R37,50 | March 2013
UNIT TRUSTS AND RAGING BULL AWARDS
MINING & RESOURCES INDEX the best performer in 2013?
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Contents O6 ACTIVE MANAGERS – When the index runs, it’s hard to beat. 14
THE MINING SECTOR – A changing industry
S U B S C R I P TI O NS
16 HEAD TO HEAD: Peter Major, Mining Analyst, Cadiz Corporate Solutions and Kobus Nell, STANLIB Resources Analyst and Fund Manager of the STANLIB Gold and Precious Metals Fund
20 PROFILE: Charles de Kock – Senior Portfolio Manager: Coronation Fund Managers
24
WHERE ARE THE OPPORTUNITIES IN THE RESOURCES SECTOR?
28 Raging Bull Awards 32
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3
Letter from the editor letter from the
editor I
t’s always good to have a plan. Devising the plan is the easy part. Sticking to it, through all the slings and arrows, is the hard part.
Investors should, and in most cases do, stick to their plans. But these are unsettling times for investors. There are distractions and that sinking feeling that all is not going well. The wide range of topics in this issue of INVESTSA will reinforce why plans should be held through all times. Chris Hart from Investment Solutions looks at investment fashions. Fashion can dictate, but only up to a point. Then it’s down to the nitty-gritty of investment performance.
Mining operations and shares are a feature of this issue. I dipped my toes in and felt like I was thundering down a mine shaft. Fortunately we have the experts with good advice on the topic; see Peter Major of Cadiz and Kobus Nell from Stanlib in the Head to Head. With the Raging Bull Awards having taken place, the focus is on top performing asset managers. But 2012 wasn’t really a good time for active managers. Index funds, more exactly ETFs, won the day. I look at the active managers and how they performed. You can see the handsome gains made by many funds as David O’Leary of Morningstar analyses the improvements made in 2012. Veteran portfolio manager Charles de Kock of Coronation Fund Managers shares his wealth of investment experience in the Profile. There’s a lot more. Bernard Sellmeyer of Oakmont looks at the private equity deals likely to emerge in 2013. Sunél Veldtman looks at what’s in store for 2013, and finds that dealing with our predictions is a problem. Gina Schoeman, economist at Citi, takes on the weighty subject of whether another downgrade is in the offering. And just when we thought we knew where all the unit trust sectors fit in, ASISA comes along and introduces a new unit trust classification system. Now back to that plan. There are many reasons in this issue why you should stick to it. It’s all up to you, the investor.
Shaun Harris
EDITORIAL Editor: Shaun Harris investsa@comms.co.za Publisher - Andy Mark Managing editor - Nicky Mark Art director - Herman Dorfling Design - Vicki Felix Editorial head offices Ground floor | Manhattan Towers Esplanade Road Century City 7441 phone: 0861 555 267 or fax to 021 555 3569 www.comms.co.za Magazine subscriptions Glen Trussell |glen@comms.co.za Advertising & sales Matthew Macris | Matthew@comms.co.za Michael Kaufmann | michaelk@comms.co.za Editorial enquiries Greg Botoulas | greg@comms.co.za
investsa, published by COSA Media, a division of COSA Communications (Pty) Ltd.
Copyright COSA Communications Pty (Ltd) 2013, All rights reserved. Opinions expressed in this publication are those of the authors and do not necessarily reflect those of this journal, its editor or its publishers, COSA Communications Pty (Ltd). The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or products or the reliance of any information contained in this publication.
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FOXP2/2825/SUNRISE/E
TRUST IS EARNED. For almost two decades we have worked hard to earn our clients’ trust, making investment decisions that provide for your future. To find out more, speak to your financial advisor or visit coronation.com Raging Bull Domestic Management Company of 2012.
Coronation Asset Management (Pty) Ltd is an authorised ďŹ nancial services provider. Coronation is a full member of the Association for Savings & Investment SA. Trust is EarnedTM.
Shaun
Harris
Active managers – when the index runs, it’s hard to beat
When the index runs, it’s hard to beat. And it ran last year, with an annual return of 26.7 per cent. That would have kept investors happy. But not all investors.
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hose who might not be that happy were invested in actively managed unit trust funds, hoping that the fund manager would outperform the index. Very few did; 2012 belonged to index funds. For now, the old debate between active and passive funds has flown out the window.
According to the PlexCrown ranking top domestic performers over three years are: 1. Coronation 2. Allan Gray
All will be trying to beat the index but the active funds often look beyond that, concentrating on asset allocation and longterm performance. This can compromise short-term performance and beating the index. The value unit trust funds would be classic examples of this.
3. Nedgroup Investments
Still, performance has to be explained, especially when it comes to the costs of an actively managed fund. Despite the generally outstanding returns of 2012, active management comes at a cost. Returns are expected to be lower this year so investors will be keeping a close eye on costs. An active manager can justify costs if a predetermined benchmark is met or it the fund is consistently outperforming peers. Not many funds did that in 2012.
8. Old Mutual
For now, the old debate between active and passive funds has flown out the window. However, there were some active fund managers that excelled. These were the managers that collected Raging Bull Awards in the recent presentations. Leading the field was Coronation Fund Managers, ranked as the best domestic management company of 2012. The award is based on the most consistent overall risk-adjusted performance across asset classes over five years. Coronation runs some top active funds, justifying its place at the top and forcing Allan Gray into second position after leading the pack for four years. For its Raging Bull Award, Allan Gray was noted for its strong performance on both the domestic and foreign fronts. The surprise performance came from Nedgroup Investments. It significantly closed the gap on the two front runners.
4. Prudential 5. Momentum 6. Oasis 7. Investment Solutions 9. Investec 10. Stanlib 11. SIM 12. Absa. So much for the active managers; the top investment houses, and some of the funds they run, kept the flag flying for dedicated managers attaining top performance. But it all seems a bit redundant when the top performance came from much lower cost index funds. Not many of the active managers could match performance here. The two best performing funds in 2012 were exchange traded funds (ETF), the Satrix Indi 25 and the NewFunds eRafi SA Financial 15. That could pose a difficult question for financial advisers who put clients into actively managed funds hoping it was where top performance would come from. The performance of the top two ETFs demonstrates, firstly, the value of index funds last year and how these funds would have enhanced the long-term investment position of an investor. For instance, the monthly performance survey for the period ending 31 January 2013 shows that the Satrix Indi 25 was the best performing passive fund for periods of one, two, three and five years. “This dominant performance by the Satrix Indi 25 helps explain why, for many retail investors, this product is becoming a benchmark for equity funds and the core holding in many equity portfolios,” says Mike Brown, MD of etfSA.co.za.
The NewFunds eRafi Fin 15 has a shorter history but has nonetheless provided a return of 25.9 per cent per annum over two years and 40.5 per cent over one year. That not only trumps the All Share index but shows that passive, low cost tracker funds can enhance returns way beyond the index. It’s hard to argue that ETFs like these should not be part of the core holding in investment portfolios. Speaking at the Raging Bull Awards, Pieter Koekemoer, head of personal investments at Coronation, said most of the news in 2012 was bad, from the ongoing fall-out from the 2008 financial crises subduing the economic outlook for the developed world, to South Africa’s continuing decline in competitiveness. Yet, he noted that financial markets proved to be surprisingly resilient. He said it was Coronation’s view that these good returns should be interpreted as “front-loading of long-term returns, rather than confirmation to revise longterm return expectations upwards”. Despite the fine performance of some of these asset managers and the funds they run, they could offer no argument against index tracker funds. It could all be very different this year. Most managers expect returns to be lower, and that would include returns from the index. This could see the re-emergence of active managers as stock picking becomes all the more important. That will make it a challenging year for retail investors. What’s important is to hold on to the good gains they made last year and not sell the funds on the expectation that they have reached the top of the cycle. But one thing the market is never short of is the ability to surprise investors. Investors should have a long-term portfolio in place, and they should hold on to it. But keep something in reserve for when the surprises pop up. It’s unlikely to be a year to beat the index again. It must have run its course, but you never can tell.
He goes on to say that the Satrix Indi 25 ETF tracks the FTSE/JSE Industrial 25 index, which has no mining or financial shares as index constituents, thereby reducing volatility and enhancing consistent performance. “In addition, some 70 per cent of the Indi 25 index consists of either foreign-listed companies, which have secondary listings on the JSE, such as SAB Miller, British American Tobacco and Richemont, or else have the bulk of their earnings from offshore, such as MTN, Naspers and Bidvest. The Satrix Indi 25 ETF is accordingly a fine Rand hedge investment, which has worked in its favour in recent times,” Brown says. To demonstrate how well these two ETFs have provided consistent core holdings for investors, The Satrix Indi 25 has offered a return of 20.6 per cent per annum over five years and 28.6 per cent per annum over three years.
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Alternative
investments
Private equity deal drivers in 2013
In a very bullish market where positive sentiment abounds, it would not be unusual to find many such business owners prepared to take on this risk by gearing their own balance sheets.
Private equity transactions and firms have long had a negative connotation in certain business circles and, in many cases, justifiably so. Sadly, the old stigma of pin-stripe executives seeking to asset strip companies with 25-year histories in order to meet promised returns for investors in a limited time horizon is sometimes accurate. Private equity funds have at times forced themselves into concluding transactions at higher prices resulting in short-term decision-making in order to achieve targeted returns to the detriment of the company and the fund investors.
T
his, coupled with what is often perceived to be a failing track record for many BEE transactions in South Africa, has undoubtedly left many owners of successful businesses wondering why anyone would even consider a private equity deal. The answer is simple: risk. Of far greater concern to the aforementioned business owners are questions such as the sustainability and growth of the South African economy as a whole in a time of labour unrest across various business sectors and provinces. Moody’s, S&P and now Fitch have already downgraded the country’s credit rating adding to an already gloomy outlook at the beginning of 2013. Questions arise regarding our government’s ability (and indeed willingness) to address these concerns with any meaningful vigour and it is this that gives cause to concern. Now consider the quandary of the successful business owner. Successful because his business is still fortunate enough to continue to demonstrate 20 per cent+ year-on-year growth in a somewhat fragile economic climate, but concerned because funding for that growth needs to come from somewhere. In a very bullish market where positive sentiment abounds, it would not be unusual to find many such business owners prepared to take on this risk by gearing
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their own balance sheets (or those of their families) in order to fund expansion into new products and territories. In the times of 2013, however, it may prove far wiser to turn to an investment partner with deep pockets and strategic expertise in sectors and geographies that are new to your business. Such a partner would provide an opportunity for the business to maintain its growth trajectory and continue to win market share without placing the wealth of the business owner and their family in jeopardy. This is what private equity transactions should be about and appear to be leaning towards in order to facilitate good transactions in the current economic climate. Even those business owners who succumb to the perceived risk factors mentioned above and elect to retreat to the so-called safe-havens of Canada, Australia and New Zealand will need to fund this exit in some way. This is another area – also driven by risk – in which private equity firms are uniquely able to provide a mutually beneficial solution. If a business owner is considering a phased exit over a two to four-year period, the option of bringing a private equity partner on board should be seriously considered. Not only does this often provide the opportunity of realising some cash up front but the best private equity firms are also masters of maximising business value upon ultimate exit (inevitably alongside the emigrating business owner) and achieving a far higher value than would have otherwise been possible.
The benefits of bringing a private equity partner on board for the business owner’s eventual exit affords the business time to put its house in order in terms of systems, controls and governance, key components of private companies that are often overlooked in favour of financing working capital and expansion. However, as previously mentioned, there are private equity firms and there are private equity firms. The real success or failure of this type of transaction will rest solely in the quality of partner you introduce to your business; so be sure to choose a firm with a track record, preferably on balance sheet capital as opposed to third party funds and experience in the sector in which you operate.
Bernard Sellmeyer Executive Director, Oakmont
Asset
management
Equities
continue to reward smart investors in 2013
After a tumultuous and disruptive end to 2012 that cast a shadow on the surprising performance of equities and left many investors on the lookout for offshore safe-havens and escape routes, asset managers seem united in the opinion that 2013 will still be a good year for equities – although investors should not expect the same returns as 2012.
A
ccording to Jeremy Gardiner, director at Investec Asset Management, the mass protests, political tension and downgrades that characterised the close of last year could be considered delayed symptoms of the global financial crisis. “The truth is that it is not just South Africa. In fact, we were late with the post-crisis pain and suffering. The developed world has been in a bad space for years now, in what has been dubbed the worst financial crisis in 75 years. The net result of this is that many investors, having seen the carnage in global markets in 2008, remain unconvinced that US and European problems are safely and permanently behind us. They have therefore been reluctant to commit funds to equities, leaving a ‘wall of money’ sitting on the side lines earning close to nothing in interest,” he says. Gardiner goes on to say that 2012 surprised investors on the upside and slowly but surely confidence and risk-taking returned to the global and local investment environments. The JSE also had a sterling year in 2012, with the All Share Index delivering a total return of 27 per cent for the year, confounding even the most bullish expectations. According to Gardiner, the fact that foreigners were net sellers of equities in South Africa to the tune of R3.57 billion illustrates that local retail investors and local institutional investors have started to commit funds to the market, ending the post-credit crunch sabbatical from equities.
