MoneyMarketing August 2021

31 August 2021 | www.moneymarketing.co.za

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Study uncovers South African investment personality types

WOMEN IN FINANCIAL SERVICES IN A COVID-19 WORLD Women have through the ages shown their resolve and ability to adapt Amy Jansen, Head: Behavioural Solutions, Nedgroup Investments

CRYPTO IS NO GOLD Bitcoin has failed as a store of value during times of financial market distress Page 19

BY JANICE ROBERTS Editor: MoneyMarketing GROWING SCHRODERS’ PRIVATE ASSETS CAPABILITIES A KEY STRATEGIC FOCUS The launch of Schroders Capital will increase the visibility and strengthen the position of its private assets offering Page 24

SUPPORTING EMPLOYEE MENTAL HEALTH AND WELL-BEING Employers need to ensure that they have an employee well-being assistance programme Page 26

THE ‘BUCKET APPROACH’ AND LIVING ANNUITIES The ‘Bucket Approach’ is simply a total-return portfolio combined with a cash component to meet near-term living expenses Page 27

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WHAT’S INSIDE YOUR AUGUST ISSUE

Page 12

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my Jansen, Head of Behavioural Solutions at Nedgroup Investments, says the survey – one of the largest of its kind ever conducted in Africa – is part of a drive by the asset manager to foster better informed and more empowered investors in South Africa.

“The investment industry has long used sophisticated techniques for building investment portfolios. Now, with this study, we have the opportunity to use the same level of sophistication to help investors make better decisions as they travel their investment journeys.”

In a behavioural study that surveyed over 3 000 South African investors and financial planners, Nedgroup Investments has identified six investment personality archetypes that could give investors and advisers brand new insight into how they can make better investment decisions.

She believes that by looking beyond demographics and delving into the psychological variables for individuals, it’s possible to create the best possible chance of ensuring that investors arrive at their investment goals.

Jansen led the survey in partnership with specialist behavioural economists, Oxford Risk. “We chose Oxford Risk for this exercise due to their specialisation and experience in researching the key drivers of investment behaviour across the world,” she says. “The methodology they use is built on the same foundations as more general personality models like the ‘Big 5’ or ‘OCEAN’ models, which you may have heard of.”

She believes that for people to have a successful investment journey, they have to

be comfortable enough on a personal level to firstly, invest in a certain portfolio and secondly, stay invested in it for the appropriate timeframe.

“If there is one thing this study illustrated, it’s that there is no one approach that will achieve this. It’s time for the investment industry to do things differently.”

The study assessed 12 personality traits* that have been known to affect investing behaviour across a variety of clients, and identified six main personality archetypes.

The South African study revealed some very interesting differences between Nedgroup’s sample and the baseline studies that identified these traits: • South African investors in the local sample show a stronger link between low composure

Continued on page 3

31 August 2021

NEWS & OPINION

Continued from page 1 and high desire for guidance: This means that in Nedgroup’s study, more nervous respondents tended to have a higher desire for professional help with their investments when compared to the more nervous investors of other studies.

• A stronger link between impact desire and impact trade-off: The desire for investments to do social good, and a willingness to make sacrifices in order to achieve this good, were more closely correlated in Nedgroup’s study compared with other surveyed populations.

• Higher scores on comparison tendency: The tendency for investors to compare investment returns with how the market, and others, have done, rather than just focusing on their own returns, is significantly higher in the local sample than in the UK baseline.

• Higher scores on internal locus of control: The belief in skill and hard work, rather than luck, as determinants of investment success is significantly higher in Nedgroup’s sample than in the UK baseline.

Interestingly, when the demographics are investigated, the six investing personalities identified occur in all ages, and both genders.

Investor personality archetypes The low composure groups The low composure groups as identified by the study are groups that are easily affected by shortterm news about their investments. They also tend to want more guidance from professionals.

Within this, there is the ‘Stressed’ group who seem to be generally uncomfortable with investing – low composure, low confidence, and low financial comfort.

This group would likely appreciate things being slowed

“Advisers can focus on adapting to the underlying personality of the investor and anticipate how they are likely to react”

down, spelled out, and simplified for them.

The ‘Sensitive’ group have the highest impact trade-off and impact desire, as well as the highest desire for guidance and locus of control. This indicates that they are interested in doing social good with their investments and would appreciate active professional help to do so.

Meanwhile, the ‘Skittish’ group had the strongest response to questions indicating that although they are financially comfortable now, they fear a future event where they may need to draw down on their investments for income.

The high composure groups The high composure groups are groups that are typically less unsettled by news that could affect their investments. They also have a more muted desire for guidance.

The ‘Secluded’ group have particularly high composure and the lowest desire for guidance, which indicates that essentially, this group is more than happy to look after themselves.

Meanwhile, as the name suggests, the ‘Secure’ group displayed a much more muted desire for guidance, while interestingly also showing a high interest in impact.

The survey has practical implications when it comes to the way that financial companies interact with their investors. For example, advisers can focus on adapting to the underlying personality of the investor and anticipate how they are likely to react – and accommodate that rather than trying to change how they are feeling.

“Understanding the influence of personality on behaviour allows us to identify what could derail each investor’s investment journey. Harnessing this insight, we can create the infrastructure to support those journeys that increases the likelihood that investors make choices through the journey that match their investment goal,” says Jansen. *Composure, confidence, desire for guidance, comparison tendency, withdrawal preference, familiarity preference, impulsivity, financial comfort, internal locus of control, impact desire, need for evidence, and impact trade-off.

To see the full Nedgroup Investments Personality Report 2021, go to https://bit.ly/3hrIVhC

EDITOR’S NOTE

W

hile the loss of over 200 lives in last month’s violence is by far the most important concern, the disruptions will also impact South Africans in other ways. To those who have already acknowledged the challenges of poverty, inequality and unemployment in the country, the unrest came as no surprise. If one uses the expanded definition of unemployment, the total of jobless South Africans stands at 11 million. While the mayhem broke out following the arrest of former president Jacob Zuma, there can be no doubt that the root cause of the violence is the country’s shocking rate of poverty, making the provocation of a popular insurrection and the manipulation of the poor extremely easy.

As President Cyril Ramaphosa told the nation, the unrest was a well-planned and coordinated attack on our democracy. At the time of writing, four arrests have been made, while fingers continue to be pointed at some former members of the State Security Agency. While images of people plundering stores for television sets and microwaves were displayed on TV news stations, something far more ominous was happening.

We now know that the police and army foiled attacks by sinister forces on critical infrastructure such as airports, gas pipelines and power stations.

As government has rightly said, this should be seen as economic sabotage, and it occurred at a time when SA’s economy was already suffering due to the COVID-19 lockdown. The destruction of property and theft of goods has cost billions of rand, while the country’s vaccination programme has also suffered a blow.

President Ramaphosa has admitted that his government failed to foresee and prepare for last month’s attacks. If he fires police minister Bheki Cele and intelligence chief Ayanda Dlodlo, it should not come as a surprise.

JANICE ROBERTS janice.roberts@newmedia.co.za @MMMagza www.moneymarketing.co.za

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31 August 2021

NEWS & OPINION

PROFILE

Victoria Reuvers MD, Morningstar Investment Management

How did you get involved in financial services – was it something you always wanted to do?

I actually wanted to become a veterinarian. Unfortunately, that dream ended fairly quickly when, on my first day of job-shadowing at a veterinary practice, I fainted at the sight of blood.

I had always been very good with numbers and had an analytical mind. Ironically, I ended up in financial services by mistake. At 18 – when one needs to start thinking of what to study – I had no idea what I wanted to do, so I ended up just following in my brother’s footsteps and choosing the same degree he was busy with. Thankfully, I absolutely loved it.

After completing my studies, I accepted the first job offer that came my way, which was in the graduate programme at a bank. I didn’t enjoy this side of the financial world all that much and I was actually left a bit uninspired.

We all need a bit of luck in life and mine came with an interview and offer at Investec Asset Management. A few years into my career, I secured a position in the retail fund management team and landed up working with some truly incredible people. From day one, I was inspired and knew I had found my passion. I’ve been in investments ever since.

What was your first investment – and do you still have it?

My first investment was with Foord Asset Management at the age of 22. While it has changed over the years, I still have investments with Foord and they have served me incredibly well over the years.

What have been your best – and worst – financial moments?

My best – ironically – would be 2020 where the benefits of being part of a global business such as Morningstar, and having the support and resources to serve our clients, shone through. In a time of heightened emotions on all fronts, I was so proud of the investment results we generated for our investors and to be part of a team that really shone. While 2020 had so many negatives, it will go down in my books as a highlight of my investing career.

My worst – managing money during the Zuma years when sentiment was so negative, returns were poor, and it was very hard to generate wealth for retired investors or living annuity clients.

What’s the best book on investing that you’ve ever read, and why would you recommend it to others?

The Psychology of Money by Morgan Housel is an easy read that provides great insights into simple investing rules and habits. In an industry clouded by acronyms and perceived complexity, it’s a refreshing take on investing.

What’s your view on Bitcoin and other cryptocurrencies?

I see myself as a long-term investor and not a gambler and, therefore, I steer clear of all cryptocurrencies. They are far too speculative; I can’t value them and therefore won’t invest in them.

What does the future of investing look like from where you stand – is it all about ESG? As the investment landscape continues to evolve, I think certain trends are likely to become more pronounced over time. These include fee pressure and a shift towards passive investing, increased demand for alternative investments, and a growing focus on ESG. I believe the concept of sustainability has never been more relevant, especially to us as South Africans living in a world where state capture and corporate malaise has almost crippled this country. Sustainability means good business practice, good governance and operating in a manner that ensures environmental, cultural and community sustainability, which ultimately leads to positive outcomes for investors. The days of believing that ESG doesn’t matter, are over. A good investment is a sustainable investment.

Do you find the relatively new science of behavioural finance useful – and if so why?

Absolutely! The great investor Warren Buffett said that “few aspects of human existence are more emotion-laden than our relationship to money” – our emotions tend to be our worst enemy when it comes to making good investment decisions. Morningstar has done a lot of work in trying to understand how much value is created or destroyed by letting our emotions be the guide for investment decision making. The research showed that the value of good independent financial advice adds about 2% per annum to your investment returns. That may not sound like a lot, but trust me, when it compounds over time, it is. If you can control your emotions and desires to ‘do something’ and actually let time be the secret ingredient to your investments, you will be well served and set up for success.

EARN YOUR CPD POINTS The FPI recognises the quality of the content of MoneyMarketing’s August 2021 issue and would like to reward its professional members with 1 verifiable CPD points/hours for reading the publication and gaining knowledge on relevant topics. For more information, visit our website at www.moneymarketing.co.za 4 www.moneymarketing.co.za

VERY BRIEFLY Strengthening Jersey’s ongoing commitment to Africa as a strategic market, Jersey Finance has recruited Dr Rufaro Mucheka, an experienced and highly regarded wealth management specialist in South Africa.

Dr Mucheka has more than 20 years of wealth Dr Rufaro Mucheka management experience across Southern and West Africa, and her most recent role was with Nedbank Wealth Management. Based in Johannesburg, Dr Mucheka’s primary focus will be the South African market, while Faizal Bhana, Director: Middle East, Africa and India at Jersey Finance, will continue to focus on developing the organisation’s strategies in both East and West Africa. Both, however, will play a vital role in supporting Jersey Finance’s wider activity across the continent.

In her consultative role, Dr Mucheka will work closely with Jersey Finance’s Global Head of Business Development, Allan Wood, who has been instrumental in the growth of Jersey’s Africa market strategy over the past six years, particularly in relation to South Africa. “We view Rufaro’s appointment as an exciting move in our developing relationships across key markets on the African Continent. Jersey’s finance industry has been building commercial ties there for more than two decades, which has enabled us to develop a formidable appreciation of the African economic landscape,” says Wood. “Rufaro’s special understanding and expertise will play an influential role in advising on how we build on that relationship as it continues to evolve; with Jersey increasingly active in facilitating investment in Africa by international investors, while also having the skills required to support private wealth strategies, crossborder investment and succession planning.”

Hot on the heels of the launch of Access Bank South Africa, Group CEO of Access Bank Plc Herbert Wigwe was named African Banker of the Year for the second consecutive year at the prestigious African Banker Awards, held on 23 June 2021. The African Banker Awards recognises and Herbert Wigwe celebrates excellence and best practices in African banking. The event took place during the annual meetings of the African Development Bank. As a result of its rapid growth the last decade, Access Bank has become one of the largest retail banks in Africa, with over 40 million customers. Wigwe is noted for his continued and inspiring efforts in Access Bank’s growth across Africa, making it a financial powerhouse on the continent.

Accepting the award, Wigwe said Access Bank is focused on promoting corporate discipline, adding that the Bank wants to be in key markets on the continent, building a payment gateway and providing trade finance support. “We want to be seen as the best bank supporting the African Continental Free Trade Area agreement (AfCFTA). In terms of diaspora remittances, we are present in key areas in the continent,” he said.

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31 August 2021

NEWS & OPINION

Aluta Continua... or a Looter Continua?

BY MOHAMMED YASEEN NALLA CFA, Founder: Magic Markets and Moe-Knows.com

W

hat happened in South Africa last month is beyond tragic. It is the worst eruption of violence, criminality, and widespread destruction that the country has arguably seen since democracy.

I will not beleaguer you with a regurgitation of the news. Many of my readers are South African. So am I. Hindsight is always 20/20, but seriously, this moment in South Africa’s journey could be seen a mile away. Therefore, I cannot take seriously views of how this is ‘shocking’.

This is personal so let’s take the gloves off...

The centre cannot hold!

Let’s get something out the way.

International headlines have been laden with the assertion that this is about the former President’s incarceration. Yes, that certainly acted as a catalyst, but SA has been a tinderbox that has been carefully (or rather carelessly) laden with the tinder of broken dreams, unfulfilled promises and decades of rampant corruption and misallocation of resources.

Source: World Population Review

This is not unique globally. But let’s show how exceptional the South African circumstances have been. It is long documented that SA has the highest Gini coefficient in the world. A view commonly aired globally is that with inequality and unemployment as high as it is, it’s an outright miracle that SA has not had a revolution already.

For those who are unfamiliar with the Gini coefficient, it measures the gap between the haves and have nots. On the map, SA has carved out its own shade of orange among the most unequal countries on the planet.

Maybe the chart doesn’t convey the story

Source: World Population Review

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fully. South Africa is almost twice as unequal as the world average, leaving neighbours like Mozambique and Angola in the dust. At a Gini coefficient of 63, South Africa is the world’s most unequal country, where the richest 10% hold 71% of the wealth, while the poorest 60% hold just 7% of the wealth.

As such, it is not like the rest of the world.

It is not a case of ‘the centre cannot hold’.

Quite frankly, there is no centre!

Youth Unemployment

The Young and the Restless We all know how bad SA’s unemployment rate is. But more importantly, youth unemployment is the problem. At around 60%, SA’s youth unemployment is the highest in the world among G20 countries, followed by Italy around 30%.

If we include smaller economies, SA is still the highest, followed by Libya, Eswatini and the West Bank/Gaza. Yes, that is right, youth unemployment in South Africa is worse than some warstricken countries. Let that sink in.

Here’s the rub. It was 1994 when a promise of a ‘Better Life for All’ was made. A rainbow nation emerging out of the ashes of apartheid would have given birth to someone who today is a young adult of 27.

