INVESTSA Magazine July 2014

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Financial services: cool money in a hot sector

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Precious little in platinum?

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Platinum - where to next?

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Platinum's perfect storm

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Fingering out financial services: Cool money in a hot sector

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The pros and cons of including alternative investments in balanced portfolios

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South Africa’s growth outlook and its impact on investments

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From

the editor Platinum, the white gold of which South Africa is the major global producer, is a far more useful and valuable metal than gold. Gold might be prized nowadays for jewellery, but that’s hardly an essential product. I’ve always believed that gold is pretty useless. Historically it had its use as currency, but back in the gold standard days it was hard to understand why central banks kept tons of the stuff buried deep in vaults to back the currency they issued.

Platinum, though, has many uses, top as a vital industrial component for motor vehicle manufacturers. It also has investment and jewellery applications, writes Tarryn Valle of RealFin Specialised Financial Solutions, in her article ‘Platinum’s Perfect Storm’.

Platinum is one of the themes of the July issue of INVESTSA and comes at a time when the industry is going through a very troubled period; at the time of going to print the longest (and most pointless) strike in South African history had just ended.

The cost has been high: on platinum producers, striking workers and for the country, with the strike contributing to gross domestic product shrinking in the first quarter of the year and for the sovereign downgrading of South Africa by rating agencies. And while I’m all for constructive industrial action, I can’t see anything positive that has been achieved by this strike.

What has happened is that the 70 000 striking workers are broke, severely so, with many falling prey to loan sharks just so they can survive.

Worse are reports that many of the strikers are malnourished, so badly that it’s estimated it might take months of medical care before they are fit to return to underground work.

The long-term picture is worse. Anglo American is talking about selling its platinum mines in South Africa, other large producers have closed lowproduction shafts, and the talk is about switching, where possible, from underground to mechanised mining. That will mean more retrenchments and fewer jobs in the future, adding to South Africa’s already high unemployment rate.

But, on the old adage that ‘the time to invest is when blood is flowing in the streets’, the gruesome truth is that the strike has opened up significant investment opportunities. Laurium Capital analyst, Andre Brink, says his firm is negative on platinum equities but positive on the platinum-group metals. In his usual insightful feature, Marc Hasenfuss agrees that maybe investors should look at platinum exchange traded products, but also singles out a few platinum companies – not any of the big producers – that could be worth buying.

Let’s hope the next issue of INVESTSA sees us on the other side of all the recent platinum gloom.

Shaun Harris 4

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

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Precious little in platinum?

At the time of writing, the prolonged platinum sector strike for higher wages had finally ended. This is a hugely welcome development as violence had flared again in the North West Province after some striking workers - after some cajoling by mining companies – had started wending their way back to work. What’s more it had become abundantly clear that the strike was threatening SA’s fragile economic growth prospects.

By Marc Hasenfuss

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t this point it is difficult to see whether trade union Amcu has emerged stronger or weaker from the five-month platinum industry strike, but pudent investors would probably prefer to steer clear at this delicate juncture.

There seemed to be as much political posturing in the strike action as there was economic necessity. At times it really seemed logic might not prevail. Even the government, which needs the tax flows from profitable platinum mines to fill its coffers to foot a hefty social spending bill, appeared wary, limiting its interventions to administering the most diplomatic chidings to employers and employees.

Even the government, which needs the tax flows from profitable platinum mines to fill its coffers to foot a hefty social spending bill, appears wary, limiting its interventions to administering the most diplomatic chidings to employers and employees.

Effects of the strike Playing in the platinum sector is not for the faint-hearted. And, in truth, it’s difficult not to believe that the sector is undergoing such profound change that investors cannot simply pin their hopes on the commodity cycle turning. In fact, those with a penchant for the gleam of platinum group metals (PGM) would probably only look at owning these commodities via an exchange traded fund (ETF).

But PGM group ETFs, while proving fairly popular with punters, have not exactly set the world alight either. That says something about the soft underlying fundamentals of the platinum sector, where global demand for the metal (mainly used for catalytic converters to control emissions from vehicles) has been stalled for some time.

One issue is that we have not recently seen a shortage of platinum stock, which pretty much keeps a dampener on prices.

With that in mind, perhaps the prolonged strike that crippled certain platinum mining areas could not have come at a better time.

The current lack of production will allow excess stock to be gradually absorbed by major platinum users, and this erosion of existing supplies should slowly start to push prices higher. But this, of course, is a simplistic view.

It’s certainly not a case of buying bombed-out platinum stocks and waiting for the supply/ demand equation to swing.

We have to remember that some platinum mining companies that were affected by the strike have mothballed shafts or put operations into care and maintenance mode. It will take some time, and a great deal of investment, to bring these shafts back into production.

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Perhaps the bigger point is that the prolonged strike – and here we must assume mining companies did eventually capitulate to wage demands that could, in time, render some operations unviable – could change the operating parameters for the platinum sector.

Unless water-tight and long-term wage agreements are secured to prevent costly disruptions, it could be expected that labour-intensive projects will be put on the back burner. There is not a chance that major platinum producers will tackle deep and difficult new mining projects without being able to utilise mechanised mining methods.

Opportunities nonetheless?

The short- to medium-term outlook for platinum stocks certainly does not glimmer with hope. But it’s in these dark days that investors who are able to hold a long-term gaze could profit handsomely. While share prices might have plunged, especially among some of the smaller players like Eastplats, Jubilee and Aquarius, there have not been any casualties. At least, not yet.

One share, Platfields, has been suspended, but that is for company-specific reasons rather than being broke by trade unions or the vicious commodity cycle. Some platinum-related stocks, like Atlatsa and Brian Gilbertson’s Palighurst, have actually perked up markedly in the wake of the tragic turning point at Marikana last year, when striking miners were shot and killed by police.

Interestingly, large platinum companies on the JSE have seen some strong buying from prominent institutional investors.

• During April, Anglo Platinum (AngloPlat) saw an increase in its shareholding by State Street Bank and Trust, HSBC Bank, Deutsche Bank and Vanguard Emerging Markets fund.

• Impala Platinum (Implats) saw additional buying from State Street Bank and Trust and JP Morgan, as well as local institutions Liberty Life, RMB/ Momentum and Sanlam.

• Royal Bafokeng Platinum (RBPlat) saw significant buying from Vanguard Emerging Markets fund, Deutsche Securities and JP Morgan, as well as state workers’ pension funds GEPF and the PIC. • AngloPlat was net bought to the tune of R929 million during April, while Implats saw a positive net value traded on over R13 billion.

Just how tarnished is the industry really?

There have also been some intriguing developments on the periphery of the platinum mining sector. If the buying up of platinum stocks is a positive indicator, then taking a new platinum mining venture to market must betray real confidence in the long-term prospects of the commodity and the South African mining sector.

The Pourolis family – which has long been involved in the local platinum sector (first through Lefkochcrysos in

the eighties and later Eland Platinum) – seemed oblivious to the ructions in the local platinum sector when it listed Tharisa Platinum on the JSE. In truth, Tharisa’s listing was not without hurdles. First the pre-listing fundraising was halved to R500 million, and then the pitch price was reduced from R42.70/share to R38.00/ share. When Tharisa debuted on the JSE the share found little support, dribbling down to levels of around R25.

The beauty of Tharisa is that it is not labourintensive, its mining area offering direct access to an open cast mine with a lifespan of around 23 years. The company has targeted an average steady state production of 144 000 ounces a year of PGMs and 1.85 million tons a year of chrome concentrate in its 2016 financial year.

If Tharisa, in the next three years, can confirm that it is well positioned as a lowcost co-producer of PGM, then this share price might be viewed as a proxy for a new model platinum mining venture.

Another interesting platinum venture – seemingly less afflicted by the labour malaise in the sector – is RBPlat. While most platinum shares have more than halved from levels seen in 2011, RBPlat is holding steady roughly at the same level it was five years ago. In its quarterly report to end March, RBPlat not only continued producing platinum, but also, reassuringly, ensured its expansion and replacement projects remained on track and within budget. While expanding mining operations in the volatile labour climate seems insane, RBPlat’s Styldrift I expansion project is going swimmingly.

So far the sinking at the main shaft has progressed to a depth of 708 metres and the services shaft to 723 metres. Total expenditure for RBPlat’s expansion is forecast at R1.9 billion in the 2014 financial year. At the end of the March quarter, the project-to-date commitment was R3.6 billion and expenditure to date was R2.75 billion.

RBPlat said the project was almost 45 per cent complete.

Possibly the most intriguing platinum sector play is Aquarius, once the market darling of the platinum sector. Aquarius is in the invidious position of being a reverse ten bagger, currently trading under R5 on the JSE after peaking at over R50 five years ago.

Aquarius owns some interesting slabs of platinum. Some are mothballed, but might do a roaring business when demand firms.

At the time of writing, Aquarius was embarking on a sizeable, but deeply discounted, rights issue, intending to use the proceeds to repay convertible bonds.

The level of interest in a rights issue by a former market darling will no doubt provide an accurate gauge as to just how tarnished the prospects in the local platinum sector really are.

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Platinum –

where to next?

Andre Brink (ACMA, CGMA, CFA), Analyst, Laurium Capital

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The global platinum market is undergoing structural shifts that have left South Africa’s platinum industry smaller than it was a decade ago.

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fter a damaging five-month strike that will result in employees taking over a decade to recoup losses on the most optimistic assumptions, Amcu has agreed increases for entry level of 11 to 12 per cent per annum CAGR over three years. The key outcome from the current impasse will be whether the producers use this opportunity to shut down high cost and marginal operations. If a material amount of production were to be taken offline, producers could return to cash generative levels as the platinum spot market tightens.

However, history and recent commentary suggests unwillingness for corporates to do so, largely due to concerns of a political backlash and potential opportunity costs as Dollar metal prices rebound.

Laurium Capital therefore remains negative on the equities but positive on the individual platinum-group metals (PGM) which we hold across the Laurium funds.

Platinum

BREAKDOWN OF ANNUAL PLATINUM DEMAND

2004-2013 10,000 8,000 6,000 4,000 2,000 0

Autocatalysts

Industrial

Jewellery

Investment

According to the producers, the consequential output lost from the strikes that were declared on 13 January 2014 has been just less than 10koz of platinum per day. The total loss approximates 13 per cent of annual global supply and equates to revenue losses of circa-R24 billion.

Given the producers’ ongoing reliance on labour, a move away from conventional mining methods towards mechanisation has been touted by many of the affected producers.

However, aside from the intractable complexity around restructuring a massive operational footprint and associated workforce, the geology and established mine infrastructure for most of the Western Bushveld platinum mines are just not conducive or amenable to wholesale mechanisation.

Supply issues persist Sources of supply are essentially from mining operations (primary supply), above-ground inventories (which includes metal in the hands of investors) and recycling (secondary supply). In 2004, primary production from South Africa provided more than two-thirds of the world’s total supply of the metal. In 2013, the country’s share had fallen to fractionally more than half of the total, with secondary supply from autocatalysts and jewellery scrap contributing more than a quarter of global supply.

Despite this decline in global primary production, platinum and palladium prices continue to reflect the ready availability of metal on the spot market, causing a notable recent disconnect between the on-paper PGM fundamentals and observable USD PGM prices.

Autocatalyst, exchange traded products and jewellery demand on the rebound Laurium Capital expects fabrication demand for the PGMs to accelerate in 2014 on the back of rising and synchronous global economic growth and the ongoing implementation of stricter and more widespread vehicle exhaust emission standards. Of particular importance to platinum demand is the outlook for auto production (and sales) in Europe and the UK, where diesel-powered vehicles enjoy a +50 per cent market share (diesel cars have platinum-based exhaust catalysts).

After five years of relatively weak global auto statistics from these regions, Laurium’s view is that there must be pent-up demand that is likely to become satisfied as employment and disposable income levels begin to recover.

Despite the bullishness of our macro expectations, coupled with the primary supply distortion caused by ongoing strike activity in South Africa, it begs the question why the USD platinum price continues to languish. The USD platinum price did rally in the days before the strike was announced but it has since fallen from $1 457 an ounce on the day the strike began to $1 435 an ounce, which is 1.5 per cent lower. If mined supply is down, and demand seems at worst flat, the only logical inference to be drawn is that very high spot market stock volumes have filled the void between supply and demand.

Platinum inventory levels are likely to be relatively high throughout the global PGM value chain, partly because demand has been noticeably weak from the financial crisis, coupled with the well-telegraphed nature of the ongoing strike in South Africa, which gave the major producers significant time to stock up to meet contractual deliveries.

However, how long can current demand be satisfied from existing stockpiles? Consider that all the gold ever produced would fill approximately three Olympic-sized swimming pools. When compared to all the platinum ever produced, this would only cover your ankles in one Olympic-sized swimming pool.

At Laurium Capital, we therefore expect to see US$ PGM prices rising steadily in 2014/2015 as growing demand and constrained primary production tightens markets even in the face of rising scrap supplies, and it might just be a matter of time before the above ground stockpiles are depleted.

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Platinum's

perfect storm Tarryn Valle, Head: Investment Strategy, RealFin Specialised Financial Solutions

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Two events have taken centre stage in the media this year: the fifth democratic general elections, and the scarcely resolved labour strikes at our platinum mines.

