MoneyMarketing July 2019

31 July 2019 | www.moneymarketing.co.za

@MMMagza

First for the professional personal financial adviser

WHAT’S INSIDE

YOUR JULY ISSUE

FOLLOWING THE SMART MONEY

OPTIMISING AFTER-TAX SAVINGS

There is a misconception that hedge funds are risky investments

Living from pay cheque to pay cheque is a risky business

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HELPING MILLENNIALS PLAN FOR RETIREMENT Skype meetings will replace face-to-face meetings

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Should we panic over prescribed assets?

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RETIREMENT FUNDS ARE AN ESSENTIAL PART OF SOUTH AFRICA’S CAPITAL MARKET ENVIRONMENT

oneyMarketing took a look at prescribed assets in its February issue, following the publication of the ANC’s 2019 Election Manifesto stating that the party will “investigate the introduction of prescribed assets on financial institutions’ funds to mobilise funds within a regulatory framework for socially productive investments (including housing, infrastructure for social and economic development, and township and village economy) and job creation, while considering the risk profiles of the affected entities”.

As 2019 has progressed, the topic of prescribed assets has come up again and again. Following a speech by the Minister or Trade and Industry, Ebrahim Patel, at last month’s Batseta* conference, the Institute of Race Relations (IRR) sounded a warning that “the government is preparing to seize private wealth and assets without compensation”.

Minister Patel told the conference that partnerships with retirement

funds could help boost GDP growth and returns to pensioners. “Retirement funds are an essential part of South Africa’s capital market environment, and the role they play, including that of trustees and principal officers, needs to be better appreciated.”

He also said that aside from underpinning equity and debt markets, the funds have a role to play in the development of South Africa through investment in real assets. “Government’s investment drive is looking not just to Foreign Direct Investment but also and very strongly to domestic investment to stimulate economic growth.”

The Minister noted that the aggregate assets of retirement funds in South Africa was R4,2tn, according to the 2017 Registrar of Pensions Funds Annual Report, with the GEPF accounting for 40% of the total. He also remarked that the size of the retirement funds’ financial holdings mean that their decisions have a huge impact on the national economy.

Sidwell Medupe, Departmental Spokesperson at the dti, told

Risk Return Scatterplot from 1 January 2013 to 31 May 2019 20%

Laurium Flexible Prescient Fund (A1)

CAGR

15%

10%

5%

Laurium Aggressive Long Short Prescient (QI) Hedge Fund (ALS)

Laurium Long Short Prescient (RI) Hedge Fund (LS) STeFI (Cash) Laurium Market Neutral Prescient (RI) Hedge Fund (MN)

1 Year Annualised

Alsi TR (Equity) ALBI TR (Bonds)

Fund

Launch

High %

Low %

MN

01/01/09

22.8%

-1.9%

LS

01/08/08

34.5%

-5.5%

ALS

01/01/13

55.1%

-8.8%

0% 0%

5%

10%

15%

T +27 11 263 7700

E laurium@lauriumcapital.com

Continued on page 3

It’s Time to Consider Hedge Funds Don’t let the equity markets get you down!

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20%

Volatility

MoneyMarketing: “Minister Patel, in his speech to the Batseta conference, was suggesting a role the pension industry could play. It was a proposal, a suggestion.”

Medupe emphasised that Batseta’s leadership welcomed Patel’s invitation to engage with government after the State of the Nation Address to share details of the new administration’s vision and action and promote longterm, sustainable development.

The IRR reacted almost immediately to the Minister’s speech with alarm, saying that it “has long warned that the government intends seizing private pension funds to plug government spending gaps.”

The IRR linked Minister Patel’s remarks to recent statements by the ANC and the South African Communist Party that the South African Reserve Bank should be nationalised to enable the government to introduce a programme of quantitative easing.

Source: Morningstar, Hedgenews Africa, Laurium Capital (31/05/2019)

W www.lauriumcapital.com

Annualised performance shows longer term performance rescaled to a 1 year period. Annualised performance is the average return per year over the period. Actual annual figures are available to the investor on request.Collective Investment Schemes (CIS) should be considered as medium to longterm investments. The value of your investment may go up as well as down as past performance is not necessarily a guide to future performance. CIS’s are traded at a ruling price and can engage in script lending and borrowing. Performance has been calculated on the C1 class using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. 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. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). Laurium Capital (Pty) Limited, Registration number: 2007/026029/07 is an authorised Financial Services Provider (FSP34142) under the Financial Advisory and Intermediary Services Act (No.37 of 2002). For any additional information such as fund prices, brochures and application forms please go to www.lauriumcapital.com

Actual investors think in decades.

Not quarters.

SEARCH FOR ACTUAL INVESTORS

NEWS & OPINION

31 July 2019 Ebrahim Patel, Minister of Trade and Industry

Continued from page 1

IRR CEO Frans Cronje said, “The government’s fiscal position is dire, debt levels have doubled over a decade, and the budget deficit is back where it was at the end of apartheid.”

He continued, “Put plainly, it is running out of money and is desperate. Further tax hikes are nearly impossible. Yet, even at this dire point, the government refuses to introduce the liberalising reforms necessary to grow the economy. It is also reluctant to accept foreign bailouts because of the conditions that would be attached.

“It is therefore preparing to turn on South Africans and the assets they hold in order to use these to finance government programmes and policies, bail out parastatals and Eskom, pay salaries, and finance tenders and BEE deals.”

MoneyMarketing has always maintained that a prescribed assets policy is unlikely to be implemented while President Cyril Ramaphosa is leading the country. We also believe that panic should be avoided. As Peter Attard Montalto, Head of Capital Markets Research at Intellidex, stated, “No other country in the world has a blunt system of telling asset managers what to do beyond portfolio risk limits for insurance and pensions. We, however, see defunding of coal and a sluggish pace of lending growth from banks all contributing to a parliament (rather than government) focusing on this issue and trying to push it forwards. The legal complications of doing so are likely to make eventual implementation impossible but, as ever, it is the uncertainty and environment such a debate creates that is key.”

What do retirement providers think about prescribed assets? And, importantly, can they suggest alternatives? MoneyMarketing spoke to Janina Slawski, Principal Investment Consultant and Isaah Mhlanga, Executive Chief Economist at Alexander Forbes Investments.

“From our point of view, we want to do everything in our power to bring about enhanced investment outcomes for members, which a lot of the current environment and focus on sustainably is achieving,” said Slawski. “We see prescription of any form as negative because it is forcing less than ideal outcomes. We would rather focus on finding positive ways to invest members’ money to get better returns into real assets that can make a difference to communities.

That’s what’s going to help South Africa – as well as the members of retirement funds.”

EDITOR’S NOTE

I She added that more potentially suitable investment opportunities will arise the more government works with the private sector and international investors. However, the current uncertain economic environment isn’t helping and government should move to create more certainty in terms of policy.

“If you look at the past decade, you’ll see that a crisis of politics has manifested itself as a crisis of confidence and economic policy,” said Mhlanga.

“Without having clarity on economic policy and without the political environment settling down, it’s unlikely that the private sector will risk pension fund money.”

He believes that prescription requiring investors to invest into specified assets comes about “because something is not working well and you want to force it to work,” adding that prescription “implies putting money into assets that are not beneficial for pension funds members”.

He emphasised that Alexander Forbes, as a South African corporate, obviously cares about the development of the economy. “We want to contribute to the growth of the country in any possible way as long as it doesn’t impact on members’ investment and retirement goals.”

He pointed out that traditional assets classes are not giving the same returns they used to and so there is an investment case to put money into other types of assets. “We are already doing this through responsible investing, although there is room to improve the allocation, provided that the assets are available within a conducive regulatory framework.” *Batseta, which was established by three trade union federations, namely Congress of South African Trade Unions (Cosatu), Federation of Unions of South Africa, (Fedusa) and the National Council of Trade Unions (Nactu), as well as the Principal Officers Association, and subsequently Business Unity South Africa and various independent industry experts, represents the top 100 retirement funds in South Africa.

EARN YOUR CPD POINTS The FPI recognises the quality of the content of MoneyMarketing’s July 2019 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

’ve been thinking about medical care in our country a lot lately. This is probably because of the dreadful case of the elderly woman who was chained to a bench and made to lie on the floor at a Pretoria public hospital.

My mind also shifted to the burden of medical expenses when my god-daughter told me that she was expecting her first child and, although she had a hospital plan, she did not have medical aid. She was hoping that her partner and parents would pay for the expenses she incurs out of hospital. Then a few days ago, I had coffee with a highly-educated, professional couple I’ve known for years, who told me that they didn’t believe they’d ever become seriously ill and refused to spend thousands on medical aid and hospital plans every month.

On the same day as President Ramaphosa delivered his third State of the Nation Address (Sona), Discovery Health held its AGM. While most of the newspapers reported the next day at length on the contents of the Sona, the BusinessDay also published a short article on this AGM. It was sobering to read Discovery Health’s account of the current situation, namely that people have been reconsidering whether they should be rejoining medical aid schemes in the stagnant economic climate as the middle class struggles to keep itself going. Of course, it doesn’t help that the country’s medical aid population is aging while chronic disease is increasing and medical costs rising.

I have always believed that one should buy the very best medical aid one can afford. Give up the frequent eating out, the designer clothes and the luxury holidays to ensure that you and your family are able to access the best healthcare should disease strike. What difference does it make if you can’t keep up with the Jones’s?

Janice janice.roberts@newmedia.co.za @MMMagza www.moneymarketing.co.za

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ERRATUM: In the June issue of MoneyMarketing, an image of Colin Coleman of Goldman Sachs was erroneously labelled as being that of Richard Gnodde, also of Goldman Sachs. We apologise for any inconvenience caused.

NEWS & OPINION

31 July 2019

PROFILE

VERY BRIEFLY

MICKEY GAMBALE CEO, INN8

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

No it wasn’t, I didn’t know it was something I wanted to do at all. The real story is one of coincidences and lucky accidents – it was definitely something I just fell into. I was travelling in Central and East Africa and as the region became a bit unstable, it was time to come home. After returning to SA and getting my MBA, I needed a job. A friend suggested an interview with Momentum, and I started as a BDM. The rest is history.

How has INN8 changed the way in which investments are done?

INN8’s philosophy is one of continuous learning.

Don’t stop learning, don’t stop innovating or pushing boundaries. We’re on a mission to make investments more accessible to more people. Our ultimate goal is to make investments easier for advisers and their clients. We keep the adviser at the centre of our universe, and everything we do is Purpose Built and Adviser Inspired.

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

Allianz Africa announced the appointment of Allianz Africa Chief Operations Officer (COO), Delphine Traore, as President of the African Insurance Organisation (AIO). She served as Vice President of the organisation from 2018 and takes over from Managing Director of Ghana Union Assurance, Arethu Duku. The announcement was made at the AIO’s 46th conference and annual general assembly held at Emperor’s Palace in Delphine Traore Johannesburg last month.

My first investment was typical for everyone just starting out from school – I think it was a Sanlam policy! I cashed it out as soon as possible, but I’ve since learned lessons in terms of investment choices along the way.

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

Best: In the heyday of SA property boom, driving through the suburbs, I saw a billboard advertising “R500 deposit to secure a townhouse”. I dropped in and bought one that afternoon. I had it for nine months, and then sold it on, doubling my money.

That was a good moment!

Worst: My love for fast cars and motorbikes is completely irrational. I shouldn’t spend money on them, but every time I see one I lose my head. They just make me feel really happy!

Compli-Serve SA has teamed up with technology specialist Altron Bytes Systems Integration to ease compliance risks for clients in response to requirements set by the Financial Intelligence Centre Amendment Act. “All clients must be screened for sanctions, and prominent influential person risk, and adverse media checks must be performed where enhanced due diligence is required. On the back of this, Compli-Serve identified the need to deliver these services for its clients and selected Altron BSI’s Truity from Steele Compiance Solutions, to partner with,” says James George, Compliance Officer Manager at Compli-Serve SA. Truity’s ability to monitor and process millions of adverse media articles and data in the moment makes it much easier to spot potential thirdparty risk straight away.

OUR ULTIMATE GOAL IS TO MAKE INVESTMENTS EASIER FOR ADVISERS AND THEIR CLIENTS

UPS & DOWNS

Naspers delivered solid results for the year ended 31 March 2019. Group revenue, measured on an economic-interest basis and excluding the Video Entertainment business, was US$19bn, reflecting growth of 16% (or 29% in local currency and adjusted

for acquisitions and disposals). Measured similarly, group trading profit increased 10% (or 22% in local currency and adjusted for acquisitions and disposals) to US$3.3bn.

Core headline earnings from continuing operations came in at US$3bn – up 26%.

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The Board of the Association for Savings and Investment South Africa (ASISA) has appointed Thabo Khojane, Managing Director of Investec Asset Management South Africa, as its new Chairman and Ian Kirk, Group Chief Executive of Sanlam, as the new Deputy Chairman. Welcoming the new Chair and Deputy Chair, Leon Campher, CEO of ASISA, commented that the appointments effectively represent a swap of positions, which was approved unanimously by the Board. Ian Kirk had been serving as Chairman and Thabo Khojane as Deputy Chairman since September 2017. “We are extremely pleased that Thabo has agreed to step into the position of Chairman,” Campher said.

Finance Minister Tito Mboweni, in consultation with Cooperative Governance and Traditional Affairs Minister Nkosazana Dlamini-Zuma, has put forward new measures to cut down wasteful expenditure

at local government level. This means that municipalities will no longer be permitted to spend money on alcohol, catering, luxury vehicles or the appointment of consultants to perform municipal functions.

Fairtree Asset Management and Protea Capital Management have announced that, after an intensive nine-month process, the Financial Sector Conduct Authority has granted Protea its own Financial Service Provider licence. “The licence will enhance the independence of the Protea business and allow Protea to execute on its marketing plans and distribution initiatives regarding the award-winning Protea range of hedge funds, under its own brand,” the companies said in a statement.

NEWS & OPINION

RICHARD RATTUE Managing Director, Compli-Serve SA

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he financial services industry generates huge volumes of data and storing it safely and correctly has always been an essential element of business. Data, however, is typically stored in old mainframe systems, which, while robust and capable, become problematic when new-age analysis is required, as it can be difficult and time consuming to run a data query on older systems.

Time is money, and technology is changing the potential outcome for many – and probably every – industry. Taking a smart approach to analysing data, particularly in financial services, will provide a competitive edge in sustaining business and retaining customers.

EMBRACING TECHNOLOGY IS, WITHOUT QUESTION, A NECESSARY STEP FORWARD IN MANAGING CLIENTS

31 July 2019

Work your data to make it work for you Tech beckons As Artificial Intelligence (AI) progresses, facilitating a simpler process of analysing data, the results could be wonderfully productive.

As an example, perhaps a section in an insurance or investment product policy sees many complaints or queries arise. It could be that the wording is confusing or the selling process quite complex. Using this feedback, as discovered in your data on complaints logged, allows you the opportunity to reassess how a product is presented to clients. By ignoring crucial information that your data could be telling you, you’re simply shooting yourself in the foot.

You could fix any issues in communication as well, by looking into the preferred language of your customers. It may seem thoughtless to some if they opted for a particular language when onboarding as a client, and you continue to send communication in another language. Analysing data in cases like these can show you go the extra mile and listen to what your clients need. Imagine, if you drilled even

deeper into insights on clients, how much better your service could be?

AI also has a significant role to play in getting new clients from scratch.

Achieve the artificial sweet spot Embracing technology is, without question, a necessary step forward in managing clients, and will allow you to do more than ever before. Keep in mind that technology and Big Data will make it harder for businesses to hide from the Regulator, who is also looking to use similar technologies to assist in its market oversight role.

As the industry shifts and regulation like the RDR could massively change the way financial services are offered, being prepared – making the most of what you have available to you, and taking cognisance of the best technology for your business – is the sensible way forward.

Futureproof The customer has always been important, but technology is changing the game. Crunching data goes a long way to protecting the consumer, if you listen and properly interpret the results.

