MoneyMarketing July 2021

31 July 2021 | www.moneymarketing.co.za

WHAT’S INSIDE YOUR JULY ISSUE BECOMING THE BEST FINANCIAL PLANNER YOU CAN BE The completion of a recognised qualification is by far the biggest hurdle for a financial planner Page 8

NOT ALL FUNDS ARE CREATED EQUAL Hedge funds are really a very broad category, with a lot of different risk profiles run by many different managers with varying levels of skill Page 19

THE ‘WEALTH ICEBERG’ – HOW BEING WEALTHY IS THE OPPOSITE OF BEING RICH Wealth comes from not spending on things or possessions Page 22

HELPING CUSTOMERS KEEP THEIR PROMISES TO THEMSELVES The lifeline of premium protection cover Page 26

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First for the professional personal financial adviser

Why the world is on the cusp of an economic boom

BY JANICE ROBERTS Editor: MoneyMarketing

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nderpinned by the success of vaccination programs, the world is on the cusp of an economic boom like we’ve never seen before. That’s the word from Andrew Hardy, Director of Investment Management at Momentum Global Investment Management.

“There’s no doubt the markets have come a long way towards discounting the global recovery ahead. However, we think there’s still a lot more upside potential left for investors, particularly in those parts of the markets that were hardest hit by the pandemic sell-off at the start of last year,” he told the recent Global Matters Conference held by Momentum Investments together with its UK-based office, Momentum Global Investment Management.

While the benefits of vaccination programs are being felt disproportionately around the world, an end to the COVID-19 pandemic, and the restrictions on activity and movement

“We expect rates to stay low for the foreseeable future and for liquidity to continue flowing in”

that came with it, are in sight. “For now, large countries such as the US and UK are set to recover earliest because of the success of their vaccine rollouts that are increasingly enabling a loosening of restrictions.”

Hardy believes the release of pent-up demand will be the key swing factor in the coming months, something that markets have increasingly begun to discount since the first big vaccine news over six months ago.

“This has been no normal downturn as savings don’t usually grow through a recession – but this time they have, driven by government stimulus and those schemes keeping people employed in many countries.

In addition, there’s been a sheer lack of opportunity for people to spend on holidays, business travel, leisure and entertainment.”

Hardy explains that total excess savings around the world are estimated to be over $5tn, which represents around 6% of global GDP. “In the US and the UK, where furlough schemes have been more generous, the figures represent over 10% of GDP, and that’s before President Biden’s first $1.9tn stimulus package is accounted for, which includes cheques of $1 400 to most adults straight into their pockets.”

The reason why the

Andrew Hardy, Director: Investment Management: Momentum Global Investment Management

global economy will see a robust recovery is due to the incredible extent of stimulus that’s been unleashed, Hardy says. “Compared to other recent crises, the scale and global synchronisation of this stimulus makes this response unlike anything we’ve ever seen before – even the massive bailouts and quantitative easing following the financial crisis is nothing compared to this. Unlike then, the fabric of economies remains very much intact, and most critically, the banking system is in rude health with very strong capital levels.”

Continued on page 3

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31 July 2021

NEWS & OPINION

Continued from page 1 Consumer and business confidence are much higher, and economic activity levels are recovering rapidly. Hardy points out that leading indicators of manufacturing activity across most major economies have moved sharply higher in the last few months, pointing to strong growth ahead.

“The big question mark for investors is around the outlook for policy from here. And again, our view is constructive: We don’t see a return to fiscal austerity anytime soon, especially while sovereign borrowing rates remain so low – and with the memories of the post global financial crisis mistakes still fresh in policymakers’ minds.”

He believes that, in time, taxes will rise, but this should not be seen as today’s problem, as those that are most able to shoulder the burden will be targeted. “For now, we’re likely to continue to see the opposite, and that’s more stimulus. President Biden is already working hard on his second and third massive packages, and the rest of the world is, to varying extents, following the same playbook.”

Interest rates remain at or close to all-time multi-lows, and while pockets of exuberance are being created, investors need to be wary not to get caught up in these.

“The focus should be on the broad-based overall support for markets, which is unlikely to be withdrawn anytime soon. We expect rates to stay low for the foreseeable future and for liquidity to continue flowing in. The financial conditions in the US are estimated to be at their most accommodative level since 2007 – that’s incredible, and it highlights just how rapidly markets are normalising.”

While consensus expectations are for earnings in the US to increase by more than 40% this year, Hardy believes that there are better opportunities in the UK market. “This market has been overlooked and undervalued for years because of the Brexit overhang and the makeup of the market, which is skewed towards lower growth areas like banks, energy and industrials. But with uncertainty over future trade relations largely behind us and with a sharp global recovery coming, that will favour more cyclical sectors. So, I think the scene is set for the UK to begin a period of outperformance.”

“The scene is set for the UK to begin a period of outperformance” The same could be said for several other economically sensitive countries, as well as certain sectors. “Areas that have been hardest hit by the pandemic, notably listed property and infrastructure, have lagged the recovery in broader markets.”

Hardy adds that the best forward-looking opportunities lie in value stocks. “The spread in valuations between the most expensive stocks and the cheapest is as wide as it’s ever been on some measures. And there’s a lot of room for value stocks to exceed what are still low expectations over a reasonable investment horizon.”

EDITOR’S NOTE

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ne of the biggest obstacles to South Africa’s economic growth is its unreliable electricity supply, and it was certainly good news last month when President Cyril Ramaphosa announced that Schedule 2 of the Electricity Regulation Act would be amended to increase the NERSA licensing threshold for embedded generation projects from 1 MW to 100 MW. Embedded generation – when companies produce electricity for their own use – has long been viewed as a sustainable way to provide much-needed additional capacity to the electricity system. The announcement followed several days of load shedding, which finally culminated in Stage 4 blackouts.

Previously, the Minister of Mineral Resources and Energy, Gwede Mantashe, who is seemingly opposed to renewable energy, had indicated that the embedded generation cap should be raised to only 10 MW. The President obviously saw the need to overrule his minister, and this may be a sign that Mantashe is on his way out, to be replaced – hopefully – by someone who sees renewable energy as imperative for the country. Ramaphosa’s move is also an indication that he is taking advice from the infrastructure and investment office in the presidency, known as operation Vulindlela, as well as business leaders. While the update to the Electricity Regulation Act schedule could take up to 60 days to gazette, the move is a welcome one that should have come ages ago.

A day after this announcement, government again signalled that it is willing to let go of some of its lossmaking state-owned enterprises, as it was announced that South African Airways (SAA) will be partly privatised when the Takatso consortium acquires a 51% stake in the airline. While many questions have been raised about the deal, it’s important to remember that SAA is a bankrupt airline that has been operating in a difficult industry. Finding anyone to take it off the government’s hands while endeavouring to save jobs is something of a miracle.

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

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31 July 2021

NEWS & OPINION

PROFILE

Nancy Hossack Portfolio Manager, Foord Asset Management

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

My father was a portfolio manager, so I grew up talking about stock markets at the dinner table. He was passionate about his job and made it sound interesting. When I was about 16 years old, I decided to also pursue a career in finance. I reluctantly followed my dad’s recommendation to qualify as a chartered accountant. I didn’t thank him at the time, but I understood the value of it later and I am very grateful for my accounting training now.

I completed my articles outside of the profession at Investec Bank, which was a wonderful place to work, and then headed to Investec Asset Management (now Ninety One). I loved the job from day one, although I do remember how stressful it was being a junior analyst thrown in the deep end. I would phone my dad to ask him the questions that I thought might be too stupid to ask of my colleagues.

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

I think the first stock I bought for myself was building materials retailer Cashbuild. I loved the simplicity of the business and the down-to-earth management team. It was also one of the first stocks I covered. I sold it a few years later because I thought the valuation had become quite stretched.

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

I am not sure there are any actual moments that jump to mind but there are two parts of the job that I really love. The first is finding an angle on an investment that no one else knows about, some insight that the market is missing, which means it is mispricing the security. I imagine it is how bloodhounds feel when they pick up a scent. The second part is on those turning point days, where a big bull market finally rolls over and suddenly things start moving quickly.

That is when money managers are truly tested.

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

I like Hedge Fund Market Wizards

by Jack D Schwager – each chapter covers a different investor and how they invest. It illustrates that there are so many ways to make money in markets. I think consultants and investors are too obsessed with boxing managers into an investing style. As Chris Rock says, “Anyone who makes up their mind about an issue, before they hear the issue, is a fool.”

What’s your view on Bitcoin and other cryptocurrencies?

I’m cautious – it is very early days for cryptos. The short history of crypto has so far been characterised by an enormous amount of change and volatility that will continue. For now, I put cryptocurrencies into the ‘speculative’ category of securities.

As an investor, you try to assess the fundamental value of what you are buying, something you can hang your hat on. For a company, this would be its underlying cashflows. Trying to value cryptocurrencies is a lot more fraught. Even commodities are easier as they have long-term price histories that allow you to assess whether they are cheap or expensive relative to history. Young people ask about crypto a lot – my response is it’s fine if you want to put some money into crypto, but make sure it’s not more than you can afford to lose.

“I think consultants and investors are too obsessed with boxing managers into an investing style” The worst part has been dealing with some of the corruption that has infiltrated SA corporates in recent years.

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

VERY BRIEFLY Charl de Villiers has been appointed Head of Equities at Ashburton Investments with effect from 1 September 2021. He will join the Multi Asset and Equity team in his new role and will focus primarily on the institutional market. De Villiers joins Ashburton Investments from Sanlam Investments, where he was a member of the Model Portfolio Group and a Senior Equity Portfolio manager. Patrice Rassou, Chief Investment Officer at Ashburton Investments and FNB Wealth & Investments, says that de Villers “is a very welcome addition to our team. He brings an excellent track record and depth of knowledge that will greatly and immediately benefit our clients.” De Villers has sixteen years’ industry experience and holds a BTech in Electrical and Electronics Engineering from NMMU, an MBA from UCT and is a CFA charter holder.

Life insurer FMI recently announced the appointment of Zanele Ntulini as its Chief Marketing Officer. “We’re excited to have Zanele join the FMI executive leadership team where she will contribute to the company’s continued focus on innovation, growth Zanele Ntulini and transformation,” says Neil Wolno, FMI Acting CEO. “As a brand and communications leader, she brings a wealth of knowledge and experience to the table. I am confident that she will elevate our brand and take FMI to greater heights.” Ntulini is a strategic marketing and advertising executive with 19 years’ experience in building strong brands, and developing and implementing marketing strategies that translate into effective integrated marketing communication solutions. She holds an impressive track record, having held various roles in the marketing departments of Liberty, Old Mutual, Discovery Health and Hollard. She also has agency and consulting experience, having co-owned a through-the-line advertising and design agency in the Western Cape, and serving as Managing Director at Collective ID. PSG is pleased to announce that awardwinning wealth manager Rish Prag has joined PSG Wealth Sandton Grayston.

With 14 years’ experience in the private banking space, working primarily with high- and ultra-highnet-worth clients, Prag is thrilled to start this next chapter with PSG. Rish Prag “When I considered my next career move, it needed to be one that would help me grow both personally and professionally,” he says.

“An environment that embraces technology to keep relevant in a rapidly changing world, that provides best of breed solutions designed to preserve, protect and grow client wealth, an organisation that provides systems, solutions, research and infrastructure that will make my clients and my life easier and more efficient, and a company that lives and breathes wealth management – I found these qualities and more at PSG Wealth.” PSG Wealth Sandton Grayston is part of PSG Wealth, a subsidiary of PSG Konsult. The Sandton Grayston office has nine advisers, including Prag.

31 July 2021

NEWS & OPINION

Lowering personal income tax as a solution to broadening the tax base DR ALBERTUS MARAIS Director, AJM Tax

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ational Treasury and the South African Revenue Service (SARS) appear to be playing it smart by focusing on broadening the tax base through better compliance. This will ultimately prove to be a more sustainable solution to SA’s growing fiscal challenges in the face of a weak economy and job losses.

With little more than 6 000 South Africans reporting taxable income of R5m or more, it is clearly imperative that people and businesses under-declaring their tax should be included in the tax net. The challenge is very much about getting more people to meet their tax obligations, while the dishonest individuals and businesses are brought to book.

Time will tell if the base can be broadened enough to prevent higher personal taxes next year, but the principle holds true that with a better fiscal base, there is less need for talk about tax increases. In fact, the discussion should turn to the possibility of lowering taxes, or at least keeping them steady, as Treasury has been doing over the past few years.

There has already been talk of reducing corporate tax rates to as low as 22% and I believe we have reached a point where

lowering personal taxes will help improve, rather than diminish, tax collections. In fact, a reduction of personal taxes should logically follow the corporate tax rate reduction. We have, after all, witnessed the opposite effect of increasing tax rates leading to an ever-decreasing tax base, with less and less taxes being recovered.

Turning that tide will require improved compliance, together with lower taxes that stimulate economic activity across consumers and businesses.

While it is accepted globally that a VAT rate increase – as opposed to higher personal incomes – is an efficient way to enhance collections, we may need to accept this is too politically sensitive in SA. So, the alternative of broadening the base through better compliance and ensuring SARS becomes ‘smarter’ in terms of harnessing skills and technology really comes to the fore as a solution.

We are already seeing several examples of increased efficiencies at SARS. On 15 April, SARS said it had received over 88 000 applications in its new recruitment drive to boost capacity. Of these, there were 755 applications from chartered accountants and there was also a substantial pool of applicants at Masters and PhD level. SARS, in particular, is looking to hire 370 highly skilled specialists and 200 finance graduates to improve compliance and ensure the agency keeps up with technology and other advances.

SARS recently issued engagement or welcome letters from its high-wealth individual team to welcome taxpayers falling into this segment. They have designated individuals assigned to deal with these accounts and they will help if there are problems, such as meeting compliance obligations.

These moves include better policing, plus making it easier to meet tax obligations. This, in tandem with greater efforts to stamp out corruption, growth

Another little book with a big message about investing

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ou may be familiar with Foord’s More than enough, the first in a planned series of children’s picture books about saving and investing. Anele the squirrel, her mum and her acorns now return in the second book of the series, Little by little.

Authored by communications manager Christina Castle and illustrated by Carla Kreuser, Little by little introduces a few more forest friends and another very important lesson – that saving and investing take time, and lots and lots of patience. Both books

The principle holds true that with a better fiscal base, there is less need for talk about tax increases through trade surpluses and relaxation of exchange controls, all lead to increased scope to collect more taxes, which in turn leads to economic growth, jobs and the reduction of poverty and inequality.

Corruption and crime remain the perennial challenge, but in another important development, the Commissioner of SARS, Edward Kieswetter, and the National Director for Public Prosecution, Advocate Shamila Batohi, have agreed to further enhance collaboration and deal with key challenges of tax crime and noncompliance, eroding the tax revenue base and the integrity of the tax system. They clearly mean business and these moves can only be applauded. Tax evaders will do well to get their affairs in order fast, and

form part of Foord’s Teach your child to invest financial literacy initiative that aims to teach children (and their parents) the basic concepts of investing.

“Research has shown that by the age of three, children can grasp basic money concepts,” explains Brendan Africa, financial director at Foord. “And that by the age of seven, most children have already established lifelong money habits. By starting young, we have a greater chance of creating a culture of saving and investing among South Africans. The response to these books has been overwhelming. We have come to realise that we are

compliant taxpayers will be smart to avoid going down that rabbit hole.

As an early adopter of the international standard for the Automatic Exchange of Financial Account Information, SARS has confirmed that it has information relating to offshore account holdings of South African taxpayers, some of which seems not to have been declared.

Furthermore, in 2016/17, taxpayers were given the opportunity to regularise their tax and exchange control affairs to account for their offshore holdings through the Special Voluntary Disclosure Programme. Taxpayers also still have the opportunity to do so through the ongoing Voluntary Disclosure Programme under the Tax Administration Act, 2011.

Information that SARS has received comes from 87 jurisdictions across the world, detailing the offshore financial holdings of South African taxpayers, and SARS is apparently in the process of doing a careful review of that information.