Promises need to be kept. In a country where life expectancy is just over 60, this young adult is halfway through their life. They are no closer to realising the dream of their forebears.

Yes, there is an element of poverty and desperation in the looting. There is also an element of outright criminality, which exists in the vacuum presented by absent or ill-equipped law enforcement.

Young, disenfranchised, and disgruntled people have time and energy and little else. They are happy to watch the world burn as it was a world in which they had a small perceived stake. This is not a South African phenomenon.

The profile of riots and protests globally tend to correlate with young angry populations. So, when someone says the SA protests are because people are hungry, they are right, hungry for change.

Source: The World Bank

31 August 2021

“Fixed investment takes time to build and is done on a foundation of trust and confidence, both of which have been significantly eroded”

NEWS & OPINION

This too shall pass – but at what cost?

The charts on this page are extracts from the Mass Mobilisation data project. It maps the prevalence of protests in South Africa, Egypt and Venezuela from 1990 to around 2018. The selection of countries is mine and I include the comparison for illustrative purposes.

If we were to map the recent protests in SA onto this either by number or duration, it would be the most severe since the early 90s.

Protests and unrest tend to be cyclical.

If the protests yield an effective change in the status quo, a resumption of a ‘new normal’ emerges. If not, the prevalence of protests remains persistent as does the destruction of lives and livelihoods. Lives matter and they are being discarded on the side of the road. This also stopped SA’s vaccination drive in the time of a deadly pandemic.

Then there’s the financial side. Listed markets and the rand are ‘hot’ portfolio flow money. The real issue is fixed (long term) investment. The damages run into the billions. But it is more than that.

Destruction of warehouses and inventories along with trucking (which makes up the bulk of logistics capability in SA) will all take its toll. The destruction of ‘strategic infrastructure’ like mobile telecoms towers appears targeted and planned.

Fixed investment takes time to build and is done on a foundation of trust and confidence – both of which have been significantly eroded, if not permanently handicapped given recent developments.

Yes, SA can rebuild, but it does so off an increasingly weaker base and, dare I say again, 27 years into democracy, it may be running out of the goodwill of its citizenry before it runs out of the goodwill of its investors.

Parting thoughts I am not an Afro-pessimist and my heart and soul is tied to South Africa, the land and its people. But SA is a country at war with itself. There lacks a sense of social

cohesion and incidents like this just serve to expose the scars and tissue damage done to a nation that never truly emerged into its own.

In 2014, I wrote a piece on structural reform in response to the then recently launched National Development Plan (remember that?). Social cohesion and a ‘national identity’ were critical components I raised as fundamental to ensuring that SA stood a chance for a better future.

This was a train smash waiting to happen. The question now is, does SA wake up SA, or does it whither? Can the trend reverse, or will this spur even more people and capital to flee for fear of their safety?

I am literally in tears as I contemplate the dream that never was. But I will also fight the despair. I salute and support the amazing civil society bodies striving to make a difference. You are the true heroes. Battles are fought from the ground but also benefit from air cover.

Just because I am not present does not mean I am not heavily invested in South Africa’s success.

We owe ourselves better. We need to hold leadership to account once and for all! This is a culmination and actualisation of years of mismanagement and impunity.

Again, we cannot be surprised, shocked or disappointed.

Will ‘A Looter Continua’ or is it time to add the second part of the phrase, A Luta Continua... Vitoria e Certa!

This article is a reprint of an original blog post. Visit moe-knows.com for more.

www.moneymarketing.co.za 7

31 August 2021

NEWS & OPINION

Insurers still fighting lockdown claims, says ICA When COVID-19 and the ensuing lockdown hit South Africa, restaurants and hotels claimed from their short-term insurers for expenses and profits they had lost.

The insurers rejected these claims, arguing that it was the government-imposed lockdown and not the disease that had caused the losses. The courts then found that insurers were liable for specific claims that were lodged as a result of the coronavirus. Last year, Santam, Guardrisk and Old Mutual* were defeated in court for initially refusing to pay out claims linked to COVID-19 business interruption.

BY JANICE ROBERTS Editor: MoneyMarketing

I

CA, the specialist public loss adjuster representing over 850 claimants in the tourism and hospitality sector, maintains that insurers are still fighting lockdown claims. “We feel it’s an unfair situation as insurers have been sitting on these claims for the last 14 to 15 months, with some clients not even having been paid an interim payment, while insurers argue technical issues around claims,” ICA CEO Ryan Woolley said during a media webinar last month.

“And it’s been six months since we got the judgements in the Cafe Chameleon** case against insurers ordering them to pay these claims – and the delays are causing financial strife and hardship in the hospitality and tourism sector,” he added.

Woolley noted, however, that he has had some positive interactions with Hollard South Africa, Old Mutual Insure and Factory & Industrial. “Hollard South Africa have handled themselves very well. We’ve had only excellent dealings with them. They have been very fair and balanced in their approach. They’ve listened to us and the claimants, and they’ve tried to resolve these claims as fairly and expeditiously as possible.”

While there was a ‘bump in the road’ with Old Mutual Insure, Woolley said that through interactions with their claims team, ICA has seen a complete about turn. “The resolution and resolve that they’ve shown to go the extra mile for their clients has been exceptional. We’re having weekly calls with them and we’re hopeful that our claims with them will shortly be settled in full.”

Woolley adds that ICA has had a similar experience with Factory & Industrial. “While there was a ‘bump in the road’, through discussions and negotiations we seem to be on track with them as they’re settling claims and making interim payments. We’re now seeing significant progress with this insurer.”

While movement and settlement has been seen with Bryte on hospitality and tourism claims, Woolley said that there was an ongoing dispute between the insurer and large commercial client Clover. “The insurer isn’t even listening to the advice they’re being given by their attorneys. We hope we can get Bryte to listen to some common sense before we have to litigate.”

Guardrisk has also paid most claims, but not those with long indemnity periods, Woolley added. “We feel that we’re probably going to have to address the executive at Guardrisk again because we feel that the attorneys are slowing the process.”

Engagements with Santam were described by Woolley as “taking two steps forward and three steps back”, and he alleged that the insurer is working through its lawyers to avoid liability for large claims in its Hospitality & Leisure Division. He added that Santam has appealed

8 www.moneymarketing.co.za

one aspect of the Ma-Afrika*** judgment, and that is the length of the indemnity period for which businesses can claim. The SCA would hear Santam’s appeal against MaAfrika’s 18-month indemnity period on 26 August.

“We will be in court arguing only on the point of the indemnity period – and that is essentially the period for which the insured can claim. In the judgement last year with Ma-Afrika, the full bench ruled that the insurer was liable for the full 18-month period. And the insurers are now appealing that and trying to say that the policy wording only allows for three months – that is essentially the litigation that’s in play. They are several thousand clients that are going to be impacted by this judgment.”

ICA chairperson Mike Gaines told the webinar that Santam had always had a reputation for technical excellence. “It was a company we could always be sure of getting a good decision from very quickly. Whether we liked the decision or not, it was generally a sound decision. But now they have just slumped into the basement, and I’m pretty sure it’s because the board have not taken control of the situation. They’ve left it in the hands of their attorneys, Norton Rose and Clyde &

“I don’t think there’s another sector of the South African economy that is laughing as loudly to the bank as the shortterm insurers” Co, who have given them bad advice from the outset.”

Gaines added that ICA only managed to convince Santam to make interim payments less than a month ago. He also believes that there needs to be some sort of accounting for the way that insurance companies treat their claimants in this country. “We’ve got the customer protection legislation, but we should move to something more like what they have in America, where if you pay a claim badly, you can be sued for the damages that go beyond the policy. In South Africa, our insurance companies don’t have to worry about that as they’ve got indemnity. They only pay you to the value of the policy and you can’t sue them for damages. Well, there’s a surprise coming. We are having a look at that.”

Using research by independent economist Roelof Botha and Keith Lockwood from the Gordon Institute of Business Science, ICA argued that there is a vast disparity between the substantial financial gains achieved over the past year by short-term insurers, and their customers, who because of non-payment of claims, are desperate for any lifeline that will allow them

Ryan Woolley, CEO, ICA

to survive and retain thousands of jobs. “Outside of a mine that’s producing platinum or iron ore thanks to the commodity supercycle, I don’t think there’s another sector of the South African economy that is laughing as loudly to the bank as the short-term insurers,” Botha told the webinar.

He found that total short-term insurance premiums received increased by 2.2% to a new record of more than R130bn, while unappropriated profits increased by more than 20% to a new record of R53.5bn. Total assets of the short-term insurance industry followed the recordbreaking trend by increasing 12% to a level of more than R220bn. Botha believes that arguably the strongest vindication of ample scope for settling contingent business interruption claims without unnecessary delay can be found in the decline of the claims ratio for shortterm insurance during the first three quarters of 2020, namely to a level of 51%, compared to a significantly higher ratio of 63% for the same period in 2019 (this ratio represents the percentage of premium income that insurers pay out in claims). Botha says it is also a point of concern to clients facing unnecessary delays in the settling of claims that the value of unpaid short-term insurance claims rose by more than 17% to a record high of R49.4bn in 2020.

Immediately after the webinar, MoneyMarketing contacted several insurers for comment. Santam stated that it had taken note of statements made during the ICA webinar about the payment of claims for contingent business interruption insurance. “The statements contain a number of inaccuracies and false allegations.

Santam views the statements in a serious light and will respond appropriately to comprehensively deal with the allegations.” It assured its clients and all interested parties that it continues to expeditiously settle all valid claims in line with the policy wordings and conditions of cover.

Meanwhile, in Guardrisk’s response, it said that it has to date received a total of 670 claims for COVID-19related business interruption losses. “Of those, 530 have been finalised with payments amounting to R415.5m. 140 claims exist where either interim payments have been made and/or clients are still in the process of formulating losses. The hospitality industry, which has been the hardest hit by government’s lockdown regulations, accounts for 523 of the finalised claims amounting to R404.8m. There are 91 outstanding claims, with estimates of R98.7m.” *Guardrisk vs Café Chameleon; Santam vs Ma-Afrika Hotels; and Old Mutual vs Interfax **Café Chameleon was the first business in SA to win a COVID-19 business interruption case. Last year in July, the Cape Town high court ruled that Guardrisk must indemnify the restaurant for losses linked to COVID-19 ***Ma-Afrika Hotels and The Stellenbosch Kitchen won their case against Santam in the Cape Town high court in November last year.

Editor’s note: See page 30

31 August 2021

NEWS & OPINION

New channel strategy for MFP

W

ith COVID-19 having catalysed change across all facets of business, Momentum Financial Planning (MFP) has embarked on a strategy that will see it move towards a new national channel-led structure.

“MFP will be moving away from a geographical management structure, with a strategic focus on establishing key channels as a critical step in the execution of our new plan,” Danie van den Bergh, CEO of Momentum Financial Planning, explains. “We strive to become the most competitive, accountable and professional in-house financial planning advice business in South Africa.”

Following in-depth research on the challenges all agency forces face globally, Van den Bergh says this undertaking involved a range of diverse stakeholders. “We aim to co-create a future-proof strategy, with the goal of growing our footprint and providing advisers with the right knowledge, skills, tools and solutions; ultimately placing more financial advisers in front of more clients.”

MFP has appointed three Channel Directors who will spearhead this new strategic focus, with the main task of implementing support and structure formulation for each channel. According to Van den Burgh, this is a strategy that will be rolled out over a three-year period, culminating in June 2024.

With that in mind, MFP announced the following leadership appointments in its newly defined channels: Willem van Zyl has been appointed as Channel Director of the Independent Contractor Channel (I-Channel), Francois de Ravel has been appointed as Channel Director of the Franchise Channel (M-Channel), while Aubrey Faba has been appointed as Channel Director in the Employed Adviser Channel (Red Channel).

of Head of Business Development during 2014 and played a significant part in investigating and understanding the Retail Distribution Review (RDR) proposals and the impact thereof. He represented Momentum Metropolitan Holdings at various forums in this regard, helping to shape the company and industry feedback to the Financial Sector Conduct Authority (FSCA).

In August 2017, he rejoined the sales team as General Manager of Highveld Province and later took over the responsibility for the Inland Province, which also included Gauteng. Along with his ability to build sustainable and trustworthy relationships with new advisers joining the organisation, Van Zyl’s vast network of relationships within the existing network of advisers will be of great assistance in his new role.

Aubrey Faba – Channel Director of the Employed Adviser Channel

Francois de Ravel – Channel Director of the Franchise Channel

Willem van Zyl – Channel Director of the Independent Contractor Channel

Van Zyl is a seasoned industry and Momentum stalwart.

His extensive experience includes a solid legal and advisory background, combined with tenure and success in sales and distribution, making him well-placed to take the lead in guiding financial advisers within independent practices to greater optimisation and productivity.

He joined Momentum in February 2003 as a Marketing Adviser and later moved into the role of Regional Manager. Thereafter, he joined MFP in the capacity of a General Manager. Subsequently, he moved into the role

followed by his appointment as MFP General Manager for coastal areas in 2018.

Undoubtedly, his vast experience, tenure and commitment to serve the industry and all its stakeholders will stand him in good stead to facilitate and enable prosperity among experienced and new-toindustry advisers.

De Ravel is passionate about the Momentum business and is known for acting in the best interest of the industry, advisers and clients. De Ravel is an industry-qualified and seasoned professional who has served in the financial services sector for 38 years. He started his career in 1983 with First National Bank, where he served for 11 years in general banking, followed by a three-year stint where he specialised in Home Loans and Property Finance. He built a strong foundation in various fields, including banking, business law, and loans and securities.

In February 1994, De Ravel joined Southern Life in the role of Specialist Employee Benefits Consultant. With the merger of Southern Life and Momentum Life in 1998, he held his first regional management role in the employ of Momentum, leading Employee Benefits for the KwaZuluNatal province.

In 2000, he was appointed in his first General Manager role and served in the Employee Benefits field for 21 years.

In 2015, de Ravel joined the retail distribution team under Momentum Distribution Services as General Manager,

“We look forward to the unfolding of our strategic intent under the guidance and strong leadership of our new Channel Directors”

Faba is new to the MFP organisation and takes the role of Channel Director in the Red Channel, which is dedicated to the vesting of new-to-industry advisers.

As a registered financial adviser, Faba has held various leadership positions and has extensive industry experience. He spent several years at Liberty Life where he climbed the ranks to the role of Regional Head, where he was responsible for expanding the business’ footprint.

With a hugely successful track record and known as being a dynamic individual, Faba’s combination of skills are the key to his success. Through his collaboration and engagement with various stakeholders, he will plan and execute strategic initiatives. As a brand ambassador for MFP, Faba will develop plans and tactics for the achievement of footprint growth through the acquisition of advisers.

“We look forward to the unfolding of our strategic intent under the guidance and strong leadership of our new Channel Directors, who will play a pivotal role in driving our mission,” Van den Bergh says.

In addition, as a result of COVID-19, digital transformation and technology has accelerated, and in response to this, MFP is strategically on the right track to invest in digitalisation, with a view on ensuring seamless integration and convenience of business processes. “In essence, the focus should be on retention of the adviser and client by giving the adviser the support to engage, and service their large client book with appropriate seamlessness in technology and processes. This should enable them to focus on growing their practices by showcasing their knowledge and skills acquired over many years in the role of a financial adviser,” he adds.

Over the coming months, Van den Bergh promises further updates on the formulation of teams and structures aligned to each channel. “I have no doubt that our new strategic initiatives will enable each channel and financial adviser to differentiate themselves in a way that will ensure huge growth within their practices and businesses.”