Targeting the right products to the right customers assists in achieving fair customer outcomes, the demonstration of which will be required for survival in the industry of the future.

Data is valuable and will only become more useful in the task of balancing the customer experience with the right amount of techsavvy and human interaction. I urge you to do your due diligence on any third-party providers and new tech systems you might take on, keeping sustainable solutions and compliance with safe cyber measures as priorities.

FSCA publishes guidance notice on sustainability of investments

A

guidance notice relating to sustainability The FSCA notes that in line with international of investments and assets in the context trends, the South African Government is also of a retirement fund’s investment policy fully committed to addressing issues relating to statement has been published on the website of the sustainability, and a number of South African Financial Sector Conduct Authority (FSCA). entities are signatories to the UN Principles of “Numerous key international trends and Responsible Investing and Code of Responsible developments from international bodies, as well as Investing in SA. In June 2016, National Treasury work of international governments, hosted a roundtable policy discussion are focusing on delivering among various South African sustainable development goals DEVELOPMENTS and mitigating or adapting to SURROUNDING climate change,” the FSCA says.

“Globally, financial systems are SUSTAINABLE also being reformed to form an FINANCE AND integral part of the solution towards INVESTMENTS a more sustainable economy, complementary with mobilising ARE ONGOING public and private financial resources for the foreseeable future and to address key sustainable development challenges.”

Integral to this approach – and also to ensure the resilience of the financial system – is the integration of environmental, social and governance (ESG) risk factors into risk management systems, and ensuring environmental and social risks is identified and mitigated in existing and future portfolios.

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stakeholders on the topic of sustainable and green finance to address environmental and social risks and opportunities. National Treasury is currently also in the process of spearheading a process with the objective of considering how issues relating to sustainable finance can be better coordinated and harmonised across the financial sector.

The FSCA emphasises that developments surrounding sustainable finance and investments are ongoing, both from an international and local perspective.

To read the guidance note in full, go to www.fsca.co.za

NEWS & OPINION

31 July 2019

Motsepe launches life insurance company

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illionaire Patrice Motsepe’s investment holding company, African Rainbow Capital (ARC), has launched a life insurance company in partnership with Sanlam, called African Rainbow Life (ARL), that will compete against South Africa’s biggest insurance companies.

ARL is a joint venture between Sanlam Life Insurance Limited (51%), African Rainbow Capital (ARC) Financial Services (26%), with the balance (23%) held by a management consortium made up of a staff, community and management trust. Combined, this shareholding accounts for a significant black ownership.

ARL’s primary focus will be on providing costeffective life cover for lower- to middle-income black South Africans, which will include death, dread disease and disability cover, as well as a cashback option. Additional products on offer include funeral cover and savings, investments and retirement products, as well as group benefits.

The company says it intends offering “easily understood and affordable products” that are culturally relevant and meet the very specific needs of the target market.

Patrice Motsepe, Chairman, African Rainbow Capital

“Our customers are typically low- to middleincome earners who historically have had little access to sound financial advice or cost-effective financial services products around which they can effectively plan for their financial futures,” says Chief Executive Officer, Bongani Madikiza.

African Rainbow Life, he adds, intends to build lasting connections by providing clients with support on their financial journey. “This will be done via a basket of comprehensive yet cost-effective financial solutions, with which each customer can begin to create their own generational wealth.”

Madikiza was previously CEO of Lion of Africa Insurance and Managing Director of the Mass Market Cluster and Corporate Businesses at Old Mutual South Africa.

“As a key shareholder in African Rainbow Life we have full confidence in the management team to offer clients something unique,” says Dr Johan van Bongani Madikiza, Zyl, co-CEO of ARC. “Given the management team’s CEO, African extensive experience in this segment of the market, Rainbow Life we expect African Rainbow Life to develop into a formidable contender in this market segment.”

Trading under the ARC brand, Van Zyl adds that sure that proper procedures are followed,” ARL says.

ARL is a key development as it is ARC’s first foray Customer information is captured by the adviser on into the retail space. “Up to now, the ARC brand a digital app, which provides a financial needs analysis has solely been used in the institutional space. As and prompts questions regarding their future needs. an empowerment investment holding company, we The adviser guides the customer through this process primarily conduct business on a B2B basis. With and helps them to understand both their current the launch of ARL, consumers will now have their financial situation as well as their future financial first direct experience with needs. The customer’s personal our brand. We trust that information is run through a ARL’S PRIMARY FOCUS limited underwriting process consumers’ experience will WILL BE ON PROVIDING if they select the Life Cover be characterised as one of responsible business practices, Product, without any medical COST-EFFECTIVE LIFE as well as excitement as we aim examinations being required, COVER TO LOWER TO to positively impact the lives of enabling the adviser to provide an many people.”

MIDDLE INCOME BLACK immediate policy quote.

The company has set clear In addition to work site SOUTH AFRICANS parameters on where its advisers, customers are also advisers can sell and service customers. All policy supported by a call centre and a website. Once sales take place at a work site or through groups policies are approved, customers are messaged with and are conducted face to face by a financial adviser confirmation and emailed a policy document. “Every who acts as a key account manager. The adviser is customer is issued with an eight-digit insurance card responsible for building relationships, new policy containing all their necessary policy numbers, leaving sales and servicing existing customers. “This enables them with a tangible reminder of the policy, as well as the company to monitor adviser behaviour and be details on how to contact the company,” ARL says.

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NEWS & OPINION

31 July 2019

SONA: Uplifting or ‘more of the same’?

Cyril Ramaphosa laid out his priorities for his first full five-year term when he made his third State of the Nation Address (Sona) last month. The speech drew mixed reaction.

‘The key message that President Cyril Ramaphosa projected in the latest Sona on the need for job-rich growth, expanding job opportunities for unemployed youth, ensuring good governance, and addressing the Eskom crisis strongly resonates with the well-known concerns of business and the markets. President Ramaphosa rightly wants to see a much higher growth rate than the current population growth if SA is to successfully combat unemployment, poverty and inequality.

This will require that growth in the years ahead rises beyond 3% from its current expected growth of about 1% in 2019, or even less. Higher private and public investment is needed to make this happen. SA will also need to implement structural reform policies that maximise the number of jobs created at any given growth rate. It is clear from the Sona analysis that a priority-led action agenda is therefore indeed required if the economy is to be turned around on a collaborative basis sooner rather than later.

The State of the Nation Address (Sona) signalled that South Africa could look forward to more of the same.

Although offering in parts an uplifting and optimistic view on the future trajectory of the country, and while some will be enthused by the apparent centrality of the National Development Plan, Sona offered very little that suggested that innovative thinking or substantial policy reforms were on the way.

President Ramaphosa’s call for a ‘relentless focus on economic growth’ was certainly welcome, as was the recognition of the need to ‘unleash private investment’ and to address the costs of doing business.

But these are hardly new sentiments. Their credibility was undermined by a failure to address forthrightly the self-imposed barriers to investment and economic growth. Foremost here is the question of property rights, and the determination of the ruling party to introduce a regime of expropriation without compensation (EWC).

The President’s failure to even mention EWC – a policy the President has endorsed in the past – leaves investors hoping for ‘certainty’ with no greater clarity. The policy is on its way, but its terms remain opaque. In other words, just enough certainty to deter investment, not enough to plan around it.

The Institute of Race Relations

Professor Raymond Parsons, Economist, Nwu Business School

The big disappointment was the clear intention to keep the state at the centre of economic performance and that effectively rules out any significant economic growth beyond the country’s population growth rate. Plans to deal with the millstone state-owned enterprises (SOEs), that have been strung around the neck of economic growth, appear to be more of the same and lack any hint of fundamental shift in policy. The statement on the mandate and independence of the South African Reserve Bank was for the benefit of the Economic Freedom Fighters (EFF) benches and little more than confirmation of the battle lost (conceded) in

the ruling party’s National Executive Committee some time ago. The lack of detail on the land reform processes and constitutional amendments was surprising given the potential to undermine other economic plans. The reform will come, it is just an issue of how and when and under what circumstances.

Eskom featured prominently, but not with any encouragement that there was indeed light at the end of the tunnel – light that was not a runaway train – and finance minister Tito Mboweni has been tasked with arranging yet another bailout.

Jee-A van der Linde, Gerrit van Rooyen, Economists, NKC African Economics

The dreamer, the realist and the critic – this was the creative process by which the visionary, Walt Disney, brought dreams to life, setting the ordinary apart from the extraordinary. A method that we should perhaps apply to the designs illustrated

by President Ramaphosa in his third State of the Nation address.

The president’s dreams of a futuristic city, akin to Beijing, offers inspiration at a time of grave distress over economic transformation and sustainable jobs creation.

His vision, though admirable and perhaps even achievable, faces severe criticism if it comes at the expense of government’s more urgent priorities. The electorate, it seems, is likely to keep the current dispensation in check, with municipal workers already challenging the merits of the extended public works programme.

Immediate remediation to long-standing issues in healthcare and education, firm policy directives on crucial matters such as land and discernable timelines on current initiatives, outside of the spectrum-licencing process, were largely absent from the president’s address. But, perhaps the two most-valued features of his speech, other than his locally-produced suit, was the additional funding being doled out to Eskom and the government’s unwavering support of the Reserve Bank’s independence and mandate. A sentiment that was reinforced by members of the ruling party after the parliamentary gathering.

Nema Ramkhelawan-Bhana, Kate Rushton, RMB Global Markets Research

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HEDGE FUNDS FEATURE

31 July 2019

KIM HUBNER Head: Business Development and Marketing, Laurium Capital

A

Following the smart money

t $39bn, the Harvard Endowment Fund is the largest higher education fund in the world.

Over the last two years, the fund has doubled its investments in hedge funds, which now represent a third of its assets. While hedge fund exposure of other US endowments is not this high, it still represents a significant portion of the overall endowments. The percentage invested in hedge funds is as follows:

Some hedge fund managers, like Laurium Capital, have moved their hedge funds from monthly pricing and dealing to daily pricing and dealing, which means they can now be added onto LISP platforms and included in model portfolios, etc. The industry still needs a hedge fund classification framework, which will assist adding the funds onto platforms, and help advisers and investors to better understand the investment strategy of the manager and fund.

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

One of the major reasons to have hedge funds as an investment is for downside protection and diversification. At least 15-20% of an investor’s portfolio should be invested in assets that are non-correlated to traditional investments, which makes hedge funds a key part of any well-diversified portfolio. The Laurium Market Neutral Fund has a correlation statistic to the FTSE JSE ALSI TR index of only 0.17 over time, yet it has achieved 9.7% p.a. after fees since inception (1 January 2019 to end April 2019) versus cash of 6.8% and the equity market of 13.5%, and importantly at very low volatility (risk) of 4.9% versus volatility of 14.1% for the FTSE JSE ALSI TR Index.

Despite South African hedge fund managers producing excellent risk-adjusted returns over the long term, the hedge fund industry in South Africa remains small (estimated R40bn) relative to CIS industry assets of R2.4tn as at end March 2019. After a tough few years for hedge funds, with assets declining in 2017 and 2018, we believe that investors lost their faith at precisely the wrong time. Last year, the All Share Index was down -8.5%, while the HedgeNews Africa South African Single-Manager Composite was up 5.2% after fees.

Hedge funds continue to fare well into 2019. There is a misconception that hedge funds are risky investments, when in fact South African hedge fund managers are relatively conservative, constraining downside performance and reducing volatility.

Most assets in the hedge fund industry are held in funds with a select few managers who have track records of more than 10 years. These assets originate from a select group of pension funds and high-networth individuals. Flows up until now from retail investors directly and via advisers has been negligible.

This is despite hedge funds being available to the public, post regulation by the FSCA under CISCA. We suspect this may be due to the funds not being available to retail investors via LISPs, which are the primary channels used by financial advisers, and also due to the fact that financial advisers and investors alike do not have a good enough understanding of their benefits to be able to invest with confidence.

Disclaimer: Collective Investment Schemes (CIS) should be considered as medium to long-term investments. The value of your investment 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. 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 service charge) from the portfolio divided by the number of participatory interests (units) in issue. Forward pricing is used. Excessive withdrawals from the portfolio may place the portfolio under liquidity pressures and a process of ring-fencing of withdrawal instructions and managed pay-outs over time may be followed. The Manager retains full legal responsibility for any portfolio hosted on its CIS platform.

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. Prescient is a member of the Association for Savings and Investments SA.

New investment industry event launched: The Investment Think Tank

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new industry event is being launched

by The Collaborative Exchange – the organisers of The Investment Forum and Meet the Managers. Approximately 1 600 advisers attended The Investment Forum in April this year and a further 1 300 are registered to attend Meet the Managers in July 2019.

The Investment Think Tank has been designed considering the needs of financial advisers in cities outside of Sandton, Cape Town and Durban, as many advisers cannot travel into these larger centres.

The event is a combination of the principles of The Investment Forum and Meet the Managers – thought-leadership and “Masterclass” principles.

The event will also be eligible for CPD points/hours and, subject to the approval of the FPI, is likely to attract 6 CPD points/hours.The dates for The Investment Think Tank events are as follows: 30 July 2019 – The Roots Lifestyle Centre, Potchefstroom 1 August 2019 – The Boardwalk Hotel and Conference Centre, Port Elizabeth 5 August 2019 – Windmill Casino and Conference Centre, Bloemfontein 7 August 2019 – Tsogo Sun Emnotweni Conference Centre, Nelspruit

The following fund managers and discretionary fund managers will be presenting at this event: Ashburton, Analytics, ClucasGray, Coronation, Credo, Element, Glacier Invest, Laurium, Matrix, Morningstar, Obsidian, Prescient, Prudential, Rezco, Sentio, Stanlib, Sygnia, Tantalum and Truffle.

For full details on the events and to register your attendance, visit www.investmentthinktank.co.za or email info@investmentthinktank.co.za or call The Collaborative Exchange on 087 898 5490.

The event is only available to registered financial advisers.

ry st u d t in en v ew e

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INVESTMENT

THINK.TANK POTCHEFSTROOM 30 July 20l9 The Roots

Brought to you by

PORT ELIZABETH 1 August 20l9

Boardwalk Conference Centre

BLOEMFONTEIN

NELSPRUIT

5 August 20l9

7 August 20l9

Windmill Casino and Conference Centre

Southern Sun Emnotweni

www.investmentthinktank.co.za Robb@investmentthinktank.co.za +27 87 898 5490

WWW.MONEYMARKETING.CO.ZA 9

HEDGE FUNDS FEATURE

Hedge Funds: Superior risk-adjusted returns About us • We analyse businesses GRAPH 1: GROWTH OF R1 WITH ALL DISTRIBUTIONS REINVESTED Peregrine Capital was founded in and determine what we 1998 and is the longest-standing think they are worth. hedge fund manager in South We buy shares that we Africa. We have been there from the believe are undervalued, beginning, helping to protect and and sell those that we grow the wealth of our clients. We believe are overvalued. have built an exceptional and stable • We believe that consistent team of investment professionals who outperformance can only are solely focused on refining our be achieved through investment process each day, to deliver superior knowledge of superior risk-adjusted returns for our companies and their clients. Our process is built on the securities, not through foundations of honesty, integrity and attempts at predicting an unerring pursuit of the truth, so what is in store for the that investment decisions are based on economy, currencies, facts rather than feelings. interest rates or the overall level of markets.

We invest alongside • We embrace situations our clients that are complicated, We actively seek to align our own difficult to analyse or interests with those of our clients. that require considerable We are cumulatively a top-five investor effort, as this often gives in our funds and staff own 50% of us an edge against competitors.

Growth Fund”) has delivered a net The lowest calendar year net our business. The manner in which • Honesty and integrity are the annualised return of 26.1% per return since inception of the High we reward and promote our staff is core of how we interact as a annum since inception on 1 February Growth Fund was in 2008, when designed to foster excellence, longteam, and with our clients.

