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As I write this, yet more investment records have been shattered. Unfortunately, they’re not of the good kind.
This year alone, global equity markets are down by $30 trillion, more than the $28 trillion decline during the global financial crisis of 2008. During times like these the temptation to tinker with your investment plan – just for the sake of doing something – is often overwhelming. But it’s important not to give into that temptation. Rather find a distraction to take your mind off the headlines.
I found that distraction in a book by Bradley Hope and Justin Scheck titled “Blood and Oil: Mohammed bin Salman's Ruthless Quest for Global Power”. It tracks the astonishing rise to power of Saudi Arabia’s Crown Prince Mohammed bin Salman, and as author Oliver Bullough says in his review of the book, “If you've ever wondered what would happen if limitless money met limitless power, wonder no longer, it's all here…”
Sewnath Deputy Managing Director
The Saudis have had to deal with all the volatility of global events as well as an authoritarian regime. On the face of it, our market extremes are certainly preferable to being on the receiving end of some of the excesses described in the book. If this is truly their lived reality, it begs the question whether there could be any ‘return to normal’ in that society, or if the abnormal events described are in fact their new normal!
Where markets are concerned, 2022 has been an unprecedented year, with almost everything in the red. Global equities were down 26% in US dollars to the end of September, while SA equities shed more than 10% in rands. Over the same period, global bonds lost 21% in US dollars, while SA bonds performed somewhat better, but still declined by just over 1% in rands.
Over the quarter, apart from cash, the only positive performer amongst the large asset classes was the All Bond Index, which just snuck through with a positive return. However, this masked massive volatility, given that the index declined by 2% over September.
One issue my investment colleagues generally agree on is that despite all the bad news, this is in fact a relatively ‘normal’ economic cycle. But it’s tough out there, and we’re getting three key questions from our clients.
2022 has been an unprecedented year, with almost everything in the red.
1Firstly, what should they do with their existing investments? As Clyde Rossouw points out in this edition, financial assets have already adjusted materially to central banks withdrawing liquidity, so it is too late to disinvest now; rather stay invested.
2Secondly, what do they do with new money? While our portfolio managers are still fairly cautious, as Clyde points out, there are attractive entry points emerging for those who have a long-term investment horizon.
Be careful, however, of ‘lazy money’ and staying parked in cash for too long. There is no denying that it has also been a tough environment for fixed income. As mentioned earlier, the All Bond Index lost 2% over the month of September, which meant that almost 80% of the funds in the income sector posted a negative return over the month. However, the Ninety One Diversified Income Fund stayed true to its mandate to ‘participate and protect’ – even during the difficult month of September.
3Finally, investors want to know whether they should go offshore at these levels. We conducted an interesting study which showed that people believe the rand-dollar exchange rate to play a far bigger role in investment outcomes than it really does, especially over the longer term. Our study showed that irrespective of whether the rand was weak or strong relative to the previous 12 months (which largely drives investors’ expectations of the future), the return experience post their investment offshore was very similar in both environments.
A more important consideration therefore is where you invest offshore and the manager you choose rather than the exchange rate at which you are externalising your investment. Our Quality investment team still believes that offshore equities constitute the ‘best ideas’ within our multi-asset portfolios, and while the rand has depreciated by more than 19% against the US dollar year to date, it has been one of the strongest emerging market currencies.
If your business is also feeling the pain, know that you’re not alone. According to the Morningstar estimates of unit trust fund flows, the industry saw net outflows in September (and was largely flat over the third quarter). Most of the flows have been into income funds, but there is still a lot of money sitting on the sidelines, with household bank deposits now standing at approximately R1.6 trillion. This is money that could be working a lot harder for your clients if channelled towards flexible income funds rather than fixed or bank deposits.
Improved transparency across the value chain ultimately leads to better investor outcomes. While great strides have been made in the standardisation of how fees are calculated and disclosed, for many investors it remains a puzzling part of the investment equation. We therefore thought it opportune to include an article which sets out our fee philosophy and also addresses the key differences between performance fees and fixed fees. We trust this will help you and your clients make more informed decisions.
