MoneyMarketing June 2021 by New Media B2B

30 June 2021 | www.moneymarketing.co.za

WHAT’S INSIDE YOUR JUNE ISSUE ARE WE IN A COMMODITIES SUPER-CYCLE? Commodity prices have rallied aggressively in the past six months on prospects for normalising global economic activity. Page 12

OFFSHORE SUPPLEMENT MoneyMarketing’s guide to investing offshore in volatile times Page 13

GOING GLOBAL: NAVIGATING THE COMPLEXITIES Investing offshore has always been a hot topic for South Africans Page 16

WHY LUMP SUM COVER IS INADEQUATE WHEN FIGHTING CANCER Optimal cover is a combination of income and lump sum benefits Page 29

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The art of identifying multibagger stocks BY JANICE ROBERTS Editor: MoneyMarketing

arkets are presently pondering the return of economic growth, inflation and rising interest rates. The dominant narrative is that this environment is good for value stocks, and bad for growth stocks. Nick Dennis, who manages the Raging Bull Award-winning Anchor Global Equity Fund*, doesn’t agree. “This narrative isn’t supported by history, and neither is it supported by data,” he says. “And so, to my mind at least, I think this focus on interest rates is a bit of a red herring. And I think what is more important is liquidity, and animal spirits – and investor risk appetite.” The Anchor Global Equity Fund is focused on a subset of growth stocks that Dennis calls multibaggers – or companies with the potential to increase by multiples of their current size over the next five to 10 years. These are, for the most part, young, innovative, founder-run businesses, built on the foundation of a great product that is usually cheaper, and one that offers customers greater choice. “Asset managers are typically left-brain oriented, they are very spreadsheet driven, logical and numbers oriented, and that’s all fine. But that’s not enough,” he explains. “In order to find multibaggers, you need to lean into the right side of the brain where creativity, imagination, and things that are unorthodox lie.”

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Some of the names on the top 10 holdings of the Fund at the end of April aren’t immediately recognisable. “This is a very different portfolio compared to a lot of other fund managers, and that’s really by design. We want to hold names with the highest long-term potential, which can be quite unorthodox at times.” Sea, a gaming and ecommerce company headquartered in Singapore – and operating predominantly in Southeast Asia – holds the largest position in the Fund. It has been a tenbagger for the Fund since it bought the stock around two years ago. Driving Sea’s profits has been its hit battle royale game, called Free Fire, which earned it first place on the list of the most downloaded mobile games in the world in 2020. “Multibaggers – and Sea – don’t rest on their laurels,” Dennis adds. “Sea is taking every last dollar of profits from the gaming division and they’re reinvesting it in their ecommerce platform, Shopee, that operates right across Southeast Asia, which has a population of roughly 650 million people.” Dennis believes Nick Dennis, that Sea is using Fund Manager, Shopee to build the Anchor Capital Amazon of Southeast Asia, with revenue of the ecommerce platform for the fourth quarter of 2020 coming in at $842.2m, up 178.3 per cent year-on-year.

“Shopee’s biggest market is Indonesia, which has over 270 million people. It’s a massive country and ecommerce penetration is in mid to high single digits. And it’s still early days.” In addition, Shopee is reportedly scaling up its operations in Brazil and evaluating the long-term potential of Latin American markets. According to analytics firm App Annie, Shopee Brazil’s app saw more monthly active users in December 2020 than Amazon’s unit in the country, although it remained behind large regional players, such as Argentinian ecommerce market leader Mercado Libre – another company that the Anchor Global Equity Fund holds. Dennis describes Mercado Libre as the Amazon of Latin America. “This region has been one of high inflation or hyper-inflation, it’s had very mediocre economic growth and currencies have been weak. It’s just been a really tough place to do business.” Yet, despite these challenges, Mercado Libre has absolutely trumped the macro environment, rising 20-fold (in US dollar terms) over the past decade.