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31 August 2021

NEWS & OPINION

Compliance is the be all – and end all – of success in the insurance industry

BY ELZABE BOTHA Director, Compli-Serve Gauteng

The policy contract (wording) is a legal document, and you can’t use plain enough language when advising on it. Advisers should be well positioned to explain the wording and the terms and conditions to a client, confident in the accuracy of the advice they are providing.

TCF first To echo the above, and in line with TCF Outcome 4, providing suitable advice to clients is crucial to the success of an adviser and his or her ability to run a compliant business. You need to know how to evidence this, which is best done through being on top of product specifics. You should never sell on something you are unsure about.

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ompliance is a process and a result, not just a department. Here are some key tips to help you achieve this result.

Providing proper advice stems from true understanding When it comes to selling products like short-term insurance, it can quickly become complicated if any terms and conditions are neglected in the process.

It is really important for an adviser to know a product inside and out before selling it on. This may seem obvious, but time and time again, compliance issues like this creep up in the short-term space.

The ability to provide appropriate advice is dependent on an adviser understanding a product and how it will address his or her client’s needs.

Specialised products, where the terms and conditions are complex, require indepth training and understanding. Even advisers who think they know a product could stand to refresh their knowledge from time to time.

Insurers could use their claims data (specifically repudiated claims) to inform their product-specific training and to identify advisers who need further training, which will deter errors as well.

From POPI to COFI Being compliant now also extends to adhering to – and evidencing adherence – to the POPI Act, by safeguarding not only personal and special personal information, but sensitive information and data too. The COFI Bill requires of advisers to segment their service offering and value proposition to clients and insurers to ensure proper market conduct and fair outcomes for clients.

Get Fit and Proper Fit and Proper requirements are complex and ever-changing. Getting it right is a fundamental requirement, getting it wrong is disastrous, but in the middle of right and wrong are several shades of grey and FSPs should have a trusted source of advice and guidance to ensure compliance with these requirements.

Compliance is practical and needs to be consistent to be successful. It’s not just a tick-box process to stay on top of your compliance obligations either. Working with a trusted, external compliance partner can make a big difference, allowing for time to focus on business growth and other areas where compliance could take up time.

Regulatory requirements will never cease (in fact, they may increase), so implementing the correct controls are crucial and will guarantee compliance.

“Compliance is practical and needs to be consistent to be successful“

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Potential negative tax consequences of 12J deductions for non-residents

BY BOBBY WESSELS Associate, AJM Tax

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easing to be a South African tax resident often does not come without tax consequences. In particular, section 9H of the Income Tax Act (ITA) triggers a deemed disposal of your worldwide assets, despite those assets not actually being disposed of. There are some assets that are noticeably excluded from the deemed disposal, but typically the most common assets that trigger a tax consequence are shares held in any company (or similarly, units held in unit trusts or ETFs).

While the tax consequences on the deemed disposal have typically been well documented in so far as it affects shares held in a company, being both listed and unlisted, what is often overlooked is how specific types of shares may trigger different consequences.

In particular, shares held in a Venture Capital Company (VCC) and for which a deduction against taxable income was claimed in terms of section 12J of the ITA, may trigger potentially adverse tax consequences as a result of the deeming provision. This is because any amount that has been allowed as a deduction, which amount has been recovered or recouped during the year of assessment, must be included in the taxable income of any person.

The deduction claimed in terms of the VCC shares forms part of the deductions for which there can be a recoupment. Therefore, in the context of VCC shares, where a recoupment occurs, the amount to be included in the taxable income of the person could in some instances be equal to the deduction claimed.

Typically, such a recoupment will be triggered where the VCC shares are sold; however, if those shares have been held for a period longer than five years, then the recoupment can be ignored for tax purposes.

What stands to be considered is whether a deemed disposal would trigger a recoupment for tax purposes on any VCC shares held. In other words, whether a recoupment will be triggered where a person holds shares in a VCC, but which shares have been held for a period less than five years, and that person ceases to be a tax resident. The contention ultimately boils down to the interaction between a deemed disposal and the meaning to be attributed to ‘recoupment’. Despite the word ‘recoupment’ not being defined for tax purposes, South African courts have on occasion considered the true meaning to be attributable to the words ‘recover’ or ‘recoup’. In that context, the word ‘recover’ was held to connotate the regaining of possession, while the word ‘recoupment’ was regarded to be the act of ‘recovering or recompensing’. The crisp question is therefore whether a deemed disposal (not being an actual disposal) is considered akin to the recovery of the deduction claimed in respect of the VCC share. If this were to be the case, it would result in a recoupment of the deduction claimed in respect of VCC shares acquired.

The matter is not a settled one at all. There are various academics that have disputed this very point. The one school of thought advocates that a deeming provision should be treated as if there was an actual disposal. On that basis, the taxpayer must deemed to have recouped the deduction and therefore the deduction must be included in the taxable income of the taxpayer. Interestingly, this position accords with the position taken by the South African Revenue Services.

Contrastingly, where a literal approach to the meaning of the word recoupment is favoured, the argument is put forth that no recoupment can be created in the hands of the taxpayer. In the absence of any amount being physically received by the taxpayer, they can simply not be regarded to have recovered any amount.

Ultimately, the question is one for which no concrete answers exist, but of which taxpayers should take note so as to avoid any potential adverse tax consequences from being triggered.

“What stands to be considered is whether a deemed disposal would trigger a recoupment for tax purposes on any VCC shares held”

31 August 2021

WOMEN'S MONTH FEATURE

Women in financial services in a COVID-19 world

BY SONJA SAUNDERSON Chief Investment Officer, Momentum Investments

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omen’s month is a good time to take stock of how the pandemic has affected women in financial services. What has the effect been and how resilient will women be to adapt to what is likely to usher in a new era for them in financial services?

The obvious and saddest effect of COVID-19 is the onslaught of health problems and lives lost. There is no doubt that in all sectors of the South African economy, women have faced health challenges, tragedy and hardships as a result.

One trend that research locally and globally has sadly confirmed is that violence against women increased during the pandemic. Although no specific research on how this affected women in financial services has been published, physical and emotional gender-based violence intensified as a result of the pandemic and people’s inability to freely move around.

One of the biggest issues women in financial services have been facing is mental health challenges. Research by Momentum Corporate shows that stressrelated health impairments have shown a dramatic increase, and a big part of the female workforce in financial services has also been exposed to this trend.

Adapting to markets in turmoil, struggling customers, working remotely, feelings of isolation and concerns about job security all play a big part.

But despite all these adverse effects, there are also increasingly encouraging trends emerging for women in financial services. Their way of work has undergone a radical transformation.

While ‘Zoom fatigue’ has become an everyday challenge, women are equally coming up with buoyant ways of adjusting to create a new balance – from working flexible hours to enjoying

a better-balanced lifestyle, potentially moving house to a better location, or adjusting their childcare responsibilities to their preferred level of involvement – the possibilities are endless.

“Women have through the ages shown their resolve and ability to adapt” Many female colleagues highlight that the lack of having to commute daily, saving on daily travel and not being away from family or pets for too long are, aside from the obvious protection against the COVID-19 virus, some of the key benefits.

It was no surprise when Bloomberg recently reported that a big cohort of employees globally are likely to prefer quitting than having to give up the workfrom-home environment!

In financial services, like many other sectors of the global economy, this way of work has not only facilitated a possibly more constructive work environment for women, but the drive towards

smarter and more efficient ways of using technology and digitalisation have opened up many career possibilities, infusing a spirit of entrepreneurship and possibility. Data mining, artificial intelligence products and services, website design, fraud detection and many other technological examples offer career angles and small-business opportunities.

One thing is clear, women in financial services have gone through a complete transformation as a result of COVID-19.

Although there has been and likely will continue to be many challenges, there are clear advantages and opportunities.

Despite adapting to the new world we live in, we understand that these women continue to look at new ways to build their businesses and help their clients stay invested to achieve their investment goals. We, at Momentum Investments, try to alleviate some of that pressure by partnering with you to make your advice outcomes our business - because, with us, investing is personal. Women have through the ages shown their resolve and ability to adapt, and I have no doubt we will continue to do so while evolving to a post-COVID world.

Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.

Bringing a woman’s touch to the asset management industry Kere’shea Govender and Sumaya Hassen are two inspiring women who play dynamic roles at Sasfin. Kere’shea is Head of Institutional Business at Sasfin Wealth while Sumaya is Business Development Manager at Sasfin Asset Managers.

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ere’shea’s responsibilities include the building of Sasfin’s strategy for the retirement fund landscape, encompassing both pension and provident funds.

“While Sasfin is very well known to the individual wealth adviser in the retail markets, we want to emphasise that we’re also here to play in the institutional space. My role has been a blessing and I’m loving the experience so far.”

Sumaya joined Sasfin from Liberty, and her responsibilities involve engaging with financial advisers and assisting them with solutions for their clients. “I’m loving my role at Sasfin – it’s a boutique manager and not a huge corporate where you just become a number.”

Her career journey within the asset management industry was enhanced by one of her male managers at Liberty, Gerrie Gelderman, who encouraged her to complete her CFP studies. “He believed that I needed to have a CFP qualification, so when I called on financial planners I’d understand exactly what they were doing for their clients, and I’d see the holistic picture. My years at Liberty were well spent in terms of growth,” Sumaya says.

When Kere’shea joined Investec in 2010, she encountered an environment that was heavily male-dominated, but she was excited to take on the challenge. “I have always been a very outspoken woman. I quickly learned that a thick skin and being

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female were going to be an advantage in this industry, and that woman working together will create a whole different industry experience.”

Both women believe that diversity is extremely beneficial to their industry. “We bring a whole dynamic of spirit, smiles and laughter, as well as a nurturing factor that sometimes gets lost in corporate organisations,” Kere’shea says. “What we bring should never be filtered because it’s something that’s making the industry better.”

Sumaya, in her day-to-day encounters with financial advisers, meets many female advisers. “There are more women in that industry now and some have even opened their own financial advisory firms – and that’s phenomenal.” She believes that more South African women are becoming financially savvy now as there are so many females in the workforce compared to years gone by. “They’re now capable of looking after their families if something happens to their husbands, as they’re not reliant on the men in the home,” she adds.

Kere’shea has first-hand experience of women around her becoming more aware of and more interested in saving and investing. “I have a sister who’s six years younger than me, and I’ve noticed that she’s browsing the stock markets, asking me about shares and how to evaluate them. That’s making me feel like the modern

Kere’shea Govender

Sumaya Hassen

woman is beginning to realise that it’s okay to start engaging with what traditionally has been a man’s world.”

Many working women have found the COVID-19 lockdowns difficult. “At first the lockdowns were daunting,” says Sumaya, who has a family. “From 8am to 5pm you should be doing your job – but then you have the doorbell ringing – so I had to learn to allocate and plot my time,” she adds. Kere’shea is single, but for part of the lockdowns had her entire family around her. “Up until December last year, my mom, my dad, my brother and my sister lived with me,” she says. “And that was interesting because traditionally, being born in an Indian home, the women generally are the ones who are doing the cooking, and my mom and I naturally took on the responsibility of being the caretakers of the environment.”

Both Kere’shea and Sumaya wholeheartedly recommend a career in their industry to young women.

“Be positive, be a go-getter and don’t be afraid, because fear is the only thing that keeps us back,” Sumaya says.

Kere’shea believes that it’s okay to be scared in a world that’s unknown, “but once you’re in that world, you can find a place for yourself – and remember, if you were given an opportunity, it’s always important to make sure that you pass an opportunity on to someone else.”

31 August 2021

WOMEN'S MONTH FEATURE

Female talent a critical must-have for companies to survive and thrive MoneyMarketing speaks to Zanele Ntulini, CMO at life insurer FMI (a Division of Bidvest Life Ltd).

Numerous studies show that the performance of companies improves when their leadership is diverse regarding gender. Do you agree that women bring a different perspective to business?

Yes, I absolutely agree. Female leaders bring important leadership behaviours, qualities and skills that improve organisational performance such as people development, expectations and rewards, role modelling, inspiration and participative decision-making. Men and women bring something different to the table, so instead of trying to suppress our

“If you work hard, and are passionate about your job, the quality of your work will speak for itself”

femininity in the workplace, we should embrace it because that is where our unique value proposition lies – and we should own it!

Do companies in SA work hard enough at attracting and retaining female talent?

I think there’s a growing realisation among South African businesses that female talent is not a ‘nice-to-have’, but a critical must-have for companies to survive and thrive – customers and stakeholders expect it and some even demand it. We’re increasingly starting to see organisations stepping up to the plate to attract and retain women, but we have some way to go.

industry, we have a vital role to play in helping consumers protect their incomes in a tight and unpredictable economy. An income isn’t just a monthly salary – it’s the biggest factor that supports our lives, ambitions and dreams.

Tell us about some of the women who have inspired you along your journey to success.

My mom, who was a business owner her whole working life until her retirement,

FMI is one of the leaders in helping South Africans protect their incomes – do you think women today are sufficiently aware of the need to take out income protection policies?

No – but it’s not just women that need a greater awareness of the need to protect their income first. The fact is, financial conversations are still treated as taboo in many South African families. As an

Women hardest hit by savings challenges

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ccording to the South African Reserve Bank (SARB) there are signs of a small reduction in household debt, while the household savings rate increased from 0.5% in the fourth quarter of 2020 to 0.7% in the first quarter of 2021. While these developments are encouraging, several studies have shown that South African women, and black women in particular, are struggling to save for reasons outside their control, as is evident from the TymeBank More Month Than Money study completed just before the start of the pandemic.

What’s more, women have also been disproportionately affected by job losses caused by the pandemic. The National Income Dynamics Study Coronavirus Rapid Mobile Survey* showed that two-thirds of the three million South Africans who lost their jobs between February and April 2020 were women.

Women who are employed still struggle to make ends meet. According to the TymeBank More Month Than Money study** 59% of women run out of money before the end of the month, compared to 56% of men. Black women are the most likely to do so, with 64% impacted.

“The TymeBank study shows women are expected to shoulder the burden of household expenses while still facing disparities in pay when compared to their male counterparts. Two-thirds of women surveyed live in fatherless households and are financially responsible for the entire family, while receiving on average 27% less pay than their male counterparts for the same work,” says Linda Appie, Head of Marketing at TymeBank.

Managing money Encouragingly, the survey showed women are better budgeters, with 80% of those surveyed managing to stick to a budget falling into the 25 to 45 age category.

“These are women who are taking control of their financial lives, despite the challenges they face. As a bank, we’re committed to supporting our female customers as they embark on their savings journey. We do what we can to assist, offering accounts with no monthly fees and a high-interest rate on savings,” says Appie.

The bank has tried to make that first step as simple as possible with the TymeBank GoalSave product.

Customers can earn up to 8% per annum on their savings, which is highly competitive relative to the market.

GoalSave allows immediate access to the money saved without any penalties and customers can create up to 10 different savings goals and easily keep track of progress.

“Women are expected to shoulder the burden of household expenses while still facing disparities in pay when compared to their male counterparts”

Zanele Ntulini, CMO, FMI (a Division of Bidvest Life Ltd)

remains my biggest inspiration in everything I do. Her ‘nothing is impossible’ way of tackling life, excellence in everything she does, her brave and fearless spirit and being a mighty prayer warrior inspires me. I have three older sisters and we are complete opposites but complement each other well. They are phenomenal women who have taught me so much about carving my place and owning my space.

