MoneyMarketing December 2021

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WHAT’S INSIDE YOUR DECEMBER ISSUE SA WEALTH MANAGERS TURNING TO ALTERNATIVES Including alternatives in a portfolio protects against panic and delivers returns that are uncorrelated to listed markets Page 5

TAX LAW BLUNDER GIVES EXPATS A BREATHER National Treasury withdraws amendment on additional exit tax for expats Page 7

FINANCIAL ADVICE FOR WOMEN Women have unique financial needs and, therefore, need nuanced investment advice relative to men Page 12

INVESTMENT LESSONS FROM 2021 Investment managers from various firms across different asset classes share what they learnt this year Pages 18-24

PAYMENTS FRAUD Six ways CFOs can combat the risk of payment fraud and stay ahead of hackers Page 26

WORK-FROM-HOME MUSCULOSKELETAL INJURIES Working from home forecast to accelerate the rise in musculoskeletalrelated disability claims Page 28

31 December 2021

@MMMagza

@MoneyMarketingSA

First for the professional personal financial adviser

How to create better portfolios for your clients MoneyMarketing spent several hours last month learning about Absa’s new Fund Linked Solution strategies. Advisers and DFMs will soon be given the opportunity to get to grips with these highly sophisticated strategies through no less than 10 e-learning modules. Yes, it’s complicated! But the strategies could just turn out to be a gamechanger when it comes to creating truly amazing portfolios for clients.

BY JANICE ROBERTS

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inancial advisers and DFMs change the risk/return profile of their clients’ portfolios when the investment outlook changes, by trading out of one fund into another – but what if they had access to strategies that could change the risk/return characteristics of their portfolios without having to affect CIS transactions? While this has always been possible for those who have a minimum of R10m to invest, Absa Structured Solutions is now ‘democratising’ these strategies by making them widely available for amounts of R100 000 – and perhaps even less in the future, given the advance of both technology and platforms.

“We want to hand these tools to the people – advisers and DFMs – who make investment decisions on behalf of investors, so they can make better choices, and so they can create better portfolios,” says Adam Reeves, Distribution Specialist at Absa Structured Solutions. “All these strategies have specific characteristics, and they can be changed at any time, providing full flexibility.”

Funds that may be used in the different Absa Fund Linked Solution strategies may either be Collective Investments Schemes (long only, Retail Hedge Funds or ETFs), segregated portfolios, or indices.

Delta 1 note Reeves explains that a Delta 1 note issued

by Absa is the starting point for all Fund Linked Solutions available on the Absa platform. While investors purchase an Absa issued note, it’s the bank that owns the units in the underlying funds, not the investor. What the investor owns is the note that references the portfolio of the assets.

“When you start to introduce

protection, risk managed or leverage strategies, it’s the bank that is actually assuming risk. Absa will then have to dynamically trade those portfolios and provide protection on them – and we need to trade them in and out of a protection asset that is cash-like, when appropriate.”

The notes are available via LISPs, with a large universe of funds available – however, any new funds will need to go through a due diligence process. “We will have a look to see if they’re regulated funds,” says Reeves. “How stable are they? Have they been around a long time? Are they priced daily? What’s the liquidity like? Is there an appropriate diversification of component assets? We can then assume risk on that fund. If it’s a R20m fund, there will be less appeal unfortunately, because it’s not going to be suitable as the bank may only own a certain percentage of the fund for risk management purposes.

“All these strategies have specific characteristics, and they can be changed at any time, providing full flexibility” The Delta 1 note – or the wrapper – is the default strategy when only exposure to the desired reference portfolio is required, or if the time isn’t right for future strategy application. Rules may be encapsulated into the Delta 1 note’s strategy based on the advisers’ wishes. For instance, there may be an automatic rebalance over specific time periods, or a rebalance may take place when specific allocation weightings exceed or fall below thresholds.

Adam Reeves, Distribution Specialist at Absa Structured Solutions

Constant Proportion Portfolio Insurance Within Absa’s Fund Linked Solution strategies, portfolios can be protected by two different protection mechanisms, one of which is Constant Proportion Portfolio Insurance (CPPI), also referred to as ‘term protection’, as it applies the protection strategy over a fixed term. At inception, the investor specifies a monetary protected amount, which is the minimum amount the investor will receive at the end of the strategy term.

“This strategy is for someone who has a particular investment objective in time,” says Reeves. “They might be wanting to emigrate in five years’ time, or they might be looking to retire in three years’ time – and they want certainty.”

Term-based protection is achieved by dynamically allocating between higher-risk performance assets and lower-risk protection assets. This is done within the note so that no decision has to be made by the investor or the adviser. The protection can be removed at any time, while loans may in future be taken out against the portfolio that will assist in making financial planning more flexible.

To determine how much to allocate to the performance asset and the protection asset to achieve the protected amount, the current value of the reference assets, the present value of the protected amount, and the multiplier of the performance assets are required.

“The multiplier of the performance asset is really just a mathematical ratio that illustrates how volatile and risky the underlying portfolio is,” Reeves adds. “The higher the multiplier, the lower the risk of the fund.”

But what happens if there’s a so-called knockout event? “This means the market goes down so far that everything has been allocated back to the low-risk protection asset, there is no room now for the performance asset,” he adds.

Continued on page 3

31 December 2021

Continued from page 1 This means that the investor will receive the protected amount at expiry. The investor could unwind the strategy and receive the present value of the protected amount and sell the note or invest in another strategy.

Time Invariant Portfolio Protection Another protection mechanism within Absa’s Fund Linked Solution strategies is the Time Invariant Portfolio Protection (TIPP), also referred to as ‘continuous protection’, as it does not have a fixed or defined term. It is achieved by dynamically allocating between a higherrisk performance asset and a lower-risk protection asset. The protected amount is the minimum amount the investor receives when choosing to end the TIPP protection strategy.

“An investor will turn around and say, ‘I’m happy with some risk. I don’t want to go the CPPI route where protection is only provided at the end of the elected investment term and lock in what my minimum level is going to be over a period of time,’” Reeves says.

“The investor wants to set a trailing safety net. This is like a stop loss on a fund that’s used, for example, by someone who is a little risk averse, but also wants decent upside potential in his fund – and if the wheels fall off, at least he knows he has some protection. If there’s another pandemic, for instance, the investor wants to make sure he gets out with something, and this can be set upfront at 80% or 90% of the initial amount invested, depending on personal choice.” He adds that protection can be removed at any time, while there is no expiry date.

Risk managed strategy Included in Absa’s Fund Linked Solutions is a risk managed strategy.

Risk can mean capital losses or drawdown, or it can mean volatility of returns. Investors want an element of certainty in their investments so they can decide on whether specific investments are suitable for meeting their investment objectives.

“If someone is close to retirement, they don’t want to own an inconsistent performing equity fund because it’s

NEWS & OPINION

“The investor wants to set a trailing safety net. This is like a stop loss on a fund that’s used, for example, by someone who is a little risk averse, but also wants decent upside potential in his fund – and if the wheels fall off, at least he knows he has some protection” not going to assist them in their financial planning,” Reeves says. “People have specific investment objectives they’re trying to achieve, and they want certainty out of their investment. A risk managed strategy can set the level of volatility that the investor is comfortable with.”

Volatility is a quantitative measure of risk and tends to increase with a higher equity component. A volatility ratio is used to determine the appropriate reference asset allocation between the performance asset and the protection asset. The risk managed strategy allocates the reference assets based on the volatility ratio.

Leverage strategy Absa’s Fund Linked Solution leverage strategy means that investors may invest with borrowed money to increase their total exposure to their investment assets.

The suitability for leverage and the number of times leverage is allowed is dependent on whether the performance asset is daily priced, liquid and tradable.

The strategy can be used in combination with other strategies, specifically with a protection strategy.

“Absa provides the loan, which is invested alongside the capital of the investor. The bank measures risk and lets the investor borrow an amount of money based on the riskiness of the underlying investment. The loan amount will be higher for a stable investment and smaller for a more risky investment. We don’t want investors to suffer excessive losses and we don’t want to be out of pocket either,” he says.

Part of this strategy is the ongoing loan amount management, meaning that the relationship between the investor capital and the loan amount must be managed and rebalanced on an ongoing basis to maintain the appropriate ‘times leverage’

relationship over the leveraged investment period.

There are two methods available for the ongoing management of the loan amount in a leverage strategy: the constant proportion method, and the volatility control method.

“The constant proportion method means that no matter what happens in the market, the ratio between the loan amount and investor capital will remain constant, irrespective of whether the market is going up or down. The investor, who is really bullish and expects the market to go up, wants two times leverage. But if the market goes down, this investor will therefore have to bear a double loss on his portfolio.”

In reality, this will be used by the expert advisor or manager who is comfortable in making market timing decisions.

The volatility control method, however, means that the strategy will vary the times leverage amount subject to market conditions. “If the market is becoming choppy, the investor’s times leverage will be turned down, and if the market does go down, the investor doesn’t suffer so much of a loss,” Reeves adds.

Should the investor decide to change (either increase or decrease) the volatility target within either method during a leverage strategy, this decision effectively ends one leverage strategy and starts a new leverage strategy. The investor has the discretion to end the leverage strategy at any time. The loan capital, including the rolled-up interest, is settled (from the gross exposure when the leverage strategy is ended). The remaining investor capital can then be deployed in a new strategy or withdrawn by the investor.

Reeves explains that the 10 e-learning modules have been created for advisers to understand the concepts as well as the risks of Absa’s Fund Linked Solution strategies. “Advisers first have to pass one module before they can proceed to the next one – these strategies can start to get complex, especially if you start combining them.”

He adds that combining strategies allows the adviser to create very specialised portfolios to suit their specific investment requirements, and this is where the full flexibility of the Absa Fund Linked Solutions offering can be utilised.

ABSA’s new Fund Linked Solution strategies are set to become available in the first quarter of 2022.

EDITOR’S NOTE

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hen one witnesses a striking price move taking place in the markets, reflexively – almost like muscle memory – one of the first reactions is to zoom out of the particular instrument’s chart to get a broader overview, scrutinising historical prices and movement.

In similar fashion, when legal practitioners are presented with new sets of facts, one of their first ports of call is to pore over case law in search of past cases wherein the exact or similar events transpired, and how the courts interpreted them.

We are slaves to history, most especially in times of great uncertainty. Inasmuch as history does not repeat itself, it does rhyme, as Mark Twain once put it. We run to history for guidance when in doubt.

Just like its predecessor, 2021 presented new sets of facts and volatility SUBSCRIBE in abundance. To TO OUR round up the year, NEWSLETTER we collated a myriad bit.ly/2XzZiMV of experiences by investment managers across various asset classes on their most pivotal lessons from 2021.

The collection comprises hits, misses, epiphanies and cautionary tales. The perspectives are essential recollections of where the investment community comes from in the past twelve months, and are invaluable compasses for the ongoing journey into the unknown.

Until then, happy holidays.

TIMOTHY RANGONGO timothy.rangongo@newmedia.co.za @MMMagza www.moneymarketing.co.za

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31 December 2021

NEWS & OPINION

PROFILE

Meet the new editor of MoneyMarketing

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t the end of October, MoneyMarketing bid farewell to Janice Roberts, who moved onto new ventures after seven years as editor. Award-winning financial journalist, Timothy Rangongo, took over the reins from November and joins us from MoneyMarketing’s former sister publication, finweek.

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

I’d always been fascinated by commerce, most especially after realising the crucial role it plays in the running of the world. The Global Financial Crisis of 2007/8 that occurred while I was in high school added to the fascination.

Though I didn’t quite understand the finer details, the magnitude of its impact was felt all around and I was dying to puzzle out how the financial system is designed for it to crumble like that. I thus studied for a BCom and majored in economics and law. After mock trials and mandatory visits to the High Court, a career in law became less attractive. However, the research and writing components of my studies were what I relished the most, and I yearned for more time spent doing that. I undertook business journalism as extra-curricular, underwent financial journalism training during my editorial internship, and never looked back. I got a kick out of going beyond academic research and getting to engage with expert sources and affected parties to detail economic events, their causes or how things worked.

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

When I was in primary school, there was a widespread financial literacy campaign urging parents to consider RSA Retail Savings Bonds for their children and how easy it was to purchase them via the local South African Post Office. I think they had just launched for the first time. The bonds came to maturity during high school and, if memory serves me right, the proceeds either went towards a pair of sneakers or a flip phone I thought was the greatest invention after sliced bread at the time.

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

The worst financial moments would have to be living in Joburg. It seems as though every time you leave the house, you lose money. But on a serious note, what I would consider to be my poorest financial decision was closing a bank account I had held from a young age out of sentiment. While at university, I had made some ATM

withdrawals from abroad thinking I would be charged a hundred bucks a pop at most. The bank charges that kicked in a month later when I was back on home soil were so hefty that they practically wiped out my meagre student allowance. I was not happy at all. However, when I started working, I realised that I had shot myself in the foot by wiping out years of banking history and could have benefited from a long established relationship with the bank.

My best financial moments to this day is saving. Hard as it may be, especially living in Joburg, I really like the strong sense of security it brings. It makes one feel at ease a bit more. Saving has allowed me to dodge some of the curveballs adulting constantly throws at you, without delay or breaking the bank, or even worse, having to resort to credit. Though we plan to the tee and try our level best to be organised, life is naturally unpredictable; disruptions and emergencies are unfortunately part of the package, and saving acts as some sort of insurance for those eventualities.

What’s your view on Bitcoin and other cryptocurrencies?