There is a lot happening right now to improve the fiscal position in SA. If this comes together with an easing of the burden on taxpayers, it can only be applauded and supported.

not the only ones who believe just how important it is to start the conversation with children about investing from a young age. To date, we have distributed over 80 000 books across the country.”

Like More than enough, Little by little will be translated into Afrikaans, isiXhosa and isiZulu. Free to schools, libraries and community centres in South Africa, and anyone who is keen to create a culture of investing, both books are available in hard copy from the Foord office in Cape Town or to download as a PDF or to listen and read along at https://foord.co.za/insights/publications/teach-yourchild-to-invest.

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31 July 2021

NEWS & OPINION

Developing your advice business

Part 4: The ins and outs for developing a succession strategy In the final part of the series, Tyrone Brand, Allan Gray Distribution Development Specialist, discusses some of the steps to take to start developing an effective succession plan.

BY TYRONE BRAND Distribution Development Specialist, Allan Gray

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nce you have defined your goals and objectives for succession; weighed up the options available against what you want to achieve to determine the best route to pursue; determined how much your business is worth and where the value lies; and sketched a profile for your ideal successor, you have the building blocks necessary to start developing an overall strategy for your exit from the industry.

No two succession plans are the same – the decisions you make based on your preferences and circumstances will largely shape the structure of your plan. In the case of true succession, your plan should revolve around attracting, developing and retaining the top talent in your business. This means identifying the key roles central to growing the business and outlining a career path for these roles. An internal succession plan should

also define how you will incentivise younger advisers, manage the leadership transition, and how the transfer of ownership will occur.

In the case of a merger or the sale of your business to another financial services provider, your strategy would centre more around the buy-sell agreement, transition timelines and defining the role you will play during the transition period.

Defining your exit Whether you ultimately choose internal succession or to sell your business, below are four key steps to incorporate into your exit strategy.

1. Determine your timelines for transition A succession plan is incomplete in the absence of a hard exit date for true succession, or a general timeline for the sale of your business, including the transition period and the milestones you want to achieve before moving on.

Make sure you give yourself enough

time to enable the adequate transfer of leadership responsibilities, like managing client relationships and staff members, to your chosen successor. Detail how the succession plan will be triggered under different circumstances – at retirement, should you become disabled, or at death.

2. Define your share distribution methods A share distribution programme is a good way to keep top performers incentivised and a key strategy to rewarding and retaining your talent. Shares can be distributed in several ways, but it is best to consult with a legal and tax professional to help you determine the best method for your business.

3. Prioritise human capital development Developing your human capital is a critical component to any business, helping to retain talent and ensuring an effective succession plan. Make mentorship and professional development a priority, and create a blueprint that clearly defines the key roles in the business and how these roles will drive growth in the future. From there you will be able to map out a career path for your key employees.

4. Map out your communications plan Be sure to plan for how you will communicate your succession plan to clients and staff members. It might be a good idea to set up meetings with your key clients and personally introduce your successor to them to help smooth the transition and ensure the new relationship gets off to a strong start.

Be open to getting advice Planning for succession is not a once-off event, but rather a journey that takes time, requires careful consideration of a wide range of variables, and plenty of research.

It can get complicated, so be open to seeking the counsel of a financial and legal adviser who can advise on the tax and legal implications of your plan.

Tales of cybercrime prove why vigilance is key

BY RICHARD RATTUE MD, Compli-Serve SA

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magine that some of your hard-earned savings were intended to purchase a car to enjoy in your retirement. You shopped around for months, consulted friends and family for advice, got quotes, went for test drives, weighed up all the different options and finally had your purchase lined up.

Then you get an email saying you need to transfer the money now to secure the vehicle you have chosen to buy. Because the email is from your son, who has been helping you

with the purchase, you think nothing of it and go ahead and make the payment.

A few days later, the dealership asks if you are still interested in buying the car.

Your money, however, is nowhere to be seen and the dealership has no record of your payment. You realise your son’s email actually looks a bit suspicious, but you didn’t notice before you made the payment because you weren’t looking, and because he was away at the time you received the mail, you didn’t question it.

Don’t be easy prey Cybercriminals prey on victims who are likely to act innocently or predictably like this, because they know many people will trust what they see at first glance. They bank on individuals not double-checking credentials or picking up the phone to confirm an email. And just like that, every penny put aside for a purchase that has been months in the making, has vanished in an instant, without a trace.

It can happen to anyone – an innocent click when your car search started was when the criminal started watching you and noting your digital conversations. Another

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outcome could’ve been that the car dealership got hacked and personal details of transactions that were almost complete became exposed.

Faking your identity online is very easy if that is your intention, as is getting access when someone has weak protocols in place or doesn’t think before they click.

Being safer online is a no-brainer Not only can it save you money, but it can also remove you as a target for criminals. Every link and email warrant a second look before you click, and when a large sum of money or anything sensitive is in question, pick up the phone to check before you transact.

Imagine if you had picked up the phone to call your son?

That car could still have been yours.

We all need to be vigilant, always It is entirely possible to be scammed without realising it. One day, you may notice an extra profile on your Netflix account that you didn’t load. If you haven’t checked your bank statements in detail, you might’ve missed the small increase per month because you weren’t looking for it. Cybercriminals are always opportunistic, from small crimes like free TV access to big crimes like swindling entire sets of savings that could buy new cars or act as deposits on property. Don’t think it won’t happen to you.

Keeping as safe as possible also means keeping an eye on things often and avoiding complacency, always.

31 July 2021

NEWS & OPINION

BECOMING A FINANCIAL PLANNER

Pressure on pensions: How to successfully fund Africa over time

BY GERALD GONDO Business Development Executive (Africa), RisCura

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ith an estimated 85% of Africa’s population informally employed, the traditional pension fund model faces a growing challenge.

Innovative long-term savings products for this ever-increasing cohort of informal but economically active citizens are urgently required. Products like micro-pensions or other affordable solutions must be brought to market, and soon.

It is estimated that Africa had 13 million people aged 65 and over in 1975.

Nearly 50 years later, this figure has increased and is expected to reach 150 million people by 2050. Africa’s young population benefits from improved medicines and healthcare, which enormously increases the likelihood of Africans living for much longer. With increased longevity, the necessity for improving the outlook for long-term savings in Africa is critical.

“Products like micro-pensions or other affordable solutions must be brought to market” Nigeria nudges closer, sets an excellent example for the continent According to the latest Bright Africa pensions research from global investment firm RisCura, just over 10% of the Nigerian workforce is formally employed, precipitating the National Pension Commission (PenComm) launching the micro-pension scheme in 2019. The micro-pension scheme seeks explicitly to cater to the informal sector and companies with less than three employees. Innovation of this nature can be adopted by other African countries that face similar demographics and economic constraints.

Fintech for the future Harnessing fintech could foster financial inclusion while boosting African savings.

Rwanda provides anecdotal evidence of latent savings potential through combining mobile telephony and fintech. Active mobile penetration in Rwanda now averages 75% of the population. By embedding fintechenabled savings within active mobile telephony, micro-savings products can be accessible to the average mobile user.

A collective change By design, pension funds are long-term institutional investors. In Africa, this institutional investor base now holds approximately $350bn in long-term savings.

The COVID-19 pandemic brought to light the need for capital to respond quickly to the urgent funding needs of African economies. A proportion of this savings base can meaningfully support and help reduce Africa’s infrastructure deficit. Regulators have been alert to this and are progressively changing regulations to allow for meaningful pension fund participation in innovation and the real economy. Concepts such as regulatory sandboxes are being adopted to ignite and curate innovative financial products and services that may not meet all current regulatory requirements.

Pensions can be part of the solution development of Africa’s problems.

Through aligned and proactive regulatory reform and leveraging digital and mobile technology, Africa’s institutional investors can direct their savings towards the sustainable development of African economies.

School of Financial Planning Law marks its 20th anniversary

BY DR LIEZEL ALSEMGEEST Director, School of Financial Planning Law, University of the Free State

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he School of Financial Planning Law (SFPL) in the Faculty of Law at the University of the Free State was established in 2001 and was the first academic institution in South Africa to offer formal financial planning education and is currently also the largest.

The SFPL is especially well known for the Post-graduate Diploma in Financial Planning, which is a cornerstone qualification in becoming a Certified Financial Planner (CFP®).

During the past 20 years, the SFPL has gone from strength to strength and added many accredited programmes to its repertoire, specifically focused on providing holistic financial planning education for financial planners to theoretically and practically meet the unique needs of individual clients.

We truly believe that individuals need the best financial advice to become financially free, and therefore ensure that our students receive the best education possible.

We are continually updating and expanding our programmes and are committed to continuing to be the leader in the financial planning industry.

We are proud of what the SFPL has achieved in the past 20 years and are excitedly looking towards the future – even in these uncertain times – to flourish in an industry that has so much to offer and can change people’s lives, not only those of our students but especially the lives of their clients.

On the ill-fated day of John F. Kennedy’s death, he was due to deliver the following words: “Leadership and learning are indispensable to each other.”

Keep learning and educating yourself and be a leader in the financial planning industry. We stand behind you.

“We are continually updating and expanding our programmes”

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31 July 2021

BECOMING A FINANCIAL PLANNER

Becoming the best financial planner you can be

BY PIETRO ODENDAAL Head of School: Financial Planning and Insurance, Milpark Education

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ith the publication of the Treating Customers Fairly roadmap in 2011, the then Financial Services Board made clear their intention to professionalise the financial services industry. Their plan involved the restructuring of the regulatory framework for the South African financial

planning landscape, with the goal of ensuring better and fairer treatment of the customers of financial services providers, as the name suggests. This was moulded against the backdrop of an industry that historically was purely sales- and commission-driven, consequently leading to the unfair treatment of and poor decisions by customers. In the South African context, this was exacerbated by low levels of both basic and financial literacy, increasing the risk of consumer exploitation.1 Financial planning is increasingly being recognised as more than a sales-driven occupation; it requires the financial planner to have knowledge of the present legal, financial and economic environment and consider this together with the client’s social, psychological and other needs when making recommendations and giving advice. 2 Considering the multi-disciplinary nature of financial planning, it will be difficult to professionalise the industry without relying on education.

Luckily, the Financial Sector Conduct Authority (FSCA) seems to agree, as

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the fit and proper requirements for an individual to operate as a representative and give advice were drastically increased in 2017 with the amendment to the FAIS Act.3 Representatives, or financial planners, are now required to undertake more training in the form of class of business and product-specific training, in addition to the existing requirements of a qualification that meets the Act’s minimum requirements, and the passing of the necessary regulatory examinations.

“The completion of a recognised qualification is by far the biggest hurdle for a financial planner” The completion of a recognised qualification is by far the biggest hurdle for a financial planner, as it requires the financial planner to obtain at minimum a 120 credit NQF 5 qualification recognised by the FSCA.4 A qualification at this level relates to 120 notional hours of studying.

It is thus a big and time-consuming commitment that needs to be undertaken.

Choosing the right qualification from the list of 5 200 qualifications is therefore crucial.

Milpark Education offers 86 of the qualifications recognised by the FSCA. When you choose to study with Milpark, you do not merely have us as an education provider, but as a partner on your journey. Within the School of Financial Planning and Insurance, we have an excellent team of lecturers, who all have years of practical industry experience in giving advice to clients. We offer the perfect combination of academic theoretical and practical – exactly what you need in such an applied field as financial planning. We also have strong ties to industry and regularly involve other subject matter experts in our teachings, to ensure that you get exposed to more than just one way of thinking and providing advice.

Our alumni have excelled in the Financial Planning Institute’s Professional Competency Examination for CFP ® professionals, achieving an 18% higher pass rate than our next competitor in the recent March 2021 exams. Partner with Milpark Education on your journey to becoming the best financial planner you can be for your clients!

Treating Customers Fairly: The Roadmap (FSB 2011).

Van der Westhuizen WM The multidisciplinary nature of estate planning as a science (Journal for Estate Planning Law 2002(1)).

[3] Financial Advisory and Intermediary Services Act 37 of 2002.

[4] FSCA FAIS Notice 55 of 2021 (FSCA 2021).

[1]

[2]

31 July 2021

INVESTING

Fed more aggressive on inflation at June meeting

BY IZAK ODENDAAL Investment Strategist, Old Mutual Wealth

M

eetings of the US Federal Reserve’s Open Markets Committee (FOMC) are always a big deal for global markets, as they determine the path of the world’s most important interest rate.

Most meetings end up being uneventful, but occasionally a slight shift in the Fed’s policy outlook can cause a sizable market response. The Fed’s June meeting was one of those occasions. The Fed’s mandate is explicitly US focused: it aims to achieve an average inflation rate of 2% over time (which means it will need to let inflation rise above 2% to make up for the time it spent below target) and the maximum employment of Americans. While in recent years it has become more conscious of how its actions reverberate around the world, those reverberations are only fully considered to the extent that they impact the US. The June meeting took place against a particularly interesting background, and while there was no announced change in policy, change seems to be coming sooner than expected. The US economy is recovering from the COVID-19 shock and growing strongly. The FOMC statement noted the progress on vaccinations and improvement in economic activity and employment, but also that the sectors most adversely affected by the pandemic are still struggling. It pointed out again that the rise in inflation is expected to be transitory.

As a result, the statement concludes that its policy rate will remain close to zero

DAVE MOHR Investment Strategist, Old Mutual Wealth

and its monthly purchases of $120bn in Treasuries and mortgage-backed securities will remain until maximum employment is judged to have been achieved and inflation is on track to moderately exceed 2% “for some time”.

Going dotty However, the accompanying quarterly ‘dot plot’, which shows the projections of 18 individual Fed officials and the heads of regional reserve banks, suggests that most officials now believe rates will rise sooner than the market expected. The median dot on the plot now suggests two rate hikes in 2023, though there is clearly still a wide range of views among officials. Three months ago, the dot plot still pointed to unchanged rates in 2023. That is still a long time away, but markets will start – and have already started – pricing in that day.

The inflation outlook is crucial here.

Inflation has been rising faster than expected as the reopening of the economy has resulted in various shortages and bottlenecks. In simple terms, demand has recovered sooner than supply can respond. For instance, hotels that stood empty for months suddenly find themselves dealing with an influx of customers, and prices have increased to reflect this. As the Fed suggests, such increases are likely to be temporary as supply rises to meet demand. The main thing is that inflation expectations remain anchored, to use

Chart 1: Median ‘dot plot’ projections of federal funds rate

Source: US Federal Reserve

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the jargon. In other words, if most people believe the inflation spike is temporary, their behaviour won’t fundamentally change.

However, if they start expecting inflation to remain at these levels, or even accelerate, people will start responding accordingly by, for example, bringing forward big-ticket purchases, increasing demand. Workers will demand higher wage increases, while landlords will jack up rental escalations.

This is how inflation becomes self-fulfilling.

If this happens, higher interest rates could be needed to short-circuit the vicious cycle.

For the time being, the Fed’s dots suggest inflation to average 3.4% this year, up from 2.4% in March, but that it will settle closer to 2% over the next few years. Meanwhile, the US economy is expected to have a bumper year. The dots show an upgraded growth forecast of 7% this year, declining to 3.3% next year and 2.4% in 2023. These are all above the longer-term potential rate of 1.8%.

Timing the taper Long before the Fed hikes rates, it will scale down or taper its monthly bond buying programme, eventually halting it altogether. Fed Chair Powell indicated that the committee was now discussing this, but would not commit to timing. On one level, a normalisation in monetary policy is very good news. That is if the US and global economies no longer need emergency support that should be supportive for a broad range of investments. However, as we’ve seen during the course of the year, it is not necessarily a smooth adjustment.

There are investments where high valuations depend on continued low interest rates, making them vulnerable.

It would, however, be simplistic to say that equity markets have only gone up because of low interest rates, when earnings growth has been phenomenal after bottoming out mid-2020. It is similarly simplistic to say that bond yields are low because of the Fed’s purchases. After all, the 10-year government bond yield has tripled since August (from 0.5% to 1.5%) despite the Fed’s ongoing large-scale bond purchases. There is always nuance. Similarly, though emerging markets are potentially at risk of destabilising capital outflows, if US monetary policy is tightened because of stronger growth, they can benefit from the export side. It depends.

