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Contents

CONTENTS

Retirement - Making the right Investment The cost of unit trusts

Understanding performance tables

PROFILE Seelan Gobalsamy CEO Liberty

Hold it right there What do report recommendations really mean?

Head to Head Novare速 Investments / Sanlam Investment Management

NO PLACE TO HIDE?

Fund Profiles: 36ONE Flexible Opportunity Fund Coronation Top 20 Franklin Templeton - Templeton Asian Growth Fund Momentum Small/Mid-Cap Fund PSG Flexible Fund

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yes

Letter from the editor

letter from the

EDITORIAL Editor: Shaun Harris investsa@comms.co.za

editor confusion and angst for advisers as clients want to switch and chase the latest top performing unit trust fund.

Features writers: Maya Fisher-French Miles Donohoe

The usual insightful views are offered in our Head to Head section, where Francois van der Merwe of Novare Investments and Patrice Rassou of Sanlam Investment Management look at local and global investment markets. Unit trusts remain a core investment despite money inflows slowing over 2011. Asset allocation funds are a popular choice. It’s a good place for dazed and confused investors, where a professional fund manager is making the all-important asset allocation and stock-picking decisions. To see how a selection of top unit trust funds work, read the five Fund Profiles, where investment professionals explain how they invest and why.

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.

azed and confused, Led Zeppelin’s Robert Plant sang in 1969 to a generation that summed up the title of the song. And dazed and confused is how many investors, even seasoned market participants, are feeling now. We have survived a year that will be recorded in financial history books. That explains the dazed part; confused because 2012 largely remains an unknown abyss. So it’s time to shake our heads, wipe our eyes and make sense of investment markets. It’s a testing time for financial advisers. The advice that a well thought out, well-constructed investment plan for clients will weather the storms over the longer term is wearing a bit thin. It remains true, but it’s being tested. So what do we do? In her column, Maya Fisher-French writes that we should think like foxes, following a conversation with scenario planning master Clem Sunter. Read what foxes do in distressed markets like those we are going through. Maya’s feature on understanding performance tables can help clear up a major cause of investor

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Chris Hart, chief strategist at Investment Solutions, warns that investors don’t pay enough attention to policy measures. He makes a telling point. Just as the late 60s generation had policy measures like the Vietnam War thrust upon them, so do investors today, globally and in the South African economy. These are events we cannot control but we can plan around them. I take a look at making the right investment choices for retirement, focusing on unit trusts and seemingly cheaper alternatives. That vexing ’hold’ recommendation in so many investment analyst reports also comes under my beady eye. There’s much more on the pages that follow which investors and advisers can put to good use. Robert Plant also sang Stairway to Heaven. We can’t promise you heaven, much as we’d like to, but can provide some of the stairs to get there. Here’s to upcoming investment returns, with a Whole Lotta Love.

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SHAUN HARRIS

Retirement making the right investment The costs of unit trusts

Unit trusts aren’t cheap. The funds are amongst the more expensive investment options, measured on an absolute basis. But comparing costs between different investment vehicles always becomes cloudy as other factors that will affect the long-term costs drift into the horizon. There are myriad points that investors and their financial advisers have to consider when looking at unit trusts as an investment for retirement.

While they are not the cheapest option, unit trusts are the most accessible and cost-effective way to invest. So in the long run, expensive might not turn out to be that expensive after all. The shining attraction of unit trusts is that the funds are affordable. Some can be bought for a lump sum investment as low as R1 000, or a monthly debit order of just R100. The affordable premise, however, does become more complicated when trying to choose the best unit trust fund for retirement. The implication of investing for retirement is that it’s a long-term investment, whether the investor is saving ahead for a future retirement date or already in retirement. There are cheaper options, the question is what will work best in retirement, and at what cost. Just the standard measure of unit trust fund costs, the total expense ratio (TER), shows wide divergence. This can be close to five per cent (of the value

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of the investment) to below one per cent. While facing a daunting and largely unknown investment climate in the year ahead, unit trust costs become very important. For instance, with rising inflation and a TER close to five per cent, the investor saving for retirement will battle to get a real return – which means the investor is not really saving at all. To achieve a real return over a reasonable time frame, at least five years, means investing in equities. Share prices have recently surged on the JSE with the All Share Index (ALSI) up around three per cent from the beginning of the year to early February. “It’s probably better than most people thought it would be,” said Chris Gilmour, investment analyst at Absa Asset Management Private Clients. In a recent presentation he had graphs showing how the priceto-earnings (PE) ratio on the ALSI was below its long-term average, with value starting to reappear in the local stock market. But translating

that value into a real return for investors could prove more difficult, due to what Gilmour calls non-linearity.

increase this year. Depending on how economic growth turns out, this puts investors perilously close to the dreaded concept of stagflation.

“One of the problems currently facing economists and other financial commentators is the growing prevalence of nonlinearity. What this means, in essence, is that it is becoming less easy to draw on historical reference to draw conclusions about the future,” writes Gilmour in the latest Private Clients publication. So whereas people investing in equity unit trusts for retirement had some certainty, in the past, of achieving a real return over five years or longer, this certainty is disappearing down the plughole of the debt crises in the Eurozone.

But if a real return is what the unit trust investor needs, an investment portfolio can be protected to virtually guarantee it. However, it will come with an additional layer of costs.

This includes some curve balls in the local market. For example, Craig Pheiffer , general manager of investments at Absa Asset Management Private Clients, produced a graph at a recent presentation showing that among the major developing markets, South Africa was the only country where inflation was forecast to

Derivative and smoothing instruments can be bought by unit trust investors as protection against downturns in the markets while still participating in upturns. These can be quite complex and need to be understood by the investor and financial adviser. With the unpredictable economic and financial markets investors face it is good protection. But the question then is whether these instruments are worth the additional cost. There are cheaper alternatives, one being to buy shares directly through a stockbroker. Fees will vary depending on whether a full service or online stock broker is used, and according to the size of the investment. In the current climate many stockbrokers will be happy to negotiate fees. But the problem for retirement investors is that buying shares directly, while cheaper than unit trust funds, demands a certain level of investment knowledge. Diversification is also a problem. A large financial outlay would be required to get the extent of diversity an investor can get through a single unit trust fund. A cheaper option, with equal diversity, is exchange traded

“A cheaper option, with equal diversity, is exchange traded funds, an investment in a basket of shares that are listed and held under the investor’s name.” funds (ETF), an investment in a basket of shares that are listed and held under the investor’s name. An ETF will typically track an index, such as the Top 20 or Top 40 on the JSE. Fees will be in the region of 0.45 per cent to 0.8 per cent if bought directly from the etfSA Investor Scheme, the ETF platform headed up by MD Mike Brown. ETFs are proving to be increasingly popular but not yet as popular as unit trust funds. One apparent reason is concern over the level of protection provided to investors. However ETFs offer as much, if not more, investor protection than unit trust funds. Brown explains on the website, www.etfsa.co.za, that nearly all ETFs are registered as collective investment schemes, as are unit trust funds, and are therefore regulated and controlled by the Financial Services Board (FSB). In addition, he added, “All ETFs are publically listed securities and are also regulated by the JSE.”

commission to brokers but it will not work out anywhere as high as the commission that can be earned on certain unit trust funds, especially those coming through a linked investment service provider or other multimanaged funds. What should happen and to an extent is happening, is that unit trusts must become cheaper. TERs need to come down, something that is underway through consolidation and the closure of some unit trust funds. A simplified unit trust fund offering by an asset manager, preferably all charging the same TER, will keep investors for the long term. Unit trusts are not the cheapest investment product but remain the most popular. It’s over to the industry to keep it that way. There are too many uncertainties ahead for flippant assumptions that all will keep going on as before.

Another reason that ETFs don’t appear as regularly in investor portfolios lies at the feet of financial advisers. A provider like etfSA does pay

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SHAUN Maya Fisher-French HARRIS

Understanding performance tables By Maya Fisher-French

“In the long term, the actual returns may be lower than the optimum but the downside risk of the portfolio is likely to be significantly reduced.”

ith the release of

how to interpret it. Financial advisers need

the 2011 unit trust

to be prepared for clients who will want to

performances and the

switch their portfolios to last year’s winners

announcement of the

and investors need to remember exactly what

Raging Bull awards, we

their original investment strategy was. Short-

are now being swamped with advertisements

term performance of a specific fund is often

professing to be the best performing fund

determined by sector performance rather than

last year.

stock picking.

And we have seen it all before. Remember

Over shorter periods of time funds that are

the adverts for over 100 per cent returns from

invested in the ‘right’ sector outperform

sector funds like small cap funds, IT funds

regardless of the skill of the fund manager

and offshore funds?

and are usually driven by single, often unpredictable, events.

While celebrating investment excellence is important, and providing details on fund

For the month of December 2011, the top

performance over the long term is useful to

25 performers were dominated by financial

investors, we need to be circumspect about

sector unit trusts. This was simply because

exactly what this performance is telling us and

the best performing share for the month

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happened to be a financial stock, namely Old Mutual which jumped 16.6 per cent after the announcement of the sale of its Scandinavian operations.

• Has the fund’s rating dropped steadily over the past two years?

said De Klerk.

• How does the fund’s short-term rating (Junior PlexCrowns) compare to the long-

Consider asset allocation funds

term rating (Senior PlexCrowns)?

Over a five-year period, which included the

“The financial funds on average held

• Is the manager taking on more risk?

approximately 13 per cent of their net asset

• Perhaps the fund’s lower risk rating implies

value in Old Mutual and their holdings in

that the fund is likely to underperform in

the share therefore contributed more than

strong rising markets.

50 per cent of the returns in the month of

industrial shares and special opportunities,”

• Has the portfolio manager changed?

December,” said Ryk de Klerk, executive

massive market crash, flexible funds have done relatively well with five flexible funds in the top 25 performers. “The inclusion of five flexible funds is mainly as a result of their flexibility where timing, sector

director of PlexCrown Fund Rating. He warned

Remember risk diversification

against tracking funds in the short term, except

Asset managers have been fairly unanimous

possibly as a counter-indicator. “Performance

that South Africans should be investing

tables and especially those shorter than one

offshore. This is a tough selling job on a sector

year should be viewed with extreme caution.

that has under-performed for 10 years even

Flexible funds fall under the category of

though over the last year foreign funds have

Domestic Asset Allocation funds, which

dominated in the top 25 performers. De Klerk

according to the Association for Savings and

argued that offshore funds will reduce the risk

Investment South Africa (ASISA) attracted the

of the portfolio.

bulk of investor money in 2011, leading to

Many factors may cause short-term out- and underperformance that may not be repeated again in the next few months or even years. The great short-term performing asset classes over the past year are likely to be the underperforming asset classes over the next year,” added De Klerk. With this in mind, how should you be interpreting the latest data? Compare apples with apples Compare funds against other funds in their ASISA subcategories and not between subcategories. “It is essential to compare like with like as the investment universe of the funds in a specific sub-category is regulated and is therefore subject to certain constraints and directives,” said De Klerk. The investment objectives between sub-categories are therefore likely to differ materially and have a major bearing on the risk and return attributes of funds. Stick to your original investment plan as agreed with your financial adviser which would have been based on expected returns and your risk tolerance according to your financial needs. Switching between a resource fund and financial fund based on past performance is simply going to cost you money. Sector specialist funds should only be a building block of a total equity portfolio or for those who want to take a view on the market to actively manage the investment.

rotation and stock picking played a major role in their excellent performance,” said De Klerk.

record-breaking net inflows of R43 billion for The risk and return characteristics of foreign

this fund category.

funds are such that the inclusion of foreign funds in a well-balanced portfolio can significantly enhance the risk-adjusted returns of the portfolio. “In the long term, the actual returns may be lower than the optimum but the downside risk of the portfolio is likely to be significantly reduced. The recent severe weakening of the Rand is a good example of that. The Rand is probably fairly priced against the US Dollar on a purchasing power parity

Asset allocation funds are probably the best test of a fund manager’s ability as it requires both asset allocation and stock picking abilities. An asset allocation fund manager cannot simply blame the index. “These funds have become popular with investors and advisers alike since they provide

basis,” said De Klerk.

diversification across asset classes within one

Understand the context of the returns

on the appropriate mix,” said Leon Campher,

Overall funds have performed very well over

CEO of ASISA.

fund, with an expert fund manager deciding

three years, but you need to see that in the context of coming off a very low base – we are

At the end of December 2011, the Domestic

looking at the recovery after the major sell-off

Asset Allocation category held assets under

in the last quarter of 2008. When markets rise,

management of R277 billion, or 28 per cent

everything floats to the top.

of industry assets, even more than the money market funds which hold assets of R252 billion,

On a comparative basis, the JSE All Share Index returned 61.3 per cent. With the Industrial Index returning 81.5 per cent over the three-year period it is no wonder that five industrial funds made it into the top 25. Fund managers that called the industrial rally right have delivered above-average returns.

or 25 per cent of industry assets. Do not compare absolute return funds PlexCrown does not have targeted absolute and real return sub-categories as these mandates differ vastly from each other. “We do not rate funds in this sub-category but compare them with sub-categories which we

“Stock picking and timing are particularly

think they should be listed under based on our

evident in the case of Coronation Industrial

return-based style analysis initiated by Prof.