As a medium of exchange on the internet, Bitcoin and other digital currencies make some sense for me. They allow for anonymity in instances where individuals are not comfortable with revealing the goods and/or services they use and where cash payment is not an option due to jurisdiction or proximity. For instance, civil rights movements have been funded via cryptocurrencies in situations where oppressive governments froze activists’ bank accounts. However, as store of value or investment, cryptocurrencies are incredibly erratic. This uncertainty in value and, in turn, purchasing power, thus defeats their purpose as a reliable currency because something that costs five bitcoin could be priced at 15 bitcoin a mere 15 minutes later.

What do you look forward to in your new role?

I look forward to picking up the baton and continuing to build, interact with and grow this vibrant community of finance professionals from various fields. This also happens to be at a time that is signified by dynamic and exciting changes, which I endeavour to keep abreast of to convey key useful insights to the community.

EARN YOUR CPD POINTS The FPI recognises the quality of the content of MoneyMarketing’s December 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 Global investment management group Franklin Templeton announced a strategic partnership with ALUWANI Capital Partners, one of the fastest growing, independent blackowned investment management businesses Sibusiso Mabuza in South Africa.

According to the agreement, ALUWANI is to offer a diverse suite of Franklin Templeton’s product offerings to institutional and retail clients in South Africa and broader South African Development Community (SADC) markets to complement its existing fund range.

Franklin Templeton strategies available to ALUWANI investors will include global and emerging market equities, sector-specific equities in infrastructure and technology, global fixed income, multi-asset solutions and exchange traded funds (ETFs).

Sibusiso Mabuza, CEO and one of the founders, says they are excited about their partnership with Franklin Templeton, whose diverse range of investment strategies and differentiated capabilities will complement ALUWANI’s core offerings.

“The collaboration will further enable ALUWANI’s longer-term business strategy by offering competitive global solutions from Franklin Templeton’s various specialised investment managers in our target markets. Our relationship is also underpinned by an incredibly strong foundation, including access to Franklin Templeton’s global best practice across various focus areas like ESG and thought leadership, and will provide ample opportunities for skills development and knowledge sharing.”

Corporate law firm Cliffe Dekker Hofmeyr (CDH) last month appointed Lance Collop as the new director of its tax and exchange control practice. Lance is a qualified chartered accountant with more than 15 years of tax structuring experience Lance Collop accumulated during his tenure at Deloitte and KPMG. During his time at Deloitte, Collop forged an excellent network of relationships in private equity, asset management and other investment houses, including relationships with executives at some of the largest corporates in South Africa. He brings with him deep tax structuring experience in capital markets, covering the JSE and LSE as well as crossborder transactions, according to CDH. “Global markets face considerable challenges on account of the pandemic, which are exacerbated by continental, national and regional complexities.

This is exactly why we continuously seek to attract the kind of talent that is best suited to, and capable of, serving the evolving needs of our clients. Lance’s skill and reputation enhances our storied tax and exchange control practice bench,” says Brent Williams, CEO of CDH, on Collop’s appointment.

31 December 2021

NEWS & OPINION

SA wealth managers turning to uncorrelated alternative assets to beat high-priced equities DINO ZUCCOLLO Head of product development and distribution, Westbrooke Alternative Asset Management

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n a market characterised by high asset prices, global political and economic uncertainty and low interest rates, wealth managers in South Africa are increasingly looking beyond traditional investments to include alternative investments in their higher-net-worth clients’ portfolios.

Alternative investments comprise assets or investment strategies that do not fall into the traditional investment categories of equities, bonds or cash. There is a wide spectrum of alternative investments available, ranging from lower-risk strategies – which often comprise private market forms of traditional investments, such as private debt and direct real estate – all the way to higher risk alternatives such as venture capital.

South African investors are beginning to track the international experience. Globally, alternative investments already comprise an $11tr industry, which is expected to grow to $17tr (54%) by 2025. Interestingly, South African investors are picking up on this trend, rapidly increasing their allocations to the asset class. This is most prevalent among our wealth manager and high-net-worth client base, who are driven by the need to enhance returns and decrease volatility in an increasingly uncertain world.

This is echoed by Matthew Norwood-Young, co-founder of Anchor Capital, that “the domestic equity market is a challenging place to extract value. At the same time, global

interest rates are at all-time lows, which makes it complicated to hold large amounts of cash. This is where alternative investments can help, by delivering returns that are uncorrelated to the listed markets.

“Including alternatives in a portfolio also protects against panic or greed in investment behaviour. We recommend them to more sophisticated clients and have seen excellent returns, such as the 7.2% annual yield, which can currently be achieved by investing in Westbrooke’s UK private debt fund, in comparison to the less than 2% per annum that is currently being achieved in comparative offshore fixed income products.”

“Although alternative investments are still in their infancy as an asset class in SA, there are pockets that are particularly attractive, showing good returns. We prefer to deal with the larger product providers to better manage risk.

As advice professionalises, and wealth managers become more comfortable with this asset class, we will see higher allocations. Currently Gradidge-Mahura is allocating about 5% to 10% for more sophisticated clients. There’s definitely a need for education of both advisors and

clients to grow the sector further,” adds Craig Gradidge, co-founder of GradidgeMahura Investments.

Historically in South Africa, investors in alternatives have tended to comprise institutions, family offices and ultrahighnet-worth investors, although there is an increasing trend for the asset class to be made more widely available.

Despite the lagging local take-up rates, the international experience has been significantly different. A 2020 report by UBS indicates that the last 30 years has seen a steady growth and acceptance of alternative asset classes in client portfolios. For example, the average allocation to alternatives among a sample of 121 global family offices amounts to 35%, with this ratio increasing to as much as 75% in the case of specific investors, such as the Yale University endowment.

Most popular alternative investments According to a 2021 report by Prequin, the three largest alternative investment classes are private equity, direct real estate and private debt. Family offices have the highest investment in private

“The average allocation to alternatives among a sample of 121 global family offices amounts to 35%, with this ratio increasing to as much as 75% in the case of specific investors, such as the Yale University endowment”

equity, with a median allocation of approximately 20%.

Private debt is now the third-largest alternative asset class in the world and has grown in popularity as investors have intensified their search for fixed-income alternative investments, while global interest rates have remained at record lows. Over the next five years, private debt is expected to grow at a compound annual growth rate of 11.4% per annum.

Hedge funds are expected to benefit from the general move to more actively managed funds among investors in the future.

Considerations Before investing, clients need to consider that alternatives are generally unlisted, complex and subject to lock-in periods during which time investors are unlikely to be able to access their capital. However, these same lock-ins (which some perceive as a downside) may promote better long-term decision making by reducing the likelihood of the short-term panic behaviour that is often created by shortterm price swings in the listed markets.

Furthermore, alternatives can be structured to be more tax efficient for investors. Fees tend to be higher due to complexity (alternatives are far more difficult for managers to implement than traditional assets), but investors are often rewarded with higher returns. These higher fees can be managed by increasing the prevalence of outcome-based fee structures, which generally align managers to perform. Finally, alternatives generally have higher minimum investment sizes.

Well-known international alternative providers include Blackstone, KKR and Brookfield, but in South Africa Westbrooke Alternative Asset Management is the leading provider across multiple asset classes and geographies.

The need for enhanced returns, increased portfolio diversification and decreased volatility is a significant driver of alternatives at present. The bottom line is that alternatives help to reduce risk by generating returns that are uncorrelated to the traditional investment markets. At Westbrooke, our focus is to leverage our highly experienced investment team, decades of experience, and heritage as a shareholder and operator of assets to provide our clients with an advantage when investing with us – be it in private debt, hybrid capital, real estate and private equity, or venture capital in South Africa, the UK or the USA.

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31 December 2021

NEWS & OPINION

Dedicated allocation to Asia MARIETJIE GELDENHUYS Senior Analyst, Stonehage Fleming Investment Management South Africa

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ith its resilient economies, growing middle class and technological innovation, Asia is continuing its leadership in driving global growth. A recent study by Credit Suisse indicates that although there are over one billion people in Asia who live in poverty, these individuals are already spending over US$2tr annually on basic goods and services. In the coming decade, the geographic patterns of consumption and the income levels in Asia are expected to change rapidly.

In 2000, Asia represented just under one-third of global GDP (in terms of purchasing power parity), and is on track to exceed 50% by 2040. It emerged from the pandemic ahead of the West and is showing buoyant earnings growth as well as equity valuations that appear reasonable. The region’s fixed income market also offers differentiated return characteristics.

“Asia emerged from the pandemic ahead of the West and is showing buoyant earnings growth, as well as equity valuations that appear reasonable” 6 www.moneymarketing.co.za

For investors with a long-term investment horizon, seeking access to structural growth opportunities and diversification, we believe a dedicated allocation to Asia will deliver robust performance.

The continent is still underrepresented in both global equity and bond benchmarks, despite the region’s strong economic and demographic trends. Emerging Asia’s share of the world economy is approximately 24% today, but makes up only 10% of global equity market index and 3% of the bond counterpart. Many investors use these indices as benchmarks, and as a result have significantly lower exposure than a simple analysis of the region’s share of the global economy would suggest. Active managers who are not constrained by a specific benchmark can capture these opportunities by allocating capital to the distinct structural growth drivers in Asia.

Interestingly, the Asian bond market has rapidly expanded in recent years. It offers many opportunities for investors to increase yields and diversify existing holdings.

For example, the Chinese onshore bond market is now the second-largest bond market in the world (behind the US) and continues to grow at a strong pace. The China 10-year yield is currently 2.94%, compared to 1.55% in the US and negative in many European countries.

For foreign investors, the opportunity is clear. In addition to lower interest rate sensitivity and correlation to global equities, China government bonds offer higher yields compared to traditional counterparts. In recent years, global companies and governments have become more comfortable using the Renminbi (RMB) to conduct international transactions. This rising demand for the Chinese currency may also help RMB-denominated bonds to appreciate in value for foreign investors.

A longer-term theme coming to the forefront in Asia is the transformation to a more green economy, powered by China’s carbon-neutral pledge. Producing more than 70% of all photovoltaic panels, half of the world’s electric vehicles, and a third of its wind power, Asia is already a global leader in renewable energy. The sector will be boosted by the government’s intention to reach carbon neutrality by 2060.

With equity valuations elevated in some countries, especially the US, investors need to look further afield for investment opportunities. At Stonehage Fleming, a main rotation we are currently implementing for clients is from large cap US equities to Asian equities.

The Asian opportunity is a long-term theme, linked to compelling growth areas – the digitisation of the economy

“Active managers who are not constrained by a specific benchmark can capture these opportunities by allocating capital to the distinct structural growth drivers in Asia” (a theme accelerated by the pandemic), sustainability (accelerated by net-zero carbon emission targets) and the evolving consumer market in Asia. We believe that the rotation to Asia should be a key element of an investor’s equity strategy.

Over the past few months we have witnessed a series of regulatory changes from the Chinese government.

These regulations are mainly aimed at addressing social inequality, false advertising, unfair competition, data protection, and the disorderly expansion of capital.

Regulations and reforms have always been part of the growth path in China, with Xi Jinping emphasising common prosperity, deleveraging, and supply-side reforms aimed at reducing economic and financial risks. Chinese shares have sold down significantly as the markets discount the potential negative impact of these changes, as well as the nation’s lower growth expectations. As such, current valuations might provide a good opportunity to increase exposure, especially for investors who are meaningfully underweight on Chinese equities.

Ultimately, we believe that it is the Chinese Communist Party’s continued intention to grow the economy, protect the interests of international investors and to nurture the functioning of the private sector.

Our expectation is that, over time, the Asian investment universe will become an ever deeper pool of rich alpha opportunities, full of quality companies that focus on sustainable returns that compound over time.

As the current business cycle progresses from the ‘relief rally’ of the past year into a more typical ‘mid-cycle’ phase, it raises the likelihood of shorter-term volatility and increasing divergence of the winners and losers at a country, sector and company level. We therefore believe that a regional specialist manager with an established active investment approach will perform best in this region.

31 December 2021

NEWS & OPINION

SARS’s tax law blunder gives expats a quick breather VICTORIA LANCEFIELD

THOMAS LOBBAN

General Manager, Financial Emigration

Legal Manager, Cross Border Taxation

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ollowing deliberation with members of the public, National Treasury recently released its official response to the Parliamentary submissions on their proposed Draft Tax Bills. Among other things, Treasury noted that they would withdraw a controversial amendment that would have been problematic for South African expatriates contemplating emigration.

In July 2021, the Draft Tax Law Amendment Bill proposed an amendment that included an additional exit tax on the interest component of retirement vehicles after taxpayers ceased their tax residency with South Africa. This proposal created a stir because the retirement vehicle in question would already be subject to a three-year lock-in rule, which meant that after ceasing their residency, they would not gain access to their retirement savings for another three years, during which a taxable interest would have been generated.

The cherry on top was that this proposed amendment would also override existing Double Taxation Agreements (DTA), which are international agreements meant to protect taxpayers from paying tax in both jurisdictions on income generated.

Had the amendment been gazetted, the individual would have been liable to pay tax on the interest in both jurisdictions, which would contravene the treaty between the two countries.

The knock-on effect of amending tax laws, especially those pertaining to personal income tax and cross-border taxation, often hits expats the hardest.

During an online launch of the revised edition of Expatriate Tax: South African Citizens Working Abroad and Foreigners in South Africa, it became clear that the

prickly topic of expat tax is never a clearcut case, even for tax professionals, and that staying abreast of tax law changes is of phenomenal importance.