2000, compared to the FTSE/JSE the fund and the Index delivered term focus and commitment to our • We maintain a flat structure, Capped Swix All Share Index (the -12.0% and -23.2% respectively. clients. We hope to attract clients and actively encourage robust “Index”) return of 13.1% and the The fund ending down roughly who have similar like-minded, longdebate, diverse opinions and average ASISA South African MA half as much as the market. term investment horizons. Times of contrarian views, in order to High Equity (the “High Equity market panic often present the best seek out the truth.

Balanced Fund”) return of 11.0% for Downside protection in investment opportunities, and it is • We constantly strive to the same period (see Graph 1 above). uncertain markets only with the confidence of our clients improve our investment The Standard Deviation, which The Peregrine Capital Pure that we can meaningfully engage these process and all other parts of measures volatility, has been 7.4% Hedge H4 QI Hedge Fund (the rewarding opportunities. our business. We are never for the High Growth Fund, 12.1% “Pure Hedge Fund”) has never done learning and continually for the Index and 6.4% for the had a negative year in its 21-year Investment process look for new opportunities to average High Equity Balanced existence. The lowest calendar • We believe that disciplined and improve ourselves.

Fund for the last ten years. This year net return since inception consistent application of our demonstrates far lower volatility of this fund was in 2008, when investment process will result Performance with lower for the High Growth Fund when the fund delivered +1.6% while in the generation of superior than market risk compared to the Index and slightly the Index delivered -23.2%. In returns for our investors over the The Peregrine Capital High Growth higher than the average High Equity addition, the Pure Hedge Fund medium term.

H4 QI Hedge Fund (the “High Balanced Fund. delivered a net return of +5.1% in 2018 compared to the Index of -10.9%, outperforming the GRAPH 2: CORRELATION TO FTSE/JSE CAPPED SWIX ALL SHARE INDEX market and still delivering a OUR PROCESS positive return.

The Pure Hedge Fund has IS BUILT delivered a net annualised ON THE return of 21.1% per annum since FOUNDATIONS inception in July 1998, compared to the average ASISA South OF HONESTY, African MA Low Equity (“Low INTEGRITY Equity Balanced Fund”) return of AND AN 10.2% and Inflation (CPI) of 5.7% for the same period.

UNERRING The Standard Deviation, which PURSUIT OF measures volatility, has been 3.6% for the Pure Hedge Fund and THE TRUTH 3.4% for the average Low Equity Balanced Fund over the last ten years. This demonstrates similar volatility for the fund when compared to the average Low Equity Balanced Fund.

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31 July 2019

Lower market correlation Graph 2 clearly displays that our two flagship funds do not simply track the equity market, as evidenced by the low correlation with the Index.

We believe that investors who are looking to construct a well-balanced portfolio comprised of investments with low correlations to one another, should consider adding our funds to their portfolios.

Size matters There is an inverse relationship between size of assets under management and the ability of an asset manager to generate returns.

Boutique asset managers, like ourselves, benefit from higher liquidity relative to our fund size and typically have far more investable opportunities than larger fund managers. We are able to rapidly invest in new ideas and to change our minds where circumstances change or where an investment thesis no longer holds true. These are luxuries not often afforded to larger asset managers.

Important disclosure information: H4 Collective Investments (RF) Proprietary Limited (“H4”) is a registered and approved manager of collective investment schemes in hedge funds. Peregrine Capital Proprietary Limited (“Peregrine Capital”), is an authorised Financial Services Provider (FSP 607) under the Financial Advisory and Intermediary Services Act, No. 37 of 2002 and has been appointed by H4 as the investment manager of the portfolios. Collective investment schemes are medium to long-term investments. The value of participatory interests or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from H4 or Peregrine Capital. Peregrine Capital High Growth H4 QI Hedge Fund: Performance fees are payable on positive performance using a participation rate of 20%. A high watermark is applied, which ensures that performance fees will only be charged on new performance. There is no cap on the Rand amount of performance fees. Peregrine Capital Pure Hedge H4 QI Hedge Fund: Performance fees are payable on positive performance, in excess of

the hurdle, using a participation rate of 20%. A high watermark is applied, which ensures that performance fees will only be charged on new performance. There is no cap on the Rand amount of performance fees.

Neither H4 nor Peregrine Capital provides any guarantee with respect to the capital or return of a portfolio. H4 retains full legal responsibility for the portfolios. H4 has the right to close the portfolios to new investors to manage them more efficiently in accordance with their mandates. The performance calculated and shown is that of the Portfolio. Performance has been calculated using net NAV to NAV numbers with income reinvested.

The investment performance for each period shown reflects the net return for investors who have been fully invested for that period. Individual investor investment performance may differ as a result of initial fees (if applicable), the actual investment date, and the date of reinvestment of distributions and/or distribution dates and dividend withholding tax. Where periods of longer than one year are used in calculating past performance, certain figures may be annualised.

Annualised performance is the average return per year over the period. Actual annual figures and investment performance calculations are available on request. Where

Fund Name

Inception date

Since inception annualised return

Highest annual return

Lowest annual return

Peregrine Capital High Growth H4 QI Hedge Fund (‘High Growth Fund’ above)

Feb 2000

26.09%

53.01% (2004)

-11.98% (2008)

Peregrine Capital Pure Hedge H4 QI Hedge Fund (‘Pure Hedge Fund’ above)

Jul 1998

21.10%

67.90% (1999)

1.61% (2008)

FTSE/JSE Capped Swix All Share Index

Feb 2000

13.14%

47.25% (2005)

-23.23% (2008)

ASISA South Africa MA High Equity

Feb 2000

10.98%

27.49% (2004)

-8.24% (2008)

ASISA South Africa MA Low Equity

Jul 1998

10.22%

40.59% (1999)

1.24% (2018)

Inflation (CPI)

Jul 1998

5.69%

12.44% (2002)

0.21% (2003)

investment performance has been shown by way of an illustration (a) investment performance is for illustrative purposes only (b) the investment performance is calculated by taking the actual initial fees and all ongoing fees into account for the amount shown and (c) income is reinvested on the reinvestment date. The performance history is contained in the portfolios’ minimum disclosure documents which are available on request from H4 or Peregrine Capital. Full details and the basis of all awards mentioned are available from H4 or Peregrine Capital.

The calculation of all net returns from 1 February 2000 until 30 November 2016 are for the unregulated Peregrine High Growth Fund, thereafter the data relates to the regulated Peregrine Capital High Growth H4 QI Hedge Fund. The calculation of all net returns from 1 July 1998 until 30 November 2016 are for the unregulated Peregrine Pure Hedge Fund, thereafter the data relates to the regulated Peregrine Capital Pure Hedge H4 QI Hedge Fund. The ‘JSE Capped Swix All Share Index’ referenced is the Index from December 2016 to date, before that the JSE All Share Index is used. Where a FTSE/JSE index (“the FTSE/JSE index”) is referenced in this document, copyright therein vests in FTSE International Limited © FTSE 2018. “JSE” is a trade mark of the JSE Rolling 12 Limited and both “FTSE ®” and month return “JSE” are used by FTSE under licence. The relevant FTSE/JSE 11.70% index is calculated by FTSE in conjunction with the JSE. All 16.02% intellectual property rights in the index values and constituent list vests in FTSE and the JSE. -1.67% Neither FTSE nor its licensors accept any liability for any 4.80% errors or omissions in the FTSE/ JSE Indices and/or FTSE ratings 6.05% or underlying data. No further distribution of FTSE data is permitted without the FTSE’s 4.39% express written consent.

An Eye for Opportunity Longest running hedge fund manager in South Africa Winner of the Five-Year Performance (Single Manager) HedgeNews Africa Awards 2014, 2015, 2016 and 2017

011 722 7482 | invest@peregrinecapital.co.za | www.peregrinecapital.co.za

Peregrine Capital (Pty) Ltd is an authorised financial services provider

Peregrine-Capital-155x220-Advertorial-V2.indd 1

2019/06/11 14:52

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INVESTING

31 July 2019

ALBERT BOTHA Head: Fixed Income Portfolio Management, Ashburton Investments

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ver the last couple of years, asset allocation, security selection and clients have gravitated hedging to create an absolute return towards solution funds for performance profile that aims to most of their investment needs. For outperform money market and cashthe more aggressive investors and plus portfolios over time. They do those with a longer-term outlook, the this by combining a range of diverse most common options are balanced return streams into a portfolio that and flexible funds. These portfolios allows the portfolio to target higher are generally equity heavy and have returns without sacrificing liquidity. more volatile return prospects.

This is possible because most of the The equivalent in the fixed-income assets in this portfolio that distinguish space are diversified income* funds. it from the cash-plus type funds are These funds sit in the Multi-Asset liquid. Government bonds, property Income space and have access to all and offshore assets are all liquid, and the same tools as balanced funds. both increase the liquidity position of The primary restrictions are aimed at the fund, as well as enhance potential making these portfolios compatible returns over time. with conservative clients and those The diversified income type who require a fixed income solution portfolio is the only fund in the as part of a greater portfolio. income segment of the market that In the fixed income product suite, can truly be seen as a potential longthe first step above money market on term solution – even if it is only for the return spectrum is colloquially conservative clients. called the cash-plus products. This In this space, Ashburton is a bit of a misnomer. Most of these Investments manages the Ashburton portfolios generally aim to provide Diversified Income Fund. The fund a return profile that resembles that was launched in March 2018 and of a money market portfolio while has performed exceptionally well returning about 1% extra per year. since inception – returning an This is generally done by increasing annualised 10.14% per annum. The both credit and term risk premium strong credit component that is part to the portfolio. In other words, of its DNA allows for a solid base portfolio managers include a bit from which to build such a fund. more non-bank This is then overlaid corporate debt with the house view THESE FUNDS SIT and increase the macro framework term of the average and good skills in IN THE MULTIdebt instrument structuring and ASSET INCOME somewhat. In these hedging to provide a SPACE AND HAVE funds, liquidity is truly best investment of primary concern ACCESS TO ALL THE view in the fixed and a focus on income space.

SAME TOOLS AS the liquid assets Many investors BALANCED FUNDS have found it to remain paramount.

This is especially be a good solution important in these funds as when looking to up their South African credit performance outlook can be illiquid while maintaining at times. a conservative When you investment move away from stance. the cash-plus *Other names are mandates, fund Strategic Income, managers use a Enhanced Income, combination of Active Income.

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Passive investing misperceptions in South Africa

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assive investing is gaining ground in South Africa, mainly due to the (generally) lower fees involved compared to actively managed funds, but also based on some misperceptions stemming from the US experience.

Fundamental differences with the local market mean that passive investing may not be as successful here as in the US. One important difference between the South African and US markets is that exchange traded funds (ETFs) enjoy a substantial tax advantage over actively managed unit trusts in the US. This arbitrage has been one of the key drivers of the US move towards ETF investments. Yet this advantage does not exist in South Africa; the two are subject to identical tax treatment.

Two other significant differences are highlighted in the accompanying graph, showing that the FTSE/JSE SWIX Top 40 Index is one of the most highly concentrated, and has one of the highest turnovers, in the world.

The first characteristic means that investors who track the index get far less diversification than other broad market equity indices like those elsewhere.

The SWIX Top 40 Index has a concentration (as measured by the HerfindahlHirschman Index (HHI)) of nearly 900, compared to the S&P 500’s HHI measure at below 100. Currently, Naspers makes up over 20% of the SWIX Top 40 Index. Our high market concentration makes simple equity index tracking investments much more risky in South Africa than in many other countries.

Also, our SWIX Top 40 Index composition has a much higher annual turnover than the US, as companies qualify to move in and out of the index more frequently. This drives South African index tracking costs comparatively higher as passive managers must rebalance their portfolio holdings in line with the ever-changing composition of the Top 40 biggest shares, resulting in higher numbers of costly transactions that detract from performance.

As shown by the dashed line in the graph, the further one moves along a continuum from the US market (lowest concentration, low index turnover) to South Africa (highest concentration, high index turnover), the easier it should be for active managers to outperform the market index. A passive approach could provide better results in highly diversified, lower-cost markets, while an active approach would tend to outperform in less diversified, higher-cost markets. In South Africa, a higher proportion of active managers would be likely to outperform the market index – and therefore passive solutions – than in the US. An analysis of the performance of Association for Savings and Investment South Africa (ASISA) equity funds confirms this, showing that a higher percentage of active equity funds succeed in outperforming their own benchmarks after fees, compared to the US market.

These results should help to combat the misperception that active South African equity managers continually underperform their benchmarks.

They also demonstrate that active management does add value in the South African market on an after-fee basis. Given the characteristics of our equity market, investors need active management to ensure risk is diversified away, as much as to generate active returns.

WIN A DOUBLE TICKET Johny Lambridis will TO THE ALLAN GRAY be presenting at the Allan INVESTMENT SUMMIT Gray Investment Summit in Simply email your name, company, Johannesburg and Cape Town in address and cellphone number to July 2019. For more, visit Janice.Roberts@newmedia.co.za *Terms & conditions apply www.investmentsummit.co.za SA Equity Market: High Concentration Risk and Turnover

SOUTH AFRICA SWIX

900 800

MEXICO MEXBOL

700

Index (HHI) Concentration

Why consider a diversified income fund?

JOHNY LAMBRIDIS Portfolio Manager, Prudential Investment Managers

GERMANY DAX

600 500

BRAZIL Bovespa

400 300 200

JAPAN Nikkei 225

US S&P 500

100

0 0%

5%

10%

15%

20%

25%

30%

35%

40%

Annual Index Turnover

Source: Bloomberg, S&P

INVESTING

31 July 2019

Flying through the storm: i3 Summit in review

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he importance of considering all the investment options available and making the right decisions now to create positive outcomes for investors in the future, was the focus for this year’s i3 Summit, hosted by Sanlam Investments and Glacier by Sanlam. “We have the power to design our futures and create a world where we can all prosper,” said Nersan Naidoo, Chief Executive of Sanlam Investments in his opener, adding that there has never been a better time to be an investor. Khanyi Nzukuma, chief executive of Glacier

by Sanlam, concurred and pointed out the important role of thoughtleadership investment conferences such as the i3 Summit to ensure that, as custodians of investors’ wealth, the financial industry stays relevant and ahead of the curve in finding the best outcomes for clients.

The MC was acclaimed TV personality Lerato Mbele-Roberts, who introduced an exciting line-up of speakers, including honoured guest and former public protector, Professor Thuli Madonsela and acclaimed heuristics expert, Baba Shiv from Stanford University.

Against a somewhat bleak socioeconomic and political backdrop, three industry experts explored a synopsis of current investment industry trends and illustrated that with some innovative thinking and creative portfolio construction, positive investment outcomes are well within reach for investors.

Social enterprise as the ultimate enabler In her keynote address, the motivational thoughts expressed

by Professor Thuli Madonsela were encouraging for anyone practicing in the investment industry and in the current, challenging economic climate.

She emphasised the importance of social enterprise, which requires a balance between investment, wealth creation and addressing social injustice and inequality.

It pays to be tech savvy – it removes the emotion and other but don’t get caught up in the human behavioural biases so common ‘hype cycle’! to investors. Its rules-based and Richard Clode, portfolio manager systematic nature helps us navigate the on the Global Technology Team at tough investment decisions that our Janus Henderson Investors, gave an emotions (such as fear and greed) may illuminating presentation on ‘Investing sometimes hinder.” in Disruption’, an analysis of just how

important technology has become as An alternative a disruptor in driving returns. Tech (investment) universe promises to be a critical player in, and Gavin Ralston, Head of Official an enabler of, portfolio construction.

Institutions and Thought Leadership One of the most intriguing statistics at Schroders, presented on how to find quoted was that 75% of millennials additional sources of return in portfolios Neural networks: How they would more readily purchase financial and lower risk, using alternative asset shape emotions, motivation services from a classes. He noted that and decision-making tech company than in the next decade WE HAVE THE Like it or not, emotions drive 90 they would from a investors would not see POWER TO DESIGN the double-digit returns to 95% of our decisions. So says traditional financial Baba Shiv, Sanwa Bank’s Professor services provider.

OUR FUTURES AND from traditional asset of Marketing, Co-Director of the That said, the role classes experienced in CREATE A WORLD the past.