Continued on page 3

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We know Investments T +27 (0)11 263 7700 E laurium@lauriumcapital.com Authorisation of the Laurium Africa USD Bond Fund by the Central Bank of Ireland is not an endorsement or guarantee nor is the Central Bank of Ireland responsible for the contents of the prospectus. Authorisation by the Central Bank of Ireland shall not constitute a warranty as to the performance of the Fund and the Central Bank of Ireland shall not be liable for the performance or default of the Prescient Global Funds ICAV Platform. Shares in the Fund cannot be offered in any jurisdiction in which such offer is not authorised or registered. The investments of the Fund are subject to market fluctuations and the risks inherent in all investments and there can be no assurance that an investment will retain its value or that appreciation will occur. The price of shares and the income from shares can go down as well as up and investors may not realize the value of their initial investment. Accordingly, an investment in the Fund should be viewed as a medium to long-term investment. Past performance may not be a reliable guide to future performance. Prospective investors should consult a stockbroker, bank manager, solicitor, accountant, financial adviser or their professional advisers accordingly. Copies of the prospectus and the Key Investor Information Documents are available from www.lauriumcapital.com

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30 June 2021

“It’s a fantastic stock,” he adds, “even though holding it has not been easy. It sat at least 20% below its all-time high one-third of the time, and when you hold a share, and it’s down well off its high, it can feel quite rough. In the last 10 years – and remember, this is after the global financial crisis – it had a maximum correction of 46%, which is certainly not fun to go through. Today, this looks like a tiny little blip on the chart.” He encourages investors in the Fund not to focus on short-term performance, but to think in terms of fiveyear-plus horizons. As a fund manager, he’s often asked about self-discipline. “When you think you’ve found a multibagger, the discipline is not to sell – the discipline is to hold, and to hold, and to hold. Frequently these shares look very expensive. And they will pull back and they will suffer corrections, but it really pays to have a long-term horizon with these multibagger companies.” The Anchor Global Equity fund holds 7.5% of its portfolio in the electric vehicle and clean-energy company Tesla – described by Dennis as a controversial stock with its “very controversial” CEO, Elon Musk, at the helm. Dennis is enthusiastic about the futuristic Tesla Cybertruck, the company’s take on the standard pickup truck, that will be launched next year. “The Cybertruck is a visual embodiment of the company. It’s very edgy, and either cool or hideous depending on your perspective, but I think there are going to be millions of people, if not tens of millions, perhaps hundreds of millions of people, that will want to buy this car. I think it’s going to be an absolute monster seller.” Tesla delivered around half a million cars last year and

Top ten holdings of the Anchor Global Equity Fund

EDITOR’S NOTE

Continued from page 1

ED'S NOTE

M Dennis believes that the company has a chance of selling a million cars this year. “The sell-side consensus is that they’ll sell eight hundred and sixty thousand cars. I think by 2025, they could be producing and delivering five million cars, whereas the sell-side consensus thinks that they’re going to do just over two million.” He is extremely bullish on the company and believes it could be to the 2020s what Apple and the FAANG stocks were to the 2010s. “Tesla has a decent chance of becoming the world’s largest company over the next five to 10 years, and by a long, long way.” He sees Tesla’s projects, such as its robo-taxis, full selfdriving packages, and battery research, as being absolute game changers not only for the company, but for the world, and for how we live. *The Anchor Global Equity Fund won the 2020 Raging Bulls Award, Best FSCA-approved Offshore Global Equity Fund, for the best straight performance over three years. Over the past three years, ending 31 December 2020, the fund has returned 29.3% p.a. in US dollar terms and for the 2020 calendar year, it recorded a 90.9% US dollar return.

The all-electric, battery-powered, Tesla Cybertruck

onthly US non-farm payrolls data is vitally important, as it’s a very good indicator of the current state of not only America’s economy, but of the global economy too. When I worked on the economics news desk at I-Net Bridge, non-farm payrolls Friday was eagerly awaited each month, with every member of staff writing their predictions on the enormous white board in the newsroom before the data was announced late in the afternoon, due to the time difference between Johannesburg and Washington DC. What makes this data so special is that it shows what’s happening with employment in the world’s biggest economy. If Americans can’t find jobs, they won’t spend, and if they don’t spend, the US economy will suffer – being that a large part of that economy is driven by American consumers. If the world’s most important economy loses steam, this has a knock-on effect across the rest of the world. April’s US non-farm payrolls data was a disappointment, showing a gain of just 266 000 jobs in a month when forecasters had expected to see one million jobs created. Various factors contributed to the lacklustre data, including a lack of qualified workers, the refusal of other workers to return to work amidst COVID-19 fears, as well as the continuation of enhanced unemployment benefits. While there’s probably no need for concern – and while this data still points in the right direction – it should act as a warning that the recovery in the US labour market isn’t going to be a smooth as economists once thought. Following the data, US President Joe Biden was quoted as saying, “The numbers are on the right track, but we still have a long way to go.”