Do not switch a fund just because its

and STANLIB Industrial as their returns

William Sharpe. Their returns, risks and risk-

performance is lagging

exceeded those of the JSE Industrial Index.

adjusted returns should therefore be seen in

The underperformance of a fund may be

Four small cap funds made the Top 25 mainly

relation to the sub-categories in which we class

as a result of one or more large holdings

as a result of their inclination to invest in

them,” added De Klerk.

underperforming or a major strategic shift such as the increase in liquidity ahead of an

PlexCrown is offering a free trial of its PlexCrown Fund Ratings programme. You can register

anticipated slump in equity prices.

at www.plexcrown.com. By clicking through to PlexCrown IFA Solutions, you are able to select and sort funds according to investment objectives, risk tolerance, fund quality, returns

Investigate before you act advised De Klerk.

over various periods, managerial skills, risk and other important measures.

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PROFILE | CEO Liberty Corporate

S ee l a n G obalsamy C E O L iberty C orporate

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“I have often expressed the view that our industry has unfortunately become highly regulated as a result of our historical inability to serve our customers in an open, honest, fair and proper manner.”

You joined Liberty Corporate at the end of 2010. How has the first year been? I joined Liberty Corporate just as public sentiment regarding our global financial prospects was slowly creeping upwards. Retrenchments and down-sizing, although still a feature in the market, had become less prevalent. However, the impact of the recession had caused cash-strapped consumers to be more discerning, prioritising where they spent their hard-earned money. Some of South Africa’s smaller companies had closed down, while those that stayed afloat reassessed their financial affairs. All this affected the corporate investments and employee benefits industry, of course. In addition, we were faced with the prospect of intensive regulatory changes which brought about the consequent need for circumspection and self-assessment. So the first year presented a mixture of themes; tough, challenging, and yet highly rewarding and very exciting. As you mentioned, we have recently weathered ongoing global debt crisis and been presented with a myriad legislation, particularly in the financial services sector. In your view, what impact is this having on the employee benefits industry in South Africa? There are a number of lessons to be learnt from the recent global scenarios, especially those from the US and Greece. Clearly, failure to assess the financial impact of certain fiscal policies (albeit designed to assist the general populace) can bring not just a country, but the whole world to its knees. The sub-prime debacle is a painful lesson whose ramifications the world will carry for a number of years to come. Fortunately for South Africa, we already had a highly regulated banking sector, so our crisis came as a result of external pressure rather than an innate inability to manage our risk. We did see an impact on the employee benefits market with the average number of claims increasing. This has lessened to some

extent, but of course the investment market fluctuations are still having an impact on returns. I believe that legislation is essential to manage national financial risk, debt and savings. In South Africa, there are currently a number of retirement reform proposals relating to compulsory preservation – which I fully support. We need to start incentivising a culture of savings in this country. Treating Customers Fairly is on the cards. What are your views on this new initiative? I have often expressed the view that our industry has unfortunately become highly regulated as a result of our historical inability to serve our customers in an open, honest, fair and proper manner. Our products are usually complex, our communication is fraught with fine-print and our intermediary remuneration structures have been questioned. TCF is really an expression of what should have been happening all along. I am very passionate about this approach and I will drive, within Liberty Corporate, mechanisms to create an internal culture of client-centricity, professionalism and innovation. We want to be ahead of the pack when it comes to TCF. What do you think are the biggest challenges for the employee benefits industry in the next 12 months? I think the industry will have to undergo a significant mind-shift in the next couple of years. What will happen to the intermediated model should commission-based remuneration be abolished? How are we going to restructure our products so that they serve the market to which they are being sold and continue to generate profit? As you well know, companies have as much of a fiduciary duty to shareholders as they do to customers. These are significant challenges, so as industry participants we must engage with the regulatory bodies in order to ensure that what is prescribed can actually be implemented.

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How important do you think the role of a financial planner is for consumers? Financial planners are critical in easing the anxiety that accompanies long-term financial planning and assisting us to make sound financial decisions tailor made to our unique circumstances. Because products are often complicated and investment concepts are difficult to understand for the man on the street, financial planners become the partners and guides whom people can trust to ensure longterm financial security. How did you get into this industry and what advice would you have for someone entering it now? In my final year of accounting articles, I was fortunate enough to be offered a position as financial manager at an insurance company. Soon after that I was thrown in the deep end when I was asked to run the company after some movements in senior management. This was a tremendous opportunity for me to learn the industry. I have really found it an exciting and rewarding industry to operate in and I would advise anyone entering it now to spend time understanding the needs of the customers, the individuals who are relying on our services usually during trying times. Finally, if you had R100 000 to invest, where would you put it? That’s a question that can only be answered after some careful financial planning considering your unique circumstances. My advice would be – see a financial planner and either invest it, or pay off those debts – whichever makes the most sense for you.

SHAUN HARRIS

Hold it right there What do report recommendations really mean? By Shaun Harris

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“Imagine a do-it-yourself investor with R1 million to invest in a few companies. This investor uses a stockbroker and comes away with a pile of investment analyst reports. Reading up on companies that interest the investor, the report all too often ends with the recommendation to hold.”

ften the most wellresearched, insightful investment analyst report ends with the bland, and we think meaningless recommendation: hold. Hold does mean different things to different people. But what does it mean to an individual retail investor or financial adviser? At best nothing; at worst a confusing recommendation that could lead the investor to the wrong decision. Imagine a do-it-yourself investor with R1 million to invest in a few companies. This investor uses a stockbroker and comes away with a pile of investment analyst reports. Reading up on companies that interest the investor, the report all too often ends with the recommendation to hold. The investor will probably ditch the report and look for a more decisive recommendation. But for an investor already holding the share, hold could be interpreted as buy or sell. And it could be the wrong decision. After the time, energy and analytical skill goes into writing a report, why can’t the conclusion, the recommendation, be more straightforward. Buy or sell. There’s no confusion there, leaving the investor with a clear view of what the analyst thinks about the particular company. Hold may be, and in some cases no doubt is, a cop out by the analyst. Recommending buy or sell might prove to be wrong at a future date. Hold lets the analyst off the hook. But it does little to aid the investor’s decision. Worse, though, is that the hold recommendation might be the way to avoid a potential conflict with a client. In this case, the analyst is probably overruled by someone higher up the ladder. We know of cases where this has happened. This was many years back but a firsthand account of what can happen to the recommendation on independent research. It involved a fellow journalist, the late Deon Basson, acclaimed for his forensic investigation and with a record for winning the Sanlam Financial Journalist of the Year award. At one stage in his career, Basson decided to leave journalism and try putting his skills to investment analysis. He didn’t last long as an analyst. His first report, employing

his thorough investigative skills, was being lined up for a sell recommendation. The boss of the now defunct asset manager was alarmed and told him he couldn’t call sell as the company in question was a big client. Of course, Basson would have none of that and headed for the door, returning to journalism. The easy way out, and what the asset management company was hoping for, was a hold recommendation. The company and client would have been spared the embarrassment despite what the report said. Those are the sins that can be covered up by a hold recommendation. But if hold is meaningless, so are the other recommendations for some professional fund managers. Ricco Friedrich, portfolio manager of the Sanlam Investment Management (SIM) Unconstrained Capital Partners, says he doesn’t pay any attention to the recommendations on investment analyst reports. “What’s more important is what’s in the report, the recommendation made is pretty meaningless for us. The way we invest is to either own the company, or not. How much we like the business will determine how much we will buy.” Friedrich cautioned that we are taking on a very sensitive issue around the validity of the hold recommendation but that he tends to agree with us. “You either like the company or you don’t, it’s buy or sell.” There can be a lot of conflict around recommendations if the analyst report involves a client. That could explain why some fund managers and heads of research declined to talk to us. Where does this leave the retail investor and financial adviser? Like Friedrich, should they ignore the recommendations in a report? Perhaps, but these aren’t professional fund managers. The recommendation will often determine whether they buy a share. So what do they do when the recommendation is that innocuous hold? In its context hold could mean something to a retail investor. Luigi Marinus, head of research at Plexus Asset Management, said that the hold recommendation depends on the investor’s risk profile. “For the retail investor hold could mean don’t jump in too

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strongly. Hold the share as close as your risk appetite allows.” The problem with recommendations in general is that they work very close to something like a code. Hold might mean buy but the permutations go on – neutral, underweight, overweight. And there are different recommendations for the short term and long term. It’s not surprising retail investors and advisers get confused. Sasfin Securities has an analyst who consistently makes what he calls “trading” and “portfolio” recommendations. What does this mean to the investor? At least, though, this analyst is consistent in making buy recommendations. His reports nearly always recommend buy – which then becomes as meaningless as hold. Barclays Capital uses the overweight, equal weight, underweight system. It tries to explain what the recommendations mean. Equal weight, roughly the equivalent of hold, is defined as “stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12-month investment horizon”. Can a retail investor be expected to get his head around that? But the Barclays Capital analyst report gets better (or worse). It includes sector views where the recommendations are positive, neutral or negative. Neutral, like equal weight or hold, is “sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating”. Blinded by science or investment analyst recommendations yet? It should be so simple. But it’s not. However, these recommendations are taken very seriously by retail investors and financial advisers. Despite all the good stuff that might be in the report, it’s often the recommendation that investors act on. Best advice for investors would be to try and fit the recommendations into their own time scale. And be very skeptical of hold. It might well be a meaningless recommendation but it can be dangerous if acted on without carefully reading the full analyst investment report.

HEAD TO HEAD | Novare® Investments

Novare® Investments F rancois

v a n

d er

Mer w e

Head of Macro Research, Novare® Investments

1. The JSE closed above 34 000 for the first time in its history in January 2012. Why is it bouncing back so strongly? The equity market moved sideways during 2011 and a lot of negative news was already priced into the market by year-end. Although far from resolved, European officials have drawn a line under their sovereign debt crisis. The European Central Bank’s announcement of the three-year Long-term Refinancing Operation programme in December 2011, basically a back-door quantitative easing initiative, has eased financing and funding stresses and prevented a systemic failure in the European banking sector. This coupled with stronger than expected US economic data and evidence that the Chinese economy is not experiencing a hard landing, lifted global investors’ risk appetite and caused the surge in equity prices. 2. Do you expect this performance to continue? The recent rally’s strength will be determined by the outcomes of three key global factors during 2012: the sustainability of stronger US economic data, an improvement in the European debt crisis, and the ability of China to avoid a hard economic landing. There is thus a lot of event risk that can alter international investors’ risk appetite, and in turn, drive the local equity market. Given strong company earnings forecast for this year, and relatively attractive forward-looking valuations, the JSE should outperform fixed-interest investments over the next 12 months. However, the stronger performance will be accompanied by volatility.

3. Should investors still consider local equities or have they missed the boat? Local equities remain attractive. It is only through the recent rally that the JSE decisively broke past the peak that was reached in May 2008, prior to the financial crisis. From a contrarian perspective, South African equities are still under-owned by international and domestic asset managers and their valuation levels are undemanding. The historically low domestic interest rate environment, as well as the accommodative monetary policy stance from most global central banks, should provide support for risky assets, including local equities. 4. Given the strong local performance, should investors still look offshore? Investors should hold offshore assets as part of a diversified portfolio. The importance of this was demonstrated again last year when offshore assets, having been the laggard of the asset classes in previous years, provided the best performing return for the calendar year – mostly due to the Rand’s weakness. In many instances, offshore investments can be seen as an insurance policy for when things go wrong, but can also be used to exploit valuation opportunities. 5. Where should they be putting their money? Global emerging market equities have had a poor performance over the last year and the MSCI Emerging Market Index is back to levels seen two years ago. Hence, emerging market valuations are looking much more attractive. The inflation scare in

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many emerging market economies is waning and their central banks have embarked on a monetary policy easing cycle. Given that these economies have stronger fundamentals than their developed counterparts, and more robust growth trajectories, they should provide strong returns if the major global risks, mentioned earlier, can be avoided. 6. Are there any sectors/asset classes they should avoid in the coming months? Global government bonds, more specifically those of the G3 countries, have valuations that are looking stretched with the result that returns might disappoint over the coming years. For example, US 10-year treasuries are yielding slightly less than two per cent, which means that holders of the bond for the next 10 years won’t even earn a measly two per cent. Over the past 20 years, US inflation has averaged above two per cent a year. If this is repeated over the next 10 years, investors will achieve negative real returns by being invested in longer dated US Government bonds. 7. What would be your advice to investors in the current environment? The current investment environment is dominated by short-term news headlines and a risk-on, riskoff mentality. Investors need to work alongside professional advisers to make sure their portfolios are in line with their risk appetite and return objectives. In navigating this choppy investment environment, they should keep their long-term goals in mind. Investors need to be careful not to get caught up in short-term exuberance and attempt to time the market.