Have we seen this movie before?

The 2013 to 2018 period can give us clues, but today’s scenario is not exactly the same. After slashing interest rates to nearzero levels in 2008, and then embarking on several rounds of quantitative easing, by 2013 the Fed was starting to consider scaling back stimulus. Then Fed chair Ben Bernanke infamously set off the socalled taper tantrum in May 2013 when he suggested a tapering of bond purchases could be on the horizon. US – and global – bonds sold off and yields rose. Emerging market currencies started falling. Though violent, the taper tantrum was fairly shortlived. However, for emerging markets, the cat was out of the bag. The billions of dollars that flowed in during the ‘search for yield’ era between 2009 and 2013 would now be at risk as investors eyed not just the end of

quantitative easing, but also the eventual hiking of the federal funds rate.

In the end, the Fed’s policy tightening was extremely slow. The Fed hiked rates for the first time only in December 2015, and only by 25 basis points. The next hike only came a year later, and it then proceeded very gradually. But by late 2018, the market started worrying that even the slow and steady increase in rates was overdoing it.

Equities and bonds sold off sharply, and credit markets showed signs of cracking.

The Fed stopped the hikes and soon started cutting. At no point was there a serious risk of inflation, despite low interest rates, declining unemployment and billions of dollars of liquidity injected into the financial system. This pre-pandemic experience will in all likelihood inform the Fed’s path in the months and years ahead.

Dollar drift?

As US interest rates will in all likelihood rise faster than those of Europe and Japan, this could lift the US dollar at the expense of other currencies. However, the extent of any possible dollar appreciation is likely to be countered by the fact that the US twin deficit - the combined current account and fiscal deficit - is at a record level in double digits. These deficits don’t matter nearly as much to the US as they would for other countries since the US has the world’s reserve currency. But they are not irrelevant.

Portfolio implications What should investors in SA do about these decisions being taken thousands of miles away? The first point is that as markets reprice expectations for US interest rates, things could get quite choppy. Don’t panic if there is volatility. Big bear markets happen when there is a recession (or one on the horizon) and that is clearly not the case now. Secondly, as noted earlier, some investments can be hurt by rising rates, but others should respond favourably to the conditions that give rise to higher interest rates, as long as we are talking about decent rates of real economic growth and not sustained high inflation. This implies that equities remain the preferred asset class, but that returns are more likely to come from earnings growth than rising valuations.

Thirdly, there is no reason to expect US short-term interest rates to eventually settle at particularly high levels. In the last decade, the highest they could reach – briefly – was 2.5%. Rates in Europe and Japan will probably rise by even less, if they ever do.

Longer-term interest rates should reflect this. In other words, global fixed income is unlikely to be a particularly attractive option. Finally, in terms of local investments, we note that valuation is still on the side of domestic bonds, equities and property.

SA seems less vulnerable than during the previous period of tightening US monetary policy. Inflation is under control and SA’s combined twin deficit is smaller than in 2013/14. Importantly, SA’s political and policy mix is also moving in the right direction.

This in turn implies that we shouldn’t expect substantial increases in short-term interest rates, which renders money markets an unattractive longer-term investment.

31 July 2021

INVESTING

Leading the way for Islamic finance on the continent

BY MOHAMMED AMEEN HASSEN Head: Shari’ah Banking, Standard Bank Group

I

slamic finance is one of the fastest-growing areas of international finance. According to the World Bank, Shariah-compliant financial assets are currently estimated at roughly $2tn. While much of Islamic finance activity is centred in Europe and the Middle East, this traction has, over the years, filtered down to regions across Central West and South Africa.

With over a decade of experience in the Islamic banking sector in South Africa, Ameen Hassen, Head of Shari’ah Banking at Standard Bank Group, has played an integral role in developing Shari’ah-compliant products and services for the South African market.

Hassen led Standard Bank through the adoption of the Tahawwut ISDA agreement, which made it the first financial services organisation in Southern Africa to adopt this framework. The significance of the Tahawwut is that it allows for exotic swap and derivative products to be entered into on an over-the-counter basis with the comfort of an umbrella agreement that is accepted globally.

This materialised following a series of legislative amendments in 2010 that allowed for some of the core Shari’ah products and services to be treated on parity with conventional products for taxation and certain regulatory purposes – a key milestone for the industry in South Africa.

Since this development and National Treasury’s Sukuk issuance in 2014, Hassen says he has seen the industry go through a phase of accelerated growth. “The rapid maturation of the industry is important to note as we often find that there is a negative perception about Shari’ah-compliant products and services – that they are

more expensive, filled with administrative friction, and cannot hold their own against a conventional product in terms of features and benefits, and other misnomers.”

The truth of it, he says, is that Shari’ah-compliant products and services in South Africa today benefit from one of the most sophisticated, technologically advanced, and financially stable financial systems in the world.

“The industry has evolved from where it started three decades ago where it fulfilled the elementary banking requirements of clients. Today, however, we cater to most elementary needs all the way through to the most exotic of derivative or complex lending transactions.”

He adds that, for the most part, clients can access the same level of customer experience across both the conventional and Shari’ah universe.

“For example, accounts can be opened and managed digitally, they can access sophisticated hedging instruments, Shari’ah short- and long-term insurances, a full bouquet of investments across multiple asset classes, and end-to-end fiduciary services.

“The robust nature and maturity of financial markets in South Africa has enabled the development of bespoke Shari’ah-compliant financial and investment products.

But north of the Sahara, where financial markets are not as mature, more vanilla products will aid financial inclusion at the basic level rather than an institutional or sovereign level.”

Research conducted by the International Monetary Fund in 2016 that explored whether Islamic finance holds the potential to increase the rate of financial inclusion, highlighted the many structural elements on the African continent that are hampering financial inclusion overall.

The IMF conducted a survey across all the different countries in Africa, which showed that 5% of respondents cited religious reasons for formally excluding themselves from the banking sector. “This is a noticeable portion of the demographic. Those that are the primary consumers of Shari’ah-compliant products and services in Africa were either completely ‘unbanked’ or ‘underbanked’ for religious purposes.”

“The industry has evolved from where it started three decades ago where it fulfilled the elementary banking requirements of clients” He says that now, with Shari’ah-compliant products and services rolling out across the continent, this cohort of client is entering the ‘banked’ population and deepening their relationships with their providers.

“There is also another cohort of client that has started to take up these products. Post the 2008 financial crises, they lost faith in the global financial system largely due to the speculative nature of many of the conventional financial instruments that serve as the backbone of conventional financial services. In stark contrast, given that Shari’ah-compliant products and services require

that transactions cannot be concluded for speculation and that only items with actual intrinsic value can be traded, these financial instruments have proven to be significantly more resilient than the conventional universe and able to withstand macroeconomic shocks.”

Hassen, who left school at the age of 14 to complete the memorisation of the Qur’an in Arabic and pursued traditional Islamic Studies and Arabic under numerous reputable scholars in South Africa, says that for those who are followers of Islam, the attraction is primarily rooted in the religious requirement, as interest is forbidden.

“Those who do not ascribe to the faith of Islam can be broken down into two groups: Those who follow other religions and follow the prohibition of interest in their respective religions.

There are also those who are not as religiously devout or perhaps agnostic or atheist, but still want to consume a financial product or service knowing that money within the system will not be utilised to fund certain industries that many consider to be either sinful, unethical or contrary to their personal ethical and moral compasses.”

With these principles coming to the fore, and a growing distrust in the financial system, Shari’ahcompliant products and services have grown in demand. While the pandemic has had its impact, as has been the case for most sectors of the economy, it has provided areas of growth such as that of digital acceleration. “On the global front, the greatest trend across financial services is the 4IR effect. Shari’ahcompliant products and services have not been immunised against this and, so, the digitisation of these products and services are top priority for the market participants right now.”

Hassen was deeply involved in the recent launch of a Shari’ah funding solution in partnership with Merchant Capital, which aims to address the significant small business funding gap in South Africa while offering a new source of working capital for entrepreneurs – a first of its kind in Southern Africa. This has bolstered Standard Bank’s ability to serve business clients and to drive the growth of a critical sector of the economy.

“Shari’ah-compliant financial services and products have for a long time now been regarded as something that operated on the periphery of the financial services universe. In recent times, we have seen that this is not true and that it is something that can occupy a place within the mainstream of financial services. And so, my hope is that people begin to appreciate that we do not operate on the periphery, but as an industry we are holding our own. We are positive contributors to all our stakeholders across the value chain, and we do not just seek to imitate what the conventional world is doing, but we are now also on a journey into unchartered territories,” he adds.

“Shari’ahcompliant financial assets are currently estimated at roughly $2tn”

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31 July 2021

INVESTING

Just how much value remains in value shares?

MICHAEL TITLEY Business Development Fund Manager, Laurium Capital

F

or the last six months or so, value shares have outperformed on a relative basis. But a recent pause in this trend has many questioning the sustainability of the growth to value rotation. For the reasons outlined below, we think the relative outperformance of the value style has further to run.

In respect to relative valuations, it’s evident that value shares and indices are at historical lows relative to their growth counterparts. The question we now turn to is as follows: What might cause that gap to close?

It might sound counterintuitive, but strong economic growth should set in motion a sequence of events that benefits value-style investing more so than growth-style investing. Leading economic indicators are signalling a magnitude of coming growth that’s likely to stir interest rates from their slumber. As with most recoveries, the growth is demand-led.

The US consumer has built up an excess of savings well beyond their usual bank balances. Further stimulus payments, compliments of President Biden and his weighty fiscal policy, will only deepen their pockets. And once vaccines have been widely distributed, the theory

goes, it’s a good bet that those consumers will have the confidence to spend their disposable income. This is not a phenomenon unique to the US; consumers in other developed markets also have more cash to spend than usual.

If these pent-up savings combine with freedom of movement, it’s the sectors that were battered by the pandemic (think hospitality, energy, travel, brick-andmortar retailers, all of which fall into the value bucket), that stand to experience the greatest earnings revivals.

That’s the single most important driver needed to sustainably reverse the fortunes of value investors.

The supply side of the growth equation looks equally poised to support a strong economic rebound. Inventory levels fell off a cliff during the pandemic as businesses scaled back their production. However, with new orders rushing in, US manufacturers must quickly put their people and equipment to work. That should be good for employment and capital investment, the two important prerequisites for the virtuous cycle that causes sustainable growth.

With consumer demand set to rise rapidly and supply chains under pressure to meet their needs, the stage is set for higher inflation. That creates a floor for interest rates and stokes expectations that they may rise.

In addition to the higher demand for materials that comes with accelerating global growth, there’s a spreading belief that US dollar strength may have reached a ceiling. That would make dollar-based commodity prices more affordable, providing further demand impetus. If the tailwinds experienced by resource companies are seen as sustainable, banks

The offshore investing themes SA investors should capitalise on

BY KATHY DAVEY Investment Manager, Ashburton Investments

O

ver the past five years, investors have achieved about 5% greater annualised rand returns by investing in the FTSE All World Index rather than the FTSE JSE All Share index.

These higher returns have also been achieved with lower volatility of returns.

It’s always a good idea to diversify your equity assets offshore to gain access to fast-growing economies, global trends and, often most importantly, some great subsectors not available on the Johannesburg

DR JAMES COOKE Director: Investments and Head: Global Equities, Ashburton Investments

Stock Exchange (JSE).

The JSE All Share Index is heavily weighted to basic materials stocks such as Anglo American, which by extension means the JSE investor is exposed to China’s economic demand.

Interestingly, when it comes to technology exposure, the JSE and the FTSE All World Index have similar exposure, but South Africa’s exposure is almost entirely represented by Naspers, which holds a large stake in Chinese company Tencent.

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Figure 1: Excess savings as a % of GDP

Source: Bloomberg

stand to benefit from the additional cashflows resource companies are producing.

Value-style investing began its comeback in Q3 2020, but in relation to the damage it has absorbed over the last decade, the rotation may have only just begun.

Research from Bank of America Merrill Lynch shows that when value outperforms growth, it does so for a period of about 60 months. So far, we’ve had 7 months.

We believe the dynamics we’ve highlighted above have a structural, longer-term feel to them that will level the playing field between value and growth investing.

And given the upside on offer from the former, we think it prudent to tilt the international exposure in our multi-asset funds towards value. We will continue to pragmatically weigh up the inherent risks to achieve the best risk-adjusted returns for our clients going forward.

Investors in the JSE may not realise just how much exposure they have to one country. The FTSE All World Index by contrast comprises a much wider mix of technology companies, many of which are exciting growth stocks such as the renowned FAANG stocks – Facebook, Apple, Amazon, Netflix and Google (Alphabet). However, there are also many smaller highly innovative technology companies globally covering all areas of hardware, software and services.

Healthcare is also underrepresented in the JSE All Share Index.

Healthcare brings an important balance to any portfolio: it is inherently defensive and very well placed to benefit from ageing populations and ever-increasing longevity.

People are also becoming increasingly health-conscious and tending towards greater self-medication.

We also favour semi-conductor chip companies, which are largely centred in the US, Europe and Asia.

There is a global shortage of semiconductor chips, partly driven by supply disruptions and behaviour shifts from the pandemic. The global lockdowns have created spiking demand for personal electronics such as laptops and cellphones.

In addition, growth in digital transformation and e-commerce has driven demand for data centres. And 5G is also spurring demand for new phones; its applications are still only in their infancy.

Longer term, the secular trend of digital

transformation, the Internet of Things (IoT), data centres, EV (Electric Vehicles) and autonomous vehicles, as well as the rise of artificial intelligence, will provide a strong tailwind for this part of the market.

To take advantage of this trend, we have invested in South Korean Samsung Electronics, which is the company with the highest market share of semi-conductor memory and is also a manufacturer of leading-edge process chips for third parties.

We have also invested in Dutch company NXP Semiconductors, which is focused on the automotive semi-conductor chip part of the market.

The shift away from fossil fuel also presents a thematic investment opportunity.

Over the next 20 years, global electricity consumption is forecast to grow 86%.

It means ‘green’ generated electricity will have to connect to grids across the world.

The rise of EV cars means commercial buildings will need to be retrofitted to enable charging capacity of far greater numbers of cars. Data centres are also very energy intensive and need to be designed in an energy-efficient way that increases the electrical content of these centres.

To play in this space, we have invested in Eaton Corporation, an American multinational power management company.

These themes are expected to drive prices and attract money flows for years to come. South African investors should look more broadly than the JSE to take advantage.

31 July 2021

INVESTING

Taking a long-term approach to growth investing

BY JANICE ROBERTS Editor: MoneyMarketing

A

ccording to Grant Bowers, Senior Vice President at Franklin Templeton, phenomenal vaccine progress in the US is unlocking tremendous pent-up consumer demand.

“We’re seeing a re-acceleration that should last well through 2021,” he told The Collaborative Exchange’s Investment Forum last month. Bowers, who manages the Franklin US Opportunities Fund with Sara Araghi, Vice President and Research Analyst, believes that while the V-shaped recovery may be moderating in the US, this is more a pause than a pullback.

“Unemployment is improving. Corporate earnings are recovering, and cashflows are strong. All of that will lead to record GDP in the US in 2021 and well into 2022, creating a phenomenal macroeconomic backdrop for the broader equity market.”

Equity valuations in the US are continuing to move closer to what Bowers would call fair value. “We have seen a very strong recovery off the bottom over the last 12 months, and we believe, going forward, that these valuations are sustainable and that, ultimately, earnings will be the biggest driver of returns. That’s why we’ve focused our portfolio on growth and businesses that can grow faster – and more sustainably than the overall market.

The current low-interest-rate, low-inflation backdrop is very supportive of growth equities, and we think that will continue in the years ahead.”

He added that, from a monetary and fiscal stimulus standpoint, there had been unprecedented scale and scope on the part of the government during the COVID-19 pandemic – not unlike that seen at the time of the global financial crisis in

2008, when the stimulus was targeted at the banks. That stimulus has now been targeted at US consumers.