S

outh Africa is known as a mining economy and it is within platinum specifically that we exert our dominance, providing over 70 per cent of global supply. Russia, Zimbabwe and North America account for the remainder. Platinum is a hybrid metal in that it has industrial, investment and jewellery uses. Its primary industrial use is within the automotive sector, where it is a key component of catalytic converters, whose role within an engine is to reduce exhaust emissions. Platinum is used principally within diesel engines, which are predominantly found in European-driven vehicles rather than American-driven gasoline (petrol) engines.

The mining of platinum from South Africa’s primary operational reefs – Merensky and UG2 – is a highly labour-intensive process. Previous attempts at increased mechanisation have been expensive learning curves for those mining companies that have

Platinum

tried. The reefs are deep and narrow and current mechanisation equipment is simply not suitable. This is in contrast to deposits found in Russia and Canada, where the reef profiles, ore grades and type of mines make mechanisation a more viable alternative.

Basic economic principles of supply and demand dictate that if supply is curtailed but demand remains steady, then the price should rise. The labour strikes have halted platinum production within South Africa during a period when certainty of supply from our Russian competitors has also come under threat, due to Russian president, Vladimir Putin’s, desire to reassert Russia’s sphere of influence in the former Eastern Bloc.

European auto catalyst demand has been weaker lately with slowing auto sales.

Increasingly, the recycling of old catalytic converters is contributing meaningfully to secondary supply. However, as witnessed by ETF (Exchange Traded Fund) asset growth for platinum-backed products, investment demand has increased, leading to a relatively stable overall demand environment. In theory then, a supply squeeze should have created the ideal conditions for a platinum price spike. However, at the time of writing on the eve of the resolution of the strike, the spot price had risen by just over seven per cent year to date; not exactly an eye-popping return. Is the storm still brewing? There is no doubt that the South African economy as a whole is going to feel the effects of the strikes

for some time at a macro and micro level.

As an economy, we will export less and GDP will suffer. There is also the very real human fall-out of workers unpaid for months, the potential for future violence and the loss of income for those formal and informal businesses that support the mining sector.

Mining houses are almost certainly looking beyond Merensky and UG2 to the Platreef section, which contains broader veins of platinum as well as palladium, copper and nickel. A more mechanised and smaller but skilled workforce must surely be the final rational outcome to keep South Africa competitive as a global platinum producer.

Economies benefit from specialisation and greater efficiency, but the price to be paid will be the job loss of unskilled miners.

The South African platinum industry, despite coming to a resolution on five months of strikes, may still be on the cusp of irrevocable changes in the way in which it operates. There will undoubtedly be upward pressure on platinum prices, but more importantly the industry itself needs to transform. We may all need to batten down the hatches to ride out the storm.

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Keep it simple.

09/12/2013 11:28 AM

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Cool money Fingering out financial services:

in a hot sector

Financial services has always been a hot investment sector. It’s therefore always worth exploring by investors and financial advisers.

Often the shares are highly rated on the JSE and expensive, but every now and again pockets of value appear, as they are now.

By Shaun Harris

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hey are not only among the obvious candidates like the Big Four banks and large insurance companies. Some outlying companies, and even unlisted companies, are coming to the investment fore. We detail these potential investment opportunities below.

Confidence in the domestic financial services sector improved in the fourth quarter of last year, though only marginally, according to the latest Reserve Bank Financial Stability Review.

The report noted rebounding confidence among life insurers, despite difficult underlying operating conditions including weak economic growth, the depreciating exchange rate and high unemployment. However, it added that weak economic growth is in line with some other emerging market economies.

That’s the contradiction in South Africa. We are an emerging market and one of the Fragile Five in the BRICS club. Yet the financial services sector is backed by a sound regulatory and legal framework and operations on the JSE are as safe and sophisticated as the top bourses in developed countries. Overall though, South Africa currently has to live under the emerging markets Fragile Five banner.

According to a recent Standard & Poor’s survey, the banking systems of South Africa and Turkey were the most vulnerable among leading emerging markets. This was through the direct impact of the US Federal Reserve’s stimulus tapering, which resulted in more limited access to external funding and indirectly through possible interest rate increases, currency depreciation and lower capital inflows.

However, it’s not all bad news. South African banks can take advantage of Africa’s largely unbanked population which conducts financial transactions, including receiving and paying money, through cellphone banking.

“Approximately 2.5 billion people across the globe – almost 36 per cent of the world’s population – do not have a bank account,” says Francois Chaffard, marketing director for banking and retail in Africa at Gemalto.

“Most of these live in sub-Saharan Africa, where it is estimated 80 per cent of people are unbanked,” he adds.

This is a great opportunity for South African banks and is already being developed by Standard Bank, which says its mobile banking customers up to July last year increased by 58 per cent to three million from the previous year, and continue to grow.

“Financial services are the flavour of the month for investors and a quick analysis shows that the normal suspects are not on top of the performance chart,” says Brad Preston, portfolio manager at Mergence Investment Managers.

The group he singles out is Investec, which apart from investment banking houses one of the top asset managers and private banks in Africa. “After its business was knocked by

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shareholder of Barclays-Africa (formerly Absa) in South Africa, says it is injecting more capital into its African business as returns from the continent beat its forecast global target for 2016.

Combined returns on equity from investment and corporate banking in Africa are between 18 and 19 per cent, compared to Barclays’ global target of a 12 per cent return by 2016, says Stephen van Coller, head of Absa Capital.

FirstRand is looking at setting up an operation in Ghana and is also considering Angola and Kenya, says CEO Sizwe Nxasana. Nedbank is looking for growth in the rest of Africa through its alliance with Togo’s Ecobank Transnational and the acquisition of a stake in Banco Unico in Mozambique, the bank said in its recent profit guidance statement.

Sanlam, which has one of the most successful acquisition records for companies and investments outside South Africa, has a war chest of around R4 billion for purchases in Africa and Asia. It already has businesses in 10 African countries and is planning three or four further acquisitions on the continent this year to focus on faster growing markets than South Africa, says Margaret Dawes, emerging markets executive director for Africa operations.

Further afield, Sanlam Emerging Markets is buying 51 per cent of Malaysia’s MCIS Zurich Insurance for about R1.25 billion. “Malaysia is a key part of Sanlam’s future growth strategy,” says emerging markets CE Heinie Werth.

Life insurance rival Old Mutual has nearly R5 billion earmarked for expansion into Africa, and was looking at opportunities in both West and East Africa, particularly in bank assurance, it said in a recent management statement.

Old Mutual is already doing well in Africa.

In African markets outside South Africa it increased gross sales by 27 per cent.

exposure to developed market upheaval in the wake of the sub-prime crisis, Investec’s share price took a beating. In the last two years, however, the private bank’s share price growth has outperformed each of South Africa’s major banks.”

Graphs compiled by Mergence show Investec way ahead of the other banks in share price performance over the past two years, reflecting growth of about 120 per cent. Bottom of the graph, not surprisingly, is African Bank Investments Ltd (Abil), the share price of which lost about 60 per cent over the two years.

Topping the five-year graph is Capitec, the microlending success story in South Africa.

“Investec was very cheap in 2012, trading at below 0.9 times book value. At the same time, the average price-to-book ratio for the Big Four South African banks was above 1.8 times,” Preston says.

If a share trades below one, it indicates that the company’s market capitalisation is less

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than its book value, reflecting a discount in the share price. Despite the strong improvement in Investec’s share price the share is probably still worth buying. In recent results, CEO Stephen Koseff said management was still decluttering and streamlining the business, so earnings performance, and therefore the share price, should continue to improve.

The group is also making useful acquisitions.

Investec Asset Management recently bought 18.5 per cent of Umeme, the leading electricity distribution company in Uganda, for US$40 million. “We are always searching across the capital spectrum for investment opportunities that offer our clients access to Africa’s exciting growth potential, and infrastructure development is a key investment theme for us,” says Roelof Horne, a portfolio manager at Investec Asset Management.

Africa is full of investment opportunities for South African-based financial services companies. Barclays, the UK-based controlling

Investors could also consider an unlisted financial services company, life assurer Assupol.

In his Market Watch column in the Financial Mail, fellow feature writer Marc Hasenfuss, tipped the unlisted company, writing that it’s conservatively managed, well capitalised and strongly focused. But Marc warns investors will need patience. “The share is traded only via Assupol’s website (www.assupolshares.co.za) and CE Rudi Schmidt made it abundantly clear in an interview last year that there was no pressure to seek out a JSE listing,” he writes. But Marc concludes that in years ahead a JSE listing is inevitable, making now a good time to buy the over-the-counter share.

These are just some of the many potential investment opportunities in financial services.

However, interested investors need to do their own homework on the companies, together with their financial adviser, if they feel they lack the necessary experience. Once that is done they must consider whether they share the conviction of the relevant asset manager or company, and only if they do, then commit to the investment.

With a long-term outlook, and maybe a little luck, a lot of money can be made out of financial services.

tell you you’re going to meet your soul mate in the next year? And then the specifics come.

He will be dark, average height, blue or brown eyes. A lawyer or a fireman who enjoys cooking and you’re going to have 2 kids and a Labrador.

No, a Dalmatian. And then you spend the next few years waiting for a dark, average height, blue or brown-eyed lawyer or fireman who enjoys cooking, snubbing all other potential suitors. And we all know how that story ends.

Investing is a bit like that. It’s easy to get distracted by popular opinion. Which is why we find it best to ignore it, no matter how good it sounds. And it’s a philosophy that has worked very well for our clients over the last 40 years.

Call Allan Gray on 0860 000 654 or your financial adviser, or visit www.allangray.co.za

Allan Gray Proprietary Limited is an authorised financial services provider. investsa investsa 13 9

KINGJAMES 30191

E ver been to those fortune tellers, the ones who

Alternative investments

The

pros & cons of including alternative investments in balanced portfolios The traditional understanding of an alternative investment is an investment in asset classes other than equities, bonds, cash and property, although the term is a relatively loose one.

W

e look at the pros and cons of including alternative investments in pooled balanced funds.

Advantages: attractive returns, low correlations, flexibility Alternative investments have delivered very attractive returns over the past 20 years, both on a stand-alone basis as well as a risk-adjusted basis. Since 1994, the HFRI Composite Index (a broad index of hedge fund managers) has returned 9.01 per cent on an annualised basis with a standard deviation of 7.01 per cent. This is as compared to a return of 6.99 per cent and a volatility of 15.29 per cent for the MSCI World Index.

Alternative investment funds have typically also exhibited low correlation with traditional asset classes, making them a very attractive option for inclusion in a multi-asset portfolio from a diversification point of view. This correlation profile tends

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to be specifically beneficial during times of market stress as the correlation between traditional asset classes tends to move to one. During the 2008 financial crisis, for example, the correlation between equities and hedge funds only increased to 0.67.

One of the main reasons for this enhanced return profile is the fact that these mandates tend to be more flexible (and less constrained), allowing the managers to access additional sources of return.

This flexibility allows access to additional markets, as well as the use of instruments not available to long-only managers, to either extract value or hedge the portfolios.

One of the main reasons these strategies have outperformed traditional markets over the recent past is because of the manager’s ability to use derivatives to hedge their downside risk.

Certain drawbacks: costs, complexities, high minimum investments and liquidity factors Alternative investments do, however, have their drawbacks, especially to less professional investors. The cost that an investor pays for these investments is typically quite high, with the most common fee across the industry being a two per cent annual management fee, with a 20 per cent performance fee for performance above a predefined benchmark. The one benefit of these cost structures is the fact that the investors’ interest is completely aligned with that of the manager.

The strategies that some managers employ to generate alpha tends to be quite complex, causing less sophisticated investors to shy away from the asset class. Not only can

certain strategies be complex, but because of the multitude of strategies employed by managers, making an informed decision about which strategies to access could be problematic for investors. Even once an investor has decided on a strategy to access, the wide dispersion in returns of the universe of managers means that a lot of additional work is required on manager research.

Alternative investments are also typically accessible by only high net worth investors, as the minimum investments required can be substantial. Another drawback that pertains specifically to less wealthy investors is the liquidity terms of these funds. Investors can typically access their capital only on a monthly basis, even yearly in some cases, with additional notice periods prevalent in most funds.

Based on the enhanced risk/return profile of alternative investments, and hence the clear diversification benefit that these funds exhibit, Ashburton Investments prefers to keep a fairly large allocation to certain alternative strategies in our multi-asset portfolios.

Jacobus Brink, Investment Analyst, Ashburton Investments

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Asset management

South Africa’s growth outlook and its

impact on investments

The outlook for South African inflation and growth, with upside risks to inflation and downside risks to growth in the coming year, has a major bearing on local investment returns.

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ising inflation and interest rates impact negatively on economic growth and corporate profits, thereby constraining the performance of local bonds, property and equities.

inflation policy conundrum. We expect inflation to remain sticky in the short term as the lagged impact of a weaker currency exerts upward pressure on both headline and core measures of inflation.

that the SARB will keep a watchful eye on whether inflation expectations increase meaningfully, as this is likely to have a further negative impact on core inflationary measures.

At the latest Monetary Policy Committee (MPC) meeting, the South African Reserve Bank (SARB) downgraded its real GDP growth forecasts for South Africa by 0.5 per cent to 2.1 per cent in 2014. Against the backdrop of an expected SARB inflation profile that stays above the target range for the next year, this poses a dilemma for monetary policy making.