Importantly, we are about the long term. We are committed to creating an intergenerational business, so we don’t make decisions that would put the sustainability of our business or our service to you at risk over the short term. I hope that you are thinking similarly about your business as we look forward to a long and meaningful journey together.
We recognise that client conversations can be very difficult when the environment is so challenging. Studies have shown that financial advice can add a potential 3% per annum of net returns, and about half of this is derived solely from keeping clients committed to their original plan. At times like this, clients should stay invested, especially as a lot of the pain has already been taken. It’s not easy, but we are here to help. Please let us know if you need assistance with commentary that could help, or with client engagements.
We are always here to support you.
Sangeeth Sewnath Deputy Managing Director
Certainly, the first 6 months in markets were tougher than most market participants had experienced in their lives. A touch of optimism filtered through in the beginning of the third quarter, as it looked as though inflation might have peaked in the US. However, inflation proved equally stubborn on the downside, resulting in markets experiencing another aggressive leg down on the back of sharply rising interest rates.
Going forward, investors seem split between those who believe that we should be through most of the carnage, and those who believe things could get worse, much worse.
The biggest swing factor remains Vladimir Putin. What his end game is, is anybody’s guess. If he escalates the war, then anything is possible, including World War III. The talk in Europe at the moment is all about winter and war. Alternatively, any resolution between Moscow and Kyiv would be very beneficial for emerging markets, including South Africa.
Whilst a long, dark, cold winter lies ahead in Europe, the weather thus far has played its part in softening the impact of higher gas prices. Hopefully, the 10.1% inflation print in September signalled the top for UK inflation, meaning that interest rates should peak during the first quarter of next year.
As the year rapidly draws to a close, there’s no doubt that 2022 has been one of the toughest years in a very long time.Jeremy
Similarly, inflation seems to have peaked in the US (and SA) and should peak within the next 3 to 6 months across most of the world. Rate hikes too should lessen in magnitude going forward and peak as soon as growth concerns start to trump inflation fears.
Meanwhile, in the UK, it has been a year of turmoil. On to their fourth finance minister of the year, and third prime minister, it looks like they have fortunately now found a combination that can calm markets. The pound certainly approves, and stability seems to have returned. However, Rishi Sunak has a tough job ahead as he tries to improve the mood, with a recession and higher interest rates on the way before the next election in 2024.
In China, any hope of a softer attitude towards Covid lockdowns was dashed at the recent conference as Xi Jinping, freshly reinstated for a third term, reiterated his stance on zero Covid.
Meanwhile, back home, on top of higher inflation and interest rates, South Africans are experiencing the worst load-shedding to date. In the short term, there is unfortunately no solution. In the medium to longer term, according to the experts, if the President’s policy reforms are implemented, we can apparently fix – or at least significantly improve – our electricity situation within 2 to 3 years. Hopefully, the severity of the current crisis, plus the fact that elections are in 2 years’ time, should see the ruling party implementing the necessary reforms. If they don’t, the cost to them at the polls in 2024 will be high.
Politically, we’re just over a month away from the ANC leadership contest. At this stage it seems more than likely that the President will retain his position, as he has been nominated by most of the provinces to serve a second term. It’s the composition of the top six, however, which will be crucial. Most of the current front runners are aligned with Ramaphosa’s vision for the country, and if elected, should allow him to accelerate structural reforms.
Financial assets have adjusted materially to central banks withdrawing liquidity and raising interest rates aggressively.
This has created attractive opportunities for longterm investors.
G lobal equities still provide the best prospect for growth for Ninety One Opportunity Fund investors.
B onds are the best local opportunity on an expected risk-adjusted return basis. SA cash has become more attractive but is still not generating a real return.
SA equities appear cheaper, but the cheapest shares carry the highest earnings risk.
Investors are having a painful year.
Financial assets have been punished across the board, with equity and bond investors feeling the weight of a significant drawdown on capital.
Markets have become obsessed with global inflation and whether we’re nearing a peak. With central banks fighting inflation by withdrawing liquidity and raising interest rates, the cost of capital has rocketed. Essentially, we’ve gone from a decade-plus of ‘free’ money to a more normal environment, where money now has a cost attached to it.