“This stimulus bridge for consumers has really brought the US consumer through the crisis and allowed them to emerge from COVID-19 maybe not as strong as they went in, but still on a stable footing and prepared to really spend again. We see the US consumer as being a driving force in the US economy for the next several years, driving unbelievable demand and focusing on new products and new services in many areas of the overall economy.”

In spite of the pandemic’s lockdowns, US corporates have continued to post strong earnings and cashflows, as the flexibility of their business models has enabled them to deliver on both the earnings and the cashflow side. “Many US companies continue to have very strong balance sheets and are well positioned to invest for the future,” Bowers said.

In addition, the new Biden administration has brought a calming force to volatility in the markets – and it’s moving forward with ambitious spending proposals and plans. “Fiscal stimulus, infrastructure bills and education are key focuses for the administration. We think all of these will be positive for US equity markets and the broader US economy. There will be rising taxes to offset many of these spending proposals, and that’s causing some concern in the market, but we see tax increases as being modest, and ultimately being a slight headwind for US equities and for earnings, but not really derailing any potential future growth that we see in the US economy.”

One of the key risks for US equity markets is the pace and shape of America’s recovery and the probability of it being broad-based or segmented. While some

parts of the economy could accelerate and grow simultaneously in 2021, other areas could be left behind. Bowers expects to see growth across every sector, “not just in the high-touch areas of technology, consumer and healthcare, but a deep broadening out into industrials, energy and materials, and other sectors of the market”.

Franklin Templeton is focused on the global vaccine roll-out – not just the roll-out in the US, where it has been very successful. “We need the entire world to be on the same page from a vaccine standpoint to support a return to normalcy. While we’re paying attention to the COVID-19 variants, we don’t see them as significant threats, as early data has shown that the vaccines out there provide significant protection against many of the variants.”

All in all, Bower sees the US shifting from a healthcare-driven market to an economic-driven market. “No longer will we be talking about case rates and COVID-19 percentages. We’ll be talking much more about GDP growth and unemployment. We’ll be talking about cashflows and profitability – this is a much more traditional economic-driven market.

And that’s supportive of stocks.”

He describes the Franklin US Opportunities Fund as a US equity growth portfolio “that really strives to give investors exposure to businesses that we believe are the leading growth companies in the US”. The Fund’s investments are all centred around long-term investment themes. “The idea is, if we can find and identify the big secular changes taking place in our economy, we can focus our investment research in those areas and identify the businesses that will be the future leaders of tomorrow.”

Every investment is examined through

Grant Bowers, Senior Vice President, Franklin Templeton

three key lenses, the first and foremost being growth. “Is this a business that is growing faster than the overall market? Is it levered to a big secular trend? Does it have sustainable earnings and cashflow, meaning can this business grow not just for one quarter or one year, but can this business grow for three, five or 10 years down the road? We truly take a long-term approach to growth investing.”

The second factor is quality. “We really strive to keep this portfolio in the highest quality quadrant of the overall market, focusing on businesses with strong competitive positions, great management teams, and strong balance sheets. We do that because the best quality businesses ultimately will be the best performing stocks over time, but also in times of stress. As we saw during the pandemic – or even in the financial crisis – these highquality businesses endure and outperform the broader market.”

The third piece of the puzzle is valuation. “We are not chasing the hottest stocks in the market. What we’re doing is looking at businesses we believe can generate sustainable earnings and cashflow that we can buy at a reasonable price. We want to own these businesses; we want to buy these companies at good valuations and hold them over the long term.” Bowers feels fortunate that he is based in California, in the heart of Silicon Valley. “This gives us a very unique and differentiated view of not just the broader economy, but many of the companies that are emerging from the Valley’s innovation culture.”

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31 July 2021

INVESTING

Equity: Is it too late to get in, or too early to get out?

BY LUIGI MARINUS Portfolio Manager, PPS Investments

T

he unsettled world as a result of COVID-19 and the whipsaw in markets provided opportunities for certain sectors to thrive sooner than previously expected, and has changed the investment landscape. From a South African investor perspective, one of the key questions is around equity – is it too late to get in, or too early to get out?

There are many ways to assess the relative attractiveness of equities as an asset class. At PPS, we focus on three factors: valuation, macroeconomic framework and momentum, with the ranking of importance of these factors varying as market conditions change.

In the local context, the macroeconomic framework contributes most to informing the neutral domestic equity allocation across the PPS funds. Uncertainties with regard to the roll-out of vaccines, and the impact a third wave may have on the economy, tempers the more aggressive

allocation, should only valuation and momentum be considered. In addition, GDP growth has disappointed when compared to global GDP growth and emerging market GDP growth expectations.

From a global context, the macroeconomic framework appears more favourable to equities, resulting in the maximum overweight allocation to global equities. Cash yields have remained close to zero in developed markets, while quantitative easing and

stimulus packages in the US, as well as Europe, have had a positive effect on equity prices. GDP growth expectations have been upwardly adjusted as vaccine roll-outs have consistently improved in developed markets. Valuations have become more expensive in the sectors that have benefitted from lockdowns, but there are areas of the market that remain better priced.

Trying to time the entry and exit points with equities should not be a question of whether an investor should have high exposure or no exposure. In the same way, asking whether it is too late to get into equities or too early to sell out of equities assumes a significant change to the allocation. The performance of equities is only one aspect that is considered when deciding on the allocation to the asset class. Being too late or exiting too early is not the important consideration, as the assessment of current conditions and what that implies going forward provides the framework of whether or not to adjust the exposure to equities.

“There are many ways to assess the relative attractiveness of equities as an asset class” Even in an unsettled world, two things are clear: all investment decisions are relative and maintaining an investment process makes investing through difficult periods manageable. A decision to reduce exposure cannot be done in isolation.

Following a process reduces the effect of emotion and bias and inevitably leads to a more thorough and considered outcome. Therefore, making sense of an unsettled world is possible. At PPS Investments, we aim to construct sensibly diversified portfolios where components are poised to perform well through different market cycles.

No disruptions during COVID-19: INN8 Mickey Gambale, CEO of INN8, spoke to MoneyMarketing’s editor, Janice Roberts, about how the independent investment platform has coped with the COVID-19 pandemic.

MICKEY GAMBALE CEO, INN8 How quickly did INN8’s platform respond to the COVID-19 pandemic?

INN8 is a digitally-led business. It was designed and developed for a fast-moving, ever-changing world. This meant that we were fortunate enough to have a team with the mindset to make the shift to remote working seamless. Our systems and processes were designed to be adaptable and accessible securely from anywhere.

We were very quickly able to adapt to the workfrom-home restrictions; in fact, we implemented this procedure almost a full 10 days before hard lockdown was announced in South Africa in 2020. It also meant we were able to help our advisers, and their clients, transition to what we knew was coming, by leveraging our experience for their benefit. Operationally, because of the digital DNA of our platform, there were no disruptions.

What lessons did INN8 learn from the pandemic?

The role of the adviser has been affirmed. In an uncertain time, such as that caused by COVID-19, advisers and the human touch are the elements that can keep clients calm and prevent them from making the wrong decisions.

We’ve taken the adviser on our platform from simply surviving in this new world, where they were anxious to retain their clients through a new way of connecting digitally,

“Our local investment proposition will be opening soon to our broader adviser community” 14 www.moneymarketing.co.za

to understanding that the elegant technology that we provide can be used to grow their business in a digital society where they can create and develop new relationships.

Crises really force people to change. We went from one adviser sharing in 2018 how he had concluded transactions over Skype, having never met the client, to remote and virtual meetings being the norm. That is the resilience of human nature.

How much has INN8’s platform changed since its inception, and looking ahead, what changes do you foresee in the future?

Our vision is to change the way investments are done.

This means we are constantly innovating and looking ahead. To us, innovation must matter and must make a difference to the business of our advisers and the lives of their clients.

Our offshore investment platform has seen sustained growth over the last two years and our local investment proposition will be opening soon to our broader adviser community. We believe this will soon become the benchmark for investment platforms in South Africa.

Things you can expect from us include more automation where possible, more robust compliant recordkeeping, and even simpler ways to do things. For example, we have on our local platform an OTP-less onboarding process, which is the first in South Africa, and it is FSCA approved.

What differentiates INN8 from other platforms?

Our platform is purpose-built with the adviser at the centre of the design, and it fits their way of doing business. We are using benchmark technology to deliver the solutions required in an ever-changing world, by the best people who provide exemplary service – which is crucial to any investment platform business.

31 July 2021

INVESTING

‘Why equities are our most favoured area for investment’

BY JANICE ROBERTS Editor: MoneyMarketing

L

ow discount rates will continue to be a feature of advanced markets for some time, making equities the most favoured area for global investment, says Alex Lyle, one of the managers of STANLIB’s Global Balanced fund, and head of managed funds for Europe, the Middle East and Africa at Columbia Threadneedle Investments.

“We think inflation will be transitory, and not a mediumto long-term problem,” he told the recent BCI Global Investment Conference. “Certainly, in the short term we’re seeing inflation spikes, due to things like capacity loss due to COVID-19, as well as bottlenecks in supply chains, and increased costs from the pandemic where restaurants are having to employ new, extra staff because it’s only waitron service that’s allowed.”

Inflation won’t stay elevated because capacity can be restored when people return to normality. “The long-term deflationary forces we had for some time are still out there,” Lyle adds. “Inflation in major economies over the last 20 years has pretty much been in a range of 1% to 2.5% – and it’s our expectation that it will return to those sorts of levels.”

In addition, central banks will keep their feet on the throttle to get economies going. “This involves keeping interest rates down at very low levels, roughly zero at the moment. In fact, market expectations for rises in interest rates in the US are just for one small 25 basis points rise by the end of next year.

Quantitative easing by central banks will continue and the buying of bonds will keep bond yields low,” he says.

Columbia Threadneedle does not view bonds as attractive. “We’re not expecting yields to rise much from here – there’s just not much value in yields at those very low levels, but within bonds there are more attractive areas.

We think that high-yield corporate bonds and investmentgrade corporate bonds are better on the value chain than government bonds.”

The present environment is very different from the one around the time of the global financial crisis. “Back then the talk was all about austerity and making sure debt levels were

kept under control. This time, it’s large fiscal packages and the implications of that are a sharp and healthy recovery.”

Lyle points out that expectations for growth have risen enormously in just the last few months. “In January, the market was expecting just under 4% GDP growth in the US this year. Now, the market is expecting the figure to be over 6% – this is a huge increase in expectations over a few months.” He adds that in the UK, a similar picture is being painted, as the Bank of England has upgraded its 2021 growth outlook for the UK’s economy to 7.25% from 5% as forecast in February.

One of the factors contributing to growth is the vaccine rollout. “We all now know about the AstraZeneca jab, the Pfizer-BioNTech vaccine, the Moderna one and, more recently, the Novavax one. The Johnson and Johnson vaccine looks good and there are others too. The more vaccines that are approved, the faster the vaccine rollouts can happen, and that’s such a crucial part of getting economies going again.”

Meanwhile, very good corporate results have been announced. “Companies have done a very good job in protecting profits in the pandemic. We’ve basically just about finished the first quarter of this year’s reporting season and earnings have come in 22% ahead of market expectations, with 86% of companies reporting ahead of expectations. Some companies have been having a fantastic time because they were in the right place for recent trends, and COVID-19 has accelerated those trends.”

Columbia Threadneedle’s most favoured area for investment is equities, with a focus on the strong economies of the US and Asia, and attractive growth companies. “Equities are not looking cheap, but the wind, we think, is still behind them.”

Lyle believes that investors should be aware of the secular trends that are taking place, due to changes in the way things are done by both consumers and companies, “You want to back those rather than people with yesterday’s business model.” These secular trends that will continue – and even accelerate – include de-carbonisation, digitisation, cloud computing, and medical tech.

“We do think the value pick-up in the short term may continue for a bit longer, so we’re still focusing on some of those more value-orientated, more cyclical ‘reopening of economy stocks’ – things like US railroads or Disney, which is opening up again for business. People are very keen to get out and enjoy life again, having been locked up for some time,” he says.

There are some opportunities that Lyle calls “interesting areas” within the global property sector. These include the industrial spaces linked to the logistics behind the online trade, such as those used for storage and distribution; while in the housing sector, for example, residential units are needed in countries like Germany due to high immigration. “We’re not really sure about the implications for offices as a result of COVID-19 – so overall, we think that property is neutral.”

Alex Lyle, Head: Managed Funds for Europe, Middle East & Africa, Columbia Threadneedle Investments

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31 July 2021

HEDGE FUNDS FEATURE

The future of hedge fund strategies in SA

BY RAYHAAN JOOSUB Portfolio Manager and Director, Sentio

S

entio has always advocated that the two key ingredients to making a good hedge fund are uncorrelated returns, and positive asymmetry. We would like to unpack these two concepts in more detail from a strategy perspective and hope this will assist allocators in their selection of hedge funds.

Uncorrelated returns – Alternative risk premia Like long-only funds, many hedge funds leverage traditional risk premia like the equity-risk premium and duration-risk premium to generate the bulk of their returns. The problem with this is that it creates significant concentration of risk among different hedge funds, which results in a higher correlation of returns. Returns are great when those risk premia are delivering positive returns, but when those risk premia experience corrections, for example when equities or bonds sell off, most funds will deliver poor outcomes simultaneously.

It is the job of hedge fund managers to find alternative risk premia within traditional asset classes like equities and bonds, and within other asset classes that are relatively uncorrelated with the traditional risk premia.

Alternative risk premia provide diversification benefits and, as a result, better risk-adjusted returns, especially when equity and bond market returns come under pressure.

Currently, these alternative risk premia are not easy to find and require sophisticated quantitative andJuly machine Sentio_Multi-Strat Hedge Fund_MM 2021.pdf

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

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learning techniques to extract the rewarding strategies implicit in the equity and bond markets (which are also independent of the equity and duration risk premium).

Very often, the returns from these alternative risk premia are quite low and will require careful leveraging to achieve attractive returns relative to traditional risk premia. Since hedge funds are allowed to leverage, as opposed to their long-only counterparts, this is a key differentiator for hedge funds. Hence, hedge funds that use leverage intelligently can emphasise returns from diversified sources and thus provide far better risk-adjusted returns than long-only funds.

Positive asymmetry – Managing the upside relative to the downside Another key ingredient that makes a good hedge fund is the ability to provide positive exposure to risk premia when they provide positive returns, and reducing that exposure before they produce negative returns. Too many hedge funds have failed to do this and typically ride the wave on the upside while earning performance fees, then subsequently fail to protect capital when the wave turns negative.

A ‘good’ hedge fund needs to manage the upside relative to the downside, and using machine learning as well as fundamental, quantitative and derivative techniques help to achieve this. Common wisdom holds that ‘timing is everything’ but it is also true that ‘timing is difficult’. However, we believe that when risk premia do not provide appropriate upside relative to the downside risk, then it is the job of the hedge fund managers to manage the downside risk to that asset or strategy, or allocate to other assets or strategies that offer better risk-adjusted returns. ‘Chasing’ returns with high leverage is very dangerous and has led to most of the ‘accidents’ in South Africa’s hedge fund industry. At Sentio, we pride ourselves on our machine learning and risk management capabilities, and incorporate alternative risk premia and asymmetric returns into our hedge fund strategies so that we can achieve our objectives without taking excessive risk.

2 2021/06/02 15:16

“Alternative risk premia provide diversification benefits”

Local hedge funds: Facts

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outh Africa became the first country in the world to put in place comprehensive regulation for hedge fund products in April 2015. The regulations provide for two categories of hedge funds, namely Qualified Investor Hedge Funds and Retail Hedge Funds. In order to comply with the regulations, hedge funds had to convert to legal structures that conform with the provisions of the Collective Investment Schemes Control Act (CISCA).

Qualified Investor Hedge Funds require a minimum investment of R1m and are open to investors with a solid understanding of the investment strategies deployed by hedge funds and the associated risks. Retail Hedge Funds, on the other hand, are more strictly regulated in terms of the investments and the risks that they are allowed to take, and are open to all investors who can afford the average minimum lump sum investment amount of R50 000.