Since 28 April, when it became apparent that the US sanctions on Russia were not going to be as severe as originally anticipated, emerging market currencies took a breather from Ukrainian geopoliticalrelated concerns. The Rand has appreciated by almost three per cent against the US Dollar since the end of April, but remains over 10 per cent weaker on a one-year rolling basis. Although an improvement in global risk appetite has seen a retracement in the local currency recently, the Rand remains vulnerable given weak domestic macro fundamentals and global risk factors.

Although the MPC has held rates steady at both the March and May MPC meetings, we are still expecting further rate increases this year. We expect a further two hikes of 50 basis points each this year due to mounting inflationary pressures and an elevated current account deficit. A rising domestic interest rate cycle, against the backdrop of global policy normalisation, should constrain South African asset class performance, particularly local bonds and listed property, while increasing the relative attractiveness of risk-free cash in a generally low-return environment.

A more benign global monetary policy environment, on the back of weaker-thananticipated global economic data in the first quarter, coupled with disappointing high-frequency data in the domestic market, kept the SARB from hiking rates at the May MPC meeting. Nevertheless, the door for further rate hikes remains open, given that the SARB reiterated that monetary policy accommodation remains high in the context of negative real interest rates while inflation risks remain uncomfortably high.

The SARB has revised growth forecasts lower given the labour tensions in the platinum mining industry and this year's protracted strike activity. To date, employees have lost nearly R8 billion in wages, while the industry has lost around R18 billion in revenue.

Although mining constitutes only around six per cent of total real GDP, mining exports account for nearly half of South Africa’s total exports, while related downstream sectors such as manufacturing and retail were also impacted on negatively by the strikes. The extended strike action therefore exerted broad pressure on economic growth and the already-extended current account deficit.

Although the SARB slashed its 2014 growth forecasts, the committee only marginally downwardly revised its 2014 inflation forecast to 6.2 per cent (previously 6.3 per cent at the time of the March MPC meeting), thereby exacerbating the low growth-high

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To date, inflation expectations have remained close to the upper band of the three to six per cent inflation target, but have not breached the target markedly. It is likely

Sanisha Packirisamy, economist, Momentum Asset Management

Barometer

HOT SA attractive for investments AT Kearney's 2014 Foreign Direct Investment Confidence Index (FDICI), an in-depth view of forward-looking investment sentiment among senior executives surveyed from 300 of the world’s leading corporations, revealed that South Africa has climbed two spots to become the 13th most attractive destination for foreign direct investment (FDI) globally.

Foreign investment into Africa rises The Ernst & Young 2014 Africa Attractiveness survey reported that Africa has become the second-most attractive investment destination in the world, up from the third-last position in 2011. In 2013, Africa’s share of global foreign direct investment (FDI) projects reached 5.7 per cent, its highest level in a decade, with South Africa remaining the largest destination for FDI projects. However, countries such as Ghana, Nigeria, Kenya, Mozambique, Tanzania and Uganda have also become more prominent on investors’ radars.

NOT SA growth slumps in first quarter Data from StatsSA showed that the economy contracted in the first quarter, with quarter-on-quarter real gross domestic product (GDP) falling 0.6 per cent (at a seasonally adjusted and annualised rate) compared to a 3.8 per cent increase in the fourth quarter of 2013. Compared to the first quarter of last year, the local economy grew by 1.6 per cent.

Business mood in South Africa declines In response to weak economic data releases post-election as well as ongoing reservations about policy positions, both current and intended, the latest Business Confidence Index (BCI) by the South Africa Chamber of Commerce and Industry (SACCI) declined by 3.7 index points from April 2014 to 88.9 in May 2014. The average for the first four months of 2014 was 91.9, leaving the May 2014 index figure of 88.9 off-trend in relation to the weak upward trajectory of the BCI since the start of 2014.

Cybercrime damaging trade, competitiveness and innovation Research published by the Centre for Strategic and International Studies (CSIS) has stated that cybercrime costs the global economy approximately $445 billion every year, with the damage to business from the theft of intellectual property exceeding the $160 billion loss to individuals from hacking.

SA competitiveness rises marginally The 2014 World Competitiveness Yearbook by top-ranked Switzerland-based business school, IMD, ranked South Africa 52nd, up from 53rd, out of 60 countries in the latest world competitiveness rankings.

Based on a survey of 4 300 international executives, South Africa's BRICS partners came in at 23rd (China), 38th (Russia), 44th (India) and 54th (Brazil).

South Africa was the only African country surveyed.

s y a w e Sid

MPC holds rate, yet warns of future hikes The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) left the repo rate unchanged at 5.5 per cent in May. However, the MPC warned that South Africa is in a rising interest rate cycle. The local economic outlook, which according to the MPC had deteriorated markedly, is a contributing factor for keeping rates on hold. The SARB’s 2014 forecast for economic growth has been downwardly revised from 2.6 per cent to 2.1 per cent. The forecast for 2015, however, remains unchanged at 3.1 per cent.

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Discovery

Financial Planning

Matt Oechsli

T

he event was hosted by the ebullient Bruce Whitfield, arguably Radio 702’s sassiest and savviest financial journalist, and the wit and wisdom crackled.

Adrian Gore: The value of a great financial planner The first speaker, Discovery group CEO Adrian Gore, spoke on ‘The value of a great financial planner’. He clarified that without excellent financial planning and advice from great financial planners, most people will fail in their financial affairs in retirement, commenting, “We have a sophisticated and well-regulated financial services industry – our customers need us to work holistically.”

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Events

Summit Gore says most people engage in a financial needs analysis that involves budgeting tools, and looks at salary and retirement needs.

“This critical tool is so rational that it can lead to irrational behaviour. Loss aversion behaviour makes people react much more to a potential loss than a potential gain. They focus on the numbers and see the plan as a threat rather than a goal. People need to become more motivated by life issues such as avoiding your children having to take care of you.”

Gore says that an excellent financial planner will encourage people to give up the ‘now’ mentality and plan for the future, and also provide a reality check that they are not so different to others and face the same risks. He also pointed out that it’s critical to makes sure you don’t underestimate your life expectancy.

Abbreviated highlights Other noteworthy speakers included Tom Deans, of the Détente Financial Corp.

(Canada) on ‘Succession Planning’; Jonathan Dixon of the FSB on ‘The FSB’s perspective’; WJ Rossi of Koss Olinger on ‘Branding yourself for success’; a panel discussion on "Learning from elite advisers", chaired by Rob Macdonald of MitonOptimal; Colin Coleman of Goldman Sachs on ‘Two decades of freedom’, and finally Matt Oechsli of the Oechsli Institute (US) on ‘Becoming a

The first-ever Discovery Financial Planning Summit was held on 15 May at the Sandton Convention Centre.

rainmaker: how to acquire affluent clients and keep them’.

Comments that provided food for thought: • Tom Deans on succession planning: “When you talk to your clients and share stories about your own family, your clients will remember and trust is earned.”

• Jonathon Dixon on the FSB’s perspective: "Over the next two years, we will focus on two key issues which are becoming increasingly relevant, namely Treating Customers Fairly (TCF) and the Retail Distribution Review (RDR)."

• WJ Rossi on building your brand: “A brand for a company is like a reputation for a person. Building a brand requires two things: credibility and trust. You are your brand and in building the relationship between yourself and your client, it’s important to show that you care and find ways to add value.”

• Colin Coleman on South Africa's two decades of freedom and prospects for economic growth.: “At the start of South Africa’s democracy, we had no foreign reserves, high inflation, a broken national balance sheet, limited social grant support and an undeveloped JSE. Twenty years later we can now boast a BBB investment grade country, posting average 3.2 per cent annual growth over the past two decades, inflation is under control, and there has been a massive

increase in tax receipts. Much progress has been made, but significant challenges remain. The latest election results certainly focus the mind on the next 20 years.”

• Matt Oechsli on acquiring affluent clients and keeping them: "Advisers must develop social skills to win business. Being a good professional is a hygiene factor, not a value proposition. If advisers have strong business skills but weak social skills, they are at risk of losing clients, because trust is so fragile.”

Overall, the excellence of the event made it one to watch out for in the future. To end on a lighter note, only Bruce Whitfield could ask Matt Oechsli about parallels between his methods and the notorious Bernie Madoff’s.

Oechsli’s answer? “Integrity is the difference!”

Vivienne Fouche, Content Editor, InvestSA

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Economic commentary

Tough first quarter for

South African economy Four important StatsSA data releases of mid-May, together with the first quarter’s manufacturing data showing a 1.6 per cent quarterly decline, confirm the view that the local economy struggled in the first quarter.

The retail sector Real retail sales grew by one per cent year on year in March, down from 2.3 per cent in February. Year-on-year comparisons can be tricky during March and April due to the Easter long weekend shifting between these two months, but the second consecutive month-on-month decline (-1.4 per cent in March and -0.3 per cent in February) suggests that the weakening trend in retail spending is resuming. January’s strong numbers now appear to be an outlier. On a quarterly basis, seasonally adjusted retail sales increased by only 0.6 per cent in real terms in the first quarter compared to the last quarter of 2014. Compared to the first quarter of 2013, growth was three per cent.

Implied retail inflation – the difference between the published nominal and real retail trade numbers – was 4.9 per cent year on year in March, up from 4.2 per cent in February. Price rises in retail goods are still well below those of services, energy and the cost of housing. But higher prices of goods probably contributed to weaker sales, and this is unlikely to improve in the near term.

Vehicle sales Motor trade sales – a category that includes new and used vehicle sales and income of

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service stations – increased by 3.2 per cent year on year in March. In the first quarter, nominal motor trade sales rose by 1.7 per cent compared to the final quarter of 2013 (and that is before taking the effect of inflation into account). Falling real fuel sales indicate that South Africans are driving less.

Strike cripples mining output Mining production suffered another year-onyear contraction in March, falling by 4.7 per cent, after a 4.5 per cent decline in February, due largely to the ongoing strike in the platinum sector. April’s mining figures will also show the impact of the strike, as will May’s, since the strike was only resolved in June. In the first quarter, mining production fell 6.8 per cent compared to the final quarter of last year, with quarterly declines in the output of platinum, gold and iron ore, three of South Africa’s four most significant commodities. The other significant commodity, coal, grew 0.4 per cent over the quarter.

5.2 per cent. In the first quarter of 2014, wholesale trade sales increased by one per cent compared with the previous quarter.

Implied wholesale inflation also increased from 7.5 per cent in February to 7.8 per cent in March.

The SARB’s headache Overall, the poor performance in these sectors (and others) led to the first quarterly contraction of gross domestic product (GDP) since 2008. GDP fell 0.6 per cent in the first quarter compared to the fourth quarter of last year, giving the new Finance Minister Nhlanhla Nene plenty to think about. It also confirms the South African Reserve Bank’s (SARB) monetary policy dilemma: prices are rising due to a weak Rand, but the economy is battling. The recent improvement of the Rand should take some pressure off the SARB in the short term. All in all, we are still in a tightening cycle, but rates are expected to rise more gradually than in previous cycles, as borne out by May’s Reserve Bank Monetary Policy Committee’s decision to keep the repo rate unchanged at 5.5 per cent.

Wholesale trade The one sector that has done reasonably well over the past few months has been wholesale trade. At first glance, this trend seems intact since real wholesale trade sales rose six per cent year on year in March. However, when comparing March with February, sales fell

Dave Mohr, Chief Investment Strategist for Old Mutual Wealth

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The opportunity cost of not holding the four large cap

Rand hedge counters

Over the past three years to 31 March 2014, the four large capitalisation Rand hedge stocks of the JSE Top 40, namely Naspers (NPN), Mondi (MNP), Richemont (CFR) and South African Breweries (SAB), have consistently delivered top quartile performance.

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he ongoing P/E multiple expansion, which has been driven by a perceived certainty of earnings and Rand hedge qualities, has led to differing views on valuation from many fund managers, with some choosing to stay away from the high-quality end of the market despite the increased weighting of these stocks within the Shareholder Weighted Index (SWIX). The weighting of the four large cap Rand hedges in the SWIX has almost doubled from 10.44 per cent to 18.31 per cent between March 2011 and February 2014. We investigate the opportunity cost of not holding some or any of the four large cap Rand hedge counters.

Equity market performance Over the last three years equity markets have delivered stellar performance, but the fate of individual counters has been varied. As can be seen in graph 1, the top

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Graph 1 - Individual stock performances

performing shares on a rolling three-year basis to 31 March 2014 were Coronation Fund Managers (up 77.18 per cent annualised), Aspen (up 52.70 per cent annualised) and Naspers (up 47.22 per cent annualised).

On the opposite end of the spectrum, all gold and platinum shares have battled under an economic cycle witnessing declining

commodity prices, crippling strikes and increasing costs. On a sector level, the Healthcare sector was the best performing sector (up 36.68 per cent annualised), closely followed by the Consumer Services sector (up 32.19 per cent annualised). Basic Materials was the worst performing sector, delivering a disappointing 0.28 per cent on an annualised basis.

27four

resulted in the alpha generation not being close to significant enough to offset the negative alpha from holding none of the big four Rand hedges. In an exact reversal of Graph 2, Graph 3 shows that a zero weighting in these shunned stocks in fact detracted from alpha moving into the first quarter of 2014 as these stocks reversed.

Graph 2 - Opportunity cost of holding none of the big four Rand hedges

The impact of the big four Rand hedges over the last three years, not only on absolute performance basis but also risk-adjusted performance as well as consistency of performance, has been a formidable hurdle to overcome. An active weight in the alternate performing stocks and sectors of the market was necessary to offset the alpha detraction from holding none of the big four Rand hedges.