Gardiner predicts that foreign outflows for equities should turn to inflows this year, assuming there are no unexpected events, as last year’s outflows were largely driven by negative press regarding Marikana and labour unrest in the Western Cape. Local investors, while horrified at these events, realised that they are abnormal – rather than normal – circumstances and hence invested in the local market. “Once again, expect a positive year for SA equities, however, returns of the magnitude of 2012 are unlikely to be repeated.” Mark Wilkes, senior sales trader at GT247.com echoes this sentiment. “Both international and domestic equities will continue to rise throughout 2013, more so than many commentators currently believe and despite concerns that equity markets are currently overvalued. JSE equities should continue onwards with the perfect storm, and this is often best accessed via the indices through the use of derivatives and ETFs. Specific-timed stock selection within these indices can make things even better.” Kokkie Kooyman, fund manager at SIM Global also believes that the early months of 2013 present another opportunity to invest for potentially multi-year growth at attractive valuations. However, he urges investors to choose investments carefully. “There is no free lunch. Poor investment returns will occur if you invest when valuations are too expensive. And most
investors, having invested at the wrong time, don’t have the patience to ride it out, simply because they don’t understand the powerful effect of consistent net asset value growth of well-run companies,” he says.
There is no free lunch. Poor investment returns will occur if you invest when valuations are too expensive. Wilkes also has some concerns. He says compared with European indices, domestic political and labour issues will remain hugely problematic, as will the South African credit bubble, which will mature and burst with negative ramifications. “This is not a nice consequence but unfortunately it is inevitable. Unsecured debt has been jumped into aggressively, principally because of the margin between banks’ cost of funds and the rates charged. The extension of unsecured credit has been into lending against consumer assets and profiles which have become over leveraged. In essence, unsecured lending has usurped property quite unfairly as a credit option and has thereby forced capital into retailers’ balance sheets.” So while it’s clear that the window of opportunity on equities has not yet closed and investors could enjoy satisfying returns in 2013, it all comes down to making smart, informed and rational investment choices in a market that holds as many pitfalls as treasures.
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Barometer
Hot
Election of new ANC deputy president Cyril Ramaphosa well received by investors
European banks share spike after announcement of delay in Basel 3
Many analysts have welcomed the election of new ANC deputy president Cyril Ramaphosa. Foreign mining companies were among the most enthusiastic parties about his appointment.
Banks such as Deutsche Bank, BNP Paribas and Barclays share prices surged after central bank leaders decided to delay the implementation of the Basel 3 bank liquidity rule.
High growth expected to return to China The slowing Chinese economy is expected to rebound in 2013. Government has pledged to restructure the nation’s investment-led development model. The growth rate is expected to reach eight per cent this year.
Business confidence rises but still too slow Although the SACCI (South African Chamber of Commerce and Industry) business confidence index rose to 93 points in December 2012 from 91.7 points in November 2012, the growth was still too slow, according to SACCI with the fourth quarter being the worst performing quarter of 2012. The 93 points average for 2012, after averaging 119 in 2006, is an indication of how local business confidence has deteriorated in recent years.
Sideways
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South African property overpriced
Fitch downgrades South Africa’s rating
Local listed property in South Africa is overpriced at current levels. This is according to value asset manager, RE:CM, which says the listed property market is currently trading at about a 45 per cent premium to reported net asset value (NAV) of underlying property values.
Fitch Ratings downgraded South Africa’s sovereign credit rating due to the country’s deteriorating economic growth prospects. South Africa’s long-term foreign currency credit rating was downgraded to BBB from BBB+, the long-term local currency credit rating to BBB+ from A and the short-term credit rating to F3 from F2.
M&A deal value weakens The 2012 Zephyr Annual M&A Report, which details mergers and acquisition (M&A) activity in South Africa, revealed the value of deals targeting South African companies declined 12 per cent over the past 12 months to USD 15.005 million. This is the second consecutive year that the value has dropped.
Chris
Investment
Hart
fashions
M
arkets are very often characterised by long secular underlying trends. It can be several years before these trends are recognised and used to set investment strategies. However, it is important to recognise long-term trends and their inflection points as soon as possible – especially where investors have a long time horizon. This is typically the case for pension funds, where volatility should be recognised as an important short-term risk and inflation the important long-term risk. A case in point is equities. Conventional wisdom is that equities always go up over time, which has certainly been true if 100year analysis is done. However, confidence in this assertion may well be a function of the extended secular trend over the past 30 to 35 years on the JSE. This has not always been the case over prolonged periods. US equities in essence began a strong bull market in 1982 that ended in 2000 when the tech bubble burst. US equities have essentially traded sideways since then. The Japanese stock market has suffered a bear market for 20 years from 1989 to 2009 and it is possible the downtrend is still in force. Equities are also regarded as an inflation hedge. The JSE has provided strong returns above inflation, but for the 20 years from 1963 to 1983, it just managed to keep up with inflation. However, the JSE has strongly outperformed inflation from 1983 to the present. US markets also did not protect against inflation during the ‘stagflationary’ 1970s and the same has been true since the
2000 peak. However, during the 1980s and 1990s, US equities managed to strongly beat inflation.
the case at the height of the bear market during the 1970 when bonds were a distinctly avoided asset class.
Equities are a cornerstone asset class and it is quite possible that changes to some secular trends are underway. There are signs that the long secular bear market in Japan may be reversing. If this is the case, it would be at the point of maximum pessimism for that country. The same may well apply in Greece, whose bear market shaved more than 90 per cent of its value from its peak. The sideways range for US markets might still prevail but it is climbing towards the upper boundary of that range, which has lasted for 13 years. It is important to appreciate these trends never last forever but do affect the conventional wisdom and investment fashions that follow.
Over long periods, these secular trends are key determinants of investment outcomes. This generates investment fashions and drives investment strategy. However, not taking into account the changes to underlying secular trends can mean being placed in inappropriate asset classes, depending on the specific investment strategy. No single investment strategy will prevail over the fullness of time. There will be periods when active beats passive and vice versa. The same applies for value over growth or contrarian over momentum. The investment characteristics of a particular asset class will also shift over time, depending on the underlying trends. And this means conventional wisdom will also change with each asset class. Unfortunately for the investor, this is very often derived from the previous trends and not on the current ones.
Global bonds are another asset category at risk of a change in its secular trend. US bond yields peaked in 1981 and have enjoyed a bull market for more than 30 years. However, valuations have become increasingly stretched and government default risk is rising with increasingly unsustainable debt burdens. Before 1981, US treasuries had suffered a bear market where yields were rising for a similar 30year period. The current bull market has taken yields below two per cent, which is about where the previous bear market started in the 1950s. Global bonds may well be close to an inflection point, with the secular trend about to change course. The current bull market in bonds has cemented the reputation of fixed income as a safehaven asset class. This was, however, not
Chris Hart | Chief Strategist, Investment Solutions
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Economic
commentary
Is another downgrade in the offering?
A
ll three major rating agencies have downgraded South Africa over recent months. In October 2012, Moody’s moved first, downgrading to Baa1 (from A3), followed quickly by S&P downgrading to BBB (from BBB+) in October 2012. More recently, Fitch fell in line with S&P, downgrading to BBB (from BBB+) in January 2013. Though Fitch has kept South Africa on a stable outlook, debate remains as to whether another ratings downgrade is in the offing – particularly from Moody’s or S&P. The reasons for the respective downgrades are fairly similar: poor macro prospects, fiscal slippage and socio-political tensions have all been cited as major factors. Poor macro prospects include a wider current account deficit, negative investment climate and lack of competitiveness. On the fiscal front, all agencies are concerned about shrinking fiscal space and rising debt levels. For socio-political stress, the violent and lengthy strikes in H2 12 certainly aggravated an alreadyuncertain political outlook. Scenario 1: Another downgrade by Moody’s Moody’s appears the most bearish, citing deteriorating government institutional strength as the main reason behind its decision to downgrade. In particular, Moody’s believes that there is reduced government capacity to handle the current political and economic backdrop and less chance that effective policies will be put in place to quicken GDP growth. Moody’s is particularly sceptical of the strategic State ownership of mining assets as a policy initiative (even if nationalisation of mines has been rejected) and it remains wary of government’s ability to implement the National Development Plan. Moody’s has admitted that ANC policy may appear more business-friendly following the December 2012 ANC Elective Conference, 12
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however, it requires more detail on policy implementation (particularly on mining taxes) to make a full assessment. Fitch’s recent downgrade puts its rating of South Africa in line with that of S&P, Moody’s is left one notch higher than its agency peers. This, together with its negative outlook on the economy, means we cannot rule out another potential ratings downgrade by Moody’s. We note, however, that the necessity of another downgrade would need to be gauged off the February (and/or October) National Budget and upcoming developments of GDP, the current account and labour/social unrest – all of which take time to assess. This pushes the risk of a further downgrade by Moody’s into the latter half of 2013. Scenario 2: A further downgrade by S&P (or Fitch) Prior to the ANC Elective Conference, S&P stated that policy implementation was more important than the discussion of it. More precisely, S&P stated that “the important thing … is to look beyond Mangaung, to look at the decisions coming out of there and question how they will be implemented and reflected in government policies”.
recovered fairly quickly following Fitch’s one-notch downgrade in January 2013, we believe this was because it was generally expected. But if S&P (or Fitch) were to downgrade the sovereign again, the result would be more marked and more permanent. That said, a further downgrade by S&P is unlikely without sound reason. Similar to Scenario 1, the gauge for this would be: (1) the state of fiscal consolidation in the February 2013 National Budget; (2) the political undertone leading up to the 2014 National Elections; and (3) general economic stability (determined by a mix of current account risk and monetary and fiscal policy prudence). Scenario 3: A positive ratings change A positive ratings change looks very unlikely at this stage in our view. In fact, we believe the best the economy can hope for is that Moody’s and S&P upgrade the outlook to stable from negative currently. But in order to bring about this, Moody’s has made it clear that higher domestic savings and investment would be required while S&P needs to see a meaningful improvement in the fiscal and current account deficits. We believe that even if these factors fell in place, an upgrade is unlikely if labour unrest and political uncertainty persist.
While the outcome of the ANC elections appeared to exceed market expectations, S&P still left the door open for another downgrade, citing in an interview post-Mangaung that “the jury is out – we have to see what it is that is going to implemented as far as policy action is a concerned”. For Fitch, the decision to keep South Africa on a stable outlook lessens the risk that it may downgrade again. Either way, we believe a further downgrade by S&P (or Fitch) would be dire for local markets as then the sovereign rating would be only one notch above speculative grade. Though the USDZAR
Gina Schoeman Economist at Citi
etfsa.co.za january 2013 – etfSA.co.za MONTHLY SOUTH AFRICAN ETF, ETN AND INDEX Mike Brown | Managing Director | etfSA.co.za TRACKING PRODUCT PERFORMANCE SURVEY
T
he Monthly Performance Survey for the period ended 31 January 2013 shows that the Satrix INDI 25 ETF was the best performing passive fund for periods of one year, two years, three years and five years. This dominant performance by the Satrix INDI 25 helps explain why, for many retail investors, this product is becoming a
benchmark for equity funds and the core holding in many equity portfolios. The Satrix INDI 25 ETF tracks the FTSE/JSE Industrial 25 index, which has no mining or financial shares as index constituents, thereby reducing volatility and enhancing consistent performance. In addition, some 70 per cent of the INDI 25 index consists
of either foreign-listed companies, which have secondary listings on the JSE, such as SAB Miller, British American Tobacco and Richemont; or have the bulk of their earnings offshore, such as MTN, Naspers and Bidvest. The Satrix INDI 25 ETF is, accordingly, a fine Rand hedge investment, which has worked in its favour in recent times.
etfSA.co.za Monthly Performance Survey. Best Performing Index Tracker Funds – 31 January 2013 (Total return %)* Fund Name
Type
5 years (per annum)
Fund Name
Type
3 years (per annum)
Satrix INDI 25
ETF
20.56%
Satrix INDI 25
ETF
28.57%
Satrix DIVI Plus
ETF
19.06%
Prudential Property Enhanced Index Fund
Unit Trust
24.02%
Prudential Property Enhanced
Unit Trust
18.63%
Proptrax SAPY
ETF
23.54%
Proptrax SAPY
ETF
17.90%
NewFunds eRAFI INDI 25
ETF
22.97%
2 years (per annum)
1 year
Satrix INDI 25
ETF
30.56%
Satrix INDI 25
ETF
43.61%
NewFunds eRAFI FINI 15
ETF
25.85%
NewFunds eRAFI FINI 15
ETF
40.46%
Proptrax SAPY
ETF
24.05%
Standard Bank Corn-Linker
ETN
39.83%
NewGold
ETF
23.82%
DBX Tracker MSCI Eurostoxx 50
ETF
39.50%
Standard Bank Gold-Linker
ETN
23.75%
Standard Bank Africa Equity
ETN
37.79%
DBX Tracker MSCI Eurostoxx 50
ETF
42.86%
DBX Tracker Eurostoxx 50
ETF
18.92%
Standard Bank Palladium Linker
ETN
37.06%
DBX Tracker Japan
ETF
15.05%
DBX Tracker MSCI China
ETF
30.35%
Standard Bank Oil-Linker
ETN
13.21%
6 months
Source: Profile Media FundsData (31/01/2013)
3 months
* Includes reinvestment of dividends.