The fight is far from over In their communication to stakeholders, Treasury said they will withdraw the amendment for now with the aim of reconsidering it in the next tax law amendment cycle, thereby admitting that it is not off the table by a long shot. The South African Revenue Service (SARS) wants the tax on retirement interests when South Africans emigrate – and they will find a legal way to get their hands on it, even if it means amending DTAs to do it.

The concern for expatriates is not that SARS was trying to sign a misbegotten

amendment into legislation, or that they were hoping to get it passed and implemented in record time. What is more troubling, is that they have not foreseen the consequences of drafting the amendment. The fact that SARS is prepared to blindly wade into unchartered waters where they could be transgressing international treaties by aggressively pursuing domestic law changes, is enough to make one’s hair stand on end.

Of late, SARS has made every effort to become a smarter revenue service. They have carefully amended certain laws to enable a swifter response towards ensuring tax compliance, sometimes by means of legal prosecution through the National Prosecuting Authority or by means of High Court judgments to attach assets in lieu of arrears due to SARS. They are so set on closing the expatriate tax gap and chasing foreignearned income that they have resorted to making erratic amendments. Regardless of this little setback, SARS is hard at work to find another way to achieve this end.

Your intent will determine what you do next Everything hinges on whether you intend to return to South Africa. If you are still not sure about permanently relocating to another country, you can take comfort in knowing that a

DTA could still hold SARS at bay to a significant degree, particularly when it comes to personal income tax relief.

SARS’s proposed amendment indicates that the DTA is a problem area for them where it involves retirement funds.

Make sure your tax consultant understands the intricacies of the DTA that is in place between South Africa and the country you are working in. When in doubt, get a second opinion or work through the DTA requirements yourself on SARS’s websites. Failing which, Tax Consulting South Africa is conducting a world tour that kicks off in the Middle East early next year, with their primary focus on educating expats about their tax obligations under a DTA. In pursuit of clarity, expats would do well to raise their concern at these events.

However, where it is your intention never to return to South Africa, there has never been a better time to finalise your move. While the dust settles on the amendment debacle, it creates a small window of opportunity for expats who want to cease their South African tax residency without incurring surprise exit tax charges in the process.

By formally ceasing your tax residency with SARS and completing financial emigration, you will be cutting your financial ties with South Africa before SARS finds a way to tax the future values of your life savings.

“SARS wants the tax on retirement interests when South Africans emigrate – and they will find a legal way to get their hands on it”

“The prickly topic of expat tax is never a clear-cut case, even for tax professionals”

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31 December 2021

BALANCED FUNDS

A balancing act with global equities and local bonds CLYDE ROSSOUW Co-Head of Quality, Ninety One

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fter an incredibly swift and sharp recovery post the lows of March 2020, markets appear to be searching for direction, once again.

Volatility has come to the fore amid tension caused by Chinese regulatory fears, supply chain disruptions and global growth concerns regarding the ability of economies to open. Despite these broad growth concerns, global inflation remains a key concern for investors as the debate – whether the spike in inflation will be transitory or more permanent – rages on.

US Federal Reserve (Fed) officials have confirmed that the US economy is now at a point where the central bank will begin reducing its quantitative easing programme. We remain concerned about how the Fed ultimately extricates itself from this unprecedented stimulus and the effect this will have on global markets.

Despite growing concerns globally and persistent domestic issues, the JSE All Share Index has gained 177%, while the MSCI ACWI is up 192% in US dollars, since the lows of March 2020. While

aware of the inherent risks in the system and notwithstanding this strong rally, we argue that meaningful returns can still be generated for investors.

Our preferred asset class in the Ninety One Opportunity Fund remains global equities. As bottom-up stock pickers, we are highly selective in the individual assets we hold. Our preference is for highquality companies that have enduring competitive advantages that form barriers to entry and provide pricing power. This, in turn, enables these companies to generate long-term growth and generate sustainably high levels of profitability. The global equities we hold, while trading on similar valuation metrics to the MSCI

ACWI, collectively generate significantly higher returns on capital than other companies in the market. In short, we argue these are exceptional companies trading at reasonable value.

Locally, the best opportunity remains South African government bonds. South Africa’s real interest rates remain among the highest in the world. With yields of around 9.6%, these instruments offer higher riskadjusted return potential than most SA shares. Despite the view that we are likely to see rate hikes, we favour this asset class, given the yield underpin and portfolio construction benefits. We believe the diversification benefits that balance our global equity position and relative attractiveness to cash make a compelling case for inclusion.

With respect to domestic equities, we

remain cautious and believe that the local equity market may not be adequately pricing in the risks that companies may face. While valuations may appear optically enticing, the headwinds domesticallylisted companies face, dependent on structural growth, do not lead us to broad-based support.

The correct forecasting of complex global macroeconomic outcomes is almost impossible (as recent events bear testament to). Even if it were, positioning an investment portfolio precisely for such an outcome is even more challenging. We therefore do not believe it appropriate to position the portfolio for any event. Rather, we maintain a balance of exposures in the portfolio to capture opportunities and protect against a multitude of risks. On a mediumterm outlook, we remain optimistic that compelling, risk-adjusted real returns can be generated.

"Our preference is for high-quality companies that have enduring competitive advantages that form barriers to entry and provide pricing power"

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31 December 2021

BALANCED FUNDS

Key take-outs from balanced funds in 2021 and future expectations RAYHAAN JOOSUB Co-founder and Deputy CEO, Sentio Capital Management

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eturns on South African balanced funds have been disappointing over the past three years.

Rolling five-year real returns (before fees) have averaged about 2% over the past three years (see Figure 1); well below the historical average of 6.5% real achieved over the past 18 years. What have been the major lessons learnt over the past five years?

Foreigners don’t need to invest in SA Global investors are spoilt for choice in terms of return opportunities and don’t need to invest in SA. The past five years have seen a dramatic collapse in our political process, exacerbated by the Covid-19 pandemic, which has led to a collapse in the country’s growth potential and seriously compromised the country as an investment destination for foreigners. Hence, we have seen a substantial derating of SA-focussed companies and bonds, which has negatively impacted returns for balanced funds.

when markets dislocate from underlying economic performance. Bet against central banks at your peril.

Global equity, in particular tech and quality, the key beneficiaries of easy money, has been a great place to earn excellent returns for balanced funds.

You can still make money on SA equity despite the poor economy Despite the weak local economy, mining companies (supported by higher commodity prices and supply discipline), as well as tech and quality (supported by central bank liquidity), have all experienced excellent returns, despite the market itself being weak. Searching for pockets of excellence can still contribute positively to a balanced fund.

What can we expect over the next five years?

Looking forward, we expect balanced funds to deliver a real return of 6% over the next five years. The biggest contributors will be SA equity

on improving revenue growth and margins, and a rerating as the SA economy recovers from the damage wreaked by the Covid pandemic. SA bonds, currently yielding above 5%, more than compensate for the country’s increased fiscal deficits and funding risks. We see scope for SA bond yields to decline over the next five years, supporting good real returns.

We are expecting more muted returns from global bonds due to rising developed bond yields as central banks normalise policy. Global equity returns will be lower than the past five years as tech stocks derate from current elevated levels and operating margins recede on higher inflation.

To conclude, SA balanced funds should have a tailwind from improving domestic asset markets; however, as always, nimble asset allocators should tactically be able to add another 2% by skilfully allocating where the best risk-adjusted return opportunities exist.

Don’t underestimate the impact of central bank liquidity on markets Global markets are more than ever dependent on liquidity from central banks. This dependence might be unsustainable in the long term; however, when economies and markets experience a crisis, don’t underestimate the impact that easy central bank policy may have on markets – this can often result 1in long periods 12:42 Sentio_MM_Dec 2021.pdf 2021/11/08

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Sentio Capital Management (Pty) Ltd is an authorised FSP.

"Bet against central banks at your peril"

BUY INTO WEAKNESS. SELL INTO STRENGTH.

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A majority black-owned asset manager.

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INVEST FOR A FUTURE THAT MATTERS – TOGETHER How we partner with our clients for sustainable investment solutions today determines the quality of our future. At Old Mutual Investment Group, we strive to invest in companies with better ESG scores in order to achieve sustainable investment returns.

Visit oldmutualinvest.com/financial-planners/responsibleinvesting to invest for a future that matters.

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by Capital Finance International (https://cfi.co/). Old Mutual Unit Trust Managers (RF) (Pty) Ltd is a registered manager in terms of the Collective Investment Schemes Control Act 45 of 2002. For fees and charges, refer to www.oldmutualinvest.com/financial-planners.

31 December 2021

INVESTING

Tailoring financial advice for women should be a priority for every advisor PAT MAGADLA Senior Business Development Manager, Old Mutual Investment Group

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n a recent online survey commissioned by Old Mutual Unit Trusts, 60% of respondents said that when it comes to investment offerings, men and women should be advised differently. This finding brings to the fore an important conversation that the financial services industry needs to pay greater attention to, particularly as the country battles its post-Covid-19 recovery.

Women have unique financial needs and, therefore, need nuanced investment advice relative to men. Factors that point to this need include women generally having a longer life expectancy than men and the global-wide issue of the gender pay gap, which also befalls South Africa.

This paradox of circumstances means that women in South Africa need to engage more in integrated and fit-for-purpose financial planning. We also know that the economic position of many women has regressed during Covid-19, coupled with the responsibility of unpaid care work that women typically bear.

The importance of supporting the financial recovery of women is not only about being socially responsible but also about futureproofing advisory practices, considering that the face of wealth is fast changing.

Women in the US control 33% of total household financial assets, which are in excess of $10tn. Nevertheless, by the end of the decade, US women will control much of the $30tn in financial assets that baby boomers will possess – a potential wealth transfer of such magnitude that it approaches the annual GDP of the US, according to a forecast

by McKinsey & Company.

When you consider the implications of this shifting landscape, it is very clear that

financial advisors who want to remain in business will need to innovate and find new ways of engaging with women – who are the emerging investment power block.

Age-old methods of consulting that exclude and alienate women will begin to have dire financial implications as advisors may find their client base dwindling. A white paper by Canadian marketers states that 70% of women change financial advisors within a year of their husband’s death as they seek out an advisor they feel more comfortable with. Among Canadian women, specifically, the occurrence is at 80%. Of those that changed advisors, reasons cited included “experiencing belittling behaviours”, “not being taken seriously” and “receiving a ‘dumbed-down’ engagement”.

The idea that women are not interested or can’t make sense of complex investment topics has gone unchallenged for too long.

It is simply untrue, as many traits women possess lend to positive investor behaviour.

Yes, women tend to process information differently and this can be incorrectly correlated to a disinterest in money. For instance, they tend to do more in-depth research, which can be misinterpreted as indecisiveness. Or be perceived as

risk averse, when its due to fear of losing their hard-earned savings. Statistically, it’s been found that women tend to trade or switch their investment portfolios less in comparison to their male counterparts, who run the risk of regular switching in pursuit of the next hot tip.

The inherent challenges and differences around gender are an opportunity for the industry to interrogate its approach to investing and packaging investment advice.

I can’t overstate the importance of financial advisors understanding the economic power that women have and making a concerted effort to explore this dynamic and authentically cater to this segment.

As an advisor, I suggest taking a step back and asking yourself: what am I doing in my business to be more accommodating and to attract more female investors? Do I understand what female investors want?

What assumptions and stereotypes do I hold about this demographic? And how can I better partner with them?

Rather than discounting the signs, financial advisors who want to future-proof their businesses will reap the benefits of putting in the work by making their practices more pro-women investors.

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31 December 2021

INVESTING

SA institutional investors should look beyond Naspers for exposure to mainland China ANDREW VAN BILJON Portfolio Manager, RisCura

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isCura’s Orient Opportunities China Equity fund has surpassed R13.2bn under management, having just celebrated its third anniversary. This makes it one of the largest institutional multi-managed China equity funds globally.

The fund allows institutional investors, such as retirement funds and insurers, to benefit from RisCura’s expertise in emerging and frontier markets in accessing a portfolio of active Chinese investment managers, particularly those with investments in listed equity on the Chinese mainland exchanges in Shanghai and Shenzhen.

Since inception, the fund has delivered strong risk-adjusted returns for investors.

Up to the end of October 2021, it produced an annualised return of 26.46%, which is 6.3% over its benchmark*.

The potential to participate in longerterm Chinese growth is an exciting opportunity for institutional investors.

China is the world’s second largest stock market, with more than 4 000 companies on the mainland (A-shares) and 1 500 listed in Hong Kong and elsewhere.

Mainland companies have a market capitalisation of about R130tn (about $8.5tn) but are underrepresented in global equity indices such as the MSCI Global Emerging Markets equity index. China is around 20% of global market capitalisation but less than 4% of global portfolios. Some 60% of global equity investments are currently into the US, yet China is set to become the world’s

biggest economy by 2030.

Turning to retirement funds, RisCura estimates that only a small percentage of local pensions and provident funds have direct exposure to mainland China shares, with most funds only having exposure indirectly via their local exposure in Naspers, or perhaps via an emerging markets exposure. This is not optimal for their members, as the universe of listed Chinese companies has some of the world’s largest, most innovative and fastest growing companies, and even more interestingly, many domestic Chinese companies – largely unknown to Western observers – provide products and services to local consumers.

The growth drivers of the Chinese economy have moved on from an infrastructure and inexpensive production/ export driven economy and are now broad-based. The world’s largest population is maturing, urbanising and embracing technology and ecommerce.

Additionally, state support through fiscal packages and poverty reduction schemes are providing a material tailwind.

Multi-management a must The sheer size of the Chinese market, the increasing complexity of the economy, and the uniqueness of Chinese business culture make it essential to have a range of analysts and managers on the ground.