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30 June 2021

NEWS & OPINION

PROFILE

Deirdre Cooper Co-Head: Thematic Equity & co-Portfolio Manager, Ninety One Global Environment Fund

What, in your opinion, are the main drivers currently supporting the global transition to decarbonisation? The first big driver is government policy. With China, Japan and South Korea joining the net-zero club in 2020 – and Joe Biden winning the US election – national commitments to decarbonisation took a leap forward last year. The second driver is technological progress. With green-tech improving rapidly, wind is now the cheapest way to generate electricity in many parts of the world; electric vehicles are becoming more affordable and better-performing; and many energyefficiency solutions are paying back their costs at a faster rate. The third driver is that consumer preferences continue to shift towards ‘green’ solutions, which is why so many companies are ramping up their climate strategies and decarbonisation-related product ranges. Which sectors are likely to grow, and where do you see the best investment opportunities? One of the advantages of decarbonisation as an investment theme is that it encompasses companies of different sizes across industries and regions. As well as the obvious businesses like renewables-focused utilities, global decarbonisation requires, for example, technology companies that are making factories more efficient; chemicals companies that are reducing the carbon footprint of industrial processes; software and semiconductor companies that are enabling the electrification of transport; logistics companies that are reducing the emissions from transporting goods worldwide; and so on across sectors. So there are multiple ways for investors to play this theme.

The key thing is to select from within this broad ‘decarbonisation universe’ the companies that have the best growth potential and competitive advantages, and that represent good value. And as with any area of investing, it’s important to have a diversified portfolio. What is the approach of your strategy and why should it be appealing for an investor? When seeking to capture the structural growth driven by decarbonisation, we think it’s crucial to be highly selective. Our portfolio is concentrated because decarbonisation is a very disruptive process, and only the strongest companies with the best technologies will emerge as winners. We focus on companies that are leaders in their fields and that have competitive advantages. Secondly, we put great emphasis on valuation discipline. In many areas, the market is yet to appreciate the growth opportunity that decarbonisation is creating for select companies. Other areas – such as parts of the hydrogen economy – look expensive to us at present. We do a great deal of valuation analysis to try never to over-pay for a stock. Finally, we think it’s important to assess the sustainability of companies in a broad sense. We spend a lot of time analysing environmental, social and governance factors, and meeting with management teams, to become comfortable that the companies we invest in are treating all of their stakeholders appropriately. The 26th UN Climate Change Conference of the Parties (COP26) will take place in November. What do you expect from it? A key aim of COP26 is not only to get more countries to commit to decarbonisation, but to ensure that these commitments are backed by credible plans. If that happens, the pathway to a low-carbon economy will be much clearer, which will likely accelerate growth for businesses positively exposed to decarbonisation. That’s exciting for an investment strategy like ours. I’d also like to see more recognition of the essential role that emerging nations must play in achieving global decarbonisation. There needs to be much more investment in the developing world to help them decarbonise, and much more discussion on how to ensure that the energy transition is inclusive and that we support the world’s least advantaged communities.

EARN YOUR CPD POINTS The FPI recognises the quality of the content of MoneyMarketing’s June 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 Stonehage Fleming has announced the appointment of Mario Schoeman as Director of Business Development in South Africa. He will be responsible for leading the distribution of Stonehage Fleming’s global service offerings, including the firm’s Mario Schoeman flagship Global Best Ideas Equity fund, into the South African investment market, the company says in a statement. Schoeman has more than two decades of local and international investment industry experience, ranging from fund research and investment product management to retail and institutional business development. He was Head of Retail Distribution at Foord Asset Management for the past 10 years and served on various committees at the Association for Savings & Investment South Africa. Prior to this, he was with OMIGSA and STANLIB in executive positions. He holds a BSc degree from the University of Stellenbosch, as well as a Masters degree in Business Leadership from the University of South Africa. The Fiduciary Institute of Southern Africa (FISA) has a new national chairperson and national vicechairperson, as well as regional councillors. Following FISA’s AGM, Ian Brink was elected as chairperson for the next two years. He replaces Eben Nel, who Ian Brink came to the end of his term as chairperson after having filled the position for three years. Penny du Plessis was elected new vice-chairperson in the place of Angélique Visser, who also came to the end of her term after having served three years. The 10-person FISA Council now comprises Ian Brink, Penny du Plessis, Louis van Vuren (FISA CEO), Angelique Visser, Aaron Roup, Carmen Venter, Donice Perkins, Eben Nel, Rynoe Smith, and Ryno Venter. Maria Grace has been appointed Global Head of Property at Allianz Global Corporate & Specialty (AGCS), reporting directly to Chief Underwriting Officer Corporate Tony Buckle. Grace succeeds Thierry Portevin, who has led AGCS’s global risk consulting team since March 2021. Grace joins AGCS from Everest Re Group, where she served as the Chief Underwriting Officer for Property and Inland Marine at the Group’s Insurance Company. Prior to Everest Re, she held numerous executive and managerial roles at Starr Companies, AIG North America and AIG’s Latin American and Caribbean division. Grace has over 23 years of commercial underwriting and claims experience, she holds a Bachelor of Laws degree from the Pontificia Universidad Javeriana in Colombia, and a Juris Master’s Degree from George Mason University School of Law in the United States. Currently based in the United States, she will relocate to AGCS’s headquarters in Munich in the coming months.