According to the Association for Savings and Investment South Africa (ASISA), the process of transitioning to either a Qualified Investor Hedge Fund structure or a Retail Hedge Fund structure led to a number of hedge fund managers drastically consolidating their product offering. As a result, the total number of regulated hedge fund products had dropped to 233 by the end of December 2020.

Source: ASISA

31 July 2021

HEDGE FUND FEATURE

Hedge funds and their benefits PABALLO NHAMBIRI Quantitative Analyst, Terebinth Capital

H

edge funds play an important role in the financial system. They are a significant source of liquidity that help improve market efficiency and price discovery and, most importantly, contribute to absorbing financial risk. As an asset class, hedge funds offer investors the potential to generate absolute riskadjusted returns that are not correlated to the market. They are also one of the most efficient ways by which investors can access skilled managers, diversify risk, and gain exposure to a wide variety of investment opportunities.

Despite their positive attributes, there is no formal or universally accepted definition of hedge funds. Still, we can describe them as actively managed portfolios that generate returns by employing a wide range of strategies, which include the application of leverage, long and short strategies, and the use of derivative instruments to enhance returns and/or protect investors against downside risk.

Historically, the first modern hedge fund was established in the United States

DUMISANI NGWENZA, Quantitative Analyst, Terebinth Capital

in the 1950s with funds that were initially structured as limited partnerships. They were not required to register themselves as investment advisers with the Securities Exchange Commission (SEC). This meant they could not raise capital through advertisement to the public and, therefore, were only reserved for institutional and accredited investors. The JOBS Act, signed into law by President Barak Obama in 2012, provided an amendment to these rules, which were subject to adequate disclosures and disclaimers being made to potential investors.

Introduction under CIS umbrella Locally, prior to April 2015, South African hedge funds were available only to accredited investors able to invest a minimum of R1m. On 1 April 2015, hedge funds in South Africa were declared Collective Investment Schemes (CIS), in accordance with the Collective Investment Schemes Control Act 2002 (CISCA) – moving from a less regulated to a strictly regulated environment, with objectives of

enhancing investor protection, promoting transparency and market integrity and, most importantly, preventing systemic risk. The regulation provided for two types of hedge fund categories: Qualified investor hedge funds (QIHFs) restricted to accredited investors with a minimum investment of R1m; and retail investor hedge funds (RIHF) open to ordinary investors.

“A firm’s risk management framework should aim to highlight the risks that are associated with its chosen strategies” In summary, there are three benefits to hedge funds’ inclusion into CIS portfolios: • They can now target a larger audience and attract large sums of capital • Their managers are required to meet ‘fit and proper’ requirements and to obtain licensing and registration • They operate in a stricter regulated environment, which further enforces a requirement for managers to establish robust risk management controls that are suitable for the investment strategies they employ, the size of their portfolios, and the investment processes they have adopted.

Therefore, a firm’s risk management framework should aim to highlight the risks that are associated with its chosen strategies and, notably, be able to quantify and monitor its overall exposure to these risks. Managers are also required to report any violations in regulations to the Financial Sector Conduct Authority (FSCA), along with a motivation detailing the date of the breach and the process that was undertaken to rectify it.

Local hedge funds: Facts The South African hedge funds industry ended 2020 with assets under management of R73.27bn.

Statistics released by the Association for Savings and Investment South Africa (ASISA) show that assets under management increased by R4.35bn in 2020 from the R68.92bn managed by local hedge funds at the end of 2019.

This is the first time that independent statistics are available for the local hedge funds industry.

In the past, statistics were collected and reported by various product providers.

The collection of meaningful data was made possible by the introduction of the ASISA Hedge Funds Classification Standard, which came into effect on 1 January 2020. The classification of hedge fund portfolios into different categories makes it easier for investors and their advisers to assess and compare funds with the aim of selecting hedge funds appropriate for their risk profiles and investment portfolios.

Source: ASISA

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

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

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31 July 2021

HEDGE FUNDS FEATURE

Why 36ONE hedge funds are a perfect addition to a living annuity

BY STEVEN HURWITZ Investment Analyst, 36ONE

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nvestors who have already retired, need to balance their return expectations with portfolio volatility. Not having a high enough allocation to equities could result in longevity risk, bearing in mind, equities are naturally volatile and one should expect drawdowns to occur.

Historically, to reduce a portfolio’s volatility, investors have constructed traditional, balanced portfolios by allocating 60% to equities and 40% to bonds. The allocation of alternative asset classes is normally neglected. We believe that the 36ONE Hedge Funds are the perfect addition for investors with living annuities, as a way of improving returns and lowering volatility. A benefit of a living annuity is that there is no limit to the amount you can allocate to hedge funds. Table one highlights returns and volatility for different portfolio allocations, including our 36ONE SNN QI Hedge Fund. As you add higher allocations to the 36ONE SNN QI Hedge fund, overall volatility and maximum drawdown is reduced, while performance improves.

Table 1 % Allocation

Performance p.a.

Volatility p.a.

Maximum Drawdown

60% Equity l 40% Bonds 0% 36ONE Hedge Fund

10.4%

10.7%

- 24%

50% Equity l 30% Bonds 20% 36ONE Hedge Fund

12.1%

9.2%

- 22%

40% Equity l 20% Bonds 40% 36ONE Hedge Fund

13.5%

8.6%

- 20%

30% Equity l 10% Bonds 60% 36ONE Hedge Fund

14.7%

8.5%

- 18%

Source: 36ONE Calculations. Hypothetical portfolio constructed using varying inclusion rates of the 36ONE SNN QI Hedge Fund, performance since inception of 1 April 2006. Equity refers to the FTSE/JSE All Share Total Return Index. Bonds refers to the FTSE/JSE All Bond Index

Retirees cannot afford large or prolonged drawdowns.

For example, if an investor is drawing down 9% of their starting portfolio p.a., a 50% drawdown means that the original 9% income that they are drawing, is now 18% of the portfolio value. This means that when markets do eventually recover, there will be significantly less capital from which an income can be drawn. This point is best highlighted by tables two and three.

The first scenario compares the return of our 36ONE SNN QI Hedge Fund with the JSE All Share Index; R1m was initially invested and no withdrawals are made. Our 36ONE SNN QI Hedge fund had an 88% higher end value, with a 55% risk reduction (volatility) and returned 16.2% p.a., compared to the market’s return of 11.5%.

Table 2: Lump Sum Scenario (No Withdrawals) End Portfolio Value

Since Inception Return p.a.

36ONE Hedge Fund

R9 631 900

16.2% p.a.

FTSE/JSE All Share Index

R5 128 700

11.5% p.a.

Difference

R4 503 200

4.7% p.a.

The second scenario assumes R1m was initially invested; however, the investor withdraws R7 500 income per month, which escalates at 6% p.a. Here, the divergence in performance is even greater; 133% higher end value in the 36ONE SNN QI Hedge fund. This is because the JSE All Share Index had greater drawdowns, and as investors had to keep drawing a monthly income despite those drawdowns, there was less capital available for when the market recovered. This permanently impaired the long-term return potential of the portfolio. Therefore, volatility should be an important consideration when constructing portfolios, especially when the investor is drawing a monthly income.

Table 3: Income Producing Scenario End Portfolio Value (after withdrawals)

Since Inception Return p.a. (after withdrawals)

36ONE Hedge Fund

R6 675 500

13.3% p.a.

FTSE/JSE All Share Index

R2 853 100

7.2% p.a.

Difference

R3 822 400

6.1% p.a.

Source: Table 2 and 3 – Sanne, Bloomberg, as at 30 April 2021. Since inception refers to 1 April 2006. 36ONE Hedge Fund refers to the 36ONE SNN QI Hedge Fund.

There is one final benefit to having a portfolio with lower volatility: peace of mind! When the market has significant drawdowns, investors have to worry less about the correct course of action. Human nature is pro-cyclical, i.e., selling at the bottom of the market or buying at the top of a long bull market. This is value destructive and results in poor investing outcomes. Our 36ONE Hedge Funds have significantly lower drawdowns and this helps investors stay invested through market cycles.

Disclaimer: Bloomberg, Sanne. Past Performance is not necessarily an indication of future performance. 36ONE SNN QIHF CISCA inception date is 01 November 2016. Sanne Management Company is registered and approved by the FSCA under CISCA and retains full legal responsibility for the third-party-named portfolio. 36ONE QIHF Highest and lowest rolling 12-month performance since inception: High 58.63%; Low -10.84%. Full mandatory disclosures can be obtained on our website by following this link: https://www.36one.co.za/legal/disclaimer 36ONE Asset Management Pty Ltd is a licensed financial service provider. FSP# 19107

ARE YOUR RETIREMENT SAVINGS ON TRACK? Market volatility and uncertainty can put retirement savings at risk.

Consider the 36ONE hedge funds as an alternative solution in order to reduce volatility and increase certainty.

36one.co.za | info@36one.co.za | +(27) 10 501 0250 Visit www.36one.co.za/legal/disclaimer to view full disclaimer. Authorised Financial Services Provider. FSP# 19107

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31 July 2021

HEDGE FUNDS FEATURE

Not all funds are created equal

BY ALAN YATES Business Development Manager, Peregrine Capital

I

t is almost a daily occurrence in my line of work to introduce our funds to people who are not hugely familiar with the hedge fund industry in South Africa.

Many of them think of shows like Billions, or stories like the recent Game Stop saga, and therefore assume hedge funds are risky investments. But hedge funds are really a very broad category, with a lot of different risk profiles run by many different managers with varying levels of skill. Just like the unit trust categories we are all so familiar and comfortable with.

One of the big advantages that hedge funds have over traditional long-only funds, is the larger toolbox of strategies that are available to the manager (in the form of shorting, pair trades and other hedging mechanisms). But that advantage is only an advantage when it’s in the hands of an experienced and skilful manager, otherwise it can indeed bring more risk to the fund in question if misused by the manager.

At Peregrine Capital, we have a very long track record of managing our

funds with skill and prudence, and more and more institutions and financial advisers are including our funds in their offerings as a result. Our Peregrine Capital Pure Hedge H4 QI Hedge Fund (Pure Hedge Fund) has been a particularly popular option for investors who are looking for a stable and consistent return stream, while keeping their market risk to a minimum.

The Pure Hedge Fund is South Africa’s oldest hedge fund, with more than two decades of track record behind it. It is a market neutral hedge

fund – a very conservative and prudent option compared to what might come to mind when the term hedge fund is mentioned. The fund has delivered annualised returns of between 10% and 13% per annum for the past one-year, three-year, five-year, 10-year and 15-year period, while keeping standard deviation and drawdowns to an absolute minimum. The maximum drawdown ever experienced in the fund is less than 5%, which means investors have had a very comfortable ride for many years with us.

Perhaps our proudest achievement for the Pure Hedge Fund is that it has never had a negative return in any calendar year since its inception in June 1998. This sort of consistency makes it much easier for investors to remain invested for the long run and allows them to compound those returns over time.

A final benefit for investors is the diversification advantage that the Pure Hedge Fund brings to an investor’s overall portfolio.

The fund has almost zero correlation to what happens on

the JSE, and that means it can generate those much-needed returns, even when the stock market is falling in a heap. It’s a pleasure to speak to investors when you are able to offer them inflation-beating returns in a low-risk package that perform even when the rest of their portfolio is under fire!

The Pure Hedge Fund is available via all major LISP platforms, as well as directly through Peregrine Capital.

For more information visit www.peregrinecapital.co.za

“The fund has almost zero correlation to what happens on the JSE”

Pure Hedge Fund 23 years in the green

Since its inception in 1998, the Pure Hedge Fund has never experienced a negative year*

www.peregrinecapital.co.za *Fund performance: Returns are quoted net of fees Fund performance provided as at 30 April 2021 Annual management fee: 1% Performance fee: 20% subject to High Water Mark and above hurdle (STEFOCAD) Fee class status: Class: A, distributing Source: Peregrine Capital

Peregrine Capital Proprietary Limited (“Peregrine Capital”) is an authorised financial services provider and is the investment manager of the Peregrine Capital Pure Hedge H4 QI Hedge Fund (“Pure Hedge Fund”). H4 Collective Investments (RF) Proprietary Limited, is an approved manager of collective investment schemes in terms of the Collective Investment Schemes Control Act, 2002.

Net asset value figures (NAV to NAV) have been used for the performance calculations, as calculated by the manager at the valuation point defined in the deed, over all reporting periods. The performance is calculated for the portfolio. Individual investor performance may differ, as a result of initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Performance is based on a lump sum contribution and is shown net of all fund charges and expenses, and includes the reinvestment of distributions. Actual annual figures are available to the investor, on request at info@h4ci.co.za. A schedule of fees, charges and maximum commission is also available on request from the manager. The rate of return is calculated on a total return basis, and the following elements may involve a reduction of the investor’s capital: interest rates, economic outlook, inflation, deflation, economic and political shocks or changes in economic policy. Annualisation is the conversion of a rate of any length of time into a rate that is reflected on an annual basis. Past performance is not indicative of future performance. This is a low to medium risk investment.

Fund Name

Inception date

Highest annual return

Lowest annual return

Peregrine Capital Pure Hedge H4 QI Hedge Fund

Jul 1998

67.90% (1999)

1.61% (2008)

Inflation (CPI)

Jul 1998

12.97% (2002)

0.21% (2003)

ASISA South Africa MA Low Equity

Jul 1998

40.59% (1999)

-10.69% (2008)

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 ‘Cash’ referenced is the STeFI Index (Stefocad) from July 2003 to date before that the JIBAR is used.

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31 July 2021

SAVINGS MONTH FEATURE

Saving in YOUR language with #waystosave this July Savings Month

T

he South African Savings Institute (SASI), with support from Absa and the IDC, is again focusing on financial education throughout July Savings Month, bringing together financial experts to provide tangible insights on savings through the #waystosave financial literacy education initiative. SASI CEO Gerald Mwandiambira says that in 2021, the focus is on driving awareness around how savings knowledge must be understood, and be accessible in more South African languages. The core #waystosave theme for 2021 is ‘Saving in YOUR language’. The July Savings Month public launch took place on 30 June and was attended by media, government and financial industry leaders.

“SASI remains steadfast in our mission to really transform savings behaviour in South Africa. July Savings Month 2021 features a host of leading voices in financial education. It includes a vibrant panel discussion, sparking a national conversation on how savings knowledge and financial literacy can be made more accessible to all,” says Mwandiambira. “To quote Nelson Mandela: ‘If you talk to a man in a language he understands, that goes to his head. If you talk to him in his own language, that goes to his heart.’

Everyone can find ways to save in their own language.”

“Improvements in the level of household net wealth are encouraging and it shows we can save when under pressure” The July Savings Month includes a series of indepth webinars and a Savings Challenge, providing an opportunity for many to focus on their financial health.

SASI has partnered with leading voices in financial literacy, offering savings insights and tools in various languages.

“As we continue to battle the impact of the pandemic, it is even more critical for people to be money smart. But at

times, savings and financial terms can seem like a foreign language,” says Mwandiambira. “#waystosave webinar speakers address key issues targeted at specific audiences this year, including saving for students and young adults, bouncing back from retrenchment, and saving through stokvels. There is something for everyone.”

Material is being released in Zulu, Sotho, Tswana, isiXhosa, Venda and Afrikaans. Those who participate in webinars and complete online Savings Challenges on the #waystosave website (www.waystosave.co.za) could win R10 000 in a tax-free savings account.

“We are proud of what has been achieved during our four-year partnership with SASI,” says Thami Cele, Head of Saving and Investments at Everyday Banking, Absa Retail and Business Banking. “We have supported vital financial literacy awareness and initiatives that help people to make good saving and investment decisions. Through #waystosave, many people will continue to be able to access the expertise and help they need, and now in several languages.”

2021 also marks the twentieth anniversary of SASI. The organisation continues to promote a savings culture and believes that through its efforts and campaigns, more South Africans know about the importance of saving.

“The fact that July Savings Month, a SASI initiative, is now observed nationally is testament to the efforts of all the individuals who over the years have contributed to SASI’s success. We thank our long-standing Chairperson Prem Govender and the SASI Board for seeing SASI’s continued relevance in a digital age,” says Mwandiambira.