Add to this the fact that active Chinese fund managers tend to specialise by region or sector, and the benefits of a multi-manager approach become obvious.

Chinese managers have a private equity mindset and portfolios tend to be concentrated in a few companies that they know extremely well. RisCura’s fund currently includes 10 Chinese specialist managers, which may seem like a substantial number by South African standards, but not when the size of the Chinese market is considered.

Volatility a handsome opportunity While the concentrated portfolio approach of Chinese managers can lead to strong performance over the long term, performance can be volatile. The predominance of retail investors in the market is another volatility factor, as is the fact that the Chinese market is under-

"China is the world’s second largest stock market, with more than 4 000 companies on the mainland"

researched by professional investors. This leads to investors who may be insufficiently informed, withdrawing from the market precipitously, as happened in late July this year after regulatory reforms affecting education and tech companies were passed. Over this period (July 2021), the MSCI China and the MSCI China A Onshore indices lost 13.84% and 5.1% respectively.

Significant dips in the market caused by large drawdowns can create a handsome opportunity for professional, active managers; nor are they uncommon in China, given the preponderance of retail investors in the market. But this only serves to further support a multi-manager approach in China. Having a range of managers with different specialisations mitigates the impact of such events, while allowing the fund to unlock opportunities

"Some 60% of global equity investments are currently into the US, yet China is set to become the world’s biggest economy by 2030" and deliver portfolio returns at much lower levels of volatility. *The Fund’s benchmark: 65% MSCI China A Onshore Index + 35% MSCI China Index Andrew van Biljon is Portfolio Manager of the RisCura Orient Opportunities China Equity fund.

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31 December 2021

INVESTING

An agnostic approach to investing minimises uncertainty HENK APPELO Lead Specialist: Investment Product Development, Liberty

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raditionally, investors have looked for places to put their cash so that it can meet the needs of certain life goals, like retiring comfortably. Let’s stop for a moment and ask ourselves what drives this behaviour?

Why not flip things around instead and ask this question: what outcome would you want to have with your money in a particular circumstance? Now this is a question that might sound simple, but the depth of choice available to any investor right now makes it just a little bit harder to answer at first glance.

At Liberty, we believe that the outcomes people want is to grow their wealth in order to enjoy and maintain their quality of living and, ultimately, achieve financial independence in retirement. Many people are time starved. More are overwhelmed and confused by the current array of choices. And most people are looking for investment advice that cuts through the complexity and helps them achieve their personal investment goals.

This is why many asset managers and financial advisers have completely evolved their approach to investing.

To begin with, it’s pivotal to improve the advice experience by making it outcomebased and interactive. What do clients want their investments to do for them and what are their specific goals? By understanding this, financial advisers are better equipped to deliver meaningful guidance that will help people engage with and achieve their lifestyle goals instead of simply chasing fund performance.

We call this new approach ‘goal-based investing’.

Planning for the future should be taken seriously – this is why we want to help our clients to achieve their goals, whether short or long term, by guiding them on their journey with personalised financial coaching.

Together with financial advisers, we will help clients identify the right solution that match their financial goals and objectives. By understanding what they want their money to achieve, financial advisers will create a personalised plan to help them reach their goals.

Goal-based investing embraces multi-strategy portfolios that link to this new approach and are designed to deliver a vastly improved value proposition.

These portfolios are managed by top professionals whose mandate is to deliver performance. This means

"Most people are looking for investment advice that cuts through the complexity and helps them to achieve their personal investment goals" that they are empowered to combine a wide array of uncorrelated strategies across all asset classes to ensure performance during any market cycle.

If the complexity of the markets is making you feel uneasy, like perhaps you are missing out on something or you are, perhaps, too committed to something else, a goal-based approach simplifies this. You state what you want, and between your asset manager and your financial adviser, you’ll be guided with a plan that will manage your money through a portfolio that uses different strategies available to maximise your investment potential.

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. Please consult your financial adviser should you require advice of a financial nature and/ or intermediary services. Liberty Group Limited is a Licensed Insurer and an Authorised Financial Services Provider (no 2409).

Utilising all the tools in the kit to manage risk TIMOTHY RANGONGO Editor: MoneyMarketing

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oord Asset Management’s Balanced Fund aims to grow retirement fund savings by meaningful, inflation-beating margins over the long term. The fund is suited for investors who want to attain a combination of capital accumulation and income growth over the medium term.

Although 2021 was not without its fair share of volatile events, Nick Balkin, one of the portfolio managers of the Balanced Fund, says that the year was not materially different to any other, as “the markets have always been unpredictable and fraught with risk”.

Investor psychology Despite the year being like any other, one big challenge posed to balanced funds that stood out for the team was investor psychology, according to Balkin. By design, a global balanced fund provides long-term savers with a holistically managed diversified growth portfolio, actively managed to weather the ups and downs.

“Far too often, however, investors judge them against equity funds in rising markets and against money market funds in falling markets. So, the biggest challenge has been getting investors to stay the course,” he explains.

Navigating rising inflation Outside of the liquidity component of the Foord Balanced Fund, Balkin says they have a high proportion of growth assets that have pricing power, which they believe are best placed to provide the inflation-beating income streams investors need.

“We also have a meaningful allocation to short-to-medium duration

"The markets have always been unpredictable and fraught with risk"

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SA government bonds that are still offering an attractive yield well in excess of expected inflation.”

The Fund is also light on assets that are vulnerable to a rising interest rate environment.

"The biggest challenge has been getting investors to stay the course"

Favourable view on SA Govi bonds In terms of asset allocation, SA government bonds accounted for 13.7% of the fund as at end October.

Balkin says Foord currently has a favourable investment view of South African government bonds, given the high yields they currently offer relative to a reasonably benign domestic inflation outlook.

“Given our concern about the long-term trajectory of the country’s public finances with rising debt levels and a lack of economic reform to spur GDP growth, we have generally focused the bond holding on maturities of six years or less.

“Importantly, 90% of SA’s debt is randdenominated, making a currency-driven public finance crisis unlikely. We have also seen a largely funded government pension fund and a relatively deep and well-developed domestic savings industry take up supply as foreigners reduced their holdings in our long-term government bonds.”

The part of the yield curve where

Foord has concentrated the bond allocation is extremely liquid, according to Balkin, on which he says is another crucial element of their current investment strategy. “We want to be able to move quickly as and when the markets present us with opportunities.”

Nick Balkin, Co-Portfolio Manager, Foord Balanced Fund

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31 December 2021

INVESTING

Laurium’s multi-asset low-equity fund celebrates three years

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

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he Laurium Stable Prescient Fund celebrates its third birthday on 1 December 2021. Laurium’s first collective investment schemes fund was the Laurium Flexible Prescient Fund on 1 February 2013 and it has since delivered excellent returns for investors over time, with a 12% return per year, after fees. This is four percentage points more, per year, than the SA equity market as measured by the Capped SWIX TR Index and at much lower volatility over its eight-year history (Source: Morningstar, 31 October 2021).

Following the success of the flexible fund, Laurium launched a multi-asset high-equity fund in December 2015 (now called Amplify SCI Balanced Fund), which is ranked in the top decile since inception, and

subsequently the Laurium Stable Prescient Fund, a multi-asset low-equity fund in December 2018.

The celebration of the Laurium Stable Prescient Fund’s third birthday on 1 December is a significant milestone, as most investors typically look at three important things: people, process and performance. From a performance perspective, three years seems to be the magic number in the search for a fund.

In our experience, financial advisors, discretionary fund managers and multimanagers will typically only allocate to funds that have a three-year track record, at least. Some linked investment platforms (LISPs) will only consider your fund for shelf space or buy lists once this magic milestone is reached. Companies that assess funds for the coveted annual industry awards often require a minimum track record of three years.

About the Fund The Laurium Stable Prescient Fund aims to achieve long-term capital growth with low correlation to equity markets through all cycles and has consistently beaten its

benchmark of CPI +3%, over time.

The fund is run relative to a strategic asset allocation or base case, and the table below indicates the range of exposures to the various asset classes that investors can expect to see, depending on Laurium’s macro view.

Laurium’s asset allocation process combines experience and rigour in a strategic and disciplined approach, boasting over 129 years of collective experience of members on the asset allocation committee.

Laurium has grown to R37bn in assets under management (as at October 2021)

and combines 28 driven team players striving to generate returns in excess of client expectations across its suite of funds.

Risk-free lunch now off the table with the reduction of interest rates in 2020 Those seeking to generate real returns from their investments should consider switching some exposure slightly higher up the risk spectrum to the low-equity multi-asset class, where a combination of smart asset allocation, fixed income, active equity selection, property and offshore exposure offers one the potential to meet their clients’ real return targets.

"From a performance perspective, three years seems to be the magic number in the search for a fund. In our experience, financial advisors, discretionary fund managers and multi-managers will typically only allocate to funds that have a three-year track record, at least"

Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. The collective investment scheme may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. The Manager retains full legal responsibility for any third-party-named portfolio. Where foreign securities are included in a portfolio there may be potential constraints on liquidity and the repatriation of funds, macroeconomic risks, political risks, foreign exchange risks, tax risks, settlement risks; and potential limitations on the availability of market information. The investor acknowledges the inherent risk associated with the selected investments and that there are no guarantees. A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. CIS prices are calculated on a net asset basis, which is the total value of all the assets in the portfolio including any income accruals and less any permissible deductions (brokerage, STT, VAT, auditor’s fees, bank charges, trustee and custodian fees and the annual management fee) from the portfolio divided by the number of participatory interests (units) in issue. Forward pricing is used. Laurium Capital has adhered to the policy objective in managing the fund.

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31 December 2021

INVESTING

The case for low-risk solutions ALBERT BOTHA Head of Fixed Income, Ashburton Investments

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s 2021 gradually draws to a close, reflecting on the past 24 months one can say things have been rather complex since the Coronavirus (Covid-19) was first reported at the end of 2019. We have seen unprecedented economic, social and political upheavals that have changed the way we live in and understand our world, fuelling uncertainty – from the massive globally coordinated lockdowns, enormous government stimulus, along with an almost unprecedented increase in the global monetary base, and the rise of widespread social justice outrage. At the same time, virtual crypto assets – minting overnight millionaires and billionaires who are trading ownership independent of traditional institutions – and the rise of the meme stock with GameStop and others, have made and broken fortunes.

Given this uncertainty and the massive returns we have seen in many global and

local asset classes (over the last 12 months, both property and preference shares have returned close to 60% and equities returned almost 28%), taking profits and considering lower risk solution funds may be appropriate. Ashburton Investments has two funds in the multi-asset space that are aimed at conservative and cautious clients who are looking for long-term solutions.

The Ashburton Diversified Income Fund uses a combination of asset allocation, security selection and hedging to create an absolute return performance profile that aims to outperform money market and

cash-plus portfolios over time. They do this by combining a diverse range of return streams into the portfolio that allows the manager to target higher returns without sacrificing liquidity.

This is possible because most of the assets in this portfolio that distinguish it from the cash-plus type funds are liquid.

Government bonds, property and offshore assets are all liquid, and both increase the liquidity position of the fund and enhance potential returns over time.

The Ashburton Targeted Return Fund, which was restructured recently, is another fund within our multi-asset range. It aims to produce returns in excess of inflation +3.5%, while being a safe pair of hands in more turbulent times. It is managed using the same tools and process as the Ashburton Diversified Income Fund, and has performed exceptionally well since the restructure.

Currently, there are fears around inflation, growth and equity valuations while, at the same time, policy rates in the developed world are at or close to all-time lows. Concurrently, there are significant opportunities in the South African bond

"We expect the next 12 to 24 months will be very advantageous to the more conservative funds that have a large and active bond component" markets. At the end of November, a significant portion of the SA nominal bond curve from the 10-year point onwards was trading in excess of 10%, implying potential returns over the next 12 months of between 8% and 13%. A similar situation is at play in the inflation-linked bond market, offering real yields of around 4% above inflation.

We expect the next 12 to 24 months will be very advantageous to the more conservative funds that have a large and active bond component. Both of our offerings in this space are well positioned to take advantage of this trend.

Thinking about portfolios for the next decade in the face of major market inflection points LYLE SANKAR Fund Manager, PSG Asset Management

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lobal market conditions have changed substantially over the past eighteen months and evidence suggests that the market has probably reached an inflection point, with inflation rising globally.

We believe the market is not yet pricing in this reality, which is likely to have material implications when considering asset classes that are expected to deliver real returns, at appropriate levels of risk, over the next decade.

Accordingly, fixed income investors need to review their strategy and explore the benefits of multi-asset income funds for generating real returns at low levels of risk.

Where we have come from Inflation has been on a steady downward trend in the US, averaging roughly 4% since the 1970s. However, despite significant monetary policy stimulus by the Federal Reserve, following the Global Financial Crisis, inflation only averaged 1.87% over the past decade (as at August 2021).

It is therefore understandable that investors have become accustomed to persistently low inflation and interest rates in developed markets while benefitting from steadily falling bond yields and a rise in stock prices, which have high-growth expectations, and long-term cashflow payback profiles.

Contrast this to South Africa’s inflation targeting journey.

Since inflation targeting was implemented in the early 2000s, inflation has averaged close to 6%. Measured monthly, however, inflation has been above 6% roughly 46% of the time. Over the last decade, the South African Reserve Bank (SARB) has credibly managed to reduce both the average inflation rate to 5%, as well as the volatility of inflation around targets.

The current inflation reality The Covid-19 pandemic has resulted in developed market governments running much higher budget deficits – alongside extremely accommodative monetary policy – than historically considered prudent.