HEAD TO HEAD | Sanlam Investment Management

Sanlam Investment Management P atrice

R a sso u

Head of Equities, Sanlam Investment Management

1. The JSE closed above 34 000 for the first time in its history in January 2012. Why is it bouncing back so strongly? The JSE underperformed global markets last year. It was down some 17 per cent in Dollar terms as investors avoided global emerging markets. This year, risk has been back on and we have seen strong inflows into emerging markets across the board with the JSE benefiting. 2. Do you expect this performance to continue? Certain areas of our market underperformed last year â&#x20AC;&#x201C; resources for instance were down -6 per cent with Anglos down -14 per cent and BHP Billiton down -11 per cent. These stocks are trading on single digit forward PEs. 3. Should investors still consider local equities or have they missed the boat? Local equities still offer you a better real return than cash. The market is now trading in line with its long-term rating and earnings growth is likely to be in the region of 20 per cent driven by financial and industrial stocks. 4. Given the strong local performance, should investors still look offshore? We do believe that offshore equities are cheaper in some cases than local equities. European equities especially were trading at record low valuations which were only

matched by the trough of 2008. Much of the bad news around the sovereign debt defaults and a potential for a new banking crisis had been factored into share prices. Also there was a feeling that politicians would not get it right. And last year there was much talk of Chinese hard landing. This year sentiment has turned because: - US data shows that the risk of a double dip has receded. - China economic growth has remained resilient. - The EU has come out with an aggressive funding programme which has meant the imminent risk of banking failure has been averted.

sector which we believe is trading at record margins and peak valuations. We would still avoid cash, which offers a low real return. 7. What would be your advice to investors in the current environment? We think that the heightened volatility in the markets is likely to continue. Last year, macro news flow drove markets up and down. A good principle is to take a long-term view and to be contrarian. Hence, it is always good to spread investment over time rather than trying to time the market. Also pullbacks, such as the vicious sell off last August, are ideal to deploy funds in risky assets with the markets up close to 20 per cent since the lows of that period.

5. Where should they be putting their money? Investors should invest in out-of-favour asset classes, where valuations are attractive. This would point towards equities in SA and offshore. If they are unsure about how to access these asset classes, we have a number of multi asset class funds such as the SIM Balanced unit trust where we will do the asset allocation for the investors. For more risk-averse investors, the SIM Low Equity fund focuses on protecting capital over the long term and will provide income growth. 6. Are there any sectors/asset classes they should avoid in the coming months? In South Africa, we are avoiding the retail

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ASSET MANAGEMENT

TO HIDE?

A look into the safest investments in 2012

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“Looking at South Africa over the past 50 years to December 2010, cash has delivered a steady return at 10.7 per cent per annum (2.1 per cent per annum above inflation). This represents 61 per cent of the returns generated by equities but at one-fifteenth of the risk.”

redictions for a turbulent and

local and global stock markets has served

In other words, he added, the stars were in

challenging 2012 have caused

to highlight the importance of appropriate

alignment for people in low risk investments.

many investors to question

financial planning. He urged investors to

“But the stars are moving out of position.

where they should be investing

protect themselves against volatility, by

Property no longer generates returns and,

their money to avoid a potential

means of a diversified strategy.

in South Africa, bonds are exposed to the hazard of rising inflation. This means

devastating loss. While 2011 demonstrated high levels of turbulence, investors now face

“Looking back at the last 10 years, equities

you may need to be more aggressively

the issue of whether they err on the side of

have given investors an average annual

invested now to achieve the same returns

caution at the cost of lower returns or stay

return of 17.72 per cent at a level of

that you used to be able to achieve in a

the course and take on more potentially

volatility (risk) of 18.46 per cent. If, however,

conservative portfolio.”

damaging risks.

investors were to invest in a typical balanced portfolio (60 per cent equities, 30 per cent

Leinberger said this problem is especially

Sean Segar, head of cash solutions at

bonds and 10 per cent cash), the annual

relevant for retirees or people close to

Nedgroup Investments, believes that in many

return would have been approximately

retirement as their return on investment

cases, the returns for investors in the equity

15.08 per cent, but the volatility level would

may not be enough to replace their annual

market does not compensate for the risk

have fallen to 11.23 per cent – roughly one-

drawdowns. “This is not to suggest excessive

investors are taking on. He recommends

third less risk than a pure equity investment.”

exposure to risk, but only that retirees should be judiciously invested up the risk curve,

cash as an investment safe-haven. Historically, a soldier’s golden rule was:

bearing in mind the long-term demands that

“Looking at South Africa over the past 50

“keep your powder dry” in order to be ready

will be made on the nest egg.”

years to December 2010, cash has delivered

to fight when required. According to Segar,

a steady return at 10.7 per cent per annum

investors particularly have adopted this

While there is no clear answer on exactly where

(2.1 per cent per annum above inflation).

expression in today’s turbulent markets and

investors should position themselves through

This represents 61 per cent of the returns

are eager to preserve their resources in the

this year – a sensible option may be to remain

generated by equities but at one-fifteenth of

safest way possible.

wary of any approach that falls too much towards either extreme of the risk spectrum.

the risk,” he said. However, while the benefit of protecting your According to Segar, this 50-year period

resources to keep them in good condition –

includes many phases and cycles; some of

for a fight or any other reason – is obvious;

which favoured cash, but one cannot deny

there is a potential danger in acting too

the merits of cash as a sound risk-adjusted

conservatively, said Karl Leinberger, chief

investment asset class.

investment officer of Coronation Fund Managers. Leinberger explained that returns

Henry van Deventer, financial planning

are lower now than they were in the boom

coach at Acsis, acknowledged the

years. “We have had a once-in-a-lifetime

disproportionate risks in equity markets

boom in property stocks which in the past

but said the hype around the volatility in

10 years have given you something like 23 per cent compound returns. It’s been an extraordinary period and we don’t think that would be repeated over the next 10 years.” According to Leinberger, there has also been a major global bull market in bonds, which thrived in a world of declining inflation. “In South Africa we had a very tough central bank that broke the back of inflation through tough interest rate decisions and we had our own bull market.”

fund profiles

FUND PROFILES 36ONE Flexible Opportunity Fund to this, the fund also holds a mix of offshore-traded corporate bonds, which provide low risk, attractive yields in hard currency. The fund has a small cash weighting. Please provide some information around the team responsible for managing the fund. The original team has worked together for many years, initially at HSBC and then at Investec. Additional team members have been carefully selected over time. The team is highly skilled, experienced, dedicated and passionate. Please provide performance of the fund over one, three and five years (please include benchmark). The fund returned 23 per cent over one year to 31 January 2012 (benchmark: 8 per cent); 113 per cent (or 29 per cent p.a.) over three years (benchmark: 28 percent or 8.6 percent p.a.). The fund has more than trebled since its launch in September 2005, returning 20 per cent p.a. (benchmark: 10 per cent p.a.).

Please outline your investment strategy and philosophy for the fund. As active portfolio managers, we utilise a top-down approach to assist in identifying industries which we believe are likely to perform well and then we apply fundamental analysis to assist us with bottomup stock picking to select the stocks that we like the most. What are your top five holdings at present? • BAT • Life Healthcare • Naspers • AVI • Discovery Who is the fund appropriate for? This fund is a broad-based equity fund, generally investing in liquid stocks. Depending on the environment, we may adjust the asset class weightings as appropriate. We believe that this fund is suitable for most investors. Have you made any major portfolio changes recently? Although there is regular activity on the portfolio, there have not been major portfolio changes recently. How have you positioned the fund for 2012? The fund is predominantly invested in a selection of what we believe will be among the best performing South Africa equities. In addition

1 year performance

Over 3 Years

Since launch in September 2005

36ONE Flexible Opportunity Fund

23%

113% (or 29% p.a.)

20% p.a.

Benchmark

28% ( or 8.6% p.a.)

10% p.a.

Please outline the fee structure of the fund. Management fee: 1.325 per cent; performance fee: 12.5 per cent of the outperformance above the benchmark over a two-year rolling period. Benchmark: repo rate +2 per cent. 36ONE Asset Management is the only fund manager that had 2 funds in the Top 20 of both the 3 and 5 year Equinox performance data at time of going to print.

“This fund is a broadbased equity fund, generally investing in liquid stocks. Depending on the environment, we may adjust the asset class weightings as appropriate.”

Coronation Top 20 • The fund is not appropriate for investors who are concerned by short-term capital losses or who want to generate consistent income, nor is it suitable for those who seek an equity investment that tracks the returns of the market. How have you positioned the fund for 2012? The fund has invested fairly heavily into resources, domestic financials and global industrial stocks which are listed in SA. We believe this is where the greatest value lies in the local market. We think local financials are some of the cheapest shares domestically with good earnings prospects trading on single digit PE multiples. They also offer attractive dividend yields. Globally resource shares have come under pressure from concerns about the global economy and we think these shares have de-rated sufficiently that on normal earnings they now offer value. Finally we prefer global industrial shares as they offer SA investors exposure to fast-growing markets without having to pay a high price for it.

Please outline your investment strategy and philosophy for the fund. Top 20 is a general equity fund aimed at significantly outperforming the FTSE/JSE Top 40 Index over a three- to five-year period, by investing in a concentrated portfolio constructed from the 50 largest shares listed on the JSE Securities Exchange. The fund will hold no more than 20 large cap stocks at any point in time. This results in a valuation-driven, concentrated portfolio which reflects Coronation’s best investment view on the opportunities available in the local share market. The emphasis is on active stock selection and the portfolio is constructed on a clean slate basis, often resulting in performance that is very different to that produced by the overall market. Top 20 will not invest in foreign markets or other asset classes, but may hold foreign shares listed on the JSE. The holdings in the portfolio are selected from all of the economic sectors, including resources, financials and industrials. What are your top five holdings at present? As at 31 December 2011, the top five holdings were: • Standard Bank • MTN • Sasol • Anglo American • BHP Billiton Who is the fund appropriate for? • Investors who are in pursuit of maximum long-term returns and are able to withstand short-term market turbulence. • Investors who are in their wealth build-up phase and require little income in the short term. • Investors who aim to blend the best equity views of different fund managers in a managed portfolio. • Investors looking for an alternative to a stockbroker-managed direct share portfolio.

Please provide some information around the individual/team responsible for managing the fund. The fund is co-managed by senior portfolio manager Neville Chester and portfolio manager Pallavi Ambekar. Please provide performance of the fund over one, three and five years. Since launch

Latest 1 year (annualised)

Latest 3 years (annualised)

Latest 5 years (annualised)

Top 20

22.5%

14.0%

24.3%

11.8%

Benchmark FTSE/JSE Top 40 Index

15.8%

10.2%

20.6%

8.4%

Outperformance

6.7%

3.8%

3.7%

3.4%

The fund was launched in October 2000. Returns as at 31 January 2012. Please outline the fee structure of the fund. The fund charges a performance-related annual management fee, but no initial fee. The performance-related fee is designed to reflect its aggressive investment objective. A base fee of 1.00 per cent per annum is charged that will be discounted to 0.5 per cent when the fund produces worse than benchmark performance, or increased by a share of 20 per cent of outperformance achieved to a maximum of three per cent if the fund performs better than its benchmark. Performance is measured over a rolling 24-month period to reflect the long-term horizon of the fund.

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“The emphasis is on active stock selection and the portfolio is constructed on a clean slate basis, often resulting in performance that is very different to that produced by the overall market.”

Franklin Templeton - Templeton Asian Growth Fund Have you made any major portfolio changes recently? The Templeton Emerging Markets Group is a value-based, bottomup long-term investor and therefore significant changes and portfolio turnover is kept to a minimum. How have you positioned the fund for 2012? The Templeton Emerging Markets Group maintains its long-term view and therefore does not try and time markets but rather relies on fundamental research and stock selection. Please provide some information around the individual/team responsible for managing the fund. Templeton uses a team approach for the management of its emerging markets funds. With over 45 portfolio managers and analysts, it is spread across 17 emerging markets, providing access to local resources and facilitating relationships with local contacts.

Please outline your investment strategy and philosophy for the fund. Templeton Asian Growth Fund seeks long-term capital appreciation by investing primarily in equity securities of companies that are incorporated or have their area of primary activity in Asia. The fund may also invest in equity securities, which are listed on recognised exchanges in capital markets of the Asia Region (excluding Australia, New Zealand and Japan). As one of the pioneers in emerging markets investing, Templeton Emerging Markets Group’s investment philosophy of value, patience and bottom-up emerging markets investing has remained consistent over time. What are your top five holdings at present (31 December 2011)? • P T Astra International TBK – 7.13 per cent • Petrochina CO LTD – 6.70 per cent • PTT PCL – 4.83 per cent • China Merchants Bank CO LTD – 4.53 per cent • Tata Consultancy Services LTD – 4.27 per cent Who is the fund appropriate for? The fund is appropriate for investors seeking equity-based investments in the Asian region excluding Japan, Australia and New Zealand. It would suit an investor seeking potential growth opportunities in the region provided the investor has an appropriate risk profile.