What advice would you give to young women looking for a career in the financial services sector?

If you work hard, and are passionate about your job, the quality of your work will speak for itself. But if I have one piece of advice to young women in the sector, it’s to get a mentor. That’s because mentors have ‘been there and done that’, they help you keep things in perspective and help you keep your eye on your goals. They help you build the networks and social capital that are critical for success in any sector. Most of all, they have invaluable guidance and practical advice around how they dealt with challenges and took opportunities.

Linda Appie, Head: Marketing, TymeBank

The offering also comes with a calculator accessible from the TymeBank website. Customers can insert the amount of money they want to save to realise their financial goals and the timeframe for achieving this. It then gives a view of the benefit of compound interest.

“One of our values at TymeBank is to give customers the confidence they need to realise their goals. Insights from the More Month Than Money study remain relevant in helping us to understand the challenges facing South Africans and to design financial solutions that deliver on what matters to them,” Appie adds. *The National Income Dynamics Study – Coronavirus Rapid Mobile Survey (NIDS-CRAM) is a broadly nationally-representative panel survey of South African individuals, https://cramsurvey.org **More Month Than Money Independent study commissioned by TymeBank, https://bit.ly/3wMUcgB

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31 August 2021

WOMEN'S MONTH FEATURE

Closing the gender gap in South African fund management Independent financial services group 27four – as pioneers of black asset manager incubation in South Africa – have through multiple interventions created a platform for change, and they’ve made a significant contribution to that change by furthering the participation of black talent and black business in the South African savings and investments industry. But they believe that their work is not yet done. They recognise that the current pathway to gender parity in asset management cannot be relied upon, and that’s why they’ve launched 27four Women, an accelerator managed by women for women, as they believe that only women can understand what it takes to get a seat at the table.

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mpirical evidence demonstrates that it may take almost 200 years to reach gender parity in fund management, while it is estimated that a meagre 0.5% of global assets under management are managed by women. It has also been demonstrated that womenmanaged funds perform about the same as men-only funds and that women-managed funds in many cases deliver better risk-adjusted returns. Yet, asset inflows to women-managed funds have been dismally low. An overwhelming amount of evidence points to investor conscious or unconscious biases.

The recent Citywire’s Alpha Female Report 2020 shows that since its first publication in 2016, the percentage of funds run by women has climbed painfully slowly from 10.3% to 11% in 2020. The report underscores that women-only teams managed a meagre 0.5% of funds accounting for £60bn of the £12tn assets under management in their database of asset managers. Concomitantly, the Citywire data reveals that there is a decrease in solo manager teams and a steady increase in mixed-gender teams and same-gender teams. In the baseline year, 29.7% of the funds in their database were managed by same-gender teams and, in 2020, this rose to 34.9%.

While South Africa ostensibly performs relatively better than many other countries in the database in terms of the percentage of women fund managers, just one in nine fund managers are women (11%), as illustrated below.

Graph 1: The Percentage of Women Portfolio Managers by Country

Graph 2: Solo Women/Women-Only, Mixed Gender Teams, and Solo Men/Men-Only Teams Running Funds in South Africa in 2020

Fatima Vawda, Founder, 27four Group

There have been several studies on whether women manage funds differently. Bliss and Potter (2002)1 found no gender difference in relation to risk-taking between women and men running mutual funds in the United States. Similarly, Atkinson, Baird and Frye (2003)2 found no difference in performance and investment behaviour between women fund managers compared to their male counterparts. They found that the differences were at the investor level – the asset inflows to women-managed mutual funds were less than funds managed by men. This was confirmed by Niessen and Ruenzi (2006)3 in their study on gender differences among United States equity mutual fund managers. They found that “the growth rate due to inflows of female-managed funds is 18% p.a. (on an absolute basis) less than that of male-managed funds”. It is notable that they found women fund managers follow less extreme investment styles and that their styles are more stable over time.

Beckmann and Menkoff (2008)4 conducted a survey among fund managers in the United States, Germany, Italy and Thailand, finding that women fund managers are more risk averse than men. However, this did not translate into lower performance because their focus was on risk-adjusted returns. In September 2012, the Rothstein Kass Institute5 reported that the Rothstein Kass Women in Alternative Investments Hedge Index outperformed the HFRX

“Only women understand what it means to open the door for other women”

Of the 409 managers running funds in their South African database, just 3% are run by solo women managers or a female team as shown in Graph 2.

Global Hedge Fund Index by six percentage points and the S&P 500 by 2.5 percentage points (with dividends reinvested). Aggarwal and Boysen (2016)6 explored these claims and found that women-only managed hedge funds performed about the same as men-only managed hedge funds when using a dataset that included both live and failed funds. When they restricted the dataset to live funds, their findings were consistent with the Rothstein Kass report.

27four believes that, in South Africa, there are two primary challenges for women to overcome: 1) The lack of a sustainable model to grow a pipeline of women fund management talent 2) Overcoming investor biases relating to gender and race.

27four Women intends to focus on accelerating the trajectory for achieving both transformation and gender parity goals in South African asset management.

Their women-led accelerator will provide qualifying women fund managers with access to assets under management, and operational and compliance infrastructure to allow the managers to build track records and develop skills around industry best practice and capacity building. Investors will now have access to more women-managed funds to consider and, in doing so, remove any conscious or unconscious biases, thereby promoting a virtuous cycle. The accelerator will also serve as a pipeline to grow women fund management talent by creating entry opportunities in established asset management firms.

“My pathway to getting a seat at the table was incredibly difficult, so when I established 27four, I made sure that all the leadership positions in the business were held by women,” says Fatima Vawda, founder of the 27four Group.

“Only women understand what it means to open the door for other women. We are therefore excited about our commitment to play a role in closing this gap in asset management and in contributing to the 2030 SDG goals.

After all, an economy that works for women works for all.”

1. Bliss, RT and Potter, ME (2002). Mutual Fund Managers: Does Gender Matter? Journal of Business and Economic Studies 2. Atkinson, SM, Baird, SB and Frye, MB (2003). Do Female Mutual Fund Managers Manage Differently? Journal of Financial Research 3 - Ruenzi S and Niessen A, Sex Matters: Gender and Mutual Funds, (2006) Universitat Mannheim 4 - Beckmann, D and Menkhoff, L (2008). Will women be women?: Analyzing the Gender Difference Among Financial Experts, Diskussionsbeitrag, Leibniz Universität, Hannover 5 - Rothstein Kass Institute. (2012). Women in Alternative Investments: Building Momentum in 2013 and Beyond 6 - Aggarwal, R and Boyson, NM (2016). The Performance of Female Hedge Fund Managers, Review of Financial Economics

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31 August 2021

WOMEN'S MONTH FEATURE

Financial services sector must be deliberate in promoting women to leadership positions

BY NOMATHIBANA MATSHOBA CFA and Managing Director at Terebinth

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here are few females in senior leadership roles whom young and upcoming women can look up to in the financial services sector, says Nomathibana Matshoba, CFA and Managing Director at Terebinth. “This could be the reason why many young women in the sector sometimes doubt themselves and question their capabilities. They constantly ask themselves whether they’ve been recruited to meet company affirmative quotas of employing more females, or if they are there because of their abilities. The only way we can fix this is if we encourage and ensure that females fill leadership and management positions now, so that the next generation can be motivated to realise that it is possible for females to advance their careers in the financial services sector.”

According to Nomathibana, the financial services sector, like most sectors in the country, is dominated by males, which makes it difficult for females to advance. She believes that the sector has to be deliberate in ensuring that females are promoted into leadership positions.

Nomathibana has always been surrounded by inspirational women. Growing up, one of her role models was her father’s sister, who worked at Old Mutual. “We all wanted to be independent like her. She was successful in her career, and her relationship with her husband was equally thriving. She inspired us, her nieces, to want to do something more with our lives.”

Moreover, both Nomathibana’s mother and aunt had a passion for education. Whereas Nomathibana’s mother held an undergraduate degree in Education and another in Child

Psychology, Nomathibana’s maternal aunt earned a BSc in Mathematics and Physiology, and they opted for careers in teaching. “Both women took a very detailed route to arrive at teaching because they wanted to be perfect at it.”

She believes that in South Africa, recruitment agencies and corporate leaders are presently pushing to employ more women. However, retention still remains a challenging factor. “I think that is where most corporates are falling short. People from different gender and cultural backgrounds are coming into companies and they have different ways of thinking and of looking at the world. If you want to retain people, you have to have a culture that embraces diversity of thought.”

Studies show that the performance of corporate companies generally improves when their leadership is more diverse, with research illustrating that women bring different approaches and perspectives to businesses.

“Companies probably realise that by not being diverse, in terms of accessing the relevant talent pool, they are depriving themselves of skills from nearly half of the population,” Nomathibana says. However, she believes that gender diversity is more about cognitive diversity. “It’s about actively including people who think differently and have differing viewpoints and skill sets,” she explains.

For young women who want to make a career in financial services, she has this advice: “Put your head down and focus on harnessing your skills while you are young, even if this means being in a role that pays you relatively less when compared to your peers. Money will come. And when you are good at your job, you arrive at a point where you can negotiate with confidence, because you know you can deliver just like anyone else in the industry.”

“Put your head down and focus on harnessing your skills while you are young”

Female Head of Growth for GCI Wealth

G

CI has appointed Paula Berrow as Head of Growth for GCI Wealth, with a mandate to grow the division’s footprint. Berrow has worked in the financial services industry since 1985, and has held leadership roles in sales, training and new business development for blue-chip companies.

“My new role at GCI is a return to my real passion, which is growth in general and sales in particular,” she says. “GCI is a great fit for me because it’s so entrepreneurial in spirit. In particular, its succession plan for wealth managers/financial planners is really impressive and has the potential to change the industry radically, I believe.”

Alex Cook, CEO of GCI, explains that GCI’s succession plan is intended to address a key challenge for the industry: how to enable independent wealth managers and financial planners to realise the true value of their businesses, as opposed to the industry standard of three times their annual revenue.

“The three-times revenue model does not deliver a capital sum substantial enough to reproduce the financial planner’s pre-retirement income, and it also does not guarantee seamless service delivery to clients,” Cook says. “Our model works because it hinges on ensuring the clients remain at the centre of everything. The reputation of the retiring advisor is protected, as is his or her income for life.”

Berrow says that GCI’s goal of helping 150 000 South Africans achieve financial stability and a secure retirement by 2025 resonates with her. “To make this a reality, we need to expand our reach dramatically, so I have already initiated an aggressive campaign to recruit more financial planners and wealth managers, both individuals and small practices, to join our team,” she adds.

“The more wealth managers and advisors we have, the more people we can touch.”

Paula Berrow, Head of Growth, GCI Wealth

Rooted in Knowledge. We Grow We never forget how much the money we manage, matters.

team@terebinthcapital.com (021) 943-4819 www.terebinthcapital.com

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2021/06/17 13:59

31 August 2021

WOMEN'S MONTH FEATURE

Women in the workplace – building a bigger, safer nest egg

BY FRAN TROSKIE Investment Research Analyst, RisCura

C

onventional wisdom is that women live longer than men – an average of five years longer! The reasons have caused much dinner-table debate, and some ribaldry. But despite the fact that females will outlast their male counterparts, workplace dynamics have not yet caught up with this fact.

The gender pay-gap is a hornets’ nest in itself. Various pieces of South African legislation are aimed at preventing gender discrimination in the workplace. South Africa is ranked first in the Africa Gender Equality Index, and globally it is ranked 19th among 149 countries. This seems pretty good, right? But the devil is in the details: when it comes to wages, there is a wide disparity in what men and women earn. According to the latest research by the University of Stellenbosch, the gender pay-gap has remained stagnant at a median of between 23% and 35%.

Women earn far less than men.

“Women need to protect themselves, and their retirement planning needs are different to those of men” Moreover, studies show that in South Africa, womenheaded households (which constitute about 38% of the survey) are about 40% poorer than those headed by men. More troubling, 48% of female-headed households support extended family, more than double the percentage of male-headed households who do the same. Women also contribute to the family and society in a number of other ways that are not necessarily expected from their male counterparts. Women still shoulder most of the responsibility when it comes to child-rearing and household management, according to the latest Time Use Surveys by Stats SA. Women who choose to have children, also often require some time off for maternity

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leave. Most women report that they need to take significant time off to take care of these responsibilities.

A woman’s various responsibilities, split as they are between paid work and (unpaid) ‘house’ work, means that her availability for office-based work is potentially further curtailed.

So not only do women usually receive less in earnings, they also usually have less time available to devote to earning.

Let’s look at an example. Letshego takes five months off when she is 28 to have her first and only child. When she turns 40, her elderly mother falls ill and needs homebased care for two months. At the age of 50, her mother passes away, and she returns home to her family to mourn and take care of the funeral arrangements. During her 40-year working life, assuming she will retire at 65, she has spent eight months out of the workplace. Let us also assume that during those months, she wasn’t being remunerated and she therefore was not contributing to her retirement. If she plans to purchase an annuity when she retires, and if her contribution rate is 15% of her salary (which is already at the higher end of the contribution range), her retirement income is reduced by 3%. In cold hard cash: If she had been used to living off R10 000 per month, she now only has R9 700.

This may not seem too significant, but in a country such as South Africa, with its high incidence of poverty, R300 is a considerable sum of money. And this shortfall can lead to financially irresponsible or even risky behaviour.

Women may resort to overextending themselves with credit providers, compromising their credit profile and their ability to gain access to funding in times of extreme emergency. Or they may even turn to loan sharks/ umbolekisi, who will use unscrupulous and dangerous methods to recoup their cash. This leaves women extremely vulnerable.

The takeaway The key takeaway is: If a woman lives an average of five years longer, and retires at the same age as a man, she spends a longer time in retirement and therefore needs to accumulate more savings. She needs to accumulate this at a faster rate, as she is likely to have less time to do so.

Her nest egg needs to last her longer, and it needs to be bigger. And her nest egg must be iron-clad and secure, so that it can keep her safe. It is therefore important that

women, and their employers, take these factors into account. Women need to protect themselves, and their retirement planning needs are different to those of men.

What is the solution?

There really is no simple solution, as societal changes typically take time to play themselves out. But it is possible to educate women in the workplace, so that they can plan adequately for their retirement. We can’t bury our heads in the sand like an ostrich – we need to look at ways to allow women to build a bigger nest egg.

Perhaps we need to be innovative in our solutions.

Gender-nuanced life-stage models are a potential solution, meaning that women will spend a longer time in the more aggressive, capital-accumulating phase. To date, there haven’t been many structured savings products designed for women, but maybe it’s time for financial service providers to have a rethink. Perhaps legislative changes could allow for the fact that women live longer, and are able to work productively for longer, and should therefore have a higher retirement age (say age 70 as opposed to age 65).

Food for thought: Nonetheless, while the mills of change do slowly grind, we offer a few useful tips for women when it comes to saving for retirement: • Start early – it’s critical to start building a nest egg as soon as one can, particularly since a woman is likely to require more time away from the workplace.

• Think bigger – women live longer than men, and therefore need to build a bigger nest egg. A common rule of thumb is to put aside 15% of pre-tax earnings for retirement; women should ideally be aiming for 20%.

• Safety first – don’t get stuck in a debt trap and don’t get hoodwinked by unscrupulous service providers.

• Get educated – assess different service providers and savings options.

• Stay the course – avoid the temptation to retire early and avoid the temptation to cash out retirement savings.