In South Africa, inflation is likely to remain subdued and within the target band with the usual factors (electricity, wages and food prices inflation) unlikely to force the SARB into hiking rates quickly. Low demand has also resulted in lower imported inflation pressures. It is furthermore likely that inflation will be less volatile around the 4.5% midpoint of the SARB’s target with expectations having been lowered in recent years. Lower volatility is typically good for bond investors.

What this means for income investing in South Africa Low and stable inflation is positive for the general health of the SA economy, providing stability for businesses in terms of input costs and cost of funding. It is also generally supportive of real growth as it allows for lower and narrower moves in interest rates.

Commodities make up a large share of SA’s exports and has provided much-needed support for SA’s high debt levels. In a reflationary developed world, SA would continue to benefit directly, as well as through second-

round effects, from greater spend in South Africa.

Against this backdrop, forecasts for real GDP growth next year is potentially too low. This is consistent with 2021 where expectations have been significantly below outcomes.

For income investors this implies two key things: • Investments into cash, money markets and other shorter dated instruments would continue to generate low yields • Investors need to consider longer-dated bond yields that offer attractive real yields and stand to benefit from the shift in macroeconomic conditions, off very low expectations.

Ultimately, expecting a quick return to a repo rate of 7% (as in 2018) appears less likely with inflation at current levels.

Bonds to generate real returns We see government bonds offering value in a subdued SA inflationary environment and yielding a sufficient margin of safety to offset potential inflation shocks. These bonds offer real yields above 3% at the five-year point, and in excess of 5% real yields from the 10-year bond onwards – potentially without the historic inflation volatility ahead.

We do not believe SA is likely to experience a debt trap in the near term and therefore current government bond valuations are deemed cheap relative to our expectations of inflation and a moderate fiscal path.

While we believe a higher-than-average duration is very appropriate, an investor need not be all-in by investing only in the longest and highest yielding bonds, with sufficient risk-adjusted opportunities available across the government bond curve.

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31 December 2021

INVESTING

Momentum Global Investment Management’s flagship funds made available to SA investors

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omentum Global Investment Management (MGIM) recently launched two of its flagship funds to South African investors: the Momentum GF Global Equity Fund and the Momentum GF Global Sustainable Equity Fund.

MGIM CEO Frank van Heerden said that beyond the shores of South Africa lies a world of opportunities for investors and that it is important to focus on those business opportunities and possibilities.

“There are bigger and deeper capital markets in many countries across the globe who are in different stages of their development with different currencies and unique industries and companies to invest in and use for diversification,” said Van Heerden at the launch.

Momentum GF Global Equity Fund The fund is a US dollar-denominated global equity fund providing exposure to a diversified basket of developed market equities and is suited to investors with a high risk profile and a long-term investment horizon.

The fund blends three core investment styles (Quality, Growth and Value) to smooth the investment journey and aims to deliver long-term capital growth and outperformance against its benchmark, the MSCI World NR Index, over a rolling three-year period.

The underlying equities are accessed through specialist global active and systematic fund managers to whom many South African investors would otherwise not have access. The fund follows a balanced style approach and uses specialist third party equity managers from across the world to implement its equity exposure.

Half of the fund’s assets are managed through a systematic quantitative

approach, with the other half being managed using a traditional fundamental approach to stock picking.

Momentum GF Global Sustainable Equity Fund The Momentum GF Global Sustainable Equity Fund is the second flagship fund to be made available to SA investors. The fund was launched in June 2021 and aims to deliver returns comparable with the MSCI World Index over a rolling three-year period.

The Fund is actively managed using a quantitative investment strategy and seeks to enhance the returns of the MSCI World Index by modifying the holdings and the weights of the holdings of the MSCI World Index for additional return. The Fund aims to deliver long-term capital growth by investing in a diversified portfolio substantially consisting of equities listed on international stock exchanges.

The Fund aims for an improved

environmental footprint and a better sustainability profile compared to the benchmark by integrating ESG (i.e.

Environmental, Social and corporate Governance) factors. The Fund invests

across all global sectors, but excludes businesses deriving significant revenue from controversial activities such as the production of tobacco, coal, palm oil or nuclear power.

INVESTMENT LESSONS FROM 2021

16 moves to watch out for in 2022 URSULA MARITZA Chief Investment Officer and Director, Southern Charter Fund Managers Key lessons from 2021 • Don’t fight the Fed, underestimate the earnings recovery in the US and get too focused on the valuation; curve balls can come out of nowhere, as with the rapid tightening of Chinese regulation on tech companies • Be well diversified • Have some cash in portfolios for

18 www.moneymarketing.co.za

opportunities underestimating the returns on the SA market given the challenges on the local macro outlook.

What is on the watchlist in 2022 • Fed actions and the US 10-year bond • Shape of the US yield curve • US consumer trends • US earnings • How sticky is recently higher inflation?

• Do supply constraints ease?

• Covid variants vs vaccines • Risks to the real estate sector in China • How Chinese tech companies navigate

their new operating environment • Growing risks around the ChineseTaiwan relationship • Energy crisis – does it continue or ease as winter eases in Europe/China?

• Developments in the storage of green energy • Demand-supply fundamentals in various commodities • The dollar • Roll out of 5G spectrum in SA • Government policy impediments being removed to aid Eskom’s recovery.

31 December 2021

INVESTMENT LESSONS FROM 2021

Confronting market turbulence with adaptability ZANDILE NKWANYANA Investment Analyst, 36ONE Asset Management

T

he major lesson from 2021 has been that adaptability is the best response to turbulent times. One cannot invest in a vacuum and ignore their context and environment. A number of unexpected events have occurred in the last few months. Deciphering the noise from real risks has been critical in outperforming the market.

Fundamental investing is a long-term approach that relies on the principle that a company’s share price will reflect its intrinsic value in the long run. As institutional investors, selecting companies that are trading at a discount to this value ensures that we protect our clients’ capital and compound their wealth over time through many business cycles. Markets naturally ebb and flow with different investing styles rewarded over time. A successful investment strategy requires flexibility and an open mind to maximise the fundamental work performed. This approach was especially helpful this year as it seemed as though different cycles took place in a matter of months, not years.

The year was expected to be a return to normality, following an unprecedented 2020. As vaccine rollouts made progress worldwide, many investors were focused on the easing of lockdown restrictions and a great reopening to accelerate global economic growth. Instead, 2021 was characterised by unexpected challenges and further uncertainty. From the COVID-19 delta variant to supply chain constraints and the looming tightening of monetary policy, the outlook for the global economy remains opaque. At the same time, US equity markets continue to rise to record levels.

This uncertain outlook has created both challenges and opportunities. An investing style focused on quality was challenged as many high-quality companies were priced for perfection. Any negative deviation from past performance caused a sharp decline in share prices. An investment strategy that ignores the resources sector would have neglected the real risks first signalled by commodity markets, and the opportunities presented by rising prices.

The global macroeconomic environment has been dynamic. Acknowledging and understanding the elements of this unique environment has led to some

great opportunities and difficult lessons learned. I found myself grateful for an investing process that embraces true diversification, especially in style and industry.

“The global macroeconomic environment has been dynamic. Acknowledging and understanding the elements of this unique environment has led to some great opportunities and difficult lessons learned” At the time of writing, we are headed into the last two months of the year – and the uncertainty that has come to characterise 2021 remains. Central banks are moving to tighten their monetary policy amidst credible concerns about global growth going forward. There are conflicting views on what this means for equity markets. These conditions have been exhausting but these turbulent times can be best capitalised on by using rigorous fundamental work to interpret the barrage of news flow, ignore the noise and maximise performance.

R10 238 900

HAVE YOUR INVESTMENTS PERFORMED LIKE THIS? The 36ONE SNN QI Hedge Fund has returned an average of 16% per annum since inception in April 2006

R3 770 200

R1 000 000

April 2006

April 2013

September 2021

36one.co.za | info@36one.co.za | +(27) 10 501 0250 Disclaimer: Collective Investment Schemes in securities and hedge funds are generally medium to long-term investments. The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. Sanne Management Company (RF) (Pty) Ltd, (“Sanne”) (“the Manager”) is registered and approved in terms of the Collective Investment Schemes Control Act 45 of 2002. The Manager does not guarantee the capital or the return of a portfolio. Collective Investments are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of actual annual returns, fees, charges and maximum commissions is available on request. 36ONE Asset Management (Pty) Ltd (“36ONE”) reserves the right to close and reopen certain portfolios from time to time in order to manage them more efficiently. The Manager ensures fair treatment of investors by not offering preferential fee or liquidity terms to any investor within the same strategy. Additional information, including application forms, annual or quarterly reports can be obtained from 36ONE, free of charge.

Performance figures quoted are from Bloomberg and Sanne as at the date of this report for a lump sum investment, using NAV to NAV with income reinvested and do not take any upfront manager’s charge into account.

Income distributions are declared on the ex-dividend date. Actual investment performance will differ based on the initial fees charge applicable, the actual investment date, the date of reinvestment and dividend withholding tax.

Annualised return is the weighted average compound growth rate over the period measured. Sanne retain full legal responsibility for third party named portfolios. Highest and lowest rolling 12 month performance since inception (as at 30 September 2021): Highest 58.63%; Lowest -10.84. CISCA inception date: 1 November 2016. 36ONE Asset Management (Pty) Ltd. is a licensed financial service provider. FSP# 19107.

www.moneymarketing.co.za 19

31 December 2021

INVESTMENT LESSONS FROM 2021

Looking at the market as a pendulum swing EDO BRASECKE Portfolio Manager, Methodical Investment Management

‘

Financial memory’ is quite short-lived as investors quickly adapt to the prevailing climate (regime), developing a host of beliefs to justify why the current trend will continue indefinitely. As the regime changes, investors first act in surprise and underreact (as if disbelieving) and then overreact as they eventually jump onto the bandwagon.

Can anyone still remember that we experienced the ‘shortest’ bear market in history less than 18 months ago?

The Covid crisis starting in 2020 formed the base of one of the strongest bull markets in decades, and this continued firmly into and through 2021. Investors, both domestic and international, have now firmly jumped onto the equity bandwagon. The US has seen some of its strongest flows ever into mutual funds, and with interest rates decreasing in South Africa, investors have joined the chorus in switching from income funds into equity in search of (the now illusive) yield.

2021 has therefore reinforced our belief at Methodical that the market is akin to a swinging pendulum. Whenever the pendulum is near either extreme, it is

“We don’t believe in making forecasts but rather in risk management” inevitable that it will move back toward the midpoint sooner or later. In fact, it is the movement toward an extreme itself that supplies the energy for the swing back. This oscillation is one of the most dependable features of the investment world, and investor psychology seems to spend much more time at the extremes than it does at a ‘happy medium’.

There is no doubt in our minds that the lows or extreme pendulum swing of 2020 has provided the base for growth in equity markets that has firmly continued into 2021. The question is now: how far to the other extreme is that pendulum going to swing?

Risk management remains king There are a myriad of risks being discussed on the various news channels and market punters, raging from inflation, low bond yields, Fed tapering, China crackdown and even the delta variant.

In the end, we don’t believe in making forecasts but rather in risk management.

What makes an investment decision good is not that it has a great outcome that is based on a forecast. A great decision is the result of a good process, and that process must include an acceptance that the future is uncertain and you have to plan for the possibility of “what happens if I’m wrong?”

Active ownership to underpin South Africa’s transition to net zero TEBOGO NALEDI MD, Old Mutual Investment Group

I

t is almost impossible, nowadays, for an asset manager to talk about capital allocation without touching on critical issues around impact investing and sustainability. One of the most urgent issues within the Environmental, Social and Governance (ESG) arena, and an issue that impact and responsible investors are increasingly incorporating into their investment decisions, is the recognition of climate change risk as a potentially catastrophic factor for the world’s collective future.

The 2021 GSG Global Impact Summit, in which Old Mutual Investment Group participated as a platinum sponsor, highlighted the flood of global investment capital towards impact investment opportunities. While, globally, impact investment started off in private market funds, it has since moved into the fixedincome space, with north of $1.5tn in green bond issuances in recent years, and is now moving into the public market space.

Over the next five to 10 years, the impact investment theme is set to accelerate in public or listed markets, which is where the bulk of capital sits – as asset managers adopt a new investment paradigm that now considers impact on an equal footing with risk and return. This is becoming far more mainstream than what we have previously seen and will be largely driven by, among others, pension funds regulation and by pension funds themselves, as they seek to fulfil the greener mandates of savers.

This normalisation of impact investment will be defined by the deliberate tilting of portfolio holdings towards companies that have lower carbon footprints, particularly relative to market benchmarks – with funds that are aiming for zero exposure to fossil fuels at the extreme end of this spectrum – as well as by the allocation of more investment capital towards sustainable investment opportunities such as renewable energy.

The third mechanism for bringing impact investment squarely into the mainstream will be through an increased focus on active ownership and stewardship of investee companies within investment portfolios. Engaging with these companies on their ESG exposures and climate plans is becoming more established in the portfolio management space. Ultimately, stewardship is critical in driving change.

Governments cannot do this alone, and countries need to find ways to finance the transition, with public markets being an obvious means to do this. But engagement with these companies by capital allocators

20 www.moneymarketing.co.za

is absolutely necessary to steer the impact trajectory in the right direction.