Our analysis also showed that even maintaining a 2 per cent overweight in five of the best performing shares in the SWIX index (CML, APN, WHL, MDC and MPC) over this period, as well as holding none of the bottom five shares depicted in Graph 1, would still not have been sufficient to generate adequate alpha to compensate for the erosion of alpha from holding none of the big four Rand hedges.

Graph 3 - Contribution to alpha from holding none of the swix's worst performers

Conclusion While market conditions and performance remain as fragmented as is evident over the past three years, it would be most prudent to fully establish all sources of an equity portfolio’s risk and return characteristics. It would be premature to attribute alpha generation through the picking and overweighting of particular stocks solely to manager skill and a sustainable source of outperformance.

The opportunity cost of not holding any of the big four Rand hedges While the start to 2014 witnessed a moderation in performance for Mondi and Naspers and a notable correction in South African Breweries and Richemont, portfolio performance extending back three years remains biased to these and other Rand hedge stocks. Equity fund managers who have not held these stocks or held an underweight position struggled to outperform the SWIX composite over the period.

Graph 2 depicts the opportunity cost to portfolio performance over various periods of not holding any of the big four Rand hedges.

This is done in isolation (in other words we assume that all other active bets neither contributed to nor detracted from overall portfolio alpha). With the exception of the one-year period and the last quarter, during all other periods not holding all of these four

stocks would have hurt performance. What is evident, however, is the stark reversal in this opportunity cost during the first quarter of 2014. As superb performance from the Rand hedges pushed valuations into historically expensive territory and market participants became weary of holding stocks essentially priced for perfection, a correction occurred. In fact, the correction witnessed during the first quarter resulted in having a zero weight in SAB over one year being a positive contributor to portfolio performance relative to SWIX.

Market cycles turn vociferously during such disjointed periods of performance and the timing of such a swing is notoriously difficult to accurately anticipate. A long-term, well diversified fundamental approach to stock picking, always being cognisant of the price paid for a particular investment, will always seem to provide the most superior compounding effect with extreme values of performance being avoided.

Compensating for the missed opportunity cost While there was fairly substantial alpha generation to be enjoyed from holding none of the JSE’s worst performers (including the gold stocks, African Bank and JD Group), the diminishing weighting within the SWIX index as a result of protracted underperformance

Nadir Thokan, Investment Strategist, 27four Investment Managers

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Global economic commentary

Improving US economic data

and EM buying opportunities US equity markets are again approaching all-time highs while many emerging markets remain out of favour.

India and South Africa have both enjoyed solid runs the past few months, while Brazil, China and Russia remain laggards in the emerging space.

U

S economic data continues to improve with unemployment figures at multi-year lows of 6.3 per cent (May). This is down from 6.7 per cent in March. The US economy added 288 000 jobs in April, the strongest month for job growth in two years. Also very positive were the higher revised job numbers for both February and March, showing the economy is over that winter lull. Economists estimate it could take at least another two years until the job market returns to its pre-recession health, when the unemployment rate was around four to five per cent.

Nevertheless, pressure is increasing for the European Central Bank (ECB) to act, given that its balance sheet continues to contract, which is an effective tightening of monetary policy.

Many analysts believe ECB President Draghi will finally unleash the necessary quantitative easing at the next meeting.

One of the strongest sectors for job growth is professional and business services. The industry added 75 000 jobs in April. Over the past year, it has added more than 660 000 jobs. Retail, restaurants and bars – traditionally low-wage industries – have also accounted for strong job growth, and blue-collar industries like manufacturing and construction are on the upswing. The one leading sector that continues to cut jobs is the federal government, which slashed 83 000 positions over the past 12 months.

Emerging markets as a group largely show flat to slightly negative growth in US Dollar terms over the past year (MSCI Emerging Markets index is down approximately two per cent for the year). This is mostly due to the BRICS in particular being out of favour.

Russia’s activities in Ukraine along with negative economic data emanating from Brazil and China have not helped. We still believe China will succeed in growing close to the 7.5 per cent rate projected, based on positive data emerging on electricity and railway transportation usage.

Interest rates remain lower than many expected, especially with the US 10-year Treasury pricing at 2.5 per cent. However, Fed Chairman Janet Yellen has signalled she is in no hurry to push rates up, while the real estate (residential) market remains fickle and not showing robust growth. The rate-setting FOMC continued to taper its monthly asset purchases by another $10 billion each month, reducing the bond buying stimulus to $35 billion by June.

Global government bond markets and the European bond market both surprised investors year to date with returns of 3.8 per cent (in US Dollars) and 4.8 per cent respectively (Euros).

US equity markets are up approximately 20 per cent year on year to end May, slightly beating out the global developed market benchmark (MSCI World), which returned approximately 17 per cent.

Continued improvement among many of the weaker European countries’ GDP growth prospects has helped push equity markets in the region to new recent highs. The MSCI EMU Index is up 22 per cent over the prior one-year period.

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European property markets have also shown encouraging growth, posting a 6.5 per cent year to date gain by early May (Citigroup BMI Index). In comparison, the US REIT Index gained 14.4 per cent over the first four months of 2014.

The trend remains for US rates to gradually move higher. A relatively weak US Dollar is helping exporters, and so we believe US corporate earnings will remain positive and equities will perform well. We expect Europe and Japan to possibly outperform the US due to more favourable valuations there. While emerging markets remain out of favour, we believe it is a terrific buying opportunity currently, given low valuations across the MSCI EM Index.

Anthony Ginsberg Director, GinsGlobal Index Funds

Industry associations

Retirement fund trustees receive governance training The Institute of Retirement Funds Africa (IRFA) recently completed some all-important training nationwide for retirement fund trustees. Given the issues that the industry experiences, and the ongoing reform proposals, this was a much-needed project for those who are battling to keep up to date.

I

n an industry that is undergoing significant regulatory changes and battling cases of corruption and poor administration, the spotlight has never shone so brightly on retirement funds.

However, talking about reform and then teaching its principles and fine details are two entirely different animals.

With thousands of retirement funds in South Africa, the industry is an influential and powerful tanker that is understandably difficult to turn. That hasn’t stopped the Registrar of Pension Funds from preparing “a number of draft regulatory instruments intended to implement new provisions in the Pension Funds Act relating to trustee training, ‘fit and proper requirements for trustees’, improving fund governance and promoting the harmonisation and consolidation of retirement funds” (Treasury, 14 March 2014).

The IRFA has responded to the government directives, as well as the needs of retirement fund members, by creating trustee development training seminars to improve governance. The first session took place in mid-May in Cape Town, Durban and Johannesburg and will be followed by a second session in September.

The seminars are well timed considering that the industry has only recently experienced negative publicity after a suspension due to misconduct within the R1.2 trillion Government Employees Pension Fund (GEPF).

The long and the short of it is that the

Registrar possesses the power to inspect retirement funds as per section 25 and 26 of the 2007 Pension Funds Amendment Bill.

This puts a huge demand on trustees to be compliant and up to speed, or there could be an intervention.

The list of expectations does not stop at financial control and administration, but extends into ethical conduct as well.

Corporate South Africa has been victim to an incessant wave of 'reverse Robin Hood’ corruption ploys and pleadings of ignorance, in which individuals with authority rob the poor to pay the rich.

This has been illustrated by the creation of dubious incentive schemes offered to advisers, the failure to disclose charges to members, and then trustees redirecting responsibility for charges laid against them to service providers.

Trustees need to be fully aware of what they’re signing their name to. The changes within our industry are moving at lightning pace and it’s something that you cannot be lethargic about. Learners will be given NQF level 3 certificates and will receive an in-depth understanding of the responsibility and duties of a trustee. This is perfect for both new trustees and principal officers who are standing for election for the first time, or seeking re-election and needing a refresher course to update their knowledge while building a career in the industry.

With the Treasury seeking to make retirement saving compulsory for another six million South Africans who are not

members of retirement funds, there could be a huge influx of funds to be invested, monitored and managed.

Workers will need to understand what they’ve invested in, and should be updated regularly on the status of their investment – an activity that is sorely lacking at present from many of the funds.

Much has been said about PF130, issued by the Financial Services Board in 2007 to drive corporate governance in the industry, but more can be done. Its intricate detail and high expectations are admirable, but require further practical application, guidance and leadership.

Perhaps this training may act as the catalyst to drive accountability, contribute to much-needed retirement reform, and install safeguards for members’ hardearned life savings.

Steven van Schanke, CEO, Institute of Retirement Funds Africa (IRFA)

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Investment solutions

Investment

management fees Active asset managers are typically rewarded by two types of fees, namely fixed fees, which are usually charged as a percentage of assets under management, and performance fees, which reward managers for performance in excess of a pre-defined benchmark.

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ur rough estimate of the retirement fund industry is that over 80 per cent of assets are managed on a basis that has both fixed and performance fee components, with 19 per cent having only fixed fees and less than one per cent of assets managed on a performance fee only basis. Thus 99 per cent of retirement funds assets are paying fixed fees of some sort to their investment managers.

The vast majority of these are based on a percentage of assets under management.

In turn, the percentage of assets under management is based on the fact that many of the costs an investment manager incurs are linked to the asset size. These include professional indemnity insurance, regulatory capital requirements, outsourced back office administration, custody charges and so on.

How is the fixed fee determined?

• The asset class or type of mandate: Investment managers typically charge higher fees for mandates or asset classes that target higher returns, require greater skill to manage or where the opportunity set of securities to research and invest in is greater. Investors can therefore expect to pay higher fees for management of equities than for management of bonds or cash. Global equities, with a universe of 16 000 shares to research and choose from, costs more than local equities, where the universe is roughly only 200 liquid investible shares. In cases where managers are asked to run balanced mandates where asset allocation is required, or capital protection strategies are employed, fees may also be higher.

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• Whether they are in combination with performance based fees: Typically, fund members could expect to pay a lower fixed fee if the investment manager has the ability to earn additional performance fees.

• Manager capacity and past performance: Asset managers with limited capacity to manage assets on behalf of clients or those with very successful track records typically charge higher fees. It’s a simple supply and demand equation.

• Size of mandate: Clients with larger asset sizes can negotiate lower fixed fee percentages. Most asset managers will offer a sliding fee scale. As pension funds grow in asset size, while the total Rand value of fees paid by the fund will increase, members will benefit from economies of scale as the percentage payable moves down the sliding fee scale.

Fixed fee ranges

Trends in fixed fees Fixed fees have gradually been moving lower over time. This is most noticeable in cash and low risk mandates and, to an extent, even in more core type mandates in equities and bonds. To a certain degree this is a result of passive investments becoming more prominent. At the same time, we have seen many niche types of mandates coming to the market attracting higher fixed fees. Examples include high yield corporate bond funds, emerging market funds and some of the alternative asset classes such as hedge funds and infrastructure.

Considering the bigger picture The fixed fee component is just one element in an overall investment management fee arrangement. Fund trustees and other stakeholders need to look holistically at the total level of fees paid to the investment manager in the context of the desired investment outcome.

Based on the above factors, the following graph gives a broad guideline for ranges of fixed fees in the major asset classes for single manager active portfolios (see graph).

Domestic Domestic Domestic Domestic Offshore Offshore Offshore Offshore Cash Bonds Equity Balanced Cash Bonds Equity Balanced

Steve Price, Chief Operating Officer, Investment Solutions

Investment strategy

Making the

market simple

O

ne of the largest global equity managers, the Vanguard Group, was started by the founder of passive investing, John Bogle, who was nominated by Time magazine in 2004 as one of the top 100 influential people in the world. Bogle coined the phrase ‘Don’t look for the needle; buy the haystack’.

In 1975, when he was a student at Princeton University, Bogle took a long, hard look at actively managed investment funds. He looked at their costs and the fact that they didn’t always do what they said they would do, namely outperform the market. He realised what was needed: to stop trying to be smart and focus instead on reducing costs and fees. Today, passive investing is a $2 trillion global industry that is now catching on in South Africa.

In light of this, and the fact that in South Africa only 26 per cent of actively managed funds have beaten the FTSE/JSE Top 40

index over the past five years (see the table), iTransact’s investment strategy is to provide a one-stop passive investment product platform for financial advisers wanting to use passive investment products to help their clients meet their investment objectives with the least possible costs.

Passive management (also called passive investing) is a financial strategy in which an investor (or a fund manager) invests in accordance with a predetermined strategy that doesn't entail any forecasting (for example, any use of market timing or stock picking would not qualify as passive management). The idea is to minimise investing fees and avoid the adverse consequences of failing to correctly anticipate the future.

The most popular method is to mimic the performance of an externally specified index.

Retail investors typically do this by buying one or more index funds. By tracking an

index, an investment portfolio gets good diversification, low turnover (good for keeping down internal transaction costs) and extremely low management fees. With low management fees, an investor in such a fund would have higher returns than a similar fund with similar investments but higher management fees and/or turnover or transaction costs.

Passive management is most common on the equity market, where index funds track a stock market index like the Top 40 Index. Exchange traded funds (ETFs) let your clients own a wide diversity of wealth-generating companies in a very simple and economic way. Through buying a single share, your clients own the value of many shares. iTransact makes the market simple for everybody, with a range of over 60 types of index products, including ETFs, ETNs, ETF portfolios, ETF retirement annuities and index structured products with capital protection.