Remaining employed, and continuing to contribute toward the nest egg for as long as possible, adds significant value to a woman’s retirement savings. It also adds to her ability to live comfortably in later life.

• Take charge – women cannot afford to leave financial planning too late, or to leave it to their partners.

31 August 2021

WOMEN'S MONTH FEATURE

Finding your own financial freedom makes it easier to help others find theirs

M

aria Bagezile Mkhabela joined Liberty over a decade ago as a financial adviser from the JD Group sales department. She made the required transition from sales to financial advice with ease, as she was already well-versed in the art of selling products to people with various preferences and needs. Maria finds it easy to interact with her diverse clientele. “You need to be a good listener in order to be able to identify their financial needs,” she says. “I’m patient with people and I make allowances that they may have woken up from the wrong side of the bed that morning!” she adds.

Maria’s work is and she’s already eager to take up the same career as her mom. “My daughter sees how good I am at providing for my family. My role as a financial adviser has given me more independence than I ever imagined. I always say to people: Don’t see the role as a job because it’s a career – and one in which you really get to know yourself.”

the positive side: “We’ve got to learn and we’ve got to adapt,” she adds. “The pandemic has not only taught us lessons, but it has also given us a chance to revisit ourselves and to rearrange our lives.”

Taking care of the important things Another key take-out from the lockdown for Maria was the importance of reviewing Dealing with the pandemic and updating funeral cover policies. She Maria believes that the COVID-19 pandemic saw many clients update their policies has led women to become what she calls after realising that their extended families “pillars of strength” in their homes, although needed to be included in their funeral plans. she is concerned with news circulation She knows of cases where some have on gender-based violence suggesting that had to access their investments to pay for Finding purpose in some instances, homes have become family funeral costs. She firmly believes that Her career at Liberty has given Maria the dangerous places for women and girls during Liberty’s Funeral Plus Plan will change this, power to be an independent, driven career the lockdown. “Many women have struggled as people get to choose the benefits that best woman in so many ways. Being a financial to find a way forward and to cope in some suit their budgets and their needs. adviser means understanding the role she situations,” she says.

“We know the importance of family and plays in helping change people’s lives for For Maria, one of the important takeaways doing everything you can to help and protect the better, and helping clients deal with from COVID-19 is how technology is playing them. Having a larger family should not mean economic and lifestyle changes is what she a crucial role in keeping business and society you are restricted in offering your loved ones has been empowered to do. functional in a time of lockdowns. “We had to all the support they need, including funeral “I would definitely recommend a career adapt to technology so quickly and now we’re cover. Our Funeral Plus Plan lets you cover in financial services to other women. Please using it more than ever,” she says. all your loved ones, at an affordable rate. come forward, is my message! We need more And while the transition to technology The plan has come at a time when people women as financial advisers,” she says. Her wasn’t always seamless, and while the recent need something that makes sense to them.”

10-year-old daughter has seen how fulfilling spate of load shedding didn’t help, she sees She adds that the plan is designed to also

Maria Bagezile Mkhabela, Financial Adviser, Liberty ECM

include those who are not family, but who nevertheless are important, meaning that domestic workers or gardeners may be included in a client’s funeral plan.

Throughout her life’s journey, Maria has been driven by her passion to change people’s lives. Personally, her goals remain focused on becoming the best version of herself that she can be, so that she can enable and assist as many South Africans as possible on their journey to becoming financially free.

Disclaimer: This article does not constitute tax, legal, financial, regulatory, accounting, technical or other advice. The material has been created for information purpose only and does not contain any personal recommendations. While every care has been taken in preparing this material, no member of Liberty gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy, or completeness, of the information presented.

Maria Mkhabela is a Tied Liberty Financial Adviser and is providing her views based on her interaction with clients in her profession as a financial adviser. She has not been compensated for her participation in this article.

For more details about benefits, definitions, guarantees, fees, tax, limitations, charges, premiums or other conditions and associated risks, please speak to a Liberty Financial Adviser or your Broker.

Liberty Group Ltd is the insurer of Liberty Funeral Plus Plan and an Authorised Financial Services Provider (no. 2409).

Terms and Conditions apply.

A Funeral Plan to meet your needs from as little as

R40* per month. *Cover and premiums are dependent on individual risk profile.

Send us a

on 071 618 6572 to get a quote.

Liberty is the insurer of the Funeral Plus Plan and an authorized FSP. Ts and Cs, risks and limitations apply.

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31 August 2021

INVESTING

The post-pandemic commodities boom: Will it last?

BY SELEHO TSATSI Investment Analyst, Anchor Capital

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ining shares and commodity prices have been incredibly strong since the lows of the COVID-19 induced selloff in March 2020. In this article, we examine the investment case for basic materials businesses following their strong performance over the past year. We find that mining shares are generally trading at low multiples of near-term earnings and dividends. These low multiples reflect market caution over the sustainability of current commodity prices. The longer-term outlook for commodities is not homogenous.

Some, like iron ore, appear to have weaker longer-term outlooks than others, such as copper or nickel. We expect companies in the sector to prioritise cash returns to shareholders in the short term. In certain cases, cash returns justify investment in the sector but caution is warranted, especially given the volatility of equity markets and underlying prices, and we note that the outlook may change quickly. A buy-and-hold approach is therefore not advised.

A commodities bull market Commodity prices have performed exceptionally well since March 2020, with perhaps the most striking feature of this commodities bull market being its breadth. Energy, metals and agricultural commodities have all rallied strongly. Iron ore, palladium, rhodium, copper and lumber have reached all-time highs. Other commodities such as corn and soybeans have also reached their highest levels in years. Unsurprisingly, equities have followed suit. On the JSE, the FTSE JSE Resource 20 Index has returned c.

81% from 31 March 2020 to end June 2021, compared to a 55% return for the Capped Swix over the same period.

Mining shares are generally trading at low multiples of near-term earnings and dividends. These low multiples can be interpreted as market caution over the sustainability of current commodity prices. Furthermore, profitability across the sector is at cyclical highs. So, we can infer that the market is discounting a normalisation of

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commodity prices, a subsequent decline in margins, and a reduction in earnings for the sector. We would generally share the market’s caution over the sustainability of current prices. Commodity prices have been spurred by supply disruptions since the onset of the pandemic.

A combination of low inventory levels coming into the COVID-19 pandemic, supply disruptions, and swift recoveries in demand have led to surprisingly strong prices. We believe these factors have been the main drivers of recent commodity price strength.

However, the sector is not homogenous and the argument for some commodities may be more compelling than for others. We are cautious over iron ore, for example.

We estimate that at current prices, with a couple of exceptions, iron ore contributes at least fifty percent of earnings for diversified mining companies listed on the JSE. Iron ore is therefore a big driver of the sector. The iron ore price currently exceeds $200/t. The entire industry, including very high-cost marginal producers, make good margins at these prices. Assuming supply disruptions ease over time, we would expect prices to normalise to lower levels. Nevertheless, we say that while keeping in mind that a year ago we certainly would not have thought

that a $200/t iron ore price was on the cards.

Other commodities like copper appear to have more fundamental support over the long term. Copper is one of several metals that could be important as the world transitions to a greener economy. The copper market totalled nearly 30mt in 2019. New sources of demand in the form of renewable energy (solar and wind) and electric vehicles (EVs) could bring the copper market into a sizeable deficit. Glencore modelled commodity demand under the assumption of a rapid transition to a lower-emission economy, where the world limits the increase in the global average temperature to 1.5°C above pre-industrial levels. Under this scenario (see Figure 3), copper demand could double from 30mt in 2019 to 60mt in 2050. It is important to keep in mind that this forecast assumes aggressive global climate policy, and a lot can happen between now and 2050 that changes this outlook.

Still, it gives an idea of the potential demand growth.

Under more conservative assumptions, we could still see deficits in the copper market of 5mt to 10mt by the end of this decade (2030). There are other commodities such as cobalt, nickel and zinc that are similarly affected by the transition to a greener economy. The short-term

picture is likely to be volatile, but we believe that the longterm, supply-demand outlook for these metals is better than for a commodity such as, say, iron ore.

We expect companies in the sector to prioritise cash returns to shareholders over the short term as free cashflow generation in the sector is very strong at the moment. Furthermore, although we have seen a rise in capex recently, capital spending is still below the levels reached during the previous commodities supercycle.

Many companies in the sector have established clear dividend policies. These policies are usually a percentage of earnings or free cashflow that the company commits to pay out in dividends. Rather than focus on large expansionary capex or M&A, companies until now have used this opportunity to strengthen their balance sheets.

The combination of strong balance sheets and free cashflow generation opens the possibility of abnormally strong cash returns to shareholders via special dividends and buybacks.

Many businesses in the diversified mining and platinum group metal (PGM) spaces are trading at free cashflow yields of 15% to 25%, or more. In several cases, we estimate that dividend yields will be close to free cashflow yields because most of the free cashflow will be returned to shareholders via dividends. Investors may have the 2015 resources bear market fresh in mind when they tell management teams that they want mining companies to return cash to shareholders. Barrick Gold CEO Mark Bristow recently criticised capital markets for what he deems to be short-term thinking focused on dividends.

Nevertheless, regardless of how you assess the sector’s capital allocation, it appears probable that the sector will be aggressive in the return of cash to its shareholders.

Conclusion Although valuations in the mining sector look optically cheap, we believe caution is warranted. The run-up in commodity prices since March 2020 has been spurred by supply disruptions, low inventories, and a quick recovery in demand. We find it more useful to look at individual commodities rather than the market as a whole, because it is not homogenous. Certain commodities, such as iron ore, have less compelling long-term outlooks than other metals that should benefit from a transition to a loweremission economy. We do have exposure in the sector and our decision to be invested is driven, in part, by what we see as a compelling cash return story in the near term. Dividends and share buybacks are expected to be prioritised over big acquisitions or capex drives. Given the volatility of both commodity and equity prices, the outlook can change quickly. We therefore do not view our holdings in the sector as buy-and-hold positions.

31 August 2021

INVESTING

Crypto is no gold Bitcoin and a slew of other cryptocurrencies are gaining traction as alternatives to fiat currencies as mediums of exchange. We asked portfolio manager at Foord Asset Management, William Fraser, whether they might also challenge gold as the ultimate store of value.

T

o my mind, there are so few similarities between gold and Bitcoin that to compare them seems like a waste of resources. Gold is easy to understand. We can see it, feel it, mould it. It has many uses and limited supply.

Through the centuries we have accepted it as money and stored it in large quantities as national reserves. Bitcoin is new. It is complex. And it was created out of nothing.

But we should not dismiss Bitcoin’s utility as a medium of exchange or a store of value without some (even rudimentary) research and analysis. We should also note that different people have different investment objectives, time horizons and risk budgets. So, there may be diverse conclusions as to its utility.

Let me offer mine.

I like gold as a store of value in investment portfolios because it typically shines during times of financial stress.

It acts as a safe-haven asset, with a proven track record of preserving

and even improving value during market dislocations. It is an insurance policy against government economic mismanagement, which could lead to currency devaluation and rising borrowing costs.

In contrast, and despite its limited supply, Bitcoin has failed as a store of value during times of financial market distress.

The extreme volatility of cryptocurrency prices (irrespective of market conditions) suggests demand is for speculative profiteering rather than safety of capital.

Moreover, major price falls tend to occur when lending dries up and bank collateral requirements rise meaningfully – forcing leveraged Bitcoin speculators to sell. This

“Bitcoin is merely a promise without any economic or fiscal backing”

tends to happen during times of market dislocation. Thus, while Bitcoin’s limited supply might imply a store of value, its price history betrays this promise.

Nevertheless, cryptocurrencies could become an accepted (and legal) medium of exchange – one day challenging the dollar, euro, yen and other currencies as a means of payment. They therefore compete with fiat currencies more than with gold.

But even in this theatre they face challenges. I have already shown that they lack credentials as good stores of value. They also exhibit great variability in demand while supply is artificially manipulated. Finally, cryptocurrencies are not widely accepted as a medium of exchange – only El Salvador recognises Bitcoin as legal tender. This is because governments understandably want to collect taxes in their own currencies.

Bitcoin’s extreme price volatility means it fails the test as a currency with stable

purchasing power and as a store of value akin to gold. Bitcoin is merely a promise without any economic or fiscal backing.

The potential for better cryptocurrencies (including central bank sponsored crypto coins called Central Bank Digital Currency) means the potential exists for Bitcoin’s value to go to zero over time.

William Fraser, Portfolio Manager, Foord Asset Management

Satrix is SA’s largest ETP issuer

BY MIKE BROWN Managing Director, etfSA

D

ata for the state of the SA Exchange Traded Product (ETP) Industry – as at 30 June 2021 – has been released.

It shows that during the second quarter of 2021, Satrix Managers became the largest issuer, measured by market capitalisation of ETFs, in South Africa.

In doing this, it surpassed Absa Capital, which has been the lead issuer of Exchange Traded Products since 2008.

Satrix Managers ETF products accounted for a market capitalisation of R31 884m, compared with R31 452m for

the Absa Capital ETFs and ETNs, at end June 2021.

Sygnia Itrix also significantly increased the market capitalisation of its ETFs in the second quarter and now stands just below Absa Capital with R29 293m ETFs in issue as at end of June 2021.

“This scramble to be the top issuing house among these three companies signals a strong degree of competition in the ETP industry, which bodes well for the future,” says Mike Brown, Managing Director of etfSA. The total market capitalisation of the entire South Africa ETF and ETN industry rose from R119.7bn at the end of March 2021 to R124.5bn at the end of June 2021.

During the first half of this year, total market capitalisation has increased by 12.1%, following the pattern of

continuously gaining traction over the past three years.

“The R13.5bn increase in the total market capitalisation in the ETP industry in the first half of 2021 was partly due to the price rise in local equity market indices, but also due to new capital raised from creation of ETFs during this period,” Brown adds.

During the first half of 2021, a total of

R6 988.4m new capital was raised by the ETP industry through the JSE. Only three new ETFs were listed in the first six months of this year, so the bulk of this new capital was raised by ETPs already in issue.

The table below shows the top individual ETFs/ETNs that raised the most new capital for the six-month period under review.

“This scramble to be the top issuing house among these three companies signals a strong degree of competition in the ETP industry”

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31 August 2021

INVESTING

Numbers don't lie

BY KIM ZIETSMAN Head: Business Development and Marketing, Laurium Capital

Chart 2: March 2020 - Drawdowns of SA Hedge Funds vs. FTSE/JSE Capped SWIX Index

D

espite South African hedge fund managers producing excellent risk-adjusted returns over the long term, the hedge fund industry in South Africa remains small at R72.2bn at the end of 2020 (HedgeNews Africa), compared to the R2.8tn in South African CIS funds, of which SA Multi-Asset Funds account for 57% at R1.1tn of assets (ASISA, March 2021).

One of the major reasons to have hedge funds as an investment is for downside protection and diversification.

Hedge funds in SA have a history of protecting against the downside when markets pull back aggressively. This was evident in 2008 and in March 2020. In the months in 2008 when the SA equity market had the largest drawdowns (July, Sept and December), the hedge fund industry as represented by the HedgeNews Africa Single Manager Composite very effectively protected investors’ capital, and some even provided positive returns over these three months. At a strategy level, market neutral funds have been remarkably steady in all market conditions, providing positive returns, while long/short funds significantly limited drawdowns relative to the equity market. Hedge funds also protected well on the downside in the unprecedented correction in March 2020.