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13
Mining and resources index – set to outperform the indices? Shaun Harris Miners are tough. Unlike many other industries which employ spin doctors, miners tend to get down to the basics and get the job done. Even if the outcome, as it often is, is unpopular to those outside the mining company. The one good relationship miners have is with their shareholders. They provide the capital for future expansion. 14
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to be spoiling for a fight, accusing mines of sacrificing jobs and they restructured operations. No doubt the mining houses were ready to take her on. But fortunately common sense prevailed. “The industry is aware that change is needed,” says Jonathan Moore, vicepresident and MD of the Mining Indaba 2013. And in many cases the mines have been making changes, from trying to save jobs, improve accommodation, support communities surrounding mines and offering employees share incentives.
The production side of the South African economy is, in general, under severe strain from demands by labour and government. Yet politics is just another threat facing mining houses. Shabangu took on Amplats for plans to retrench 14 000 miners. Amplats is under severe financial pressure and has closed two mines. Shabangu has often threatened to review mining licences. Finally Mark Cutifani, CEO of AngloGold Ashanti and president of the Chamber of Mines, says the threats to licences were out of order. “We shouldn’t be threatening licences when a company is looking at preserving its life. We must put our differences aside and start talking in a way that will change the industry for good.” Traditionally mining shares have been popular with foreign investors. This may no longer be the case, according to Mike Schroder, portfolio manager at Old Mutual Equities. “If I judge foreign sentiment correctly, there is currently very little appetite for South African mining due to labour and regulatory concerns.” What about local investors? Should they be looking at mining shares? And if so, how do they select them.
M
ining companies often provide the best returns to shareholders. That was the case last year when mining companies regularly featured in the top 10 on the JSE. However, mining is cyclical so performance can be up and down; and returns to shareholders are not expected to be that good this year. There are always issues in mining but they are growing. Operations were severely affected last year by labour unrest and strikes, often illegal strikes. Last August, an illegal and violent strike started at Lonmin, the third-largest producer of platinum. It resulted in 34 employees being shot by police. That not only affected the wider mining industry as a large number of strikes took place, but also perceptions of South Africa. Mines make the headlines, and in this case they were bad news. There were attempts at damage control, largely successful, at the recent Mining Indaba in Cape Town. Susan Shabangu, Minister of Mineral Resources, seemed
“The production side of the South African economy is, in general, under severe strain from demands by labour and government,” says Mike Haworth of Sasfin Securities. “The investment risks are elevated in mining stocks because the regulatory risk is now difficult to assess as the political outcomes can no longer be determined using economic logic.” Labour and government have become big issues in mining. That will make mining operations, and potential movements in share prices, all the more difficult to achieve. “The key reason for an investor to take on the higher risk in mining shares is the potential reward due to high operational gearing driving significant increases in earnings. This is no longer a given in view of the high but unpredictable operating costs at rates which are multiples of the prevailing South African inflation rate. In addition, the restructuring costs associated with South African mining companies attempting to adapt to the aggressive labour and government conditions add a further hindrance to mining company headline growth in 2013,” Haworth says.
It therefore seems that trying to choose mining shares is like putting your hand in a snake pit. That’s no way to select shares. But changes and restructuring in the industry leave no easy choices. One possible way is to look at restructured and changing mining operations. Lonmin, the platinum mine that started all the trouble, is an example. Lonmin chairman Roger Phillimore says the mining industry needs a fundamental change in the way it does things. “We require a collaborative model of decisionmaking that will help to resolve problems and disagreements before they turn into violence.” He said the mining industry in South Africa is at a crossroads. “It is imperative that Lonmin does its part to contribute to improved relations with its employees both in and outside the workplace. We are committing to a longterm process of fundamental change.” Apart from agreement with the unions, Lonmin employees are likely to benefit from a proposal to establish an employee share ownership plan and a community share ownership trust and co-operate closely with entrepreneurs for the community around Lonmin mines. Based on these plans, Lonmin seems worth considering as an investment. Similar opportunities could emerge at other mines. But looking at who will require a lot of fundamental work from investors. The nature of mining will always make it run foul of environmental concerns. It’s something mining companies try hard to manage, but it will always be the ugly side of mining.
We require a collaborative model of decision-making that will help to resolve problems and disagreements before they turn into violence. For nearly a decade Tronox sand dune mining operations at Mtunzini on the KwaZulu-Natal north coast has been in dispute with most, though not all, of the local community. The locals’ concern is what dune mining is going to do to the town and surrounding area. Tronox, which bought the mineral sands operations from Exxaro in June last year, contends that if it can’t mine, a large number of jobs will be lost. The overriding concern of the community is the effect of slime dams for the mining operations. Tronox says these will be rehabilitated. The issue is now in the courts. The Mtunzini Conservancy lost a court case to stop the mining, but will appeal the decision. Parts of the local community say the conservancy is putting ecotourism before jobs. The issue will no doubt continue for a long time. That’s just another side to mining. It’s never going to be a popular industry, apart from shareholders. Yet it is a fundamental part of South Africa. investsa
15
Head to head
Mining Analyst
Cadiz Corporate Solutions P e t er
1. How do you expect the Mining and Resource Index (the Resi 10) to perform in 2013? The Mining and Resource Index (Resi) should be the best performing of the four major South African indices in 2013. It should easily outperform the All Share, industrial and financial indices this year. Historically the Resi and Indi trade on the same PEs. But today the Indi’s PE is 20.5 and the Resi’s 11.5. The Resi is a cyclical index because its earnings are cyclical. While the Indi’s earnings are at new highs, the Resi’s are now 20 per cent below their peak of July 2012. Once they bottom (by August), the Resi should rapidly start re-rating as the market looks ahead 12 months. But the main reason I’m bullish on the Resi in 2013 is that its 50-year average return is 20 per cent per annum. But the past three years it’s averaged three per cent. If you believe in reversion to the mean, don’t be short this fourth year in a row. 2. What are the biggest challenges facing the sector in the next 12 months? The biggest challenge facing mining all over the world is rising costs. These come from many areas: wage settlements are greater than inflation with no corresponding productivity increase; rises in other operating costs such as electricity, water, stores, equipment and services that are above the rises in the commodity price; lower grades, deeper older mines and equipment. These all lead to more work, higher maintenance, lower production and higher costs in extracting the same amount of metal; Capex costs rising above inflation (by factors of +3) and lost work days. 3. The mining industry has experienced some tough challenges in the last six months. Do you think there is still value in the mining sector for investors?
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M ajor
There is certainly more value in the South African mining sector now than six months ago. The four major components are all much wiser, chastised, poorer and more willing to make things work. These four are government, workers, unions and the mining companies. The Resi in Dollar terms has barely changed since July 2012. And although its PEs has risen – it’s still 20 per cent below its 15-year average. The industrial index has risen 20 per cent in six months and its PE by 15 per cent.
South Africa’s mining industry is sustainable under any conditions which includes current concerns. That’s because of the size, quality and disparity of its mines and minerals. 4. What is the best way for investors to profit from the mining and resources sector? There are many ways to profit from the SA Resi. The safest, most profitable way is to ‘buy’ the Resi Future; and then to buy the Resi ETF. You could buy the best value individual mining financials. They are diversified and safest. You should buy what you believe is the cheapest sector of the Resi (the gold index), or the cheapest shares (Harmony, Anglogold in that sector). There’s also actual commodity ETFs in the form of gold, platinum, palladium oil and copper.
5. Should investors consider investing directly into commodities, i.e. platinum, gold or copper? Commodity ETFs have far outrun their related equity brothers. The Oil ETF has beat Sasol by 100 per cent over five years and platinum and palladium ETFs beat the index by 150 per cent. The gold ETF has beaten the gold equity index by 340 per cent. This isn’t sustainable. Invariably this is a cyclical relationship. Metals and metal equities should revert to an average level. 6. Do you believe the commodity bull run of the last 10 years is well and truly over? I am worried that this commodity run of 2002 – 2012 is over. It was too powerful, thanks to central banks. Normal economic booms are more like three to five years. Yet most commodities fell from 1960 – 1970 and from 1981 – 2001. This commodity boom is 10 years old. It’s been artificially prolonged by massive injections of cheap money. This cannot continue. 7. Is the local mining industry sustainable given the current concerns? South Africa’s mining industry is sustainable under any conditions which includes current concerns. That’s because of the size, quality and disparity of its mines and minerals. South Africa contains such huge percentages (35 – 80 per cent) of so many of the world’s valuable minerals. We have a wonderful climate, infrastructure and geography to aid in exploiting our minerals. And we have a huge experienced and needy workforce and a 150-year history of mining skills and expertise. All we need now is desire.
STANLIB Resources Analyst and Fund Manager
STANLIB Gold and Precious Metals Fund K obus
1. How do you expect the Mining and Resource Index (the RESI 10) to perform in 2013? Earnings are expected to gain positive momentum in most commodities, helped by more stringent cost disciplines and improved commodity prices. Chinese re-stocking and improved European financial markets are expected to be the main drivers for a stronger price outlook during the first half of 2013. Rationalisation of capital expenditure numbers should further aid better free cash-flow numbers. The second half may prove to be more challenging given an expected moderation in the growth levels of Chinese debt and the subsequent outlook for commodity demand. 2. What are the biggest challenges facing the sector in the next 12 months? Capacity reorganisation in some commodities may be challenging for companies and value leakage is generally associated with these actions. Global geopolitical uncertainty could have an impact on the cost of oil and in many cases a big component of the general miners cost basket. Labour instability, triggered by union rivalry, presents massive tail risk for the investor, in particular deep level mining in South Africa. 3. The mining industry has experienced some tough challenges in the last six months. Do you think there is still value to be had in the mining sector for investors? Our expectation is that 2013 will not be a free-for-all environment and that stock selection will be paramount, as was the case
N ell
in 2012. We do see value on a selective basis, with a focus more towards quality. Companies that will be able to illustrate good organic growth that will improve their structural cost base will likely unlock value. 4. What is the best way for investors to profit from the mining and resources sector? To associate them with companies that are efficient operators and allocate capital on a sustainable basis in line with their long-term strategic outlook for the specific commodity.
Deep level underground mining is very labour intensive and presents a material part of the total cost to produce the metal. 5. Should investors consider investing directly into commodities, i.e. platinum, gold or copper? One of the differentiating factors between investing in physical commodities and actual companies producing the commodities is the prospect of earning yield from the latter and not from the former. Direct commodity investment, however, does not expose the investor to the operational risk associated with many companies and could be a viable alternative in cases where shareholder return may be subject to changes in the size of each stakeholder’s allocation.
6. Do you believe the commodity bull run of the last 10 years is well and truly over? The urbanisation rate in China is expected to continue from the current 50 per cent to levels of comparable countries that is closer to 70 per cent. Increases in wealth levels in these economies also generally increase the intensity per capita of commodity usage. These trends are certainly still in the process that supports healthy demand levels for commodities. The rate of growth in demand is expected to slow from the levels seen over the last decade. Supply levels in many commodities managed to catch up with the very strong growth in demand building up to the global financial crisis. This combination is expected to moderate returns in general but still presents opportunities on a selective basis. 7. Is the local mining industry sustainable given the current concerns? Producing and selling commodities into a global market requires cost control discipline that is on par or better than other global competitors for the specific industry to maintain its market share and relative competitive position. Cost increases, which are well above global levels for a period of time, present risk to the sustainability of an industry. The South African gold mining industry, viewed on a conventional basis, is in structural decline. Challenges around safety and the depth of replacing depleted gold reserves remains a major obstacle to the sustainability of the SA gold mining industry. Deep level underground mining is very labour intensive and presents a material part of the total cost to produce the metal. Structural labour stability and dependability is an extremely important component to the wellbeing of the South African deep level underground mining industry.
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Industry
associations
the financial planning
industry in 2013
Regulatory challenges will dominate the financial services landscape through 2013. Issues such as the commission versus fee debate and regulatory intervention in intermediary remuneration will remain in focus, as they have been for the past decade.