30 June 2021

NEWS & OPINION

Preparing properly for an AML regulatory visit BY JAMES GEORGE Compliance Manager, Compli-Serve SA

ver the past years, regulators have considerably stepped up their enforcement role, as evidenced by the hefty fines imposed on those whose compliance falls behind. This reality poses not only compliance and financial risks, but also reputational risks, which may have the greatest negative effect on a company. Therefore, it’s very important to prepare properly for a regulatory visit. Subject persons are informed of a visit from the FIC or the FSCA through a notification letter, generally sent three to

four weeks in advance. One can only take some comfort in nearly a calendar month of notice, as the regulator will also request a list of documentation be provided within about seven days from the receipt of the notification letter. Visits may take various forms, with the most common being onsite or off-site compliance examinations (in 2021 the majority of visits will be via remote means); full-scope, or thematic reviews; supervisory meetings; and ad hoc visits. Managing regulatory visits effectively requires commitment from senior management The amount of time and effort to prepare cannot be underestimated. Here are some tips to get ready for your review. The anti-money laundering (AML) process should be managed by the Money Laundering Reporting Officer (MLRO) or Compliance Officer, who should allocate the time and resources to preparing the documentation related to the review, as well as to assist the regulators during the course of the visit. As key individuals (KIs or senior management) as a collective are responsible for compliance, they need to be kept updated with the status of the review. Depending on the

nature of the visit, it would perhaps be beneficial for a member of the board to be directly responsible for overseeing the process too. The person assigned to this role must have a thorough understanding of the risk and control framework of the company with respect to AML. This essentially means understanding the risks the company is exposed to and the drivers resulting in the overall risk. It is essential to identify objectives, assign responsibilities and set deadlines. The notification letter relating to the visit will indicate the type of review taking place, and the areas that fall within its scope. This information should be used to define an action plan and to allocate responsibilities across the team to ensure deadlines set by the regulator are met. The MLRO should also understand the underlying processes, systems and tools in place to mitigate those risks, including the methodology used in business and customer risk assessments. An independent compliance review can add value This allows the company to get technical expertise on board within a short period of time, without removing resources from

“It is essential to identify objectives, assign responsibilities and set deadlines” the first and second line of defence, and limiting disruptions to operations. Reviewing the documentation prior to submission is critical to uncover issues, gaps and inconsistencies. If issues arise, you should be transparent and report errors upfront, together with a detailed rectification plan. This will provide comfort to the regulator that the necessary systems are in place. The plan must be realistic as the regulator will follow up. Failure to implement an action plan impacts reputation and the regulators, and may also trigger further reviews and possible sanctions. Theoretically, a company with a robust AML framework should have nothing to fear from a regulatory visit, provided they have properly considered all the requirements and all their resources properly too.

When dividends turn to shares, your return turns to tax

BY DE WET DE VILLIERS Director: Private Clients, AJM Tax

HERNA-DETTE VAN DER ZANDEN Junior Associate, AJM Tax

Tax implications of opting for shares rather than dividends

ith dividends forming part of income tax, it is important to take a closer look at the tax consequences when a shareholder receives dividends declared in the form of a share. Companies have found it advantageous in many instances to issue more shares to shareholders from a liquidity and solvency perspective, more so as it ensures a sustained relationship with shareholders. This often manifests when a company declares a dividend, but gives shareholders shares instead, either by option or inherently.

