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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 December 2011. 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
Tax changes looming
08
Clients need protection. Can the FAIS Ombud do enough?
10
PROFILE Candice Paine – Head of Retail at SIM
14
Head to Head Dr. Adrian Saville, CIO of Cannon Asset Managers / Chris Freund, portfolio manager at Investec Asset Management
16
Managing money in abnormal times That’s what the new normal is about
SUBSCRIPTIONS
20
WILL FUNDS MAKE THE REG 28 GRADE?
29
ROSY FUTURE FOR LONG TERM INSURANCE INTERMEDIARIES ?
30
Luxury goods Bubble or boom
38
12 months for only R450
Your money or your love
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06
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3
Letter from the editor
letter from the
EDITORIAL Editor: Shaun Harris investsa@comms.co.za
editor It’s almost a relief to break free of Europe for a while as several of our writers look at tax. Derick Ferreira from Old Mutual looks at retirement tax concessions, warning though that 40 per cent of South Africans are saving less than they were a year ago. Nick Battersby, CEO of PPS Investments, advises on how topping up retirement annuities can take advantage of tax concessions and Maya FisherFrench has a feature article on looming tax changes.
Features writers: Maya Fisher French Miles Donohoe Publisher - Andy Mark Managing editor - Nicky Mark Design - Gareth Grey | Dries vd Westhuizen | Robyn Schaffner 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 Bonnie den Otter | bonnie@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.
4
In the old days, Europe was a pleasant place; distant but great for trips to explore those wonderful capital cities. Sadly, looking at Europe now cannot but evoke serious concerns about the debt crises. It will affect South Africa in a number of ways, perhaps more seriously than many people realise. For investors and financial advisers, dealing with Europe will, or should be, at the centre of investment plans. A number of our investment professional commentators look at what sovereign debt is going to mean, not only for Europe, but the rest of the world. When a person like Adrian Saville describes the crises as serious it makes me worry. Adrian, chief investment officer at Cannon Asset Managers, takes a closer look in our Head to Head section. He finds one encouraging slant, though – some quality listed companies based in Europe are currently cheap. Chris Freund, portfolio manager at Investec Asset Management, looks at the likely impact of the crises in Europe and the US, and relates it back to what it means for South Africa. Chris Hart, chief strategist at Investment Solutions, also looks at Europe and what it will mean for investment strategy in 2012. Investors and advisers should take note of what he says. On the economic front, Adenaan Hardien, chief economist at Cadiz Asset Management, analyses what debt-strapped Europe could mean for emerging markets.
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I focus on what has become the ever-changing new normal and what investors should be doing about it. I also look at all those investment scams that keep popping up – the nasty side of the financial advice industry, as it robs people, often older people, of their life savings. The Asset Management section has fund managers debating the investment qualities of luxury goods, Jeanette Marais from Allan Gray tells us how to develop all-important online marketing strategies, and Trevor Abromowitz from Sygnia Asset Management tells us what Regulation 28 will mean for retirement funds. The Profile is on Candice Paine, head of retail at Sanlam Investment Management. What fascinated me was reading about what Sunel Veldtman, author of Manage your Money, Live your Dream, has to say about money and love. In my house all the money goes to my wife. It’s a tough call, but probably means I love her more than money. Here’s to a good month where you can use this issue for better investment returns.
In January’s edition, Glenn Silverman was mistakenly titled in the editors letter. He is the Chief Investment Officer at Investment Solutions, and not Global CIO at Investment solutions. Apologies to him for the error.
ride the bull and tame the bear A new world of Investments Momentum Investments is a full-service investment house offering clients more choice. Exceeding R320 billion assets under management it holds some of the country’s most respected investments players – Momentum Asset Management, Momentum Alternative Investments, Momentum Manager of Managers, Momentum Collective Investments, Momentum Investment Consulting, Momentum Global Investment Management, Momentum Properties, Momentum Wealth and Momentum Wealth International. Welcome to a new world of investment choice.
Maya Fisher-French
Tax changes looming By Maya Fisher-French
While we all wait with bated breath for the National Budget Review this month to find out if we will be paying more tax, there are already announced tax changes that will come into effect in the next two months. Make sure you are aware of these and how it will affect your taxable income.
Medical schemes
scheme deduction of R720 a month. So The much spoken about medical scheme tax
people with a higher marginal tax rate will
credit comes into effect on 1 March 2012.
end up paying slightly more tax while a
This was first mooted two years ago and
person with a lower tax rate would benefit.
now becomes a reality. The medical scheme capped deduction amount will fall away and
In terms of people over the age of 65 and
will be replaced by a medical scheme fees tax
disabled people, they may still claim all
credit applicable to all taxpayers under the
medical expenses and medical scheme
age of 65. What this means is that instead
contributions on their tax assessment. Regular
of having a tax deduction from your taxable
taxpayers may also claim medical expenses
income, you will receive a tax rebate.
and contributions that are in excess of four times the medical tax credit they have
The motivation behind this change is that tax deductions favour higher income earners while a tax rebate is more equitable. With a tax deduction, a person who pays tax at the marginal rate of 40 per cent receives a tax deduction of 40 per cent on their medical scheme premium (to a capped amount) while a person with a marginal rate of 18 per cent receives only an 18 per cent deduction. The monthly tax credit rate for members of medical schemes for the 2012/2013 tax year is: R216 for main member; R216 for the first dependent; and R144 for each further dependent. This is in line with the tax deduction a person with a marginal tax rate of 30 per cent
6
currently receives on the capped medical
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received.
Tax on winnings If you want to win the lottery, best you do it before 1 April 2012 when all winnings above R25 000 will be subject to a 15 per cent withholding tax. The reasoning is to discourage excessive gambling but there is little evidence to suggest it works; it is just another way to boost Treasury’s coffers.
Retirement funding In the 2011 Budget Review, it was proposed that from 1 March 2012 employees would be able to deduct a total of 22.5 per cent of all taxable income for contributions into any approved retirement fund including retirement annuities. A maximum R200 000 can be deducted which affects people earning over R1 million a year. However, as the R200 000 cap has drawn criticism from the industry, it is still under review and it is not clear if these tax changes will go ahead on 1 March 2012. We have been waiting for a promised paper on Pension Fund Reform to deal with these issues as well as compulsory preservation; however, Treasury has confirmed that the paper will be available only after the Budget Review on 22 February. Industry insiders suspect that it will be released in conjunction with a paper on a national social security fund. Dividend tax The much-discussed dividend tax comes into effect on 1 April 2012 replacing the secondary tax on companies. Currently companies pay 10 per cent tax on declared dividends. This will now become the responsibility of the investor, although it will be administered through a withholding tax so dividends will be paid less the 10 per cent tax. This is to bring South African tax legislation in line with global tax treatment
Small business
of dividends by making it a tax on shareholders and not companies. This should have no effect on the rate of dividends
In the next tax year micro-businesses will pay tax only if turnover
as companies will pass on the saving from the secondary tax on
exceeds R150 000 and micro-businesses that register for VAT will
companies to the investor.
not be barred from registering for turnover tax.
“The motivation behind this change is that tax deductions favour higher income earners while a tax rebate is more equitable.� INVESTSA
7
SHAUN HARRIS
Clients need protection. Can the FAIS Ombud do enough? By Shaun Harris
“Had it not been for the Financial Service Ombudsman Schemes Act, the complainants in the OIL matter would have been forced to go to court for relief, an option not open to many consumers because of high costs involved in litigation.�
8
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I
t’s remarkable that for an industry that is well regulated, ways are found all the time to set up scam schemes in financial services. The old phrase was “robbing Peter to pay Paul”. Nowadays it’s called a Ponzi scheme.
This affects the financial adviser, in terms of reputation and business, and the client, who may see all their savings disappear down the plughole of an allegedly high reward product. To make it worse, it’s not what could commonly be called outright theft. And it doesn’t always involve Ponzi schemes. Often the people, the brokers and the products involved are registered or licensed at some level with some authority, usually the Financial Services Board (FSB). The response to the problem therefore becomes complex, there’s no easy Go to Jail card that can be issued to the offenders. But something has to be done. Every time a financial adviser is publically exposed for ripping off clients through a suspect product, it affects the industry as a whole. It’s probably the old case of only five per cent being guilty but everyone being made to suffer. This industry does not deserve a bad reputation at the hands of a few. However, as soon as a dubious broker and suspicious product is clamped down on, others spring up to find new ways of playing the old scam game. “It saddens one to note that scamsters continue to find their way into consumers’ savings, in particular the savings of the aged, notwithstanding the efforts to educate the consumer.” That’s Pravin Gordhan, Minister of Finance, writing his report in the latest FAIS Ombud Annual Report for 2010-2011. Fraudulent schemes are an ongoing concern of the Office of the Ombud for Financial Services Providers. The main focus of the FAIS Ombud is to resolve disputes between financial services providers and their clients. But they also have regulation and legislation they can use, the office having been established in April 2005 under the Financial Advisory and Intermediary Services (FAIS) Act of 2002. In terms of most of the work done by the FAIS Ombud, the licensing authority is the FSB. Just how effectively the legislation at the hands of the FAIS Ombud is used is debatable. The 64-page annual report lists a number of scams where the ombud has conducted investigations, made determinations and reached settlements. Punishment is financial, though the ombud’s jurisdiction is limited to violations where the claims do not exceed R800 000; and no sign of a Go to Jail card. This is something that troubles the Office of the FAIS Ombud. In the operational report, FAIS Ombud Noluntu Bam lists a number of cases (not all where the office has been successful). A fairly highprofile one involved Edwafin Investment Holdings and Sharemax. Clients lost money but Bam writes: “One point deserves mentioning, in respect of all these collapsed schemes. No indication exists that any one individual involved in the theft of the investors’ funds is about to face prosecution.” Here’s another example of what seems like the limited legislation at the hands of the office, despite winning cases for clients. It involves Orange Insurance Limited (OIL) and the business of Innocent
Sithembele Mthethwa. The report says the business, “unlawfully and without just cause failed to indemnify its policyholders”. The office handed down about 52 determinations against OIL. The company tried to set these aside through an urgent application to the High Court, which was dismissed with costs. It then lodged an application for a leave to appeal against the Office of the FAIS Ombud, which was refused. “Had it not been for the Financial Service Ombudsman Schemes Act, the complainants in the OIL matter would have been forced to go to court for relief, an option not open to many consumers because of high costs involved in litigation.” The above examples seem to crystallise the shortcomings of the legislation that the FAIS Ombud has at its disposal. Within defined circumstances it can take action, the best being, if it’s lucky, to get clients’ or investors’ money back. But if the client wants to take further action, it seems it will have to go beyond the parameters of the Office of the FAIS Ombud and institute civil action, at their own cost. So what should the good brokers and their clients be watching out for? “Clearly, from our statistics, property syndications and shoddy investment schemes have taken centre stage,” wrote Bam. She went on to highlight “a further ugly trend of brokers licensed as providers in their own right, but whose licenses are limited in terms of the products they can sell”. Gavin Came, chairman of the financial planning committee at the Financial Intermediaries Association of Southern Africa (FIA), warns that a number of bogus investment opportunities are popping up. He said there are so many bogus schemes being advertised that new cases emerge each week. “It’s vital to conduct thorough background checks before considering investing any amount of money. The best route to finding a sound investment product is to speak to an accredited financial adviser, who is qualified to advise on authorised investment products that are best suited to each individual’s budget, investment needs and financial lifestyle,” he said. It’s noteworthy that the financial adviser organisations like the FIA are taking steps on their own to try and protect clients. The FIA has launched a new Code of Conduct, in line with the FAIS Act, to ensure that members are up to date and comply with both current and forthcoming legislation. “The FSB has introduced a number of pieces of legislation in recent years, aimed at effectively regulating the financial services and intermediary industries in order to better protect the interests of consumers. We fully support any initiative that has consumer protection at its heart, as do our members,” said Justus van Pletzen, CEO of the FIA. There seems enough legislation in place for the FAIS Ombud and intermediary associations to protect clients. What’s not wanted is an overregulated industry. The jam, and key to opening the lock on better protection, is to use that legislation effectively. And to make financial advisers aware that they will be bombed if they don’t take note.