T
he FIA will have to respond to these challenges by demonstrating the value that well-remunerated, trained and motivated intermediaries bring to the table. Good financial advice encourages consumers to save and empowers them to provide for both themselves and their loved ones through retirement. The commission or fee paid in relation to a financial product or service is justified by advice that extends way beyond the product or service provided. It is also worth noting that while fees are not unusual in sectors of the financial services industry – such as top-end financial planners, corporate short-term insurance and services related to group scheme administration – the majority of middle-of-the-road intermediated business is entered into on the basis of regulated maximum commissions paid by product houses. By banning commission outright, the regulators run the risk that entry level financial product consumers are advised by advertising agencies rather than benefiting from a carefully constructed financial plan. There are two other developments that will have a major impact on the industry this year. These include the Treating Customers Fairly (TCF) initiative and National Treasury’s nation-changing review of the retirement funding landscape. The FIA and its members welcome TCF as a logical extension of the Financial Advisory and Intermediary Services (FAIS) Act into the product provider space. The legislation will align product design and ongoing support with the provisions of the FAIS General Code of Conduct to ensure the ethical treatment of customers. TCF will force industry stakeholders to consider the fact that products sold today will have to perform upon death, disability or retirement 18
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many decades after their inception. The longterm quality of service and product efficiency needs to be built in to the product rather than it relying on personalities to deliver on its promise. National Treasury’s recent papers on repositioning the retirement and savings landscape in SA will also start impacting in 2013 and 2014. Saving for a comfortable retirement is both in the national interest and in the interest of each individual in our society. The role of the intermediary in supporting the products and initiatives that enable this goal cannot be underestimated.
By banning commission outright, the regulators run the risk that entry level financial product consumers are advised by advertising agencies rather than benefiting from a carefully constructed financial plan. Consumers understand the need to set aside funds for the long term, but often don’t buy into the need to sacrifice current consumption to achieve these goals. Intermediaries are well versed in assisting clients to achieve this balance. With properly considered changes to the regulatory environment, the nation’s intermediaries will be able to make a significant impact as we move forward in this new age of retirement provisioning. The financial harm caused by failed Ponzi schemes and other questionable financial offerings continues to do serious damage to the reputation of intermediaries, players in the financial services sector and the regulators.
It is hoped that 2013 will bring about a maturity of view on the part of the legitimate players combined with greater vigilance by the authorities in stamping these schemes out at inception rather than after consumers have lost millions in hard-earned savings. While the FSB, Treasury and member organisations such as the FIA focus on local regulatory issues, intermediaries will be hard at work addressing challenges at the front line of financial advice. South African families remain under insured against the death and disability of their respective breadwinners. The life cover that is typically in place settles only some of the family debts, such as in the case of funeral insurance or credit life cover over a financed asset. Life insurance can achieve its goal of creating a better life for future generations only when it adequately replaces the lifetime income earning capability of the breadwinner. Through 2013, the industry should strive to narrow the life insurance gap so that dependants are provided a secure education and lifestyle when tragedy befalls their households.
Gavin Came Chair, Financial Planning Committee of the Financial Intermediaries Association of Southern Africa (FIA)
Morningstar
South Africans enjoy
handsome gains across almost all fund categories in 2012
Financials close out the year with an 11.5 per cent return in December and finish as the top performing unit trust category.
U
nit trusts turned out another solid year of performance in 2012. All but one of the 22 ASISA categories that Morningstar tracks posted gains. The domestic equity categories fared best on the back of a 26.7 per cent return for the FTSE/JSE All Share index; far exceeding inflation and outperforming most major world equity markets. Meanwhile the lone dissenting ASISA category was the Resources and Basic Industries category which experienced a loss of 0.6 per cent. Generally speaking, the most aggressively positioned domestic equity funds performed best. This was witnessed by the fact that three sector specific categories topped the performance charts this year. The Domestic Equity Financials, Domestic Real Estate General, and Domestic Equity Industrials ASISA categories placed first through third with 34.9 per cent, 31.5 per cent, and 30.9 per cent returns respectively. Furthermore, the more aggressive small cap funds outperformed their more conservative large cap fund counterparts (27.5 per cent vs 25.7 per cent) while growth funds outperformed value funds (23.8 per cent vs 18.5 per cent). While slightly more muted, returns from broadly diversified domestic equity funds were also very strong. The Domestic Equity General category returned 21 per cent for the year benefiting from a broad-based
rally in domestic stocks. JSE gains came from nearly all sectors and continued despite sluggish economic growth. Healthcare stocks produced a whopping 59.5 per cent return followed by Consumer Services and Consumer Goods at 48.9 per cent and 42.9 per cent respectively. South Africans investing in foreign equity funds benefited from a depreciating Rand. The Rand’s roughly five per cent decline versus the US Dollar helped boost the Foreign Equity General category return to an 18.6 per cent return. Fixed income investors also enjoyed strong double-digit returns with the Domestic Fixed Income Bond category surging 15.3 per cent on the year. On the flip side, a languishing oil price – which ended the year up just 7.9 per cent in US Dollar terms – and labour unrest in the mining sector contributed to just a 5.4 per cent return for stocks in the materials sector and a 1.4 per cent loss for oil and gas stocks. The best performing fund in the Morningstar database for 2012 was Prescient Africa Equity with a return of 48.5 per cent followed by Fidelity Thailand at 42.4 per cent and Investec Emerging Companies at 40 per cent. The worst performing funds were Old Mutual Gold, Investec GSF Global Gold, and Franklin Natural Resources at –14.1 per cent, -8.1 per cent, and -7.9 per cent respectively. ASISA category performance as at 31 December 2012.
Name
Domestic EQ Financial Domestic RE General Domestic EQ Industrial Domestic EQ Smaller Companies Domestic EQ Large Cap Domestic EQ Growth Domestic EQ General Domestic AA Pru High Equity Domestic AA Flexible Foreign EQ General
Number One Three Year to of funds in month months date category 6 6.7 11.5 34.9 23
-0.1
3.1
31.5
5
3.1
7.9
30.9
7
3.8
7.7
27.5
11
3.1
10.2
25.7
3
4.9
9.9
23.8
97
3.2
8.0
21.0
14
1.6
6.2
19.7
63
1.7
6.2
18.8
27
-2.1
3.9
18.6
(Source: Morningstar Direct)
David O’Leary, CFA, MBA | Director of Fund Research, South Africa | Morningstar South Africa
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Profile
CDK
I do believe that many domestic stocks have become either very expensive or at least fully priced. But if you search hard enough, there are always some decent investments to be made.
1. With over 25 years’ experience in the investment industry, what are the major lessons you have learned?
Some of the key lessons I’ve learnt include that you cannot stall making an investment decision until you have all the facts; one has to act on adequate but incomplete information. This is simply because once all the facts are known, the price will already have moved, leaving you as the investor in the spectator’s seat and not participating in the action. Another key lesson is to construct a portfolio in such a manner that should you be wrong, you will not be totally annihilated. This doesn’t mean that you shouldn’t back your own views; it simply means that you should always be mindful that you do not know everything. A third key lesson is to always focus on the long term. To think that you are going to consistently get the shortterm timing correct is a dream. And fourthly, when management wants to off-load shares, they normally know more than you do. 2. Have investor’s habits changed over the years – or are the same mistakes repeated? The human characteristics of fear and greed still drive investor behaviour. That has not changed. The good investor will exploit that while the bad one will be taken in by the stream. 3. What do you attribute the success of the funds you manage to? Firstly, I am very privileged to work as part of a very strong investment team, where I get
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served a pipeline of good, well-researched investment ideas. I would have to be a bit of a fool to get it wrong working in such a strong team. Secondly, I can truly focus solely on investments. Management takes care of the side issues. Regarding the Balanced Defensive Fund, which is the number one fund in its ASISA category over five years to end December 2012, the contribution of co-manager Mark le Roux, who manages the income portion of this fund, has been huge. It is good to have a bond specialist managing this key portion of the fund.
There will be a time when beating inflation will be far more difficult. So expect lower returns from the domestic asset classes going forward. 4. There has been much talk about the difficulty in finding good quality, underpriced stocks. Is this a problem? I do believe that many domestic stocks have become either very expensive or at least fully priced. But if you search hard enough, there are always some decent investments to be made. 5. What would be your suggestions for investors in the year ahead? To have modest expectations; South African financial markets have delivered truly excellent returns over the past decade. For example, an investment in domestic equities and listed property would have increased by
approximately six and 10 times respectively over the last decade. There will be a time when beating inflation will be far more difficult. So expect lower returns from the domestic asset classes going forward. 6. How do you wind down from the pressures of your position? I am not particularly highly strung. I understand there are aspects of the markets that are beyond my control and about which I don’t stress. However, a good way for me to unwind is by playing golf, tennis or walking my dogs. 7. Finally, if you had R100 000 to invest, where would you put it? For most people, investing in a global balanced fund would be the best option. Such a fund will give you exposure to global as well as domestic markets and all the major asset classes. Pick an asset manager whom you trust and then leave the investment alone. In ten years’ time you will be amazed at how it has grown.
Charles de Kock co-manages the Coronation Balanced Defensive Fund which recently received a Raging Bull Award in the category best domestic asset allocation prudential fund on a risk-adjusted basis. Balanced Defensive achieved the highest rating over five years amongst all the domestic asset allocation prudential funds in the respective ASISA low equity, medium equity, high equity and variable equity sub categories.
C harl e s d e K ock S enior P or t folio M anager – C oronat ion F und M anagers
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Practice
management
Investment knowledge
low among south africans
It is regularly mentioned across the investment industry that more effort needs to be focused on investment education. Recent research from the CoreData Research Investor Appetite in South Africa – Behaviour, Risk and Confidence Report 2013 – provides an important reminder of the need for enhancing investment knowledge.
I
nvestment knowledge is a critical area of development in South Africa as many investors feel they do not have the financial know-how needed to invest for the future, particularly as many feel that most investments are no more than gambling. Less than a fifth of South African investors claim to have strong investment knowledge while a third think that most investments are a pure gamble, new research reveals. According to a new study by CoreData Research South Africa, investment knowledge is a low priority among individuals across the country. The biggest concern investors have is being able to save enough money for retirement, with only 13 per cent confident their current saving plan will be able to provide a steady income in retirement. Around three quarters (78 per cent) of South African investors claim they invest only in products they understand and products such as alternative investments are not yet fully understood by the majority of South African investors. But despite admitting to having low market understanding, most individuals do have 22
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clear financial goals in mind, and stable and predictable investment returns remain a priority.
The biggest concern investors have is being able to save enough money for retirement, with only 13 per cent confident their current saving plan will be able to provide a steady income in retirement. • O ver three-quarters (78 per cent) of South African investors are highly concerned about saving enough for retirement. • Taxes on earned income (77 per cent) are another concern on investor minds, with unemployment coming in as the third greatest challenge (73 per cent). • Four in 10 (40.4 per cent) claim distrust in the financial industry significantly influences their appetite for investing. • The lack of disposable income is the most significant blocker to South African’s investing behaviour. Market volatility is the next greatest inhibitor.
• T he majority of investors agree that stability during volatile times is of upmost importance. • table and predictable investment returns are being valued more now than ever (75.9 per cent). • Investors in South Africa seem to have reserved risk to the back seat and given safety (in returns) the top priority. • Two-thirds (68 per cent) of investors claim to have a reasonable understanding of the risk of their portfolio. • Alternative investments are not yet fully understood by the majority of South African investors. • South African investors seem less concerned about events going on outside their own economy, i.e. the European debt crisis and international political uncertainty. • Investment knowledge is a low priority among individuals in South Africa, with not even a fifth (17.2 per cent) confessing to have strong investment knowledge. • One-third (33 per cent) think most investments are a pure gamble.