The Reserve Bank’s Financial Stability Review published on May 27 shows an overall increased rate of savings for households in recent quarters. As a ratio of household income, savings reached a decade high in the third quarter of 2020 (1.4%) before moderating to 0.5% in the fourth quarter. At the end of 2021, online platform Trading Economics projects South Africa’s Household Saving Ratio will stand at 0.6%. The SARB report further shows that low interest rates have significantly improved the debt-service capacity of households. Household debt-to-disposable

Gerald Mwandiambira, CEO, SASI

“Savings knowledge must be understood and accessible in more South African languages” income increased in 2020, reaching 75.3% in the fourth quarter of 2020. Despite this, the cost of servicing debt for households fell to 7.7% of income at the end of 2020, down from 9.5% at the end of the previous year and the lowest level in more than 14 years.

“Improvements in the level of household net wealth are encouraging and it shows we can save when under pressure,” says SASI Chairperson Prem Govender. “However, South Africa still has one of the lowest Household Savings Ratios in the world. At SASI, we believe a strong focus on financial inclusion by developing financial literacy across the population is key to improving this ratio. In our increasingly tough economic environment, we need to find ways to save and avoid the credit trap. As the economy gradually recovers, interest rates may rise over the short to medium term, which will make paying off debts more difficult. We need to avoid financial blind spots and drive a savings culture to break the cycle of inter-generational debt.”

Follow @waystosave on social media for more, and visit www.waystosave.co.za

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A benefits package offered by Alexander Forbes can help you maintain your financial stability – no matter what life throws at you. These are work benefits offered by your employer in partnership with Alexander Forbes. As part of your benefits, we offer you financial advice, and products and solutions that are specifically tailored to assist you in managing your finances day to day, save for the future, and have money available for emergencies.

These benefits help you plan for everything: • Things you don’t want to happen, like retrenchment or illness • Things you hope will happen, like buying a house or sending your children to tertiary institutions • Things that will inevitably happen, like retirement We partner with your employer to personalise your benefits with solutions at low fees for institutions – helping you achieve financial well-being throughout your life.

Now that’s something you can count on.

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

31 July 2021

SAVINGS MONTH FEATURE

The ‘wealth iceberg’ – how being wealthy is the opposite of being rich

BY PAUL NIXON Head: Behavioural Finance, Momentum Investments

R

onald James Read was a petrol attendant until his death at age 92 – and made headlines as one of the top 4 000 wealthiest Americans. He died in 2014 with a net worth of $8m. He lived in a tiny house and drove the same car most of his life.

Ronald was wealthy but not rich, as Morgan Housel in The Psychology of Money puts it. The difference leads us to a profound understanding of how important savings are, and highlights the trap of waiting to save until we earn more.

Human beings are hardwired to be visual creatures. From the moment we open our eyes, almost 50% of our brain is involved in visual processing. Even though we have five senses, around 70% of all sensory reports come from our eyes1.

Unfortunately, this predisposes us to a cognitive processing error that we explore with the concept of a ‘wealth iceberg’.

It is precisely because we are visual creatures that our investment aspirations are often linked to what we can see. What we see are possessions. The paradox here is, however, that it’s what we don’t see that is actually important.

Much like the iceberg, a large portion of its mass remains hidden. For this reason, judgement is particularly difficult for sailors and is usually based on the part that sticks out of the water. In much the same manner, the rich are often the role models, and not the wealthy. We see the tip of the iceberg – the material possessions – and not the biggest part hidden beneath the surface – the hard work of saving and investing rather than spending.

Wealth comes from not spending on things or possessions. The premise here is that wealth is not a function of income, but rather a function of saving.

Ronald James Read teaches us this valuable lesson. He was undoubtedly

wealthy with a sizeable asset base at death, but he was not rich. He was wealthy because he didn’t use his hard-earned, yet modest, income to buy possessions. He used it to save.

What do we do about all this? The first step in creating wealth is creating ‘space’ for saving. There is a deceptively simple rule of thumb that can help us to create this space. The 50/20/30 rule provides guidelines for our after-tax income.

No more than 50% of this income should be spent on contractual obligations (home loan, car repayments, cell phone etc). Then, at least 20% of this income should be spent on savings. The remaining 30% can then be spent on discretionary items like clothing, eating out or planning for holidays. Note that ‘savings’ is second on the list, so if you’re spending more than 50% on contractual spend, this should not be at the expense of savings, but rather

“Wealth comes from not spending on things or possessions”

discretionary spend.

In 2014, popstar Rihanna sued her accountant and financial adviser Peter Gounis for ‘allowing’ her to squander $9m that nearly resulted in her bankruptcy.

His quip in response to the lawsuit was priceless, “Was it really necessary to tell her that if you spend money on things, you’ll end up with lots of things and no money?”

We should help our clients to be more like Ronald James Read.

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Housel, M., 2020. The Psychology of Money: Timeless lessons on wealth, greed, and happiness. Harriman House Limited.

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

Getting young adults’ savings back on track in a pandemic

BY JACO PRINSLOO Certified Financial Adviser, Alexander Forbes

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ith fewer job opportunities and higher living costs, young adults today face more than their fair share of financial challenges, often forcing them to put essential life decisions on hold — from buying a first home to starting a family. But there is light at the end of the tunnel, and time is on their side.

There are five ways for them to get their finances back on track: 1. Short-term gratification can lead to long-term pain Instant gratification is hard to resist. But it’s crucial to balance wants with needs, especially during uncertain times like these. Young adults should consider putting a budget together to determine how much they are earning and how much they are spending. Part of their budget will determine what essential things they have to pay for, like housing, transport and school fees. This should be compared against discretionary spending where they could get by without having fast food take-outs, or the newest smartphone and holidays. Depending on their situation, they could consider moving to a smaller home or selling a second car. While it may seem painful, preventative actions like this could mean they are not forced into making harder decisions later.

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2. Debt free = financial freedom Because of the lockdowns, many young adults were forced to stay at home and move their socialising online.

This allowed them to save on nights out, transport, holidays and gym memberships. The lockdowns illustrated that they could save if made to. Now that the lockdowns have been largely lifted, the positive changes shouldn’t go to waste. Savings can be used to get finances back on track by paying off debt. They can automate their finances by using an app like 22Seven to track their expenses and set up automatic repayments on all accounts. As they scale back on other expenses, they can pay off student loans or credit card debts. All of this extra money can now go straight to savings.

“Even before the lockdown, most young adults struggled with and felt stressed about their personal finances” 3. Pay yourself first — even if it's just a few rand each month Once they have their monthly budget and start paying off their debt, young adults should make savings and investing their number-one priority. But with the current economic crisis and lockdowns, is it good to invest now?

I don't know what the stock market will do, but I do know young adults have time on their side, and what the stock

market does in the next six months does not matter.

Every single 20-year period in history has shown positive gains in equities. So, 30-year-olds investing for the next 30 years shouldn’t worry about the short-term market fluctuations.

4. Lifestyle changes For most of us, our biggest monthly expense is our house or where we stay. If young adults have lost their income or realised they can no longer afford their home, they need to consider where they can save most. If they can no longer afford rent, they need to talk to their landlord or their bank. They may be able to negotiate their rent – and if that doesn’t work, consideration should be given to moving back in with their parents. It might be the last thing they want to do, but it’s a whole lot better than having debt they can't repay and a bad credit record.

5. Financial literacy is key Even before the lockdown, most young adults struggled with and felt stressed about their personal finances. This is because most do not have a financial plan. Sooner or later in life, they will have to make crucial decisions about their finances, so getting clued up on savings, budgeting, loans, mortgages, and retirement savings is essential.

Right now, the world is uncertain, but young adults can take charge of how much they know about finances, and they can prepare for better days ahead by investing time in finding a financial adviser who is the right fit, as well as committing to a budget, making saving a habit, and managing risks and returns.

MI-CL-26-AZ-13756

No matter how big or small the goal, we can help your clients stay on target to achieve their goals.

Because with us, investing is personal.

At Momentum Investments, we understand that everyone has personal life goals they need to save for. And that everyone’s circumstances are unique to them. Which is why we help construct investment portfolios or funds based on what they want to achieve, how much they have to invest, and when they need the money. Nothing is more personal than that. We call it outcome-based investing and it makes the investment journey as comfortable as possible, so your clients can stay on target to achieve their personal goals. Because with us, investing is personal.

Speak to your Momentum Consultant or visit momentum.co.za

Momentum Investments

@MomentumINV_ZA

Momentum Investments

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

31 July 2021

RETIREMENT

Pension fund investing: Why individuals need help with their risk profiles FRAN TROSKIE Investment Research Analyst, RisCura

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isperceptions about what risk means are common, and they are in fact downright dangerous. To explain, I will use one of our favourite comparative scenarios.

Let’s suppose that 45-year-old Katy is looking to buy a car. She visits a dealership. The dealer suggests she takes a Ferrari for a spin. Katy’s appetite is for the red-hot Ferrari. Not only would this be ‘tolerable’ to Katy, but it would also be a dream come true! The dealer’s preference is to sell her the Ferrari, but he has little idea that Katy is a terrible driver and a speed demon. Katy’s driving skills actually call for an old-school sedan, preferably one that can go no faster than 80 kilometres per hour. This is her capacity, taking all of the circumstances into account.

Katy, however, often needs to drive long distances, so a vehicle that can only hit 80 km/h on the freeway – well, it

would simply not be practical. She requires a car that can reach at least 120 km/h.

A scrupulous dealer would take all of these factors into account, as well as Katy’s financial situation, and importantly, her insurance. If the car Katy intends to buy is her risk, then her insurance could be one form of risk-mitigation. And when it comes to risk, just as when it comes to buying a car, it is crucial to note that it is not only a person’s financial circumstances that determine their risk tolerance, risk capacity and/or risk required.

There are several factors, including the psychology of the person (Katy is a speed demon), the risk-mitigating mechanism (insurance) available, and externalities (such as Katy’s job).

In a perfect world, an individual’s tolerance for risk, their capacity for risk and their required risk would dovetail. In investment, we call these three things their risk profile. But in the clearly imperfect world we live in, this is seldom the case. There is usually a compromise. A risk-averse investor (tolerance) may need to take on more risk (requirement) to achieve their desired level of return or may be unable to afford (capacity) the level of risk they feel they could stomach (tolerance).

Particularly in a world where interest rates are at record lows, and traditional safe-haven assets are yielding low returns, investors have sought yield from riskier asset classes. These may include hedge funds, alternative investments, unlisted property, and stock markets (in developed and emerging markets). The associated risks are essential for investors to understand, aligned to what is required to generate their desired level of return.

Retirees, who have faced a double-whammy from the low interest rate environment and from COVID-19induced market volatility, need to pay particular attention to their risk profile. Here, the time they have until their

retirement is likely to play a role as well. A younger retiree is likely to have a higher capacity for risk, as they may be able to ‘wait out’ market downturns. Their pension fund investment may have a higher allocation to traditionally more risky assets. A wealthier or more fortunate individual may have alternative sources of income, which could be regarded as akin to the insurance in the car example.

They may have both a higher capacity and greater tolerance for risk, as they are not solely reliant on their pensions for income. A pensioner who has a higher level of desired income (perhaps because they need to pay the instalments on their Ferrari) may need to take on (require) more risk than they are inherently comfortable with, provided they have the capacity to withstand a temporary or permanent loss of capital. There is some trade-off necessary between their risk-tolerance and riskrequirement.

Our example was highly simplified, but it can provide a useful way to think about any intimidation jargon surrounding risk. When it comes to financial discussions, risks are sometimes seen as ‘bad’. In the process of buying the car, Katy’s personality, her financial circumstances, and her job requirements all helped to determine her risk profile. None of these elements are good or bad, they are just part of the natural process. Risk is part of the investment process.

In general, however, and in particular when it comes to pension fund investing, individuals are likely to need assistance getting to grips with the jargon and with their own risk profiles. This may require intentional education campaigns, or individual one-to-one discussions, depending on the level of sophistication of the investor and the scale of the investment. Advisers and trustees need to see it as their fiduciary duty to help investors reach the necessary understanding.

A preservation ‘revival’ will supercharge SA’s retirement outcomes

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outh Africa’s retirement outcomes will improve radically if all retirement funding contributions are kept invested when fund members change jobs.

Other quick wins include increasing the minimum government pension; delaying the government retirement age beyond 60 years; and refocusing the industry from saving a lump sum at retirement to providing a sustainable income in retirement. These observations were made

by Dr David Knox, the lead author of the Mercer CFA Institute Global Pension Index (GPI), during a keynote address to the inaugural Allan Gray Retirement Benefits Conference, held last month.

“An ideal retirement income system should not be solely focused on the provision of a lump sum at retirement; but rather on providing adequate and sustainable income and benefits throughout retirement,” Knox said, as he unpacked the 2020 GPI report. The GPI ranks the retirement income systems in 39 countries. Overall rankings are based

on three sub-category scores for the adequacy, sustainability and integrity of the system. South Africa was placed 27th out of 39 countries.

Adequacy measures used in the report establish the level of income and benefits that citizens receive from a country’s retirement income system at retirement.

South Africa performed poorly on this measure due to low minimum pensions; the small proportion of the country’s working age population in formal pension schemes; and too much leakage from retirement savings during working years.

“The lack of preservation, or our inability to retain retirement contributions within the system, is a long-standing concern for South Africa,” said Saleem Sonday, Head of Group Savings and Investments at Allan Gray, commenting on the report. “However, often the reality is that people access their retirement savings as they have no other option.”

Notwithstanding this, a mindset shift among local savers is needed to change

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the preservation impasse, to encourage preservation wherever practically possible.

“Government provides a level of taxation support to encourage pension savings; the quid-pro-quo is that this money is specifically for retirement,” Knox said. He further observed that there is a natural tension or trade-off between the adequacy and sustainability measures used in calculating the GPI. South Africa could, for example, improve its adequacy score by doubling the Government old age pension; but this would render the country’s social security network unsustainable.

Knox touched on four areas that could improve a country’s performance on the GPI. Firstly, there should be a focus on broadening the retirement system coverage to include the self-employed and workers in the gig economy. Secondly, thought should be given to increasing the government pension or retirement age. “Countries need to manage the system as more of their population lives longer; otherwise, they end up with more

Dr David Knox, Senior Partner and Actuary, Mercer Australia

retirees and fewer workers,” he added, emphasising the fine balance between pre- and post-retirement populations.

Thirdly, countries must reduce leakage from their retirement funding processes.

And fourthly, they must reduce fees systemwide, without negatively impacting on retirement outcomes. Most retirement income systems acknowledge the benefit in scale; but there are risks in driving fees too low. “We must bring costs down to the lowest sustainable level and take care not to limit retirement funds’ access to private equity and infrastructure investment opportunities,” he said.

What worked yesterday, may not be optimal today.

We live in times of accelerating change. Employees’ needs and preferences are changing, as they face new physical, mental, and financial challenges.

Have your large corporate clients’ retirement funds kept up with the changing times?

The FundsAtWork Umbrella Funds offer all the benefits of a traditional retirement fund, plus more value to meet employees’ evolving needs. Some of the latest benefits include: • Psychological counselling

• Financial education and debt counselling

• Legal advice

• An industry-first virtual funeral benefit.*

Keep your clients on their journey to success with the retirement fund that gives much more. *Available from 1 May 2021. Terms and conditions apply. momentum.co.za

Momentum Corporate

Momentum Corporate is a part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider. Momentum Corporate is the underwriter and benefit administrator of the FundsAtWork Umbrella Pension and Provident Funds.

EMPLOYEE BENEFITS

How empowering member engagement improves financial outcomes

BY NASHALIN PORTRAG Head: FundsAtWork, Momentum Corporate

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ember engagement should be instrumental in empowering retirement fund members and creating better financial outcomes.

However, bombarding members with masses of complex information simply adds to member confusion and apathy.

Retirement funds and their service providers need innovative communication platforms that help members understand and engage with their benefits. Financial advisers are instrumental in encouraging members to use these platforms. Members who connect with their benefits become more financially empowered and are more likely to engage with a financial adviser.