Markets need to adjust to this ‘new’ reality, by pricing in the increased cost of capital. While this process should leave financial markets in better shape in the long term, investors have endured massive short-term pain as stocks, bonds and other assets have sold off to account for the increased cost of capital. This in turn, has put major downward pressure on capital values.
While inflation is still uncomfortably high in the US, we’ve seen disinflationary forces emerge on the global front. Oil prices have come down dramatically from their highs, and copper, fertiliser and food prices have also moderated. All the big inflationary push factors have worked their way through the system, and we will reach a point where these factors will be reflected in lower inflation numbers. The US Federal Reserve is determined to put out the inflation fire, so we can expect interest rates to keep on increasing until price stability is restored.
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Figure 1: Brent crude oil price (YTD 2022) 70
Jan 22 Feb 22 Mar 22 Apr 22 May 22 Jun 22 Jul 22 Aug 22 Sep 22 Dec 21
Source: Ninety One, Bloomberg, 30 September 2022.
Global growth is another key focus for markets. The sharp rise in interest rates is weighing on economies around the world, with recession fears dominating investor sentiment. As economies slow, many companies will find their ability to grow earnings (profits) constrained. This is a worry for equity investors, so picking companies with earnings resilience will be key.
The sharp rise in interest rates is weighing on economies around the world.
Many investors are hiding in cash, biding their time until market conditions improve. There’s close to $5 trillion stashed in US money market funds alone while the investment environment remains uncertain. It is very hard to call the peak in interest rates, and when markets and economies will bottom out. Trying to forecast these key inflection points is largely an effort in futility. It is important for investors to recognise that assets have already repriced materially in the face of a withdrawal of liquidity and aggressively higher interest rates.
It is important for investors to recognise that assets have already repriced materially.
Investors need to appreciate the magnitude of the events that have occurred this year. Markets should remain choppy in the short term but instead of looking for reasons to exit, investors should focus on the meaningful opportunities that exist. You cannot time the market consistently – you need to allocate to risk assets for long-term growth.
Markets should remain choppy in the short term.
As investment managers, our job is to make intelligent allocations of capital to businesses where we think the fundamentals are sound. We would rather invest in businesses that are poised to grow over the next few years than sit on the sidelines, relying on perfectly timing the markets. On a bottomup basis, there are healthy return opportunities for investors who have a reasonable time frame and aren’t speculating on short-term price movements based on news flow.
Resilient earnings are going to become increasingly important as liquidity reduces and growth becomes scarce. The businesses in our portfolio also have compelling inflation protection attributes given their pricing power, strong balance sheets and low capital intensity. We continue to favour highquality, global businesses as our preferred asset class within the Ninety One Oppor tunity Fund
This year’s market carnage has provided the opportunity to buy great businesses at better prices. Both the valuation and return expectation of the businesses we own have improved meaningfully since the start of the year. In fact, the global stocks we own now have an expected rate of return of over 10% per annum in US dollars on average (5-year view). We have been increasing our exposure to select global equity holdings and building new positions, with the allure of defensive assets decidedly fading.
Verisign, one of our top ten global equity holdings in the Ninety One Opportunity Fund, has been a key contributor to performance for the portfolio. It is a global provider of domain name registry services and internet infrastructure. The company’s operations are essential for the proper functioning of the internet. Besides domain name registration, Verisign maintains the security, stability and resiliency of key internet infrastructure and services. It provides these services to the .com and .net top-level domains, which support most global e-commerce businesses.
Verisign’s monopoly position and recent agreements struck with the regulatory oversight body mean it also enjoys pricing power. Specifically, a regulatory agreement permits automatic renewals, allowing for annual price increases of approximately 5%, while domain growth has remained stable. Verisign’s global reach, strong brand and a 20-year uninterrupted track record for seamless operation, translate into significant competitive advantages. The business has seen a steady increase in its domain name base and enjoys double-digit, long-term free cash-flow growth.
The company’s operations are essential for the proper functioning of the internet.
Figure 2: Domain name base at 174.2 million names (up 1.2% Y/Y)
Source: Company reports.