Strategic Marketing Management played by human Executive Programme, and Director advisers continues Says Ralston, WHERE WE CAN of the Innovative Technology Leader to be relevant (read: “Traditional asset ALL PROSPER Executive Programme at Stanford’s ‘essential’) in wellclasses like equities Graduate School of Business. Drawing constructed, cogent portfolios. and bonds are just not going to yield on intriguing research on the emotional Be aware, however, says Clode, those above-inflation plus returns that brain, Shiv explained its powerful “Not all technology stocks are created our clients are looking for. We have to role in shaping human decisions. He equal. Some stocks disappoint and venture off the beaten path in search of explained how people can learn to could turn into ‘zombies’, so be sure to alternative investment vehicles that can regulate neurochemicals like serotonin avoid the ‘cycle of hype’ that is common reveal those hidden sources of alpha.” and cortisol, which affect every-day among tech stocks. Always interrogate Ralston says, “Investing in alternatives decision making, to be able to make thoroughly what is trending; be is by no means easy, but definitely better investment decisions. discerning, be selective.” worth pursuing. They give you higher Says Shiv, “When making decisions

returns, are a powerful diversifier, offer on behalf of clients, always do it through A compelling case for factor broader exposure to economic growth, the lens of the human emotional brain. investing (or smart beta) they lower risk, and generally offer a If you pit the emotional brain against the Kingsley Williams, CIO at Satrix, smoother overall return profile.” rational brain, it is the emotional brain outlined the ways in which portfolio that wins every time.” construction could be revolutionised Pulling the threads together using style factors such as momentum, In the panel discussion that rounded value, quality and yield. In his off the day, facilitator Leigh Köhler, presentation on ‘Factor Investing’, head of Investment Solutions at 1 2 Kingsley likens building a portfolio (in Glacier, summarised a few additional particular, using factor investing to do nuggets from the keynote presenters: so) to harvesting various water sources 1. To meet the need for stability, in a drought. He shows how capturing especially in long-term portfolios water is much akin to harvesting like living annuities, alternative asset certain risk premia or styles in classes such as infrastructure and investing, popularly known as factors. private debt are great diversifiers and During adverse market conditions potential sources of return.

3 (likened to a drought) factor investing 2. In South Africa, balanced funds are offers a cost-effective and more more popular than hedge funds as predictable source of return. Says the latter previously did not protect Williams, “One of the most valuable portfolios well following the 2008 attributes of factor investing is that global financial crisis. But hedge funds could be coming back into vogue if down markets persist.

3. Investment strategies can be 4 5 6 protected by technology in two ways, among others: • Data scientists are necessary to analyse, organise and prioritise data to enable investment decision-making criteria, and • technology can drive 1. Professor Thuli Madonsela 2. Gavin Ralston 3. Nersan Naidoo investment platforms.

4. Richard Clode 5. Kingsley Williams 6. Professor Baba Shiv

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31 July 2019

Ian Cruickshanks, Chief Economist, Institute of Race Relations

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his disappointing growth outcome confirmed that 2019 will turn out to be worse than 2018 from an economic perspective – actually the worst year since the recession following the global financial crisis in 2009. This is according to economists at NKC Research, Jee-A van der Linde and Gerrit van Rooyen.

“The broad-based downward pressure on the economy in Q1 stems predominantly from intermittent load-shedding, a prolonged labour strike in the gold mining sector, renewed upward pressure on fuel prices, and generally low confidence levels in the economy,” they said in a note.

Just how bad was Q1 GDP? The worst performer in Q1 proved to be the manufacturing sector, contracting by 8.8% q-o-q saar and slipping 1.1 percentage points (ppts). The mining sector also remained under huge pressure, contracting by 10.8% q-o-q, saar and declining 0.8 ppts, while the construction, electricity, trade, catering and accommodation and transport sectors were hit.

Institute of Race Relations (IRR) Chief economist Ian Cruickshanks believes the GDP figure suggests the country is headed for a technical recession* in 2019. He’s not alone, as in a Moody’s Global Macro Outlook Report last month, the ratings agency stated, “The odds that South Africa’s economy may experience another technical recession in 2019 are high,” due to “lacklustre domestic private sector demand – both household spending and investment, and the detrimental impact of widespread power outages on the manufacturing and mining sectors.”

Cruickshanks told MoneyMarketing he believes that the economy will continue to slow as significant job losses persist

Mike Schüssler, Chief Economist, Economists.co.za

carry on investing South Africa’s GDP declined by 3.2% quarter-on-quarter (q-o-q) at a seasonally adjusted, annualised rate (saar) in the first quarter of 2019. This was the largest quarterly drop in GDP in a decade. While economists had warned that GDP growth would fall, this was seen as a sharp nose-dive. MoneyMarketing looks at the implications for investors’ portfolios. and standards of living decline. markets where governments want “Look at business confidence – it to be on the same side as investors. is still declining from a low level, We’re just not seen as an investmentso you can’t expect any expansion friendly destination.” and any fixed capital development Mike Schüssler, chief economist at unless there are huge changes in Economists.co.za, believes that the the environment. For the next country may just escape a technical twelve months, I see GDP growth at recession but is still concerned between -1% and +1%.” about the Q1 GDP number.

Cruickshanks “One is still a bit added that South shell-shocked,” he Africa’s weak growth WHAT MATTERS told MoneyMarketing. performance is MOST FOR YOUR “It’s now time for ultimately a function leadership [from the PORTFOLIO of hostile government president] – you can’t policy. “Ruling party play around because HAPPENS ideology places the you want to keep IN BEIJING, state at the centre of some people in your WASHINGTON political party happy.” the economy, crowding out private investment.

Yet he is convinced AND NEW YORK We see instances where that the country will government regards the private sector make a recovery in the second quarter. as the enemy and that’s completely “It won’t be a brilliant recovery and it’s wrong – government should be a touch-and-go situation. We could looking at them as potential partners, grow by 1% or half a percent – maybe but they keep on putting obstacles in even 1.5 percent – but we won’t make their way. There are other emerging up all the lost territory.”

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What all this means for local investors While investors may be nervous, it’s worth noting that a typical local balanced fund doesn’t have a very large exposure to our embattled economy.

“Most balanced mandates are allowed to hold up to 30% in offshore assets – they can invest in offshore bonds and equities,” said Bryn Hatty, CIO of Stonehage Fleming in SA. “In my experience, a lot of these funds sit near their maximum offshore exposure. This means investors are already getting a huge chunk of diversification away from the South African economy as a result of the offshore holding.”

Furthermore, JSE-listed shares tend to be more global than local.

“Two thirds of the JSE’s value is driven by the offshore international markets – think about BAT or Naspers whose businesses are offshore,” he added.

Hatty also noted that due to how negative local investors are generally, shares exposed mainly to the local economy are probably relatively cheap, having already priced in a lot of concern around economic growth in SA. “What matters most for your portfolio happens in Beijing, Washington and New York,” said Dave Mohr and Izak Odendaal from Old Mutual Multi-Managers.

“The global economy is facing a period of uncertainty (mostly around trade) and slower growth, but this does not imply a repeat of the 2008 global recession,” they add. “With the benefit of lower rates, lower oil and hopefully a thawing of global trade relations, growth could pick up again later this year into next year.

*A technical recession is defined as two consecutive quarters of negative GDP growth

INVESTING

31 July 2019

UK property smart investment despite Brexit uncertainty

ANDREW VAN BILJON Portfolio Manager, RisCura

China a strong opportunity for SA investors

I

nvesting in property located in the ‘Northern Powerhouse’ region of the United Kingdom is still considered a smart move – despite the Brexit uncertainty, says Gavin Smith, Head of Africa at deVere Acuma.

“While Brexit uncertainty continues to cast a shadow over the British business climate, the UK remains a highly attractive property investment destination,” he states.

“Underlying conditions in the broader economy continue to underpin the housing market and the UK still offers South Africans a financially stable and culturally familiar destination in which to buy property.

“Whatever the outcome of the ongoing Brexit negotiations, the UK will continue to be a secure place for South Africans to buy property, and in the long term, will offer positive growth,” observes Smith.

“In the short term, the political uncertainty, which has driven down the pound considerably, means that properties are more affordable, making now an ideal time to invest.”

Add to this the fact that many young people will never buy their own homes, and many UK residents are now part of ‘generation rent’, it is clear that those who can afford to invest in lettable properties can expect a secure, income-generating investment for years to come.

In particular, Smith highlights the so-called ‘Northern Powerhouse’ cities – which are currently benefiting from a massive infrastructure and social investment plan by the UK government – as golden investment opportunities.

The plan involves upgrades to infrastructure and schools, as well as investment in technology businesses to assist the economies of cities including Manchester, Liverpool, Leeds, Sheffield, Hull and Newcastle to boom.

Recent research from CWJobs showed that a quarter of London decision makers would rather launch a new start-up in Manchester than in London, with the city’s world-class universities, including the University of Manchester, being a key attraction.

Leeds and Sheffield offer similarly

promising educational institutions.

Spiralling property prices in London, a more balanced lifestyle in the North and increasing numbers of businesses locating their headquarters outside of the capital are driving the desirability of these Northern Powerhouse cities.

The rental yield figures support this as well. The average rental yield in Liverpool is around 5.05%, compared to a national average of 3.6%. In Manchester, M14, the area south of the city centre, offers an average rental yield of 7.07%, while M13, the areas near the University of Manchester, offer an average yield of 6.89%. In Leeds, some areas achieved a high yield of 7.5% between 2017 and 2018. In Birmingham, areas around the city’s two universities had yields as high as 11.66% in 2018.

“It is clear that these cities are beating the national average for rental yields by some margin, while also offering far more impressive growth potential than one could expect in London,” says Smith.

“Another major reason to consider property investment in the UK is for diversification purposes. Diversification of your investments is the best way to mitigate risks to your wealth.”

But how does the UK stack up against other foreign property investment destinations?

Smith says that all of the factors that have always made the UK attractive to South African investors still hold true.

“The UK is almost in the same time zone as South Africa, which allows for ease of transaction and communication. It’s an easy overnight flight away should the need for a visit arise. It is English speaking, with stable legal and tax processes.

“For all of these reasons, the UK remains an excellent investment destination for South Africans seeking security, growth and a hedging option.”

Gavin Smith, Head: Africa, deVere Acuma

D

espite ongoing trade tensions with the US, Chinese government policies and proactive market evolution continue to ensure strong opportunities for investment.

Around 60% of global equity investments are currently invested into America, yet China is set to become the world’s biggest economy by 2030. In contrast, Chinese equities are significantly underrepresented in global market indices. Shares listed on the Chinese mainland currently have negligible representation despite being the second largest stock market in the world. There were challenges with access for foreign investors in the past although they have largely diminished over recent years.

Earlier this year, the National People’s Congress of the People’s Republic of China (PRC) passed the Foreign Investment Law of the People’s Republic of China, which will come into effect in January 2020. The Foreign Investment Law was formulated to further expand opening up of the Chinese economy to CHINA IS SET foreign investors, and to better protect the rights and interests TO BECOME THE of foreign investors.

WORLD’S BIGGEST The above comes amid ECONOMY BY 2030 growing interest from global investors, and the MSCI inclusion of Chinese mainland shares in its indices for the first time in 2019. Where previously the Chinese government controlled access to investments in local companies and kept offshore investors out, the recent deregulation reflects a major structural shift taking place in the Chinese economy.

Poverty reduction is one of the government’s main goals, and they are making great strides to achieve this. As the Chinese population grows wealthier in a more open economy, there is significant opportunity for investors.

As the Chinese population’s standard of living moves up, they are likely to buy more consumer goods. We believe that the Chinese companies making those consumer goods are a lucrative investment opportunity. Our expectation is that investments in these companies will offer high returns for many years to come.

We also expect that the MSCI indices will continue to increase China shares in their portfolios over the next five years, and so there’ll be a steady increase in international investment. For a more active investor, getting in early allows them to buy into these shares at a lower price – which enables a better return.

South African pension funds have already benefited from having exposure to China via their investments in Naspers, which has a significant shareholding in Tencent, a Chinese technology company. There are risks, however, associated with such a large exposure to a single company, and the recent opening up of access to an increased range of Chinese mainland shares offers an excellent opportunity for these investors to diversify and obtain exposure to the broader Chinese market.

Investors should beware, however, that China is a more volatile and more risky investment – but with greater risk comes greater potential reward. We typically recommend that investors with SA equity investments invest no more than 5% of their whole portfolio.

It’s not a large allocation, but it’s enough to generate extra returns without putting their whole portfolio at risk.

WWW.MONEYMARKETING.CO.ZA 15

INVESTING

31 July 2019

Look back with interest

I

nvestors are often told to think long term and to ride out short-term volatility. This has become increasingly difficult for South Africans, who have endured a five-year negative equity return number as at the end of 2018.

However, the prognosis for growth assets over the long term is improving.

“Investors should therefore think twice before switching into cash, even though it has outperformed equities substantially since 2014,” said Anet Ahern, CEO of PSG Asset Management at a recent roadshow for clients. “We often want a simple silver bullet to make up for the pain that market losses cause, but there is no such panacea.”

She said that 2018 was especially ‘horrific’ for investors, not just because of the steep decline in the All Share Index (Alsi), but also because of the breadth of bad news. “Usually, there are pockets of shares that continue to produce decent INVESTORS returns; but not last year,” she said.

CAN BE THEIR In fact, globally, the OWN WORST majority of indices ENEMIES and markets in different asset classes and regions were down. In South Africa, this was coupled with continued shocks to the political and economic environment, such as the ongoing revelations of the extent of state capture and its economic repercussions.

To make matters worse, the recent GDP figure for the first quarter of 2019 showed that the local economy is teetering on the edge of recession.

Investors are often told that past returns are no guarantee of future returns. This also applies to negative returns, Ahern said. She pointed to four previous crises that gutted our markets: the Rubicon speech, the prospect of civil war just before the political transition, the Asian crisis and the global financial crisis. At each of these points, investors experienced extreme negative sentiment.

What is interesting, she said, is to look back at what happened after previous bear markets. Going back to 1972, there have been five substantially low points in the Alsi – points where, as is the case now, the five-year return dipped below zero. What happened in the following three years?

“At worst, you got 16% per annum over three years, and at best you were rewarded with over 40% for staying in equities,” Ahern said.

16 WWW.MONEYMARKETING.CO.ZA

“For this reason, as well as others, we believe that on a balance of probabilities, there’s a good possibility that investors can get back on track by staying invested, and that we’re at an advanced stage of having seen the worst.”

One of the other reasons is the extreme divergences in the performances of individual investments and markets that have cropped up.

“Investments that are popular become increasingly popular and expensive, and investments that aren’t popular are sold down out of proportion to their intrinsic value.”

She pointed to Facebook, Apple and Amazon in the first instance, and cyclical shares linked to economic growth in South Africa as an example of the latter.

“As a fund manager, such divergence is extremely exciting, as it gives us opportunities to take advantage of mispricing.”

She stated that investors need to understand that the political and economic environment are distinct from pricing and warned of the danger of conflating the two. “When they’re suffering losses, investors can act rashly, not understanding that often the current price of an asset has already more than accounted for the risk of a negative outcome.

This can result in compounded losses over time.”

She points out that there is no correlation between economic growth and stock market performance.

The graph below from the Financial Analysts Journal illustrates this point:

Currently, PSG Asset Management believes that a lot of risk has already been discounted into asset prices.

The results of research done by Dalbar Inc., a company that studies investor behaviour and analyses investor market returns, consistently show that the average investor earns below-average returns.

For the twenty years ending 31 December 2015, the S&P 500 Index averaged 9.85% a year – a pretty decent historical return. The average equity fund investor earned a market return of only 5.19% — just over half of what the market gave. This is largely because they fell prey to their emotions and disinvested at or near market lows (most negative sentiment) or bought into the market when prices were already reflecting all the good news.

“Investors can be their own worst enemies and need to guard against overreacting to fear and uncertainty,” Ahern said. “What’s important is to focus on the actual return you need to achieve your goals, and not what someone else has earned, and to be totally honest with your adviser.”