This leads to better-informed choices and improved financial outcomes.

Effective engagement with employees on their benefits also unlocks significant benefits for employers. Greater engagement around benefits leads to improved understanding and heightened appreciation. Employees feel protected and cared for, which neutralises distracting worries, boosts productivity and results in stronger, more loyal employer relationships.

“It’s particularly important to encourage younger, lower-income earners to engage with their benefits” Effective engagement involves: • Communication that is free of jargon and complexity • Easy access to up-to-date and relevant information when it’s needed • Communication that educates and empowers while it informs • Access through the member’s preferred medium or platform.

The acid test is how the engagement makes a member feel. Do they feel relaxed, empowered and better informed to make a decision that works for them; or confused, frustrated and bewildered as they drown in information overload and industry-speak?

31 July 2021

RISK

regardless of age or income. The result was that members often did not understand the information on their static benefit statement, which left them feeling anxious and disconnected. Drawing on this research and considering the digital preferences of younger generations, Momentum Corporate set about creating a new kind of member benefit statement. Their new smart benefit statement gives members real-time information on their retirement and group benefits through any digital device – mobile phone, computer or tablet.

A significant number of FundsAtWork Umbrella funds members received a smart benefit statement in 2020 and read it, giving it a very favourable client experience rating of 4.64 out of 5 stars. Further research conducted by Momentum Corporate in March 2021 found that 75% of participants found the language in the smart benefit statement far simpler and easier to understand than previous terminology.

Engaging with younger, less financially literate members The research showed that older members have a better understanding of their benefits and industry terminology than younger members. This is largely due to more years of exposure to their benefits. However, the research showed that the smart benefit statement was exceptionally well received by younger members who are further from retirement and often more passive when it comes to benefit engagement.

The research also showed that higherincome earners tend to be more financially literate while lower-income earners are less financially literate. The smart benefit statement, which offers access to relevant educational material and enables younger, lower-income earners to demystify complex terminology or concepts with the tap of a finger, is particularly effective in empowering these members to engage with their benefits.

It’s particularly important to encourage younger, lower-income earners to engage with their benefits as this will increase their understanding and financial literacy. As they become empowered to know when to turn to financial advisers and what to ask, they are likely to make better-informed decisions, which ultimately will produce better financial outcomes.

A case study in effective benefit communication The benefit statement is one of the most important ways retirement funds communicate with members. Research by Momentum Corporate in 2018 showed that, in general, members have a basic level of financial literacy and there is a high level of discomfort around industry terminology,

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Helping customers keep their promises to themselves

Jaco van der Merwe, Executive General Manager: Personal Financial Advice, Old Mutual

The lifeline of premium protection cover

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ore than 10 million long-term life insurance policies lapsed in 2020, according to the Association for Savings and Investment South Africa (ASISA). The policy lapses, referred to in the recently released combined annual report from the offices of the Long-Term Insurance Ombudsman and the Short-Term Insurance Ombudsman, are largely attributed to job losses or reduced income related to the COVID-19 lockdowns last year.

Cover when they need it most “These are alarming figures, but there is a lesson here. Customers want the comfort of knowing they have cover in place when they need it most. They can avoid the risk of their policies lapsing simply by opting to have premium protection in place when they take out policies,” says Jaco van der Merwe, Executive General Manager for Personal Financial Advice at Old Mutual. The unnerving truth is that during a pandemic such as the one we are currently experiencing, insurance cover has never been more essential. Old Mutual’s claims stats for 2020 reflect a rise of 22% in total claims paid, covering death, illness, disability and retrenchment. In the retrenchment cover category alone, there was a R3m or 30% increase in claims. Within this category, just over a third of claimants were between the ages of 30 and 40, and 76% were male.

Premium protection cover offers a guarantee “Unfortunately, when economic times are tough, consumers tend to look for ways to cut their expenditure. Insurance, often seen as a less necessary expense, is one of the first options when it comes to cutting costs. Opting for premium protection cover would guarantee these consumers peace of mind in difficult financial circumstances,” he says. Depending on the kind of premium protection you take out, your premiums will be waived, and cover will continue if you die, become functionally impaired, disabled, or retrenched. In difficult times you also want to ensure that you have premium protection in place for your funeral product, and even temporary relief in the form of a premium holiday.

Customers who did not sign up for premium protection cover at the time of taking out their policy can add on this benefit at any time.

How to help financially strained customers During times of financial uncertainty, customers are under severe emotional pressure. “This is where the role of a financial adviser becomes critical. Here are some steps to ensure that your customers feel like they have a workable solution,” Van der Merwe says.

• Provide a listening ear. Your customers may be feeling overwhelmed by their financial situation. Give them a safe space to sound out where they are financially and look at their budget logically.

• Review their financial plan. Discuss how their changed financial circumstances will impact their holistic financial plan. For example, they may need to draw on their emergency savings to tide them through until things improve.

• Reframe their perspective in a positive way. This is not just about telling your customer, “It’s okay”. You need to help them put aside their emotions and gain clear perspective. For example, they may be stressed out because they accessed their savings and are now worried about retirement. As their financial adviser, you can remind them of other times when they dealt with financial problems, or of the progress they made to reach their current goals.

“It is only to be expected that life will have certain detours along the way.

Against that backdrop, the benefits of premium protection cover far outweigh the additional cost that it may add to the customer’s overall premium. You can’t put a price on the peace of mind you gain knowing that your family will be financially provided for or your financial goals can still be achieved. This is but one way of how a financial adviser can add value to the relationship with customers, and there is no replacement for having those open and honest discussions to understand customers’ underlying needs,” Van der Merwe concludes.

31 July 2021

RISK

Can receiving the COVID-19 vaccine impact your life insurance?

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he recent launch of the second phase of government’s vaccination rollout has been warmly received, as South Africans over 60 prepare to receive their jab. While younger South Africans have voiced their concerns around possible side-effects, others are contemplating other possible issues – such as whether their decision to receive the vaccine will impact on their life insurance, especially if they were to die as a result of the shot.

Speculation over whether life insurance claims will be paid out to people whose reaction to the vaccine proves fatal has been prompted by questions raised on social media platforms. Since South Africa is a newcomer to the vaccine party, most of the ruminations have been sparked by international users of social media.

However, their ponderings have given rise to panic: given that the vaccine is ‘largely experimental’ (in their words), and that it is ‘self-inflicted’ (again, a phrase coined on social media), are insurers bound to pay out in case of death?

International news reports reveal that, as soon as the United States’ vaccination campaign was up and running, the American Council of Life Insurers was inundated by queries from policy holders expressing their concern. Their answer?

No – stated benefits do not change, regardless of whether the policy holder has received a vaccine. Simply put, if the holder of a life insurance policy dies, their insurer is bound to pay out, cause of death notwithstanding. Perhaps more to the point, after extensive clinical trials, all versions of the vaccine have been proven to be clinically safe.

“While all concerns are, of course, valid and should not be discounted, they are being driven by disinformation, which is highly questionable,” says MiWayLife

CEO, Craig Baker. He points out that, to date, only five* in one million people have experienced side-effects, ranging from mild to severe – that’s 0.0005%.

“In contrast, seven out of every one hundred COVID-19 cases prove fatal (7%).

Moreover, many more patients experience severe symptoms and go on to suffer from debilitating and long-lasting health complications.”

“From the insurer’s view there is no ambiguity: the vaccine saves lives” While individual views around the safety of the vaccine may vary, from the insurer’s view there is no ambiguity: the vaccine saves lives. Even sceptics are united in the opinion that seniors and high-risk people are taking a lesser chance with the vaccine than the virus.

However, worried policy holders have raised another question: is the vaccine likely to have an impact on the cost of insurance premiums? Again, the answer is no. Premiums increase only if there is risk attached; specifically, if the vaccine had been found to increase mortality – which, judging from all available data, certainly is not the case.

Nor is it likely that a life insurer will reject your application for life cover if you have had – or are waiting to have – the vaccine.

Such an action would be counterintuitive; after all, the vaccine is intended to prevent deaths and decrease mortality, and so people opting to have a jab would be seen to be taking action to protect themselves, rather than taking a risk.

In truth, applicants for life cover might not be asked questions about whether or

not they have been vaccinated (after all, the insurer is not trying to penalise them), particularly as COVID-19 has not been excluded as a claimable event. And, in any case, with the vaccine shown to reduce mortality and other risks, a vaccination would work in the recipient’s favour rather than against them.

This means that any individual who dies as a result of coronavirus infection will have their claim paid – provided all the terms and conditions of their policy have been met, of course. What’s more, it is unlikely that a life insurance company would refuse life cover to someone who has already been infected with COVID-19.

However, it is vital that applicants are honest about whether a COVID-19 infection has left them with permanent, or even semi-permanent, health conditions, and supply the insurer with all relevant information – as is the case with any application for cover. It’s also important to remember that although you may still qualify for life cover, you should always check for amendments to terms and conditions, such as the maximum applicant age or insurable underlying health conditions.

What about travel – is your insurer still required to pay your claim if you travel during the pandemic, knowing that there are risks attached? Maybe, maybe not – it really depends on your insurer; but remember that if travel to a high-risk country is cited as an exclusion at inception, this is unlikely to change.

Although most companies will evaluate each case on its own merits, your insurer should warn you in advance if any new policy exclusions are introduced.

This would include a list of countries considered to be high risk – although, at present, this term pertains to safety concerns around war, conflict and political

instability rather than pandemic or related risks. While this may change over time, the industry is not expecting it to do so.

The answer gets a little more complicated if an individual has been advised against travel by their medical doctor because they have underlying health conditions, as many policies allow the insurer to deny a claim if it can be proven that a client did not follow medical advice. It’s therefore a good idea to check your policy document, and consult your doctor as well as your insurer, to see which risk and policy exclusions apply.

The pandemic has created a stark reminder of our fragility and mortality.

At no other time in recent history have as many people been touched by death and loss. “Individuals who may not have considered buying life insurance previously (probably because no one likes to consider their own demise) have been reminded in a very real way what an untimely death means for their families.

There’s no doubt, therefore, that the continued commitment of life insurers is a considerable comfort,” Baker says. *Stats correct at time article was written MiWayLife is an authorised FSP (No. 45741) and its product offering is underwritten by Sanlam Life Insurance Limited, a registered long-term insurer.

MiWayLife is a division of Sanlam Life Insurance Limited – Reg No. 1998/021121/06.

Craig Baker, CEO, MiWayLife

FSCA comments on COVID-19 vaccines and life insurance policies

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he Financial Sector Conduct Authority (FSCA) says it has been brought to its attention that “inaccurate reports”, particularly on social media platforms, indicate that getting the COVID-19 vaccine will render life insurance policies “null and void” because the vaccines are regarded as “experimental medicine”.

“It is the view of the FSCA that such statements have no merit or basis. Additionally, the FSCA believes these unfounded statements are causing fear, anxiety and uncertainty among the public. It is the expectation of the FSCA that taking a COVID-19 vaccine will not lead

to cancellation of a policy or the repudiation of a claim.

Should there be any further concerns or questions related to such statements, it is recommended that policyholders contact their respective life insurers and/ or financial advisers/brokers.”

The FSCA adds that it would further like to draw attention to the regulations issued in terms of the Disaster Management Act, 2002, clearly outlining that any person who publishes a statement, through any medium including social media, with the intention to deceive any other person about COVID-19, is committing a criminal offence.

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31 July 2021

RISK

Days of grace do not apply to a repudiated life insurance policy

BY DONALD DINNIE Director, Norton Rose Fulbright

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n a judgment last month*, the Supreme Court of Appeal held that the 30-day grace period for an unpaid premium in a life policy does not apply where the cancellation of the policy is a result of a repudiation by the insured herself. The grace period only applies where the nonpayment of the premium is not in all the circumstances a repudiation of the policy.

The relevant insurer in responding to the request to cancel the policy advised the insured that a notice period of 30 calendar days applied to cancellations.

Despite that requirement, the insured instructed her bank to stop payment of the debit order in respect of the premium due for the last month of the policy. When the insurer submitted the monthly debit order to the bank for payment, the order was returned unpaid with the remark ‘payment stopped by account holder’. In consequence of the non-payment, the insured was informed that the policy had been cancelled from the beginning of the month of default, being 1 September 2018.

The insured died on 22 September 2018 in rather bizarre circumstances by gas poisoning at a tourist resort. Subsequent to the death, on 27 September 2018 on the advice of the insured’s erstwhile broker, the month’s premium was paid for September by the executor of the insured’s estate without mentioning the death. The insurer communicated with the claimant in respect of their reinstatement requirements requiring a fully completed

signed declaration of health by all lives insured. There was no response to that communication.

A claim was subsequently submitted under the policy with the insurer.

The claim was rejected because the premium for the month in which the death had occurred had not been paid and the insured had been notified, in a number of ways (including an SMS to her cellphone number) that the policy had been cancelled with effect from 1 September 2018.

The executor argued that the insurer was required to meet the claim because the insurer failed to notify the insured of the unpaid premium and before cancelling

“The insured had made it clear that she wanted to move her policy to another insurer” the policy should have afforded the insured a 30-day grace period to make the payment, and the premium was paid within the 30-day grace period.

The insurer argued that the grace period provisions did not serve to extend the policy against the wishes of the insured after the policy had been cancelled and did not preclude the insurer from cancelling the policy immediately in the event of a repudiation. When the bank message was received that the payment had been stopped, it was clear to the

Sanlam to acquire Alexander Forbes group risk and retail life businesses Paul Hanratty, CEO, Sanlam

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insurer that the insured did not intend to comply with their contractual obligations under the policy. In the light of the insured’s repudiation of the contract, the insurer had elected to cancel it and had communicated its decision accordingly to the insured.

The appeal court found that the insured’s conduct in instructing the bank not to pay the premium could be interpreted in no other way than that she no longer wished to remain bound by the terms of the policy and that she had no intention of honouring the terms of the policy, which required her to give a month’s notice. The court accepted that the insured had deliberately repudiated the policy.

The test for repudiation is objective and not subjective: what would someone in the position of an innocent party think she intended to do? Repudiation is not a matter of intention but of perception of the reasonable person placed in the position of the aggrieved party.

The insured had been informed by the insurer at least twice that she was contractually bound to give 30 days’ notice to cancel the policy. She was a professional woman assisted by a financial broker. In those circumstances, the court had no doubt that the insured knew of the terms of her policy. And she must have known what the consequences of instructing her bank to stop payment of the premium would be.

The insured had made it clear that she wanted to move her policy to another insurer as they had offered her something better.

anlam, Africa’s largest non-banking financial services group, has reached an agreement to buy the group risk and retail life business of Alexander Forbes Life Limited (AF Life).

According to Sanlam, the proposed transaction will support its South African growth strategy by strengthening its position in the group risk and retail life insurance markets. The group risk and retail life books of AF Life reported R1bn in combined gross written premium for the year ended March 2021. The transaction will add approximately 210 000 members to the group risk business, and 3 700 policies to Sanlam’s retail life business.

“Sanlam’s strategy aims to deepen client relationships and better client experiences while offering a compelling and differentiated employee value proposition,” Sanlam Group CEO Paul Hanratty says. “We look forward to welcoming the AF Life clients and employees to Sanlam.

This transaction supports our strategy of building a fortress position in South Africa and will diversify Sanlam’s pool of life insurance risks.”

Dawie de Villiers, Chief Executive Officer of Alexander Forbes, says the company is pleased with the proposed transaction, in the context of the current operating environment.

“This disposal is the final step in our move away from

She clearly had no intention of paying two insurance premiums in September. Accordingly, the insurer was perfectly entitled to accept the repudiation and cancel the policy immediately. The situation did not arise where there were insufficient funds in the insured’s account or if the bank had made an error in respect of non-payment of her debit order. In the circumstances, there was no obligation on the insurer to advise the insured of the unpaid debit order or to afford her 30 days within which to pay the arrear premium.

Grace period provisions cannot exclude reliance on repudiation or even a mutual agreement by the parties to cancel the policy. The Policyholder Protection Rules do not assist an insured in these circumstances. The same principles will apply to non-life policies. *Discovery Life Limited v Hogan and Another (389/2020) [2021] ZASCA 79

providing insurance underwriting and reaffirms Alexander Forbes’s strength as a trusted adviser to our clients.