Percentage of active funds beating the indices Index

Benchmark Benchmark Benchmark Benchmark Benchmark

1: FTSE/JSE Top 40 TR ZAR 2: FTSE/JSE Top 40 SWIX TR ZAR 3: FTSE/JSE Mid Cap TR ZAR 4: FTSE/JSE Dividend Plus TR ZAR 5: FTSE/JSE RAFI 40 TR ZAR

Source: Morningstar, general equity classification

1 Year

3 Years

5 Years

13% 7% 93% 98% 43%

32% 19% 30% 66% 50%

26% 18% 11% 30% 17%

Lance Solms, Director, iTransact

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LISPS

LISPs simplify offshore investing Many investors are keen to invest offshore but neglect to do so as they find it too daunting.

However, by using an offshore platform (or LISP) the process is relatively painless. company, your money is safe from the investment company’s creditors.

As most South African platforms are operated

by South African companies, they can be impacted on by changes to the South African foreign exchange regime. However, your investment is in foreign assets and in foreign currency. When you wish to make a withdrawal, your investment can be transferred to an offshore bank account registered in your name, without any further South African exchange controls.

Fund selection and independent fund ratings With a huge selection of funds available globally, some platforms have taken a decision to offer a manageable, yet adequate, number of funds on their offshore platforms.

O

ver the past few years, the South African Reserve Bank (SARB) has relaxed foreign exchange controls, making it considerably easier for investors to take money offshore. If you want to invest directly into offshore funds, but prefer to use a local administrator rather than having to open accounts with several offshore managers in different jurisdictions, you can do so through a locally administered offshore investment platform.

Offshore platforms offer investors convenient service across a range of funds and often reduce the high direct and indirect costs of international investing.

Ease of administration Working through an offshore platform has significant advantages for investors, particularly if it is administered locally.

A platform can process instructions for several funds at the same time, sent to a single address, with local telephone and fax lines for instructions and physical offices.

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You can invest or transfer cash or existing offshore investments to a locally operated platform without the need to repatriate them first. In addition, many platforms offer easy reporting and online transacting through the use of a secure website.

For estate planning, an offshore investment on a locally administered platform can be dealt with locally in the estate under a South African executorship. The investment will not be subject to the administrative complications of estate law in offshore jurisdictions or require the appointment of an offshore executor, as is the case with many offshore-domiciled investments.

This simplifies matters considerably for the deceased’s South African executor.

The fund selection on our offshore platform is based on demand from financial advisers.

We have also recently added qualitative fund ratings, assigned by independent fund ratings company Fundhouse, to our fund list. Fund ratings add an extra layer of comfort for investors and advisers when selecting funds.

For many investors, investing offshore is fraught with uncertainty. Using an offshore platform helps to remove some of the anxiety and mystique surrounding the offshore investment process.

Your investment is safe The regulatory regime in South Africa is rated among the best in the world. Under South African regulation, your platform assets have to be held in the name of a protected nominee company that is tightly regulated by the Financial Services Board. Because you are invested through a protected nominee

Jeanette Marais, Director of Distribution and Client Service at Allan Gray

LISPs – offering

advantages to both IFAs and their clients

A

linked investment service product, or LISP, commonly referred to as an investment platform, is an administration and reporting capability which facilitates transactions for the investor between many investment product providers.

Linked investment services came into operation in 1986, launched by the now defunct UAL Merchant Bank.

Regulation Linked investment services were not originally regulated, but are now regulated by the (Financial Services Board) FSB. An investment platform such as STANLIB Wealth Management is a registered administrative financial service provider in terms of the Financial Advisory and Intermediary Services (FAIS) Act and is regulated by the FSB. The investment platform has to comply with FAIS requirements, submitting regular FAIS compliance reports and audited financial statements to the FSB. As many investment platforms offer retirement fund products, such retirement funds have to comply with the Pensions Fund Act and are also regulated by the FSB. A win-win for advisers and clients Using a LISP allows independent financial advisers to maximise their service to their clients, as well as run their businesses more efficiently and cost-effectively. The investment platform provides administration and reporting capability to the financial advisers and the investor.

• The financial adviser is helped in the financial

planning process through the provision of research and analysis tools, and online administration and reporting capabilities. This also reduces costs in running the business.

• The investment platform keeps the financial adviser abreast of changes in the regulatory landscape and provides product training.

• The investment platform also ensures that the financial adviser is compliant with the various regulations.

• The investment platform provides a single view of all the financial adviser’s clients, both consolidated and individually.

• From the investor’s perspective, the investment platform helps the investor to transact between many investment product providers, either through a financial adviser or directly through an online system, without going to each of these providers individually.

The investment platform is therefore a single source of contact. The client benefits, as outlined above, from being advised by a well-informed financial adviser with the capability to provide the best advice and the right product, at the right price and backed up by excellent service.

• The investment platform can provide investors with lower management fees because it uses its power with the product providers to negotiate fees which are, in certain instances, lower than the normal retail classes.

• The investment platform also provides consolidated reporting by combining the client’s investments on a single platform to provide a comprehensive overview of the client’s investment portfolio.

Over the past year, the STANLIB Investment Platform has enhanced its product offering extensively to ensure that it provides investors with the right product at the right price and with the best service. It does this by providing financial advisers and clients access to its administration and reporting capabilities through STANLIB Online.

In February 2014, the STANLIB Investment Platform introduced the Linked Range of Funds, one of the first ‘clean price fund’ offerings in South Africa.

Clean price funds include no fees to financial advisers and product providers, including only fund management fees.

The platform has also made model portfolio ‘wrappers’ administration capability available to financial advisers.

These portfolios allow financial advisers to construct and administer an investment strategy aligned to the investors’ longterm investment goals.

The STANLIB Investment Platform now provides share portfolios, which allow investors to diversify their investments in retirement products between traditional unit trusts and shares available on the JSE.

Shaan Watkins, Head: STANLIB Linked Investments

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the roundtable convergence of great minds

Key speakers at the event Patrick Mathidi BCom (Acc) Hons, BCompt (Acc), MScFin Head of Core Strategies at Momentum Asset Management Patrick joined Momentum Asset Management in June 2007 and has 15 years’ industry experience. From 2011, he took over as the lead portfolio manager on the core equity, houseview balanced and optimiser aggressive balanced portfolios and is also the lead portfolio manager on the top-performing Momentum Top 25 Fund. He was appointed head of Core Strategies in April 2014.

Norman Mackechnie BSc (Eng), MSc (Eng), DIC, MBA, CFA Portfolio manager at Momentum Asset Management Norman joined Momentum Asset Management in 2000. He started his career in investments in 1988 and has worked as an investment analyst and portfolio manager in various asset management divisions. He has been actively involved in setting up investment processes and held the position of chief investment officer at a previous company.

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Three Momentum Asset Management roundtable discussions were held in June: in Centurion, Sandton and Cape Town.

The topic centred on how investors can best tackle an environment of expensive local equities and an uncertain outlook for bonds, property, the Rand and offshore assets. The portfolio managers from the Momentum Asset Management Core Strategies team discussed valuable information on the need for carefully defined investment mandates and how to manage risk in the current market.

Managing risk in uncertain times requires those investment consultants and asset managers of an active management persuasion to bring all of their skills to the table. Factors that need to be considered when the markets are turbulent include (but are, of course, not limited to) volatility, not giving in to panic (and persuading your clients not to give in to panic) and doing even more homework when it comes to the performance of the various asset classes and particular stocks, both global and local.

Today, of course, geopolitical uncertainty seems to be playing a greater role. It was against this background that a select group of independent financial advisers attended the three June Momentum Asset Management roundtable discussions.

Patrick Mathidi, head of the Core Strategies team and portfolio manager, elaborated on the team’s investment process and how they view the prospects for the different asset classes.

Mathidi explained that the future is uncertain, with numerous possible outcomes for the economy and financial markets, clarifying: “To achieve consistency of outperformance, we consider the full range of possible outcomes and diversify adequately across returns drivers and investment insights. Our investment return drivers are macro-economic factors and

Momentum Asset Management

fundamentals evident over the long term, noting that compounding is a powerful force.”

Mathidi also mentioned that managing portfolio risk through adequate diversification, so as to avoid large drawdowns, is another critical component of long-term wealth accumulation. “Human nature tends to focus on the shorter term, especially in heightened uncertainty.

Successful investing requires rationality, hence a defined, repeatable process is crucial for clear decision-making. Therefore, we are judicious and long-term valuationbased investors, with a fundamental emphasis on research. We are processdriven and team-based investors.”

Mathidi also provided an in-depth brief on the positioning of the Momentum Top 25 Fund, a high-risk fund with a five-year plus investment term, and the Momentum Balanced Fund, a medium- to high-risk fund with a three- to five-year investment horizon.

Norman Mackechnie, portfolio manager of the Momentum Conservative Fund, outlined the investment philosophy and positioning of his fund, a multi-asset low equity investment.

All in all, the events were positively received as useful and informative presentations, which allowed for maximum yet informal interaction between delegates and presenters.

Managing risk in the current market Momentum Top 25 Fund The fund's objective is to maximise returns over the FTSE/JSE All Share index over time (benchmark SWIX 40; peer group SA Equity Large cap), although potentially at a slightly higher level of risk. The performance of the fund relative to this index is a function of the specific weightings given to sectors within the equity market and to individual securities within each of those sectors.

Key facts: • Fund manager Patrick Mathidi • Fund size R439 million • Annual management fee 1.25 per cent + VAT • TER 1.44 per cent • Maximum stocks 25 • Limits 100 per cent SA • Risk level high • Inception date 1 April 2012

Momentum Balanced Fund The Momentum Balanced Fund is a multi-asset high equity investment with a benchmark of CPI plus five per cent. While the investment term is three to five years, it has consistently outperformed its benchmark over a 10-year period.

Key facts: • Fund managers Patrick Mathidi and Herman van Papendorp

• • • • • • •

Fund size R4.29 billion Annual management fee 1.25 per cent + VAT Performance fee (0-1 per cent) + VAT TER 1.65 per cent Maximum equity 75 per cent Offshore 25 per cent Global, 5 per cent Africa Risk level moderate to high

• Inception date 1 February 1995

Momentum Conservative Fund The Momentum Conservative Fund is a lower risk, multi-asset low equity investment with the potential of inflation-beating returns. It has consistently beaten its benchmark of CPI plus three per cent over the past five years. The investment process is what underpins the fund’s consistency of returns with predictable outcomes. The fund operates according to a strong risk management process and is Regulation 28 compliant.

Key facts: • Fund manager Norman Mackechnie • Fund size R660 million • Annual management fee 1.25 per cent

plus VAT • TER 1.80 per cent • Maximum equity 40 per cent • Offshore 25 per cent Global, five per cent Africa • Risk level low to moderate • Inception date 1 July 2005

Norman Mackechnie (left) and Patrick Mathidi (right)

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Poker and strategic beta: suckers wanted?

You probably know the adage of the sucker at the poker table.

Look around the poker table and try to determine the player who was invited to be fleeced. If you can’t figure that out in the first dozen hands, then bad news: you’re it!

T

he tale holds two lessons. First, not every player is equally positioned. Some will be winners, while others will be losers.

Second, suckers are defined not only by their shortage of skill, but also by their lack of self-awareness. Indeed, at this parable’s conclusion, the sucker is no longer a sucker. In realising their intended role, this player leaves it behind and becomes a legitimate participant in the game.

Why would somebody take a trade that is expected to lose? One possibility is that they are collectively suckers at the table. One argument for value investing (which is a form of strategic beta, although not normally described as such) is that growth investors systematically overpay for attractive companies. By that logic, value investing is a simple wealth transfer from the bad poker players (growth-stock buyers) to the good players.

Strategic beta should be viewed in the same light: it also has expected winners and losers.

A strategic beta fund is only worth buying if it offers extra return, lower volatility and/or lower correlation than a standard beta offering. If it does, it is an expected winner. Thus, those on the other side of the trade are expected losers.

That is an over-optimistic view. As a group, value stocks carry a special danger that growth stocks do not: the risk of suffering economic devastation during a deep economic downturn.

This danger does not appear in conventional risk measurements. It lurks, however, waiting to be triggered – as in 2008, when many value

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portfolios cratered because of high exposure to recession-sensitive financials.

Owning value stocks, therefore, is a trade-off.

The value investor receives higher expected returns and lower volatility (along with roughly similar correlation). In exchange, he or she assumes the rate but also the potentially devastating possibility of selling apples after the Great Depression II strikes. Perhaps value investors are overcompensated for that trade.

Perhaps growth investors overpay for the insurance of owning better-quality companies.

But there is a genuine risk that is assumed, and the sucker is the person who doesn’t realise the exchange was made.

Perversely, the existence of hidden risk is good

Morningstar

higher returns. Most investors prize liquidity, either out of necessity, or for greater mental comfort. There may also be institutional mandates for a certain level of liquidity in professional managed portfolios. All these factors should make liquidity a winner going forward, for all manner of securities.

Value: There is a true psychological cost to owning value stocks. Value securities trade at low price multiples because their issuers are unpopular.

Fundamental investing: Observers differ as to whether fundamental investing, in other words constructing an index according to a company’s economic activities rather than by its stock-market valuation, is its own species of smart beta, or merely a flavour of value.

I believe the latter; thus, what I write above of the value factor would apply equally to fundamental investing.