Regulatory
developments
New asisa fund classification system As from 1 January 2013, all funds in the South African unit trust industry will be categorised according to the new fund classifications introduced by the Association for Savings and Investment South Africa (ASISA). What’s changing? ASISA has introduced a three-tier classification system whereby tier one will segment the funds according to their geographical investment universe; tier two will address the type of assets which the fund may invest in; and tier three will address the main focus of the fund. The new classifications have also given ASISA the opportunity to rename the different tiers in an attempt to demystify the subsector. For example, in the first tier, Domestic has been changed to South Africa; in the second tier Asset Allocation has been changed to Multi Asset; and in the third tier Variable Equity has changed to High Equity. Some categories have been done away with altogether, and others have been integrated into existing subcategories. One of the changes is that the Fixed Interest Varied Specialist category has been discontinued. The new classification system will see the majority of those funds move to the Multi Asset Income category whereby they may now hold a maximum of 10 per cent equity and 25 per cent property exposure. This new category will enable investors, who seek a fund with a majority holding in interest-bearing instruments, to benefit from the diversification of a maximum holding of 10 per cent in equities and 25 per cent in property. Another category which will cease to exist as from 1 January 2013 is the Asset Allocation Target Absolute and Real Return category. Funds previously within this category will mainly move to the Multi Asset Flexible category, but could be in other categories depending on the fund’s investment mandate. Two subcategories within the Equity category have also fallen away, namely: Equity – Value and Equity – Growth. Funds previously housed
in these two categories will be moved to Equity – General under the new classifications. Although these funds will be classified as General, their philosophies of value or growth will remain. Other noticeable changes include the amalgamation of the Asset Allocation High and the Asset Allocation Variable equity portfolios. These funds will continue in the new Multi Asset High Equity category with the same investment limit imposed of a maximum weighting of 75 per cent in equities (including international equity) and 25 per cent in property (including international property). The Real Estate General category will continue under the same name, but the minimum exposure to property will change. Previously funds had to have a minimum exposure of only 50 per cent in listed property; but as from 1 January 2013, the minimum exposure will be increased to 80 per cent. In addition, these funds may now invest up to 10 per cent in companies which conduct similar property related business activities. ASISA has chosen to rename the Fixed Interest category under tier 2 to Interest Bearing, with investor clarity at the forefront. The renaming of the categories within tier 3 once again serves to enlighten the investor, in this case, as to the average term to maturity of the underlying securities held. A new category in tier 1 will be instituted namely, Regional. These funds will invest a minimum of 80 per cent in a specified geographic location (e.g. Asia, Europe and Africa). Domestic funds will be reclassified as South African. These funds may now have a minimum exposure of 70 per cent in South Africa (previously 75 per cent), a maximum of 25 per cent offshore, and a maximum of five per cent invested in African
markets. Foreign funds will now be classified as Global funds, and they will have to adhere to a minimum weighting of 80 per cent of their assets invested outside South Africa at all times, with an 80 per cent maximum weighting per geographic region. How does this affect the investor? Other than seeing a different fund classification on fund fact sheets, there will not be automatic changes in the investment policy of the fund. In essence, the fund you bought into will not operate under a new mandate. ASISA has taken a step in the right direction. It has sought to align the fund classification system with international definitions and done so primarily with the investor in mind. It is of paramount importance to understand the philosophy of a fund especially when investing within a category that could contain various investment styles. With the new classifications in operation from 1 January 2013, it could be a good time to review your investment funds and understand how they are positioned under the new classification system.
Wade Witbooi Investment Analyst at Glacier by Sanlam
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resources
Where are the
opportunities in the resources sector? Judging by current valuations, the resources sector – with an historic price/earnings ratio of approximately 11 – seems compelling from a valuation perspective, especially relative to sectors that have enjoyed most of the attention till now, such as industrials (PE of 18) and financials (PE of 14).
H
owever, although these shares might appear relatively cheap on the surface, this is not really the case, given that we are expecting significant earnings declines that are due to be reported for the December year-end. For example, we’re expecting a 60 per cent earnings decline for Anglo American, which will push its PE to approximately 17 or 18 (from current levels of 10). This is significantly more expensive than the broader market, which is currently trading on a PE of 13 times. Therefore, just because resources shares have underperformed, it does not mean that they are cheap. Secondly, it is probably unlikely that we will see the support from stellar commodity prices over the next few years as we had become accustomed to during the last decade of the ‘super cycle’. Even though China has averted a hard landing and the US economy seems to be on the road to recovery, albeit slowly, the days of double-digit growth from China are behind us. Furthermore, commodity prices are now at much higher levels than they were when the super cycle began. Investors therefore now have to evaluate opportunities in a much more benign commodity price environment. Resources companies that can grow earnings irrespective of commodity prices and advance by means such as volume growth and cost containment are preferable. Rand weakness will also benefit this sector, although there is a caveat. Investors need to avoid those shares that may be contributing to the Rand weakness, as we saw last year with the companies affected by the strike action. The logic is fairly self-explanatory: as was
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evident last year, the instability caused by the labour unrest can contribute to currency weakness, which under normal circumstances would be beneficial to commodities. However, the very reason for Rand weakness is debilitating the companies’ potential to generate an income. Avoid labour risk
Gold run not over In terms of gold, we are more bullish about the prospects for gold equities relative to platinum. We do not believe the run in the gold price is over. The factors that support the gold price are still in place. Given the Fed’s indication that it would not raise rates, we can expect negative real interest rates until at least 2015.
In light of this, preferable shares are beneficiaries of Rand weakness, but without the labour risk. Companies like Sasol, which appears to be relatively immune to the risk of labour unrest, has the potential to achieve decent volumes growth. Sappi and Mondi are other shares that meet these criteria.
Furthermore, central banks and individuals – particularly from emerging markets – are still significant buyers of the yellow metal. The uncertain economic environment and inflation fears are causing investors to turn to a known store of value.
Another important consideration is the way in which companies pay wages; the more generous the employer, the less likely it is to be affected by strike action. Contrast BHP Billiton, for example, with Anglo. The former has only six per cent exposure to South Africa and is considered to pay its employees fairly decent wages, while the latter generated 49 per cent of its 2011 earnings from SA operations.
Importantly, we believe the gold sector has drawn a line in the sand, as evidenced by the decisive way in which Harmony pre-emptively shut the Kusasalethu mine and gave notice to 6 000 employees. It would suggest that the balance of power is shifting back towards management, which could prove to be a valuable bargaining tool when wage negotiations start in March.
Platinum metal trumps shares Platinum and gold still present value, but for different reasons. In terms of the former, we prefer the metal to platinum shares. The supply side is tightening, but the very mechanism by which the volumes are decreasing makes it unattractive to hold these miners. Although the lower volumes might lead to better prices, we don’t believe the earnings effect will be enough to make the shares appear reasonably valued in any way. Looking ahead, we are also more worried about strike action in the platinum industry than in the gold sector.
Daniel Sacks | portfolio manager at Investec Asset Management
Sunél
veldtman
What is in store for
2013?
Hours after midnight, on 1 January, my inbox started filling up with all kinds of predictions for the New Year; talk shows and news reports packed with expert opinions for the year ahead. From political analysts and economists to astrologers and psychics – they all had a go.
I
paid particular attention to this year’s predictions, as I was reading Nate Silver’s book, The Signal and the Noise – Why so many predictions fail, but some don’t. In light of his exposé on the downright unreliability of most predictions in most fields, I viewed them through a new lens. Let’s look at a few (anonymous) predictions for 2013 An international money expert predicted: “We will still be talking about the European debt situation five years from now. It will morph into something else.” What does this actually mean? What has this ‘expert’ told us that we don’t already know? In fact, when you pay close attention to the media comments of experts, few add real value. They are often vague and empty statements that appear important and urgent. Another expert said that the debt situation in the United States “can’t go on”, adding that the country is heading towards a new fiscal cliff. We all know this. What has been added to the debate? An economic group predicted that the advanced economies will show 1.3 per cent growth in 2013. Have you ever wondered how they are able to predict with such precision (down to one decimal) how the world’s largest economies, consisting of billions of consumers and millions of enterprises, will fare? Such precise predictions create the impression that these groups are reliably accurate. “Spain defaulting, oil falling to $50 a barrel and the DAX plunging 33 per cent”, was the prediction of one European bank. It is recognised for its outrageous predictions – last year only one out of 10 was accurate – yet its PR stunt continues year after year. Have you ever wondered who keeps track of these experts? Who keeps them accountable?
Professor Philip Tetlock, a professor of psychology and political science, at the University of California at Berkeley at the time, was asking some of the same questions. He began to collect predictions from a broad array of experts, in various fields. Tetlock found that experts had barely done better than leaving it up to random chance. It didn’t matter whether they were predicting economics, politics or international affairs. The more frequently experts were cited in the press, the worse their predictions became.
We need to stop, and admit it: we have a prediction problem. We love to predict things – and we aren’t very good at it. Why do we pay attention to experts professing to know the future? In fact, society has moved on from just paying attention – predicting has become an international sport. We are not only obsessed with economic and financial predictions, but with weather forecasts and disease predictions. Nate Silver writes: “We need to stop, and admit it: we have a prediction problem. We love to predict things – and we aren’t very good at it.” The truth is that humans want certainty. Uncertainty affects us like physical pain. We like to believe that experts can make the world a safer place for us. We continue believing them, even though we know that they are wrong. Moreover, human biology dictates that we analyse trends. We try to find trends in random data. Unfortunately, our analysis is always subjective. The conclusions, formed by researchers like Silver and Tetlock, are not that predicting is futile, but rather that society has to admit
that most predictions have a long way to go before they can be viewed as useful. We need to keep trying to find more advanced methods, involving less biased and subjective approaches. Traditionally, financial advisers have been seen as experts. This label sticks in the public’s mind. There is still an assumption that financial advisers can successfully filter the noise and produce predictions that will help their clients grow their investments faster and protect them from risks. Perhaps that’s why many people are disillusioned with financial advisers; because their predictions fail. Perhaps the biggest lesson we can learn, as we expose the myth of credible predictions, is to focus more on probability and risk management. When financial planners admit that there isn’t one predictable outcome, but many probable scenarios, they will help their clients manage their futures better. I believe this is one of the keys to restoring the faith in financial planning.
Sunél Veldtman, CFP CFA is the author of Manage Your Money, Live Your Dream, a guide to financial wellbeing for women. She is also a presenter and facilitator. Sunél is currently the CEO of Foundation Family Wealth and has more than 20 years of experience in financial services, most of which as a private client adviser.
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Unit
trusts
What new
regulatory changes may mean for the unit trust industry
S
an-Marie Greeff, CEO of Sanlam Collective Investments, believes that while changes in legislation in the unit trust industry have created an increased burden on providers, they also present some excellent opportunities. “While many industry regulatory changes relate only to more stringent reporting requirements, those that present the strongest opportunities for the industry are the National Treasury paper on discretionary savings, Treating Customers Fairly, proposed hedge fund legislation and a potential review of adviser fees (as implemented the UK). “Treasury’s proposals of incentivising non-retirement savings and improving tax incentives for retirement savings could certainly be positive for the industry when individuals are incentivised to make discretionary savings. This discussion paper is currently released for public comment, and there may be some changes as a result, but we do expect a strong uptake in unit trusts from investors if it is adopted.” She says the Treating Customers Fairly legislation was another one to watch. “Market conduct regulations have become imperative since the world’s recent financial crises. Proper market conduct means conducting business responsibly and fairly. The launch of the Financial Services Board’s TCF initiative is a step in the right direction and based on the legislation implemented in the United Kingdom. While it is still in the early stages, it will go a long way to create further transparency. While normal regulation is rules-based, TCF requires a level of selfassessment including self-regulation from
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financial services providers. This will put new parameters in place within which they can operate. The industry will benefit from increased levels of confidence from investors. “In September 2012, National Treasury released a white paper on proposed new legislation for hedge funds. While timelines are not currently clear, regulating hedge funds will certainly offer the unit trust industry an opportunity to add diversity to its offering.” She adds that the regulation of adviser fees, as has been implemented in the UK, is likely to be considered in South Africa and, if so, it will be a valuable tool in developing confidence among consumers. “While we have yet to see a proposal released on adviser fees from the Regulator, there has been a view that similar legislation will be proposed in South Africa. The regulation may require all service providers to assess the current fee structures and consider revision. This will make it far easier for investors to know exactly how much they are paying for financial services products, again increasing their level of comfort and transparency. This can only be a positive for the unit trust industry.”
“Switching policies and costs vary across the industry and LISPs typically have a different set of rules to those of management companies. Most management companies do not charge a fee for switching between unit trust portfolios. Some place a limit of the number of free switches in a year. “The main cost or risk of switching between portfolios is market timing. Making a decision to buy or sell by attempting to predict future market price movements is extremely difficult and investors mostly get their timing wrong. Rather than trying to switch between money market and equity portfolios in an attempt to enhance return, select an asset allocation fund where the investment decisions between asset classes are made on your behalf.” She says investors should also bear in mind that switching between unit trust portfolios may have a tax impact.
Switching between funds Greeff says one of the inherent features and benefits of a unit trust investment is flexibility. “This flexibility allows investors the option of buying, selling and switching between funds to suit investment needs. As an investor’s needs (e.g. risk profile) change, investors can switch between funds to ensure that the unit trust portfolio is aligned with their risk profile or investment need.
San-Marie Greeff | CEO of Sanlam Collective Investments
Unit
trusts
Balanced, equity or fixed interest: what is an investor to do?
Investment context at a glance • A ccording to ASISA’s unit trust fund stats for the last quarter of 2012, many South African investors missed out on a strong run in equities. • W hile fixed interest funds performed well during the period, official interest rates have now reached historic lows as a result of monetary policy easing aimed at kick-starting global economic growth – this is likely to have an impact on bond yields. • T he latest ASISA stats also show that many investors continue to opt for the perceived safer multi-asset class option but these have lagged behind the performance of bonds and equities.
A
SISA unit trust stats for the last quarter of 2012 showed that many South Africans missed out on a strong run in both local equities and the fixed interest sector, choosing instead the perceived safer haven of a multi-asset class fund, also known as a balanced fund. Going forward, what is a prudent investor to do? The answer, says Candice Paine, head of retail at Sanlam Investment Management, always lies in combining the analysis of an individual investor’s needs with a pragmatic look at asset valuations. “Investors are currently in a difficult spot. The perceived risk in risky assets
is very much higher than safer assets, but the traditional pay-offs aren’t aligned. So fixed interest assets are giving their lowest yields in many years and the superior returns we’ve seen from equities through most of the noughties may or may not be replicated owing to the anaemic global growth environment. Investors who are drawing an income from their capital require a high absolute level of return to draw what they need and this implies that they need to take on more risk. More risk comes with an increase in volatility that clients aren’t always comfortable with, but there seems no other option.”
below their long-term average of more than 3.2 per cent.”