Dr Mark Mobius, based in Singapore, is the lead portfolio manager of the fund. He is executive chairman of Templeton Emerging Markets Group. He currently directs the analysts based in Templeton’s emerging markets offices and manages the emerging markets portfolios. Dr Mobius has spent over four decades working in emerging markets all over the world. Please provide performance of the fund over one, three and five years (include benchmark). Templeton Asian Growth Fund A Acc USD, Benchmark MSCI All Country Asia ex Japan in USD.

1 year

3 years

5 years

Templeton Asian Growth Fund

-14.89% p.a

31.01% p.a

7.73% p.a

Benchmark

-17.07% p.a

19.73% p.a

2.87% p.a

Returns as at 31 December 2011. Please outline fee structure of the fund. 2.22 per cent TER per annum.

“With over 45 portfolio managers and analysts, it is spread across 17 emerging markets, providing access to local resources and facilitating relationships with local contacts.”

Due to rounding the percentages shown may be within 0.1% tolerance of the true value. This report does not constitute or form part of any offer for shares or an invitation to apply for shares. Subscriptions for shares in the Fund can only be made on the basis of the most recent brochure and the prospectus. An investment in this Fund entails risks which are described in the prospectus. No shares in this Fund may be offered or sold to citizens or residents of the United States of America. Please consult your professional advisor before deciding to invest. The research and analysis contained herein has been procured by Franklin Templeton Investments for its own purposes and may be acted upon in that connection, and as such is provided to you incidentally. 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. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. 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 Franklin Templeton Investment Funds (“FTIF”). Commission and incentives may be paid and if so, would be included in the overall costs. FTIF are priced on a forward basis and prices are calculated daily. Figures are quoted from Franklin Templeton Investment Funds (FTIF), for the period indicated for an investment of $5,000, using NAV-NAV prices, with income distributions reinvested. Performance is quoted in US dollar terms. A higher Total Expense Ratio (TER) does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future . For information pertaining to the TERs applied to this fund, please contact Franklin Templeton Asset Management Ltd. A prospectus is available on request from FTIF. FTIF is regulated in Luxembourg and the FTIF sub-funds available for public sale in South Africa are approved by the Financial Services Board. FTIF is a member of the Association for Savings and Investments of South Africa (ASISA).Templeton Asset Management Limited is incorporated in Singapore. Reg. No. in RSA 1995/012414/10

Momentum Small/Mid-Cap Fund How have you positioned the fund for 2012? We remain committed to a defensive portfolio with high dividend yielding shares. We have, however, diversified the portfolio in smaller holdings to take advantage of market mispricing and lessen the overall specific risk of the fund. Please provide some information around the team responsible for managing the fund. I am the portfolio manager and am supported by analysts Monica Harripersad and Thishan Govender and three trainee interns. Please provide performance of the fund over one, three and five years.

Please outline your investment strategy and philosophy for the fund. The fund invests in small-cap or mid-cap shares falling outside the ALSI 40. We have a strict risk structure that assists in limiting fund risk. As a rough guide, the fund generally has around a 50 per cent allocation to low risk ‘blue chip’ shares that are defensive and have high dividend yields. Twenty per cent is allocated to medium risk funds with less earnings visibility, lower earnings and dividend yields. Another 20 per cent is invested in high risk counters, which includes very illiquid small cap shares, with the balance (10 per cent) in cash. These allocation splits may vary conservatively as the manager identifies opportunities and deploys cash holdings. A significant focus on stocks that offer a margin of safety through high dividend yields also complements this conservative bias.

1 year performance

Over 3 Years

Over 5 years

Momentum Small/Mid-Cap Fund

21.62%

29.66%

12.95%

Benchmark

11.10%

19.98%

4.28%

All Share

10.83%

21.20%

8.82%

Small Cap Index

9.44%

19.57%

7.72%

Source: Morningstar (31 January 2012) Please outline the fee structure of the fund. The fund has an annual fee structure of 1.5 per cent plus VAT.

What are your top five holdings at present? • Pioneer Foods Ltd – 6.73 per cent • Spar Group Limited – 5.68 per cent • Life Healthcare Group Hld – 4.97 per cent • Invicta Holdings Ltd – 3.56 per cent • Howden Africa Holdings – 3.30 per cent Who is the fund appropriate for? The fund is more appropriate for more aggressive investors. The fund has low diversification to the market and general equity funds providing diversification benefits when included in a portfolio of equity unit trusts. Less risk adverse investors can consider smaller allocations to their portfolios. Have you made any major portfolio changes recently? We continually make small changes to the portfolio to balance our risk criteria and take advantage of mispricing in the market. We have made no fundamental shifts in the portfolio over the last six months.

“The fund is more appropriate for more aggressive investors. The fund has low diversification to the market and general equity funds providing diversification benefits when included in a portfolio of equity unit trusts.”

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PSG Flexible Fund How have you positioned the fund for 2012? The PSG Asset Management is a bottom-up, value-based asset manager, who prides itself on being consistent with its investment process and strategies across the investment universe. We avoid reacting to the market noise. With global turmoil, we often find global opportunities, which lends itself to our mantra of being contrarian, and at the moment we are finding less and less opportunities domestically and more opportunities in offshore markets. Please provide some information around the individual/team responsible for managing the fund. Jan Mouton has been managing the PSG Flexible Fund since 1 November 2004. He obtained an MPhil finance (2002) from the University of Cambridge and also holds a BAcc cum laude (1996) and Hons BAcc (1997) from the University of Stellenbosch. He qualified as a chartered accountant (South Africa) in 2000. He completed his articles with PricewaterhouseCoopers in 2000. After a further six months at PricewaterhouseCoopers in Amsterdam, he read an MPhil finance at the University of Cambridge on a Cambridge Commonwealth Trust Scholarship. Investment philosophy and process of the PSG Flexible Fund. The PSG Flexible Fund is an easy to understand, regulated unit trust, in the asset allocation flexible sector and invests in a flexible combination of assets. This allows the fund to have equity exposure of between zero and 100 per cent, and invest up to 25 per cent directly offshore. There is no strategic asset allocation modelling done in the fund. The asset allocation is as a result of the opportunities the manager and equity team find in the market at any given point in time. These opportunities are identified using our 3M approach. What we look at when analysing the 3Ms, are companies’ moats, management and margin of safety. When analysing the moats, we look for some sustainable competitive advantage, a clear and understandable business model or positive free cash flow which is distributed to shareholders or reinvested into the company’s growth opportunities. When looking at the management of a company, we look for management with a proven track record and transparent financial statements. We want to invest with a margin of safety which means we buy shares at a discount to what we think that share’s intrinsic value is. What are your top five holdings at present? As at 31 January 2012, our top five holdings were: 1. Steinhoff – 9.0 per cent 2. Sasol – 6.9 per cent 3. Berkshire Hathaway – 6.5 per cent 4. Anglo American – 6.2 per cent 5. Tesco – 4.1 per cent

Please provide performance of the fund over one, three and five years (please include benchmark). Performance data until 31 January 2012: 1 year performance

3 Year annualised

5 Year annualised

PSG Flexible Fund

12.66%

23.33%

12.74%

Benchmark CPI+6 *

12.11%

11.30%

12.94%

FTSE/JSE ALSI

10.83%

21.20%

8.82%

*CPI data lags by one month Please outline fee structure of the fund. There is no initial fee on the fund and the annual management fee is one per cent (excl VAT), plus a performance fee of seven per cent (excl. VAT) on the outperformance of the previous high water mark of the fund, calculated daily.

Who is the fund appropriate for? The fund is appropriate for investors who wish to have exposure to the equity market, but with lower levels of risk, i.e. equity-like returns at lower levels of risk. It is also appropriate for investors who are looking for a multiple award-winning fund with a proven track record, a manager that actively manages the fund according to a stringent process and investment philosophy using a bottom-up approach, in a flexible asset allocation environment.

“The fund is appropriate for investors who wish to have exposure to the equity market, but with lower levels of risk, i.e. equity-like returns at lower levels of risk.”

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ALTERNATIVE INVESTMENTS

HEDGE FUNDS OUTPERFORM ALSI IN 2011, T

with significantly less volatility

he Blue Ink Composite (BIC), which tracks the performance of around 100 hedge funds in South Africa, recorded an 8.65 per cent increase in 2011, outperforming the JSE All Share Total Return Index (ALSI) by more than six per cent. This outperformance was achieved with significantly less volatility levels than the local equity market.

aggressive hedge funds recorded an 8.96 per cent increase for 2011, after gaining 5.71 per cent during the fourth quarter. Long-short hedge funds were able to generate good returns with subdued risk during this period. Equity market neutral funds returned 5.62 per cent on average over 2011, after gaining 2.73 per cent during the fourth quarter.

According to Eben Karsten, portfolio manager at Blue Ink Investments, longshort conservative hedge funds on average recorded a 9.16 per cent increase over 2011, after gaining 3.47 per cent during the fourth quarter of 2011. Long-short

Karsten said that 2011 was a year that will be remembered as extremely volatile, and while the market gave investors positive returns, the return was not commensurate to the risks experienced by investors. He added that there is also no reason to believe that

this volatility will disappear anytime soon. “The 12-month volatility (standard deviation) of the ALSI was more than 12 per cent. This is in comparison to the BIC, which reported volatility of just over two per cent during the same period. “The extreme volatility levels of global stock markets recorded during throughout 2011 has highlighted the diversification benefits that local hedge funds and other alternative asset classes can bring to an investment portfolio. These asset classes can offer a degree of protection in times of market turbulence and have once again managed to protect investor capital in volatile markets.”

Returns from hedge funds, JSE All Share Index, and cash to 31 December 2011 Hedge Funds

JSE All Share Index

Cash

Three-month total return to 31 December 2011

3.73%

8.35%

1.39%

One-year total return to 31 December 2011

8.65% (2.09%)

2.54% (12.13%)

5.75% (0.05%)

Three-year total return to 31 December 2011

38.28% (2.11%)

61.21% (17.49%)

23.39% (0.46%)

* Volatility in brackets

“This outperformance was achieved with significantly less volatility levels than the local equity market.”

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Where investment and excellence meet RAGING BULL WINNERS 2011

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Industry Associations

Asset allocation funds have become immensely popular with investors The local collective investment schemes (CIS) industry grew its total assets under management by R69 billion to R996 billion in 2011, narrowly missing the R1 trillion mark.

Releasing the 2011 Domestic and Foreign CIS statistics at a media conference in Johannesburg in February, Leon Campher, CEO of the Association for Savings and Investment South Africa (ASISA), said that while the industry had hoped to cross the R1 trillion assets under management mark in 2011, the growth in assets was pleasing considering that this was achieved in a climate of extreme volatility and economic uncertainty. “The volatility sparked by the ongoing crisis in the Eurozone, coupled with tough economic conditions in South Africa, impacted negatively on investor sentiment. In addition, money market funds experienced heavy outflows during 2011 due to corporate investors repositioning their cash holdings.” As a result the CIS industry attracted net inflows of only R48 billion in 2011, the lowest in seven years. Campher said that net inflows were low throughout 2011, with the second and fourth quarters particularly poor. The Domestic Fixed Interest Money Market category experienced net outflows during three quarters in 2011, leading to a total net outflow of R21 billion. At the end of 2011, the industry offered 947 funds, just four more than at the end of 2010. Campher added that the number of funds on offer contracted for the first time in the industry'’s history during the first quarter of 2011. “While new funds were registered during the year, a number of funds were also deregistered by asset managers rationalising their fund offerings. ASISA is not surprised that fund offerings are being rationalised given regulatory changes in South Africa and an international trend towards offering investors more focused fund solutions.” Reaction from the industry Candice Paine, head of retail at Sanlam Investment Management, said the tough economic climate was reflected strongly in the 2011

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unit trust results released by ASISA. The industry had its worst year in six years and saw a 55 per cent decline in flows from R101 256 million in 2010 to R45 424 million in 2011. The size of unit trust market now stands at R1 011 052 million at the end of 2011 (including offshore funds). She said that individuals have been ‘de-saving’, either by spending – quite likely on needs rather than wants – or paying off debt. Lost employment would also no doubt have contributed in her view. “Consumers are increasingly under stress in terms of their personal money management and they have to cut back on savings in order to meet more immediate needs.” Paine said that the big surprise in the latest stats was the R21 153 million outflow from money market funds. “Money market funds have had inflows of on average approximately R30 billion per annum over the past five years. The outflows, therefore, represent a substantial shift in investor behaviour.” Jeremy Gardiner, director at Investec Asset Management, said the statistics released by ASISA see a clear continuation of the trend characterising investment flows throughout last year, with the majority of flows (R12.2 billion) finding their way into asset allocation funds. “As is the case globally, investors – confused by current market conditions – have long since given up trying to second guess where equity markets are going and are far more comfortable leaving asset allocation decisionmaking to professional fund managers with a proven track record. With cash not even forecast to beat inflation this year, investors are probably realising that they’re going backwards by having too much of their investments parked in cash.” According to Gardiner, given the fourth quarter Rand weakness combined with developed equity market turmoil, the small net foreign inflows of only R329 million suggest that South African investors once again chose to keep their money invested locally.

economic commentary

The end of the world or the end of an era? René Grobler | Sales Director at Investec Asset Management

ost of us consider the predictions of the end of the world in 2012 to be nothing more than amusing watercooler banter. However, for many it certainly may feel like the end of a golden era of global growth and solid investment returns. Over the last decade most investors earned decent returns just by being in the market, with equities returning 15.2 per cent (ALSI), South African bonds 10.8 per cent (ALBI) and cash 9.2 per cent a year. Looking ahead, the outlook for 2012 is not as rosy. Economists paint a bleak if not downright depressing picture of the global economic landscape in 2012. On the global stage, the Eurozone drama continues to unfold, with the probability of a break-up increasing and recession looming. The US economy may surprise on the upside, but the country – in the midst of political paralysis – is still highly exposed to the crisis in Europe and domestic challenges. A Chinese hard landing, while unlikely, would certainly exacerbate the situation. Back home, slow developed market growth, a Eurozone recession and a slowdown in China would mean lower global demand for our exports and disappointing growth locally. Inflation remains sticky at around six per cent with interest rates expected to remain lower for longer. Following a decade of double-digit returns and against this backdrop of low growth, low interest rates and rising inflation, many investors are questioning where to find real returns. They should bear a few key investment themes in mind when considering their portfolios this year.