Low volatility/low beta: Low volatility, low beta and value are related factors. A stock that has a low level of volatility will probably also have a low beta, that is, it will be relatively insensitive to movements in the overall stock market. It is also likely to be a value stock, as volatility rises along with a security’s price multiples. For me, most of the benefit claimed for a low volatility strategy is likely to come from the related attribute of value.

for the strategic beta investors. If there is no true risk, the historic alpha associated with that strategy is likely either an accident or a misperception that will soon be fixed. Strategic beta owners can’t realistically expect to get something extra for nothing, year after year, without anybody taking notice and arbitraging away the trade. A sustainable strategic beta strategy is one where the strategic beta owner willingly accepts an additional risk, in exchange for better performance.

With that backdrop, let’s rank some of the major strategic betas, from most to least sustainable.

Liquidity: One of the newer smart betas, liquidity is surely the most reliable of the bunch.

The so-called liquidity premium actually means the opposite of what its name would seem to suggest: that is, it means accepting a loss of liquidity by investing in securities that are particularly difficult to trade. In exchange for foregoing the ability to make easy, low-cost trades, the investor can and should receive

Advocates of low-volatility strategies point out that few investors, either retail or institutional, are willing to leverage. As a result, if they wish to assume more risk in exchange for more potential return, they often find themselves considering a trade of a lower-volatility security for one that has higher volatility and, presumably, higher expected return. If they are bond investors, they may move up the yield curve by buying a longer-dated bond. As stock investors, they might swap a defensive, lowvolatility stock for an aggressive, high-volatility issue. This habit of chasing higher-volatility securities, says the argument, pushes down their expected returns and raises the prospects of the neglected low-volatility issues.

There is some logic to that argument as the structural preference for avoiding leverage creates an investment imbalance. On the other hand, there’s no true risk associated with holding lower-volatility securities. The liquidity factor tangibly and truly affects the ability to trade, and the value factor causes discomfort.

Holding lower-volatility securities, on the other hand, is quite pleasant. I think it possible, perhaps even probable, that the historic investment benefit from holding low-volatility securities will disappear as this smart beta grows in popularity. This smart beta is too easy to own.

Size: Of the two original smart betas that were

documented in the influential Fama/French papers of the early 1990s, value and size, only the former has retained its reputation. Size has performed in such a lacklustre fashion that many former adherents now doubt if size is a risk factor at all. There aren’t any obvious additional dangers that come from holding a diversified basket of smaller-company stocks, as opposed to holding large-company stocks. I put size in the middle of the list, however, because it unquestionably is associated with liquidity, which as we have seen is very much a risk factor. I would expect a buy-and-hold investor who is careful about trading costs to do well with small-company stocks, for the liquidity beta if nothing else.

Momentum: I have always regarded the momentum factor as a mystery. I don’t know why stocks that have performed particularly well in recent months should be expected to perform particularly well for the next month. I also don’t know why the reverse should hold true. Thus, for me, momentum doesn’t appear to be a risk factor. There is no adequate economic or behaviourial explanation for its persistence. Aside from trading costs, there is no barrier preventing investors from implementing momentum strategies.

Profitability: This also seems to be unsustainable. Clearly, the stocks of highly profitable companies have indeed outperformed the stocks of other companies, as demonstrated by several research papers. The question is, why? The only answer I can determine is that investors collectively were stupid. They always knew that high profitability was a good thing but they failed to price this advantage properly.

They paid up for a high level of profitability, but not enough. They underpaid for the attribute.

In short, the most-credible strategic betas on this list appear to be liquidity and value, with the next brightest being those that are associated with the first two attributes.

John Rekenthaler, Vice President of Research, Morningstar

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Multi-Managers

The good, the bad and the ugly:

a better way to select fund managers

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hen choosing the best fund managers for your multi-manager portfolio, it’s important to remember that many academic studies have proven that a fund manager’s past performance is no guarantee of future success.

At Analytics we monitor the Morningstar rankings, for example, but take care not to let our decisions be influenced unduly by them.

Our reservations include some of the following factors: changing the start or end-date of the analysis by a few months can change rankings drastically; short-term rankings of less than a year are mostly the result of market noise; and some categories include managers with different styles and/or investment approaches, making comparisons difficult at best and meaningless at worst.

• Comparison of the fund's maximum drawdown relative to a suitable benchmark’s drawdown. We typically use the 2008 crisis to determine whether a specific fund’s drawdown was less than that of the benchmark.

• A decision-support system that can quickly and efficiently consider all the risk and return pieces of the puzzle and identify those fund managers that score consistently well on all the measures.

The good news is that the quantitative selection process described above should result in a list of superior fund managers to choose from.

The bad news is that you still need a qualitative process to weed the best managers from the rest.

When evaluating and selecting fund managers, we would argue that any quantitative fund selection process should, at a bare minimum, consist of the following elements:

The ugly news is that even if you end up with a list of superior managers based on both qualitative and quantitative considerations, your work as a multi-manager is still not done.

• A scrutiny of the latest performances to date, of a specific fund. The performances should be compared against a suitable benchmark, and short-term performances of less than three months should ideally be downweighted or discarded.

• An evaluation of rolling multiple year performances of the fund relative to a suitable benchmark. It is important to consider the consistency of outperformance over rolling periods, to mitigate beginning or end-point bias in your evaluation.

• A careful analysis of rolling risk-adjusted performances of the fund, relative to a suitable benchmark.

Before you put your feet up, you need to have a process of identifying managers who will behave differently in different market environments, and a way to combine these superior and different managers to form an optimal portfolio.

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who provide consistent outperformance at reasonable risk levels over long periods of time.

• The bad – our thorough research process enables us to gain qualitative insights regarding fund managers’ organisation structures, investment teams, investment philosophies, investment processes and operational procedures.

• The ugly – we regard portfolio construction as the most important component of our investment process. Profiling managers according to how their returns correlate over various time periods and how their portfolio holdings change in terms of market capitalisation and sector positioning all contribute to a better understanding of the differences in manager behaviour, and whether these differences will contribute to the portfolio as a whole in the future. The optimal multi-manager portfolio is ultimately constructed to diversify across different asset classes, managers, styles and strategies.

At Analytics, we take care of the good, the bad and the ugly, in constructing well-diversified portfolios for our clients. In brief, we do the following: • The good – we have developed a decisionsupport system that takes care of all the complex calculations to derive quantitative scores to indicate superior fund managers

Daniel Schoeman, CFA, Portfolio Manager at Analytics

Practice management

Hitting the

magic number of According to behavioural finance expert Meir Statman, “93.6 per cent of the financial planning process is the behavioural management of clients.”

W

hile we can debate the exactness of his estimate, most financial planners will agree that managing client behaviour is central to the financial planner’s role.

An obvious way for financial planning businesses to manage client behaviour effectively is to understand what influences the behaviour of their clients and then use those insights to manage their behaviour. Independent financial planning business, Chartered Wealth Solutions, takes all its clients through a life planning process before getting them into the detail of financial planning. As director Kim Potgieter says, “By having life planning conversations, we connect the client’s money to their lives.”

But the relationship between the client and planner is only one aspect of effective financial planning. A less obvious way is for financial planning businesses to ensure that they have the right people dealing with their clients; in other words having the right employees.

So often we speak about the importance of being client-centric, and putting the needs of the client first. I believe, however, that businesses need to be first and foremost employee-centric, if they have any hope of being client-centric.

Having happy, motivated and client-centric employees is an ongoing challenge for most businesses, and is ultimately a function of the ‘Three Rs: Recruitment, Retention and Remuneration’.

When recruiting employees, obvious requirements include a documented job description and that the employee has the explicit competencies, qualities and qualifications to meet the needs of the role.

Ideally these are outlined with your ideal client

93.6%

profile in mind. Former Financial Planner of the Year, Warren Ingram of Galileo Capital, says that at Galileo they like to hire employees with the ‘caring gene’. In this way, they know that their clients will be dealt with in an empathetic manner.

Once you have the right people on board, retaining them is the next challenge. The 2014 SA Universum Survey of 44 000 students and professionals found that the top three career goals of professionals are to have work/life balance; to be competitively or intellectually challenged; and to be secure or stable in their job. Interestingly, money doesn’t make it onto this list.

It seems principals and owners of businesses, through their approach to leadership and team-work, can create an environment that is either conducive or not to employee retention.

When it comes to leadership, the traditional command-and-control type of leadership appears to be on the way out. Certainly in a professional environment such as a financial planning business with skilled employees, the challenge of leadership seems to be to harness the individual potential of each employee and to lead with emotional intelligence.

If employees are used to working in an environment in which there are relationships of trust, support, respect, interdependence and collaboration, they are far more likely to develop such relationships with their clients, thereby being well positioned to manage their clients’ behaviour.

Sound leadership and an environment conducive to effective teamwork will undoubtedly help with the retention of staff.

But many would argue that remuneration is in

fact the key to staff retention. Given the outcomes of the Universum Survey, and the outcomes of international surveys on the best companies to work for, this may not necessarily be true.

Remuneration takes both a monetary and non-monetary form, with the latter including factors like flexible working hours or employee autonomy, which often hold more weight for employees than how much money they are paid.

Last year, the winner of Fortune magazine’s Best Company to Work For survey was Google, a company that has extensive non-monetary benefits for employees, such as flexible hours, free food and incentives to do voluntary charity work. Significantly, Google also offers its employees the opportunity to do meaningful work. As one employee puts it, “I have a sense of duty to do big important things, rather than just turn a profit. That feels great.”

The benefit of being a financial planner is that by its nature, financial planning is extremely meaningful work and offers the potential to impact materially on people’s lives. Being client-centric is key to this, but having an employee-centric approach is the only way to guarantee sustainable success in addressing the 93.6 per cent task.

Rob Macdonald, Chief Operating Officer, MitonOptimal South Africa

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Profile

&

Anthony Ginsberg, Managing Director: USA

Lisa Segall Managing Director: Southern Africa and Mauritius

Anthony Ginsberg and Lisa Segall, joint MDs of the Ginsglobal Index Funds, lead an interesting and challenging business life in that together they run a trans-Atlantic financial company across multiple time zones and on two different continents. Anthony is based in the US and Lisa in Sandton, Gauteng. They see each other face to face only once or twice a year and are passionate about the role that passive investing can play in wealth creation.

How do you run the business via two different offices separated by an ocean?

We both have different functions in the business and being on two continents gives us each a different perspective on how businesses can be run and servicing can be improved. We try and incorporate and inter-relate these positives into the business, which enables us to have a wider perspective on the business universe.

Anthony is mainly designing products for the likes of Zurich and ING and Lisa is responsible for servicing the South African unit trust industry.

What would you regard as being your greatest business success to date?

We began the business in 2000 with no assets and have grown to more than $1 billion in assets that we manage and administer. We still have a long way to go to make index funds more mainstream in South Africa. It has been gratifying managing offshore index assets for a number of South Africa’s largest asset managers and insurance companies.

Lisa: as a woman in the business world, do you believe that you have had to prove yourself more than your male peers?

What is it about your job that most excites you as you prepare to come to work every day?

No, I don’t think the gender issue comes into play at all. It’s about proving your competency; gender is not an issue for me.

Our mission is to democratise investing and reduce the level of intimidation many individuals suffer when considering offshore investing. We strive to make offshore investing as simple as possible and to reduce the level of costs and confusion. Indexing is a straightforward and transparent way to invest offshore and we want all South Africans to diversify their portfolios offshore; not only due to the Rand, but also to enjoy access to companies such as Apple, Boeing, Microsoft, Facebook and Google – sectors and companies South African investors don’t have access to.

What is your advice to asset managers in these interesting investment times?

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It is best to keep things simple and not try to be too aggressive. Our clients are looking at lowcost transparent products that simply allow them to track the performance of overseas investment markets, whether they are global equities, global bonds, real estate or money market. Index funds or passive investing is, by its nature, seen as the ‘plain Jane’ of the industry and our clients are typically conservative buy-and-hold investors who are not seeking to shoot the lights out.

Only a small minority of active fund managers tend to outperform their index benchmarks globally over most five-year periods (typically 20 per cent). To use a cricket analogy, we hit singles rather than going for boundaries. Index funds typically hold 10 to 15 times as many shares as a typical offshore unit trust – so we’re typically used as a cornerstone or foundation for portfolios, whether they are retail or institutional clients.

If you had R100 000 to invest (excluding in your own products), what would you do with it?

Given the uncertainty of the Rand and the current twin deficits South Africa is running, we are biased towards being overweight global markets relative to South Africa. Although the US had a very good run in 2013, we still believe it has significant legs left in the bull market there. Europe and emerging markets are currently more cheaply priced and we believe South Africans should increase their exposure to these markets.

How do you strike a balance between your personal lives and your work schedules?

We both exercise a lot – it’s a wonderful way to both work hard and play hard and keeps us focused. Our families provide a good grounding for enjoying our down-time and they help keep us down to earth about what is important in life – them.

Regulatory development

construction, but rather on identifying, quantifying, understanding, prioritising, fulfilling and servicing their clients’ financial needs. As a result, multi-management and risk-profiled solutions have become more prevalent.

3. Passive investment solutions With more pressure on fees and increased disclosure, passive investments have seen significant growth in the UK over the past few years, giving investors exposure to world markets at reduced fees.

RDR:

Lessons

from the UK

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he past few years have seen a number of changes in the regulatory landscape, bringing about significant changes in how service providers and intermediaries conduct their business. Conflict of interest legislation was quickly followed by the introduction of regulatory exams and Treating Customers Fairly (TCF) regulation. Retirement reform remains a work in progress, although the introduction of a tax-efficient savings vehicle has been earmarked for March 2015.

many have changed over to a restricted status. This is because UK legislation requires independent advisers to give whole-of-market advice every time they see a client, making it an expensive and time-consuming service.