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9
PROFILE | Head of retail at Sanlam Investment Management
C a n d ice
P aine
H ead of retail at S anlam I nvestment M anagement
10
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“Low interest rates are traditionally good for equities but there is a fear that despite this the earnings growth won’t materialise so we can’t count on double-digit growth.”
You have been with Sanlam Investment Management (SIM) for just over three years, joining in the midst of a global crisis. How has it been, given the economic backdrop? The last three years have certainly been very unsettling for investors, but I think the test of true grit is still to come. SA equities experienced negative returns in 2008, bouncing back strongly in the years that followed. Similarly, fixed interest asset classes yielded acceptable returns, too. But the economy has deteriorated since then. Slowly inflation has crept up and interest rates are at long-term lows, so people who were drawing five to seven per cent from capital are now finding that investment growth isn’t enough to stop the erosion of capital. Low interest rates are traditionally good for equities but there is a fear that despite this the earnings growth won’t materialise so we can’t count on double-digit growth. I think that as investors experience this first-hand, there will be a lot of confusion and perhaps mistakes made as they take on more risk to cover the shortfall. Assets under management have gone up 73 per cent since you started, what is your secret? I wouldn’t say I had a secret. Rather the increase has been the result of hard work on every level. Our strategy was to simplify our retail offering and ensure our funds truly met clients’ needs. With the help of the product development team, I was able to close non-performing products and launch new ones that filled the gaps we saw in our overall offering. We simplified the range of funds to the extent that anyone wanting to invest with us would know immediately which ones constituted our core offerings and how the fund should be used within a greater portfolio. Asset managers remain relatively cautious in their outlook – is this justified? Asset managers are in a difficult spot. The perceived danger of risky assets is very much
higher than those which investors consider safer assets, but the traditional payoffs aren’t aligned. So fixed interest assets are offering their lowest yields in many years and the superior returns we’ve seen from equities through most of the noughties will take a while to be replicated owing to the anaemic global growth environment. Investors who are drawing an income from their capital require a high absolute level of return to draw what they need and this implies that they need to take on more risk. More risk comes with an increase in volatility that clients aren’t always comfortable with but there seems no other option. I think protected strategies will become more popular in an environment like this. What are the biggest challenges for investors – and their advisers – in the year ahead? Despite the obvious challenges of stuttering global growth, slower Chinese growth, reactive government and ECB policies, a vulnerable Rand, inflationary pressures … the list goes on and on; the challenge in 2012 will be the same challenge investors and advisers face every year – where to invest their money to protect their capital and meet their financial needs. One thing I have noticed in my time in this industry is that advisers have certainly honed their skills in terms of determining their client’s needs and risk profiling them correctly. As we have always said at SIM – the most important aspect of investing is to have a good financial plan and stick to it, ignoring the noise in the market.
driven and has certainly put the client right at the centre of the conversation. This is a very necessary and welcome development in the industry. I think we in South Africa were definitely moving in that direction anyway. The crisis just sped things up. Just like our global counterparts, we are seeing a move towards tighter legislation, which is not necessarily a negative change but may just take some adjusting to. How did you get into this industry and what advice would you have for someone entering it now? I got into the industry by accident. I did an undergraduate degree at Cape Town University in commerce and then followed a group of friends to London. I took various jobs in investment banks in the city and Canary Wharf. This gave me a great overview of the industry and the opportunities within it. Despite the global financial crisis making pariahs out of bankers and financiers, many young people still want to work in the industry. I would advise new entrants to be very sure that they actually want to be in this business. It is a lot of hard work and increasingly very competitive. You need to have a real interest in the world around you and a capacity to focus on the detail at all times.
How has the investment industry changed since you started? Industries change and improve just to remain relevant for all stakeholders and most particularly clients. 2008 was certainly a watershed moment for the world and in particular the complex financial industry. The resultant shake up forced the industry to become more professional and results
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11
CORONATION fund managers
How taxefficient is your portfolio? Pieter Koekemoer | Head of Personal Investments - Coronation Fund Managers
It is useful to think of an RA as a wrapper that provides additional tax benefits for your investment in unit trusts. It allows you to save tax-efficiently until a minimum age of 55.
W
e associate the start of a new year with reform, fresh
You will eventually pay normal income tax on the pension withdrawn from
starts and the revising of our personal goals. While the
your retirement savings, but this will in many cases be at a lower marginal rate
short-term bias inherent in all of us makes it difficult
than applicable while still employed. The deferment also enables your money
to stick to lifestyle-oriented resolutions, just a little bit
to grow faster, as you get additional compounding benefits on the portion of
of effort once a year can make a huge difference
the portfolio that would otherwise have been taxed.
to enhancing the outcomes from your investment portfolio. For those who are saving for retirement, one such example is to consider optimising their
Do you own the right mix of assets in your RA?
portfolios for tax. This can be achieved by investing for their golden years by
Given that your long-term savings portfolio is powered by the underlying
means of a product wrapper (such as a retirement annuity) through which you
investments, the biggest challenge is to ensure that you own the right
can achieve two tax advantages.
combination of assets to enable the achievement of growth ahead of inflation. Multi-asset funds, such as the top performing Coronation Balanced Plus Fund
What is a retirement annuity (RA)?
(which for every R100 000 invested since inception in 1996, produced a total
An RA is the ideal way to supplement your existing pension or provident
return of R350 246 greater than its average competitor) are typically the best
fund if you are currently employed and earn an annual bonus; or if you are
option for most investors as it leaves the asset allocation decision-making
self-employed and want to build a retirement nest egg. While you can choose
process in the hands of the skilled professional. Multi-asset funds can invest
from two types of RAs (unit trust-linked RA’s or underwritten RAs), Coronation
in the full spectrum of asset classes available, which means that in addition to
believes the unit trust-linked RA (offered by unit trust companies and linked
equities, bonds and cash, they also invest in in-the-gap asset classes such as
investment service providers) is the more attractive option: it is typically
preference shares, listed property and inflation-linked bonds.
cheaper and provides more flexibility as you can save as much as you want and never pay any penalties for changing your mind (if for example you need Is your RA portfolio compliant with the Pension Funds Act?
to stop or restart your contributions).
Existing investors in RAs, who are planning to make a top-up investment How does an RA increase the tax-efficiency of your investment?
before the end of February, may be confronted with requests from their
It is useful to think of an RA as a wrapper that provides additional tax
respective product providers to adjust their desired investment options to
benefits for your investment in unit trusts. It allows you to save tax-efficiently
ensure that their portfolios are brought into compliance with the investment
until a minimum age of 55. When you invest in an RA, you obtain two tax
restrictions required by the Pension Funds Act. The easiest way to ensure that
advantages, at the cost of restricted liquidity. Your investment (up to a limit set
your portfolio always meets the prudential limits is to invest in a Pension Funds
by government, currently 15 per cent of earnings) is deductable from tax in
Act-compliant fund, or a combination of compliant funds, such as Balanced
the current year. You also do not pay any taxes on income earned within the
Plus, where Coronation takes the responsibility for meeting all the regulatory
fund, and capital gains tax (CGT) is not applicable to your investment.
requirements.
12
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HEAD TO HEAD | Cannon Asset Managers
Cannon Asset Managers D r
A drian
S a v ille
CIO of Cannon Asset Managers
1. How serious are the sovereign debt crises in the US and Europe?
visible debt, magnifying the debt problem many times.
The crisis is serious. The size of sovereign debt is substantial by any economic measure. If we use the principles of Economics 101, a government should not allow its debt to exceed 60 per cent of gross domestic product (GDP).
2. There have been a number of downgrades. What does this mean for those regions?
Rising above that level leads to the risk of a debt trap, wherein the interest payments on a nation’s debt exceed the ability of the nation to service the debt. This then requires the government to reduce spending on important items such as education and infrastructure, compromising economic growth and making it even more difficult to service the debt. Many European governments are in trouble, with debt well in excess of 60 per cent of GDP, as are governments in other advanced economies. For instance, in Greece, government debt equals 152 per cent of GDP; in Italy it is 119 per cent; and in Japan, it is an astonishing 220 per cent. Of greater concern is that this debt ratio refers only to explicit debt, or balance-sheet debt. The debt ratios exclude the social contracts that governments have made to look after the population in old age (pensions), ill health (medical care), economic slowdown (unemployment) and the like. In fact, this invisible debt is substantially greater than the
14
The downgrades mean that the rating agencies believe that the chances of these countries not servicing or honouring their debt has risen and that these countries have deteriorated in stature as borrowers. The ratings have no real implications for the cost of existing debt, but they do mean that any new debt will have to be raised at a higher cost or that it will be more difficult for governments to borrow, or both. 3. What is the worst case scenario from this crisis? It is extremely difficult to identify a single worst case, as there are a number of very damaging possible events. a. One or some of the very big governments may default. If, for example, Germany were to default, this would have enormous negative consequences and be potentially devastating for the economy. b. Another scenario involves only smaller nations defaulting while the large ones remain sound. In this case, the bad debt would nonetheless poison the system, as
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was the case in the global financial crisis of 2008/09. In this instance it would not be the toxic private sector housing loans infecting the globe, but rather bad government loans infecting the system. c. Particularly worrying is the chance of collapse of the Euro where member nations find that the pain of remaining in the common currency is greater than the pain of withdrawing from it. Such a situation would inject uncertainty, currency wars, a sharp dip in foreign trade and possibly even closing borders to the flow of goods and services. 4. What impact will these crises have on South Africa? South Africa stands to be impacted in several ways, especially from the European debt crisis: a. Despite the shifting global economic plates, Europe remains South Africa’s largest trading bloc, accounting for about 35 per cent of this country’s trade. That our most important trading partner finds itself in deep economic trouble has implications for South Africa’s prospects. As things stand, there is a better-than-even chance that Europe will dip back into a recession in 2012. If this happens, demand for our exports will be constrained.