Firstly, expect volatility to continue. Investors should settle in for the long haul and take a long-term view, since risk asset returns are expected to continue their rollercoaster ride in the short term. A meaningful investment horizon of three to five years should be considered when constructing a portfolio.

“While quality investments will provide some level of comfort in volatile times, investors can find further peace of mind by entrusting their hard-earned savings to quality investment managers with proven track records.” Secondly, be prepared to take on more risk to achieve meaningful real returns. The heydays of sitting in a risk-free asset class such as cash and earning good returns are a thing of the past. Even traditional assets expected to provide risk-free returns such as government bonds (particularly in the Eurozone) have recently earned the reputation of delivering return free risk. After tax and inflation, money market returns are negligible and offshore they have turned negative. Investors have been forced further up the risk curve into other asset classes such as equities in the search for real returns. Protected equity funds with an absolute return and capital preservation focus provide the

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opportunity to earn good after-tax returns by exposing the investor to other asset classes such as equities while providing downside protection. Investec Asset Management’s Absolute Balanced fund, as an example, is an attractive alternative for risk-averse investors who want to earn cash-beating returns. Markets may well go sideways over the medium term, leaving those who bought market indices with disappointing returns. With anaemic growth conditions, markets could be at the same place they are now in two years’ time. Buying the market in these conditions could lead to stagnation, and managers will need to work harder to pick quality assets to deliver good returns. However, equity markets do offer attractive opportunities for those who know where to find them. Managers with good track records as stock-pickers and active asset allocators will be in demand. Lastly, quality counts. In this environment, investing in quality businesses with robust business models and strong balance sheets is imperative. Many of the big brands locally and globally are trading at attractive levels, have proven track records to weather storms and many provide significant exposure to the growth in emerging markets. Investec Asset Management’s Opportunity, Cautious Managed and Global Franchise Funds (all managed by Clyde Rossouw) are good examples of funds that invest in quality companies with consistent dividends and earnings growth. And while quality investments will provide some level of comfort in volatile times, investors can find further peace of mind by entrusting their hard-earned savings to quality investment managers with proven track records.

Retirement investing – Old Mutual

Offshore exposure:

is it still a valid proposition? Mako Mapfumo | Senior Investment Consultant at OMAC Actuaries & Consultants

“Investors can benefit from the diversification advantages over the long term as part of strategic asset allocation; or alternatively they can enjoy enhanced return in the short term through tactical asset allocation.”

mong rising concern regarding local inflation, investors are well advised to allocate the bulk of their capital (at least 60 per cent) to their local economy in order to hedge away the inflation risk. However, in some cases, local assets may underperform local inflation and fail to protect investors’ capital due to various reasons. Under such circumstances, offshore exposure is required to diversify risk or enhance performance of investors’ portfolios. This is according to Mako Mapfumo, Senior Investment Consultant at OMAC Actuaries & Consultants, who believes the offshore argument has been validated by legislation as offshore regulatory limits have increased from 15 to 25 per cent over the past two years. Mapfumo said that it is important for South African investors to understand that international exposure can serve both as a strategic and a tactical asset allocation strategy. “Investors can benefit from the diversification advantages over the long term as part of strategic asset allocation; or alternatively they can enjoy enhanced return in the short term through tactical asset allocation,” he said. Mapfumo explained that strategic asset allocation makes use of the benefits of diversification. “This strategy requires longterm exposure to asset classes that bring effective diversification benefits to domestic asset classes.” The two key factors to consider in long-term, strategic asset allocation are the effectiveness of an asset class as an optimal

diversifier and the investors risk tolerance. “Historically, bonds have been the most effective assets for diversification amongst offshore assets followed by cash. This is because these asset classes move together with foreign currency to an extent that when local markets are going down, these assets will move in the opposite direction, thereby cushioning local investors in local currency terms. This has become known as the ‘flight to safety’ phenomenon,” he said. On the other hand, when making use of a short-term asset-allocation strategy in an offshore context, Mapfumo urged investors to consider the valuation gap between domestic and global markets and the exchange rate. “Offshore equities offer the least diversification benefits over the long term, but over the short term, this asset class offers the best return enhancement opportunities, especially when wider valuation gaps exist between local and offshore equity markets.” Developed vs. emerging markets Another key consideration when looking offshore is the selection of developed or emerging market equities. Mapfumo explained that global equities are generally separated into two categories: developed markets and emerging markets and fund managers have differing views on each category. “There are managers who believe they can generate alpha by investing in emerging market companies. They argue that there are situations where risk is adequately rewarded in these markets and the ability to identify those opportunities will make a

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big difference.” Another cluster of global managers argue that emerging market gains are best captured by investing in developed market companies that have exposure to emerging market countries. “Most global multinational corporations generate a significant portion of their revenue from their emerging market operations. These companies are better managed in terms of corporate governance and hence are associated with less agency problems, compared to their emerging market counterparts,” added Mapfumo. Some managers, however, are indifferent about emerging and developed market companies and invest in both markets. What does OMAC think? “At OMAC, we concur with the view that there is a lot of idiosyncratic risk within emerging market companies and would prefer developed market companies that tap into the emerging market growth story, where these provide attractive valuations. However, we also recognise that there are good stock-picking managers who can identify gems wherever they are in the world, without regional prejudice,” said Mapfumo. OMAC also shares the view that for SA investors, the diversification benefits brought about by investing in emerging markets are limited since the SA market is highly correlated with other emerging markets. “Therefore, allocating money to emerging markets should be a short-term tactical asset allocation decision based on compelling valuations,” he said.

CHRIS HART

Policy and Markets Chris Hart | Chief Strategist at Investment Solutions

articipants in the financial markets are so often caught up in the commotion of market activity and its analysis that the effect of policy is sometimes underplayed. Increasingly, policy has become an important driver. The normal focus on values, quality of management, sustainability of the operation and those factors that directly influence equity performance is usually very high. Despite valuations reaching extremely attractive levels in some markets like in Europe, bearish sentiment prevails and this can be at least partly ascribed to policy. Some policy measures are more direct and analysis maintains a focus on it such as monetary policy and the level of interest rates. However, fiscal policy gets some attention at the time of the budget but the investment community generally gets back to the business of investing without paying much further attention. There are other policy initiatives that also arise such as the imposition of regulation or changes to regulation. Examples of this would include a ban on labour brokers or the introduction of sector charters. Too often, investors do not pay enough attention to policy initiatives. Policy measures in Europe have taken the economy down a route of unsustainability. Investors had not been paying attention until the global financial crisis hit and the unsustainable nature of policy application was exposed. Now policymakers appear paralysed in dealing with the crisis. Asset managers who claim to take a long-term view of investment prospects have been blindsided by policy shortcomings. The policy measures taken to deal with the debt problems have massive implications

for investors. Politicians are still in denial when they look to higher taxes as part of their solution to the problem. Already tax bases are exhausted and higher taxes merely exacerbate uncompetitive cost structures within Europe. Then debt monetisation, quantitative easing, currency debasement and flooding the system with liquidity might help to ease crisis conditions in the short term, but these policy measures are extremely detrimental to the long-term prospects investors face. These policy measures essentially damage the capital base of the economy (owned by investors) to patch up discomfort in the short term but never taking measures to repair the root causes for the long term.

“Too often, investors do not pay enough attention to policy initiatives. Policy measures in Europe have taken the economy down a route of unsustainability.” The consequence is that investors may initially feel more secure, but are placed in harm’s way over the long term. Policy measures are essentially about take rather than make and the investor presents a tempting pot to plunder through policy. In South Africa, investors have been able to watch the European saga unfold over the past few years. However, there are policy measures that are being taken that follow a similar route to that in Europe. Government

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expenditures are rising at an unsustainable rate and government is making expenditure commitments that the tax base may well not be able to sustain. The credit rating agencies have essentially placed South Africa on notice. If South Africa does not take measures to bring policy back in line with what is sustainable, the downgrades will come and the choices South Africa has will start to be narrowed down. At some stage in the future, these policy decisions will come back and either enhance investment performance or it will be to the investors’ detriment. That will be up to the choices that are made now. The difficult decisions always become more difficult if postponed.

Regulatory Developments

SA HEDGE FUNDS GROW ON STRONGER REGULATION Regulation 28 amendments will also open fund management opportunities in Africa

Francois Cilliers | CIO of Novare Investments

iven the investment potential of emerging markets, together with improved regulation in South Africa, there is no reason why the local hedge fund industry can’t grow over the medium term to well in excess of R100 billion from its current asset base of some R32 billion.

valuable long-term investment for local pension fund investors,” he said.

That’s the view of Francois Cilliers, CIO of Novare Investments who said that the challenge is to make the substantive leap in marketing South Africa as a destination with world-class investment and hedge fund expertise, which should result in this asset base growing to be much more representative of local market capitalisation.

In addition to the supervision of managers, Regulation 28 defines which asset classes retirement funds can go into. Hedge funds were previously considered unlisted securities and the total exposure was limited to 2.5 per cent. However, that threshold has

South African hedge fund managers are ahead of their international peers in that they have been regulated for some time, which Cilliers said validates hedge funds as an eligible asset class for long-term investment.

been raised and a total of 10 per cent of a pension fund’s assets can now be allocated to hedge funds. According to Cilliers: “Recognition of hedge funds as worthy of inclusion in pension fund portfolios acknowledges that the South African industry has in place all the checks and balances required to afford protection for institutional investors, particularly pension funds.”

Cilliers said there were significant opportunities for global investors to obtain emerging market exposure, and once markets stabilised, there would be a renewed search for growth in more stable and liquid emerging markets, including South Africa. The South African hedge fund industry has been stable in terms of assets that have remained at about R32 billion over recent years. In addition to the investment potential of emerging markets, Cilliers added that investors, including South African retirement funds, are likely to find that improved regulation is another reason to invest in hedge funds. “One of the most positive effects of amendments to Regulation 28 is that this piece of important pension fund legislation has recognised, and I believe legitimised, hedge funds as a potentially

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Maya Fisher French

running with foxes By Maya Fisher-French

“Hedgehogs are people who have one big idea and simplify the whole universe around that idea. They disregard information that is not relevant to that idea. If they are leaders, they attempt to align all their followers in pursuit of that one idea; and then they go for it; passionately and absolutely.”

uring a recent conversation with

“Hedgehogs are people who have one big idea

whether they were canny enough to jump the

scenario planning guru, Clem

and simplify the whole universe around that idea.

hurdles and limit the damage. And if you trust

Sunter, he argued that index

They disregard information that is not relevant to

that you have found a fox, then select a mandate

trackers are not appropriate given

that idea. If they are leaders, they attempt to align

that gives them maximum flexibility so that they

our current markets. We live in

all their followers in pursuit of that one idea; and

can do what foxes do best – adapt speedily and

tough economic times where only innovative and

then they go for it; passionately and absolutely.

successfully to change when it happens.

flexible companies will succeed. A strategy of

Crucially, hedgehogs presume that they have

simply sticking your money into an index tracker

sufficient control to implement their idea and their

and hoping that all companies will rise would be a

influence will always prevail,” said Sunter.

foolhardy choice. Foxes, on the other hand, believe that life revolves The thing with Sunter is that he is not a fund

around different ideas. They juggle them, compare

manager: so he has absolutely no vested

them and above all are prepared to switch to

interest in pushing a particular view. He simply

new ideas when the environment changes. “The

looks at different scenarios and applies a

essential point about foxes is that they assume

probability to how likely it is that a particular

that most of the events that take place around

scenario will play out.

them are beyond their control and in many cases unpredictable. They keep several alternative

In 2009, he spoke about a corrugated-U shaped

futures in mind all the time – some good, some

economic recovery. This is a recovery that is

bad – and continuously assess their probabilities.”

marked with many false recoveries as the economy struggles to find traction. He compares this to

In challenging times when the world’s entire

the period from 1969 to 1976, when the global

economic model is up for debate and the many

economy was plagued by stagflation as inflation

truths that had been held so dear are proven

rose but growth was muted. The market as a

wrong, you want to be invested in companies that

whole during this time traded sideways. It takes

are run by foxes. And if your money is being

a cunning CEO to charter these waters and to

managed, make sure your manager is

deliver growth.

a fox.