SA bonds – best local opportunity on a risk-adjusted basis
Despite domestic growth concerns and inflationary pressures, our large holding in SA bonds reflects our view that significant real value exists, particularly in the belly of the curve. South Africa’s 10-year government bonds offer real (above inflation) yields of more than 4%. We also have exposure to inflationlinked bonds to further guard against the ravages of inflation.
160.9 million .com names 13.2 million .net names
While SA equity valuations are more attractive, in many cases they are not an accurate reflection of companies’ underlying fundamentals. We have low conviction on companies reliant on the SA economy/consumer, preferring businesses that enjoy dominant market share, and derive their earnings from global markets.
In addition, we maintain a healthy weight in cash – both locally and offshore. It provides a cushion against risk and allows us to take advantage of opportunities as they arise.
Our asset allocation decisions reflect our 5-year outlook for the different asset classes that make up the portfolio. Investors should, therefore, not expect sweeping short-term changes based on the news of the day. We continue to find compelling investment ideas to generate long-term wealth for clients. We remain confident that our quality style of investing will equip us to navigate the inflationary environment and be resilient during periods of market weakness.
We have low conviction on companies reliant on the SA economy/consumer.
The tough economic environment means global companies are vulnerable to earnings downgrades –especially the cyclical sectors.
Given increased risks of earnings disappointments, we have gravitated towards companies with more stable and sustainable earnings growth profiles, underpinned by strong cash flows.
We have materially increased the Ninety One Equity Fund ’s exposure to more global defensive companies (e.g. healthcare and renewable energy) funded from cyclical and growth stocks.
We believe there are more opportunities in our home market than globally and still prefer select ‘SA Inc’ counters. The portfolio has a healthy allocation to South African banks.
While we are experiencing challenging market conditions, we believe the current environment will provide us with attractive investment opportunities –both global and local – to create long-term wealth.
In the middle of an equity bull market, it’s easy for investors to forget that the ‘good times’ don’t last forever.
Fortunately, bear markets also come to an end. Both up and down markets are part of the economic cycle. Anticipating the start or end of the different phases of the economic cycle is not a perfect science because every cycle is different. Therefore, maintaining a disciplined investment approach through the cycle is crucial when you invest in equities for long-term wealth creation. As active managers, our aim is to uncover equity opportunities when others are fearful, sell into strength when overoptimism clouds market consensus, and to hold the line on high-conviction stock positions, which may be experiencing short-term dips in performance.
Central banks are having to cool down their economies to fight stubbornly high inflation. A withdrawal of liquidity and a sharp rise in interest rates are weighing on equity markets. Companies face material headwinds, such as higher capital and input costs, pricing pressures and lower demand, which in turn could put a squeeze on their earnings (profits).
Given this difficult operating environment, we are allocating capital to companies with earnings resilience. So, we prefer companies whose business models are robust enough to withstand the pressures of higher interest rates, stubborn inflation and a potential recession. Essentially, we assess:
Pricing power – does the business have the ability to put through price increases and maintain volumes?
The variability of the cost base – are cost savings sustainable, and will these measures impact future revenue growth?
Leverage – debt-laden businesses face higher financing charges that could impact earnings.
Besides these factors, we also consider environmental, social and governance issues that could have a material impact on the earnings outlook of a company and its valuation.
It is our belief that the share price of a company moves in correlation with a series of upward revisions in earnings forecasts. On the flip side, downward revisions in earnings forecasts usually drive a company’s share price lower. This is why we assess the direction of a company’s earnings, i.e. do we expect a company to have a series of earnings upgrades, or will an earnings upset spark a series of earnings downgrades? Macro shocks such as the US Federal Reserve’s aggressive interest rate hikes can cause sudden changes in earnings direction.
While investors still had access to cheap money, global equity prices rose to levels that generally did not reflect the fundamental value of stocks. In contrast, the South African equity market did not benefit from the excess liquidity, as evidenced by a lack of foreign flows and much lower valuations than developed markets. While we’ve seen sharp corrections in equity markets, we believe the next leg of weakness could be triggered by the heightened risk of earnings downgrades, especially in the consumer cyclical sectors.