HEAD TO HEAD | Investec Asset Management
Investec Asset Management C hris
F r e u n d
Portfolio Manager at Investec Asset Management
1. How serious are the sovereign debt crises in the US and Europe? Potentially the sovereign debt crisis is extremely important to SA and could define the economic landscape for the next decade. At this stage the US does not have a sovereign debt crisis, with global investors happy to fund the US Government at approximately two per cent. Down the line, however, there remain a gargantuan task ahead in the US to cut the public sector debt: GDP of 100 per cent back to more reasonable levels. As for Europe, Italy, France and Spain all face a number of years of either recession or very slow growth as they make the necessary changes. But Europe is not the world, and with China still growing, albeit more slowly, and the US recovering, global growth in set to slow, not slump. 2. There have been a number of downgrades â&#x20AC;&#x201C; what does this mean for those regions? Theoretically the sovereign downgrades should increase the cost of borrowing in the bond market as it implies that there is more risk of getting paid back. However, the markets chose to ignore the 2011 US downgrade and indeed bond yields continued to fall, as paradoxically US treasuries are the dominant safe haven play in financial markets in times of acute
financial stress. Normally, borrowing costs, i.e. bond yields will go up on a downgrade. One factor is that the rating agencies are seen as increasingly irrelevant, as they have been grossly behind the curve in the lead up to the global financial crisis. They are now desperately trying to restore their tattered image and are being more aggressive. France could well be downgraded soon. 3. What is the worst case scenario from this crisis? Worst case for SA is a global depression where commodity prices slump, the Rand weakens significantly, inflation rises above 10 per cent, SA interest rates rise sharply and we join the global recession. This is not likely, however, as we expect to largely muddle through this EU crisis without a deep-freeze moment. There is a likelihood of a European recession in 2012 and possibly 2013, with very tepid global growth. So SA is expected to have slow growth, but not no growth. 4. What impact will these crises have on South Africa? Commodity prices are likely to be lower than otherwise, which will reduce SAâ&#x20AC;&#x2122;s exports and potentially add to any Rand weakness. Consequently SA growth
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expected to be slower than experienced in the previous decade. However, global short-term interest rates are set to stay very low, which will help anchor SA rates at current low levels. Employment is stagnating in many parts of the world, which will make it harder to get a job in SA. The global residential property bust is expected to have further to go, which is likely to stop any potential recovery in SA residential property in 2012. 5. Do SA investors have a reason to worry? Recently global financial authorities have defused one big potential financial bomb, in that the ECB has made available unlimited liquidity to EU banks and the US Fed has ensured that there will be no shortage of US Dollars. This is very likely to prevent any bank from closing its doors because of insufficient money in the case of a bank run. These two central bank actions were extremely important events, vastly reducing the potential for another Lehman-like global cardio arrest. However, EU banks will still need many years of ultra-low short-term interest rates in order to make enough profits to absorb the necessary property and other write-offs, while at the same time increasing their capital. But Italy, France and Spain still look to be in deep fiscal trouble requiring years and luck to escape. SA
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Cannon Asset Managers
Investec Asset Management
b. Europe is an important destination for South African commodities. If Europe does slide back into a recession, this would have negative implications for the prices realised on many of South Africa’s most important exports, in particular, platinum. c. There is an outside chance that the Euro will collapse, although I believe that it will survive, given the enormous vested interests in preventing a collapse. However, if the Euro were to collapse, this would prove a major disruptor to European trade and the European economic environment and it would dramatically elevate the risk of financial contagion. 5. Do South African investors have a reason to worry? Yes, there are potential problems for South African investors. However, clouds always have silver linings and there are already some very good investment opportunities presenting themselves. There are some well-established, exceptionally strong companies in the Euro region which have been marked down as a result of investor anxiety. 6. What is the likelihood of South Africa suffering a similar debt crisis? Happily, with our exceptional fiscal management, the chances of South Africa suffering a similar debt crisis are exceptionally low. Although in the last three years, the South African Government has run a fiscal deficit at a higher than desirable rate, our public sector debt is below 40 per cent of GDP, and thus well within the band of comfort. While this may not always be the case, for now, South Africa is in rude fiscal health.
investors will need to adjust their return targets downwards. Cash offers 5.5 per cent, bonds 7.5 per cent and although equities are cheap, slowing global growth is likely to hamper returns in the next year or two, and there still exists a possibility of a ‘euroquake’. 6. What is the likelihood of South Africa suffering a similar debt crisis? SA’s budget deficit for 2012 could well turn out to be near six per cent, which is starting to get dangerously high. However SA’s public sector debt to GDP is still relatively low in global terms at around 45 per cent (traditionally markets start to stress when over 90 per cent). In addition, with the recent Rand weakness, SA has to a degree re-established global competitiveness, unlike the Club Med countries in trouble. Lastly, much of SA’s debt is funded internally, thus less vulnerable to drying up of global capital market access. So the likelihood of SA suffering a similar fate is low, but not zero. 7. Is there any way investors can take advantage of these crises? Good question. Markets could well range trade until we get greater clarity on sustainable solutions for Europe’s issues and the US debt mountain. If markets do have a significant setback, be prepared to invest at lower levels. However, at present the emphasis should be more on protecting your money as opposed to growing it aggressively.
7. Is there any way investors can take advantage of these crises? Yes, investor anxiety has resulted in companies that are located in advanced markets being priced down, in many cases to irrational levels. European companies offer some of the best examples, where investors can buy into businesses such as BMW, Sanofi, Novartis and Nestlé at bargain-basement prices.
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BAROMETER
Local Green ETF launched Nedbank Capital used the recent COP17 climate change talks in Durban to launch its BGreen exchange traded fund (ETF). The fund provides focused exposure to companies that take the risks posed by climate change seriously and brings the amount of ETF offerings in South Africa to 34. Listed on the JSE, BGreen tracks the Nedbank green index which was developed by the bank and launched in July 2011. Ghana demonstrates African growth potential Despite a global economic downturn, Ghana was a shining light in Africa in 2011, growing its economy by an estimated 13.6 per cent during the year.
M&A activity jumps in 2011 The volume of mergers and acquisitions (M&A) in South Africa increased by almost 28 per cent last year but the value remained the same as in 2010, at $16 billion according to data from mergermarket. Bankers are predicting a busy year for M&A but have said the difference between asking prices for assets and what investors are prepared to pay could scupper some deals.
sideways
HOT
More funding allocated to avert Eurozone debt crisis With a target of €200 billion in sight, Eurozone ministers have boosted International Monetary Fund (IMF) resources by €150 billion to ward off a looming debt crisis. Ratings agency, Standard & Poor’s has said it could soon downgrade nearly all the Eurozone’s 17 members.
NOT
Slow economic growth predicted for South Africa in 2012 The growth of South Africa’s economy is forecast to slow to 2.5 per cent in 2012 from three per cent in 2011 as domestic consumption slows, according to Citadel chief economist Dave Mohr. In addition, inflation was predicted to drift between six and 6.5 per cent in 2012 – above its official three to six per cent target. Moderate investment returns forecast According to the BofA Merrill Lynch Global Research’s 2012 Year Ahead Outlook, South African investors should prepare for a year of market volatility in 2012 due to global factors such as increased policy risk, political uncertainty, low growth and low interest rates – all contributing to moderate investment returns. Research also predicted global economic growth of approximately 3.5 per cent during 2012. South Korea ratings at risk Ratings agency Standard & Poor’s has warned South Korea that its sovereign credit ratings may be affected if political instability hits North Korea following the death of its leader Kim Jong-il.
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SHAUN HARRIS
Managing money in abnormal times Thatâ&#x20AC;&#x2122;s what the new normal is about By Shaun Harris
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N
ormal has become nostalgia. Without being too sure what normal might have meant for different investors, it seemed to revolve around returning to normal after going through a crisis. Normal, in this sense, being the way things were before. That’s not going to happen anymore. Could even the most perceptive investment professionals foresee, just a year ago, with all the signs of the debt crises raging through the western world, just how bad it was going to get? There’s no going back to normal after this. And it’s far more than a Eurozone crisis. It’s going to affect even far-flung emerging markets like South Africa and challenge the way financial advisers and investors manage investment portfolios. With the old normal gone, managing investments is likely to present new tests and draw on new skills. New normal, if you can get through the rather fuzzy explanations and attempted definitions, is a term that was apparently coined by William H Gross of investment house Pimco, though it seems he later tried to distance himself from the term when a fund he constructed to meet it did not perform as planned. That left Pimco boss Mohamed El-Erian to try and define what had effectively become a Pimco concept. In May 2009, he gave a detailed explanation of the new normal, but when asked to explain it in a word he said “stagflation”. That was when, though stormy economic clouds were already gathering, Pimco had concerns about another Great Depression. That probably puts El-Erian’s stagflation into context. Explaining further, he said Pimco characterised the financial crisis (first half of 2009) as a crisis of the global system, as opposed to a crisis within the system. What seems important here is that it implies a permanent, rather than temporary, change. “For markets that are highly conditioned by the most recent periods of normality, this will feel like a new normal,” was his definition. At about the same time, McKinsey & Co gave a similar account of what new normal meant. MD Ian Davis said unlike earlier recessions, “we are experiencing not merely another turn of the business cycle, but a restructuring of the economic order”. Trying to answer the question of what the new normal would look like, Davis said: “While we can’t say how long the crisis will last, what we find on the other side will not look like the normal of recent years. The new normal will be shaped by a confluence
of powerful forces – some arising directly from the financial crisis and some that were at work long before it began.” This, then, is what investors face now. Only it’s worse, like a new, new normal. Every fundamental change in macroeconomic and micro-market conditions will be a new order, the common threads being a structural change rather than change in the cycle. And not returning to what was before. How do you manage money in the face of this new normal? A flight to cash is the logical, probably sensible answer. As long as the move to cash does not compromise the overall investment portfolio; for instance, by selling all equities to move into money market funds (the only place to invest cash).
“Managing investment portfolios will depend very much on the needs and profile of the investor. There’s no one fix in the face of this scary new normal. But it seems, broadly speaking, that while events remain so precarious in Europe, investment portfolios should be moved towards money market funds and listed property.” Sean Segar, who runs Cash Solutions at Nedgroup Investments, believes that not only is money market funds the place to be now but should also be part of an overall investment strategy. “Looking at South Africa over the 50 years to December 2010, cash has delivered a steady return at an average 10.7 per cent per annum, 2.1 per cent per annum above inflation.” Quoting Warren Buffett: “Holding cash is uncomfortable, but not as uncomfortable as doing something stupid,” Segar said in economic periods like the one we are in today “money market funds are the ideal vehicles through which to invest in or to park cash”. But what else should be done to manage investment portfolios in the new
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normal? Past performance is no more than history, but sometimes it rhymes with what we are trying to do. According to Catalyst Fund Managers, local listed property was the best performing asset class in 2011 with a return of 8.93 per cent, followed by bonds (8.90 per cent), cash (5.71 per cent) and equities (2.57 per cent). Listed property could again be a sound investment, certainly a good defensive hold, in the face of the current new normal. Returns will probably not be as high as in 2011 but it’s pretty safe and should provide a real return. Managing investment portfolios will depend very much on the needs and profile of the investor. There’s no one fix in the face of this scary new normal. But it seems, broadly speaking, that while events remain so precarious in Europe, investment portfolios should be moved towards money market funds and listed property. Retail bonds should be included too or the exposure increased. But investors should not get rid of equities. Returns have not been good the past year but over time this is where the best returns, capital growth and dividends should come from. It is hard to hold an asset class when everything seems to be going against it. But the global debt crisis is an economic and political event. Markets know that and, volatile as most global stock markets might be now, a debt discount is already being written into shares. When that is played out a lot of value should come through. Politics though could also come into South African investment markets this year. Erik Nel of Atlantic Asset Management calls it the “local event risk South African politics may play in 2012”. He’s so right and politics will be the big issue this year. But the JSE is also adept at pricing upcoming political events into share prices. Nel added that in the early part of the first quarter of this year defensive strategies should take preference. “With loose monetary policy and inflation moving out of the target band, the attractiveness of inflation protection, as a hedge against policy error, should remain an option.” Perhaps we need to get beyond the concept of new normal. The investment world, and the wider world beyond it, has moved beyond normal. Certainly there are measures investors can take to prune portfolios in line with this new normal. That done, let’s just accept that the new normal is, well, normal.
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REGULATORY DEVELOPMENTS
WILL FUNDS MAKE THE REG 28 GRADE?