Much of the debate around a just transition and how to ensure all of society benefits from the shift to a greener economy and net-zero emissions, and certainly something that was discussed in detail at this year’s GSG Global Impact Summit, was the question of the scale of opportunity. Recent work by the Business and Sustainable Development Commission points to $1.1tn in private sector investment opportunities as the African continent progresses towards its 2030 SDGs. This investment is estimated to create around 85 million jobs, while another study by the National Business Initiative, in conjunction with Boston Consulting Group, suggests that South Africa’s just transition will generate between 2.7 and 3.6 million jobs.

The global investment community may laud many of these investment opportunities for their potential in leapfrogging old technology and carbonintensive industries, but there remain social consequences, particularly in countries such as South Africa that have legacy dependencies on fossil fuel industries.

South Africa produces more than 90% of its electricity from coal-fired power plants, and around 30% of its domestic liquid fuels from a carbon-intensive coal-to-liquid process.

With this dependency in mind and entire communities reliant on the production of coal, the social risks involved would add to an already high unemployment rate in an economy acknowledged as one of the most unequal in the world.

Collaboration will be key here. For South

Africa to achieve a just transition to net zero, we will need to have a synchronised effort from businesses, communities, government and regulators. It also requires us to implement and manage interdependent reform processes over multiple years from today till 2030, and ultimately 2050.

For example, to reduce the country’s dependence on fossil fuels requires reskilling that part of the population that relies on the coal or oil industries for jobs.

Over the nine years to 2030, we must not only reskill workers that are employed in the fossil fuel economic value chain but consider replacement industries for the towns and cities that were built around fossil fuel dependent infrastructure. These measures will be critical in devising social and poverty nets so that no-one gets left behind in the transition.

There are plenty of investment prospects that could support this approach and offer significant impact for relatively small amounts of capital; but we will need to tackle the challenge around scaling such projects and in expanding our investment to include infrastructure projects that address education, healthcare and sanitation needs, among others.

Few will argue that impact investing will spearhead the African continent’s transition to net zero, but our challenge, as allocators of capital, is to ensure that the ‘S’, the social component of ESG, is addressed, thereby driving a just transition to solve social issues rather than exacerbate them.

Active stewardship on these issues across listed markets will be an essential aspect of investor effort to successfully create a decarbonised world that benefits us all.

31 December 2021

INVESTMENT LESSONS FROM 2021

Real estate investment lessons from 2021 TIMOTHY RANGONGO Editor: MoneyMarketing

R

eal estate was one of the sectors worst affected by the Covid-19 pandemic as global economies screeched to a halt following the closure of stores, restaurants, offices and hotels, among others. Lockdown regulations meant people could no longer meet, work, eat, shop, and socialise as they used to.

Nevertheless, not all real estate assets performed the same way during the crisis. Assets with greater human density were naturally hit the hardest, such as healthcare facilities, regional malls, accommodation, and student housing. By contrast, self-storage facilities, industrial facilities and data centres faced less significant declines.

To try and make sense of the lopsided impact of the pandemic on global real estate, including some of the valuable lessons to have emerged from the asymmetry, MoneyMarketing spoke to Jamie Boyes, portfolio manager of the Catalyst Global Real Estate UCITS Fund, which provides access to highquality, international real estate assets with the aim of benefitting from capital appreciation while also delivering solid foreign dividends.

The range of global real estate One of the big misconceptions globally, and especially from South African investors, is that real estate is all offices and retail, with a little bit of industrial, says Boyes.

“Not all real estate assets performed the same way during the crisis”

“It is far more diverse than that.

There are far more speciality sectors, some of which have benefitted quite significantly from Covid – sectors such as residential, industrial warehousing, storage, lab space, towers, and data centres.”

There are sub-sectors where some of the trends have been accelerated

by Covid and are in a better place than they were about two years ago. Data centres and towers are the infrastructure that store and carry the data we see on our various screens. Due to our reliance on telecommunications and work-fromhome initiatives during Covid-19related lockdowns, demand for such infrastructure increased. Ecommerce also grew at an unprecedented rate across the globe, driving investment in distribution facilities, for instance large warehouses run by ecommerce companies Sticking to conviction One of the biggest lessons for Boyes is something we always think about, he says.

“We always think about real estate investment on a long-term basis, how we value businesses in five to ten years, and thinking about some of the longerterm issues: What is the medium- and long-term growth like? What are the risks you are taking?

“If one goes back to when the vaccines efficacy breakthrough was made at the end of last year, there was a rally in lodging and travel stocks until about March/April 2021, on the hopes that a vaccine could soon return economic life back to normal. However, some of these were what one would consider to be poor-quality assets (highly leveraged balance sheets).

“The biggest difficulties were to stick to our conviction of where we saw value in the market. You saw a lot of highly leveraged offices and retail. Some of the hotels rebounded strongly and we thought it was quite heavily overdone, with a lot of momentum behind that.

“Basically, people were making a macro call,” says Boyes.

He says that if you have a robust process you have been using and you believe in it, you ought to stick to the conviction of where you see value, even during tough times.

Which is good because from April onwards, we saw a bit of a reversal, he says.

“The biggest difficulties were to stick to our conviction of where we saw value in the market” The unforeseen The recovery in retail in the US caught the team off guard, though.

“We had underestimated how strong that would be. We thought it would come, but not as quickly and successfully as it has now. How long the momentum will last is the biggest question.”

Much of the credit for retail’s surprisingly strong performance through the pandemic is due to the unprecedented level of multiple US government support packages. The multifaceted largess ultimately totalled some $6tn in stimulus and other forms of federal government spending.

Retailers also benefited directly from government programs like the Payroll Protection Program (PPP), which provided a critical lifeline to millions of small businesses.

“US storage also surprised us.”

Storage relies on disruption – getting divorced, moving house or death in the family, for example. It is life events that create demand for storage.

“The pandemic was a life event that did create demand – we

underestimated how long term that would be. There have been short-term users of storage that may go away, but the biggest users the pandemic has created is in the decluttering of homes to create office spaces.

“That has created a longer tailwind of demand for storage. We did really nicely out of European storage, but we were probably not as bullish on how good and for how long the growth would be in US storage.”

Closely watching the office space in 2022 “Although we won’t get an answer on this in the first or second quarter of next year, what is interesting is just how the office environment plays out and how that impacts office landlords in the next two to four years,” says Boyes on their watchlist for 2022.

Boyes says they are significantly underweight offices and, on the margin, more bearish on the space than the market is. “We think that it is going to be reasonably tough, but just seeing how that plays out is something we are thinking about a lot.”

www.moneymarketing.co.za 21

31 December 2021

INVESTMENT LESSONS FROM 2021

Three investment lessons to learn from 2021 about risky asset classes PROFESSOR EVAN GILBERT Strategist, Momentum Investments

W

hen viewed in isolation, 2021 has been a remarkably stable year in terms of investment returns. This apparent stability is, however, potentially deceiving – especially when compared to the 2020 experience. At Momentum Investments, we believe there are at least three key lessons that should be learned from this.

What happened to asset class returns in 2021 vs. 2020?

While 2020 was a year of extremes in terms of investment returns, 2021 has, to date, been a more ‘traditional’ investment environment. As graph 1 shows, the experience of risky asset classes – equities and property, both local and global (in ZAR terms) – have been very different between the two years.

This pattern was repeated for the less volatile asset classes – bonds and cash (local and global in ZAR) – as illustrated in graph 2. The 2021 experience has

been much more stable and consistent relative to 2020, especially for global bonds in ZAR. Three lessons we can learn from this experience Firstly, not all asset classes and years are equal. As demonstrated below, all asset returns are risky – they vary in unexpected ways. This risk must be managed, and having a ‘risk budget’ is a vital part of this process. A risk budget is a plan for how much risk your portfolio is going to take on. If it is clearly stated and understood by all parties (the investor, their adviser and their investment manager), everyone can be prepared in terms of what can be expected in worstcase scenarios.

Secondly, diversification is key – even when things seem to be reverting to normal. The 2021 experience is far more like what our historical experience suggests, that asset class returns should be on average. The problem with averages, however, is that they hide all the variation of the short-term experiences, like we saw in 2020. The asset class returns in that year are not that much of an outlier; the volatility we experienced in this period, while relatively high, is not that unusual in terms of how often it can happen. These periods, where returns are significantly different to their expected values, have happened before, and will happen again. The important point is that we do not know when the next time will be. Therefore, we must always remain diversified to deal with this uncertainty.

Finally, 2021 teaches us that we must stay invested – we must not panic when crises occur. The 2020/21 pattern of returns has been repeated time and again. Risky asset classes give you significant rewards, on average, for the risk you take. The catch is that you must be invested in them to get the reward (when it happens). Investors are very

bad at following this advice. A study of South African investor behaviour

by Momentum Investments in 2020, showed that investors who panicked and swapped riskier assets for safer ones suffered losses on average of 19% of their switches relative to what they would have got if they had stayed put.

The cost of short-term emotional relief is high.

In short, the asset class returns of 2021 (and 2020) have shown us that risk is real and you need to have a plan that

your client understands and can stick to.

Momentum Investments’ outcome-based investing approach sets out to design portfolios to make these plans real and effective for investors. We use risk budgets aligned to the client outcomes and always diversify our portfolios.

This approach helps investors remain invested and focused on achieving their desired long-term investment outcomes.

Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406).

“Investors who panicked and swapped riskier assets for safer ones suffered losses on average of 19% of their switches relative to what they would have got if they had stayed put”

Graph 1: Performance of local and global equities and property in ZAR terms

Graph 2: Performance of local and global bonds and cash in ZAR terms

Source: Momentum Investments, 31 August 2021

Source: Momentum Investments, 31 August 2021

22 www.moneymarketing.co.za

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

MI-CL-586-AZ-8454.

31 December 2021

INVESTMENT LESSONS FROM 2021

Sticking to high momentum growth stocks CAREY MCELHONE Portfolio Manager, Naviga Solutions Naviga BCI Worldwide Flexible Fund Benchmark

CPI+5%

Fund classification

Worldwide – Multi-asset – Flexible

Fund size

R207m

T

he main lesson we learned from 2021 was to avoid deviating from our strategy of focusing on high momentum growth stocks. With the relaxing of lockdown restrictions, one could expect a resurgence of traditional investment themes, such as value investing.

An increase in the demand for basic materials of production, after widespread supply constraints and disruptions to logistic networks, was also anticipated. This would result in the recovery of many stock prices that had been downgraded when economies went into lockdown.

We reasoned that these influences would be transitory, and we do not try to rotate into these sectors and make short-term gains by trying to time the cycles.

We consolidated our portfolio to get maximum benefit from those stocks that performed well during lockdown and would continue to do so once restrictions were removed. These are well-managed companies that offer goods and services that satisfy enduring demand. We were rewarded with the fund (Naviga BCI Worldwide Flexible Fund) gaining 30% year-to-date by the end of October.

Naviga BCI Worldwide Flexible Fund: Top 10 holdings as at 30/09/2021 1

Shopify

16.8%

2

Games Workshop Group

8.2%

3

NVIDIA

7.3%

4

EPAM Systems

7.3%

5

Alphabet

6.9%

6

Tesla

6.9%

7

Apple

6.9%

8

Advanced Micro Devices

6.7%

9

Sea Ltd

6.1%

10

Five9

5.3%

Automation and digitisation The megatrends we feel are set to continue into 2022 is the continued adoption of ecommerce, embracing of artificial intelligence and the power of automation, expansions in data centres and their infrastructure, and adoption of sustainable energy solutions.

The pandemic has forced companies to transform their operations rapidly, and advances in automation and digitisation made it possible. The pandemic has fundamentally changed the way people live and work and we feel that this will be sustained – there is no going back. We believe that advances in digital technology will be the biggest driver of world economic activity over the next few decades.

The fund is well placed within this space to take advantage of stocks that have competitive advantages in green technology, artificial intelligence, cloud computing and ecommerce.

24 www.moneymarketing.co.za

Performance of the Naviga BCI Worldwide Flexible Fund Annualised performance of the Naviga BCI Worldwide Flexible Fund as at 30/09/2021 1 year

3 years

Since inception (Sep 2017)

Fund

17.14%

26.16%

24.47%

Fund Benchmark

10.13%

9.31%

9.47%

ASISA Category Average

12.21%

8.64%

8.46%

Inflation and China In terms of macroeconomic events, central banks have indicated a taper in quantitative easing, with high inflation expected to be transient. We can assume higher interest rates halfway through 2022, and this will increase the cost of capital and stifle growth.

“The pandemic has fundamentally changed the way people live and work and we feel that this will be sustained” Some sectors may see short-term price increases caused by supply chain disruptions and other bottlenecks. These increased costs will ultimately be passed onto the consumer. We will be watching the central banks to see how they intervene, if at all.

The big unknown is China. The crackdown on technology stocks, power shortages and shipping delays (to name a few hurdles) will have a negative impact on growth in 2022. Any slowdown in the Chinese economy will result in a slowdown for the global economy.

Our focus for 2022 is to continue to scour the markets globally for growth companies that can offer superior returns when identified early enough in their life cycle.

Carey McElhone is Portfolio Manager of the Naviga BCI Worldwide Flexible Fund.

31 December 2021

EMPLOYEE BENEFITS

Over R2bn in Group Risk claims paid out by Discovery

I

n a claims experience analysis, Discovery Group Risk reported claim pay-outs to the value of R2.10bn in the year to June 2021, which reflects a 42% increase compared to the previous year.

The company offers group risk benefits that include life cover, global cover for the education of employees’ children, severe illness cover, lumpsum and monthly disability protection, and funeral cover.

The release of Discovery’s Group Risk claims data follows the release of the Group’s Life claims data.