Anet Ahern, CEO, PSG Asset Management

INVESTING

31 July 2019

NICHOLAS KINGHORN Technical Sales Support, Prescient Investment Management

A

t its core, saving involves deferring consumption by not spending money now with a view to obtaining greater spending power in the future. While future spending is entirely discretionary, goals like children’s educational needs or splurging on a dream holiday are some standard objectives.

However, considering how unpredictable the future can be, living from pay cheque to pay cheque on a monthly basis is a risky business. In light of this, periodic savings will help significantly in the case of an emergency.

The vehicles used to save are normally highly dependent on how long into the future the cash can be invested for. Savers constrained by limited time should consider a more conservative investment option where capital is less at risk. This can range from saving in a piggy bank, which earns no returns, to investing in a money market-type fund that accrues interest periodically. As the rational investor always prefers more utility than less, the focus here will be on investing in funds that offer a return.

Optimising after-tax savings

Inflation is a vital consideration achieving the required return in the when deciding where to invest. This is short-term is overcome by the 10-year important as prices rise annually. For investment horizon. Although selecting example, if education costs R100 000 an investment that returns anything less now and you have this outlay due in ten would cause a cash shortfall at the end years’ time, you can expect this figure to of ten years, it’s worth remembering that rise with inflation annually. A long-term a tax rate of 45% a year is assumed here, inflation expectation of 6% a year after which is the maximum rate for income 10 years would mean you no longer tax. Additionally, this example is based require R100 000 but will need to fork on a South African resident under the out almost R180 000. age of 65 in the current 2019 tax year.

Savers also need to At Prescient be cognisant of taxes.

Investment Depending on annual Management, we have a LIVING FROM income, various tax unique offering for those PAY CHEQUE TO brackets apply to looking to maximise the income returns after-tax savings.

PAY CHEQUE earned. For simplicity, The Prescient ON A MONTHLY assume all income Optimised Income BASIS IS A RISKY Fund aims to deliver is subject to 45% income tax a year. an enhanced afterBUSINESS To obtain sufficient tax yield while also cash after-tax from an investment in offering capital stability. Importantly, 10 years’ time to pay for education, an the fund also offers liquidity for annual investment return in the range investors seeking after-tax inflationof 11% would be required. beating returns on their savings, but Scarily, this is significantly higher who have a limited time horizon. than projected inflation of 6% per At present, South African inflation annum. Fortunately, the risk of not is 4.5%. But even with the more conservative long-term assumption of 6.0%, the since-inception* return of the Prescient Optimised Income Fund is 6.3% (annualised), after tax and fees. *Inception date: 31 March 2016. Highest rolling one-year return since inception of 6.52%. Lowest rolling one-year return since inception of 6.09%.

C

Sculpture by Beth Diane Armstrong

The investment performance shown is for illustrative purposes only. Investment performance is calculated by taking the actual initial fees and all ongoing fees into account for the amount shown. Income is Prescient Money Mktg 1-4 Goose Ad_r3.pdf 7/19/17 10:27:12 AM reinvested on the reinvestment date.

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Y

About Prescient: Prescient Investment Management (Pty) Ltd (Prescient Investment Management), is an authorised financial services provider (FSP 612).

For any additional information, including our services, fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.prescient.co.za The taxation effects presented above are discussed in general terms and individual investors may

experience tax consequences differently. The tax effects discussed depend on (i) the nature of the unitholder – (a) for companies the maximum tax rate used will be applicable until their financial year end. Companies are not eligible for the interest income exemption available to individuals. (b) Trusts holding units in the fund may or may not incur income tax on income from distributions received from the fund depending on when those distributions are in turn distributed to the trust beneficiaries. For any income retained in a trust, the maximum income tax rate for trusts may change after their year-end for income tax purposes of 29 February 2020. (c) Individuals are eligible for an exemption on income received in the form of interest depending on their age in the tax year – R23 800 for persons not older than 65 years and R34 500 for persons older than 65 years.The maximum income tax rate for individuals are likely to change beyond the 29 February 2020 year end.

In addition. companies, trusts, and individuals may have assessed losses available against which to offset income received by distributions from the fund, which would also affect the rate of tax incurred by them. 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 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. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. Full performance calculations are available from the manager on request. Annualised performance: Annualised performance shows longer term performance rescaled to a one-year period.

Annualised performance is the average return per year over the period. Actual annual figures are available to the investor on request.

WHILE OTHERS ZIG AND ZAG, WE STAY IN FORMATION.

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PRESCIENT GROUP OFFERING: LOCAL AND OFFSHORE INVESTMENT MANAGEMENT / UNIT TRUSTS STOCKBROKING / RETIREMENT PRODUCTS / UMBRELLA FUNDS / ADMINISTRATION / PLATFORM SERVICES AUTHORISED FINANCIAL SERVICES PROVIDER (FSP 612)

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INVESTING

31 July 2019 Mel Meltzer and Charolyn Pedlar, Co-Owners, Platinum Portfolios

Succeeding unconventionally

J

ohn Maynard Keynes wrote, “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.” The profound wisdom of Keynes’s statement reaches into every nook and cranny of the investment world. Slavishly following conventional wisdom proves unwise, as the frequently trod path often leads to disappointment. Taking a wellconsidered unconventional approach generally proves sensible, as the less-travelled route provides greater opportunity for success.

As investment managers with many years’ experience, we often feel that we are conflicted with our investors. What we mean by this is that when we are enthusiastic and excited about opportunities because the stock market is cheap, our investors are nervous and skittish, and in contrast when the market is rising, our investors are ecstatic and optimistic while we are cautious and nervous. Our experience has taught us that bull markets eventually do bring volatility and risk, while bear markets bring opportunity. Rather than being caught up in the moment, we have found that we need to be focused on what the future may bring for the companies we own. Our approach is to understand what the true value of each of the companies we own is, while not allowing the market to determine our investment decisions. Our philosophy is to buy quality businesses and hold them for the long term.

Because of this perspective, we often find it difficult to understand why long-term investors get so concerned when the market is down like it was in December 2018. From our perspective as long-term investors, short-term price volatility seems totally irrelevant. Why? The answer is simple: if we do not intend to sell our stocks today, or for that matter for many years to come, why should we worry about what the prices of the stocks are at present?

Nevertheless, a falling stock market A FALLING STOCK causes a significant MARKET CAUSES amount of investor angst, which A SIGNIFICANT often leads to bad AMOUNT OF decisions being INVESTOR ANGST made. Furthermore, this worry seems irrelevant to us when the stocks we own continue to grow earnings and dividends. People tend to be overly concerned about the performance of their portfolios based solely on the quoted share price, even when the underlying businesses in their portfolios are performing well.

The question we are often asked is: What makes a company one of quality? One of the first definitions we use relates to Warren Buffett’s concept of an ‘economic moat’. This refers to a long-term durable competitive advantage that allows a company to

earn higher profits over time, even when faced with economic downturns or competition. At Platinum Portfolios, we aim to identify good quality stocks trading at reasonable prices. We look for businesses that are capable of compounding value for many years into the future. We believe that by buying these superior, quality businesses at below our fair value price, it gives us a margin of safety and a good chance of achieving superior returns in the long term.

So, when clients ask us what we think is going to happen to the stock market next week or next year, we can only comment that it will continue to fluctuate as it always has. But we need to keep in mind that it is, in truth, a market of stocks and not a stock market – as not all stocks in the market are the same. It is for that reason important to consider how well the companies in your portfolio are doing before worrying about the quoted price.

Survey highlights diverse impact investing market

T

he Global Impact Investing Network (GIIN) published the ninth edition of its Annual Impact Investor Survey last month, viewed by most investors as the most comprehensive overview of the current global impact investing market.

Comprising data and insights from 266 of the world’s leading impact investors, the report provides indepth analysis of market activity and trends, covering topics such as: capital allocations by sector, geography, and instrument, indicators of market growth, industry challenges, impact measurement and management, financial and impact performance, and more. Additionally, this year’s report provides new data on key market topics, including human resources; diversity, equity and inclusion; and the role of government and policy.

Amit Bouri, CEO and co-founder of the GIIN, says, “Global challenges like entrenched inequality and climate change require large-scale, urgent action, and impact investors are stepping up to help fuel positive progress. They are accounting for considerations that have long been ignored in the financial sector – the impact of investments and businesses on people and the planet.”

He adds, “Our research shows

that the growth of impact investing has largely been fuelled by client demand, which demonstrates the powerful potential for people to influence positive change in the financial system.”

Sapna Shah, Managing Director at the GIIN, states, “This year’s Annual Impact Investor Survey shows our industry is increasingly sophisticated.

We are starting to overcome challenges that used to stop conversations before they started, such as the misperception that financial trade-offs are necessary across all impact investment strategies.

Fully one-third of survey respondents are motivated to make impact investments because of – not in spite of – their financial return potential.

This shows investors increasingly see alignment between business objectives and transformative impact.”

Some key findings from this year’s survey report include: • The impact investing industry is diverse. Survey respondents represent a variety of investor types, including fund managers, foundations, banks, development finance institutions, family offices, pension funds, and others. A majority of the investors are headquartered in developed markets; assets are allocated globally, with about half invested

18 WWW.MONEYMARKETING.CO.ZA

in emerging markets. Respondents also allocate across a variety of sectors, with the greatest share allocated to energy (15%), microfinance (13%) and other financial services (11%).

• The impact investing market continues to grow and mature.

Collectively, respondents manage $239bn in impact investing assets (nearly half of the total impact investing market, as measured

by AUM). A subset of 80 investors that contributed to the Annual Survey, both four years ago and this year, grew their assets at a compound annual growth rate of nearly 17% – a signal that the market is not only growing through new investors entering the market, but also due to increasing assets under management from those already in the market.

• Impact measurement and management (IMM) is central to investors’ goals and practices. Respondents nearly universally measure and manage their impact, typically using a mix of qualitative information, proprietary metrics, and metrics aligned to IRIS or other standard frameworks.

More than 60% of investors track their investment performance to the United Nations’ Sustainable

Development Goals, driven by a desire to integrate into a global development agenda.

• Impact investors report performance in line with both financial and impact expectations.

A clear majority of respondents indicated that their investments have met or exceeded their expectations for impact (98%) and financial (91%) performance.

Respondents also reported their average gross realised returns since inception. The distribution of returns data suggests that fund and investment selection is key.

• Impact investors indicate a strong commitment to developing the industry. Investors largely recognise their role in contributing to broader field-building efforts and industry development. For example, over 80% of respondents indicated contributing toward the various actions recommended in the GIIN’s Roadmap for the Future of Impact Investing. Respondents further view the impact investing industry as playing a key role in driving broader shifts in investment practice by changing mindsets about the fundamental purpose of finance in society and promoting diversity, equity and inclusion through their policies and practices.

INVESTING

31 July 2019

JEANNE VAN HEERDEN Head: Sustainability, Liberty Group

Conscience – A catalyst for positive change

‘When I first entered the world of professional investment banking, specifically credit risk, I was introduced to the ‘Five Cs of Credit’. These are Character, Capacity, Capital, Collateral and Conditions. However, over the last few years, it has become apparent that there is a sixth ‘C’ that exists, which risk professionals would do well to take heed of. I call it Conscience and it refers to an investor’s duty as a corporate citizen to invest in a responsible and sustainable manner.’

Nick Naidoo, Deputy Head – Credit Risk: Credit Alternatives, Stanlib

T

his concept of conscience is more commonly known as Environmental, Social and Governance (ESG), which refers to the three central factors in measuring the sustainability and ethical impact of an investment in a company or business.

These criteria help to better determine the future financial performance of companies (return and risk). One doesn’t need to venture much further afield than corporate South Africa to realise why this is such a fundamental basis of any investment thesis.

ESG has traditionally been confined to the few pages of a company’s annual integrated report, which typically provide generic descriptors of said company’s commitment to acting in an ethical and sustainable manner.

At Liberty Holdings Limited, we appreciate the meaningful role business can play in society. We strive to understand and manage our social and environmental impacts primarily through two lenses – where our company has a direct impact, or where, indirectly, we can be catalysts for positive change.

Liberty’s approach to ESG is underpinned by our purpose, which is to improve people’s lives by making their financial freedom possible.

Creating societal value and preserving our natural capital helps us drive our ESG strategy while mitigating and managing potential negative impacts.

Our ultimate aim is to deliver shared value by supporting the communities in which we operate.

There is growing empirical evidence globally that supports the business case for integrating ESG factors into investment strategies. A 2012 Deutsche Bank survey of academic research was one of the first studies asserting this point. More recently, studies conducted by Hamburg University as well as Harvard University confirm that companies with high ESG ratings had a lower cost of capital in terms of both debt (bonds and loans) and equity compared to those with low ratings.

We must understand that a culture of good governance and appreciation of risk within an organisation can be the difference between a successful or uncompetitive organisation. ESG

BREAKING DOWN

THE 5 Cs OF CREDIT

Character: The track record or reputation of the borrower, but more importantly, the reputation of its management team.

Capacity: Measures the borrower’s ability to repay a loan, by assessing the solvency and liquidity of the entity.

Capital: Considers the borrower’s ‘skin in the game’. Typically, shareholders who have a lot to lose by virtue of the equity they have invested in a business are more likely to stick around during tough times.

Collateral: Helps a borrower secure loans – it gives the lender a plausible ‘second way out’ of a loan.

Conditions: The legal construct of the deal, captured in the form of a legal agreement.

must be a fundamental part of an organisation’s DNA and culture. It should not be seen as something to comply with, but rather one of the pillars upon which a sustainable business practice should rest on.

The overall tone of governance in an organisation is set by the executive management team, and overseen by the Board of Directors. The fundamental principles of ESG are embodied in the King Code of Good Governance™. This has been against the backdrop of South Africa taking a leading role, globally, in embracing good governance by adopting the King Code™. The King IV Code™ has been lauded internationally for its insightfulness and principlesbased approach.

Liberty Holdings Limited’s Social Economic and Environmental (SEE) strategy is closely aligned with the United Nations 2030 Sustainable Development Goals (SDGs). It provides a shared blueprint for peace and prosperity for people and the planet, now and well into the future.

We believe that ending poverty and other South African specific deprivations must go hand-in-hand

with strategies that improve health and education, reduce inequality and spur economic growth, while tackling climate change.

To support and deliver on these objectives, Liberty’s approach to the SDGs is also aligned with the objectives of Africa Agenda 2063 – a strategic framework that outlines the socio-economic transformation of the African continent over the next 50 years to drive growth and sustainable development. Both the SDGs and Africa Agenda 2063 require citizens and corporations to contribute to individual and national development plans. As such, Liberty supports the South African Government’s National Development Plan 2030 (NDP).

The NDP has set out a coherent and holistic approach to confronting poverty and inequality.

There are 17 UN SDGs. The five specific SDGs Liberty is focused on are closely aligned with our business strategy and allows us to make a significant difference in the lives of our people, clients, financial advisers and the communities in which we operate.

With this as a backdrop, Liberty is clearly committed to responsible corporate citizenship and recognises the importance of building a responsible investment sector for sustainable economic growth. Our investment decisions consider a company’s ESG performance, and in cases where we find sound financial investment opportunities, but ESG is lacking, we encourage companies to address these issues.

Over and above our moral obligation to hold companies to account, we also consider the impact of Regulation 28 of the Pension Funds Act, when allocating money for investment purposes. Regulation 28 requires trustees of retirement funds to “…understand the nature of the assets in which the fund invests. To this end, they must conduct reasonable due diligence before making contractual commitments to invest in assets managed by a third party for both local and foreign assets. They must also understand the changing risk profile of assets over time, as well as the need to consider environmental, social and governance characteristics.”

