US to boost

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its economy now and not to dip into its deficit too quickly for fear that the already weakening economy will worsen. According to the IMF, the economy was under threat from a fiscal-cliff combination of sharp spending cuts and tax increases at the end of the year, and a worsening of the Eurozone crisis.

BRITAIN CONSIDERS IMMIGRANT RESTRICTIONS INTO THE UK In an effort to keep its banking system safe and economy stable, Britain has announced that it will consider restricting the migratory flows from Eurozone countries affected by Europe’s sovereign debt crisis in the event of extraordinary stresses and strains.

CHINA ENCOURAGES PRIVATE FIRMS TO INVEST OVERSEES China has pledged to help private companies invest abroad, in a move that is set to strengthen the country’s macro guidance on private businesses’ overseas investment. This is according to a joint statement issued by 13 central government departments that will guide private companies to develop energy resources in foreign countries, advanced technology and investments in advanced manufacturing overseas. The nation will increase financial support to private companies and simplify customs clearance procedures, the statement said.

SLOVENIA IN THE SPOTLIGHT FOR BAILOUT Slovenia is evaluating its debt after Nova Ljubljanska Banka d.d., the largest bank, received a cash injection. Slovenia’s central bank has repeatedly urged Slovenia to recapitalise its banking industry or risk seeing companies seeking credit outside the country.

According to Nova Ljubljana, the central bank expects banks to speed up lending to the creditworthy companies, otherwise there is a danger that such companies will seek debt directly from abroad.

AND NOW FOR SOMETHING COMPLETELY DIFFERENT

DON’T JUMP THE GUN INVESTING IN OLYMPIC MEMORABILIA

With the hype of the London 2012 Olympics waning, Olympic memorabilia-collecting season has officially begun with fanatics from around the world proudly showing off their newly acquired mementos from the event.

As each Olympic event takes place only once every four years, Olympic collectables are indeed limited editions and make for good investments, but collectors should not necessarily be in a rush to purchase the latest batch of items for sale.

Ingrid O’Neil, a California-based sports memorabilia dealer who specialises in Olympic collectables, says that the prices of Olympic memorabilia are highest during the games, but decrease soon afterward. “If you’re looking for an investment, don’t buy now. Prices will hit bottom six to 12 months after the games,” says O’Neil.

If you are able to curb your Olympic fever until 2013, the best investments are not massmarketed items like pins and stuffed mascot toys, but rather items that aren’t sold in shops, like Olympic torches and winners’ medals. These items, while rare, are not impossible to find, and rise quickly in value.

Here are examples of the most valuable Olympic memorabilia sold to date:

1. Bréal’s Silver Cup – $868 000 Bréal’s Silver Cup was given to the winner of the Battle of Marathon recreated at the first modernday Olympics in 1896. The award was given only once and was given to Spyros Louis, a Greek water-carrier who finished the marathon in just under three hours. The Silver Cup, which was sold for a record $868 000 by Christies in April this year, is the most valuable Olympic collectable sold to date and depicts a pastoral scene of the wildlife living in the swamplands of Marathon. The inscription reads, “Olympic Games”, “1896”, “Marathon Winner”, and “Awarded by Michel Bréal”.

2. 1952 Helsinki Olympic Torch – €290 000 Only one of 22 ever made, a torch from the 1952 Helsinki Olympic Games was sold for €290 000 by Christies in April 2011. The torch, with a sterling silver bowl and birchwood handle, had a pre-sale estimate of €150 000 – €200 000.

3. 2008 Beijing Olympics gold coin – $575 000 Weighing in at a heavy 10 kilograms, a 2008 Beijing Olympics gold coin was snapped up by an astute collector for $575 000 in January

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2011. The coin, sold by Heritage Auction Galleries, is one of only 29 examples minted and the only coin allocated to the US market.

4. Mark Wells 1980 Olympic gold medal – $310 700 A story always sells and can add great value to any collectable. Mark Wells’ 1980 Olympic gold medal is one such example. Wells, a member of the 1980 US ‘Miracle on Ice’ hockey team who not only defeated the USSR, but won the gold medal too, sold his medal for $310 700 through Heritage Auction Galleries in 2010.

Estimated to fetch only $100 000, Wells’ medal was the first gold hockey medals of the 1980 games offered on auction.

O’Neil adds that the key to investing in Olympic memorabilia lies in figuring out a specific area that you love and learning as much as you can about it. “Twenty years ago, Olympic collectors often didn’t distinguish between common items and those with real value. Today, however, collectors have become more educated. This means that the chances of stumbling upon a lucky find is slim to none. On the bright side, it means that items of real value are likely to maintain their value. With a little bit of luck, you might be able to chance upon an under-priced torch or rare medal,” concludes O’Neil.

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THEY SAID...

A selection of some of the best homegrown and international quotes that we have found over the last four weeks.

“This slowing month-on-month growth trend suggests that a peak in the year-on-year house price growth rate should be reached soon.”

FNB commented on its recently released FNB house price index and believes that the statistics reflect a slowing economy.

“The external pressure placed on Barclays has reached a level that risks damaging the franchise. I cannot let that happen.” Barclays Chief Executive Bob Diamond commented on his reasons for quitting, amidst Barclays’s interest rate-rigging scandal.

“It’s important that a banking union doesn’t lead to Eurobonds by the backdoor.”

Bundesbank president Jens Weidmann believes the debate surrounding a possible European banking union is futile without initial discussion of a fiscal union.

“It has been a tough environment since the World Cup, but we should see some improvement by quarter one next year.”

Greg Solomon, managing director of McDonald’s South Africa, commented on the tough economic environment consumers have experienced since 2010.

“The cumulative cost impacts of SIMS (State intervention of the Mineral Sector) interventions are likely to snowball with a severe impact on the prospects of exportable coal.” Anglo American sent a document to the ANC in response to the SIMS report.

“Our feeling is that RIM is going to be bought out soon because it can’t go it alone as a handset manufacturer anymore. The companies offering an environment are going to make it big - companies such as Amazon, Microsoft, Facebook, Apple and Google. BlackBerry can’t compete with them.” Simon Leps of Fontera Digital Works, a leading digital development studio in South Africa, commented on the BlackBerry producer’s financial woes and forecasted its possible demise.

“We are in the middle of a deep crisis, with enormous economic challenges to put our banking system right and challenges for the rest of the world that they are struggling with.” Bank of England Governor, Mervyn King, publicly stating that the world was not even halfway through the 2008 financial crisis and warning Britain of a dangerous road ahead.

“We will be sitting in our conferences, dancing and divided and playing factional games. The poor will enter the conference halls in their broken shoes and with their broken hearts and ask what have we been doing about their future and about all our broken promises.” Cosatu General Secretary Zwelinzima Vavi, who says if the current situation in South Africa is not addressed, we could witness a mass revolt from the poor majority of the population.

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“The ANC is haemorrhaging; it is your responsibility to stop that haemorrhaging.”

Winnie Madikizela-Mandela advised party members at her home in Soweto, warning the members of the implications if the ANC were to disintegrate.

“There are points in common on growth luckily. Merkel has moved in the direction I wanted.” French President Francois Hollande believes France and Germany have mutual interests regarding stimulating economic growth in the Eurozone.

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