Trevor Abromowitz | Head of Institutional Business at Sygnia Asset Management
No extensions. No excuses. It’s the Retirement Fund Regulation (Regulation 28) reporting countdown. Trevor Abromowitz, head of institutional business at Sygnia Asset Management said, “The regulation requires that retirement funds must comply at all times. Funds must be in a position to demonstrate compliance to the Financial Services Board (FSB) within 30 days of quarter end, each quarter. The first reporting period will be for the quarter ending 31 March 2012.” Significant revisions to the regulation, which came into effect on 1 July 2011, have changed the way in which retirement fund investments are governed. Revised asset limits provide for previously unrecognised asset classes, such as hedge funds, private equity funds and exchange traded commodities. “The FSB granted a transitional period until 31 December 2011 for funds to comply with the revised asset limits. For the first time, funds need to demonstrate compliance with the asset limits in aggregate across their entire asset base, as well as at individual member level,” he added. While the industry has been eager to comply, some retirement funds have found the new practicalities complex to implement. “In addition to the quarterly reporting requirements, funds may not invest in asset classes that are in breach and must ensure compliance with the relevant asset limit within 12 months of breach. This is important because retirement fund trustees may be held liable – in their personal capacity – for losses that members incur while the fund is in breach,” he explained. The amended regulation also introduces nine new principles that require compliance. These include ensuring that assets match liabilities, consideration of Black Economic
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“In addition to the quarterly reporting requirements, funds may not invest in asset classes that are in breach and must ensure compliance with the relevant asset limit within 12 months of breach.” Empowerment (BEE) credentials of service
of the new regulation, one thing remains
retirement funds will be better served and
providers, performance of appropriate
beyond dispute; “Regulation 28 will
better protected.
due diligences, and consideration of
profoundly alter the South African
environmental, social and governance
retirement industry. There is no doubt that
“The benefits of good governance are
factors when making investment decisions.
the new regulation requires significantly
often hard to quantify, but the cost of poor
higher standards of governance from
governance – as recent catastrophic cases
Through Regulation 28, Abromowitz
trustee boards over the affairs of retirement
have shown – can be extreme,” he added,
believes that retirement funds are better
funds,” said Abromowitz.
referring to the bankruptcy filing of MF Global (the eighth largest in US history),
placed to ensure that their investment strategies are appropriate for member
However, increased governance and
which has left an alleged shortfall in
liabilities. It may also change asset
compliance comes at a cost. Ultimately,
customer accounts of $1.2 billion.
managers’ risk-seeking behaviour in such
with the FSB having signalled its intention
a way that positions are not held until just
to implement regulation over asset
With the FSB’s reporting deadline fast
before the reporting period, in the hope
management and financial adviser fees,
approaching, “Trustee boards must ensure
of making good any losses within the
which may offset any increased cost of
that their funds make the grade,” concluded
portfolio.
governance and compliance, members of
Abromowitz.
Many retirement fund administrators and consultants do not have the systems with which to collate reports, classify investments in accordance with the new regulation and identify breaches. The process becomes vastly simpler with a specialist investment administration platform, which is designed to import asset manager holdings, compile Regulation 28 compliance reports and monitor asset limitation compliance daily. While administrators, consultants and retirement funds deal with the practicalities
REGULATORY DEVELOPMENTS
New retirement reforms must be sustainable Willem Loots | Head of Umbrella Fund Solutions at Liberty Corporate
Government’s planned retirement reforms are set to provide South Africans with better protection and an enhanced deal from the financial services industry. Yet, if this new model is to prove successful, it is critical that reform is structured in a sustainable manner in the long term. This is according to Willem Loots, head of
promise citizens an earlier retirement with more
a platform through which individuals can be
umbrella fund solutions at Liberty Corporate.
benefits, without actually having to fund this
educated on the benefits of personal saving. “This
“Sustainability has different meanings; in order for
benefit. If this promise cannot be afforded, it sows
kind of system can provide a savings vehicle for
a retirement system to be sustainable, it should
the seeds for a government-funding problem
those who aren’t formally employed, as well as
ensure broad access to many South Africans.
such as we are now seeing in Greece.”
providing a better solution to others who are either unable to work or not able to work continuously.”
With this in mind, government has already made a number of positive retirement reform proposals
He added that in 2010, Greece suggested
that should benefit most South Africans. These
raising the average retirement age which caused
“Ideally, the benefits an individual accrues from
include making the preservation of savings
a number of violent riots among its citizens. “If
a retirement system should be proportional to
compulsory and a State contribution subsidy that
you relate this back to South Africa, we are at the
that individual’s contribution towards it; but in
enables low-income earners to save.”
cusp of reforming our retirement system and the
a country like South Africa it is essential to have
issue of sustainability needs to be kept in mind at
some kind of social protection floor in place for
every step.”
those who are not able to participate.
any new retirement funding model as there are
How best to structure the National Social
“We strongly support the initiative to improve the
lessons that can be learned, particularly from
Security Fund will be core to the success of
lives of all South Africans. There are some difficult
countries such as the US and Greece. “In these
the proposed reformed retirement system.
demographic problems that South Africa is facing
countries, social security works on pay-as-you-go
“The system needs to be flexible enough to
that need to be resolved, so expect the solution to
defined benefits basis, which simply means the
cater for a number of unanticipated shocks
be difficult to come by,” concluded Loots.
contribution of a worker today is used to pay the
(economic and demographic) and be able to
pension of a retiree today.”
respond to these without the need for political
He said that it is important that government looks to other nations for guidance when structuring
intervention. Therefore, consideration must “This makes the system heavily dependent on
be given to a funded defined contribution
a country’s demographic balance, so the more
system as a more sustainable solution. This is
people retiring relative to those working, the less
a simple savings account that is very easy for
the system is able to adequately pay those who
citizens to understand.”
reach retirement age,” explained Loots. Loots said a defined contribution system may “Such systems are also easily prone to political
be workable for South Africans, as it not only
influence. For example, a government can
promotes a culture of saving, but also provides
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Retirement Investing
Implementing King III in a Retirement Fund Hugh Hacking | Umbrella Fund Project Manager - Old Mutual Corporate
Retirement funds are legal entities where the stakes are high. In order to ensure that all stakeholders’ interests are attended to and that no misconduct can occur, retirement funds should adhere to the King III code of governance. However, the implementation of this code needs to be comprehensive and well executed. This is according to Hugh Hacking, Umbrella Fund Project Manager at Old Mutual Corporate who said that because retirement funds have significant assets, a failure of judgement at an influencing level could drastically alter the lives of members and other stakeholders. “Retirement funds are much like large companies. There are many stakeholders and therefore there is a need for robust management processes.” Hacking recommends King III as a robust, well-tested and carefully researched standard. He added that because it is now accepted as a requirement for listed firms, it therefore makes sense to reuse the good principles it defines and apply them to retirement funds. “King III governance for a retirement fund should encompass all aspects of the fund including ethical leadership and corporate citizenship, boards and directors, audit committees, the governance of risk, the governance of information technology, compliance with laws, rules and standards, internal audit, governing stakeholder relationships and integrated reporting and disclosure,” he said. In terms of ethical leadership and corporate citizenship, Hacking said retirement funds will be obligated to not only consider the financial performance of the fund, but also their impact on the environment and society. He recommended that funds develop a code of conduct that will encourage decision-
makers to act in line with the guidelines of ethical and corporate citizenship. This can be reflected in the investment selection of the fund as well as the methods and content of client communication. “The board of a retirement fund that is governed by a King III philosophy must ensure that it has sufficient expertise, that it has eliminated or disclosed all conflicts of interest, and it must remain in control at all times and act in the interests of all stakeholders.” As with a large company, retirement funds should have an independent audit or governance sub-committee. This committee must be of suitable skill in order to fully review the actions of other sub-committees. “This subcommittee should be responsible for setting up the fund’s risk-management process as well as appointing the external auditor.” King III governance requires retirement funds to take control of risk- management. Hacking advised funds to assess the risk, respond to the risk, monitor risks and, most importantly, disclose the risk to stakeholders. Finally, he added that it’s crucial that funds receive risk assurance that risks are effectively managed. “Knowing about key risks is not enough. The board must ensure that mitigation plans are implemented that the appropriate controls are in place.” According to Hacking, ensuring strict
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governance in the information systems and technology of a fund is vital as it cuts across all aspects of operation. “The IT of a fund should be aligned with the objectives and sustainability of the fund and form an integral part of risk management. The board should delegate the implementation of the IT governance to experts and ensure that IT assets are managed effectively.” In order to adhere to the King III requirements of stakeholder relations, he urged funds to develop a clear set of communication guidelines for each stakeholder group and that funds must ensure that the channels are in place whereby stakeholders can voice their concerns. “In order to ensure a smooth implementation of King III to a retirement fund, the process should be completed in phases. Start with the board. Ensure that the right levels of skills and commitment are in place. Educate members of the board regarding the role of the trustee. Once this is in place, disclose conflicts of interest and develop a code of conduct, the adherence to which can be closely monitored,” he said. The next step is to put board structures such as sub-committees and risk-management processes in place. Finally board policies and procedures should be implemented. This includes the communication policy, information management and business rescue, dispute resolution and the procurement policy.
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Saving for Retirement – Old Mutual
Make the most of your retirement tax concessions before tax year end Derick Ferreira | Marketing and Strategy Manager for Old Mutual Broker Distribution.
“Old Mutual’s Savings and Investment Monitor findings released in November 2011 found that 40 per cent of South Africans are saving less than a year ago.”
R
ecently taxpayers have been pleasantly surprised to receive tax assessments within hours of submitting their returns via eFiling. Many of these assessments have been accompanied by tax refunds and some received welcome rebates into their bank accounts soon after. They benefited from the tax concessions on retirement annuity contributions. But what are they doing with their rebates? This time of the year is an ideal opportunity for financial advisers to encourage customers to invest in RAs, to make lump sum injections into their RAs and to benefit from the maximum tax relief for the year ending 29 February 2012. Old Mutual’s Savings and Investment Monitor findings released in November 2011 found that 40 per cent of South Africans are saving less than a year ago. Those who are saving tend to opt for short-term commitments which are closer to the horizon, such as children’s education, rather than retirement funding. Upper income households are three times more likely to have a pension fund than low income households and men are more likely to be saving for retirement than women. But a very worrying trend is that one in two working metropolitan South Africans does not contribute to a pension or provident fund, nor do they have a retirement annuity. Saving for the long term may seem less important in tough times. People in their 20s
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and 30s may take the view that they still have plenty of time to save and therefore it is not an immediate priority. However, retirement arrives faster than we realise, and unless we take action, we will be left with insufficient time to gather sufficient capital for the future. “It’s all a matter of priorities,” said Derick Ferreira, marketing and strategy manager for Old Mutual Broker Distribution. “Many people do not consider the impact of their living-for-today lifestyle in terms of retirement income. There are two issues – living beyond our means, and spending our money on items that are not necessities. If we make use of the tax breaks, we will have more income to finance our retirement savings.” “Ensure that you and your customers get the maximum tax benefit from retirement contributions,” Ferreira urged. “When I qualify for a refund from SARS in a year of assessment, I use the money to make a lump sum injection into my retirement annuity fund up to a maximum of 15 per cent of my non-retirement funding income and it’s taxdeductible. “The following year when I receive my refund from SARS based on my retirement annuity and or pension fund contributions, I immediately invest in a flexible savings vehicle such as a LISP (linked investment service provider) product, endowment plan or unit trust. The reason for this is that the size and timing of each refund will differ from year to year so that it is impossible to commit to a
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fixed amount in advance. My discretionary savings feel as if they are costing me nothing because I invest my refund, helping to ensure that I have enough money to retire comfortably one day,” advised Ferreira. “You could also use the cash back to fund medical aid contributions, and again enjoy a tax relief. There are many possibilities without even taking into consideration the post-retirement situation. The benefit is in the way you make it work for you, be it in the accumulation stage or post retirement, by thinking out of the box. Make the most of the available tax-concessions and invest your money smartly so that you make the most of these concessions now and after retirement.”
PPS Investments
TIME TO TOP UP YOUR RETIREMENT ANNUITY
Nico Coetzee | Executive Head: Business Development at PPS Investments
A
s 29 February and the end of the current tax year approaches, you would by now have long since filed your most recent income tax return – and may likely have filed further tax deliberations along with it until the next submission deadline looms. However, now is exactly the time when you should consider taking full advantage of the tax deductibility of your retirement annuity (RA). By topping up your RA to the maximum tax-deductible amount before the end of this tax year, you may just be thanking the taxman when it comes to submitting next year’s tax return.
for a tax rebate of R13 500 at the investor’s marginal tax rate of 30 per cent. And, if reinvested into the RA, this additional amount will in itself be carried forward for assessment in the coming tax year.
“The tax deductibility of retirement annuity contributions is very attractive,” noted Nico Coetzee, Executive Head: Business Development at PPS Investments. These contributions are currently tax deductible for the greater of 15 per cent of non-retirement funding income (income not already being used for individual or company contributions to a pension or provident fund), R3 500 less pension fund contributions or R1 750; with any excess being carried forward to the following year of assessment. “This effectively gives you the opportunity to save more towards your retirement without any additional outlay, enhancing your total retirement capital when your investment matures,” Coetzee said.