3. Minimum professional standards of qualification for financial advisers have been increased. Advisers are also required to sign an agreement relating to TCF and firms are monitored to ensure they meet these standards.

One of the next steps will see changes in how intermediaries are remunerated for their services. This is known as the Retail Distribution Review (RDR) in the UK and the Intermediary Remuneration Review in South Africa. Once again, the Financial Services Board (FSB) will be taking its cue from changes that have already occurred in the UK.

Key areas affected

Changes in the UK Clients should be aware of the following when they get advice from financial intermediaries: 1. Advice has never been free and financial advisers are compelled to be transparent about the cost of their advice. Clients need to understand who they are paying fees to and what these fees are for.

2. There are two categories of advisers in the UK, restricted and independent, and they have to make it clear which products they can advise clients on. Restricted advisers will, for example, deal with two or three platforms only – they are not tied agents. Independent advisers can advise on any product, although

Following on from a recent trip to the UK, these include fees, behavioural changes, passive investment solutions, product provider and intermediary relationships and direct business.

1. Fees Advisers are no longer allowed to receive commission. They can only receive fees as negotiated with the client. Initial fees have almost been done away with in the UK platform industry. The level of disclosure between clients and advisers has increased dramatically, often resulting in more documentation to explain to clients exactly what they are buying.

2. Behavioural changes It was estimated that almost 12 500 intermediaries left the industry in the UK after the implementation of RDR, resulting in a 25 per cent reduction in independent financial advisers (IFA). Many retail banks have closed their tied agencies. Advisers no longer spend their time on portfolio

4. Product provider and intermediary relationship Regulation that requires a greater level of interaction between product providers and IFAs has resulted in more training sessions to ensure IFAs are properly accredited and equipped to sell the products.

5. Direct business Direct business increased after the UK implementation of RDR. The UK’s Baby Boomer market segment (those born between 1946 and 1964, post-World War Two) is currently regarded as the main market for direct business. It is estimated that roughly 50 per cent of this market segment seeks validation only from an IFA – they have already identified, quantified and prioritised their financial needs by doing Internet research.

The local approach In South Africa, the distribution landscape is complex, with a range of different distribution models. The FSB recognises that significant changes introduced in how this market operates could introduce risks to investors as well as intermediaries. However, they are positive about the fact that due to initiatives such as the regulatory exams, for example, the financial advice industry is seen to be more professional.

The industry regulator is currently considering some of the areas to be addressed locally and we expect a discussion paper during the second half of 2014.

Jean Lombard, Head of Business Integration and Research at Glacier

by Sanlam

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Retirement reform

On the road to

cost-effective retirement savings The National Treasury’s fifth and final discussion paper entitled Charges in South African Retirement Funds, released in July 2013, states that its ultimate intention is to help South Africans to get the best possible outcome for their retirement savings.

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he government is keen to review costs in the retirement funds industry because, for many South Africans in the formal sector, their retirement fund benefit represents their sole source of long-term savings. Without a comprehensive social security system in place, the government relies on the private sector to help address post-retirement funding for many citizens. The National Treasury believes retirement fund costs and charges have to be reduced to help improve pension outcomes for South African pensioners.

The National Treasury’s proposals • Encouraging fund consolidation to introduce economies of scale and reduce costs.

• Improving fund governance and ensuring that all fund operations are cost-effective.

• Ensuring that the Financial Services Board has sufficient power to monitor all aspects of the retirement environment.

• Retaining the role of the workplace to encourage distribution of products through the employer channel and not the retail market.

• Retirement product design must be simplified and charging structures standardised, as well as

restricting the number of investment options.

• The incentives of financial intermediaries must be aligned with the needs of their clients to minimise conflicts of interest.

• Auto-enrolment of individuals into funds will help improve the coverage of pensions, especially in the SMME sector.

• The introduction of a centralised clearing house to make it easier for smaller employers to compare different plans without requiring financial advice.

• Establishing a default fund for employers who don’t have a nominated fund. This could also house unclaimed benefits and facilitate preservation.

Alexander Forbes insights • If implemented, the proposals outlined in previous discussion papers could also lower the costs within the environment. In particular, the proposals around increasing preservation and annuitisation would result in reduced charges.

• Allow existing regulation and governance to take effect. Many changes like Treating Customers Fairly (TCF) and stricter governance requirements are being progressively implemented. It’s important to allow these material changes to take effect before introducing further regulation and governance.

• In many cases, the way that fees are quoted to clients is complex. This makes it difficult

for members to make appropriate decisions.

Another problem is the way performance fees are charged and explained to clients. Ideally, standard disclosures can be introduced to address these discrepancies. Principles should also be introduced to ensure that performance fees are structured appropriately and in the best interests of members.

Lastly, we believe that any form of penalty on termination should not be allowed, in particular for default arrangements.

• The proposal to introduce standard benefits may lead to sub-optimal outcomes for members. Member demographics and affordability of benefits vary by industry as well as employer. Another way to introduce standards is at trustee and management committee level. Boards should also have to conduct regular reviews of benefits and ensure that benefits are fit for purpose.

• We believe that restricting the type of investment strategies will have unintended consequences such as creating pricing distortions in the investment markets. To ensure a well-functioning investment market, members should be allowed to choose from a range of strategies from active through to passive. However, principles should be set for appropriate defaults to ensure these are appropriate for the relevant members.

• Historically, charges have been too high, and in some cases may still be so, but we have seen a reduction in charges (measured by reduction in yield) over time, through

consolidation, increased competition and heightened trustee governance and oversight.

We also see that for an employer, it is often cheaper to participate in an umbrella fund than a stand-alone fund, and many have followed this route.

• As with any proposed changes, it is important to consider the costs, but also the benefits associated with those costs, when making decisions.

Alexander Forbes would like to see all stakeholders engage in constructive dialogue to address these issues, to arrive at the most appropriate, sustainable solution to ensure a better retirement system and outcomes for all members.

John Anderson, MD: Research & Product Development, Alexander Forbes Financial Services

Nick & Barry {000031}

Whose money is it anyWay? When managing investments, we never lose sight of the fact that it is your money we’re looking after, and we do so with fastidious attention to detail. We even invest in our own funds, so that when we make decisions that affect your money, we’re making decisions that affect our own money too. It’s just one of the ways we ensure we align our long-term interests with yours. Because when you understand how hard someone’s worked for their money, you go to great lengths to take good care of it. For more information ask your financial adviser, call 0800 551 552, email info@psgam.co.za or visit psgam.co.za

Collective investment schemes in securities (CIS) are generally medium- to long-term investments. The value of participatory interests (units) may go down as well as up and past performance is not a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A fund of funds is a portfolio that invests in portfolios of collective investment schemes, which levy their own charges, which could result in a higher fee structure for these portfolios. A feeder fund is a portfolio that, apart from assets in liquid form, consists solely of participatory interests in a single portfolio of a collective investment scheme. Fluctuations or movements in the exchange rates may cause the value of underlying international investments to go up or down. A schedule of fees and charges and maximum commissions is available on request from PSG Collective Investments Limited. Commission and incentives may be paid and if so, are included in the overall costs. Forward pricing is used.

The portfolios may be capped at any time in order for them to be managed in accordance with their mandate. Different classes of participatory interest can apply to these portfolios and are subject to different fees and charges. PSG Collective Investments Limited is a member of the Association for Savings and Investment South Africa (ASISA) through its holdings company PSG Konsult Limited. PSG Asset Management (Pty) Ltd is an authorised financial services provider. FSP 29524

PSGAM130x175InvestSA_WhoseMoney.indd 1

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NEWS

Advanced Health lists onJSE’s ALTtX board Advanced Health (JSE: AVL) listed on the Johannesburg Stock Exchange’s (JSE) AltX board, which was designed to foster growth for small and medium sized companies.

Advanced Health owns two day hospitals in South Africa (Medgate Day Clinic and eMalahleni Day Hospital in Gauteng) and is developing the Soweto Day Hospital. It also owns three day hospitals in Australia and is developing a flagship five-theatre day hospital in Sydney. Day hospitals are healthcare facilities providing short procedure surgical services and diagnostic procedures.

Advanced Health’s facilities generated combined profits of R7.7 million in the year ended 2013.

Zeona Jacobs

Zeona Jacobs, director of issuer and investor relations at the JSE said that the JSE is always very excited to welcome a new company to AltX, because it believes that AltX provides small and medium-sized companies with a very good platform for growth. “Listing not only provides companies with access to capital, but it also helps them meet other objectives such as enhancing their relationships with stakeholders.”

“Advanced Health Limited is the 10th company in the healthcare industry to list on the JSE, which contributes 2.5 per cent to the overall JSE market capitalisation of around R11.5 trillion. This is an industry that has seen steady growth in the past seven years – growing from a market cap of R51.2 billion at the end of March 2007 to just over R284 billion today,” concludes Jacobs.

Momentum added to the investment lineup of Pennine Wealth Solutions Momentum Global Investment Management Limited announced its appointment by Liontrust Investment Solutions Limited to provide investment management services for the newly formed IPlus portfolios within Pennine Wealth Solutions LLP (PWS). Liontrust provides discretionary fund management services to PWS and its clients.

PWS provides an investment solution to IFAs and comprises a range of risk-

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rated portfolios covering actively managed growth, income and passive strategies, with a range of fund managers, overseen by Liontrust. Helen Lupton, compliance partner at PWS said that it was keen on the creation of the IPlus portfolios and the subsequent appointment of Momentum, as this new range of portfolios offers strong defensive qualities and the portfolios are managed with an absolute return mindset. “We were keen to enhance the range of solutions available to our clients, while offering portfolios in line with investors’ risk expectations and we feel that Momentum, with its expertise and following a diligent review process, met both requirements.”

Philip Childs, business development executive at Momentum, said that the combined wealth of experience of Liontrust and Momentum in multi-asset multi-manager investment

solutions will put PWS in a very strong position when helping to navigate today’s investment landscape. “By having a range of portfolios to select from, PWS clients can select from a wide range of risk and return objectives. We look forward to our ongoing relationship with PWS and meeting the investment needs of their clients.”

Nedgroup Investments seminar on complexities facing treasurers in modern corporates The third annual Treasurer’s Conference to be hosted by Nedgroup Investments took place on 12 June at the Maslow Hotel in Sandton. The free one-day event, with around 150 delegates registered, was geared at equipping South Africa’s Treasurers to better handle the rising complexity placed on their roles. The Treasurers’ Conference presented a diverse spread of speakers and topics, to help them get to grips with a fast-changing global environment, the broader African investment space, and topical issues such as Bitcoin. Cash management strategies were also addressed.

An online survey, conducted by Kyriba and the Association of Corporate Treasurers (ACT) in February and March 2014, showed that treasury teams are playing a broader role, contributing to tasks far beyond pure treasury, cash and risk management. With the spotlight now on treasury teams, there is more pressure for them to ensure that no cash is idle.

The line-up of speakers included Nedbank CEO Mike Brown, Alastair Sewell of Fitch

Ratings, Marshall Brown of Taquanta Asset Management, political analyst Aubrey Matshiqi, The Treasury Paradigm’s Charles Buchanan, Jonas Schoefer of The Hackett Group and technology entrepreneur Simon de la Rouviere. The Ned Talks panel discussion featured helpful advice from Steven Nathan of 10X Investments, Peter Armitage of Anchor Capital, David Woollam of Summit Financial Partners, the Financial Mail’s Tim Cohen and Nic Andrew of Nedgroup Investments.

Meyer said that he is honoured and humbled by his appointment. “I look forward to working with the FPSB Panel in implementing all set out objectives, and in driving the profession’s growth strategy in line with the global financial planning standards.”

Ingrid Johnson appointed as Old Mutual plc group finance director

Gerhardt Meyer

Gerhardt Meyer appointed as FPSB Regulations Advisory Panel chairperson The Financial Planning Institute (FPI) was pleased with the Financial Planning Standards Board’s (FPSB) recent appointment of Gerhardt Meyer, CFP® as the chairperson of the FPSB’s Regulations Advisory Panel.

Meyer, who is a former FPI chairperson, has served as a committee member on the FPSB’s

Ingrid Johnson

Regulations Advisory Panel for the past four years and will now lead this distinguished panel as chairperson until 2016.

He holds a BCom (law) degree and an LLB degree from the University of Stellenbosch. He is also a CERTIFIED FINANCIAL PLANNER® professional and an Advocate of the High Court of South Africa. He currently heads up the legal department at Old Mutual’s Retail Affluent division.

The Nedbank Group, a subsidiary of the Old Mutual Group, announced that Ingrid Johnson has been appointed as group finance director of Old Mutual plc.

Johnson will succeed Philip Broadley who announced his intention to leave the Old Mutual Group in December last year.

Mike Brown, Nedbank Group CE said that under Johnson’s leadership, Nedbank Retail has been repositioned into a clientcentred and aspirational bank for all with excellent risk management practices, while Nedbank Business Banking’s strategic positioning has been substantively enhanced.

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Products

NewPalladium ETF from Absa lists on the JSE The corporate and investment banking division of Absa Bank Limited, member of Barclays, has debuted its fully backed physical palladium exchange traded fund (ETF) on the Johannesburg Stock Exchange (JSE).