Chart 1: 2008 July, Sept and Dec - Drawdowns of SA Hedge Funds vs. FTSE/JSE ALSI Index

Source: HedgeNews Africa

Laurium Capital is one of the leading hedge funds managers in South Africa, having managed hedge funds since 2008, providing excellent risk-adjusted returns over time.

Table 3: Performance Summary to 31 May 2021 CAGR

Alpha over cash SI

SA Hedge Funds

Fund 2021 Inception YTD

Laurium Aggressive Long Short Prescient QI Hedge Fund

Jan-13

23.6% 50.7% 13.8%

7.1%

Laurium Long Short Prescient RI Hedge Fund

Aug-08

16.8%

33.8% 9.8%

3.4%

Laurium Market Neutral Prescient RI Hedge Fund

Jan-09

11.1%

21.5%

9.6%

3.1%

SA Cash Index (STeFI)

1.5%

4.1%

JSE Capped SWIX TR

16.8%

40.8%

1 Year

Since Inception

Source: Laurium Capital, Morningstar Direct

Source: HedgeNews Africa (HedgeNews Africa Composite covers 175 singlemanager funds split across all strategies with long/short funds accounting for 49%, fixed income 16.2%, multi-strategy 12.8% and market neutral 8.7% of asset).

Chart 4: Laurium Hedge Fund risk-adjusted returns vs. key indices (Jan 2013-May 2021) The Compound Annual Growth Rate (CAGR) after fees is depicted on the Y-axis, while risk as measured by standard deviation is shown on the X-axis.

“Hedge funds in SA have a history of protecting against the downside when markets pull back aggressively”

Source: Laurium Capital, Morningstar Direct

Hedge funds offer managers an unconstrained way to manage money, have a high degree of flexibility, and don’t impose limitations that long-only funds may have, like tracking indices. The flexibility of hedge funds doesn’t only come from the strategies used – it is also inherent in the relatively smaller size of hedge funds. Smaller funds have the ability to be nimble, react faster to information, and take more meaningful positions in mid and small cap stocks.

We believe that at least 15-20% of an investor’s portfolio should be invested in assets that are non-correlated to traditional investments, which makes hedge funds a key part of any well-diversified portfolio.

Collective Investment Schemes (CIS) should be considered as medium to long-term investments. The value of your investment may go up and as well as down as past performance is not necessarily a guide to future performance. CISs are traded at a ruling price and can engage in script lending and borrowing. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and the dividend withholding tax. There is no guarantee in respect of capital or returns in a portfolio. Annualised performance shows longer term performance rescaled to a 1-year period. Annualised performance is the average return per year over the period. Hedge Funds: Laurium Hedge Funds operate as white labelled funds under the Prescient QI Hedge Fund Scheme and Prescient RI Hedge Fund Scheme, which is governed by the Collective Investment Schemes Control Act 45 of 2002. Laurium Aggressive Long Short Prescient QI Hedge Fund: Highest rolling 1-year return since inception of 63.7%.

Lowest rolling 1-year return since inception of -33.6%. Laurium Long Short Prescient RI Hedge Fund: Highest rolling 1-year return since inception of 43.1%. Lowest rolling 1-year return since inception of -24.1%. Laurium Market Neutral Prescient RI Hedge fund: Highest rolling 1-year return since inception of 31.9%. Lowest rolling 1-year return since inception of -8.4%.

Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002).

Laurium Capital (Pty) Limited, Registration number: 2007/026029/07 is an authorised Financial Services Provider (FSP34142)

Global Enhanced ESG Return Note launched

M

omentum Securities has announced the launch of its enhanced ESG Structured Note, providing local rand-based investors the opportunity to participate in the Solactive Sustainable Development goals Equity index. It provides 100% rand capital guarantee, irrespective of whether the currency appreciates or depreciates within the next five years.

“Momentum Securities believe that over a five-year term, the ESG theme offers attractive potential returns,” says Francois Strydom, Portfolio Manager at Momentum Securities.

“For investors not comfortable taking offshore equity risk, the index offers a risk control mechanism that limits the volatility of that equity index, which also provides an opportunity to provide enhanced participation. This means

20 www.moneymarketing.co.za

that whatever the index does over the next five years, in euros, the investment provides six times that return in rand with a 100% capital guarantee.”

Investors are able to invest through the Momentum Wealth Flexible Endowment Option, or alternatively directly with Momentum Securities into their stockbroking account.

Francois Strydom, Portfolio Manager, Momentum Securities

With Momentum Investment Consulting, your clients will always find their true north.

Because with us, investing is personal.

We provide discretionary fund management services to both Category I and Category II financial services providers, and advisory services to Category II financial services providers.

As your trusted partner, we are an extension of your advisory practice. We guide you and bring you an unparalleled range of services and investment solutions to meet your clients’ unique needs.

Momentum Investments

For@MomentumINV_ZA more information, contact us atMomentum mic@momentum.co.za Investments MIC-CL-3-AZ-748131

Momentum Investment Consulting is an authorised financial services provider (FSP32726).

31 August 2021

INVESTING

Looking beyond the restart In BlackRock Investment Institute’s Midyear Outlook, Looking beyond the restart, the Institute discusses the structural trends that are shaping its strategic calls and unveils three updated investment themes: • The new nominal • China stands out • Journey to net zero.

T

he powerful restart of economic activity after the COVID-19 shock is broadening. A restart is not a traditional business cycle recovery. You can only turn the lights back on once, so to speak. Fiscal stimulus and easy monetary policy have provided a bridge through the pandemic. We have estimated that the US has seen more than four times the stimulus of the global financial crisis (GFC) for less than one-quarter the economic shock. We see a wide range of macro-outcomes as a result.

More relaxed attitudes toward debt and deficits are a major shift from the neoliberal consensus that ushered in a four-decade period of falling inflation and rates. New policy paradigms mean many central banks are now attempting to overshoot inflation targets to make up for past misses. Yet markets have not yet bought the narrative and are pricing in a more rapid lift-off in rates than what the Federal Reserve’s new policy framework implies. This mismatch and resulting uncertainty could stoke volatility.

We expect a higher inflation regime in the medium term – as a result of a more muted monetary response than in the past. We see any bond yield rises driven by inflation, rather than policy hikes, making the unique environment that we have called The new nominal constructive for equities.

We are moderately pro-risk and look for opportunities from any turbulence to increase risk: Negative real, or inflationadjusted, bond yields should support equities. We see potential for cyclical shares and regions to benefit from a broadening restart. We are turning positive on European equities and upgrading Japanese equities to neutral - and cutting US equities to neutral. Even if yields remain low, the direction of travel is up – and we remain underweight developed market (DM) government bonds.

Our second theme is China stands out. Chinese assets play a key role in our strategic views in an increasingly bifurcated US-China world. For the first time, we break out Chinese assets from emerging markets (EM) as distinct tactical allocations. We believe Beijing’s focus on quality growth should bear fruit, keeping us tactically neutral on Chinese equities but heavily overweight strategically.

Our third theme is the Journey to net zero. The path to net-zero carbon emissions has a starting point and potential destination – but there is no clear roadmap yet for getting there. Some of the coming changes may be abrupt – and add to supply and demand disruptions among commodities. We see opportunities along the way, with private market financing playing a key role.

Journey to net zero There is no roadmap for getting to net zero, and we believe markets underappreciate the profound changes coming. The path is unlikely to be a smooth one – and we see this creating opportunities across investment horizons.

Tactical implication: We are overweight the tech sector as we believe it is better positioned for the green transition.

Strategic implication: We like DM equity and the tech sector as a way to play the climate transition.

ASSET CLASS VIEWS:

Key investment themes The new nominal The powerful economic restart is broadening, with Europe and other major economies catching up with the U.S. We expect a higher inflation regime in the medium term, with a more muted monetary response than in the past.

Tactical implication: We go overweight European equities and inflation-linked bonds. We cut US equities to neutral.

Strategic implication: We remain underweight DM government bonds and prefer equities over credit.

China stands out Growth in China is starting to slow at the same time the policy stance is relatively tight. The regulatory crackdown on dominant companies is ongoing. We see these as key aspects of China’s efforts to improve the quality of growth.

Tactical implication: We break out China from EM with a neutral stance on equities and an overweight to debt.

Strategic implication: Our neutral allocation to Chinese assets is multiples larger than typical benchmark weights.

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For the full report, go to https://bit.ly/36sKYvh

YOUR PARTNER FOR PRIVATE ASSETS With over $65 billion in assets under management, Schroders Capital provides standout, ESG considered, opportunities across private markets.

We have been offering our investors access to private equity, real estate, infrastructure, and private debt for more than 20 years. And we will continue to do so through continuous innovation and collaboration within our expert teams across the globe.

Visit www.schroderscapital.com

Source: Schroders, as at 31 December 2020.

Schroders Capital is the private markets investment division of Schroders.

Marketing material for investment professionals and advisers only. Issued by Schroder Investment Management Ltd, an authorised financial services provider FSP No: 48998, registration number 01893220. (Incorporated in England and Wales). The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. CS3146

31 August 2021

ALTERNATIVE INVESTMENTS

Growing Schroders’ private assets capabilities a key strategic focus

S

chroders has united its specialist private assets investment capabilities under the newly launched Schroders Capital brand, created to deliver an enhanced service for our clients.

Growing Schroders’ private assets capabilities continues to be a key strategic focus for the business. This has been achieved so far through a combination of organic growth and specialist acquisitions.

Schroders Capital will encompass the existing range of private equity, securitised products and asset-based finance, private debt, real estate, infrastructure, insurancelinked securities and BlueOrchard (impact specialist). In light of its significant role shaping the impact investing industry over the last 20 years, BlueOrchard will maintain its independent brand identity.

Schroders Capital’s approach to building change in a sustainable way is summarised by the following core attributes: Intent We strive to ensure that sustainability and/ or impact are well represented in the investment objectives and complement the achievement of financial returns. We aim to select

partners that are like-minded in terms of the change we target.

Contribution Our integrated investment process seeks to contribute to ESG, sustainability and impact investing via a range of strategies and themes, including sustainable cities, climate mitigation and adaptation, financial inclusion, healthcare, industry and innovation, job creation and economic growth, among others. Active ownership and engagement expand our principles and their implementation across the entire value chain of intermediaries and stakeholders with whom we work.

Measurement We collect an extensive range of sustainability and impact metrics to measure the effectiveness of our investments in achieving the goals we set for each strategy, theme or sector. We track positive and negative changes generated over time to enhance the effectiveness of our active ownership efforts and inform future investments.

Peter Harrison, Schroders Group Chief Executive,

“The launch of Schroders Capital will increase the visibility and strengthen the position of our private assets offering”

Peter Harrison, Schroders Group Chief Executive

Georg Wunderlin, Global Head of Schroders Capital

comments, “Schroders is further delivering on its growth strategy with the launch of Schroders Capital, a new brand for all our private assets businesses. It will continue to provide clients with a local approach to investing across a diversified range of private asset strategies, supported by a global perspective and the longestablished Schroders business.”

Georg Wunderlin, Global Head of Schroders Capital, comments, “The launch of Schroders Capital will increase the visibility and strengthen the position of our private assets offering, while also underscoring our ambitions as a leading player in private markets.”

Kondi Nkosi, Country Head - South Africa, comments, “We have always been of the view that providing our investors with diversified sources of returns is paramount, especially given the challenging times we

Kondi Nkosi, Country Head - South Africa

anticipate for markets.

“The unification of our $65bn1 private assets capability under the Schroders Capital brand, we believe, will promote knowledge-sharing and innovation across our private assets businesses and showcase our diversified range of investment strategies for our investors.”

Schroders Capital provides access to investment opportunities managed by teams with a long and consistent track record of robust investment performance.

Each asset class within Schroders Capital will continue to maintain a high level of autonomy, while also benefiting from enhanced knowledge-sharing and collaboration with the other asset classes within the new brand and across the Schroders Group.

1

As at 31 December 2020

Private equity sees ESG as a strategic value driver, finds PwC survey

T

he management of environmental, social and governance (ESG) issues is moving up the board agenda for private equity (PE); however, climate risk exposure requires greater scrutiny, according to a new survey released by PwC. The Private Equity Responsible Investment Survey 2021 draws upon the views of 209 respondents from 35 countries and territories, including 198 PE houses.

It finds that, compared with 2019, there is a shift from 35% to 56% of respondents stating that ESG features in board meetings more than once a year.

ESG factors are now routinely evaluated by private equity firms when making investment decisions. Three quarters (72%) of respondents always screen target companies for ESG risks and opportunities at the pre-acquisition stage, and more than half (56%) have turned down a potential investment or refused to enter into an agreement on ESG grounds.

The 2021 survey finds that nearly 95% are concerned about specific governance issues – business ethics, corporate values and culture; prevention of bribery and corruption; and cyber and data security.

However, on issues that are fast becoming business-defining, such as net zero, climate risk, biodiversity and emerging technologies, there is a significant gap between those who express concern and those who act.

91% consider climate risk within a portfolio as a concern, yet 47% have not undertaken any work around understanding the climate risk exposure of the portfolio. More than half stated they intend to in the next year. With respect to due diligence, the survey found that only 36% consider climate risk at this stage.

“Over recent years, PE firms have radically reassessed the importance and value of ESG to their business,” says Will Jackson-Moore, Global Private Equity, Real Assets and Sovereign Funds Leader, PwC UK.

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“The attitude and approach of PE firms has matured. ESG factors are reshaping the global economic landscape and will undoubtedly impact the investment success of PE in the coming years. Understanding both the big picture and specific portfolio ESG risks and opportunities will be key to delivering sustainable value creation.”

66% of respondents ranked value creation as one of their top three drivers of responsible investment and ESG activity, followed by corporate values (52%) and investor pressure (41%).

Private equity is embracing a more proactive approach to ESG; in 2019, risk management was the biggest driver for activity.

When it comes to social issues, such as diversity and inclusion, 92% of respondents consider it a concern. Yet less than half (46%) have set some form of gender and ethnic or racial diversity targets. Encouragingly, of those that have set targets, 77% said that diversity is a core value for the organisation.

“Like all industries, private equity needs to adapt in order to meet the societal and economic challenges of the day, and recruiting the right talent is crucial in this regard,” says Jackson-Moore. “This means hiring for specific ESG expertise and, in general, more diverse teams – in terms of gender, ethnicity and age, but also socioeconomic background and training.”

The Private Equity Responsible Investment Survey 2021 is available to read online at https://www.pwc.com/responsibleinvestment

Alexander Forbes employee benefits help your employees maintain financial stability.

We partner with you to offer your employees financial advice, and products and solutions that are tailored to help them: • Manage their finances day to day • Save for the future • Have money available for emergencies We partner with you to personalise your employees’ benefits with solutions at low fees for institutions. We also provide training, support and resources throughout your employees’ working life – and beyond – to help them achieve financial well-being throughout their life.

Now that’s something they can count on.

The following businesses are licensed financial services providers: Alexander Forbes Financial Planning Consultants (Pty) Ltd (FSP 31753 and registration number 1995/012764/07) | Alexander Forbes Financial Services (Pty) Ltd (FSP 1177 and registration number 1969/018487/07) Alexander Forbes Health (Pty) Ltd (FSP 33471 and CMS registration number ORG 3064) | Alexander Forbes Investments Limited (FSP 711 and registration number 1997/000595/06)

31 August 2021

EMPLOYEE BENEFITS

Supporting employee mental health and well-being MYRNA SACHS Head: Health Management Solutions, Alexander Forbes

C

OVID-19 has changed the way we work, and remote working has seen a shift in the way that companies provide support to their employees. Companies need to be flexible and adapt to help their employees make the remote work experience a positive one, says Myrna Sachs, head of Health Management Solutions at Alexander Forbes.