“With the current tax year winding steadily to a close, it may therefore be well worth considering making additional contributions to your RA should you recently have received a year-end bonus or 13th cheque, or should you have some money spare.”
Consider, for example, a self-employed investor who earns R25 000 per month. This investor’s maximum tax deductible RA contribution is R3 750 per month, or R45 000 per year. As the first R45 000 contributed to his or her RA in the current tax year is tax-free, it potentially provides
“This is especially true for higher-earning individuals with greater marginal tax rates, as government has indicated its intention to restrict tax deductions on retirement fund contributions to a maximum nominal amount in addition to a maximum percentage amount,” added Coetzee.
With the current tax year winding steadily to a close, it may therefore be well worth considering making additional contributions to your RA should you recently have received a year-end bonus or 13th cheque, or should you have some money spare from emergency savings you set aside but didn’t tap into.
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In its 2011 Budget Review, the South African Government indicated possible changes to the tax treatment of retirement fund contributions that included maintaining the current threshold for total tax deductions at 22.5 per cent (7.5 per cent of retirement funding contributed to a pension fund and 15 per cent of non-retirement funding contributed to a retirement annuity) but further capping these deductions at R200 000 per annum. While government explains that such adjustments will be necessary to “support expenditure on economic and social priorities” and to “contribute towards sustainable economic growth and job creation”, it does mean that investors who are currently able to claim deductions greater than this amount will be disadvantaged. While these proposals have been set aside for further consultation, government previously indicated that corresponding legislation would be considered “late in 2011 or in 2012”. There is therefore a good chance that these or related proposals may be implemented before the end of the 2013 tax year. “As new legislation may be passed relatively soon, higher income earners should consider topping up their RAs in the current tax year to take advantage of the full benefits they are still able to access,” said Coetzee. “However, even if tax deductions are capped in future, the fact that these deductions are available at all still offers an excellent opportunity to boost total retirement savings. Investors should therefore consult their financial intermediaries to determine how to make the most of the savings opportunity and tax advantages an RA presents.”
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CHRIS HART
Investment 2012 Rollercoaster Chris Hart | Chief strategist | Investment Solutions
T
he systemic risk associated with the European debt crisis is a key factor when considering an investment strategy for 2012. Discussion about the outlook for financial markets in 2012 must reflect that a wide dispersion of outcomes is probable, which highlight uncertain conditions. Monetary and fiscal policy has essentially gambled on a strong recovery to deal with the problems of policy measures that have ramped up debt to a systemically unstable level. Two diverse outcomes have unfolded with emerging markets enjoying a strong recovery while the developed world has essentially stagnated. However, as 2011 drew to a close, it was increasingly apparent that emerging markets were also in the process of slowing down. The response has been a greater alignment of monetary policy around the world. Emerging markets have started to ease monetary policy once again while developed market central banks have accelerated easing policies more recently. The actions of central banks will play a key role in the performance of financial markets. Additional liquidity and quantitative easing (QE) will filter into financial markets. Yields will remain low and close to zero in the case on the US, Japan and Europe. The key immediate challenge is to try and keep the European sovereign bond market afloat. Problem-child countries have large financing requirements in 2012 and the European Central Bank has engaged in monetising the debt of some countries like Italy and Spain. So far the actions have only restrained the rise in bond yields with Italian debt yields pushing higher, challenging the seven per cent level. Recessionary conditions are deepening, which is only serving to exacerbate the debt dynamics of high deficits and rising debt:GDP ratios. The authorities at this point have not come
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up with a credible solution and this is creating uncertainty. Credit rating agencies do not like what they see and have also contributed with an avalanche of downgrades, which is set to continue into 2012.
â&#x20AC;&#x153;As 2011 drew to a close, it was increasingly apparent that emerging markets were also in the process of slowing down. The response has been a greater alignment of monetary policy around the world.â&#x20AC;? The effect on equity markets has been indifferent. Additional liquidity pumped into the financial system should have resulted in stronger equity markets. So far investors have stayed away due to the continuing uncertainty. This may change during the year but equity markets may well initially face some downside. This may be quite significant but there is considerable differentiation taking place. European stocks are in a bear market and lost ground in 2011 and this will probably extend into the first half of 2012. US and emerging markets ended 2011 flat and may well end 2012 on a higher note but not without volatility. On a political level, there is change sweeping across the globe at present. Europe probably faces a virtual comprehensive change across the landscape. Incumbency is being punished. Key elections to watch will be the French and US presidential races, where further changes are likely. Politics will also be high on the agenda
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in South Africa with the policy and elective congresses of the ruling party scheduled to take place. The irony is that SA politics has had a minimal effect on JSE volatility whereas European politicians have affected global volatility to a significant extent. Currencies will also experience greater volatility. Systemic risk in hard currency countries is rising and confidence is falling. In addition, policymakers are aiming for weaker currencies as a panacea to economic recovery. This is a race to the bottom and there will be problems arising from the US Dollar, Euro, British Pound and the Japanese Yen. The Rand is expected to extend its weakness in the first half and recover somewhat towards the end of the year. The continued systemic risk problems faced by the developed world and the central bank response to those problems will help support precious metals. Gold was one of the best performing assets in 2011and will probably extend those gains in 2012 with interest rates kept close to zero and rising systemic instability. Essentially, the investment landscape is where yields will be kept low (below inflation); growth will struggle (with many countries facing recession) and solvency will be challenged (particularly European sovereign debt). The key investment drivers in 2012 will be yield, growth and solvency.
ALTERNATIVE INVESTMENTS
The grass is greener on the other side
D
espite the issues plaguing the Eurozone, worldwide civil uprisings and increasing environmental concerns, demand for raw commodities is continuing to grow at an exponential pace, particularly as emerging economies expand, making them an ever more viable investment opportunity. “Continuous demand, particularly in emerging markets, together with their limited availability, makes commodities an attractive asset class,” said Carlo Ricci of EquityBridge Asset Management (EBAM). “Global economic and political uncertainty, together with negative real interest rates and massive debt burdens in many developed markets, means that commodities not only offer a certain hedge against inflation, but also a hedge against political risk and the depreciation of fiat currencies.”
“We believe that despite global economic worries, commodities offer positive fundamentals to investors and therefore return potential.”
an Indian or a Chinese national. “Global energy and food consumption is set to increase by more than 50 per cent in the next 20 years.”
Ricci explained that commodities provide portfolio diversification and potentially uncorrelated returns compared to traditional financial instruments such as equities and bonds. “We favour resources in the energy, agricultural and forestry sectors.”
Access to commodities can be gained from futures, ETFs, ETNs and structured products. Absa Capital recently launched two protected diversified commodity notes which give retail investors access to a diversified commodity investment in a capital protected format, while EBAM has also launched a Non-renewable Resources Fund, together with an Agri-Forestry Fund.
“Forestry as an asset class has outperformed most other assets over the last few decades and this outperformance should improve only as the supply-demand imbalance grows. With the world’s population now topping seven billion and growing, forestry and agricultural land resources are further strained as demand increases.”
Absa Capital indicates that there are three main reasons that an investor should look at when including commodities in a portfolio as an alternative investment: absolute returns, diversification and inflation protection; and, because of this, commodities will always have a place in a portfolio and should be considered as a core investment.
Absa Capital concurs, noting that agricultural commodities are one of the key global investment stories over the medium to long term. “The demand for food is exacerbated by increasing meat consumption in countries like China due to shifts in diet and growth in population and economy. This drives up the need to produce multiple tonnes of grain to provide for livestock demand, resulting in higher food prices in the long term.”
According to Absa Capital, recent downward movements in commodity prices are offering investors attractive entry levels.
Ricci said that the per capita energy consumption of a German citizen corresponds to more than 10 times that of
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“These commodity funds help enable long-term investors to properly diversify and hedge their portfolios against market volatility and risk, while potentially generating attractive returns,” Ricci said.
“We believe that despite global economic worries, commodities offer positive fundamentals to investors and therefore return potential.”
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economic commentary
EUROPEAN FRAGILITY REMAINS A CONCERN FOR EMERGING MARKETS Adenaan Hardien, Chief Economist: Cadiz Asset Management
The global view World growth remained lethargic through 2011. Multiple shocks and headwinds reduced activity during the first two quarters of the year. These included the political uprisings in the Middle East and North Africa, increases in commodity prices, supply-chain disruptions triggered by Japan’s earthquake and tsunami, a worldwide inventory overshoot during late 2010 and early 2011, and Europe’s fiscal austerity measures and its lingering sovereign debt and banking problems. Even though some of these headwinds have dissipated, the nagging weakness in some advanced economies has continued. And in at least the Eurozone’s case, the weakness has broadened and intensified. The outlook for 2012 is not very promising. There have been improvements in some areas, with US data releases showing better-than-expected performances. But ongoing disputes among US politicians over fiscal policy, a situation likely to persist in an election year, have increased uncertainty about that economy’s outlook. Increasing austerity and policy errors in the Eurozone have greatly deteriorated that region’s economic prospects. And there is increasing confirmation of growth moderation in key emerging economies like China. The global economy’s weak points during the current expansion cycle have been mainly the advanced economies. The current cycle is the first one where many emerging markets are in far better economic shape than the advanced economies. To a large extent, the advanced economies’ current weak state is a consequence of excessive credit growth and bank lending, which led to overinvestment – particularly in housing – and the creation of excess production capacity during the last two decades. As a
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result of two decades of relatively easy money, the advanced economies’ financial sectors became overextended. These countries’ financial institutions now need to focus on strengthening their capital base rather than expanding their assets. In addition, they are facing a populist political backlash in the form of a regulatory tightening that will keep them under pressure for an extended period.
“We remain comfortable in our view that rates are likely to remain on hold for an extended period, with the first hike probably delayed until 2013.” The local view In South Africa specifically, last year saw our economic fortunes swell and wane in line with global trends. The year started off on an encouraging note with strong GDP growth over the first quarter, but growth eased thereafter. Although the economic recovery has remained on track, momentum remains weak and fragile. Growth is expected to stay below potential through much of 2012, with the output gap closing over the following year. GDP data for the final quarter of 2011 is still outstanding, but it looks like the economy would have registered growth of around 3.1 per cent for the year. While South Africa’s growth recovery should continue, the pace will remain modest through 2012, with growth of between 2.5 and 3.0 per cent for the year.
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While prospects of lower interest rates for longer, some improvement in employment, and above-inflation wage increases have supported consumer sentiment, a number of factors continue to inhibit spending. These include high consumer debt levels, along with banks’ strict lending rules, employment fears and elevated energy and services costs. The Rand remains a key risk to the local economic outlook. The local currency had a weakening bias through 2011, but weakened substantially against major currencies since September on rising risk aversion. On a trade-weighted basis, the Rand lost around 18 per cent of its value, with similar performances against the major crosses. Traditional valuation metrics like purchasing power parity point to a Rand that ended the year undervalued against the Euro, fairly valued against the Pound and over-valued against the Dollar. Given our expectation of monetary policy remaining looser for longer in advanced economies, the Rand may end up being wellsupported in the absence of major adverse shocks to global markets. We remain comfortable in our view that rates are likely to remain on hold for an extended period, with the first hike probably delayed until 2013. Our risk view continues to be one that sees the MPC cutting rates in response to deteriorating global conditions rather than one that sees the MPC hiking in response to inflation pressures. The fragility of peripheral Europe and its potential to disrupt markets and economic activity not only in core Europe, but globally, remains of particular concern to the Reserve Bank. This region has remained fragile and market dislocation resulting from events there continue to pose a significant downside risk to global growth.