NewPalladium joins a suite of commodity ETFs from Absa that include NewGold, the largest ETF in Africa, and NewPlat, the largest platinum ETF in the world and the second largest ETF in Africa. An investment in NewPalladium, issued by NewGold Issuer

Limited, will provide investors with the opportunity to obtain exposure to the Rand performance of palladium bullion.

The first day of trading for the new ETF saw 884 696 NewPalladium ETF securities, referencing approximately 8 867 ounces of palladium bullion issued and listed on the JSE. Vladimir Nedeljkovic, head of exchange traded products at the corporate and investment banking division of Absa, said that the NewPalladium ETF further demonstrates Absa’s commitment to bringing

Manage equity investment risk with new suite of Sanlam funds Sanlam Investments recently launched a new range of funds designed to help investors manage the risk of investing in equities. The funds are particularly appropriate for pensioners who cannot afford stock market ups and downs.

The Sanlam P2strategies Funds have been successfully offered internationally and are expected to have strong uptake in South Africa, too.

Johan van der Merwe

P2international CEO, Cobus Kruger, said that the Sanlam P2strategies Funds help investors remain invested and avoid value-destroying behaviours such as buying high and selling low. “P2strategies’ belief is that even as investors become risk averse as they approach retirement, many need to remain invested in the stock market to help fund their desired lifestyle in retirement. Increased equity exposure does not necessarily mean they need to take on increased risk. By utilising P2strategies Funds, investors can access a solution that seeks to capture growth when markets rise and defend against losses when markets fall. Remaining invested is especially important for investors when they begin to take withdrawals.”

Johan van der Merwe, CEO of Sanlam Investments, said that they

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world-class financial products to local investors at competitive rates.

“The listing of the NewPalladium is significant for South African investors since this fund, like NewPlat before it, is classified by the South African Reserve Bank as a domestic investment, not affecting the foreign exposure limits normally applicable to institutional investors and authorised dealers.”

ETFs remain among the fastest-growing investment funds in major markets across the world. They are attractive because of their low costs, tax efficiency and stocklike features.

know South Africa’s exceptionally well-run pension fund industry will benefit tremendously from the risk management offered by P2strategies and are therefore excited to bring these products ‘home’. “The Sanlam P2strategies’ suite of funds provides flexibility for investors to create their own portfolio by giving them access to five major equity markets in the simple and cost-effective UCITS IV fund structure with P2strategies built in. The risk management aspect helps dynamically manage an investor’s equity exposure, helping to minimise losses during major market downturns and provide a smoother, less volatile experience for investors that are in pre- and post-retirement phases,” concludes Van der Merwe.

P2

The world

SOUTH AFRICA, FRANCE, CHINA, PORTUGAL, AUSTRALIA, LONDON, NEW ZEALAND

Moody’s : Tough time ahead for South African banks Moody’s recently confirmed its negative outlook for the South African banking system for the next 18 months. According to Moody’s senior analyst, Nondas Nicilaides, the negative outlook for the banking system is due to the high level of exposure to government securities, which forms a large part of the bank’s financial strength. Political and budgetary pressures as well as high inequality, unemployment and sluggish growth put the government’s negative rating at risk.

France’s economy at a standstill due to weak consumer spending France’s economy has been brought to a standstill due to weak consumer spending and business investments. According to the International Monetary Fund, President Francois Hollande’s government will struggle to cut its estimated €50 billion off France’s high public spending over the next three years. According to Natixis Asset Management chief economist, Philippe Waechter, France will now need 0.5 per cent growth each quarter to meet a government forecast of one per cent growth for 2014.

China’s economic growth slows China‘s economic growth slowed to an 18-month low of 7.4 per cent in the first quarter and is expected to slow

even further over the coming months.

Zhang Zhiwei, an economist at Nomura Holdings, a Japanese financial holding company, said Nomura expects China’s GDP growth to slow to 7.1 per cent in the second quarter. This could see China miss its economic growth target for the first time in 15 years.

Portugal exits three-year bailout Portugal has recently been able to exit its three-year bailout of €78 billion.

According to European Commission vice president, Siim Kallas, critical action was taken by the Portuguese Government to put public finances back on a sustainable course and remove obstacles to investment and job creation. The government has forecasted a growth rate of 1.2 per cent in 2014 and 1.5 per cent in 2015.

Australia’s budget emergency After 22 years of continuous economic expansion and unemployment rates of around six per cent, Australia’s economy is facing a budget emergency. The country is currently facing a budget deficit of $44 billion for the 2013/14 financial year, with economic deficits projected through to 2016/17. Prime Minister Tony Abbott has implemented two new tax laws to curb the economic deficit. These tax laws include an additional two per cent income tax for those earning more than $166 000 a year and tax on petrol to rise in line with inflation.

London: billionaire’s paradise Britain has become the super-rich capital of the world, with a total of 104 billionaires living in Britain. Together these billionaires have a combined wealth of £301 billion. Moscow has the second-highest billionaire population with 48, followed by New York with 43, then San Francisco, Los Angeles and Hong Kong. According to the Sunday Times Rich List, only a third of Britain’s billionaires are actually born in Britain.

Its reputation as a financial capital and relatively low tax regime have together been credited with attracting non-domiciled residents, who are keen to invest in property in London and the south-east of England.

Surplus in New Zealand’s budget Bill English, New Zealand’s finance minister, has forecasted a budget surplus of $NZ372 million ($340 million) in 2014–2015. This comes after a $NZ2.4 billion ($2.2 billion) deficit in the 2012 to 2013 fiscal year.

High global prices for New Zealand’s dairy exports, as well as the partial sale of state-owned energy resources, have helped strengthen the economy.

According to New Zealand’s prime minister, John Key, the government kept its spending to the same levels over the past five to six years in order to carry itself out of the global financial crisis as well as the devastation caused by the Christchurch earthquakes.

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They said

A collection of insights from industry leaders over the last month

questions whether the bank will be able to survive this difficult period.

“While we expect a gradual rebalancing as an improvement in global growth provides some stimulus for the production side and the consumer scales back on spending, ongoing labour unrest and electricity supply constraints pose significant downside risks to economic growth.”

Economist at Rand Merchant Bank (RMB), Mamello Matikinca, comments that even with unchanged interest rates, South Africa remains plagued by structural issues that inhibit the economy from reaching its potential.

“On face value, there does look like there is some heavy selling.”

Spokesperson for Capitec Bank, Carl Fischer, comments that even though many of the bank’s directors have sold significant quantities of their shares at a time when the unsecured lending environment is showing serious signs of cracking, this doesn’t point towards a downturn for the bank.

“There are significant uncertainties, not only with the final version of the strategy but market factors as well.”

Analyst at UK bank Sanford, Chirantan Barua, comments following a collapse in investment bank revenue at Barclays, which is in the process of revamping its corporate structure to ensure earnings can be broken up more easily during a crisis.

“Many traders who swing a big bat and hope to make money fast usually burn fast.

The Rand is a trending currency and you will usually make more money by riding the trend than by short-term trading.”

Director of retail derivatives at Standard Bank, Brett Duncan, comments that riding the Rand/Dollar rate would have been very rewarding over the past 36 months, producing an average monthly return of 1.25 per cent.

“We continue seeking acquisitions. We continue pressing hard to get an acquisition this year.”

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CEO at STANLIB and head of strategy at Liberty, Thabo Dloti, comments that the lack of asset management and insurance businesses and the recent wave of terror attacks is hindering the company’s expansion plans in Nigeria.

“We are drawing closer to the risk of price volatility if the strike drags on.”

Analyst at Standard Bank Group, Goolam Ballim, comments that although stockpiling, recycling and long production times have prevented a prolonged South African platinum strike from causing a spike in global prices, this may change if the strike does not end soon.

“After a R5 billion capital raising, the key issue remains whether the bank is adequately capitalised and can absorb such large losses.”

Head of equities research at Sanlam Investment Management, Patrice Rassou, comments on the poor performance of the African Bank Investment Ltd (Abil) and

“I believe Africa’s investment boom is on a sustainable path.”

Chief economist at Pan African Research, Iraj Abedian, commented while attending an Afriforesight Commodities in Africa presentation in Sandton. Abedian also said that the average return on equity for investors in Africa is 35 to 55 per cent, compared with five to seven per cent in the US and Europe, which more than compensates for the risks.

“The risks in Africa exist, but tend to be overstated. Political risk has become better understood, and it’s now down to details in the ease of doing business, logistics, licences, routes to market and finding skills. Red tape is still a worry, though it is improving.”

Africa CEO of global consulting firm Ernst & Young, Ajen Sita, comments that although the perceptions of doing business in Africa are bad, the continent is getting a far higher share of global foreign direct investment than ever, even though investment flows around the world have slowed.

You said

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

@jmackin2: “First time in at least a decade that hedge funds have lost three months in a row during a rising market – Citi.”

James Mackintosh – Investment editor at the Financial Times. I write the daily Short View column and present a daily video on markets. Views mine – all mine.

RT not endorsement.

@SureKamhunga: “African Bank is South Africa’s worstperforming bank stock this year, having dropped 28 per cent says Bloomberg.”

Sure Kamhunga – Financial journalist. PR/Media adviser. Avid reader. Mentor. Aspiring poet.

Cynic.

@TheBubbleBubble: “This entire ‘recovery’ is based on froth ... there's nothing sustainable.

Everything is overvalued. It’s all

garbage and lies. I’m sick of it.”

Jesse Colombo – Analyst warning of economic bubbles; Forbes columnist; recognised by the London Times for predicting the financial crisis.

@CBadenach: “The tragedy in life doesn’t lie in not reaching your goal. The tragedy lies in having no goal to reach. – Benjamin Mays” Charles Badenach – Awardwinning financial adviser, social media enthusiast, author, speaker, sporting tragic and father of 3.

@SASueBlaine: “How to govern SA 101: When in doubt establish a ministerial task team.”

Sue Blaine – Business Day's energy editor. Wife, mom.

Cancer survivor and transplant

recipient. Book and bushveld lover. Opinions my own.

@incblot: “Investment Rule #8 - In every market, you control what matters most (your behaviour).”

Doctor Daniel Crosby – Behavioural finance consultant to some of the finest brands around. Monthly columnist for Investment News and Wealth Management. TEDx speaker x3 & baby daddy x2.

@RudivNiekerk: “Traders focus on the cash someone will eventually pay for an asset.

Investors focus on the cash that the asset will eventually payout.”

Rudi van Niekerk – Iconoclastic. Contrarian.

Passionate about investing.

@ModernGraham: “The more you speculate when investing, the more profit opportunities exist for value investors.”

ModernGraham – Devoted to the study and modernisation of Benjamin Graham’s theories.

@behaviorgap: “A real financial advisor takes the time to diagnose BEFORE writing a prescription.”

Carl Richards – Creator of The Sketch Guy Column at The New York Times.

@devinshutte: “Amplats CEO Chris Griffith’s pay package of R17.6m accounts for 0.14% of the companies total wage bill of R12.5bn.”

Devin Shutte – Half broker, half human, all heart. CEO of Regenesys Investments.

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HAVASWW-D63236/E

While you’ve been building your career, we’ve been focused on building your portfolio.

at PPs, we know professionals.

We know what they need from their investments, and we know exactly how to get it. after all, we’ve spent over 70 years skillfully growing our professional members’ assets by delivering consistently great returns and managing investment risk.

Our success is evident in their PPS Profit-Share Accounts.

Which is why we decided to give them individual access to the knowledge and insight that’s gone into building our robust portfolios, allowing them to build their own financial solutions on our proud heritage. That’s why so many professionals trust PPS Investments to manage their financial futures – because they know how well we know professionals, and how to turn what they have into what they need.

For more information on how we can help you assist your clients please contact PPS Investments. Call 0860 468 777 (0860 INV PPS), visit www.ppsinvestments.co.za or email clientservices@ppsinvestments.co.za

The key To success lies in sharing iT. PPS and PPS Investments are authorised Financial Services Providers.

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/E 10013287JB/

FROM A LOCAL TO A GLOBAL INVESTOR HOW DANIEL JACOBS* INVESTED IN ADVENTURE

“I’ve always dreamed of one day travelling the world. But it wasn’t something that would happen overnight and so I began planning for it. I decided to diversify my portfolio by investing offshore. I put away a lump sum of R50 000 and contributed R1 500 a month to the Old Mutual Global Equity Fund. Ten years later my investment has grown to R739 254 (that’s a 16.3% return a year). I’m now travelling the world, seeing the places I’ve always wanted to see.”

GREAT THINGS HAPPEN TOMORROW WHEN YOU START INVESTING TODAY Make Old Mutual Investment Group your investment partner today. Contact your Old Mutual Financial Adviser or Broker, call 0860 INVEST (468378) or visit www.omut.co.za/myglobaltravel

Old Mutual Investment Group (Pty) Limited is a licensed financial services provider. Unit trusts are generally medium- to long-term investments. Past performance is no indication of future growth. Shorter-term fluctuations can occur as your investment moves in line with the markets. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Unit trusts can engage in borrowing and scrip lending. Fund valuations take place on a daily basis at approximately 15h00 on a forward pricing basis. The fund’s TER reflects the percentage of the average Net Asset Value of the portfolio that was incurred as charges, levies and fees related to the management of the portfolio. Premium increased in line with inflation at 6%. Distribution reinvested. *Based on average customer experience but actual investment returns.

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