While there have been benefits, such as time saved on commuting, it also has downsides. A study done by the World Health Organisation shows that the pandemic has disrupted or halted critical mental health services in 93% of countries worldwide, while the demand for mental health interventions and services are increasing.

Moreover, bereavement, isolation, loss of income and fear are triggering mental health conditions or exacerbating existing ones.

Financial issues affecting mental health Struggling with financial issues can affect both mental and physical health, while mental and physical health can also affect finances. “This can also reduce productivity in the workplace in terms of ‘presenteeism’

and ability to concentrate. It can cause stress-related conditions such as migraines, as well as depression and, in severe cases, suicidal ideation.”

Sachs says employers need to ensure that they have an employee well-being assistance programme to help with both psychological issues and financial issues, including debt management and legal advice.

“Employers need to be empathetic towards employee’s needs and realise that no employee has the same needs.

Lockdown has emphasised this – employees used to get support from other employees, but now remote working has taken that support away.”

Sachs adds that there is a need to ensure “transparent, open communication between employees and management”.

Taking leave is healthy With ongoing lockdown restrictions, Sachs believes that mental health, exhaustion and burnout should be an area of concern for companies. They should be encouraging employees to use their leave days and take short local breaks, when and where possible.

“Taking annual leave is not only a benefit provided by your employer but is also a health and safety requirement.

Many companies promote taking at least 10 consecutive days of annual leave to ensure employees are well rested.”

Taking a break can have physical and mental benefits, such as: • reducing the risk of heart disease by being less stressed • resetting thoughts so that employees become more creative and productive • lowering the risk of anxiety and depression • improving mood, which may help to ease social relationships.

When taking leave while at home, employers should encourage their employees to distance themselves from work by: • switching off smartphones and computers • informing all relevant people that they are on leave, and not available unless in an emergency.

Sachs says employees should do a thorough handover so they are free to relax without thinking about incomplete work tasks.

Ergonomics in the work-from-home office Employees may find themselves spending more time in front of their computer screens, resulting in shoulder or back strains and acute or even chronic pain. “The cause of this pain may be related to ergonomics – the way we are seated, as well as the position of our desk, computer and telephone in relation to our bodies,” says Sachs.

“As much as work can be very demanding, remember to take breaks. Try taking a 10-minute break every hour by walking around in the house or garden. You could also attempt doing long-distance viewing (more than three metres) to rest the eyes. For example, look across the room or out of the window. Doing exercises at your desk is another helpful way to avoiding staring at your computer for long periods at a time.”

Sachs says it is essential that companies stay in touch with employees, using individual and team meetings, with cameras on to pick up nuances. “Managers need to develop skills around remote management, as it is not always easy to pick up if there are issues. At first we all thought this would be short term, but with renewed lockdowns we need to equip our managers with new skills.”

Why the old idea of retirement is becoming increasingly irrelevant

BY HENRY VAN DEVENTER Chief Specialist Advice Model Design, Liberty

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etirement as we know it is changing in ways that makes financial advice both more complicated and more meaningful. People no longer just want advice about financial security. They want to know how they can live their best lives, achieving the goals and aspirations they’ve always dreamed of. Along with this is a deeper need to understand how their money can empower a broader sense of happiness.

The old idea of retirement, being

something a person does when their working life finishes at age 65, when they are expected to park themselves on a shelf and wait for time to run out, is becoming increasingly irrelevant.

This notion is being replaced with a sense that there are a great many adventures and achievements that can happen in life’s journey after work.

Financial advisers are waking up to this and some are building really powerful practices giving life to this idea, enabling clients to move forward in a meaningful and rewarding way.

To better understand how to enhance meaningful retirement advice, in my experience the following guidelines are worth considering when it comes to crafting a financial plan for retirement: 1. Up to the age of 75, retirees remain pretty active. They typically live the same life they did prior to retirement – often more so due to the extra time available to them – and tend to continue enjoying the same activities they always have. Helping clients define what the purpose, experiences and relationships will be that will make this phase as rewarding as possible is

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hugely important.

2. Between 75 to 85, retirees start slowing down somewhat. Homes tend to get downsized, often with a focus on moving to retirement communities.

Medical expenses also start going up and priorities like travel start taking a backseat, often because the children start visiting them instead of the other way around.

3. The frail stage of retirement sets in around the age of 85. Lifestyle expenses are much reduced, but medical expenses become critical as health issues become more prevalent.

Considering these points as a core roadmap for your retirement proposition tends to open up rich possibilities for enhancing the value of the retirement planning experience.

Finding out what clients really want to do with their lives and what goals are achievable given their particular circumstances, enable advisers to provide a level of depth and meaning in their client discussions. This aligns them much more closely with the issues that truly matter to clients.

RETIREMENT Creating a roadmap that clearly identifies rewarding experiences, meaningful relationships and enabling a sense of purpose provides retirement with a deep sense of meaning and reward.

This may well include continuing working, even if there is no longer a financial need to do so.

To ultimately evolve retirement planning to a point where true meaning can be provided to clients in their golden years, it’s no longer a case of clients only asking: “Will I be okay?”

It’s also about asking: “Will I be happy?”

Financial planning that can take all of this into account requires a great deal of flexibility. This not only requires the technology to bring these discussions to life in a way that clients understand. It also requires products and solutions that can provide the necessary security and flexibility.

By learning to focus on the areas that truly enable happiness for our retired clients and building an advice process supported by the technology and products to bring it to life, retirement planning shifts from a dreaded necessity to a truly liberating experience.

31 August 2021

RETIREMENT

The ‘Bucket Approach’ and living annuities

BY DEBRA SLABBER, CFA® Portfolio Specialist, Morningstar Investment Management South Africa

What is the catch?

An amount of complexity needs to be dealt with on a client-by-client basis before implementing a bucket strategy.

The adviser and the client need to establish how many buckets are needed, how and when these buckets will be rebalanced, how many years of living expenses will be in the income bucket, and the underlying investments per bucket, to name a few. And once it is set up, this becomes an ongoing process of monitoring on a client-by-client basis.

An aspect to consider is whether this bucket approach has added meaningful monetary benefit (over and above the psychological benefit).

Where to from here?

Whether a client chooses to have a true bucket approach and only withdraw from the income bucket, or whether he/she chooses to withdraw proportionately from his/her entire living annuity portfolio is not that relevant over the long term. Over the short term, the range of outcomes in investment markets are wide and returns are uncertain.

What is important is the correct long-term asset allocation, and to ensure a healthy balance between growth and income assets, a cost-effective solution, a reasonable income draw and lower-than-average market volatility. What is also important is a correct rebalancing strategy.

Some math to get you thinking Morningstar has done some work to test the impact of various withdrawal techniques on client’s portfolios.

In closing Earlier in this article we mentioned the complexity involved when setting up a bucket approach for each and every client. When partnering with Morningstar and utilising the Morningstar Moderate Income Portfolio for living annuities, a lot of those complexities are dealt with.

We do the rebalancing on behalf of the adviser automatically on a quarterly basis – you have the option to choose whether to draw income proportionately from the underlying funds or you can choose an income fund to withdraw from. We also carefully monitor and control the asset allocation to ensure the client can sustain a reasonable income draw.

‘

The Bucket Approach’ for post-retirement portfolio planning has gained a lot of traction over the past several years, and for good reason. It is an easy-tounderstand and easy-to-follow method and it provides cushioning in volatile periods.

Pioneered by financial planning guru Harold Evensky, the Bucket Approach is simply a total-return portfolio combined with a cash component to meet near-term living expenses. Assets that won’t be needed for several years or more can be parked in a diversified pool of long-term holdings, with the cash buffer providing peace of mind during periodic downturns. The main goal of the long-term portion of the portfolio is to maximise the long-term total return. Proceeds from the long-term portfolio, whether it be from income, rebalancing, or both, are periodically allocated into the income bucket to meet living expenses.

There is no doubt that a sensible bucket approach with the correct rebalancing technique, a reasonable income drawdown and appropriate asset allocation has served investors well in the past.

“An amount of complexity needs to be dealt with on a client-by-client basis before implementing a bucket strategy”

Risk Warnings: This commentary does not constitute investment, legal, tax or other advice and is supplied for information purposes only. Past performance is not a guide to future returns. The value of investments may go down as well as up and an investor may not get back the amount invested. Reference to any specific security is not a recommendation to buy or sell that security. The information, data, analyses and opinions presented herein are provided as of the date written and are subject to change without notice. Every effort has been made to ensure the accuracy of the information provided, but Morningstar Investment Management South Africa (Pty) Ltd makes no warranty, express or implied regarding such information. The information presented herein will be deemed to be superseded by any subsequent versions of this commentary. Except as otherwise required by law, Morningstar Investment Management South Africa (Pty) Ltd shall not be responsible for any trading decisions, damages or losses resulting from, or related to, the information, data, analyses or opinions or their use.

The following assumptions were used: • Initial capital: R10 000 000 • Withdrawal rate: 5% monthly income draw, adjusted by inflation annually • Period tested: five years • On 1 January every year, the portfolio gets rebalanced back to its original weights

This document may contain certain forward-looking statements. We use words such as “expects”, “anticipates”, “believes”, “estimates”, “forecasts”, and similar expressions to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.

Morningstar Investment Management South Africa Disclosure The Morningstar Investment Management group comprises Morningstar Inc.’s registered entities worldwide, including South Africa. Morningstar Investment Management South Africa (Pty) Ltd is an authorised financial services provider (FSP 45679) regulated by the Financial Sector Conduct Authority and is the entity providing the advisory/discretionary management services.

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31 August 2021

RETIREMENT

What a difference five years can make!

BY ESTA THERON Business Development Manager, Glacier by Sanlam

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e know that the decision around early retirement is not an easy one. Esta Theron, Business Development Manager at Glacier by Sanlam, examines how early retirement can impact a person’s capital retirement savings and the amount of their potential future gross monthly income after retirement.

Food for thought In Andile’s story and the calculations that follow, Theron illustrates that even if early retirement seems appealing, the numbers often aren’t. If you are ‘forced’ to retire early, say at 55, it’s best to try to earn a salary in some way, for at least another five years.

Retiring as early as 55 is just not the best decision to make, since you could still live for another 30+ years, and to do so with confidence you’ll need a great deal of capital.

Working and saving another five years not only will ensure a larger income, but will also keep you economically active for longer, which has great benefits psychologically. If there is no way out and you have to retire at age 55, consider a combination of post-retirement solutions to ensure the best possible income with growth and to secure some part of your capital for your loved ones.

Andile’s story Andile is currently 30 years old and earns a gross annual salary of R325 000. He intends to start investing R2 031.25 (7.5% of his monthly salary) into his employer’s pension fund at the end of each month. If we assume a capital growth rate of 10% per annum in the pension fund, without any increase in Andile’s contributions, the difference in the value of his retirement savings between the age of 55 and 60 is illustrated below.

Option 1: 100% in a guaranteed life annuity with a 20-year guaranteed term and an assumed 5% annual growth on income.

Option 2: 100% in a living annuity with the same income as Option 1. We have assumed income growth at 5% and capital growth at 9% per annum.

Option 3: Andile’s capital could be split as follows: • R1 500 000 in a guaranteed life annuity with a 20-year guaranteed term and 5% annual growth on income, and • R1 195 130 in a living annuity with income that would match the income in Option 1 and 2 if combined with the income from the guaranteed life annuity.

Each option would provide Andile with the same income annuity amount, but the third option will provide him with a guaranteed lifetime income and the opportunity to preserve some capital on the side as well.

The table below illustrates an example of the outcome of each option at age 55, with retirement capital of R2 695 130, assuming an income growth rate of 5% and a capital growth of 9% (inflation + 4%).

Product

Capital invested

Option 1

Guaranteed Life Annuity

R2 695 130

Option 2

Living Annuity

R2 695 130

Guaranteed Life Annuity

R1 500 000

What could be lost in retirement savings if Andile retires early?

Age when Andile started contributing to his pension fund

30

Monthly contribution to the pension fund (assumed to remain constant over the employment period)

R2 031.25

Capital growth rate

10%

Andile’s total retirement savings at 55 years

R2 695 130 (size of Andile’s pension fund after 25 years)

Andile’s total retirement savings at 60 years

R4 591 616 (size of Andile’s pension fund after 30 years)

Difference in the value of his retirement savings

R1 896 486

Option 3 (Combination)

Based on the assumptions we have made, if Andile retires at 55, he would have accumulated R2 695 130 in retirement savings. However, if he retires at 60 years, he would have R4 591 616 in retirement savings. By retiring early, Andile therefore would reduce the capital amount of retirement savings from which he would live off in retirement by almost R2 000 000.

If Andile then chooses to purchase a guaranteed life annuity with the full value of his retirement savings from the pension fund, at 55 years or 60 years, the gross monthly income he would receive during his retirement, based on quotations at 10 June 2021 (rates are subject to change), with the assumptions of a 20-year guaranteed term and a 5% annual growth on income, is presented below.

Expected monthly income during retirement Current gross monthly income

R27 083 (R325 000 per annum)

Age at retirement

55 years

60 years

Value of his pension fund at the time of his retirement

R2 695 130

R4 591 616

Estimated gross monthly income during Andile’s retirement

R13 534

R23 070

Let’s look at the income comparison The difference in income received if Andile retires five years later is R9 323 per month (R23 070 – R13 747 = R9 323). So, if he chooses to retire early, at age 55, he will have less retirement savings available and he will also receive less income from a guaranteed life annuity.

If, despite the early retirement shortfall, Andile still chooses to retire early from his pension fund because he is not able to postpone his retirement, there are a few postretirement options available to him. Based on the same previous assumption that there is a capital growth rate of 10% per annum in the pension fund, without any increase in Andile’s contributions, we have provided three post-retirement options for Andile that offer varying levels of flexibility.

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Living Annuity

R1 195 130

Income

Capital/Income available at death

If before 20 years: income R13 534 that grows with 5% continues to pay to the per annum beneficiary R13 534 (6%) that grows with 5% per annum Capital in the investment is Capital growth assumption available to the beneficiary of 9% per annum R7 644 that grows with 5% per annum

If before 20 years: income continues to pay to the beneficiary

R6 103 (6%) that grows with 5% per annum

Capital in the investment is Capital growth assumption available to the beneficiary of 9% per annum

If Andile waits another five years and retires at age 60, when the capital has grown to R4 591 616, the outcome of each option will be as follows: Capital Capital/Income

Product Income invested available at death If before 20 years: Guaranteed R23 070 that grows with Option 1 R4 591 616 income continues to Life Annuity 5% per annum pay to the beneficiary R23 070 (6%) that grows Capital in the with 5% per annum Living Option 2 R4 591 616 investment is available Annuity Capital growth assumption to the beneficiary of 9% per annum If before 20 years: Guaranteed R10 039 that grows with R2 000 000 income continues to Life Annuity 5% per annum pay to the beneficiary Option 3 R13 031 (6%) that grows (Combination) Capital in the with 5% per annum Living R2 591 616 investment is available Annuity Capital growth assumption to the beneficiary of 9% per annum Important to know The ASISA guidelines on maximum withdrawal levels noted in the table below should be followed when deciding on the amount of income to be taken from a living annuity. If an annuitant adheres to these guidelines, they should be able to ensure that the capital is not depleted over their lifetime, to provide the chosen income until death – with a little bit of capital to spare. If the annuitant is not able to stick to these guidelines, and requires a higher annuity income drawdown, it is advisable to consider alternative options, i.e. a combination or a guaranteed life annuity.