Sunter talks of “the mind of the hedgehog”

The best way to find out if your fund

and “the mind of the fox” as comparisons of

manager is a fox or a hedgehog is

leadership styles.

to see how they did in the tough times,

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SUNEL VELDTMAN

Merging financial advice with

emotional intelligence

Sunél Veldtman is the CEO of Foundation Family Wealth, an holistic wealth management company and founder of Dreamlife Financial Solutions, which provides financial education. She is author of Manage Your Money, Live Your Dream – a guide to financial wellness for women.

eter Enslin, a well-educated financial adviser, has just presented Mr and Mrs Smith, a retired couple, with a carefully crafted financial plan. He anticipated little opposition to his proposal, which included detailed calculations showing the couple that they should sell the family farm, in order to afford their ideal retirement. After all, they had discussed this before. However, Mr Smith suddenly appears to have had a change of mind. He explains that he wants to leave the farm to his children. He repeats the facts again and again. Mr and Mrs Smith become involved in an emotional discussion about the importance of leaving an inheritance, over fulfilling their own dreams and hopes. Mrs Smith starts talking faster and her voice becomes shriller. Peter Enslin notices their increasing discomfort but chooses to ignore it. Thinking that logic will prevail, he repeats his proposal more convincingly. They leave the meeting unresolved. Every experienced financial adviser can recall at least one such conversation and scenario. I can vividly remember a few. Some of those early memories have left me mortified. Being emotionally perceptive, I could easily sense a rise in emotions but I had no idea how to deal with it. I was never sure whether to ignore the emotions, to deal with them, or whether it was even any of my business. In Mr and Mrs Smith’s case, there could be numerous reasons why the couple reacted the way they did. Those reasons are very seldom rational. They might have deep fears based on perceptions that have very little to do with reality. When I announced my engagement to my talented and highly educated boyfriend to my grandmother, she disapproved. In her world, only men with farms could provide for their families and my city boy had no farming interests to show. It might be an extreme example but we all have our own view of wealth, based on a set of assumptions and perceptions, sometimes accumulated over decades. Occasionally our perceptions are

created by traumatic experiences, such as a young child having to move because her family lost their farm, or a bankruptcy that forces a family to relocate. All our emotions, assumptions and perceptions are carried into the room with us. What’s more, financial advisers don’t enter a room without emotions either. We could pretend to be unemotional or uninvolved, in order to provide our clients with unbiased advice, but this would be dishonest. We all arrive with our own set of assumptions and perceptions. Our own experiences with money could cloud our advice. Our emotional awareness or inadequacy could either help or harm our relationships with our clients. Emotional intelligence is the ability to recognise, understand and work with our own emotions and the emotions of others. Unfortunately many advisers have been trained and advised to use emotion as a means to convince potential clients of their need to buy a specific solution or product. Sadly, this is the reason why many clients still reluctantly buy financial advice. Many people are too afraid to become familiar with their own or others’ emotions. It is easier to ignore emotion and pretend that it is not there. However, recognising our own emotions and our clients’ emotions can help us. People with a higher emotional intelligence are more likely to be intuitive, compassionate and empathetic – characteristics that are very valuable to the modern financial adviser. For example, in negotiation you need to listen and understand where people are coming from and then create a win/win solution. This can’t be accomplished with book knowledge alone – you need emotional awareness. It is also helpful to know what your own triggers are. These triggers are seated in the most primitive part of your brain. They often relate to, once again, events in your childhood.

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Be aware that negative experiences leave a much greater impression. I know that I see red when someone questions my competence. I become irrational about proving my point. However, I have learnt to watch out for this and occasionally I can even make fun of myself. When you know what your hot buttons are, you can work with them. Recognising your emotional response is half the battle won. Recognising your clients’ emotional responses gives you an entry point into a deeper understanding of their history and perspective. This ability provides you with keys to unlocking a more intimate relationship. If you take the opportunity to ask the right questions when emotions rise, your client will likely be impressed that you have taken the time to understand them, beyond the obvious. Recognising emotion is the first step. It can often be a sign to stop the conversation for a moment and state what you have observed. “I note that you feel strongly about this”, could be a suitable response. This could lead to an invitation to take an ‘off ramp’ from the current conversation. Such as, “Please tell me why you have this view?” or “Please help me to understand your view?” This could be the most important moment in the conversation. Recognising emotion also usually diffuses most of the tension. In the example of Mr and Mrs Smith, Peter Enslin could have acknowledged their unease. He could have said: “I see that you feel strongly about keeping the farm. Please help me understand the importance of the farm to you.” This question might have led him to discover the family history and it might have given him the opportunity to put together a win-win solution. Mr and Mrs Smith might have left the room thinking that they had found an adviser who was prepared to listen and understand. Pieter Enslin might have won clients for life.

BETTER BUSINESS

Understanding your client’s risk profile There is no such thing as a risk-free investment. Financial advisers need to make sure that the processes and methodology they use to determine clients’ risk profiles are robust, and that clients understand what they are getting themselves into, to prevent claims from unhappy individuals where the risks ‘weren’t explained properly’. Section 8(1)(c) of the FAIS General Code of Conduct requires advisers to identify financial products that are appropriate to a client’s risk profile and financial needs. However, the act does not define the term ‘risk profile’, with the result that a wide range of approaches to risk profiling has evolved over the recent past. Risk has three primary aspects, which you should consider holistically to understand what is important and acceptable to each of your clients:

1. Risk tolerance

“Prevent claims from unhappy individuals where the risks weren’t explained properly.“

At its most simple, risk profiling is equated solely with risk tolerance, which provides an indication of whether or not a client is willing to take risk. Based on the results, clients are then broadly categorised as conservative, moderate or aggressive investors, and their equity weightings adjusted accordingly. The reality, however, is that a client’s willingness to take risk can be a poor indicator of their ability to tolerate it. To get the full picture you should also consider your client’s risk capacity and risk required.

2. Risk capacity

Risk capacity is the extent to which a client’s financial plan can withstand the impact of negative events. As past returns are no guarantee of future returns, a plan built

solely around achieving a certain level of returns has only a 50 per cent chance of success. This means that to increase the likelihood of the clients achieving their goals, trade-offs may be required between variables over which the client has control, e.g. saving more, retiring later or taking more investment risk.

3. Risk required

Essentially it is return that is required, not risk. However, you need to determine the return your client requires to achieve their goals and there will always be a risk associated with achieving that return.

Know your clients

It is critical to gain an insight into your client’s attitudes to risk, values, motivations and preferences to give them the advice best suited to their situations. Understanding your clients is integral to building trusting relationships. There are many off-the-shelf risk profiling tools available, but you are advised to approach these with caution: the UK financial regulator, the Financial Services Authority, reviewed 11 risk-profiling tools and found that nine of them had weaknesses that could lead to flawed outputs. It is highly likely that a similar situation exists in South Africa. Alarmingly it seems that advisers would be more accurate if they made no effort to assess their clients’ risk tolerances and just assumed everyone was average. You need to take great care when using riskprofiling tools and consider and evaluate different pieces of information when forming your investment recommendations. This involves weighing up the advantages and disadvantages of alternative solutions that best meet your clients’ investment objectives, and best reflect their financial situations. Source: This article draws on the January 2011 FSA guide: ‘Assessing suitability: Establishing the risk a customer is willing and able to take and making a suitable investment selection’, as well as articles by Geoff Davey of FinaMetrica.

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.

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etfSA.co.za

2011 – A Good Year for the Global & Local Exchange Traded Funds (ETFs) Industry

What Lies Ahead? Mike Brown | Managing Director | etfSA.co.za

Global trends The global Exchange Traded Products (ETPs) industry - which includes Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs) and other listed collective securities (ETS and ETCs) – grew by some three per cent in 2011 and now accounts for US$1.53 trillion (US$1 525 billion) in assets. Two recently released reports on the global ETF industry from Deutsche Bank Global Equity Index and ETF Research and BlackRock closely concur on the international ETF trends for the past year, with the following highlights: • The growth in asset size was achieved despite substantial negative market performance in both developed and emerging markets. • Five-hundred and forty-nine new ETF products were launched in 2011 worldwide, with the biggest number of new launches being fixed income ETFs. • ETFs are becoming more widely used. About a third (29.6 per cent) of all equities turnover in the US was traded in ETFs, whereas in Europe, the number was 8.7 per cent (up from 6.9 per cent in 2010). • When comparing new inflows of cash into listed ETFs and unlisted mutual funds, ETFs received 2.8 times higher flows than the ten-fold larger US mutual funds industry. In Europe, ETFs received 2.2 times higher new cash inflows than the thirty-fold larger European mutual funds industry.

South African trends The assets under management (market capitalisation) of South African listed exchange traded products went up by 20 per cent in 2011 to reach R40.1 billion on 30 December 2011. The number of ETFs and ETNs listed on the JSE rose from 31 at the end of 2010 to 46 at the end of 2011. Eleven new ETNs were listed in 2011 with a total authorised share capital of R2 756.5 million. Four new ETFs were listed raising R165.5 million in new capital. Although the South African ETF industry grew at a faster pace than international ETF growth (20 per cent versus three per cent), it is still dwarfed by the R1 trillion unit trust industry in South Africa. The total size of the ETF market does, however, now exceed the total assets under management (AUM) by the local hedge fund industry, after some years where ETFs lagged the hedge fund markets in total AUM. What could lie ahead for the ETP industry in South Africa for 2012? The number of new ETF/ETN products will continue to grow as the current eight management companies that are licensed to issue products expand their range, plus there are some new product suppliers looking to enter the market. The focus of new products is likely to be on:

• Extending the asset classes, sectors and sub-sectors covered by ETFs/ETNs - although Exchange Traded Products now cover equities, bonds, property and commodities, there are still ‘gaps’ in the asset classes such as cash, fixed income and currencies that need to be filled and such exchange listed products can be anticipated in 2012. • Inward listed investments – recent changes announced by the SA Reserve Bank and the JSE open the way for ETFs/ETNs based on foreign indices and assets to be listed on the JSE, offering local investors a convenient and cost-effective way of gaining access to international markets. With foreign markets offering both diversification and Rand hedge characteristics as well as relative value, a shift in investor preferences towards offshore assets can be catered for in exchange listed securities on the JSE under the recently amended inward investment listing rules. • Asset allocation – the local market is increasingly looking towards the use of ETFs as the building blocks in asset allocation or balanced portfolios. It is likely that composite products giving access to different types of asset classes through ETFs/ETNs will be listed on the JSE. In this way, the product issuers of exchange traded securities will be able to compete in the market for asset allocation and balanced funds offered by the unit trust product suppliers in recent years.

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

Avinash Singh

Leslie Lipschitz

Bernie Nackan

Absa Bank has appointed Avinash Singh as the new head of its private bank unit. Singh was previously head of segments at Absa Business Bank responsible for small business, public sector, Africa corporate, agribusiness and enterprise development. Avinash holds a BPharm (UKZN), post grad. diploma Marketing Management (UNISA), and MBA finance (Wits) degrees.

Leslie Lipschitz has been appointed by Investec Asset Management as visiting strategist to work with the fixed income and multi-asset teams in formulating its macroeconomic and thematic views. Lipschitz was previously director of the IMF Institute and holds a PhD in economics from the University of London.

Bernie Nackan has been appointed to the board of Rezco Collective Investments, as manager of the Rezco unit trusts. Prior to his appointment, Nackan acted in a consulting capacity to Rezco and brings a wealth of experience gained from more than 40 years in a senior executive capacity in the financial services industry, particularly in the unit trust field.

Investor code promotes responsible actions

The Institute of Directors of Southern Africa (IoDSA) has introduced a voluntary code to help institutional investors act more responsibly.

governance by providing guidance as to how institutional investors should embark upon responsible investment policies, practices and engagement with investee companies.

According to a statement released by IoDSA, the Code for Responsible Investing in SA (Crisa) aims to promote sound

Institutional investors such as pension funds and insurance companies, and their service providers – asset and fund managers and consultants – would have to disclose the extent to which the code had been implemented. Jurgen Boyd, deputy executive officer of the Financial Services Board (FSB), said Crisa was supported by legal measures such as Regulation 28 of the Pension Funds Act. Affected parties were also expected to play a role in persuading institutional investors to follow Crisa’s recommendations. Finance Minister Pravin Gordhan said last year at the launch of Crisa that if the code was not adhered to, more regulation could be considered. The IoDSA, the Principal Officers’ Association, the Association for Savings and Investment South Africa, the FSB and the Johannesburg Stock Exchange have all endorsed the code.