We continue to have a more favourable view on domestic equities as we are finding more stock ideas where companies’ valuations and earnings revisions profiles match our selection criteria. Consequently, we have not increased the Ninety One Equity Fund ’s exposure to offshore equities this year. The current offshore weighting is approximately 23%.
On the global front, we have materially increased our exposure to more defensive companies at the expense of cyclicals and growth stocks. Given increased risks of earnings disappointments, we have gravitated towards companies with more stable and sustainable earnings growth profiles, underpinned by strong cash flows. For example, within healthcare, our holdings include Elevance Health and United Health Group. Despite challenging conditions, these companies are still able to deliver double-digit earnings growth and attractive dividend yields.
We have also increased exposure to defensive energy utilities with growing renewables businesses, such as NextEra Energy and Iberdrola.
Our investment mandate allows us to cast the net wider than South Africa, which means we can invest in industries such as the alternative energy sector that we cannot access within the local market. NextEra Energy is a good example of a dynamic player in the transition from ‘dirty’ energy to green energy. There are two parts to its operations: the historic utility business in the US state of Florida from which the company derives the bulk of its earnings (65% of EBITDA) 1 and the other is the renewables business (35% of EBITDA). Over time, NextEra Energy has materially improved the efficiency of its traditional utility business, which has enabled it to pass on expenses to customers – but at levels that are below the average rate of inflation. It has also changed the electricity mix, materially reducing exposure to fossil fuels, such as coal.
1 Earnings before interest, taxes, depreciation, and amortisation.
Because of NextEra Energy’s scale and size, and its successful track record in the regulated utility industry, the company has been well positioned to win government contracts for its renewable energy business. It should also benefit from the US Inflation Reduction Act (the Act), which aims to reduce greenhouse gas emissions in the US. The Act contains tax breaks for renewable energy companies to stimulate more growth in this space. Besides doing business with government, the company also has contracts with large US companies, such as Walmart and Amazon, which are committed to reducing their carbon footprint over time. NextEra Energy has a healthy pipeline of business and has consistently delivered attractive earnings and dividend growth to shareholders.
As mentioned earlier, we see more opportunities in our home market than globally and still favour select ‘SA Inc’ counters (companies that are geared to domestic economic activity). The portfolio has a healthy allocation to South African banks. Despite material upgrades over the last few months, we see further upside to banks’ earnings. The Covid economic shocks meant that SA banks had to make substantial provisions for bad debts, and many of those provisions were overly conservative. Banks are experiencing fewer non-performing loans than anticipated. Non-interest income and transactional activity have also exceeded expectations, while net interest income is supported by the rising interest rate environment. Valuations remain attractive.
The portfolio also has exposure to select apparel retailers, such as Mr Price, Pepkor and Woolworths. We also maintain meaningful exposure to Shoprite. The group continues to gain market share in both the low and top end of the market through its Usave and Checkers brands. An aggressive debt reduction strategy and rationalisation of its supermarkets in Africa (ex SA) have increased returns and profitability.
Difficult market conditions highlight the value of bottom-up stock picking. Our disciplined investment approach means that we don’t let emotions such as fear and greed cloud our judgement. We focus on finding reasonably valued companies that we believe will have positive future earnings revisions. We look at our portfolio holistically, ensuring that our offshore assets complement our SA holdings. A key part of our approach is assessing how offshore investment ideas stack up against SA opportunities.
Deciding on the local and global equity mix is a dynamic process. We continuously scour the local and global universe for compelling investment ideas – some of which may only come to fruition once we’ve passed the eye of the global recession storm. In the meantime, we are laying the groundwork so that we are ready to capture opportunities – both global and local – when the time is ripe to do so.
Source: Ninety One, as at 30 September 2022.
N inety One is unashamedly an active, global investment manager.
Providing value for money lies at the heart of our fee philosophy.
We need to deliver value (which in our world equates to investment returns) at a cost that is acceptable to our clients.
We agree that fees are an important consideration when choosing a fund, but ultimately, what matters to investors is the returns their funds deliver after fees.