All monetary values in this article are assumptions, and for illustrative purposes only.

As markets fluctuate and every client is different, values, rates and incomes will vary.

31 August 2021

RISK

The link between the big four illnesses and the pandemic

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evere illness pay-outs increased over the last year and are likely to continue to reflect increased pay-outs over the next year as a direct consequence of reduced services and increased fears around the COVID-19 pandemic.

Illness cover claims stats “The Old Mutual 2020 Claims Statistics report, which was recently released, reflects a 95% pay-out ratio for illness cover claims, adding up to a total of R871m,” says Jay Naidoo, Executive General Manager for Agency Franchise Distribution at Old Mutual.

Naidoo says the illness pay-out amount increased 18% from the previous year.

Cancer and tumours accounted for the largest proportion of illness claims at 45%, followed by cardiovascular disorders at 27% and central nervous system disorders at 14%.

The link to COVID-19 “This increase in illness pay-outs

corroborates a study by the World Health Organisation (WHO) last year, which found that people with illnesses such as cancer and cardiovascular disease were not receiving the health treatment they needed since the COVID-19 pandemic began. Reasons included disruption of health services and a reluctance to enter the medical environment for fear of the increased risk of contracting COVID-19,” Naidoo says.

The survey, which covered 155 countries, found that the postponement of public screening programmes such as mammograms (breast cancer) and pap smears (cervical cancer) was also widespread, reported by more than 50% of countries. This was consistent with initial WHO recommendations to minimise nonurgent facility-based care while tackling the pandemic.

The most common reasons for discontinuing or reducing services were cancellations of planned treatments and a lack of staff because healthcare workers had been reassigned to support COVID-19 services. Bente Mikkelsen, Director of

the Department of Noncommunicable Diseases (Severe Illnesses), at WHO said it would be some time before the full extent of the impact of the healthcare disruptions could be determined, with specific reference to patients with severe illnesses.

“While exposure to COVID-19 could be devastating for someone with a severe illness, not addressing their medical needs could be just as fatal,” Naidoo says.

The costs of big illnesses Old Mutual found that the big four illnesses (cancer, heart attacks, strokes and coronary artery bypass grafts) contributed to 70% of the illness claims paid in 2020.

Old Mutual’s illness insurance offers true customisation, total flexibility and immediate cover.

“When you contract an illness, there are numerous financial costs that you will have to address, including treatment. Old Mutual’s illness insurance ensures that those needs are addressed so that you can focus on the important things, such as your recovery and time with your loved ones,” Naidoo says.

“The role of the financial adviser becomes vital when a customer contracts an illness. The adviser steps in to help you access your pay-out, allocate money to the expenses incurred, and reinvest what is left. Your financial plan will also need to be revised to ensure that your new circumstances and your family’s financial needs are provided for,” he adds.

Jay Naidoo, Executive General Manager: Agency Franchise Distribution, Old Mutual

E-cigarettes and life insurance policies

BY CLYDE PARSONS Actuarial Executive, BrightRock

F

or decades now, we’ve known that smoking is bad for our health – the research has conclusively shown that smoking increases your risk of suffering from cancer, heart disease, stroke and lung disease, among many other conditions. This is the reason why smoker rates are higher than non-smoker rates in life insurance.

Smokers can pay more than double the premiums that a non-smoker would pay, depending on factors such as age, pre-existing conditions like those mentioned above, and how you’ve structured your policy.

But many people are unaware that regular users of e-cigarettes are also charged smoker rates when it comes to life insurance.

Why do vapers get charged smoker rates?

E-cigarettes are battery-operated products designed to deliver nicotine, flavour and other chemicals. They turn chemicals, including nicotine, into an aerosol that is inhaled by the user. Most insurers in South Africa, including BrightRock, charge the users of e-cigarettes the same rates that we charge smokers of traditional tobacco products. There are a number of reasons for this.

Firstly, e-cigarettes, such as vapes, contain smaller doses of nicotine, and other harmful substances such as ultrafine particles, flavourants and heavy metals.

While the levels of nicotine are smaller than they are in traditional tobacco products, they still pose some risk to the long-term health of the user. That being said, some e-cigarettes can contain even more nicotine than normal, combustible cigarettes.

Secondly, as e-cigarettes are still relatively new in the market, not enough research has been done to investigate the health risks that come with using them. However, some of the available research shows that consuming e-cigarettes has been associated with an increased risk of chronic cough, bronchitis and asthma. E-cigarette smokers are also believed to be more susceptible to respiratory infections and poor cardiovascular health.

What if someone is vaping because they want to quit smoking?

The World Health Organisation (which has stated unequivocally that e-cigarettes are harmful to your health) says that of the world’s 1.1 billion smokers, 60% want to quit. Many tobacco smokers use e-cigarettes to help them quit. When underwriting clients for life

insurance at BrightRock, we ask if they smoke or use any other nicotine products other than cigarettes, such as cigars, pipes, hubbly bubblies, e-cigarettes, or even nicotine gum. If clients have used any of these products within the preceding 12 months before their applications, we’ll charge them smoker rates. This is because smokers – regardless of whether they’re inhaling nicotine from combustible or e-cigarettes – are most likely to relapse within 12 months of quitting.

When do non-smoker life insurance rates apply?

Giving up smoking is not only worth it from a health perspective but also from a life insurance premium perspective. If a person hasn’t smoked or used nicotine products for 12 months, they can apply to get non-smoker life insurance rates. The insurer will ask them to sign a non-smoker declaration and do a cotinine urine test. If the test comes back negative, this could reduce premiums by up to half, which, at a time when everyone’s watching their spending, is definitely worth considering.

What if a person has a policy and starts smoking or vaping?

The effect on their cover and premiums will depend on the insurer. At BrightRock, you don’t need to let us know if you start smoking or vaping, and your premiums and cover will not be affected; having started smoking after your policy started won’t affect your claim. However, it’s important to know that there are many insurers in the market that do require people to notify them if they start smoking or vaping – if they don’t, these insurers can reduce or even decline claims as a result.

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31 August 2021

RISK

We’ve never experienced riots of this magnitude: Sasria

I

n its 42-year history, Sasria, the stateowned company and only short-term insurer that provides special risk cover to all individuals and businesses that own assets in South Africa, as well as government entities, has never experienced riots, violence and looting of the magnitude that occurred in KwaZulu-

Cedric Masondo, Managing Director, Sasria

“Just days after the unrest, Sasria was hard at work attending to claims”

Natal and Gauteng last month. This is according to Sasria’s Managing Director, Cedric Masondo.

He added that just days after the unrest, Sasria was hard at work attending to claims and had its systems ready to respond with the necessary agility when it was contacted. The company also worked very closely with other insurance companies to make sure that it fasttracked the payment of claims.

Together with its distribution partners, insurers and brokers, “Sasria swiftly appointed loss adjustors and assessors that immediately started on assessing the extent of damages. It also provided

assurances of its liquidity and ability to honour claims.”

There is, however, uncertainty around the quantification of the losses or damages that have resulted from last month’s unrest. Masondo has emphasised that only in two month’s time will there be a clearer picture once all claims have been reported and investigations and quantification have been completed.

Sasria has been engaging the National Treasury as well the Prudential Authority “about possible solutions should the worstcase scenario in terms of the value of the damages materialise,” Masondo added.

Good progress being made in handling CBI claims: Santam

Lizé Lambrechts, Group CEO, Santam

Many months have passed since the country’s first coronavirus lockdown on March 26, 2020. It has been a trying time for business owners who have experienced delays by their short-term insurers in settling contingent business interruption claims. Santam is one of the insurers at the centre of this present storm.

S

hort-term insurer Santam says it’s making good progress in handling contingent business interruption (CBI) claims.

“Right at the start, Santam contracted 40 additional expert business interruption loss adjusters for our claims; a loss adjuster is the person that actually works with clients to quantify and finalise the claims,” Santam Group CEO Lizé Lambrechts told a webinar last month.

“We did that to ensure that we had more than enough capacity to be able to handle our claims timeously, and as we receive the information from our clients.”

“Payments have been made to approximately 60% of policyholders that have submitted claims” Lambrechts provided the webinar with an overview of Santam’s CBI claims: Payments have been made to approximately 60% of policyholders that have submitted claims. Since January 2021, the insurer has paid R600m to policyholders in addition to the R1bn paid in interim relief to 2 500 policy holders in August 2020, bringing total CBI payments to date to R1.6bn.

A number of the 2 500 clients who received the R1bn interim relief in August 2020 have subsequently received additional payments. Most of these beneficiaries were SMMEs in the hospitality, retail and leisure sectors.

A total of 3 252 policyholders notified Santam of their intention to formulate and submit a claim. This

30 www.moneymarketing.co.za

represents 2% of the company’s Commercial and Corporate clients.

To date, the insurer has received formulated claims from 1 851 policyholders, who represent 57% of the number of clients who previously indicated their intentions to claim. Final or interim payments have been made to 1 094 of the 1 851 clients that have submitted claims.

The remaining 757 claims are currently going through the assessment and settlement process with loss adjusters.

All claims where documents have been submitted have been or are currently being attended to. However, Santam is very concerned that 43% (1 401) of the clients who initially registered their intention to submit a CBI claim have still not done so.

Since January 2021, the company has communicated extensively with intermediaries and clients, urging them to submit their claims documentation. Santam has on numerous occasions extended the deadline for submission of claims information. The final deadline for affected policyholders to provide documentation in support of their claims is now 31 August 2021.

Fast tracking the claims process Lambrechts said that Santam has made considerable efforts to simplify the claims process for businesses where the sum insured is less or equal to R10m per annum and the indemnity period is not greater than nine months. “This represents the majority of clients.”

For these clients, Santam implemented a Fast Track process from 28 January 2021 and provided a basic spreadsheet of two pages that an accountant or bookkeeper can complete.

In February, Santam further simplified the requirement for clients to provide proof of the occurrence of COVID-19 within a certain radius of their premises. The insurer secured an agreement with the National Institute of Communicable Diseases (NICD) to use its geo-location data for this purpose.

“Santam believes that the claims documentation requested is fairly standard for commercial entities, as it includes financial statements that would ordinarily be used for tax purposes. It is important for the clients to demonstrate the before and after impacts of the business interruption through financial statements.”

Santam’s financial performance Hennie Nel, Santam’s chief financial officer, told the webinar that the insurer provided R3bn for net CBI claims in its 2020 financial results, with R1bn being paid out by the end of last year.

“In 2020, Santam settled claims amounting to R21bn, the highest in our history,” he added.

With regard to financial performance for the year ended 31 December 2020, Santam’s income attributable to ordinary shareholders decreased by 75% to R542m.

Headline earnings dropped by 47% and no interim or final dividend was declared in the 2020 financial year.

The economic capital coverage ratio of the Group as at 31 December 2020 was 161%, slightly above the midpoint of the capital target range of 150% to 170%.

Nel said that Santam disagrees with conclusions that the insurance industry has unduly benefited from the pandemic and finds the recently published research misleading and inaccurate in its generalisations.

Editor’s note: See Page 8

EDITOR’S

31 August 2021

BOOKS ETCETERA

BOOKSHELF Amazon Unbound Jeff Bezos and the Invention of a Global Empire

By Brad Stone

Rise

By Siya Kolisi

From the bestselling author of The Everything Store, this book is an unvarnished picture of Amazon’s unprecedented growth and its billionaire founder, Jeff Bezos – revealing the most important business story of our time.

With the publication of The Everything Store in 2013, Bloomberg journalist Brad Stone revealed how the unlikely Seattle start-up Amazon became an unexpected king of ecommerce. Since then, its founder has led Amazon to explosive growth in both size and wealth. In less than ten years, Amazon has quintupled the size of its workforce and increased its valuation to well over a trillion dollars. Whereas Amazon used to sell only books, there is now little they don’t sell, becoming the world’s largest online retailer and pushing into other markets at warp speed. Amazon has forty subsidiaries, including Whole Foods Market, Amazon Studios in Hollywood, websites like Goodreads and IMDb, and Amazon Web Services cloud software unit. Amazon provides us opportunities to shop, entertain, inform, communicate, store and, one day, maybe even travel to the moon. We live in a world run, supplied and controlled by Amazon.

In Amazon Unbound, Stone details the seismic changes that have taken place at Amazon over the past decade as it became one of the most powerful and feared companies in the global economy, led by one of the most powerful and feared leaders in business. He shows the acquisitions and innovations that have propelled Amazon’s unprecedented growth, and the turn in public sentiment that criticises Amazon’s monopolistic practices. As he charts the company’s meteoric rise, Stone probes the evolution of Jeff Bezos – who started as a geeky entrepreneur but who transformed to become a fit, famed, disciplined billionaire, a man who runs Amazon with an iron fist but finds his personal life splashed over the tabloids.

There have been many comments made and books written about Siya Kolisi, captain of the Springboks, and the first black man to lead his country in over 128 years of South African rugby. But now, for the very first time, Siya Kolisi shares his story in an extraordinarily intimate memoir, charting his journey from being born into the impoverished Zwide township, to leading his proud nation to an astonishing victory at the Rugby World Cup in 2019.

However, Rise is not simply a chronology of matches played and games won; it is an exploration of a man’s race and his faith, a masterclass in attaining a positive mindset, and an inspirational reminder that it is possible to defy the odds, no matter how they are stacked against you. In 2020, partly in response to the pandemic, Siya and his wife, Rachel, launched The Kolisi Foundation, providing personal protective equipment to healthcare workers and delivering food parcels throughout South Africa. The title, Rise, is inspired

by Siya’s mother, Phakama – whose name translates to the book’s name – as well as a celebration of his Xhosa heritage.

SUDOKU

ENTER NUMBERS INTO THE BLANK SPACES SO THAT EACH ROW, COLUMN AND 3X3 BOX CONTAINS THE NUMBERS 1 TO 9.

Thinking the Future New Perspectives from the Shoulders of Giants

By Clem Sunter and Mitch Ilbury Every decision people make is a decision about the future.

They constantly make choices that affect the next week, year or decade, but get blinded by what they want or expect the future to be. Cognitive traps lie everywhere: failing to question their assumptions; believing in greater certainty and personal control than life allows; or missing signals because they’re distracted by the noise.

The post-2020 world demands a revolutionary way of looking ahead, and in these unpredictable times, the key to good futures thinking is good thinking. The goal of constructive futurism is not to forecast specific events, but to plot a series of scenarios that show what could happen.

Consequently, people can work towards the future they want, avoid the ones they don’t, and be prepared to manage the risks and opportunities, no matter what.

In Thinking the Future, scenario specialists Clem Sunter and Mitch Ilbury advocate the futurist’s art of decision-making, where the flexibility of thinking like a fox plays a key role in adapting to a complex and interconnected world. The book rejects the appealing but misleading self-help narrative that people can decide their future through sheer determination in pursuit of their goals, and replaces it with a more dynamic approach.

Isaac Newton said, “If I have seen further than others, it is by standing on the shoulders of giants.” By reimagining seminal concepts thought up by some of history’s greatest thinkers, the authors detail the dos and don’ts for thinking the future and handling its uncertainty in a constructive way.

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