Industry Associations
ROSY FUTURE
FOR LONG-TERM INSURANCE INTERMEDIARIES Gavin Came | Chairman of the Financial Planning Committee at the Financial Intermediaries Association of Southern Africa
T
he outlook for professional financial planners is as rosy as ever for a number of reasons. The implementation of FAIS has led to a rapidly maturing industry, where the financial adviser who grasps the reality of a global financial services world and its related regulatory load will ultimately be the winner. While not obvious at the time, the road to FAIS and the raft of financial protection measures that began with South Africa’s re-admittance to the global stage in the mid-90s, all contributed to this positive future for the financial intermediary. 2012 will see a steadily stabilising environment, where financial advisers will begin to realise the benefits of implementing appropriate systems that recognise and respond to regulatory oversight. In turn, consumers will gradually realise that the increased cost of this oversight is for their account. Unfortunately, one of the repercussions of this steadily increasing oversight is the fact that intermediated advice is simply not financially possible at the lower income levels; consumers with less than about R1 000 a month to save or to deploy to protect their loved ones will not benefit from promised protection, as they are sold direct products with self-generated, unanalysed needs being met. These consumers will never be offered a choice of financial products as they respond to single-need advertising being thrust at them. They will be subject to the skill of the advertising agency rather than the skill of the financial adviser. At the other end of the scale, a trend towards sophisticated family offices will start emerging as those ultra high net worth clients begin to demand more value for their money than merely broking risk. This value-add will be
delivered by multi-disciplined teams who look after every aspect of such a client’s financial life, ranging from short-term insurance and sophisticated asset management to bookkeeping and tax advice. This will represent the ultimate convergence of the conventional professions of law and accounting with the emerging professional financial adviser.
“2012 will see a steadily stabilising environment, where financial advisers will begin to realise the benefits of implementing appropriate systems that recognise and respond to regulatory oversight. In turn, consumers will gradually realise that the increased cost of this oversight is for their account.” But the path to success is not always a smooth one. One of the obvious challenges, which the industry faces from time to time, is the impact that current market conditions are having on clients’ portfolios and investment strategies, both in terms of relative poor performance of the growth asset in their portfolios as well as in the psychological response by clients to short-term capital loss. Depending on the depth and severity of any downturn in the market, the impact will also be felt in an escalation in FAIS-
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related claims, as consumers once again test the value of the advice given to them in an effort to recover short-term losses. The constant debate about the reward system for financial advisers will undoubtedly continue as ways of ensuring that reward-driven conflicts of interest are mitigated if not outlawed altogether. Often the inevitable delay between our statutory roll-out of consumer protection measures and the other jurisdictions such as the UK and Australia serves to protect us against the worst excesses as measures adopted elsewhere are shown to be unworkable or fraught with unforeseen consequences. On the regulatory front, the intermediary will continue to digest the impact of legislation already promulgated in 2012. Right now it appears that new regulations such as Treating Customer Fairly (TCF) will have more impact on product providers than on intermediaries. In addition, the roll-out of Regulatory Exams (RE) will continue and the RE2 exams will be in gestation, while the Financial Services Board inspection activity is also likely to impact on the productivity of the intermediary. In light of the above, the most important role for intermediary bodies in 2012 will be to represent their members in discussions with the regulator to ensure that appropriate measures are taken to adequately protect the consumer without increasing the cost of financial services to the point where intermediaries are unable to sustain their businesses.
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ASSET MANAGEMENT
LUXURY GOODS: BUBBLE OR BOOM? Recent good performance of several local and international luxury brands has sparked debate around the durability of luxury good stocks. Some asset managers believe these stocks still represent good value in the medium term and even believe that the industry is recession proof. However, according to Daniel Malan, investment
60 per cent. They are currently trading much
director at RE:CM, a value-based asset
higher relative to the market than at any point
manager, this is not always the case and with
since 1995. This huge popularity is probably
several of these companies currently trading at
on the back of the 12 per cent rise in sales in
very inflated prices, the classic signs of a bubble
2010 and the predicted eight per cent rise in
are in place within this industry.
sales for 2011, with a further of five to six per cent growth per annum predicted by Bain and
â&#x20AC;&#x153;Since the beginning of 2010, the combined
Company until 2014.
share prices of LVMH, Hermes, Richemont and Swatch relative to the market, has increased by
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â&#x20AC;&#x153;Their positive outlook in turn is based on a 30
“The luxury goods sector has been producing excellent results over the long term which is evident from the share prices of the majors driven largely by demand from Asia and developing markets.”
per cent sales growth in China from 2009 to
rewarded investors handsomely in the past. It
South African assets had fallen in Q3 2011.
2010, with expectations of continued high
should be no different in the future over the
According to the Maxim ETM statement,
growth. As usual, it seems that the market’s
long term.”
declining foreign investor conference off the back of the European debt crisis and
focus on short-term results and a good story is leading to highly inflated prices,
However, Malan disagrees. He maintained
an aversion to emerging market assets
completely ignoring the lessons of history.”
that other common signs of a bubble are
were the major contributors to these results.
also appearing, namely acquisitions and
Furthermore, according to the report, there
Meanwhile, Greg Katzenellenbogen, a
new listings when the market is high for
has been a notable shift in domestic unit
senior portfolio manager at Sanlam Private
the industry. “LVMH paid €3.7 billion for
trust asset allocation – with a continued
Investments said that while no industry is
Bulgari in March 2011, valuing Bulgari at
strong surge into bonds. This new activity
completely recession proof, the luxury goods
three times EV/sales compared to its long-
took bond market weightings to their highest
sector has managed to weather economic
term median of 2.5 times, at a time when
levels since the first quarter of 2008.
downturns better than most and has also
Bulgari’s earnings have slumped 67 per cent
outperformed during good times.
during the last three years. Furthermore,
However, a separate recent poll by Reuters
Prada exploited the excitement around luxury
predicts that South African stocks will rise by
“The luxury goods sector has been
sales growth in the East by recently listing in
10 per cent by the end of 2012. The poll,
producing excellent results over the long
Hong Kong.”
which surveyed 10 dealers and analysts, showed that respondents remained optimistic
term which is evident from the share prices of the majors driven largely by demand
Malan added that the luxury market may
about the outlook for the benchmark top 40
from Asia and developing markets. This
be fairly recession proof, with total sales
index.
outperformance is expected to continue
dropping rarely, and then by fairly small
as growth in Asian demand is expected to
percentages, but the share price of luxury
However, the respondents of the Reuters poll
grow significantly in the future. Demand
goods companies is clearly not recession
agreed that growing uncertainty over Europe
in developed markets such as Japan and
proof, sometimes dropping dramatically in
– South Africa’s largest trading partner –
Europe has also surprised on the upside,”
response to small drops in sales.
will be the biggest hurdle for South African stocks in 2012. There is little doubt that as
he said. According to Katzenellenbogen, luxury
EU UNCERTAINTY THE DECIDER IN THE
we move towards Q2 2012, all eyes will be
FUTURE OF SA STOCKS
on the memos of the European decisionmakers.
goods are an aspiration-linked brand especially for Asian consumers who consider
While investors seem divided on the
them a status symbols and a sense of having
prospects of South African stocks in 2012,
arrived. With the share of wealth growing
analysts and investors are united in the
for consumers in Asia, there appears to be
opinion that the uncertainty in Europe will
significant room for growth so it is highly
be the deciding factor in the state of local
unlikely that there is a bubble in this industry.
stocks. Recent statistics revealed by Maxim-
“Shares of luxury goods companies have
ETM revealed that investor confidence in
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BETTER BUSINESS
Finding, educating and retaining customers online Social media has been a hot topic for a while now. You may have done some investigation about how you should use it in your practice, but still feel a bit confused as to what it’s all about. You may have ignored it, treating it as a fad; or you may feel that the train has already departed, leaving you behind. The truth is, social media – and the online world in general – is not going anywhere. It is a good idea to familiarise yourself with the tools and then see how you can use these to help you achieve your broader objectives.
It’s important to have an online presence
The web is the first port of call for most people seeking information. If one of your clients recommends you to a friend, it’s quite likely the friend will do an online search to find out more about your services, or perhaps to find your contact details. If they can’t find you online they may question your credibility; or they may abandon their search, meaning you miss out on the business. Now is as good a time as any to consider all your options.
Do you have a marketing strategy?
“It is a good idea to familiarise yourself with the tools and then see how you can use these to help you achieve your broader objectives.“
Your online strategy is a component of your overall marketing strategy. Before you can pick your tools you need to have a goal in mind. Is your marketing strategy focused on winning new business or retaining clients? Do you want to engage with existing clients, or give information to potential new clients? You need to understand your clients – if you segment them based on demographics, you will know that different groups may require different strategies. These elements will all dictate the type of online tools you select. There are many options out there. You need not use all of them; rather you need to focus on what suits your purposes.
A custom-built website can act as a foundation for all your online activity
Depending on your marketing strategy, and therefore what you want your site to achieve, you can build anything from a simple information site which enables you to communicate your mission statement, value proposition and contact details, to a complex transactional site that allows your clients to view their portfolios, check their latest valuations, and so forth. For many advisers, a simple site will do
and you can build it yourself using free, online, sitebuilding tools. Remember that your online presence should be aligned with your overall brand identity.
You may want to offer your clients the option of subscribing to a newsletter
Many people use newsletters to communicate with their clients and to drive traffic to their websites. Newsletters can feature a range of material such as market news, events and material from fund managers, such as fund fact sheets, as well as your own articles. If you enjoy writing consider starting a blog. Blogs enable you to post articles you’ve written, make announcements and post links to other content. Again, there are several free services that enable you to develop a simple, but professional-looking blog.
Market your practice on LinkedIn or Facebook
A company profile on professional networking website LinkedIn is another good starting point and can augment your own website, or be used as a stand-alone online presence. LinkedIn allows you to create an overview page where you can describe your practice and provide contact details, and you can add a products and services page, should you choose to. It allows you to engage directly with your followers by posting content to your profile. Not only can these updates be seen by visitors to your page, they also go directly to the homepages of your followers who are able to comment or share your news with their contacts. From a networking perspective, LinkedIn constantly searches its database of profiles for people whom you might know or whom might be connected to you through someone else, offering you the ability to continually build your network. Facebook allows you to develop a company page in addition to personal pages, where you can profile your company, your products and services and your key executives. Your status updates can feature news, links to valuable content from investment companies, links to your latest blog post, etc. Twitter is like a mini-blog, which allows you to tell your followers in 140 characters where you are, what you’re doing, or thinking and, again, share links to valuable content.
The more online presence you have, the easier it will be for clients to find you
There are numerous benefits to growing your online presence. It is a cost-effective way to market your offering, communicate new messages and reinforce old ones to a broad range of people. However, going online means committing to keeping your various profiles updated and full of fresh content. Before jumping in the deep end, consider what your objectives are and how best to use these new tools to achieve them.
This page is sponsored by Allan Gray, an authorised financial services provider. Allan Gray believes in and depends on the merits of good and independent financial advice. Allan Gray also acknowledges the pressure that independent financial advisers face currently and therefore has launched Adviser Services as a support function to all Allan Gray contracted financial advisers; its goal being to facilitate effective financial advisers’ practices and protect the independence of the financial adviser in the South African market with ultimate benefit to their clients. Adviser Services short lists third party suppliers based on market research to provide support in identified areas that would support an IFA’s business operations (such as software, compliance, practice management, training and more). Adviser Services performs research and maintains the short list of selected vendors on an ongoing basis. All pre-negotiated terms, conditions and fee structures as well as vendor contact details are published on the Allan Gray secure website.
etfSA.co.za
DECEMBER 2011 – etfSA.co.za MONTHLY SOUTH AFRICAN ETF, ETN AND INDEX TRACKING PRODUCT PERFORMANCE SURVEY Mike Brown | Managing Director | etfSA.co.za Short-term performance – one month to one year In difficult market conditions, when the FTSE/ JSE All Share Index increased by only 2.28 per cent for the year ended 30 December 2011, astute investors were able to find significant outperformance in different market sectors and asset classes, particularly commodities. The Absa Capital NewGold ETF appreciated by 36.68 per cent over the year, closely followed by the Standard Bank Gold-Linker ETN. Direct investment in oil futures, which was facilitated by the listing of exchange traded notes giving exposure to crude oil markets, was also very profitable.