It’s simple to assess whether you’re getting value for your money – the published returns across all funds are always net of fees.
There are costs associated with running any company and in ensuring that what you are building is sustainable into the future. In the case of investment firms, they must charge an appropriate fee to their clients to ensure they have the right people, systems, and processes in place to generate long-term sustainable returns to meet their investment objectives.
Historically, the investment industry did a poor job of clearly communicating its fee methodology to investors. This was exacerbated by the complexity of some of the underlying fee methodologies and a poor understanding by investors of the value chain, which includes the investment manager, investment platform and financial advisor.
While great strides have been made in the standardisation of how fees are calculated and disclosed, for many investors they remain a puzzling part of the investment equation. However, improved transparency across the value chain ultimately improves investor outcomes, so we thought it opportune to reiterate Ninety One’s philosophy on fees.
But first, we need to take a step back. Ninety One is unashamedly an active, global investment manager. Our goal is to provide compelling long-term investment returns for our clients, which is what has driven us from the outset, more than 3 decades ago. By delivering on that mandate, we have grown to where we are today. We know that if we keep delivering, investors will choose to invest with us. If we don’t, they can just as easily redeem their assets.
Providing value for money lies at the heart of our fee philosophy. We need to deliver value (which in our world equates to investment returns) at a cost that is acceptable to our clients. Thousands of years ago, the Romans came up with the Latin word pretium, which incorporates both price and value. It combines the seller’s perception of the product’s value and the buyer’s perceptions of the product’s worth, into one word. The Romans understood that the two are inextricably linked.
Let’s bring this to life using an example: As Figure 1 shows, a 1% fee differential can significantly influence the final capital sum over time. Over 30 years, it could mean the difference between ending with a capital amount of R750 000 versus R1 million. That’s 25%! However, investors need to investigate whether that 1% fee generated net outperformance relative to their target, benchmark, or competitors. If by paying the 1% fee, their investment manager had generated net returns of 2% per annum higher than the target, benchmark or competitors, the investor would have an end value of R1.7 million – 70% higher than the R1 million!
Source: Ninety One.
We agree that fees are an important consideration when choosing a fund, but ultimately, what matters to investors is the returns their funds deliver after fees.
In calculating our fees, we determine the likely levels of outperformance that we expect to generate over suitable investment time horizons. We then set a fee appropriate to these levels of outperformance over time. We further ensure that our fees are sufficiently competitive, relative to our local and global peers. As an aside, our clients pay the same level of fees for mandates regardless of whether they are here in South Africa or based abroad.
In response to investor demand, we introduced the option of performance fees on certain funds. These funds typically offer higher levels of potential outperformance (and by the same token, the potential for underperformance). While some advisors and investors prefer the certainty that comes with fixed fees, others prefer performance fees that align interests between investors and portfolio managers. This means that investors incur an increased fee when they benefit from active management skills but pay a passive-like fee on performance in line with or below the benchmark. We are indifferent to which option investors choose, and it is important to emphasise that investors are free to choose their preferred fee class.
Ninety One uses a rolling performance methodology to determine an appropriate fee for an investor’s actual performance experience. We ensure that a highwater mark is maintained in a single share class. Our performance fees are calculated on returns net of the base fee for any share class. Fee calculations are performed daily looking back at the previous rolling period.
Our benchmarks are based on the outcomes that our funds are built to achieve. For example, the Ninety One Opportunity Fund has a real return objective (to outperform inflation), so its performance target is also based on a real return. Equity funds, on the other hand, are benchmark relative, so the performance fee would have an index hurdle.
Interestingly, when the Opportunity Fund achieves its target of CPI+6%, the fixed fee and performance fee are largely in line – as can be seen in Figure 2, which shows the comparison between fixed and performance fees (ex VAT) for investors in the class available via platforms (used by majority of our retail investors). Over 10 years, the difference between the fixed and performance fee class is only 1 basis point, again reinforcing why we are agnostic on investors’ fee preference.
Class Client type Fee type CPI +2.86% CPI +3% CPI +4% CPI +6%* CPI +8% CPI +10% CPI +10.35%
Ninety One Opportunity Fund
Source: Ninety One.