The proposed transaction not only benefits Alexander Forbes, through the realisation of value for shareholders, but also balances solutions for clients and protects and values the employees of the business.

Sanlam understands the importance of delivering financial wellbeing and I am confident that the clients and employees moving across in this process are in good hands. We will continue to play a key role to the valued clients of AF Life delivering best advice throughout the transition and into the future.”

The sale and transfer of the AF Life policies will be for a total cash consideration of R100m (subject to adjustment), paid in instalments. Sanlam will fund the transaction from existing cash resources. The effective date for the transaction will depend on Sanlam and AF Life fulfilling certain conditions, including regulatory approvals.

“This transaction supports our strategy of building a fortress position in South Africa”

31 July 2021

RISK

The rise of Insurtech In an age of exponential tech evolution, there is one sector that has been more than a little hesitant to adopt new unproven technologies than any other – short-term insurance.

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he insurance sector has always been conservative by nature when it comes to adopting new ways of doing things, which is somewhat understandable when the line between fraud and a person’s livelihood is a thin one. Yet there are a few technologies that are soon to creep into the short-term insurance market faster than consumers may think, according to Momentum Consult’s Head of Short-Term Insurance, Jonathan Lewarne.

“When it comes to insurance, especially short-term insurance, this tends to involve moments fraught with human emotion. Accidents, robberies, and general mistakes are emotional issues that require a human touch. But that doesn’t mean new technologies aren’t on the horizon, which wield the potential to change the landscape forever.”

Even though technology has yet to win the hearts and minds of insurance clients, especially in South Africa, we need to brace ourselves for some incoming and inevitable technological changes, he says.

Lewarne offers a few examples of the next generation of Insurtech that are just around the corner.

Image recognition for vehicle claims As one of the most used, and abused, forms of short-term insurance, vehicle accidents are by no means an easy process to deal with. Insurance companies are bombarded with a mountain of claims on a daily basis and need the skill and expertise to not only process these claims, but accurately assess the pay-out based on the assessed damage.

“Naturally, this process takes time to fulfil as a qualified assessor needs to inspect the damage of all relevant vehicles involved and determine the expenses required to fix it,” says Lewarne.

To shorten this process, Insurtech companies are using technology for automated damage analysis. They only thing that car owners will need to do is take photographs of the vehicle damage at the scene of the accident and send them to the claims department. From there, using image recognition technology, the claims pay-out for the damages can be determined.

“The tech will have your details, will know what car you drive, will understand the extent of the damage, and will have all the information it needs regarding repair costs and logistics involved – which it can provide to the insurer and the owner in a single action. This will shorten claims processes from a week to less than a day.”

From a South African perspective, Lewarne says several major local insurers are in the advanced stages of evaluating these solutions and he expects they will be implemented within the next 12 months. “It’s now a race to see who gets there first.”

Drones and AI-powered damage assessments From vehicles to buildings, the sudden and terrible fury of unanticipated events can strike out of nowhere. Office buildings are no exception. Natural disasters are the cause of many insurance claims; and insurance fraud. But how can the technology not only shorten a lengthy claims process but also provide more surety for insurers?

How about instead of having two to six insurance adjusters appraising, investigating and creating an assessment of the claim, you simply launch a drone into the sky, record the damage, analyse it based on previous pictures of the building, and let an AI-driven algorithm complete the work in record time and with accuracy?

According to a PwC report entitled Clarity from Above, it estimated that drone and AI technology will result in an anticipated saving of up to US$6.8bn per year, and that’s just in the United States. “We can’t argue that technology is soon going to surpass our ability to intuit cumbersome activities like damage assessments. In fact, it will be quicker and more easily able to compare levels of damage, analyse data and immediately compile assessments,” says Lewarne.

Although the South African short-term insurance industry is slightly behind in adopting these technologies, the local industry should begin taking inspiration from insurers finding success with these technologies in more developed markets like the United States.

“The tech is coming, whether insurers or their customers like it or not. Greater efficiencies and money saved on both ends will make sure of that.

However, people are still going to need a human touch, especially as they seek to navigate this unchartered technological terrain,” Lewarne adds.

Jonathan Lewarne, Head: Short-Term Insurance, Momentum Consult

How the IoT changes the insurance game

BY HARKRISHAN SINGH Director: Application Development, AlphaCodes

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he Internet of Things (IoT) has been a hot topic for a number of years, but the pervasive and affordable connectivity required for successful deployment has held back its progress.

This is rapidly changing, with the rollout of fibre to the home, 5G and even Elon Musk’s recently launched Starlink satellite.

Emerging players in the insurance industry are embracing IoT, which is beginning to change how the larger, more entrenched providers operate. From potentially infinite new sources of data to immutable data enabled by blockchain, and even the gamification of insurance through wearables, IoT is changing the game for insurers.

Smart connections While the IoT is not new, lack of connectivity has always been a challenge. However, as fibre becomes more prevalent and 5G rollouts have gained momentum, many potential applications have arisen. When data can be collected, centralised and analysed via machine learning, there is no end to the insight that can be gained. Logistics providers can track their shipments and cargoes and can have an accurate idea of the delivery time – this makes insurance and underwriting much more accurate in this space. Businesses can easily track and calculate risks with the help of smart IoT devices and can help to reduce the risks, which again can have implications for insurance premiums and calculations.

Wearables for the win One aspect of IoT that is already being utilised by insurers, specifically in the health insurance space, is wearable technology.

The wearables market grew from $24bn in 2019 to $81bn in 2020, driven by the COVID-19 pandemic and the realisation that

a healthy lifestyle is essential. Insurance companies can tap into this market, aligning the IoT with their business needs.

They can also use wearables to reward people for maintaining a healthy lifestyle, which in turn will benefit them through reduced claims.

Technology underpins it all IoT devices can help insurers in many areas. For example, they can track real-time data related to cargo, vehicles, vitals and personal health. Anomalies can be flagged immediately for action, to prevent theft, address risky behaviour or alert people to potential health problems. Commercial and residential real estate insurance companies can leverage Smart Home devices, HVAC monitoring, IoT-enabled sensors and thermostats to manage fire and safety or property damages.

“IoT devices provide data that can be analysed for improved insight” There are various technologies available for different insurance industries. In the medical space, fitness trackers, ECG monitors, pulse oxygen monitors and blood pressure monitors can be used to collect data and alert to potential health problems. In the automobile industry, telematics devices or On-Board Diagnostic (OBD-II) dongles can be used to monitor vehicle health and also driving behaviour. Trackers can be used in cargo and logistics to reduce theft. Technology underpins many applications for the broader insurance sector, and collected data can be used to more accurately calculate risk and investigate claims. This not only helps insurers to more effectively determine appropriate premiums, but it improves safety and helps in reducing the amount of fraud.

Differentiation is the key One of the key takeaways is that IoT devices provide data that can be analysed for improved insight. This means that premiums can be tailored more precisely to individual clients, rather than using a blanket approach to risk. IoT is disrupting the traditional insurance business model, and the pandemic has brought the benefits of this to the fore. Insurers need to embrace these technologies and use them as points of differentiation, helping them to attract and retain customers in a highly competitive market.

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31 July 2021

HEALTH

NHI funding – it’s complicated Prof Simon Nemutandani, President of the Health Professions Council of SA (HPCSA), recently proposed that, “The NHI should be taking over from medical aid schemes and all assets that sit under medical schemes must be transferred to NHI.” This appears to be another attempt by the National Department of Health (NDoH) to acquire the reserves of private medical schemes to pay for healthcare in South Africa. country. The only way for the healthcare system in South Africa to evolve is through interdependent relationships.

The need for universal healthcare is not debatable. It is the mechanisms around its implementation that stimulates continual debate, challenges, disagreements and proposals.

BY LEE CALLAKOPPEN Principal Officer, Bonitas Medical Fund

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here is no doubt that some form of universal healthcare is imperative in South Africa. It is not sustainable to have only 16% of the population on private medical aid. None of us wants anyone to suffer, become disabled, live in pain or die because they could not access decent healthcare.

So why is it complicated?

What is agreed is that the country needs a health financing system that is designed to pool funds to provide access to quality and affordable personal health services to all South Africans. Quality healthcare is a basic need, it should not be based on socioeconomic status.

However, the HPCSA’s proposal to use the current private medical aid reserves – of around R92bn – to fund the NHI is not the answer, is irresponsible and we strongly oppose it.

The Medical Schemes Act The proposal is fraught with illegalities and is in direct conflict with the Medical Schemes Act 31 of 1998 (MSA) and prevailing regulations and, quite frankly, unethical. The Act promulgates medical schemes in South Africa hold solvency capital equivalent to 25% of their annual gross contribution income. This means medical schemes must have sufficient assets for conducting their normal business and to act as a buffer if there is an unusual event, such as the pandemic.

The administration of healthcare There is also no guarantee that transferring the medical scheme assets will be sufficient to fund the NHI, especially as there has never been any clear funding guidelines presented.

Aside from regulations, the reality is that the transfer of funds will place a huge burden on the state, which does not have the necessary infrastructure to support this at this point in time. It would be irresponsible and irrational without clearly articulated NHI legislation or funding guidelines and protocols. Checks and balances in our industry are very stringent and regulation is controlled strictly by the MSA and the Council of Medical Schemes (CMS).

solvency and financial soundness of medical schemes. Moreover, medical schemes are not-for-profit entities, owned by their members. This means that the reserves are made up of financial contributions by members. We strongly oppose the notion of using members’ money in this manner, nor can we accept such a gross contravention of the MSA. NHI needs to be an ecosystem of collaboration We are in support of universal healthcare, but it has always been our understanding that the NHI and private medical schemes would operate and collaborate, and that there was space in the healthcare landscape for both. What has become even more apparent during the pandemic is that stronger collaboration is required between public and private sectors. There are many stakeholders in the healthcare system and we need to engage with them all to find a way forward to address the health challenges faced by South Africans.

Negotiations, strategising and robust discussion will enable us to roll out the most viable and sustainable system in our

Protecting the members’ interests The CMS, which governs the medical aid industry, has a statutory obligation: To protect the interests of medical schemes and their members and monitor the

30 www.moneymarketing.co.za

The funding The funding of the NHI has always been a grey area. We understand that the tax credits for medical contributions might fall away and be reallocated to the NHI, and that all South African citizens will have to contribute towards the NHI Fund with a separate tax, even if they are on a private medical aid. But the rechannelling of assets from a private entity to fund a Government health insurance is not legal and cannot be considered as a funding option.

It’s not a comprehensive cover We must also bear in mind that the NHI will not cover everything. There should be room for existing private healthcare for medical services not included in the current NHI proposals. These include but are not restricted to: Medicines not included in the national formulary, for drugs and diagnostic procedures outside the approved guidelines and protocols as advised by expert groups.

Leadership for a healthier country It is imperative that any national healthcare system is led strategically. It is undeniable that we need to empower everyone through healthcare education. It is common knowledge that lifestyle diseases, such as diabetes, high blood pressure and obesity, are a pandemic on their own. But rather than treating the symptoms, a system of primary healthcare should include

Managed Care, where ‘prevention is better than cure’ becomes the mantra. The burden on our healthcare system, both public and private, as a result of chronic lifestyle diseases is massive. By monitoring these and proactively addressing them, we will not only reduce healthcare expenditure but ensure that South Africans have a better quality of life.

Regulation The administration of the proposed central system of healthcare will need strict governance and oversight. NHI, too, would be a not-for-profit organisation owned by its members. In the private medical aid environment, the fund is overseen by luminaries in the business, financial and government spheres. They are under strict scrutiny and undergo public audits as they are obligated to the members of the medical aid, which is in essence a trust fund.

So, back to the beginning Is the NHI viable for South Africa? I believe it has to be. Universal healthcare is a right, not a privilege. However, nationalising the reserves of private medical schemes is not only unethical but illegal. That said, there are more questions than answers and many details to be ironed out. And, until then, we need to focus on working together, strong ethical leadership, accountability and dealing with social-economic issues as an integral part of the process.

“It is not sustainable to have only 16% of the population on private medical aid”

EDITOR’S

31 July 2021

BOOKS ETCETERA

BOOKSHELF For My Country Why I Blew The Whistle On Zuma And The Guptas

By Themba Maseko

When They Came For Me The Hidden Diary of An Apartheid Prisoner

By John R. Schlapobersky In 1969, while a student at Wits University, John Schlapobersky was arrested for opposing apartheid and tortured, detained and eventually deported. Interrogated through sleep deprivation, he later wrote secretly in solitary confinement about the struggle for survival.

In this well-crafted account of his imprisonment, written half a century after the event, the author reflects on the singing of the condemned prisoners, the poetry, songs and texts that saw him through his ordeal, and its impact. He went on to transform his life – guided by a sense of hope – while working as a psychotherapist with a continuing focus on rehabilitation of others.

Schlapobersky’s story serves as a vital historical document, and has been described by former Constitutional Court judge Albie Sachs as “an exquisitely written memoir that tells us about human endurance, survival, repair and transcendence”.

In 2010, government spokesperson Themba Maseko was called to the Gupta family’s Saxonwold compound and asked by Ajay Gupta to divert the government’s entire advertising budget to the family’s media company. When Maseko refused to do so, he was removed from his position and forced to leave the public service. The life of this onceproud civil servant would never be the same again.

Maseko, whose activism was forged in the Soweto uprising of 1976, is a product of the struggle, and has always been unfailingly loyal to the principles of the ANC. In 2016, when the party called on members with evidence of wrongdoing by the Guptas to step forward, Maseko was the only one to do so. For this courageous act of whistleblowing, he was ostracised, slandered and even threatened.

As a former senior state official, with a distinguished record of public service, Maseko also offers a rare insider’s view of the presidencies of Thabo Mbeki and Jacob Zuma and of the inner workings of government. Compelling and revelatory, For My Country shows what it takes to stand up for one’s principles and defy the most powerful man in the country.

Just A Moment A Memoir

By Schalk Burger Snr with Michael Vlismas One of the greats of South African rugby shares the many layers of his colourful and eventful life. From rugby legend to businessman, wine farmer, cultural custodian, musician, father and grandfather, Schalk Burger’s memoir is an intensely personal and honest journey of the triumphs and hardships that have shaped the life of a much-loved South African.

Burger is a storyteller extraordinaire, describing his runins with officialdom, fisticuffs on the field, how he became the first white Springbok selected from a Coloured team, and the day Cheeky Watson asked to wash his feet. This is a glimpse into the life and times of one of the country’s most recognised figures, told in the stories of the many lives that intersected with his.

SUDOKU

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The Reset Ideas to Change How We Work and Live

By Elizabeth Uviebinené From the award-winning author and Financial Times columnist Elizabeth Uviebinené, The Reset is a fundamental rethink of how we work and live. The book argues that if we’re going to really benefit from the radical shift of 2020, we have to rethink how we fit into an ecosystem. Uviebinené started with a simple desire to explore people’s relationship with work, and how it was impacting their lives. It became clear to her that if people want to reset how they work as individuals, they’re going to need to reset the work culture they exist in, the businesses they work for, the communities they’re a part of, the cities they live in and the society they can shape.

People cannot just rethink one strand of society, they need to rethink everything together – in other words, it’s time for a Reset. The book is optimistic, positive and provocative, offering fresh perspectives on the way we live now, and a punchy idea for how we might live in the future.

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Imbi Evenhuis 22 years with PPS PR and Communications Manager

YEARS OF SHARING SUCCESS

R27.7BN TOTAL CUMULATIVE PROFIT-SHARE ALLOCATION TO MEMBERS WITH QUALIFYING PRODUCTS OVER THE LAST 10 YEARS. In a year as challenging as 2020, we are pleased to say that our unwavering commitment to our members and our operating model has resulted in a considerably positive financial year.

This feat has enabled us to allocate R2.2bn in Profit-Share to those who matter most to us — our members. Here’s to 80 more years of life-long relationships and shared success.

PPS is a Licensed Insurer and FSP