Paine says fixed interest investors should be conscious that global and local interest rate levels will impact yield. “These investors should revisit the reasons they are investing in bonds: what they do and don’t offer and how this could change. Then they need to determine how they want to respond and what they can expect if they decide to, for instance:
Paine notes that balanced funds give an investor the best of all worlds while allowing a professional investment manager to make asset allocation decisions on behalf of the investor. Many mandates are available in this genre of funds, i.e. low, medium or high equity funds. By spreading capital over the various asset classes, an investor is able to participate in some of the markets’ upside while having an element of capital protection on the downside. “These funds really do give peace of mind to investors who know their risk tolerance.”
• S tick with their current fixed interest allocation or exposure; • S hift focus to higher yielding assets to achieve a pick-up in return;
Turning to local equities, Paine says investors who overcame their fears in 2012 and focused on valuations were richly rewarded, but this may not be the case going forward. “Investors need to know that equities are volatile and a long-term investment. Currently at SIM we believe equities are fairly valued to slightly expensive – all the more reason to be very sure about your needs and time horizon as an investor.” It may be time to have a look at protected equity strategies.
• Shift exposure to cash and/or equities. She adds that many investors seeking higher yields have found them outside the fixed interest arena altogether – instead investing in high dividend yielding stocks or portfolios. “There are risks here, too. Globally, demand for high dividend yielding investment exposure has been strong, given investors can achieve a yield of three per cent compared with a US 10-year bond yield of about 1.6 per cent. Despite some pull back in dividend yields to below three per cent, global dividend yields remain above their long-term average of 2.5 per cent. In SA, forward dividend yields compressed sharply during the year to trade below three per cent;
Candice Paine Sanlam Investment Management, Head of Retail
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Winners of
Raging Bull Awards
Best
unit trusts in SA
The annual Raging Bull Awards ceremony was held in Johannesburg on 30 January. The awards honour fund managers and management companies that provided superior returns for unit trust investors during the preceding year. TOP MANAGEMENT COMPANIES OF 2012 The unit trust management companies with the most impressive and most consistent overall performance across their families of funds taking into account all factors (performance, risk-management and consistency). Methodology: The award is based on the highest average PlexCrown rating for the suite of funds managed by each management company. Passive funds and funds in non-ranked sectors (for example, the varied specialist sub-categories) are not taken into consideration. Coronation was honoured as the best manager of South African-domiciled unit trust funds in 2012 across sectors consisting of a suite of five or more Randdenominated funds with at least three years’ history; Allan Gray was awarded secondbest management company of 2012; while Nedgroup Investments collected the certificate for third-best management company of 2012. Personal Finance, PlexCrown Fund Ratings and ProfileData are the joint sponsors of awards, which turned 17 this year.
Offshore Management Company of the Year. The overseas-domiciled management company with the best overall performance across sectors consisting of a suite of five or more non-Rand-denominated funds, with at least three years’ history. LLOYD’S TOP OUTRIGHT PERFORMERS The top performers to 31 December 2012 on a straight performance basis in asset and sector-specific Association for Savings and Investment SA (ASISA) unit trust categories (including the main asset allocation sectors). Methodology: Funds are ranked on a three-year lump sum NAV-to-NAV basis (in other words, entry costs not taken into account) with income distributions reinvested at the ex-dividend date. Calculations by ProfileData Best Broad-based Domestic Equity Fund. The fund with the highest ProfileData total investment return ranking over three years in the ASISA domestic equity general, value and growth sub-categories. SASFIN VALUE FUND
Coronation was honoured as the best manager of South African-domiciled unit trust funds in 2012 across sectors consisting of a suite of five or more Rand-denominated funds with at least three years’ history. Best Domestic Fixed-interest Fund. The fund with the highest ProfileData total investment return ranking over three years in the ASISA domestic fixed-interest bond and income sub-categories. STANLIB BOND FUND (A Class) Best Foreign (South African-domiciled) Equity Fund. The fund with the highest ProfileData total investment return ranking over three years in the ASISA foreign equity general sub-category. OLD MUTUAL GLOBAL EQUITY FUND (A Class) Best Offshore Global Equity Fund. The fund with the highest ProfileData total investment return ranking over three years in ProfileData’s offshore global equity general sub-category. FRANKLIN GLOBAL SMALLMID CAP GROWTH FUND TOP PERFORMERS ON A RISK-ADJUSTED BASIS The top performers to 31 December 2012 on a risk-adjusted basis in the asset allocation and real estate sectors plus the largest other ASISA sectors based on market capitalisation. The PlexCrown system, which incorporates risk-adjusted returns and consistency of performance, is used to rank funds for these awards.
From left to right: Ernie Alexander, Pieter Koekemoer, Laura du Preez and Ryk de Klerk.
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Methodology: The PlexCrown system combines risk-adjusted returns based on performance statistics from ProfileData with standard risk measures, consistency measures, and measures of downside risk and managerial skill. Performance over five-year and three-year periods is taken into account.
OFFSHORE FUNDS Best Offshore Europe Equity General Fund: FRANKLIN EUROPEAN GROWTH FUND Best Offshore Far East Equity General Fund: INVESTEC GSF ASIAN EQUITY FUND Best Offshore USA Equity General Fund: LLOYD’S TSB OFFSHORE NORTH AMERICAN FUND Best Offshore Global Fixed-interest Bond Fund: STANLIB GLOBAL BOND FUND
TOP PERFORMERS ON A RISK-ADJUSTED BASIS OVER FIVE YEARS
From left to right: Jeanette Marais, Pieter Koekemoer and John Karis. Best Domestic Asset Allocation Flexible Fund. The fund with the highest PlexCrown rating over five years in the ASISA domestic asset allocation flexible sub-category. REZCO VALUE TREND FUND Best Domestic Asset Allocation Prudential Fund. The fund with the highest PlexCrown rating over five years in the ASISA domestic asset allocation prudential high equity, medium equity, low equity and variable equity sub-categories. CORONATION BALANCED DEFENSIVE FUND (A Class) Best Domestic General Equity Fund. The fund with the highest PlexCrown rating over five years in the ASISA domestic equity general sub-category. MARRIOTT DIVIDEND GROWTH FUND (R Class) Best Offshore Global Asset Allocation Fund. The fund with the highest PlexCrown rating in ProfileData’s offshore global asset allocation flexible and prudential sub-categories. INVESTEC GSF GLOBAL STRATEGIC MANAGED FUND (A Class) (Accumulating)
WINNERS OF CERTIFICATES TOP OUTRIGHT PERFORMANCE OVER THREE YEARS The top performers to 31 December 2012 on a straight performance basis in asset and sector-specific ASISA categories (including the main asset allocation sectors). Methodology: Funds are ranked on a three-year lump sum NAV-to-NAV basis (in other words, entry costs not taken into account) with income distributions reinvested at the ex-dividend date. Calculations by ProfileData
The fund with the highest PlexCrown rating over five years in the ASISA domestic asset allocation prudential high equity, medium equity, low equity and variable equity sub-categories.
The top performers to 31 December 2012 on a risk-adjusted basis in the asset allocation and real estate sectors plus the largest other ASISA sectors based on market capitalisation. The PlexCrown system, which incorporates risk-adjusted returns and consistency of performance, is used to rank funds for these awards. Methodology: The PlexCrown system combines risk-adjusted returns based on performance statistics from ProfileData with standard risk measures, consistency measures, and measures of downside risk and managerial skill. Performance over five-year and three-year periods is taken into account.
SOUTH AFRICAN FUNDS SOUTH AFRICAN FUNDS Best Domestic Equity General Fund: FOORD EQUITY FUND (R Class) Best Domestic Equity Industrial Fund: CORONATION INDUSTRIAL FUND Best Domestic Equity Financial Fund: NEDGROUP INVESTMENTS FINANCIALS FUND (A Class) Best Domestic Equity Resources and Basic Industries Fund: NEDGROUP INVESTMENTS MINING AND RESOURCE FUND (A Class) Best Domestic Equity Smaller Companies Fund: NEDGROUP INVESTMENTS ENTREPRENEUR FUND (A Class) Best Domestic Equity Value Fund: SASFIN VALUE FUND. Best Domestic Asset Allocation Flexible Fund: 36ONE MET FLEXIBLE OPPORTUNITY FUND Best Domestic Asset Allocation Prudential Fund (includes the prudential high equity, medium equity, low equity and variable equity sub-categories): FOORD BALANCED FUND (R Class) Best Domestic Fixed-interest Bond Fund: STANLIB BOND FUND (A Class) Best Domestic Fixed-interest Income Fund: OLD MUTUAL INCOME FUND (R Class) Best Domestic Real Estate Fund: CORONATION PROPERTY EQUITY FUND (A Class)
Best Worldwide Asset Allocation Flexible Fund: EFFICIENT WORLDWIDE FLEXIBLE FUND Best Foreign Asset Allocation Flexible Fund: RE:CM GLOBAL FEEDER FUND (A Class) Best Domestic Asset Allocation Prudential Low Equity Fund: CORONATION BALANCED DEFENSIVE FUND (A Class) Best Domestic Asset Allocation Prudential Medium Equity Fund: SOUTHERN CHARTER MET BALANCED FUND OF FUNDS Best Domestic Asset Allocation Prudential High Equity Fund: SOUTHERN CHARTER MET GROWTH FUND OF FUNDS Best Domestic Asset Allocation Prudential Variable Equity Fund: FOORD BALANCED FUND (R Class) Best Domestic Fixed-interest Bond Fund: OASIS BOND FUND Best Foreign Equity General Fund: CORONATION WORLD EQUITY [ZAR] FUND OF FUNDS (A Class) Best Real Estate Fund: STANLIB MULTIMANAGER FLEXIBLE PROPERTY FUND (A Class)
OFFSHORE FUNDS Best Offshore Global Fixed-interest Bond Fund: STANLIB GLOBAL BOND FUND Best Offshore Global Equity General Fund: RE:CM GLOBAL FUND
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Raging Bull Awards
RAGING BULL COMMENTARY The Raging Bull awards hosted a collection of investment industry experts recognising the top-performing unit trust funds in the industry. Following the awards, Ian Heslop of Old Mutual Asset Managers and Ursula Martiz of Southern Charter offered the following comments: Ian Heslop, head of quantitative strategies for Old Mutual Asset Managers (OMAM UK) The Old Mutual Global Equity Fund “By combining five different strategies – valuation, market dynamics, sustainable growth, analyst sentiment and company management – we are able to produce more stable returns than the average fund. We rotate the emphasis on different strategies depending on market conditions, so that at all times at least some of the strategies deliver good returns. This also gives the fund good global diversification across both
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markets and stocks. For example, we are currently invested in 270 different stocks. The fund returned 14.78 per cent per annum in Rand over the three years to the end of December 2012, compared to 9.57 per cent per annum from its benchmark, the Morgan Stanley Capital World Index (MSCI).”
“We believe that asset allocation is key in adding additional alpha and our process focuses on this. We actively manage the tactical asset allocation of these funds based on the relative valuation of the major asset classes combined with in-depth analysis of the investment environment.
Ursula Maritz, CIO Southern Charter
“The Southern Charter Growth Fund has an investment objective of CPI+7 per cent and can go up to 75 per cent in equities, while the Southern Charter Balanced Fund has an investment objective of CPI+5 per cent and can go up to 60 per cent in equity. Both these funds are Regulation 28-compliant funds.”
“Southern Charter was awarded two Raging Bull awards for its risk-adjusted performance over three and five years, for both its medium and high equity multi-asset class funds. This follows on the 2012 Morningstar award for the Best Fund House small fund range.
Raging Bull Awards 2012 winners are...
Focus leads to Performance
Domestic Real Estate General – STANLIB Multi-Manager Flexible Property Fund - Michael Farry
STANLIB has been uniquely structured to offer the advantages and commitment of a franchise investment operation with the strength and efficacy of a large investment house. A structure that allows us to select the best talent available and create an environment where this talent can thrive and evolve.
Best Offshore Global Fixed Interest Bond Fund (3 years) – Paul Hansen Best Offshore Global Fixed Interest Bond Fund – Risk Adjusted (5 years) – Paul Hansen Best Domestic Fixed Interest Bond Fund - STANLIB Bond Fund - Victor Mphaphuli and Ian Scott Raging Bull Award – Domestic Fixed Interest Fund -Victor Mphaphuli and Ian Scott
STANLIB has been uniquely structured to offer the advantages and commitment of a franchise investment operation with the strength and efficacy of a large investment house. A structure that allows us to select the best talent available and create an environment where this talent can thrive and evolve.