Sanlam in conjunction with Old Mutual to buy local JPMorgan In the quest for SA’s largest long-term insurer to find assets in which to invest its capital, JSE-listed Sanlam has confirmed its plan to acquire the local fund-administration unit of US-based JPMorgan. According to Sanlam CEO Johan van Zyl, as of last month the company had about R1 billion to fund bolt-on acquisitions as part of its strategy to grow its businesses in SA, Africa and Asia. The head of Sanlam’s investment unit, Johan van der Merwe, told Bloomberg the group planned to form a joint venture with Old Mutual

to buy the unit from JPMorgan. No purchase price has been mentioned and Sanlam has not indicated when a deal is likely to be reached. Van der Merwe said that Sanlam would form a joint venture with London-based Old Mutual to buy the business from JPMorgan which currently oversees about R1 trillion of assets. “JPMorgan had very good intentions when it started the business but has strategically decided to exit,” Van der Merwe said. “JPMorgan is being very accommodating.”

German collaboration for Investec Asset Management In another step towards growing Investec Asset Management’s global footprint, the company has entered into an agreement with Germany’s Sal. Oppenheim. Following the announcement of the strategic deal, as of 1 March, Investec’s range of specialist and core funds will be included in Oppenheim’s mutual fund offering.

Investec Ireland CEO Michael Cullen said that NCB was long established and well regarded both domestically and internationally. “The NCB business will complement our successful capital markets business in Ireland and is consistent with the group’s overall objective to expand its fee-based and capital light activities.”

The agreement forms part of Investec Asset Management’s strategic plans to build its distribution in line with growing inflows generated across its global footprint and balanced range of investment capabilities. According to John Green, head of global client group, Investec Asset Management, Sal. Oppenheim’s reputation, established market position and outstanding services have been the main rationale behind collaborating on this distribution agreement. “We have already been successfully selling our funds into the German market and we believe our range of investment capabilities make for a compelling yet unique offering. Many European investors are increasingly interested in asset classes like commodities, emerging and frontier markets, as well as in global equities and fixed income.” Marco Schmitz, head of mutual funds at Sal. Oppenheim, said the new Investec funds ideally complement its existing product offering. “We view the decision by Investec Asset Management to work with us as its exclusive mutual fund partner as testament to the acceptance we enjoy among investors and the high quality of our distribution support.” In other Investec news, the Irish arm of the company has announced its planned acquisition of NCB Group, an Irish financial services provider specialising in wealth management, corporate finance, capital markets, venture capital and investment funds, for approximately €32 million. NCB is one of Ireland’s leading financial services groups, and employs 120 people at its Dublin headquarters, from where it services a client base of high net worth individuals, Irish and international corporate customers and institutional investors.

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PRODUCTS

PRODUCTS Absa Capital lists five component ETFs

fourth largest gold ETF in the world, is listed. As at 14 December 2011, NewGold’s assets under management were R18.1 billion ($2.2 billion).

This now-ism exposes them and their families to the risk of hardship later in life and highlights the need for cover that is flexible.

Absa Capital, the investment banking division of Absa Bank Ltd (Absa) and affiliated to Barclays Capital, has listed five new component exchange traded funds, designed to act as investment building blocks for institutional investors.

Vladimir Nedeljkovic, head of investments at Absa Capital, said that the inclusion of the NewGold ETF on the NSE allows both individual and institutional investors direct access to an efficient and cost-effective means to invest in gold through a listed security.

“Financial services providers need to offer products that not only provide protection from financial loss as a result of death and disability, but which take into account the financial pressures people face.”

The suite includes the first-ever money market, inflation-linked and equity momentum tracker.

NewGold has been one of the best performing ETFs in South Africa over five years, with a oneyear annualised return of 41.49 per cent.

According to Vladimir Nedeljkovic, head of investments at Absa Capital, the listing of these products is in line with Absa Capital’s ambitions to provide investors with low-cost alternatives to traditional products, which they can access in a convenient way. The series of five component ETFs now listed and available to investors include: • NewFunds • NewFunds • NewFunds • NewFunds • NewFunds

SWIX 40 ETF Portfolio GOVI ETF Portfolio ILBI ETF Portfolio TRACI 3m ETF Portfolio Equity Momentum ETF Portfolio

Old Mutual revamps flexible Life Plan Old Mutual has announced a revamp of its flexible Life Plan solutions aimed at boosting the financial security of South African breadwinners and their families at the lower to mid-end of the market. The Life Plan range aims to help these customers keep their cover during tough economic times and safeguard their families’ dreams.

The component ETFs are designed to offer investors cost-effective access to major asset classes – equities, nominal bonds, inflation linked bonds and money market – as well as to investment themes and risk factors, such as equity momentum.

Absa Capital’s NewGold ETF lists on the Nigerian Stock Exchange Absa Capital has listed its popular NewGold exchange traded fund (ETF) on the Nigeria Stock Exchange (NSE). A total of 400 000 NewGold shares were listed on the NSE – the first ever ETF to list on the NSE. There are now three African countries (South Africa, Botswana and Nigeria) where NewGold, South Africa’s largest ETF and the

Thembisa Mapukata, Old Mutual’s mass foundation cluster marketing executive, said: “The re-launch of the Life Plan range complements our existing customer risk proposition and group life offering. In the current economic climate, the recently released Old Mutual Savings and Investment Monitor shows that many South Africans feel they’re coping financially if they simply meet their day-to-day costs. They regard providing for their future as something that’s not affordable.”

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BAROMETER

President Jacob Zuma announced that new South African banknotes would carry the image of former president Nelson Mandela, marking the 22nd anniversary of his release from prison. The news was a welcome relief for markets, which initially reacted poorly with the Rand weakening on speculation the announcement was related to interest rates or resignations. Facebook is on its way to being one of the largest public companies on the globe, joining commercial giants McDonald’s, Amazon and the Bank of America, once it has finalised its filing with the Securities and Exchange Commission. According to the Wall Street Journal, Facebook could be valued between $75 billion and $100 billion. The Frontier Investors’ Survey, which was conducted by the Economist Intelligence Unit (EUI), has shown that nearly half of international fund managers and investment bankers see Kenya as a top frontier investment market in Africa, second only to Nigeria.

sideways

HOT

According to Ernst & Young, South Africa has the opportunity in the next three years to attract further foreign direct investment due to the Eurozone crisis. However, managing partner for Africa, Ajen Sita, said South Africa lacks a cohesive strategy to attract large international companies looking to invest away from troubled economies to new markets such as Africa, Asia and the Middle East.

NOT

Research conducted by the South African Institute of Race Relations (SAIRR) has revealed that South Africa has become less attractive as a mining investment destination since 2006 and is now ranked 67th out of 79 countries. Negative factors such as nationalisation, mine ownership and increasing work disruption have contributed to investor uncertainty and affected willingness to invest in South Africa’s mining sector. Finance Minister Pravin Gordhan cautioned that South Africa’s economic growth is going to be below three per cent in 2012, due to the impact of the current economic situation in the Eurozone. Europe is a major trading partner and due to the slowdown in the Eurozone economies, South Africa’s manufacturing industry and other export sectors have been seriously impacted. Experts indicated that 94 per cent of employed South Africans are likely to struggle financially when they retire as a result of not saving adequately for retirement. According to Liberty Retail SA, household savings dropped from an average of four per cent of disposable income in 1994 to one per cent in 2000. This figure is significantly lower than the recommended 15 per cent South Africans should be saving for retirement.

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RAGING BULL AWARDS

Raging Bulls pick up awards The Annual Raging Bull Awards, which recognises the country’s top-performing unit trust funds for 2011, was recently held in Cape Town, with Allan Gray scooping up the Raging Bull Award for the best Domestic Management Company of 2011 for the fourth consecutive year. Nedgroup Investments was runner-up with Coronation Fund Managers in third place. Here are the overall winners in their respective categories.

TOP OUTRIGHT PERFORMERS The top performers to December 2011 on a straight performance basis in asset and sectorspecific ASISA categories (including the main asset-allocation sectors). Methodology: Funds are ranked on a three-year lump sum NAV to NAV basis (i.e. entry costs not taken into account) with income distributions reinvested at the ex-dividend date. Calculations by ProfileData.

BEST DOMESTIC EQUITY VALUE FUND • Momentum Value Fund BEST DOMESTIC ASSET ALLOCATION FLEXIBLE FUND • 36One Flexible Opportunity Fund BEST DOMESTIC ASSET ALLOCATION PRUDENTIAL FUND Includes the Prudential High Equity, Medium Equity, Low Equity and Variable Equity sectors Cadiz Managed Flexible Fund

BEST BROAD-BASED DOMESTIC EQUITY FUND The fund with the highest ProfileData total investment return ranking over three years in the ASISA Domestic Equity General, Value and Growth sectors. • PSG Equity Fund

BEST DOMESTIC FIXED INTEREST FUND The fund with the highest ProfileData total investment return ranking over three years in the ASISA Domestic Fixed Interest Bond and Income sectors. • Allan Gray Bond Fund

BEST DOMESTIC EQUITY GENERAL FUND • PSG Equity Fund

BEST DOMESTIC FIXED INTEREST BOND FUND • Allan Gray Bond Fund

BEST DOMESTIC EQUITY INDUSTRIAL FUND • Coronation Industrial Fund BEST DOMESTIC EQUITY FINANCIAL FUND • Nedgroup Investments Financials Fund (A Class) BEST DOMESTIC EQUITY RESOURCES AND BASIC INDUSTRIES FUND • Momentum Resources Fund BEST DOMESTIC EQUITY SMALLER COMPANIES FUND • Momentum Small/Mid-Cap Fund

BEST DOMESTIC FIXED INTEREST INCOME FUND • STANLIB Income Fund BEST DOMESTIC REAL ESTATE FUND • STANLIB Property Income Fund BEST FOREIGN (SA DOMICILED) EQUITY FUND The fund with the highest ProfileData total investment return ranking over three years in the ASISA Foreign Equity General sector. • SIM Global Best Ideas Feeder Fund (A Class)

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BEST FOREIGN FIXED INTEREST BOND FUND • STANLIB Global Bond Feeder Fund BEST OFFSHORE GLOBAL EQUITY FUND The fund with the highest ProfileData total investment return ranking over three years in ProfileData’s Offshore Global-EquityGeneral sector. • Coronation Global Emerging Markets Fund BEST OFFSHORE EUROPE EQUITY GENERAL FUND • Franklin European Growth Fund BEST OFFSHORE FAR EAST EQUITY GENERAL FUND • Templeton Asian Growth Fund BEST OFFSHORE USA EQUITY GENERAL FUND • Franklin US Opportunities Fund BEST OFFSHORE GLOBAL FIXED INTEREST BOND FUND • STANLIB Global Bond Fund

TOP RISK-ADJUSTED PERFORMERS Top performers to December 2011 on a risk-adjusted basis in the asset allocation and real estate sectors plus the largest other ASISA sectors based on market cap. The PlexCrown system, which incorporates risk-adjusted returns and consistency of performance is used to rank funds for these awards. Methodology: The PlexCrown system

combines risk-adjusted returns based on performance statistics from ProfileData with standard risk measures, consistency measures and measures of downside risk and managerial skill. Performance over five-year and three-year periods is taken into account. BEST DOMESTIC ASSET ALLOCATION FLEXIBLE FUND ON A RISK-ADJUSTED BASIS The fund with the highest PlexCrown rating over five years in the ASISA Domestic Asset Allocation Flexible sector. • PSG Flexible Fund BEST WORLDWIDE ASSET ALLOCATION FLEXIBLE FUND • Efficient Active Allocation Fund BEST FOREIGN ASSET ALLOCATION FLEXIBLE FUND • Foord International Feeder Fund BEST DOMESTIC ASSET ALLOCATION PRUDENTIAL FUND ON A RISKADJUSTED BASIS The fund with the highest PlexCrown rating over five years in the ASISA Domestic Asset Allocation Prudential High Equity, Medium Equity, Low Equity and Variable Equity sectors. • Old Mutual Real Income Fund BEST DOMESTIC ASSET ALLOCATION PRUDENTIAL MEDIUM EQUITY FUND • Baroque Moderato Fund of Funds

BEST DOMESTIC ASSET ALLOCATION PRUDENTIAL HIGH EQUITY FUND • Dibanisa Moderate Managed Fund of Funds BEST DOMESTIC GENERAL EQUITY FUND ON A RISK-ADJUSTED BASIS The fund with the highest PlexCrown rating over five years in the ASISA Domestic Equity General sector. • Aylett Equity Fund BEST DOMESTIC FIXED INTEREST BOND FUND ON A RISK-ADJUSTED BASIS • Allan Gray Bond Fund BEST FOREIGN EQUITY GENERAL FUND ON A RISK-ADJUSTED BASIS • Allan Gray-Orbis Global Equity Feeder Fund BEST REAL ESTATE FUND ON A RISKADJUSTED BASIS The fund with the highest PlexCrown rating over five years in the ASISA Domestic-Real Estate-General sector. • STANLIB Property Income Fund BEST OFFSHORE GLOBAL ASSET ALLOCATION FUND ON A RISKADJUSTED BASIS The fund with the highest PlexCrown rating in ProfileData’s Offshore Global Asset Allocation Flexible and Prudential sectors. • Investec GSF Global Strategic Managed Fund