H LISP platforms Performance based fee 0.35% 0.38%0.58% 0.98% 1.38% 1.78% 1.85%**
E Fixed fee 1.00%1.00%1.00% 1.00% 1.00%1.00%1.00%
Note: All fees are quoted per annum and exclude VAT. A-class units are available to investors investing directly. H-class units are available only via certain LISP platforms. Note that performance fees are calculated net of the relevant A- (or H-) class minimum fees inclusive of VAT. For the Opportunity Fund, rates were calculated using the fee hurdle as benchmark. **Fees are capped at the maximum fee. *The hurdle is calculated using the most recent CPI data available.
At any time, investors are free to switch between the fee classes. No investor is locked in.
Approximately 90% of fund assets are invested via investment platforms. In the past, investment managers passed a rebate to platforms, which allowed them to then charge a lower fee or pass the rebate on to the client. This caused complexity. We therefore introduced clean fee classes on platforms a decade ago.
We continuously analyse our fees relative to our performance objective and peers, and investors have benefited from fee reductions in recent years. For example, at the time that clean classes were introduced, the average investment management fee for equity and multi-asset funds was approximately 1.50% with a 0.25% rebate, resulting in a net fee of around 1.25%. Today, investors are charged a net fee of between 0.85% and 1%, reflecting a 20-30% reduction. Income funds have benefited from a similar proportional reduction in fees.
We believe there will be a clear differentiation between those that continue to outperform their targets and those that don’t. If you’re in the first camp, you’ll likely be able to continue charging close to the current fee. If you don’t, you will either be subjected to significant downward fee pressure, or you will be switched out to a passive fund. As we are unashamedly active managers, we are squarely targeting the outperformance category.
As a side note, passive funds in South Africa currently charge between 0.25% and 0.70%. Sure, they’re cheaper than active funds, but is the value for money there? Globally, passive funds only charge between 0.02% and 0.05%, so we expect significant fee pressure on passive products before they become a truly viable choice in South Africa.
People tend to focus on the here and now, and that is price. For performance outcomes, you need to wait. That is why we believe investors need the help of professional financial advisors to guide their investment decisions. And if the whole concept of fees and charges still has you seeing double, remember just one thing: it’s simple to assess whether you’re getting value for your money – the published returns across all funds are always net of fees.
We expect significant fee pressure on passive products before they become a truly viable choice in South Africa.
Investors have benefited from fee reductions in recent years.
With 23 offices across 14 countries, we’re here for you and everywhere for your money. If it’s an offshore investment partner you’re after, there’s only one place to start. Right here.
Isn’t it time to change how you see investing? ninetyone.com/offshore
Ninety One SA (Pty) Ltd is an authorised financial services provider.
All information provided is product related and is not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information without appropriate professional advice after a thorough examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security. Collective investment scheme funds are generally medium to long term investments and the manager, Ninety One Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up. Funds are traded at ruling prices and can engage in borrowing and scrip lending. The fund may borrow up to 10% of its market value to bridge insufficient liquidity. A schedule of charges, fees and advisor fees is available on request from the manager which is registered under the Collective Investment Schemes Control Act. Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. Performance shown is that of the fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax. There are different fee classes of units on the fund and the information presented is for the most expensive class. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Where the fund invests in the units of foreign collective investment schemes, these may levy additional charges which are included in the relevant Total Expense Ratio (TER). A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The ratio does not include transaction costs. The current TER cannot be regarded as an indication of the future TERs. Additional information on the funds may be obtained, free of charge, at www.ninetyone.com. The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. The scheme trustee is FirstRand Bank Limited, RMB, 3 Merchant Place, Ground Floor, Cnr. Fredman and Gwen Streets, Sandton, 2196, tel. (011) 301 6335. Ninety One SA (Pty) Ltd is an authorised financial services provider and a member of the Association for Savings and Investment SA (ASISA).
This communication is the copyright of Ninety One and its contents may not be re-used without Ninety One’s prior permission. Ninety One Investment Platform (Pty) Ltd and Ninety One SA (Pty) Ltd are authorised financial services providers. Issued, November 2022.
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