LIBERTY’S FIVE SUSTAINABLE DEVELOPMENT GOALS Promoting financial freedom and inclusion • Living with dignity is a fundamental human right • Financial advice and product offering • Financial literacy programmes Promoting greater economic inclusion through transformation • Addressing historic inequalities among our workforce and society • Recognition of human rights • Embracing diversity • Promoting gender equality Promoting quality education • Enabling freedom through understanding • Corporate Social Investment (CSI) • Mathematics, Science and English Programmes Innovative product and funding national infrastructure • Laying the foundations for a better future • STANLIB responsible (ESG) investment • Investing in infrastructure and renewable energy • Innovation that creates value Contributing to the green economy • A responsible approach to our environment • Managing and reporting our carbon emissions • Investing in renewable energy

For too long, investors have turned a blind eye to this important facet of investment analysis that is ESG, to the detriment of the market as a whole.

Only when investors begin to hold companies accountable will the winds of positive change begin to sweep over our marketplace.

For more on Liberty’s journey to shared value, see our 2018 Report to Society on our Liberty Holdings website: https://www.libertyholdings.co.za/ sustainability/report-to-society/Pages/default.aspx

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INVESTING

31 July 2019

ANDREW MÖLLER Director and Chief Executive Officer, Citadel

O

ne of the oldest debates in investment circles is whether asset allocation or stock selection is the main driver of portfolio performance. As with the active versus passive debate, however, any successful investor will have realised by now that it is foolish to be in either camp, or that it is far wiser to utilise a combination of both within your investment strategy.

For example, if you were to take a sample of multi-asset funds, the chances are very good that both the best and worst-performing funds would each have a high equity allocation. This would suggest that the difference in these funds’ performances is attributable to the choice of specific stocks rather than the differences in the asset managers’ allocations to cash, bonds or equities.

Next, consider the differences in portfolio performance between two of the main ASISA fund categories, namely the SA General Equity and the SA Multi-Asset High Equity categories.

SA General Equity portfolios must hold at least 80% of their investments in JSE stocks, implying that performance should mainly be driven by stock selection. SA Multi-Asset High Equity funds are constrained

by Regulation 28 limits on equity and offshore exposure, but managers can greatly vary their asset allocation within the set limits, as well as make active stock picks.

Examining Morningstar fund data from the five years to the end of March 2019, the best performing equity fund delivered average annual returns

Understanding the importance of asset allocation and stock selection

TABLE 1: CROSS-SECTIONAL DISTRIBUTION OF FIVE-YEAR TOTAL RETURNS Measure

Average Return

Standard Deviation

Percentile Returns 5

25

50

75

95

SA General Equity

4.5%

2.3%

1.0%

3.0%

4.6%

6.1%

8.0%

SA Multi-Asset High Equity

5.8%

1.6%

3.5%

5.1%

5.8%

6.6%

8.7%

Source – Morningstar; Data – Monthly for the five years ending 31 March 2019; annualised.

of 11.2% and the worst-performing -2.2%, compared to the bestperforming multi-asset fund at 10.5% and the worst-performing at -1.1%.

This suggests that the crosssectional distribution or variation in fund performance in equity funds is greater than multi-asset funds, further supported by the table above.

This simple analysis then points to the fact that stock selection can indeed be the main driver of performance, or at least return variability.

However, the table also clearly highlights the fact that over the past five years, the average SA Multi-Asset High Equity fund outperformed the average SA General Equity fund, mostly owing to multi-asset managers’ ability to allocate to global equities.

Consider, for instance, that over the past five years the FTSE/JSE All Share Index delivered average returns of 6.5% per annum, while the BEASSA All Bond Index achieved returns of 8.3% and the MSCI AC World NR Index achieved 13.4% in rand terms. Given the broader context of a South African economy that has continued to struggle while the rest of the world has experienced above-trend growth, investors’ need for offshore exposure has been undeniable.

Furthermore, by making stock

Shariah equity portfolio for high-net-worth investors launched

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ld Mutual Wealth’s Private Client Securities (PCS) has launched a Shariah equity share portfolio for high-net-worth individuals, making it one of a few providers in South Africa to offer Shariah-approved private client share portfolios. Moosa Hassim, Manager of the PCS Shariah Equity Portfolio, explains that this means that the portfolio does not invest in companies whose core business involves dealing in alcohol, tobacco, pork, conventional financial services, defence or weapons, gambling, gold and silver hedging, music, cinema and adult entertainment.

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selection the key driver of performance, investors are likely to increase the risk and return variability of their portfolios, making their final investment outcomes far more uncertain.

Choosing asset allocation as the main driver of performance At Citadel, we therefore choose to make asset allocation the main driver of portfolio performance, structuring our solutions around the strategic asset allocations that, over time, are expected to deliver on each of clients’ investment objectives.

Strategic asset allocation is, in our view, by far the most important decision an investor can make, and is one of the four pillars of our investment philosophy.

Following this, the crucial next step in the investment process should be tactical asset allocations, or judging where to deviate from the strategic asset allocation and increase the weighting of asset classes with superior expected returns.

In the 12 months to the end of March 2019, for example, global listed property, or the MSCI World REIT NR Index, returned 42% in rand terms, and most of our clients were able to

“The Old Mutual Wealth PCS Shariah Equity Portfolio specifically adheres to the standards of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) as interpreted by the Shariah Supervisory Board. At its heart, Islamic finance is about ensuring fairness and the absence of harm, meaning it has similar foundations to the socially responsible investment philosophy espoused

by Old Mutual’s commitment to using the moral and ethical guidelines of environmental, social and governance (ESG) principles to mitigate investment risks,” says Hassim.

The portfolio is open to individuals willing to invest a minimum of R1m in an equity portfolio focussed primarily on high-quality South African shares, with a view to outperform the FTSE/JSE Shariah All Share Index over a three-year period.

“Growth in Islamic assets under management has been excellent when compared to conventional offerings and this presents a big opportunity for a bespoke private client offering,” he says. “Personalised professional service and a sense of informed control are extremely important for this type of investor.”

benefit from our tactical decision to hold this asset class.

Further, as we approach the end of a decade-long global bull market, our asset valuation models indicate that equities may potentially deliver slightly less attractive returns. We are therefore reducing risk in our portfolios in order to limit volatility and capital loss, especially for those clients who draw an income from their portfolios.

The final decision in the investment process should then be selecting specific stocks or funds.

As already demonstrated, stock selection can impact performance, and equity portfolio managers could possibly construct a portfolio with the ability to substantially outperform the benchmark by concentrating the portfolio in certain shares or sectors, or by taking liquidity or specific-factor risk.

However, we believe that taking on these risks is not in a client’s best interests in the long term. Active positioning relative to the index should only be taken to the degree that value can be added on a risk-adjusted basis.

Ultimately, both asset allocation and stock selection therefore play an important role in long-term performance, and the real question is rather which one investors should choose to determine your portfolio’s performance.

And, to our mind, correct asset allocation, especially for South African investors, can produce a diversified portfolio with lower risk, better potential returns and greater certainty in terms of outcomes, increasing the likelihood of meeting your investment objectives.

Hassim explains that this is not a unit trust offering but a bespoke equity portfolio for highnet-worth clients that is registered in their own names, making it particularly relevant to individuals who have a predisposition towards shares or direct market investments and want their portfolio customised around the specific requirements and ethical preferences.

The Old Mutual Wealth PCS Shariah Equity Portfolio has a traditional share portfolio structure and generally contains between 18 and 22 holdings, allowing for sufficient diversification. Hassim states that holdings are chosen via a rigorous investment process, ensuring that only high-quality companies that comply with the principles of Shariah are included. “This includes a financial screening process that excludes companies that do not comply with the Moosa minimum acceptable Hassim, levels of debt, Manager: PCS Shariah receivables and interest Equity income,” he explains.

Portfolio

INVESTING

31 July 2019

Becoming a commercial property value investor

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ow is the perfect opportunity to become a value investor in commercial and industrial property and to ditch the generalist market investor approach. This is according to Tony Bales of industrial property broker, Epping Property.

“For the past few years, most physical industrial and commercial properties have shown good capital appreciation and income returns, and many investors took to purchasing any available commercial or industrial property.” However, this will not be the case moving forward.

Enter the age of value investing The market has changed. Wise investors are seeking out properties in specific locations with specific fundamentals – properties that offer an investment that will grow at an above average rate. Enter the age of value investing.

Bales explains that value investing is investing in a property that has been undervalued or where one can purchase the property at a below-market price.

“The specific benefits are an above-market appreciation in either the capital value or rental income, or both. In a sophisticated market, finding properties that offer value may involve sifting through a lot of various opportunities.”

Bales further advises that what is value for one investor may not be value for another. “For example, a passive investor may offload a property to one who has the capacity, time and inclination to develop it and unlock the potential value. Investors all have different profiles, such as knowledge, capacity, skills, etc, thus ensuring constant value arbitrage in the commercial and industrial property market.“It is also important to distinguish between the listed property sector and investing directly in physical property. Unfortunately, the listed property sector has had a torrid last 18 months. Investing in listed shares is different from investing in specific physical properties. It is vitally important to understand what the drivers of the listed property sector are versus the drivers of physical commercial and industrial property. Value investing in the listed property sector is different from value investing in specific properties.”

How does an individual investor go about determining what is an appropriate ‘value purchase’?

Bales says that firstly one needs to understand the difference between price and value. “Price is what one pays, while value is what one receives. This may sound like a simple statement, but it’s implications run deep. Buying investment property at too high a price isn’t good value and is the surest way to limit future returns. However, commercial property can double or triple in value for an investor who can spot hidden growth potential, develop a strategy to unlock that untapped value, and execute that plan.”

Bales provides a list of questions that buyers should ask themselves: • Do I have an excellent understanding of the property I wish to buy?

• Does the purchase price offer upside potential?

• What is it about this property that will ensure its value grows faster than other properties?

• What do I need to do to ensure this potential value is unlocked as soon as possible?

“The highest returns come from buying commercial investment property at a price that doesn’t reflect its inherent attributes. Value investors follow strategies to find, and mine, those features. The key here,” says Bales, “is to understand exactly what is value for oneself. The greatest value investor of all time, Warren Buffett, did not buy any technology shares during the boom in the late 1990s – a move for which he faced major criticism. However, his actions were well rewarded in the end as today he is one of the wealthiest people in the world.

And he has now included tech shares in his investment portfolio.”

Value has no borders According to Bales, another aspect to understand is that of internationalisation.

“Investors must see the value concept as one that has no borders. What may seem overpriced to South Africans might be value for international players due to the higher yields. Conversely, when the US dollar strengthens, we must expect the SA property market to offer less value than more developed countries, and hence investors will move funds to those countries that offer them more perceived value. It’s simple. We are part of the international economy and cannot ignore the fact – it affects our commercial and industrial property market and the concept of value.”

The ethics of short selling

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he Financial Sector Conduct Authority’s (FSCA’s) short sale reporting and disclosure framework, proposed earlier this year, has been met with reservation by the JSE for a number of reasons. While the proposal is intended to tighten the regulations around short selling in South Africa, it is important to note that it is a few of the practitioners, rather than the practice, of short selling that can be unethical.

This is according to Jessica Ground, the Head of Sustainability at Schroders, who acknowledges that on the face of it, an investment strategy specifically designed to gain in value when companies fall in value may seem irresponsible. “While it undeniably has its more unsavoury side, short selling can also help manage risk more effectively and contribute to market efficiency. Its reputation is unfairly tarnished by the actions of a few cowboys.”

Ground says that, in practical terms, short selling involves borrowing a stock from an investor, and then immediately selling it in the hope that its price will fall and it can be bought back later at a cheaper price. “A profit is realised based on the price decline.

At that stage it is returned to the original shareholder, who receives a fee for their troubles.

“It is only when investors take additional steps to influence companies’ financial health and value after they have bought or sold shares that ethical questions arise,” she explains.

As such, to assess the ethics of short selling, Ground believes it is important to consider the actions of different short sellers, rather than short selling as a principle. “In general, those actions reflect their motivations, which can be broadly split into four categories, namely: ‘stock picking on steroids’, the ‘activist shorter’, the ‘risk manager’, and the ‘emotionallydetached trend follower’.”

The “stock picker on steroids”, Ground says, is very similar to traditional “long-only” investors, in that they both try to identify undervalued stocks, in the expectation that their value will converge on some estimate of fair value. “The difference between the two, however, is that the short seller will search for overvalued stocks or stocks that are facing structural headwinds that are not yet fully reflected in the price.”

The “activist shorter”, on the other hand, takes a more extreme approach than the “stock picker on steroids”,

she adds. “Rather than assuming that the market will eventually price companies fairly, the activist shorter seeks to force the issue.

“However, the more extreme activist shorters are the ones that give the practice a bad name. Some have been guilty of spreading unfounded and malicious rumours in the press – a consequence of which is that they can earn a profit on their trade but push otherwise healthy companies into financial difficulties. Even if these companies manage to prove the accusations false, the short seller may be long gone by that stage, having booked a profit on their trade and left a trail of devastation in their wake,” says Ground.

Then there are the “risk managers”, who use shorting to control risk in their portfolios and express their views on particular stocks in as pure a way as possible. “Shorting allows a cleaner expression of a view on a particular stock or sector while also reducing volatility and risk of loss. The approach does not affect the health of individual companies, is typically low profile and doesn’t raise ethical concerns in our view.”

Lastly, Ground refers to the “emotionally-detached trend follower”, who seeks to profit from trends in markets; buying when markets are rising and shorting when they are falling. “These shorters employ strategies that are normally highly quantitative and systematic in nature, powered by powerful computer algorithms.

“Their emotionally detached nature means they cannot be accused of attempting to drive down prices. It is all about mathematics,” she highlights.

Considering this, Ground believes that short selling may have an unfairly bad reputation.

“Rather than avoiding the practice, investors – especially those who are more ethically minded – may wish to ensure they understand its potential uses in a strategy and how its practitioners intend to behave.

“It can bring about significant benefits, both to investment performance and standards of corporate governance. Although some short sellers are unethical, short selling itself is not.”

Jessica Ground, Head: Sustainability, Schroders

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RETIREMENT & MILLENNIALS FEATURE

31 July 2019

How much is just enough for retirement?

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he 2008 Global Financial Crisis led to a tough job market and a low return environment, making it more difficult for millennials to accumulate the level of wealth they had hoped or expected. Most millennials rate their level of expertise in investing as pretty limited, with only around 18% expressing that they had high confidence in their own investment abilities, according to a recent study.

This creates significant financial planning opportunities for advisers and financial services providers.

Despite the rate of social, technological and political change today, understanding how much is needed to fund basic living costs is still crucial in retirement planning.

How much is JustEnough for retirement?

There are essentially three requirements that should be met in retirement: • Cash lump sum to cover liabilities or debt, or as a tax-efficient saving • Basic needs • Aspirational needs.

Once debt has been cleared, it is important to ensure that essential life-sustaining costs can be covered throughout retirement. This includes food, accommodation, utilities, medical costs, transport and insurance. Any surplus capital can be

used to fund aspirational needs like international travel.

How much is JustEnough to meet essential expenses?

For most households, essential expenditure makes up between 65% and 75% of the monthly budget. This is surprisingly stable across different income categories, the difference being that those with higher incomes spend relatively more on housing and less on food than those in lower income categories, as shown in Table 1.

How much capital does a married couple require to fund their essential expenses over their life expectancy?

If we can identify how much households in different income brackets spend on essentials, then we can also calculate how much capital is required at retirement to secure this level of income for life, allowing for current tax rates.

We have used competitive with-profit annuity rates, which target increases in line with inflation, to determine the required capital. Spouses’ income has been set at 75% of the joint household income, which is broadly appropriate given the analysis of individual expenditure shown in Table 2.

How much is JustEnough for individuals?

When one member of the household dies, the remaining person will probably

JACO PRINSLOO Financial Planner, Alexander Forbes Financial Planning Consultants

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rowing up in the 1990s and early 2000s with iPhones, internet access and knowledge at their fingertips, millennials have become the do-it-yourself generation – it is easier and more convenient to Google something than to ask for help from a real person. This poses a challenge for financial advisers who want to help millennials make smart financial decisions.