BEST DOMESTIC ASSET ALLOCATION PRUDENTIAL LOW EQUITY FUND • Old Mutual Real Income Fund

BEST OFFSHORE GLOBAL FIXED INTEREST BOND FUND ON A RISKADJUSTED BASIS • STANLIB Global Bond Fund

BEST DOMESTIC ASSET ALLOCATION PRUDENTIAL VARIABLE EQUITY FUND • Coronation Balanced Plus Fund

BEST OFFSHORE GLOBAL EQUITY GENERAL FUND ON A RISK-ADJUSTED BASIS • M&G Global Basics Fund

Bruce Cameron (the editor of Personal Finance); Prieur du Plessis (executive chairman of Plexus Group); Ernie Alexander (managing director of Profile Data); Jeanette Marais (director of retail distribution and client services at Allan Gray); Ryk de Klerk (executive director: PlexCrown Fund Ratings)

TOP MANAGEMENT COMPANIES OF THE YEAR The unit trust management companies with the most impressive and most consistent overall performance across their families of funds, taking into account all factors (performance, risk-management and consistency). Methodology: The award is based on the highest average PlexCrown rating for the suite of funds managed by each management company. Passive funds and funds in non-ranked sectors (e.g. varied specialist sectors) are not taken into consideration. DOMESTIC MANAGEMENT COMPANY OF THE YEAR The SA-domiciled management company with the best overall performance across sectors consisting of a suite of five or more Rand-denominated funds with at least three years’ history. • Allan Gray DOMESTIC MANAGEMENT COMPANY OF THE YEAR – 2ND PLACE • Nedgroup Investments DOMESTIC MANAGEMENT COMPANY OF THE YEAR – 3RD PLACE • Coronation OFFSHORE MANAGEMENT COMPANY OF THE YEAR The overseas-domiciled management company with the best overall performance across sectors consisting of a suite of five or more non-Randdenominated funds with at least three years’ history. • Investec

Prieur du Plessis (Plexus); Mike Soekoe (Foord International Fund); Jan Mouton (PSG Flexible Fund); Brendan Vadas (Efficient Active Allocation Fund); Ryk de Klerk (executive director: PlexCrown Fund Ratings)

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N I G E R I A , S C OT L A N D, U N , I TA LY, H U N G A R Y, C H I N A , C R O AT I A , B OT S W A N A , A U, G R E AT B R I TA I N

Nigeria loses millions due to removal of fuel subsidy Nigeria has lost approximately N207 million in the national strike against the removal of a fuel import subsidy early this year. This is according to a recent report by the National Bureau of Statistics (NBS) that said the wholesale and retail sectors were the worst affected by the eightday strike, both of which recorded a loss of approximately N86 million. RBS retrenches more staff In an effort to cut large parts of its investment banking operation, the Royal Bank of Scotland has let go 3 500 jobs over a three-year period. Taking this a step further, RBS has now confirmed plans to sell or close unprofitable parts of its investment banking business. World Bank warns of new global recession The World Bank and the UN recently warned developing nations in a Global Economic Prospects 2012 report that a renewed global recession is on the way and that developed economies are on the verge of a downward spiral. The report indicated that the monetary space for corrective measures for developing nations would be constrained if international finance dries up and global conditions continue to deteriorate. Captain held responsible for the sinking of the Italian cruise liner The Italian cruise liner Costa Concordia, which capsized on 13 January, left 16 people dead and another 16 still missing after the 290-metre ship struck a rock close to the Tuscan island of Giglio. Captain Francesco Schettino was

accused of manslaughter and abandoning ship before all the passengers were rescued. If convicted, he could face 15 years in jail. Hungary faces possible suspension from the EU Hungary’s authoritarian policies may jeopardise the country’s membership within the EU. Prime Minister Viktor Orban has been criticised for implementing measures that influence media independence as well as being charged for a few counts of infringement to liberal democracy. If the landlocked country does not respond to treaty violations, it will be the first ever to be suspended from the EU. China plans to transform Shanghai into global centre for yuan trading China has outlined plans to turn Shanghai into a global centre for yuan trading by 2015 and an international financial centre by 2020. Published jointly by the country’s economic planning agency and the Shanghai Government, the purpose of the plan is for China to create its own version of New York, London or Hong Kong. Croats in favour of becoming EU member Sixty-six per cent of Croatians voted in favour of joining the European Union in a state referendum. Thirty-three per cent were against the referendum and the rest of the ballots were invalid. If all the bloc’s states approve the deal, Croatia will become the 28th member in July 2013 after signing an EU accession. Botswana lifts coal suspension Botswana has lifted the suspension on new

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prospecting licences for coal, coal-bed methane and related minerals. According to Botswana’s Trade and Industry Minister Dorcas Makgato-Malesu, the Southern African country is on an aggressive agenda to intensify its economic diversification by branching out from diamonds in order to encourage investor interest. The moratorium on new prospecting licences will be lifted in September this year. AU to boost trade in Africa Boosting intra-African trade was the topic that dominated the recent African Union (AU) Summit in Addis Ababa. Mozambican Foreign Minister Oldemiro Baloi said at the summit that more aggressive trade policies are needed, including the removal of tariff and non-tariff barriers between African countries. British Islamists confess to conspiring to blowing up the London Stock Exchange Four British Islamists have recently admitted to plotting to blow up the London Stock Exchange in 2010 at the Woolwich Crown Court in London. The men, inspired by a former al-Qaeda leader, confessed to planting an improvised explosive device (IED) in the toilets of the London Stock Exchange.

AND NOW FOR SOMETHING COMPLETELY DIFFERENT

Vintage sports cars – investments that finish in pole position

“A 1936 Bugatti Type 57SC Atlantic was the most expensive car ever to sell at an auction until recently.”

ost motoring enthusiasts dream of owning the cars that once had a place as a poster on their bedroom walls. One of these cars could have been the legendary Ferrari 250 GTO. A 1963 example of this Italian supercar changed hands recently and broke records in a private sale fetching £20.2 million, the most expensive car sold to date. Only 39 examples of the Ferrari 250 GTO were built between 1962 and 1963, making it one of the most sought-after classic sports cars around. This specific example had a very successful racing career, finishing second in the 1963 Tour de France road race and went on to win three competitions in 1964 – the Rallye de Picardie, Rallye du Limousin and Les Andelys hill climb. Even if you had the money to buy a 250 GTO, you would probably not have been able to own one. Back then, Enzo Ferrari himself selected who could own a 250 GTO. After the screening, Enzo sold each of these

39 units for £6 000 – a steal if you consider what they are worth now. There is clearly a huge demand for vintage Ferraris. They are a very lucrative investment but we shouldn’t rule out other motor car brands from eras gone by. Here are three other top selling vintage cars. £20 million – 1936 Bugatti Type 57SC Atlantic A 1936 Bugatti Type 57SC Atlantic was the most expensive car ever to sell at an auction until recently. It fetched almost £20 million at the Gooding classic car auction California in May 2010. The Atlantic, one of only three ever built, was styled by Ettore Bugatti’s son Jean and is now on display in the Mullin Automotive Museum in California.

1987 for £5.5 million, a record price at the time of sale. This 4.5-metre Bugatti Royale is one of only six that were built with a huge 12.7-litre engine, originally designed for an aircraft. The Bugatti Royale is expected to fetch a healthy sum of money should it change hands anytime soon. £4.18 million – 1929 Mercedes-Benz 38/250 SSK This is one of the very few Mercedes that survived the 20s and 30s without help from restoration; a true original. It was an iconic sports-racer and a rocket ship in its day due to the massively proportioned design by Ferdinand Porsche. This particular car was sold by Bonhams at a Goodwood Revival Meeting auction in 2004 after being under single ownership for 62 years.

£5.5 million – 1931 Bugatti Type 41 Royale Kellner This 1931 Bugatti Type 41 Royale Kellner was famously auctioned at the Albert Hall in

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LIFESTYLE

Sotano by Caveau

ut the brakes on the rat race and slow down to a calm demeanour when you pull into Sotano by Caveau in Mouille Point where you will enjoy casual sophisticated dining against the backdrop of the Mouille Point esplanade.

Besides the extensive wine list (around 100 to choose from), Sotano offers speciality craft beers, locally made by small South African brewers and quickly becoming the latest craze. Reggae Sunday’s and guest performers feature from 16:00 on Sundays.

Brendon Crew, co-owner of Sotano, and sister restaurants Caveau and HQ located in Cape Town’s Heritage Square, wanted to create a place where guests feel at home, where they could bring their friends, family or business partners to a welcoming and relaxed hangout at any time of the day.

Restaurant: Mon – Sat | 07:00 – 22:30 Bar: Mon – Sat | 11:00 – 02:00 Tel: +27(0)21 433 1757 121 Beach Road, Mouille Point www.sotano.co.za

“After a few brainstorming sessions with In-house Brand Architects, we came up with a chilled Mediterranean-influenced restaurant with an undertone of familiarity that keeps visitors coming back for more,” Crew said. It’s not uncommon to find patrons enjoying a morning coffee while pondering the extensive breakfast list after a walk along the promenade; cyclists winding down after a training session; a casual business brunch or a networking session underway using the free high-speed wi-fi; couples looking for an afternoon cocktail and light snack; or a group of friends catching up over a bottle of wine and dinner. The outside tables and chairs are made from French wine barrels, and are covered by an adjustable roof and drop-down blinds, while the interior has a slightly warmer, chic contemporary style with comfortable seating arrangements in keeping with the fresh Mediterranean feel. A range of enticing light meals, salads and mains are on offer, but as one would expect from a Mediterranean specialist, the tapas dishes are a must-have if you’re in the mood for mixing it up or pacing yourself for a longer afternoon of snacking. Combine the calamari with spicy chorizo, beef trinchado or lamb koftas with a scrumptious flatbread and you won’t be disappointed. “We’re not trying to reinvent the wheel,” Crew said. “Everything you find on the menu is traditional and has been tried and tested.” The Spanish paella is the signature dish, but don’t forget to look out for the cold crustacean platter, served the authentic way – chilled.

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)PX XJMM ZPV MJWF ZPVS MJGF

w w w . s i g n a t u r e l i f e h o t e l s . c o m 24 Hour Reservations: 0861 238 252 Get your free QR reader at www.2dgo.org

THEY SAID...

A selection of some of the best homegrown and and international quotes that we have found over the last four weeks. “Sometimes the call comes (to retire). It will be wrong, completely wrong when the West is keeping us under sanctions. It would be an act of cowardice. I am not a coward, no matter what the West might say.” Zimbabwean President Robert Mugabe told the Zanu-PF supporters he has no intention of retiring.

“We cannot allow multimillionaires to live in luxury without paying their fair share. Their tax contributions are vital in ensuring government is able to finance programmes that help the poor.” Dion George, DA MP, on wealthy tax evaders.

“A renewed global recession is just around the corner and the developed countries are on the brink of a downward spiral.” UN – from the World Economic and Prospects 2012 Report.

“We are working to make sure that, as countries reduce their purchases of Iranian oil, the weight of that burden falls on Iran, not on the rest of the world.” US Deputy Secretary of Energy Daniel Poneman, in South Africa for energy talks.

“The funds that will outperform in 2012 are those run by managers who are able to be significantly unconstrained and flexible enough to exploit these market volatilities. These are your alpha managers.” Selwyn Pillay, portfolio manager at Blue Ink Investments.

“Africa still has significant opportunities and what we are seeing are Chinese companies looking to South African companies to grow their footprint into the continent.” Brad Webber, Standard Bank’s co-head for merger and acquisition in South Africa, on Chinese companies’ interests to enter the African market, through South African investment, despite the Euro crisis.

“The Euro is the heart of Europe. If the Euro is destroyed, it’s the whole of Europe that goes up in smoke.” Nicholas Sarkozy, French President warning about the possible demise of the currency.

“We believe the IMF should only lend to countries, not to currencies.” David Cameron, the British Prime Minister on whether the UK would contribute more funds as the IMF seeks $500 billion, some of which is speculated to go towards bolstering the Euro.

“We simply cannot carry on with the financial sector that gave us the global financial crisis.” Christine Lagarde, on the eve of the World Economic Forum in Davos, saying financial regulation must not slip off the policy agenda.

“We believe that the route will play a strategic role in the growing economic relationships and dependencies between the continents.” Siza Mzimela, SAA CEO, concerning the new nonstop flights from Johannesburg to Beijing.

UTR 20 ,6

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