“The 2021 financial year saw large increases in our Group Risk claims profile, as well as large variances against expectations. This experience reinforces the devastating impact the pandemic has had on mortality and morbidity. Large shifts were observed within both the total number and value of claims paid, with the biggest increases being observed within our death benefits,” Guy Chennells, Head of Products for Discovery Employee Benefits, says.

“The Covid-19 pandemic has changed the world forever. Since 2020, we have been living in a constant state of flux, fear, loss and chaos. It’s been a trying time for everyone, Discovery Group Risk and the insurance industry at large has not been spared. The claim numbers show that Discovery Group Risk has faced an unprecedented year in claims experience,” he added.

An overview of Discovery’s Group Risk claims experience for the 2021 financial year A total of 8 840 claims were paid out in 2021. These included: • R1.28bn in Life Cover Benefit • R579m Income Continuation Benefit • R97m paid out under the Severe Illness Benefit • R47m Capital Disability Benefit • R59.8m in Funeral Cover Benefit • R37.6m Global Education Protector

Discovery’s data also revealed the following: • The value of Life Cover and Funeral Cover Benefit claims almost doubled in the year to June 2021 in comparison to last year’s value.

• The largest single Life Cover Benefit claim pay-out was R19.7m for a cardiac arrest event. Unnatural deaths increased by 42% over the year and natural deaths by 82%, with a 16% and 84% split between natural and unnatural death causes over the period. “Covid-19 was the main cause of death across males and females, with the second highest being respiratory diseases for females, and heart and artery conditions for males. These conditions may be related to Covid-19 as they are often exacerbated by the virus. Surprisingly, motor vehicle accidents accounted for most of the increase, despite lockdown restrictions. The number of suicides also increased, attesting to the strain on mental wellbeing caused by the pandemic,” Chennells says.

• Over the course of the Covid-19 pandemic, Discovery incurred 490 Covid-19 Life Cover Benefit claims totalling over R700m. Excess death claims over this period totalled R1.3bn.

“Covid-19 was the main cause of death across males and females, with the second highest being respiratory diseases for females and heart and artery conditions for males”

Death rates due to Covid-19 were higher in males and, as expected, increased by age. “In September 2021, following the third wave of the Covid-19 pandemic, we paid the highest amount of claims in a single month since our inception over 13 years ago. The second wave was the most severe, with the highest number and total value of death claims related to Covid-19 at R221 486 478,” Chennells says.

• “When we looked at the increase in suicide claims experienced, we observed that suicides by month showed an upward trend with peaks roughly correlated to stricter lockdown periods. Males still account for most suicides, but females saw an increase this year. Interestingly, most suicides occurred within the financial services industry for 2020 and 2021, and the rate of suicide increased the most within the youngest age band 0-30, when compared to last year,” Chennells notes.

• When unpacking the increase in motor vehicle accident claims experienced, the following was observed: Average car accidents by month dropped during lockdown levels 5 and 4 (nearing zero in absolute terms), but then started to pick up to levels higher than before.

This aligns with trends seen globally where there have been reports of more reckless driving on account of less congestion, and impaired driving as alcohol consumption increases once lockdown restrictions are eased. The increase in motor vehicle accidents was observed in male members.

Understanding excess deaths “We define ‘excess deaths’ as deaths observed over and above what we would usually expect in a given year. Covid-19 increased our excess deaths in 2020 and 2021. However, not all excess deaths in these years could be directly attributed to Covid-19 infections,” Chennells says.

To explain these deaths, Discovery Group Risk analysed its claims data in conjunction with additional data from Discovery Health, which showed the death rate in members with no registered co-morbidities and no positive Covid-19 test doubled from 0.08% in 2020 to 0.16% in 2021.

Furthermore, Discovery’s models suggest that registration for oncology benefits has become a less reliable predictor of death, while gender has become a more significant predictor outside of contracting Covid-19. With further analysis, Discovery found the following reasons for excess deaths, some helping to explain why members with no sickness or no Covid-19 infection may have experienced higher mortality: • Increased rates of suicide and motor

vehicle accidents, particularly in male members • Delayed cancer registrations and treatment • Delayed detection and management of chronic conditions • The first-to-market Global Education Protector provides local and international cover for the education of members’ children in the event of their death. “We automatically include the Global Education Protector for all members whose life cover is at least two times their yearly salary.” Chennells adds that 1 241 children are currently receiving pay-outs across 893 families, of which 66 children had their parents die of Covid-19 in the 2021 financial year.

Discovery Group Risk was also able to pick up unreported Covid-19 deaths where members tested positive for Covid-19 but the cause of death was not reported as due to Covid-19.

According to Chennells, Covid-19 has had a significant impact on health risk: a direct impact on mortality risk for individuals that contract Covid-19 and an indirect impact on reducing engagement in healthy living globally.

“The future expected increased insurance risks resulting from this Covid-19 pandemic could manifest in increased death and disability Group Risk claims. It is therefore imperative that we prepare for this as best we can to ensure future sustainability and to maintain our commitment to future stable prices going forward. There is still so much uncertainty and so many factors at play in respect of how the future unfolds. Therefore, we cannot predict the true impact of Covid-19 with great certainty; we can only prepare for it using the resources that we can control and that have proven their effectiveness. This is core to Discovery’s purpose: to encourage a shift in behaviour to make people healthier,” he adds.

Guy Chennells, Head of Products for Discovery Employee Benefits

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31 December 2021

RISK

6 ways CFOs can mitigate payments fraud risks and stay ahead of hackers RYAN MER Managing Director, eftsure Africa

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lobal losses from payment fraud have tripled from $9.84bn in 2011 to $32.39bn in 2020, according to Deutsche Bank’s 2021 report on the future of payments. Financial professionals are also saying Covid-19 hasn’t helped matters, with 65% believing that the global pandemic is to blame for some of the accelerated rate in fraud activity, revealed a 2021 survey by the Association for Financial Professionals (AFP).

While these cybercriminals can target many areas of an organisation, the dangers are ultimately measured in financial terms. This means that Chief Financial Officers (CFOs) can no longer ignore cybersecurity simply because it is a complex issue outside their area of expertise. As custodians of the company’s monetary assets and financial data, CFOs are responsible for safeguarding the enterprise from threats to its financial health, especially those that can result from processes within the finance domain, such as accounts payable.

CFOs need to play a key role in their company’s cybersecurity. The CFO is responsible for some of the most sensitive and valuable data the organisation possesses. It is potentially disastrous for the finance team to be ignorant of cyber risk.

Below are six ways CFOs can combat the risk of payment fraud: 1. Know your vulnerabilities and understand risks The first line of defence is to identify which information requires the most protection, and to research the many ways your organisation could be attacked.

Hackers often target the finance department and team members directly in attempts to defraud. CFOs need to ensure these vulnerabilities are both understood and addressed. This means testing current processes and systems to find weak spots, perhaps with the help of external experts.

Many organisations’ weak areas lie in their manual processes, which use human inputting methods and decision-making, often resulting in errors and gaps in security. Independent third-party platforms, such as eftsure, can help manage supplier data and automate payment checking and supplier verification, saving time on manual processes and reducing human error and manipulations.

“As custodians of the company’s monetary assets and financial data, CFOs are responsible for safeguarding the enterprise from threats to its financial health” 26 www.moneymarketing.co.za

2. Improve your basic security Review your company practices in relation to password and security controls. Look at whether you can strengthen your company’s passwords and ensure they are changed on a regular basis, and if possible, adding an extra layer of security with two-factor authentication.

3. Move data to the cloud Stay ahead of ever-changing security demands by moving sensitive data to the cloud, where it is kept in centralised storage that can only be accessed through sophisticated authentication methods. Cloud providers update their systems frequently based on the latest security best practices, providing new encryption techniques, improved login protocols and real-time identification of unauthorised users and suspicious activity.

4. Tighten your payments security Look at your payments processes and identify potential weaknesses, possibly re-evaluating your financial procedures for approving payment releases. Ways to address weaknesses include ensuring there is clear separation of duties between staff and adding more verification steps.

While checking with senior executives, verifying by phone or relying on staff to perform other account verification procedures are options, they are manual, time consuming and hold their own risks. A Software as

a Service (SaaS) provider such as eftsure can help limit the risks by providing an integrated payments system that cross-references the payments an organisation is about to release with a database of verified bank account details. The platform alerts you to any suspect payments, at point of payment, allowing you to deal with the problem before the flow of funds have occurred.

5. Educate your staff Employee email accounts are gateways to sensitive information and attacks, especially those in finance and accounts payable, making them targets of cybercrime.

Equip staff with the skills and tools to spot threats and respond appropriately by introducing cyber-safety awareness programmes, workshops and simulations.

Enforce policies that restrict what information can be kept in email inboxes prior to secure archiving. eftsure’s secure, digitised payee onboarding platform can assist with the collection and management of payee information, thereby avoiding trying to manage this through email workflows and inboxes.

6. Keep your cybersecurity updated As cyber risk grows and cybercriminals get better at what they do, it pays to be proactive about the controls, oversight and data management processes you have in place. Avoid waiting for a fraud incident or assuming your organisation is fully protected from fraud. Constantly remind staff at all levels about the risks of cybercrime to help build a strong securityconscious culture and continuously update controls to adapt to new fraud patterns. Collaborate with the Chief Information Security Officer (CISO), if your organisation has one, or enlist the help of an outsourced CISO-asa-Service to address these risks and for assistance in deploying new defences.

In South Africa there is case precedence for firms being held liable for payments that did not reach the intended recipient, a situation that demands every CFO’s attention. It’s a war out there – and cybercriminals are bringing the battle to you. Don’t wait for them to succeed – be proactive and get on the front foot now, so you stop them before they succeed.

31 December 2021

RISK

Shariah-compliant insurance in SA Muslims make up about three percent of South Africa’s population of nearly 60m people.

This equates to 1.8 million Muslims. Looking ahead, and with South Africa being a diverse place in which to live and do business, this figure is only likely to increase over time – making it important that the industry’s service providers are able to serve the needs of the Muslim community when it comes to the provision of short-term insurance.

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“Shariahcompliant does not differ from any other type of insurance – except in three important respects: purity, certainty and mutuality”

urrently, the Muslim community is underserved when it comes to insurance, due to a lack of availability of Shariah-based insurance products that comply with Shariah laws and the principals of Islamic religion, along with their practical application in Islamic economics. This is why it is important for those of us in the industry to educate ourselves in this field and to understand our clients’ needs, so that we can look to provide solutions that serve our immediate and potential client base.

Shariah law is the code of religious teachings for the religion of Islam, while takaful is a type of insurance devised to comply with such laws – in which money may be pooled or invested.

According to Angus Marshall, a specialist on transactional liability within the UK market, Shariah-compliant or takaful insurance does not differ from any other type of insurance – except in three important respects: purity, certainty and mutuality. Shariah financial products also eschew any form of interest.

Head of transaction liability at CFC Underwriting, Marshall believes that an insurer who bravely takes on an underserved segment of the market, seeks to “play a grace note in relation to their overall emerging-market capabilities and demonstrates their commitment to such markets”.

A takaful provider may not invest takaful-compliant funds in any company that derives its income from a product or service that offends Islamic principles (such as alcohol, tobacco, pornography or weaponry); and such policies generally require the approval of a certified Shariah scholar in consultation with his or her supervisory board.

New product poised for lift-off Here in South Africa, the team at Indwe Risk Services and MC De Villiers Brokers have taken note of the increasing need for professional indemnity within the Muslim business community. Their research reveals that the South African Muslim market is worth more than R1.5bn annually – although more research is needed as to the market’s contribution income across all lines of insurance. What is known, however, is that this segment of the population is educated and highly loyal.

Yet, a significant untapped market of around two million entrepreneurs from elsewhere in Africa (a continent that is at least 50 percent Muslim) have been flooding into South Africa in recent years.

Institutions therefore need to collaborate in the way of accessible webinars and information packs, for example to create awareness and educate this market about takaful products and their benefits, over and above the local South Africans who have already had extensive exposure to such products.

Notably, there has already been successful penetration of takaful insurance in sub-Saharan African countries such as Kenya and Nigeria.

In Kenya, where Muslims account for at least 15 percent of a population estimated at forty million people, Islamic finance accounts for at least two percent of the banking sector. In Nigeria, where there is a rather poor penetration of insurance (despite a rapidly growing middle class), the Nigerian insurance market remains promising as far as life and non-life products, along with saving and investment schemes, are concerned – especially those that are compliant with Shariah laws.

With this in mind, the Indwe Risk Services and MC De Villiers teams have, as of 10 November 2021, launched a Shariah-compliant product offering in South Africa via Safire Insurance Company Limited and underwritten

by Genoa Underwriting Managers. It is fully endorsed by Mufti Desai, an internationally reputed Shariah advisor and investment banker, who is currently CEO of Global Islamic Financial Services.

Contributions will be paid by takaful participants into the ring-fenced Shariahcompliant bank account; whereupon insurance will be granted to participants – subject to the takaful provider’s terms, conditions, limitations and exclusions

“The South African Muslim market is worth more than R1.5bn annually” The teams, mentioned above, who have collaborated to bring this Shariahcompliant combined Medical Malpractice and Public Liability Indemnification takaful policy to market, will have exclusive rights to sell it in the Gauteng province for a period of 24 months.

The medical malpractice takaful product, mentioned above, is a very proud world first.

The global context A recent paper in the Insurance Markets and Companies journal examines which issues surrounding takaful still need to be resolved for it to progress globally.

Takaful insurers need to increase public awareness of the importance of both life and non-life insurance policies to their target audiences; they need to expose themselves to the international insurance market to improve their competitiveness and investment results; their focus needs to shift to developing a wider range of products, both price- and quality-wise; and a formal supervisory system should ideally be developed to efficiently monitor their takaful products globally – a local supervisory board may not be sufficient.