Best performing index tracker funds – 30 December 2011 (Total Return %)* 5 Years (per Fund Name Type Fund Name Type annum) NewGold ETF 23,09% Satrix INDI 25 ETF Satrix INDI 25 ETF 14,17% Satrix DIVI ETF Prudential Property Unit 12,07% Satrix RAFI 40 ETF Enhanced Trust
NewGold
ETF
2 Years (per annum) 25,56%
Satrix INDI 25
ETF
18,00%
Proptrax SAPY
ETF
17,48%
The best performance by a purely equity based ETF over the past year was provided by the DBX Tracker MSCI USA ETF, which gave a total return of 21.32 per cent. Medium-term performance – two to three years The Satrix ETF products, which provide exposure to the main FTSE/JSE indices show that the general recovery in the local equity market over the past three years has rewarded the prudent investor. The returns per annum over the past three years of Satrix INDI 25 ETF (21.41 per cent) Satrix DIVI ETF (21.22 per cent) and the Satrix RAFI 40 ETF (19.80 per cent), place these products in the top 10 per cent of all unit trusts and ETF products available to the retail market in South Africa over this period.
NewGold
ETF
6 Months 25,43%
RMB Oil
ETN
23,42%
Standard Bank GoldLinker
ETN
23,37%
3 Years (per annum) 21,45% 21,22% 19,80% 1 Year
NewGold Standard Bank Gold-Linker RMB Oil DBX Tracker MSCI USA
RMB Oil Standard Bank Oil-Linker DBX Tracker MSCI USA
ETF
36,68%
ETN
34,19%
ETN
21,97%
ETF
21,32%
ETN
3 Months 26,83%
ETN
24,71%
ETF
10,89%
1 Month DBX Tracker MSCI Emerging Markets Standard Bank Palladium-Linker
ETN
9,70%
ETN
4,77%
Source: Profile Media FundsData (30/12/2011) dividends.
* Includes reinvestment of
The etfSA Performance Survey measures the total return (price changes plus reinvestment of dividends) for index tracking unit trusts and Exchange Traded Funds (ETFs) available to the retail public in South Africa. The performance table (attached) measures the 1 month to 5 years total return compared with the benchmark index returns (including reinvestment of dividends). Note, as the FTSE/JSE calculates the index without taking into account any brokerage or other transaction costs, index tracking products will typically underperform the index because of their transaction and other running costs.
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 & Switching From R300 per month From R1000 for lump sums
Visit the website: www.etfsa.co.za or call 0861 383 721 (0861 ETFSA1)
INDUSTRY NEWS
Appointments
Therese Niklasson
Busisa Jiya
Cora Fernandez
Investec Asset Management has appointed Therese Niklasson as head of environmental, social and corporate governance (ESG) research. Niklasson joins from Threadneedle Investments where she was head of governance and responsible investment. The appointment signals Investec Asset Management’s continued commitment to this area.
Busisa Jiya has been appointed managing director of Absa Asset Management (ABAM), a division of Absa Investments, the investment arm of the Absa Group. Jiya assumes the role of MD of ABAM, a role that had been under the management of Alan Miller. As managing executive of Absa Investments, Miller retains oversight of ABAM and the six other businesses within Absa Investments.
Sanlam Investments has appointed Cora Fernandez as head of Sanlam Investment Management (SIM). Fernandez is a chartered accountant who has had a successful track record as an investment professional and in her position of leadership at Sanlam Private Equity.
Efficient Group expands footprint with Namibian branch
Efficient Group Limited has opened up a new branch in Namibia called Efficient Group (Namibia) which will provide a range of financial services including asset management and personal financial advisory services encompassing a number of investment and risk-related products and services. Efficient Group Limited (South Africa) and an internationally affiliated audit firm, BDO
(Namibia) will be equal shareholders in Efficient Group (Namibia). Heiko Weidhase, managing director of Efficient, said that Namibia offers great opportunities and was an obvious market for Efficient Group to expand into. “We plan to duplicate most of Efficient South Africa’s services in Namibia and are particularly excited to have partners such as BDO (Namibia) on board.” BDO (Namibia) has appointed Charl Celliers and Magda Nel as directors to the board of Efficient Group (Namibia). Both are partners of BDO (Namibia). The Efficient Group has appointed Dawie Roodt and Peter Hewett as their board representatives. Roodt is a director and the chief economist of the listed holding entity, Efficient Group (South Africa), and has also been appointed chairman of Efficient Group (Namibia), while Hewett heads up the financial services company, Efficient Advise (South Africa).
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Glacier by Sanlam named top investment platform by FIA Southern Cape
Glacier by Sanlam was recently named the top investment platform at a gala evening hosted by the Financial Intermediaries Association (FIA) in the Southern Cape. In addition, Sanlam Life was also voted the best long-term insurer. Nominations for this award were made by the financial intermediaries belonging to the Southern Cape branch of the FIA. “I believe the award is a result of how well Glacier and Sanlam Broker Distribution work together as a team,” said Kritz Coetzee, the manager of business development at Glacier. “I’d like to thank everyone involved for their dedication and continued support.”
Cadiz Asset Management wins another socially responsible and impact investment mandate Cadiz Asset Management has been appointed as the fund manager to the Access to Medicines Impact Investment Fund, an initiative of the Southern African Regional Programme on Access to Medicines and Diagnostics (SARPAM). The fund has been developed in the belief that effective collective action and innovation will improve access to medicines across the regional economic community. Africa faces a higher disease burden than virtually all other regions of the world, and it is unlikely that government and donor organisations alone will find sustainable solutions. Working with member state governments, civil society, regional institutions, international agencies, research networks and the private sector, SARPAM is establishing a fund that will act as a catalyst to increase the access to medicines and diagnostics in the region. The economic case for investing in access to healthcare is powerful. The International Finance Corporation (IFC) estimates that the total annual market demand for private sector healthcare in sub-Saharan Africa will double to $35 billion by 2016. The fund’s goals will be to provide recyclable investment capital into medical and diagnostic SMMEs with a focus on providing underprivileged women and children with access to medical and diagnostic facilities previously unavailable to them.
CORRECTION: In the November 2011 issue, the article titled ‘Annual Risk survey reveals Absa Capital retains title as top overall bank’” was misquoted. Absa Capital was ranked Overall Top Bank in the annual Risk magazine South Africa rankings survey for 2011. Our apologies to Absa Capital for the error.
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PRODUCTS
PRODUCTS Absa Capital lists its first Long Equity Investment Plan Wealth Accelerator Absa Capital, the corporate and investment banking division of Absa Bank Ltd (Absa), has launched a new series of listed retail structured products using its innovative Long Equity Investment Plan (LEIP) securities wrapper. The LEIP product is the first to be listed on the Johannesburg Stock Exchange and is known as Wealth Accelerator. Retail structured products are packaged retail investment products comprising a fixed-term investment – often linked to major, well-known equity indices – and offer returns based on their performance. The capital protection built into many of these products seeks to preserve investors’ original investment against declines in the market, or as in the case of this initial LEIP, provides a large buffer before capital becomes at risk. The Wealth Accelerator allows investors to receive a geared participation of 200 per cent in the growth, if any, of the JSE/ FTSE Top40 Index over its four-year term, limited to a maximum return of 60 per cent. However, capital is at risk if the index has fallen by more than 50 per cent from its starting level on 11 November 2011, and failed to recover to above the starting level at maturity. “We are delighted to be bringing the first of these innovative products to the market and, over the upcoming months, will be adding to this with other new exciting investments referencing local and offshore equity markets,” said Vladimir Nedeljkovic, head of investments at Absa Capital.
Nedbank launches green ETF Environmentally conscious South African retail and institutional investors now have a good reason to invest following the launch of the Nedbank BGreen exchange traded fund (ETF). The Nedbank BGreen ETF is based on the
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Nedbank Green Index which was launched in July 2011 as a benchmark for environmentally conscious investors and a means of measuring the performance of companies with environmentally sustainable business practices. More than 30 companies that form part of the Top 100 companies listed on the JSE constitute the underlying constituents of the Nedbank BGreen ETF which can be traded in the same way as any other ETF. Apart from having sufficient green credentials, the companies that populate the ETF also have to have sufficient levels of liquidity to enable Nedbank to make a market and stimulate the buying and selling of units. The Nedbank Green Index is a rules-based index that is based on the local data set of the Carbon Disclosure Project (CDP) and the United Nations’ register of Clean Development Mechanism (CDM) projects in South Africa. Holding the largest database of corporate climate change commitment and action in the world and with more than 550 institutional investors representing over US$71 trillion in assets supporting the initiative, the CDP is a credible data source. The CDP goes through regular selection and evaluation processes that can result in changes and rebalancing of constituent members of the Index. Explaining the target market of this new green-focused ETF, Nedbank Capital senior transactor Jacoleen Simpson said it is aimed at a wide-ranging market; from parents wanting to save money for their children’s future, to pension fund trustees wanting an alternative benchmark to invest in, to retail and institutional investors wanting an investment tool designed around high levels of sustainability and responsibility. Being environmentally responsible does not have to come at a cost in performance as
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the Nedbank Green Index has outperformed the general market by more than 30 per cent from June 2008 to October 2011. With its current spread of 20 per cent financials, 31 per cent resources and 49 per cent industrials, the Nedbank BGreen ETF will enable investors to gain diversification that closely mirrors the overall South African economy. The current Top Ten constituents of the Nedbank Green Index are Nedbank, Barloworld, Gold Fields, Woolworths, Sasol, Mondi, Sanlam, Mediclinic, Pick n Pay and Impala Platinum. Anyone wanting to invest in the Nedbank BGreen ETF will be able to do so through ETF South Africa, a stockbroker or Nedbank Online Share Trading.
L atin A merica , S outh A frica , R ussia , B ritain , pakistan , nigeria , congo
Latin American and Caribbean States join forces to boost trade Latin America and other Caribbean countries have formed a Community of Latin American and Caribbean States. The signed Declaration of Caracas consists of 33 countries, excluding the US and Canada, in an attempt to improve ties and boost regional trade and integration. SA passes secrecy bill with serious repercussions South Africa’s Protection of State Information Bill was passed by the South African National Assembly with 229 votes in favour of the bill, two abstentions and 107 votes against. The controversial bill recommends that anyone caught distributing classified documents could be punished with a three-to five-year term, while people found guilty of the unlawful delivery and distribution of top secret material can be punished by 15 to 25 years in jail. Putin likely to recapture presidency – again Putin has accepted his ruling party’s nomination to return to Russia’s presidency should he win the majority of votes. Polls indicate that Putin, who is currently Russia’s prime minister and who stepped down from presidency only three years ago, will recapture the presidency in an election in March 2012. Britain plans for Euro emergency Italy’s £500 billion bailout request to the IMF has prompted Britain to draw up emergency plans in case of a Eurozone collapse. The much needed rescue package will provide Italy with 12 to 18 months’ breathing room while the new prime minister, Mario Monti, implements tax hikes and spending cuts.
Pakistan closes its doors on Afghanistan Pakistan shut down the North Atlantic Treaty Organisation (NATO) supply routes into Afghanistan after 24 of their soldiers were killed in a cross-border air attack. According to Foreign Minister Hina Rabbani Khar, this tarnishes previous efforts of both countries on improving relations and forces Pakistan to revisit the terms of engagement. She said there has been a deep sense of rage felt across Pakistan.
Congo’s Kabila wins presidency after violent elections The brutal elections in the Democratic Republic of Congo finally came to an end with President Joseph Kabila having been declared the winner, despite complaints by the opposition that the elections were rigged. President Joseph Kabila led with 49 per cent, against 32.3 per cent for his main rival, Etienne Tshisekedi. Kabila has been in power since 2001 and will serve his presidency for another five-year term.