To successfully connect with millennials, financial advisers will have to change the traditional model of prescribing financial advice; bulky investment reviews will have to be compressed into brief but meaningful information, like infographics. Skype meetings will replace face-to-face meetings and traditional TV advertising will move to social media, where millennials spend an ever-increasing amount of their time. Dealing with millennials requires lower barriers to entry, frictionless communication and a revised service offering from financial advisers, to ensure millennials are part of the minority who can retire comfortably.

The common misconception is that millennials don’t save for retirement. But is this correct? Most millennials employed in the formal sector will belong to a company pension or provident fund, and as

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TABLE 1

TABLE 2

TABLE 3

TABLE 4

incur similar costs for housing and utilities, but half the spend on the other categories (Table 3). This makes the essential expenditure for a single person approximately 50% of the total monthly budget across all income categories.

As before, we can calculate the capital required by the individual to fund this essential expenditure over their life expectancy (Table 4).

This research brings home two important points:

Financial advisers are still millenials’ best hope for realising early that they need to set an appropriate strategy that meets their means now, and in retirement.

There is no ‘one-size-fits-all’ decumulation option in retirement.

Companies who innovate, challenge convention and collaborate can provide a new generation of products allowing for certainty and flexibility in a single structure.

Helping millennials plan for retirement retirement reform and employee benefits become more important, the number will only increase. The concern is those millennials who don’t belong to company pension or provident funds.

Led by the need to be independent, and by a lack of trust in the financial system, a lot of millennials are saving in their own entrepreneurial way. A SKYPE 29-year-old who changed employers recently MEETINGS me for advice WILL REPLACE approached on his employee benefits.

FACE-TO-FACE After explaining the importance of preserving MEETINGS his funds and the benefits of compound interest, he purchased a Toyota Corolla and leased it to an Uber driver. The income from the Uber rides is then divided between him and the driver. He proudly stated the car was providing him with a consistent return on his investment.

Millennials are also more open to alternative investments like exchange-traded funds, futures contracts and cryptocurrencies. Without going into the risks of cryptocurrencies, financial advisers should accept that ETFs and cryptocurrencies

are not going away, and should adapt to the new opportunities and threats to remain relevant.

These alternative investments, often with a social conscience, will have to be merged with traditional assets to provide a balance between risk and return.

A real risk is the fact that one in three millennials who are between the ages of 23 and 34 in South Africa are unemployed. It is a concern as this group of millennials is losing the time and opportunity to save for retirement. Every generation has their problems and struggles with a major unemployment problem in the country. This should be an opportunity to change the savings culture and thoughts on traditional retirement solutions.

We have to help millennials find a balance between saving and enjoying life. It’s not the responsibility of financial advisers to sell retirement annuities or grow their client’s funds with CPI+5%. Financial advisers are there to ensure their client’s well-being – even if that means the client taking a mini-retirement.

Millennials need support to reach their financial goals with traditional or alternative investments strategies, and financial advisers can protect them against outside forces like cryptocurrency bubbles and the ‘know it all, do it all yourself ’ approach.

SAVINGS MONTH FEATURE

31 July 2019

NASHALIN PORTRAG Head: FundsAtWork, Momentum Corporate

Avoiding portfolio changes will help retirement outcomes

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etirement fund members invested in more aggressive portfolios delivering poor returns during certain market cycles may be tempted to make emotional, short-term decisions. Financial advisers play a key role in helping members avoid hasty portfolio changes that reduce the probability of reaching their long-term retirement goals.

Many South Africans face a bleak retirement because they are either not saving enough, are following an inappropriate investment strategy, or they make knee-jerk decisions when markets are under pressure.

One way of increasing retirement savings is targeting returns that are well above inflation. Aggressive portfolios typically target inflation plus 7% over seven-year rolling periods. Our modelling shows it’s necessary to invest up to 85% of the assets in local and global equities and property to generate the targeted return. With this, however, comes learning to live with the short-term volatility associated with these assets.

While these growth assets may be volatile, they are an essential part of the asset mix needed to deliver inflation-beating returns. Historical performance shows they usually outperform inflation by a good margin over the long term. However, over the short term, aggressively-constructed portfolios can deliver very low or even negative returns.

Members invested in these types of portfolios need to take comfort in the fact that the portfolio is highly likely to recover and deliver inflationbeating returns over the long term.

However, members often overreact and make an emotional decision to move their assets to another portfolio.

Professional financial advice is critical in helping members understand the implications of moving their assets between portfolios when disappointed by short-term returns. If members stay invested, there is a good chance they will recover the lost value. However, selling means there is no chance the loss will be recouped. Also, selling and ‘locking in losses’ means having to re-enter the market with an investment that has decreased in value.

Global research over many years

shows that investors who stick to a carefully-constructed, long-term investment strategy and avoid kneejerk decisions when returns in the short term are poor, outperform investors who make too many changes based on short-term market volatility.

Members’ retirement fund savings are often invested into many listed companies that are unlikely to do as well as what we would see when the economy is doing well. This would certainly have a negative impact on their retirement investments, especially if the low economic growth becomes a long-term trend. The average retirement fund member will therefore have to invest more to reach their goal of a comfortable retirement.

However, if a retirement fund follows an outcome-based investment strategy, the fund would make provisions for short-term fluctuations in investment values. Retirement fund trustees, asset managers and asset consultants would ensure that investments are well diversified to achieve the long-term goals to soften the blow of these shortterm fluctuations.

Outcome-based investing doesn’t focus only on the inflation-plus targets of the various portfolios but also on the volatility of the journey. Solutions are crafted by considering members’ needs and risk tolerance, defining a goal (usually an inflation-plus objective) and an appropriate timeframe to achieve the objective. The approach improves the probability of the portfolio delivering on its ultimate objective and members achieving their desired retirement outcome.

While it’s important for members to have a solid long-term investment strategy, which often means riding out the market ‘ups and downs’, it’s also important to regularly review this strategy with a financial adviser. This is particularly important as members approach retirement. Members should work closely with their financial adviser to align their investment strategy before retirement with their strategy during retirement.

Financial advisers need to remind members in aggressive portfolios that, despite market volatility and poor short-term returns, members need to keep calm and stay the course.

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Savings Month: Beware of these online savings scams In the spirit of Savings Month, Phiko Peter, client relationship manager at Allan Gray, warns investors to be aware of digitally-driven investment scams.

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esearchers claim that technology make us prone to seeking instant gratification. This impatience is extended to investing: We want great and immediate returns. This makes us more susceptible to fraudsters who sell get-rich-quick schemes using online channels.

The new age pyramid scheme Traditional pyramid schemes have been given a digital makeover. These schemes are administered on messaging platforms like WhatsApp, and promise ever-higher returns as you sign more people up. With a reported 1.5 billion active users at the start of 2019, WhatsApp has proven useful for con artists, who can encourage recruitment with relative anonymity.

The money-flipping scam Money-flipping scams have ripped off local investors through social networks and promise to compound your money over a short period. Victims are convinced to send funds to a scammer who promises excellent returns. These investment opportunities are often sold as forex trading, binary options or offshore property opportunities. A scammer will create a social media profile showcasing a luxurious lifestyle, thus positioning themselves as a successful and legitimate investor. Scammers may even supply detailed investment reports. Once an investor requests a withdrawal, they are met with delays or asked for more money to release the funds. This escalates until the scammer deletes their account and ceases all contact.

It happens to the best of us The New York Times bestselling author, psychologist and speaker at the upcoming Allan Gray Investment Summit 2019, Maria Konnikova, believes that anyone is vulnerable, “It’s not who you are, but where you happen to be at this particular moment in your life.” Consumers facing financial strife are most vulnerable. Konnikova offers a simple tip: If someone is manipulating your emotions to get some cash, that is absolutely a con artist.

Scam-proof your investment approach There are a few red flags to look out for with new investments: • An investment that requires you to recruit new investors to realise the return on your investment is a pyramid scheme. Be wary of tiered investments that classify investors or have multiple levels (e.g. bronze, silver, gold, platinum and diamond).

• If you don’t understand how an investment product generates returns, you should be cautious.

• Fraudsters want to create a sense of urgency to limit the amount of time you spend researching the potential investment. Anything sold as a “oncein-a-lifetime opportunity” should be avoided.

• Consider the investment manager’s experience. Scammers will promise great returns without a real track record.

• If the investment is not registered with a financial body, like the Financial Sector Conduct Authority, it is not regulated. You should also contact financial bodies to verify the registration of any financial entity that is relatively new or not well established.

• If it seems too good to be true, then it probably is. Trust your gut.

Investors can fall prey to scammers because they do not have a solid financial plan. An independent financial adviser can explore your unique set of circumstances and will implement a tailored long-term investment strategy to help you reach your financial goals.

Allan Gray will be presenting at the Allan Gray Investment Summit in Johannesburg and Cape Town in July 2019.

To book tickets, visit www.investmentsummit.co.za

Phiko Peter, Client Relationship Manager, Allan Gray

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Contact your Momentum Corporate Specialist

Momentum is a part of MMI Group Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider. MMI Holdings Limited is a level 1 B-BBEE insurer.

RISK

31 July 2019

Travel insurance not a one-size-fits-all solution

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ast year saw around 515 398 South Africans travelling to destinations abroad, and according to StatsSA’s estimates, this year will see even more people venturing outside of the country’s borders.

“Most people don’t give too much thought to their travel insurance requirements and simply assume that the standard cover provided by their credit card provider when purchasing their ticket will cover them when things go wrong,” says Christelle Colman, Managing Director of Elite Risk Acceptances.

She warns that many things can go wrong while travelling, from minor events to major events such as natural disasters, terror attacks or political instability. “However, some of the most common occurrences that are most likely to ruin a holiday include flights being cancelled, missing flights, lost or stolen passports, lost luggage, illness or injury, and mixups with accommodation. Any one of these events can leave a vacationing family stranded in a foreign country and could cost them tens of thousands of rand.”

She adds that every holiday has its own unique risks, depending on the destination and planned activities, so making sure all bases are covered by a policy is essential. “One of the most

WERNER BOSMAN Short-Term Insurance CEO, PPS

devastating things that can happen to a family on holiday after an unforeseen event is finding out their travel policy does not cover their emergency.”

Colman shares her travel insurance cover checklist, highlighting some important considerations that should be included in a comprehensive travel insurance policy.

flights are cancelled, it is important to know that their insurance policy will cover the cost of a new ticket, and possibly accommodation during the unexpected extended stay. It is also possible that travellers have to cut their trip short due to an emergency back home or a holiday-ending injury.

Would year-round uninterrupted cover suit some families better?

For families who travel frequently, finding a provider that covers the entire family with uninterrupted cover under one policy and that does not require an alert to activate the policy before every trip is a huge benefit.

High-risk activities For those who plan to engage in sporty adrenalin-fuelled activities such as skiing, bungee jumping or paragliding, it’s crucial that they first find out whether their policy covers them in the event of injury. If not, they need to find out whether there is an add-on that they can purchase to cover the extra risk and whether their insurer will assist them with emergency evacuation and repatriation back home if necessary.

Value-added services Added services can make a huge difference following an unforeseen event. An insurance package that offers value-adds such as telephonic medical advice, foreign translation services in a medical emergency and delivery of essential medicine if luggage is lost, should be at the top of travellers’ lists.

What to do in an emergency Lastly, and most importantly, travellers need to know what their travel insurer expects from them in an emergency. While thinking about calling a contact centre is often the furthest thing from one’s mind when an emergency occurs, knowing what is expected is crucial – or travellers may just find their insurer refusing to reimburse them for emergency expenses paid.

Business and leisure travel It often happens that travellers combine business with pleasure, tagging a holiday on to the end of a business trip. In cases such as these, there are travel insurers that offer both business and leisure travel cover under one policy, ensuring seamless uninterrupted cover.

Christelle Colman, Managing Director, Elite Risk Acceptances

Cover for the elderly With the number of senior tourists increasing each year, it’s important to know whether age is being taken into account.

Where many travel policies have an age limit of 65, there are specialised policies that provide cover for travellers who are well into their seventies and beyond.

Trip cancellation or curtailment If holiday makers are stranded in a foreign country because their

What is the future of car insurance?

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he global insurance industry was valued at $4.73tn in 2016 and it is one of the biggest markets in the world, with an estimated growth rate of 3% per year. With the Fourth Industrial Revolution upon us, the automotive industry is set to evolve faster than ever and many insurers are worried about what the arrival of these technological changes actually mean for the market.

The industry is seeing the emergence of carsharing, which allows users to rent any car closest to them for a short period of time using an app. We are also seeing commuters choosing between leasing versus car buying, as well as autonomous driving. It is vital that insurance companies prepare themselves for this change.

These trends are already bringing about change in the short-term insurance landscape. For example, insurance companies have relied on various factors such as mileage, age and residential area to determine the insurance premium. However, with commuters now choosing to not own cars but rather car-share, insurance companies need to find ways to still insure drivers – using new methods. It will no longer make sense to pay a basic insurance premium every month.

The risks posed by not being flexible enough in

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one’s offering will result in many insurers losing business to more agile insurers with pay-per-use products suited to the new market. A study by Deloitte conducted in 2016 suggests that the total annual premiums would decrease by 30% in the year 2040. Also in 2016, ABI Research conducted a study that indicates that 400 million people globally will rely on robotic car-sharing by 2030. With all this change, what does it mean for insurance companies?

The car insurance industry will have to think about the following and how this will impact the driver that they will insure: • multiple drivers for the same vehicle (who may not be in the same household) • increased wear with more frequent use as a result of car-sharing • cybersecurity (hacking of autonomous vehicles) • satellite failure and vehicle sensor damage • data-driven solutions.

However, all this change doesn’t mean bad news for insurers. With the technological advances, underwriting and claims processes will be streamlined, for the benefit of the insurers, and most insurers will cut out the middleman, which will

ultimately mean lower insurance premiums for end-customers.

This also means that insurers will be selling more policies to companies such as fleet operators and fewer to drivers.

The growth of self-driving and ride/car-sharing will start to emerge more prominently in the next 10 to 20 years in South Africa, while these are already regularly used in the US and European markets.

The ‘pay as you use’ models, such as those used by services like Airbnb and Uber, have required insurance companies in South Africa to think and adapt to these models much faster by being as proactive and forward-thinking as possible.

Nevertheless, while there are still a lot of unknowns and many challenges that lie ahead – technological, industrial and legislative – the transition is already well on its way and the phenomenon will accelerate in the coming years.

We need to keep our finger on the pulse of these developments to ensure we are well positioned for the future needs of our members.

RISK

31 July 2019

Tailor-made insurance for local grain farmers

Drones: A view of the lay of the land A few years ago, there weren’t any drones to insure and now there are a few hundred in the commercial, agricultural and financial sectors. As the technology advances and drones become bigger and more complex, the need for insurance increases with some models costing up to a few million rand.

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n early May, South Africa saw its first ever licenced cropspraying drone take to the skies in KwaZulu-Natal. It was a landmark moment, with big implications for future crop-spraying endeavours, particularly across tricky-to-access terrain. Agriculture is the cornerstone of any economy. In tough economic times, with increasing extreme weather events and stiff competition from overseas, South African farmers need to leverage every opportunity to maximise area use. And that’s where advanced technologies like drones can make the difference.

James Godden, Head of Aviation at Santam, says, “The use of drones has become increasingly widespread, especially in the agricultural industry. It is a growing trend, although in its infancy in South Africa, for farmers to integrate the use of drones to assist with crop management, production, and fighting the effects of climate change. Farmers are constantly looking at new ways to gather data, automate outdated processes and maximise efficiency in their cultivation methods.”

What are the agricultural benefits of drone use?

They’re time- and cost-efficient. Godden explains that formerly, farmers were reliant on costly vehicles like helicopters or aircrafts.

Drones provide a cheaper alternative, which makes them a pivotal part of modern farming techniques.

By watching trends and developments closely, Godden shares top uses of aerial and ground-based drones throughout the crop cycle: 1. Soil and field analysis: Precise 3D maps for early soil analysis can be produced by drones. This is useful in the initial planning of seed-planting patterns. Additionally, the technique aids in performing in-depth analyses on produce and establishes which areas are more fertile than others, enabling better crop management and irrigation. Drones can also go as far as to provide data for irrigation and nitrogen-level management after planting.