The attainment of raised customer awareness, the development of new products and distribution channels, and a range of attractive investment options (such as an AAA-rated international reinsurance company to underwrite takaful products) would all serve to improve customer understanding and satisfaction.

But as with any innovation or attempt to diversify into a new area, small steps are best to start with, along with a solid understanding of the requirements of any new products. Insurance services have a definite place in Islamic finance if they are approved by the Shariah and are based on “responsibility, mutual cooperation and solidarity, in order to protect someone against a well-defined risk”.

What is certain is that the uptake of takaful is set to grow, both within the South African market and globally, over the years to come.

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31 December 2021

RISK

Help your clients prevent musculoskeletal injuries in remote workspaces SIPHOKAZI PARIRENYATWA Disability Manager, Momentum Corporate

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esearch by Momentum Corporate shows that 44% of employers plan to adopt a hybrid work model going forward. The findings further indicate that employees are overwhelmingly in favour of work-from-home or hybrid work models.

Remote working environments present new risks that, if not managed, will reduce employee productivity and accelerate the rise in musculoskeletal-related disability claims. This is because many makeshift home offices are unergonomic, affecting tendons, ligaments, joints, nerves and intravertebral discs. Financial advisors should raise this issue with their corporate clients,

and encourage them to take proactive, preventative actions to reduce these risks.

At a Momentum Corporate live talk show with ergonomics experts, which included occupational therapist and ergonomics consultant Phumla Motsa, and Andre van Rooyen, head of occupational hygiene services at Momentum Wellness, Motsa revealed that pain is the first clinical sign of an injury and has a significant impact on absenteeism and presenteeism – the condition when an employee is at work but not engaged or productive.

The global increase in computer work and all things digital is coinciding with an increased prevalence in workrelated musculoskeletal disorders. Even before Covid-19 and the move to remote working, musculoskeletal disabilities were one of Momentum Corporate’s top three disability claims.

At Momentum Corporate, we follow a human-first approach and really feel for employees experiencing this kind of pain.

No one looks forward to a day of work when battling pain. This inevitably impacts employees’ quality of life and productivity.

In 2013, the Department of Employment and Labour formed a technical committee with representation from business, labour and government, to develop ergonomics regulations. These regulations urge companies to comply with certain

“Even before Covid-19 and the move to remote working, musculoskeletal disabilities were one of Momentum Corporate’s top three disability claims” mandatory requirements by 30 June 2020.

Some of these requirements include: • an ergonomics risk assessment to evaluate ergonomic risk • removing or reducing exposure to ergonomic risks by implementing control measures • educating employees and contractors on the basics of ergonomics, including the risks and procedures to address ergonomic-related issues.

These regulations are not just for traditional workplace environments. If we presume that employees working from home will, in most instances, be acting in the course and scope of their employment, it means that their residence constitutes a “workplace”, as defined in the Occupational Health and Safety Act.

There are some easy behaviours employees can adopt to avoid these injuries. For example, regular breaks and changing position relieves the pressure on joints and muscles, helps blood circulation and promotes mobility in your joints.

Active breaks and changes in posture can reduce the risk of new neck and lower back pain by 55 to 66% respectively.

Before pain leaves your clients’ employees feeling disabled and unengaged, encourage your clients to educate their employees on these issues and encourage ergonomically healthy behaviour. Some simple mobility exercises for employees, guidance for them to evaluate their workspace and ensuring it is ergonomically healthy, is a good start.

Old Mutual Corporate welcomes endorsement of two-pot retirement savings system BLESSING UTETE Managing Executive, Old Mutual Corporate Consultants

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inance Minister Enoch Godongwana’s endorsement of a move to a two-pot system to increase preservation and flexibility with early access to retirement savings is a welcome progression to a new era for the South African retirement industry.

This is according to Blessing Utete, Managing Executive of Old Mutual Corporate Consultants, who says that the ‘two-pots’ system for retirement annuities, provident and pension funds would improve savings outcomes and retirement provision.

While Godongwana was sparse on detail, based on previous announcements the proposal involves retirement savings being split into a smaller accessible pot with limited access for financial emergencies in future, while the remaining bigger pot will only be accessible after retirement age.

“Going forward, we foresee a regime where members of pension and provident funds will no longer be able to access all of their retirement savings when retrenched or changing jobs. This step is critical to offset the retirement savings crisis, which affects most workers in South Africa,” he says. “However, allowing members of private and occupational funds access to a portion of their savings

28 www.moneymarketing.co.za

in an emergency will offer some relief when needed.”

The new system is a monumental shift for the retirement sector, says Utete, as it will improve long-term retirement outcomes while providing flexibility to deal with unforeseen events before retirement. The minister says that National Treasury will shortly publish a discussion document on the details of this proposal to obtain input before further announcements are made in the 2022 National Budget in February.

Utete says that the industry is eagerly waiting on this document to clarify the amount of money available for immediate access when the new legislation comes into effect. “Other issues the discussion document must address include the frequency of access; the conditions of access; how potential abuse will be mitigated; what measures can be practically implemented; what the practical constraints to SARS are; and what the tax implications will be,” he says.

Concerns of liquidity Utete is also pleased to see that Treasury has taken concerns over fund liquidity and affordability seriously. “It is important to understand early on in this journey that the initial allocation to the accessible pot will be manageable for retirement funds. How National Treasury attains this delicate balance to aid South Africans without breaking the bank is a critical part of the conversation,” he says.

Current savings must remain unaffected The discussion document must give insight into the treatment of vested rights, which is the retirement savings accumulated before the new laws take effect, says Utete. “This step will go a long way to guarantee members and the market that there is no need for concern about the accessibility of current savings accumulated before the law is enacted.”

It’s not only about taking care of billions of rands.

It’s also about taking care of millions of lives.

The success of your clients and their employees is our business. That’s why we work with you to offer a suite of benefits that best suits the unique needs of your clients’ employees. That’s also why we make our solutions as flexible as possible, so that when life changes, employees can change their plans along with it.

When you partner with the right employee benefits provider, your advice helps employers put solutions in place for their employees to feel appreciated, protected and invested in the success of their business. #AdviceForSuccess Talk to your Momentum Corporate Specialist momentum.co.za | move to Momentum Here for your journey to success.

Momentum Corporate is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider.

BRAVE/7350/MOM/E

31 December 2021

RISK

Pre-emptively managing cancer risks JOHN KOTZE Retail Protection Product Management Head, Old Mutual

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he big four illnesses (cancer, heart attacks, strokes and coronary artery bypass grafts) contributed to 70% of the illness claims Old Mutual paid in 2020, and cancer was the biggest culprit. As many as one in every 17 men has a lifetime risk of prostate cancer, according to the Cancer Association of South Africa.

The costs are significantly high, with a 2020 study showing that the average care cost per breast cancer patient in the public sector (Groote Schuur hospital) was R15 774. That excluded the non-medical costs, which could include transport costs to access medical care, nutrition, mental health support and increased household costs.

Stages, cost and risk Typically, there are four stages when it comes to a severe illness – with different cost implications and different risk cover at different stages.

• Diagnosis: This stage is typically covered by medical

30 www.moneymarketing.co.za

schemes. This stage includes costly treatment such as magnetic resonance imaging (MRI) scans, angiograms, and electrocardiogram (ECG) tests.

• Treatment: A medical scheme plays an even more significant role at this stage, and there is usually a bigger out-of-pocket aspect, which can be addressed with gap cover. Treatment could typically include bypass surgery, chemotherapy, radiation and pathway ablation.

• Recovery: This is when severe illness cover comes to the fore. During the recovery phase, a patient may need to make lifestyle adjustments, such as arranging for full-time childcare, potentially start using cleaning services, payment towards recovery costs at home, and covering loss of income where long recovery periods are required. It is common for clients to underestimate these expenses and typically, while medical schemes cover clients adequately during diagnosis and treatment, it is at the tail end of the process where severe illness cover becomes important. According to Handy Helpers, a full-time caregiver will cost about R4 500 to R7 500 a month, while a part-time caregiver will cost R250 to R400 a day. A housekeeper is likely to

“It is common for clients to underestimate these expenses and typically, while medical schemes cover clients adequately during diagnosis and treatment, it is at the tail end of the process where severe illness cover becomes important”

cost between R3 000 to R5 500 a month. Remember that post-treatment, it is quite common to need time off work to recuperate fully, and this could translate to lost income.

Encourage clients to get checked Here are ways for advisers to start the conversation with clients about the importance of cancer screenings: • Medical schemes are keen to reduce their costs, so they cover cancer screenings for patients at risk, or past a certain age.

• According to the National Cancer Registry, one in four South Africans are affected by cancer. This highlights the importance of having cancer screenings as early and as regularly as possible. Dr Louis Kathan, head of Life Healthcare Oncology, says the medical industry is anticipating increased cases going forward, as more South Africans postponed their regular mammograms, pap smears and prostate cancer checks on the back of Covid-19 fears.

• Cancer screenings are typically recommended as follows: • Breast cancer – annual mammograms for women aged 40 and older • Cervical cancer – pap smears every three years for women aged 21 and older • Prostate cancer – screenings from the age of 40 if there is a family history, or annually from the age of 55 • Colorectal screenings – annually from the age of 45 • Lung cancer – annual screenings from the age of 50 to 80.

Peace of mind Covid-19 has left the world whirling on the brink of uncertainty and change when it comes to the economy, healthcare and business models. Taking the time to have a cancer screening can give your clients peace of mind, or an early diagnosis, so they are able to manage their critical illness optimally.

EDITOR’S

31 December 2021

BOOKS ETCETERA

BOOKSHELF

Deep Collusion: Bain and the capture of South Africa

By Athol Williams Athol Williams first grabbed the country’s attention at the Zondo Commission of Inquiry into Allegations of State Capture into State when he testified that management consulting firm Bain had not been transparent with the Nugent Commission when it was entrusted with investigating the South African Revenue Service (SARS).

Deep Collusion uncovers the inner workings of state capture design and the full extent of what Bain did not want the public to know.

Williams recalls being called back to Bain as a partner, to assist them in repairing the damage they had done in South Africa regarding the Nugent Commission. Key information pertaining to investigation findings were withheld from him – which raised flags, including the numerous number of meetings the firm had with former president Jacob Zuma.

“Between August 2012 and July 2014, Bain presented a series of at least eleven documents to President Zuma. Most of these documents contained far-reaching ideas aimed at repurposing state institutions, that is, restructuring them and consolidating control of them,” he writes.

While this book exposes corporate corruption and lifts the lid on foreign profiteering and the weakening of South Africa’s public institutions, it also highlights the lonely burden Williams carried as a whistleblower and the great personal cost of telling the truth in the face of overwhelming pressure.

Williams recently fled the country in fear of his life, after the heinous murder of whistleblower Babita Deokaran.

This Is How They Tell Me the World Ends: The Cyberweapons Arms Race

By Nicole Perlroth Gripping, chilling and essential. New York Times cybersecurity reporter, Nicole Perlroth, shines a light on the highly secretive and largely invisible cyberweapons industry so that we, “a society on the cusp of the digital tsunami called the Internet of Things, may have some of the necessary conversations now, before it is too late”.

For context, on 27 June 2017, Ukrainians woke up to black screens everywhere. They could not withdraw money from ATMs, pay for fuel at stations, send or receive mail, pay for a train ticket, buy groceries, get paid, or most terrifying of all, monitor radiation levels at Chernobyl. This and other cyberattacks are well-documented by Perlroth, as she brings our attention to a new kind of global warfare.

Her interest in this hidden market grew after she reported on National Security Agency documents leaked by Edward Snowden, confirming what she had been hearing for years: that the US government had been paying hackers to turn over vulnerabilities in software and hardware it could exploit for espionage.

Then the US lost control of its hoard and the market, putting those vulnerabilities in the hands of hostile nations and mercenaries who can dismantle the safety controls at a chemical plant, alter an election, and shut down the electric grid (just ask Ukraine).

SUDOKU

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

The Aristocracy of Talent: How Meritocracy Made the Modern World

By Adrian Wooldridge Adrian Wooldridge, the Economist’s political editor and historian, traces the history of meritocracy forged by the politicians and officials who introduced the revolutionary principle of open competition, the psychologists who devised methods for measuring natural mental abilities and the educationalists who built ladders of educational opportunity.

He looks outside Western cultures and shows what transformative effects it has had everywhere it has been adopted, especially once women were brought into the meritocratic system.

Wooldridge also shows how meritocracy has now become corrupted and argues that the recent stalling of social mobility is the result of failure to complete the meritocratic revolution. Rather than abandoning meritocracy, he says, we should call for its renewal.

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Hi, Love.

Hope the treatments are getting a bit easier now.

We miss you!!!

Made pizza for breakfast!

Also practised with Tia and “helped” with homework …

GET THE HELP YOU AND YOUR FAMILY NEED Our illness insurance pays out up to R6 million.* If you fall severely ill, having Old Mutual’s illness insurance could really help you and your family with all the extra costs that come with your recovery. We pay out a single amount of up to R6 million* for whatever you might need – like help at home, paying off debt or even covering the cost of rehabilitation.

The time is now. Speak to your adviser about Old Mutual illness insurance or call 0860 60 60 60 today.

DO GREAT THINGS EVERY DAY Old Mutual Life Assurance Company (SA) Limited is a licensed FSP and life insurer. *Cover amount is risk profile-dependent. For more information and Ts & Cs, visit oldmutual.co.za/illness.