Nigeria takes big step to oust homosexuality A new bill has been passed by Nigeria’s House of Representatives outlawing gay marriage, banning public displays of affection between homosexual couples as well as making gay organisations illegal. Based entirely on religious reasoning, if this new law is broken the consequence will be punishable by up to 14 years for the couple and 10 for anyone abetting such unions. Information Minister Labaran Maku said, “We reserve the right to make our laws without apologies to other countries.”
England pension age rises to 67 Hundreds of thousands of public sector workers went on strike in Britain to protest over planned cuts to their pensions. The strike, which is said to be the largest labour strike Britain has faced in decades, is as a result of proposed pension reforms that would see them work longer and pay high taxes before they can retire. According to Chancellor George Osborne, the government plans to raise the age for collecting pensions to 67.
EU leaders to agree on new treaty or face split Twenty-seven European Union leaders agreed to a new fiscal pact. The decision was met at a two-day seminar in Brussels where EU leaders decided to take on stricter budget disciplines. Such disciplines would include automatic sanctions for Euro area deficit offenders. EU leaders, however, failed to agree on changes to the treaty to preserve the new rules, possibly causing a split between Eurozone nations.
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Turkey bypasses Syria on trade route Turkey’s Economy Ministry has drafted a decree on suspension of free trade agreement with Syria due to escalating violent trade disputes. Syrian officials have blocked the entrance of Turkish trucks at the Babel Hawas Border Gate since November 2011. Turkey has since been bypassing trade routes through Syria exporting to Egypt by sea and overland via Iraq.
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SUNEL VELDTMAN
Your money or your love? 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. She has more than 20 years of experience in financial services, most of which as a private client adviser.
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hen I was a little girl we used to play cowboys and crooks. When you caught the crook, you pointed your makeshift gun and shouted, “Your money or your life?” The question today is your money or your love. Since February is the month of red hearts, Valentines and love, I thought it appropriate to discuss money and love. In case you hadn’t noticed, the stereotypical scenes of man and woman falling in love, getting married, having kids, working hard for 40 years, retiring for 10 years, husband passing away and leaving the wife with an income stream and the rest to the kids is no longer valid. It is now likely that the couple may never marry, that the marriage may end in divorce, that there’ll be kids from different marriages in one house or that someone may end up single and broke. It could well be the case of your money or your love. Love has become a complicated business. Love can be a costly business. Love has implications for financial advice. Financial planners are rarely positioned or perceived to be in a position to help during life transitions involving love. Think for example how few couples will seek the advice of a financial planner before they get married. They might seek advice from a legal professional for an antenuptial agreement but probably won’t think of asking for advice (never mind paying for it) on how to approach financial planning together. These life transitions pose opportunities and threats to traditional financial advisers. I suspect that the majority of people still see
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financial advisers only as salespeople they approach when they need an insurance product. However, these same people have financial questions and needs. Lots of these questions involve love. How should we split the budget and the expenses? How should we plan together without sacrificing our financial independence? How do I ensure that I get my fair share out of the divorce without paying too much capital gains tax? How do we provide for our kids from different marriages in our estate planning? I’m sure that there are financial planners who have positioned themselves to answer these questions. I am also sure that there are not enough. If financial planners don’t step up to the challenge to answer these questions, another profession will develop to deal with people’s real questions. Financial planners who position themselves to advise on real-life love issues, will find rewarding long-term relationships with their clients as the added benefit. I understand that there are real challenges with serving these needs of potential clients. However, I hope that financial planners will take up the challenge to find innovative ways to serve and charge for these needs. There isn’t going to be much money in my example of the young starry-eyed couple in the current commission and fee structures. Maybe not initially, but what if we look at the cost to benefit ratio of keeping the couple for a lifetime? In some way, the profession needs to find a way to do it. I also suspect that we are uncomfortable to talk to our clients about these issues. It involves asking difficult questions sometimes. It is difficult to ask a man why his wife is not
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in the initial meeting on the family’s financial planning. It is even more difficult to broach sensitive issues when they decide to get divorced. If you’re the financial adviser to the one party, where does your responsibility end – only with your client’s money or with the entire family’s future wellbeing? How far should you go to let your client make financial decisions that will clearly impact on his family’s happiness in the future? I have found it hard to learn to ask these questions. However, I have learned that it is much more rewarding, if you take the time, make the effort and learn the skills of asking the right questions. The reward is not only in the real joy of helping people with their real issues, but also in earning more from loyal clients over a long time. Many couples break up because of money. Money is power and how this power is dealt with in the family can make or break a relationship. In addition, partners come into a relationship with completely different paradigms about money. Their experiences with money as kids, their financial skills and their backgrounds are different. Unfortunately, people are not trained in understanding the impact of money on their relationship or dealing with it. Once again, the financial planning profession is ideally placed to help but, once again, we need to develop the skills and experience. February is usually the tax and retirement annuity month. We remind our clients to top up their annuities before the end of the tax year. We advise clients on tax saving strategies. Why not ask your clients about their money and their love this February?
LIFESTYLE
Relaxing inin the style Cape
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ith its relocation from Camps Bay to Clifton, the Bungalow Restaurant is Cape Town’s new kid on the block. Just below the Glen Beach Country Club, previously home to the well-known La Med, the restaurant smacks of the Mediterranean in the late 60s.
Restaurateur guru Paul Kovensky, owner of Pepenero in Mouille Point, and The Kove, Paranga, Zenzero and the former Bungalow on the Camps Bay strip, and partner Chris Coutroulis, have given this venue a refreshing feel that mirrors its breathtaking view. However, it is no longer the bar-come-Sunday-nightclub its predecessor was renowned for.
The menu, typical of the Bungalow’s sister restaurants, has a wide variety on offer but is in keeping with the Mediterranean theme. A favourite on the starters list is the Namibian crab claw tempura, grilled calamari, oysters with a sweet melon, chilli and vodka salsa, and the steak tartare. Mains range from seafood, pasta and meat dishes, with the Tagliata – a sliced fillet with reduced balsamic, olive oil, an assortment of red and green peppers, rocket salad, parmesan and cherry tomatoes – catching the eye. Of course, the speciality leans towards shellfish, grilled line fish and sushi.
overall feel of the Bungalow: the choice between Bungalow Sundae, Chocolate Ganache Torte, Eton Mess and a Vanilla Yoghurt Panna Cotta is not easy. The bungalow also boasts a variety of local wines and French Champagnes. It is advisable to book ahead. The view, the setting and the variety of dishes make it one of the latest places to be seen. Total capacity is 450 making it ideal for wedding receptions and corporate functions. The Bungalow Restaurant: Glen Beach Country Club, 3 Victoria Road, Clifton, Cape Town. Tel: +27 (0)21 438 2018, Open Monday – Sunday
The desserts sum up the classic 60s tastes and
12:00 – 00:00. Visit www.thebungalow.co.za
The outside table area overlooks the field and the ocean view below has been transformed into an idyllic shaded dining area with an encircling trellis to allow patrons to ease into an attractive lunch while relaxing on cushioned seats. It’s hard to imagine that you were not sitting in a GrecoRoman island villa. The adjacent bar area and its neighbouring deck are perfect for a hot summer’s day; enjoy cocktails on the shaded comfortable day-beds by the bar, dip your feet into the splash pool while you wait for your meal or simply chill at your table on the wooden deck. The interior takes on a different feel. It has deep, earthy wooden tones but is elegantly finished with unobtrusive chandeliers and mirrors. The tables are intimate, creating a refined but relaxed dining atmosphere.
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AND NOW FOR SOMETHING COMPLETELY DIFFERENT
Fame! investments that live forever M
any people deem the current period as the age of the celebrity with the famous being fawned upon. However, it seems the lives of celebrities who are no longer with us receive just as much, if not more, attention as is evident by the value of memorabilia they have left behind. Elizabeth Taylor’s favourite 33 carat diamond ring was recently auctioned for $8.8 million in New York. However, this was not the most valuable jewellery item to go under the hammer. Her huge pearl known as La Peregrina sold for $11.84 million. These were just two of the items on auction in the actress’s fashion and jewellery collection auction which netted $156 million.
Here are some of the most valuable items sold which belonged to celebrities who have passed on. Pleated ivory dress worn by Marilyn Monroe – $4.6 million This iconic dress worn by Marilyn Monroe in the 1955 movie The Seven Year Itch blew up and exposed her legs as a gust of wind whirled up from the grate of a subway. The dress was sold at an auction of Hollywood collectables owned by Debbie Reynolds.
The Wizard of Oz frock – $910 000 A test dress that was fitted and worn by Judy Garland for two weeks during the shooting of The Wizard of Oz sold for $910 000 at the same auction at which Marilyn Monroe’s pleated dress was sold. The blue cotton dress with polka dot trim fetched more than 10 times the estimate. Chiffon dress worn by Amy Winehouse – $68 000 A printed chiffon dress worn by the late British singer Amy Winehouse for the cover of her chart-topping album Back to Black sold for $68 000 at a Kerry Taylor Auction. The amount it fetched is fairly high given the artist was a tender 27 years of age and not too long in the music industry.
Jewellery items are generally valuable in nature and paired with famous owners they can rake in large amounts of money when sold, but the demand to own items of a more personal nature belonging to late celebrities stretches further than jewellery.
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Thriller jacket worn by Michael Jackson – $1.9 million The late King of Pop Michael Jackson made waves worldwide with his hit, Thriller, which was released in 1983. The famous red and black jacket which Michael Jackson wore in the music video fetched $1.9 million at an auction held by Julien Auction house in Beverly Hills.
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THEY SAID...
A selection of some of the best homegrown and and international quotes that we have found over the last four weeks. “Bring it on! I am tired of being threatened. I have never done anything wrong and maybe it would be better if the Hawks charge me so that I can explain these allegations.” ANC Youth League former president Julius Malema has dared the Hawks to lay charges against him, it was reported.
“They have a situation where they found a fundamental flaw in that they can’t print money.” Billionaire investor Warren Buffett, on why European mechanisms to rescue the Eurozone do not have comparable authority to the Federal Reserve.
“The one thing that we can be certain of, among all the uncertainties, is that the global economic recession caused by the international financial crisis will be chronic.” Chinese VicePremier Wang Qishan on the impact of the global financial crisis and China’s response.
“We are broken inside. We never thought there would come a day when we would come here to parliament dressed in black to actually witness this constitution of ours being betrayed.” SA National Editors’ Forum chairman Mondli Makhanya after the Protection of State Information Bill was passed.
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“In a sense we are already at the bottom and there is not much further down we could go.” UCT School of Economics professor Haroon Bhorat, on the possible employment impact in South Africa of the Eurozone crisis.
“The celebrations are being used to persuade the people that a movement that has betrayed the people is our government.” Unemployed People’s Movement chairperson Ayanda Kota on the ANC’s centenary celebrations.
“The leaders will now enjoy the champagne, and of course they do so on your behalf through their lips.” Deputy President Kgalema Motlanthe who told the crowd at the ANC centenary celebrations that if they had no champagne they could take photographs of their leaders drinking, or raise clenched fists.
“No, (a recession) can still be avoided. But at the European level there is a need for sufficient resources to calm markets and governments have to go forward with austerity measures.” OECD’s Pier Carlo Padoan on Europe avoiding a recession.
“Citizens are seeing our government as being profligate, spending too much on the wrong things and not doing enough to control that spending. It’s not entirely true but some elements of it are true.” Finance Minister Pravin Gordhan commenting that there was an element of truth in the public perception that government is wasteful.
“I accept that the president must have a multitude of daily duties and is a very busy man. However, when he is dealing with an office as important as that of national director of public prosecutions then time should be taken to get it right.” Judge Navsa commenting on the ruling made by Supreme Court of Appeal that President Jacob Zuma’s appointment of Menzi Simelane as prosecutions chief was unconstitutional.