STANLIB is known for excellence in Fixed Interest and Property . Our Fixed Interest and Property returns relative to peers have historically ranged between first and second quartile. As at the end of 2012 our Fixed Interest capabilities, from short maturity solutions like the STANLIB Income Fund to long maturity solutions like the STANLIB Aggressive Income or Bond Funds, have maintained the coveted first or second quartile rankings over all time periods. Looking back two years ago, these funds were in virtually in the same position, first or second quartile performance over all time periods relative to peers. Equity performance has markedly improved since Thabo Dloti joined the group as CEO in 2010. A stable investment team and an unwavering commitment to our investment philosophy contributed to primary retail offerings like the STANLIB Equity and SA Equity Funds’ move away from third or fourth quartile performance in 2010, to first quartile over most time periods as at the end of 2012. This improvement has enabled other capabilities like the STANLIB Balanced, Balanced Cautious, Risk Profiled and Absolute Return Funds to noticeably improve on their performance rankings (relative to peers). As an example, the STANLIB Balanced fund has improved from a third quartile ranking over 4 years as at the end of 2010, to a first quartile ranking over 4 years as at the end of 2012. STANLIB Multi-Manager Franchise continues to show strong performance in its Global Equity and Global Bond Funds, where both funds have outperformed their respective benchmarks and peers for the fourth calendar year running. The STANLIB Global Bond Fund, with underlying manager, Brandywine Investment Management – has also maintained top performance in its sector over three years. Contact us For more information on these funds, please visit our website www.stanlib.com. Alternatively, tune into CNBC Africa at 19h30 on Channel 410 and watch our fund managers comment on markets and funds on Investment 360.
With a stable investment team and enhanced performance, we are comfortable that this positive trajectory will continue into the foreseeable future.
STANLIB/10140
Don’t choose a company focused on performance. Choose a focused company that performs.
DR0860
ADVERTORIAL
Industry
news
Appointments
Robin Bryan Smither has been appointed head of regional corporate banking at AfrAsia Bank’s South African representative office in Johannesburg, underlining the Mauritius-based bank’s strategic focus on expanding its banking solutions across Africa and the region. Smither, a South African national, has more than 10 years’ experience in corporate and investment banking and extensive knowledge of global markets and transactional banking. He is a former senior relationship banker – top tier foreign multinational corporates – at Standard Bank and holds an MBA, a postgraduate diploma in business management and a degree in social science.
MAITLAND ACQUIRES SPECIALIST HEDGE FUND – ADMIRAL ADMINISTRATION Maitland, the international legal, fiduciary and fund services group, acquired Admiral Administration, bringing Maitland’s total assets under administration to US$145 billion, of which US$25 billion are hedge fund assets. The new Maitland company will continue to trade as Admiral Administration and will establish an operating entity under that name in South Africa. This will allow for the insourcing of international work onto the Maitland technology platform in Cape Town. The award-winning specialist hedge fund administrator is headquartered in the Cayman Islands, with offices in Ireland, Canada and the United States. Admiral Administration was voted Best Offshore Administrator by Hedgeweek in
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STANLIB has announced the appointment of Vaughan Henkel as investment strategist, where he will lead asset allocation within the research team. Henkel has joined STANLIB from RMB Morgan Stanley where he held the position of head of research and SA strategist – a position he held since 2009. Henkel holds a BSc (electrical/electronic engineering) degree and a management advancement programme certificate from the University of the Witwatersrand. He is also a CFA Charter Holder and a member of the CFA Institute and the Investment Analysts Society of SA.
2011 and at the recent HFM awards in New York, Admiral was a finalist for Best Technology for an Administrator among other industry leaders such as SS&C GlobeOp, Citi, State Street, and Citco. Maitland CEO, Steve Georgala, said: “Maitland’s objective is to establish Admiral Administration as our specialist hedge fund administrator in the group, operating in multiple jurisdictions, both onshore and offshore. We are also well positioned to expand our traditional administration services into the jurisdictions where Admiral has a presence.” Canover Watson, managing director of Admiral, who will assume the role of global head of hedge fund administration for the group, said: “As a specialist hedge fund administrator, Admiral uses best-of-breed technology including Advent Geneva, Advent Partner and Paladyne to meet the specific needs of the alternative investments industry.”
Patrick Ntshalintshali has joined Vunani Fund Managers as portfolio manager and senior analyst in the specialist equity product group. Ntshalintshali managed funds for various companies prior to his appointment at Vunani Fund Managers and in the process achieved a number of investment performance awards, including the Raging Bull Awards, FM Standard and Poor Awards as well as BBQ’s Best Investment Manager of the Year and ABSIP Achiever Award.
Maitland’s objective is to establish Admiral Administration as our specialist hedge fund administrator in the group, operating in multiple jurisdictions, both onshore and offshore.
CAPITALWORKS INVESTS IN THE CONSUMER FOOD MARKET Capitalworks’s acquisition of a majority interest in the privately owned Rhodes Food Group represents the first venture by this independent South Africa-based alternative asset manager into the consumer food market. With approximately R2 billion annual turnover, Rhodes Food Group prides itself on being the leading domestic producer of high quality prepared meal solutions, dairy products, pies and premium canned foods. In terms of the deal, Rhodes Food Group managers will acquire a significant shareholding, which is a feature cornerstone of many Capitalworks acquisitions. It applies a strong partnership principle in its acquisitions and has a track record of working alongside the management of the company to build exceptionally successful businesses. Capitalworks partner Garth Willis, said: “With a history going back for over a century, Rhodes Food Group is an integral part of the South African landscape. We will be delighted to provide the strategic support that will strengthen one of the longer-established companies in South Africa.”
CADIZ UNIT TRUSTS EXCELLENT PERFORMANCE IN 2012 A number of Cadiz Unit Trusts had a spectacular year during 2012, managing to grow assets substantially as a result of sustained good performance. These achievements include: • C adiz Absolute Yield Fund smashed through R3 billion to end the year at just shy of R3.4 billion. This represented an annual increase of just under R1 billion in net assets for this fund. • C adiz Inflation Plus 5 per cent Fund closed in on R300 million with asset growth of almost 33 per cent from a year earlier. • C adiz Managed Flexible Fund went over R100 million, witnessing asset growth of 61 per cent from a year earlier, and Cadiz ZARO Hedge Fund provided consistent returns for another year; returning almost 15 per cent after fees with its low volatility giving it a healthy Sharpe Ratio of 1.56. In addition to these achievements, Cadiz also launched a number of successful offerings to the market in 2012. The Cadiz Property Income offering was launched in March 2012 and closed the year at a healthy gross market value in excess of R150 million. Cadiz Enterprise Development Investment was launched in August 2012 and managed to end the year with almost R40 million assets under management; and Cadiz Stable Fund was launched in September 2012 and closed the year with assets under management of over R225 million, showing the impressive market demand for absolute return offering in the retail space.
STANDARD CHARTERED AWARDED FINANCIAL ADVISER OF THE YEAR FOR SUB-SAHARAN AFRICA Standard Chartered was awarded the Financial Adviser of the Year for sub-Saharan Africa at the Financial Times and mergermarket annual awards ceremony. Hosted at The Savoy in London in January, this renowned industry event awarded the top dealmakers from the past year across Europe, the Middle East and Africa. Prominent deal mandates for the emerging markets bank this year included advising on the largest deal of the judging period, the sale of a 40 per cent stake in De Beers to Anglo American for 3.6 billion Euros. Cross-border Asian deals were also noted, including the first African investment of China Investment Corporation into industrial conglomerate Shanduka, and as sole adviser to Cove Energy during its sale to PTT.
With approximately R2 billion annual turnover, Rhodes Food Group prides itself on being the leading domestic producer of high quality prepared meal solutions, dairy products, pies and premium canned foods.
Axel Smeulders, regional head M&A, Standard Chartered Africa said: “Standard Chartered’s M&A expertise is integral to the bank’s wholesale banking strategy in Africa, assisting African and foreign institutions to implement sustainable and successful expansion in Africa as well as internationally. The bank’s extensive network and history of 150 years on the continent provides us with a differentiated advantage in understanding Africa’s diverse economies, investment requirements and opportunities for growth. We are proud to win this award; a reputable and valuable recognition of our M&A capabilities and expertise in Africa.”
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ince its launch in July 2012, the Nedbank App Suite has proven popular among consumers with more than 115 000 downloads so far.
Managing executive of client engagement, Anton de Wet, says: “In an environment where time is money and security is vital the Nedbank App Suite is providing a valuable service to our clients. Through the Nedbank App Suite your bank is available anytime, anywhere. It has world-class security features, provides a distinctive user experience and offers great value banking for our clients.” Nedbank has reached a number of milestones in a few short months exceeding
Absa launches Target Return Lock-In Investment for overheated markets Member of Barclays, Absa Bank Limited’s corporate and investment banking division launched the Target Return Lock-In Investment (the Target Return) for investors who want to try and outperform inflation by accessing riskier investments such as equities, but who are also worried that the local equity market is due a correction. The Target Return offers investors an in-built lock-in
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R1 billion in transactional value being processed via the app with no incidents of fraud. This is a significant achievement in the current area of online fraud. It is the only banking app in South Africa to leverage Ecert technology. The activation process links your physical device to your banking credentials. This means that even if a SIM swap occurs, at no point is your App Suite compromised. The registered devices are the only authorised devices able to access the banking capability on the app and can do so over any data connection without the reliance of a SIM card. Retail banking transaction values conducted through the app have grown by 200 per cent month on month with volumes
mechanism that could capture a fixed return of 8.5 per cent per annum with a capital-atrisk buffer at maturity if certain conditions are met. In the event of a correction in over-valued markets, the Target Return could still achieve attractive returns. The concept is ideal for investors who would like to continue to access potential growth in South Africa (via the FTSE/JSE Top 40 Index) but want to de-risk their current portfolios with a product that performs well in flat and falling markets. Markets have to fall by more than 40 per cent for the lock-in not to occur and for capital to be potentially at risk. Any returns via the Target Return have the potential for
increasing over 140 per cent. The increase in transaction value and volume indicates a growing confidence in the digital channel and points to a shift in banking behaviour, as clients enjoy the benefits of convenient, secure banking on the move.
The activation process links your physical device to your banking credentials. This means that even if a SIM swap occurs, at no point is your App Suite compromised.
capital gains tax treatment at maturity.
potential for above inflation returns,” says Sydow.
According to Ryan Sydow, head of retail distribution at Absa’s corporate and investment banking division, the objective of the Target Return investment is to offer investors a safer alternative to long only equity positions, but without sacrificing much of the upside.
As such, the Target Return’s attractiveness lies in its ability to potentially deliver a decent annual fixed return, even if markets have fallen, since investors benefit from a capital-at-risk buffer on maturity, while any annually achieved fixed return is lockedin and payable on maturity.
“Many investors are of the view that the Top 40 is currently over-valued. Therefore, with a potential correction looming, it is important to create an investment vehicle and payoff that will counteract any negative market movements an investor may feel elsewhere in their portfolios, and still provide
“This means that any gains locked in cannot be lost even if the market subsequently falls. But obviously if the index is below the predetermined barrier on the anniversary date, no fixed return will accrue for that year,” adds Sydow.
The
world africa, spain, Slovakia, egypt, united states, china, greece, germany, portugal, angola
Africa’s share of FDI largest ever Africa received its largest-ever share of global foreign direct investment (FDI) last year, according a recent survey by Ernst and Young. FDI projects grew by 27 per cent in 2011, pushing Africa’s share of the world’s investment to almost a quarter. Ghana, Botswana, Tanzania, Cape Verde and Mauritius attracted high FDI inflows. However, a 2012 Africa Attractiveness Survey revealed that potential investors are wary of the continent’s investment potential, owing to high levels of corruption and political instability. Intra-African investment has, however, grown substantially in the last four years. Pension reform under expansion in Spain Spain will soon be expanding its pension reform initiative by changing the retirement age from 67 to 65. This is according to Spanish officials who say decreasing international borrowing costs and fixing the country’s troubled finances are top priority. The reform is said to increase by 100 billion Euros a year in pension costs, or 10 per cent of gross domestic product, possibly in early 2013, which in turn would contribute greatly to salvaging the country’s economy. Slovakia’s labour code revisions pose great economic risks A number of revisions have been adapted to Slovakia’s labour market code, designed to improve worker’s rights. The Slovakian Government says changes to these rights could pose risks to the economy, such as increasing labour market volatility due to slowing economic growth and rising payroll levies. This could, in turn, prompt companies to begin retrenching staff in order to avoid additional costs. Egypt applies for $4.8 billion loan from IMF to ease currency crisis Egypt has requested a $4.8 billion loan from the International Monetary Fund (IMF) in order to ease the currency crisis. Egypt faces a
severe economic crisis, with foreign exchange reserves at a critical minimum level, budget deficit soaring and currency sliding to around 6.4 Egyptian Pounds to the US Dollar. The loan is seen as vital for restoring confidence in the Egyptian economy and is expected to attract international investment to Cairo. US rules out calls to mint 41 trillion ‘crisis’ coin The US treasury has strictly ruled out any new borrowing for the production of platinum coins to the value of $1 trillion that is said will avoid raising debt costs. The production of platinum coins threatens to do more harm than good regarding the country’s economy and possible investment opportunities. Chinese economic growth set to rebound China’s economy is expected to rise above its recurring trend of moderating growth as new management retools the nation’s investmentled economic plan. The country, which still faces challenges such as unresolved structural problems, has vowed not to rely on investment to drive growth, but instead implement these new initiatives as an austerity measure. After seven consecutive quarters of slow growth, China’s growth domestic product is forecasted to grow at eight per cent this year following a survey done by 15 economists. New Greek tax laws to boost state revenue New tax laws have been approved by Greece’s parliament aiming to boost state revenues by 2.3 billion Euros this year. Under the country’s commitments to international creditors, the new law shuffles and explains tax scales in a less technical format, includes reforms, family benefits, increases tax on deposit interest and expands the tax base. The Greek government says this will also reduce the burden on those citizens earning less than 25 000 Euros a year with a new top tax rate of 42 per cent for those earning more than 42 000 Euros a year.