2. Crop monitoring and irrigation: Drones are most commonly used for crop monitoring in the agriculture space currently.

Farmers employ drones to take photographic and video footage to determine how produce is growing in different parts of the land.

3. Crop spraying: As the topography and geography vary across every terrain, it is important to avoid collisions. Distancemeasuring equipment enables a drone to adjust to a specific altitude and, as a result, it can scan the ground and spray the correct amount of liquid, thus managing its distance from the ground for consistent coverage.

Drones also fly a lot lower and thereby disperse insecticide more effectively, without the risk of it spreading outside the intended areas.

James Godden,

G

uardrisk, in partnership with Agnovate, has launched the Agnovate Multi-Peril Yield Insurance (MPYI) product, which is tailor-made to address the specific risks and needs of the South African grain production sector.

Richard Eales, managing executive of Guardrisk Insurance, explains that the local agricultural industry is exposed to drought and other weather-related risks.

“Large parts of South Africa’s grain production regions are rain-fed and vulnerable to drought and grain price volatility. This leads to volatile output levels and severe financial pressure across the value chain,” he says.

To mitigate and reduce financial risks, the new-generation crop insurance product is based on state-of-the-art technology, which is suited to the modern farming client.

“Traditional crop insurance products, such as multi-peril crop insurance (MPCI), are often not best suited to South Africa’s grain industry. MPCI does not adequately consider the large variety of soil types, climate regions and farm operation sizes, which poses practical challenges and results in high administration costs,” says Eales.

He adds that Agnovate MPYI moves away from the traditional model used to analyse risk, structure insurance rates, the methodology applied to assess yield shortfall and the calculations to settle claims.

Eales explains that there are some key differences between MPCI and Agnovate (MPYI).

“MPCI insurance rates are structured on the historical yield performance of an administrative region, such as a municipal district, province or broad climate regions. It can also be structured on the historical yield performance of an individual farm,” he says.

On the other hand, Agnovate MPYI calculates insurance rates according to the

historical yield performance of a predefined production area, which considers similar soil and climate in one geographical area.

In terms of claims, Eales points out that MCPI claims are based on the assessment of yield shortfall on individual farms and fields. “This process is time consuming, costly and sometimes inaccurate,” he says.

Agnovate MPYI claims are based on the weighted average of yield shortfall, determined across the production area.

Eales says that in terms of the pay-out amount provided through the Agnovate MPYI cover, clients pre-agree to absorb a percentage of the total financial loss themselves. “This is the deductible and forms part of the claim calculation. As soon as the determined loss exceeds the agreed deductible amount, the insurance cover starts to generate a claim payment to the client.

Clients can also pre-agree to add a maximum pay-out limit tailored to their needs.”

Agnovate MPYI covers all perils, except hail, which may result in a yield shortfall across a production area, even when these happen simultaneously.

“Although the impact of hail will reflect in the actual yield determined in a production area, it will not be a true reflection of the hail damage sustained on a specific farm.

It is advised that clients purchase separate hail insurance cover,” says Eales.

He points out that South Africa has one of the best researched and well-documented agricultural industries in the world.

“Not only do we have a very wellorganised agricultural industry, with excellent leadership organisations, our farmers also enjoy a reputation as masters of their art, which they built up over more than a century in one of the world’s most difficult agricultural production regions.

This solid base must surely enable us to design sustainable drought insurance products for our farmers,” he says.

Head: Aviation, Santam

WWW.MONEYMARKETING.CO.ZA 27

RISK

31 July 2019

Freight industry under attack

T Santam releases Knysna fires report

A

n in-depth authoritative and independent report, commissioned by short-term insurer Santam, into the devastating fires that struck the Knysna area in June 2017 has found that the risk of so-called ‘mega-fires’ recurring in South Africa remains high.

The Knysna Fires of 2017: Learning from this disaster report makes a number of recommendations for government, communities, the insurance industry and other stakeholders towards minimising the risk of future ‘mega-fires’ – and the remedial steps to be taken in reducing the social and financial impact of such disasters should they occur.

Key among these recommendations are: managing or controlling the presence of fire-prone vegetation and other combustible or flammable material on tracts of land, usually referred to as fuel loads; attending to all fire callouts – even if they don’t appear threatening; and greater focus on public education and awareness programmes on the risks associated with wildfires.

Santam commissioned the report from the Council for Scientific and Industrial Research (CSIR), the Research Alliance for Disaster and Risk Reduction (RADAR) and the Fire Engineering Research Unit (FireSUN) at Stellenbosch University.

The Knysna fires were the worst wildfire disaster in South African history. The report found that this severity was caused by a cocktail of factors, including drought, low atmospheric humidity, strong winds and abundant fuel.

John Melville, Chief Underwriting Officer at Santam, says that unfortunately, these conditions remain prevalent in many parts of South Africa.

“Our goal was to analyse the causes of the Knysna fires and to find out why they were so severe, but more importantly the purpose was to establish how we can reduce the risk of recurrence, and the severity of such fires should they recur. While we can’t do anything about conditions created by climate change, we can take steps to reduce the frequency and magnitude of wildfires.”

He adds that the report found responders were remarkably successful in saving lives.

“However, among other critical factors, the report showed that there were gaps in the training of the suppression of wildfires, incident command and

evacuation, and as well as in response planning.”

The key recommendations outlined in the report includes the necessity for government to better manage and control fuel loads on municipal land – especially along wild land-urban-interfaces (WUIs).

The report states that fires need heat, oxygen and fuel to burn.

“With fuel being defined as combustible materials, this is a good place to start for all parties – government, business and communities – in terms of fire prevention and control. Municipalities can play a role in managing fuel loads on municipal land, particularly on land bordering vulnerable communities. Similarly, communities can do so on private land,” says Melville.

Authorities were also urged, among other actions, to strengthen the fire danger index component of the national fire danger rating system, strengthen their capacity to respond to wildfires, and plan post-fire environmental recovery and rehabilitation properly.

The report urged the insurance industry to help build the capacity of municipal fire services to deal with wildfire prevention and response. Melville says the report also urged insurers to support prescribed burning by extending insurance cover for the execution of such preventive measures.

“Insurers can help by requiring policy-holders to undertake measures to reduce risk – for example, reducing flammable materials and creating defensible spaces around homes.”

Another key recommendation was that insurers develop more affordable insurance products for the so-called ‘missing middle’, the households that are not sufficiently impoverished to be supported by government welfare but who are unfortunately not able to afford insurance.

Communities could also join the local Fire Protection Association (FPA), the report says, and participate in setting up FireWise communities.

Residents and landowners should work together with FPAs to map and monitor the extent and densities of invasive alien plant regrowth accurately; this is fundamental to determining the amount and duration of funding required to control the massive regeneration of invading plant species after fires.

The report also encourages all residents to regularly check that they are adequately insured against fire.

28 WWW.MONEYMARKETING.CO.ZA

he Road Freight Association (RFA) has requested urgent intervention by the Minister of Police to secure the safety of its drivers, vehicles and premises.

It alleges in a statement that, since March 2018, a targeted attack on the freight industry has been orchestrated by the All Truck Drivers Foundation (ATDF) and its allies, in the name of foreign drivers “stealing their jobs”.

“There are verified reports of blatant intimidation, bullying and the threatening of drivers and companies who do not meet the demands of the ATDF and its allies. These demands are the immediate firing of all or any foreign nationals employed in a company, the immediate employment of individuals supplied by the ATDF, payment to the ATDF of R350 per person per month for each individual supplied by the ATDF, and control over who a company employs.”

The RFA adds that should companies not comply, they are threatened with the burning of trucks.

It estimates that the campaign has resulted in the damage or total destruction of at least 1 200 vehicles and the loss of over 200 lives, costing the country’s economy billions of rand. The situation has inevitably had an impact on the THERE ARE insurance industry.

Sasria’s Managing VERIFIED Director, Cedric REPORTS Masondo, told OF BLATANT MoneyMarketing that INTIMIDATION the organisation is constantly engaging with various bodies to identify risk mitigation initiatives and welcomes further conversation with the trucking industry.

He says that during the period from 1 April 2018 to 31 May 2019, Sasria received over 2 000 claims valued at R272m in relation to the destruction of trucks, “and in addition, we also received 271 goods in transit claims to the value of R41m”. He adds that in February 2019, Sasria was forced to increase premiums for truck insurance.

There have also been allegations of insurance fraud in that some trucking companies involved have been burning their own vehicles in the Marianhill area in KZN in order to claim from insurance. “Insurance fraud is a major problem,” Masondo says. “Unfortunately the impact of fraud can result in premium increases that affect all clients. As part of our claims handling process, we do incorporate flags to look out for fraudulent claims.”

While Sasria cannot predict how long the setting of fire to trucks will continue, Masondo says the organisation is confident that the police are managing these incidents and containing them.

Sasria is a state-owned insurer established 40 years ago to protect organisations, businesses, municipalities and individuals from losses related to riots, strikes, terrorism, civil commotion and public disorder. It is accountable primarily to two regulatory bodies, the Prudential Authority as well as the Financial Services Conduct Authority (FSCA)

RISK

31 July 2019

You can’t put a Band-Aid on the wrong life insurance

L

ife insurance is one of the least understood financial necessities. By design, it’s intended to provide financial security in the event of an illness, injury or death. Yet, ironically, it’s one of the few sectors where the product a client pays for doesn’t always meet the need for which it’s purchased in the first place.

Life insurer FMI, a division of Bidvest Life Ltd, is addressing the discrepancy between the structure of life insurance sold, and the nature of the cover that is actually required. More than a simple disconnect between a customer’s needs and the solution provided, there is the impact this mismatch can have on an individual’s life and the risks they are exposed to because of it.

Protect your clients’ future income against their most likely risk We all face four major risks in life: temporary injury or illness, permanent disability, critical illness and death. Of these, temporary injury and illness is by far the greatest risk during a person’s working career, no matter what stage of life they’re in.

According to FMI’s claim stats, you’re nine times more likely to have a temporary disability than to have your car stolen or hijacked in South Africa1. And the insurer’s 2018 #RealityCheck consumer survey shows that 66% of South Africans spend up to R1 500 each

Insure your clients’ income before anything else, the rest will follow There is a stunning simplicity in protecting 100% month on car insurance, yet the average monthly of your clients’ income with income benefits and premium for temporary disability and critical illness complementing this structure with a small lump would cost roughly R200 a month2. sum amount to cater for any additional expenses.

This approach simplifies the advice and planning Choose the type of benefits that do the process, as well as reduces advice risk for you as the job your clients need them to do expert adviser, because all you need to know is how South Africans are paradoxically buying lump sum much your client earns and when they will retire. cover in the hopes that, should they be unable to You won’t need to calculate the period for which a work due to a serious setback such as a heart attack lump sum pay-out has to last, or how much they or a car accident, they will be able to maintain their require to comfortably provide for their monthly standard of living and to provide for their day-to-day financial needs in the future. What’s more, you living needs, cover debt and any lifestyle changes. won’t need to make any assumptions on inflation And yet, a lump sum only pays or worry about assisting your clients to out on permanent disability, invest this capital.

INSURE YOUR critical illness or death. It does Believe in the power of the cover you CLIENTS’ not protect your clients from any provide, by choosing to prioritise the type temporary setbacks.

INCOME BEFORE of insurance that protects your clients Consider this fact knowing ANYTHING ELSE against all of life’s risks. By appreciating that in their working career, your the degree to which South Africans rely clients are almost certain to experience a temporary on their monthly income to provide for their living injury or illness that will prevent them from working expenses, we begin to understand the importance of for a short period like two weeks. In fact, according protecting this, before anything else. It’s time to start to FMI’s 2016 Claim Stats Report, a person’s risk of seeing life insurance as an opportunity to protect confronting an incident such as this is as high as your clients’ monthly earnings and the income they 70%. The report also reveals that 88% of FMI’s claims are yet to earn. in 2018 were for a period of less than 90 days – meaning that lump sum disability benefits would not 1 FMI Claims Stats 2018 2 Calculation based on average 30-year-old have paid out for these claims. male, non-smoker, gross monthly income of R30 000

WWW.MONEYMARKETING.CO.ZA 29

EDITOR’S BOOKSHELF

BOOKS ETCETERA

31 July 2019

AFRICA REIMAGINED HLUMELO BIKO

LAWFARE: JUDGING POLITICS IN SOUTH AFRICA

BY DENNIS DAVIS AND MICHELLE LE ROUX

Africa Reimagined is a passionately argued appeal for a rediscovery of our African identity. Going beyond the problems of a single country, Hlumelo Biko calls for a reorientation of values, on a continental scale, to suit the needs and priorities of Africans. Building on the premise that slavery, colonialism, imperialism and apartheid fundamentally unbalanced the values and indeed the very self-concept of Africans, he offers realistic steps to return to a more balanced Afro-centric identity.

Historically, African values were shaped by a sense of abundance, in material and mental terms, and by strong ties of community.

The intrusion of religious, economic and legal systems imposed by conquerors, traders and missionaries upset this balance, and the African identity was subsumed by the values of the newcomers.

Biko shows how a reimagining of Africa can restore the sense of abundance and possibility, and what a rebirth of the continent on PanAfrican lines might look like. This is not about the churn of the news cycle or party politics – although he identifies the political party as one of the most pernicious legacies of colonialism. Instead, drawing on the latest research, he offers a practical, pragmatic vision anchored in the here and now.

By looking beyond identities and values imposed from outside, and transcending the divisions and frontiers imposed under colonialism, it should be possible for Africans to develop fully their skills, values and ingenuity, to build institutions that reflect African values, and to create wealth for the benefit of the continent as a whole.

What happens when South Africa’s tumultuous political life becomes entangled in the courts of law? Throughout the past 50 years, the courts have been a battleground for contesting political forces as more and more conflicts that were once fought in Parliament or in streets, or through strikes and media campaigns, find their way to the judiciary.

Certainly, the legal system was used by both the apartheid state and its opponents. But it is in the post-apartheid era, and in particular under the rule of President Jacob Zuma, that we have witnessed a dramatic increase in ‘lawfare’: the migration of politics to the courts.

The authors show through a series of case studies how just about every aspect of political life ends up in court: the arms deal, the demise of the Scorpions, the Cabinet reshuffle, the expulsion of the EFF from Parliament, the nuclear procurement process, the Cape Town mayor – the list goes on and on.

This book offers a highly readable analysis of some of the most widely publicised and decisive instances of lawfare. It argues that while it is good that the judiciary is able to shoulder the burden of supporting democracy, it is showing signs of immense strain under the present deluge of political cases. Whether the courts will survive this strain undamaged remains to be seen.

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

FAKE: FAKE MONEY, FAKE TEACHERS, FAKE ASSETS

BY ROBERT T KIYOSAKI Robert Kiyosaki has built a legacy around simplifying complex and often-confusing subjects like money and investing. He continues to challenge conventional wisdom and asks the questions that will help readers sift through today’s information overload to uncover ways to assess what’s real, and use truth and facts as a foundation for taking control of their financial lives.

In this new book, the author fights what’s ‘fake’ and helps readers differentiate between what’s real and what isn’t. He pulls no punches in his assessment of what is passed off as ‘fact’ or conventional wisdom and believes that a strong foundation – for anything we want to build – needs to start with solid, true information. In today’s uncertain times, creating a secure financial future and the peace of mind that comes with it starts with taking action and taking control.

Kiyosaki delivers insights and answers that help ordinary people – who probably haven’t had a lot of financial education – determine what’s ‘real’ and relevant to their financial lives.

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EDITORIAL EDITOR: Janice Roberts janice.roberts@newmedia.co.za LAYOUT & DESIGN: Julia van Schalkwyk SUB EDITOR: Anita van der Merwe

Published by New Media, a division of Media24 (Pty) Ltd.

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30 WWW.MONEYMARKETING.CO.ZA

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