Strong outlook for German equities Share price valuations for the German market remain attractive on both a relative and historic basis, generally offering “strong earnings growth and the likelihood for superior earnings in the future”, Baring Asset Management claims. According to the investment firm, the country’s export shares have grown around 31 per cent to 33 per cent in the past five years, despite a generally tougher environment for European equities in 2012. Evidence of a better outlook for German equities can be found, said Baring, in the performance of the country’s equity market against a broader index for European equities. Bank of Portugal sees deeper recession A slump in 2013 exports has been forecast by the Bank of Portugal, lowering its economic outlook for the country. As global growth dampens, export demand and domestic consumption slides have been affecting the country’s volatile economy. The bank said gross domestic product (GDP) should rebound to post-growth of 1.3 per cent next year depending on whether further austerity measures are launched under Portugal’s bailout from the European Union and IMF. This will be the third consecutive year of recession as the country stagnates to its worst economic slump since the 1970s, making possible investors wary. Angola beats most of Europe to 4G With the rise in modern infrastructure, Angola has now been recognised as a big competitor in international mobile broadband services with the country being in the process of getting high-speed 4G services. Currently ahead of most nations in Europe and the US, the $100 million project sits well for the expansion of the country’s economy as well as an international investment niche in eastern Africa.
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They said “It will definitely affect investor sentiment. It is not just agriculture and the Western Cape that will suffer, but the whole of SA.” John Purchase, Agricultural Business Chamber CEO, expressed his concern over the damage the prolonged farm strikes have had on foreign investor confidence in the country. “The infrastructure development plan has introduced the national and central coordination of the building of dams, roads, bridges, power stations, schools, hospitals, two new universities and other infrastructure that will change the landscape of our country and the lives of our people.” President Jacob Zuma indicated the government’s intent to drive economic transformation in South Africa. “The potential in Africa is enormous; I could see it becoming a second China in terms of growth.” Ralph Szymczak, telecom analyst at Landsebank Baden-Wuerttemberg, commented on the growth potential of Africa as an emerging market given Vodafone’s thriving successes in the region. “The budget framework set out in the Mediumterm Budget Policy Statement demonstrates government’s unambiguous commitment to maintaining debt and expenditure growth within sustainable levels. These principles
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will continue to underpin South Africa’s fiscal stance‚” The National Treasury said in response to the recent downgrade by Fitch. “I would be wary of throwing the baby out with the bath water. I think some of the sales were postponed from December given the timing of the Chinese new year.” Jon Cox, analyst at Kepler Capital Markets, commented on the falling share price of South African luxury goods company Richemont. The company’s decline in sales has been attributed to muted growth in demand in the Asia-Pacific region. “It looks like we are in a period, whether sustainable or not, of some stability and this is resulting in the moribund performance of the gold price. But we’re not out of the woods yet, and there is still much that the world economy needs in terms of support from monetary policy.” Daniel Brebner, analyst at Deutsche, commented on the reasons behind the progressive decline of gold in recent times. “The US debt ceiling is the next dark cloud on the horizon after the US fiscal cliff deal. The country is above its debt ceiling and needs to find a solution by the end of February‚ which will set a tone for global equities.” Nicholas Sorour‚ portfolio manager at Sasfin Securities, believes the US will have
to act quickly in handling once the fiscal cliff problems are potentially remedied. “Today’s better-than-expected number provides further evidence that the economy improved slightly from the strike-inflicted lows of the third quarter. However, the pace of recovery remains slow and uneven, with activity under pressure due to recession in the Eurozone and sluggish growth elsewhere in the world economy.” Johannes Khosa, an economist at Nedbank, commented on the growth in retail sales figures released by Statistics SA. “The number of things that could go wrong isn’t so high, but the magnitude of how wrong they could go is what’s worrisome.” Kurt Winters, senior portfolio manager for Whitebox Mutual Funds, commented on the dangers that could arise from the US falling of the fiscal cliff. “Things are starting to settle down and the guys are getting a bit more optimistic about the world economy as a whole.” A trader at PSG Securities, Desmond Reilly, commented on the surge in global markets moving into the New Year that come as a result of deals to avoid the fiscal crisis and an improved economic outlook of the Chinese market.
you
said
u o Y id sa ets e w t st e t b s a e l h f t er the o e som you ov f o tion ned by eeks. c e l A se mentio four w as @zyronmelton: “Does the @ realDonaldTrump broadcasting his stock selections not qualify as market manipulation? Or is it more of an endorsement? @SimonPB” Zyron Melton – Hedge Fund Accountant. Critical Thinker. Whiskey Drinker Cape Town · http://mobro.co/5150465 @Shaun_Burrow: “Anglo CEO chat reminded me 2 share an Allan Gray trade. Buy Anglo Plc and Sell Kumba/Amplats. SA assets not grt, but ‘rump’ undervalued.” Shaun Burrow – Financial Services Professional & Business Owner. Tweets about company/investment news & experiences. Cape Town, South Africa · http://www. dunveganwealth.com @carlvdberg: “The ALSI delivered a total return of 26.7% in 2012 – driven by fundamentals or by having no reasonable alternatives?” Carl van der Berg – Financial consultant with @alexforbes. Futurist, behaviouralist & passionate about unique retirement solutions. I sometimes post photographs. Johannesburg, ZA · http://za.linkedin.com/ in/carlvdberg
@chrishartZA: “Rand doing better following opening of Mangaung. However, a long way to go for a full recovery. Dollar struggling in the wake of QEinfinity.” Chris Hart – Strategist at Investment Solutions & renowned Gold bull. Johannesburg · http://www.chrishart.co.za @davidkibuuka: “Loving the fact that Cyril’s in the mix. He has investments & people with investments need the economy 2work. And he made the SA constitution.” David Kibuuka South Africa
portfolio construction tools for hedge funds. Coppell, TX 75019 · http://capitalogix. typepad.com @dwayneembery: “SA inflation up, rand weaker: solution, buy BTI and RMB government inflation bonds (rmbinf), then sit back and watch the magic!” Dwayne – Dad, legal adviser, investor, positions trader, fitness focus Port Elizabeth, South Africa
@kakhumuza: “@theRealKiyosaki: The longer you actively invest… the smarter you become… and the smarter you become… the richer you get.” Magaye Cele – Investor, day trader, child of God. Durban · http://www.kakhumuzatrading.co.za
@DanielJMalan: “I find it fascinating that people retweet my equity observations but ignore my bond market observation. This in itself is meaningful imo.” Daniel Malan – value investor, man, son, brother, father, husband, friend, musician, songwriter, surfer, explorer, tinkerer, free spirit, outspoken, passionate, realist Cape Town, South Africa · http://www.recm. co.za
@hgetson: “Amateur Investors Are 3.2 Percent Worse Than Chimpanzees At Picking Stocks: Fear, greed, and mistakes are a bitc... http://read.bi/VbNvMS.” Howard Getson – CEO of Capitalogix – which builds automated trading systems and
@MichaelJordaan: “The average life expectancy of a hedge fund is 3 years. That’s the lifespan of the average hamster.” Michael Jordaan – Banker, economist and wine enthusiast. Joburg, South Africa · http://www.fnb.co.za
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And now for something
completely different
Think bike, think investment – investing in vintage motorcycles
F
or some, the thought of riding a motorcycle is a dangerous and life-threatening means of transport. For others the thrill of roaring down the open road on a two-wheeled machine is an incomparable feeling and a way of life. Having been around for more than a century already, motorcycles are a popular, fuel-efficient means of transport and certain models have earned their place as collectors’ items and should not be overlooked as a means of investment. A return on investment traditionally lies with vintage motorcycles and not with the
1) 1915 Cyclone – $520 000 The Cyclone Board Track Racer was designed by Swedish-born engineer, Andrew Strand, with the purpose in mind to achieve record high speeds on an oval racetrack. The huge 1000cc V-Twin engine produced 45 horsepower and was able to achieve a top speed of 110 miles per hour and broke the one-mile speed record in 1914 at just over 35 seconds. With a limited number of Cyclones ever built, only six examples have been known to surface to date. Thus, it was no surprise when a pristine example was auctioned for $520 000 at the inaugural Monterey MidAmerica Auction in July 2008. Not bad for a bike which originally sold for $350.
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undistinguishable mass-produced models sold today. However, the market for two-wheeled ‘rolling works of art’ has been catching up and is enjoying plenty of success. What is great about this particular market is that it is driven by unwavering passion, while the sales value is an added bonus. So while vintage models appreciate in value thanks to the laws of supply and demand, new classic models have emerged thus giving the market a sense of continuity and opening itself up to a younger generation.
do some research and make an informed purchase. Most importantly, there must be a limited supply of that type of motorcycle in order for it to appreciate in value and offer a good return on investment. Secondly, the current demand for it must not be based on short-term speculation and the motorcycle should have a history of popularity or an established legacy. Lastly, there must be a growing demand for the motorcycle over the long term.
When it comes to investing in the vintage or modern classic motorcycle market, it is important to not enter it blindly, but instead
The following examples have kept to these principles and illustrate the potential returns such an investment could yield.
2) 1939 BMW RS 255 Kompressor – $480 000
3) 1939 Brough Superior SS80 ‘Old Bill’ – $469 500
In 1939, German BMW rider Georg Meier took the chequered flag in the Senior Tourist Trophy race at the Isle of Man and simultaneously made history as the first non-Briton to win the race. Clocking an average speed of 89.38 miles per hour riding on a BMW RS 255 Kompressor, Meier finished in two hours, 57 minutes and 19 seconds; a full two minutes ahead of his nearest competitor BMW teammate Jock West. The bike was sold at the Bonhams Las Vegas Motorcycle Auction on 10 January 2013 for $480 000. Significantly, BMW spent years developing the bike, in particular its supercharger. Supercharged engines were later entirely banned from international motorcycle racing after 1945, and the Germans, in the wake of the Second World War, were not allowed to compete at the international level again until 1950.
The SS80 was built especially for the company’s founder, George Brough in 1922, who raced it to over 50 sprint victories. It made its debut at the Brooklands race track in Surrey where it became the first side-valve motorcycle to complete a lap at over 100 miles per hour. Originally dubbed the Spit & Polish due to its shining exterior, it was renamed Old Bill by George Brough himself after the First World War cartoon character. Brough sold the bike in the 1920s, shortly after a crash, in order to pay his workers’ wages. Following damage caused by a cast iron bath falling through a ceiling during the Second World War, Old Bill remained in storage until the 1950s. Subsequent to that, Old Bill was passed to the Vintage Motorcycle Collectors’ Club (VMCC) founder Titch Allen, who restored it back to its original condition. The bike was purchased by an American collector for $469 000 at an H&H auction in October 2012.
CASH IN THE BANK? MAY WE HAVE A QUIET WORD PLEASE. OK, assuming you’re guilty, let’s examine why? “The bank gives me security.” “The bank gives me accessibility.” “The bank gives me interest.” “After tax and inflation, hold on? Hey, I’m actually losing money!!!” Exactly! Your rationale: “I don’t know where else to put it.” “Markets are too volatile, property prices are flat, bonds aren’t much better.”
They do not lock you in. You can get access to your money in one day - without penalties. You can miss monthly payments. Also, no penalties. Plus, no up front admin fees, so your money works from day one. And, here’s the really good bit, thanks to the power of compounding over time, your returns promise to far exceed anything you imagined possible.
RADAR/OM3634/INVSA/E
Don’t worry. Read on. Unit trusts are the way to go.
Let’s put it another way. This is a no brainer. You owe it to yourself to find out more. 1. Contact your Old Mutual Financial Adviser or your Broker 2. Call 0860 WEALTH (932584) 3. Visit investmentcollection.co.za
Old Mutual Investment Group (South Africa) (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.