As a point of departure, dividends tax is an established withholding tax, which means the tax is retained and paid directly to SARS on the investor’s behalf. The implication is that a dividend declaration will therefore not be the amount reflecting in your bank account – there is a tax, you are just not the entity responsible for the payment. But when dividends are turned into shares, a whole new analysis is needed, as the normal dividends rules can quite clearly not find application. To explain this practically, we will make a distinction between a shareholder choosing to exercise the option presented by the said company, and where dividends inherently take on the form of shares. The first option entails the company declaring a dividend and then giving shareholders the option to either have the monetary value paid out to them, or to re-invest the dividends as shares. The shareholder (taxpayer) has to elect what he prefers. Important to note here is that an actual dividend is declared, meaning withholding tax comes into play and the value of the amount of shares taken up will be the value after tax has been withheld by the company. What happens is the dividends are declared and then used to purchase shares by the company on your behalf. When you decide to dispose of these shares, you would then have a demonstrated base cost, which is the value of the shares on the day the company reinvested your dividend amount into shares. You have thus actually paid for the shares, indirectly. The second vehicle companies could opt for is known as

scrip dividends, or capitalisation shares. From the outset, the company will issue new shares to its shareholders, as opposed to making a cash distribution (ordinary dividends) to its shareholders. This occurs when a company is in a position to declare dividends, but issue shares instead. In this case they would have an inherent term to this effect. What needs to be considered more carefully are the consequences when a disposal occurs. Capitalisation shares are specifically excluded from the definition of dividend in section 1 of the Income Tax Act No. 58 of 1962. They constitute shares from the get-go, implying that dividends tax is not triggered. As no tax is withheld, it can be deduced that you will obtain more shares, with there being a bigger amount available for the company to issue towards a number of shares. A commonly made mistake by taxpayers when subscribing for these types of shares, however, is that they assume a base cost, and do not keep in mind they had not paid anything for these shares. Section 40C of the Act confirms just that, which states that these kinds of shares have been acquired for an expenditure of nil. The higher the base cost, the better for the taxpayer. With a base cost of R0 you can already grasp the implication on your tax return. The distinction between the two options is therefore tax sensitive for capital gains tax consequences when a disposal occurs. This does not suggest that one option is a better fit for tax purposes, but rather that taxpayers should consider their tax implications as each taxpayer’s portfolio and intention differs. Taxpayers should just be aware of the consequences and how to account for them.

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30 June 2021

NEWS & OPINION

Developing your advice business Part 3: How to find a suitable successor or buyer

Finding the right person or entity to succeed you is critical for ensuring that you leave a legacy, while paving the way for a smooth transition for your clients. Tyrone Brand, Allan Gray Distribution Development Specialist, outlines some factors to consider.

BY TYRONE BRAND Distribution Development Specialist, Allan Gray

hether you are looking for an internal successor, a continuity partner or a buyer for your business, the process for identifying a suitable successor begins with drafting a successor profile. This should outline your intended objectives, the characteristics and leadership traits you’re looking for in an ideal candidate, as well as the skill set required to take the reins. Once you have a profile sketched, you’ll be ready to commence the search. Central to all three options are three questions that can help guide your search for a suitable successor or buyer: • Do you share the same values and business vision? • Is your approach to client service and investment allocation aligned? • What kind of diverse skills or benefits do they bring that will add value to the long-term growth of the business? 1. Grooming an internal successor Opting for an internal or true succession strategy effectively means you are choosing to create a path to partnership in your business. There are many pros to looking internally for your successor: the candidate already fits into the company culture, understands the business and how it operates, and has established relationships with clients. If you start the process of identifying potential candidates early on, you have time to mentor and upskill them, as you continue to service clients and grow revenue. It’s a win-win scenario for you and your clients because it gives your successor the opportunity to develop relationships with your clients and work on building their trust over time, while you are still at the helm.

“The process for identifying a suitable successor begins with drafting a successor profile” 6 www.moneymarketing.co.za

An important thing to note is that access to financing remains a key barrier for young advisers. If internal succession is an option you are mulling over, you could consider breaking this barrier down by, for example, developing an internal equity programme. There are different ways to structure these programmes and they can be used to incentivise successors with ownership opportunities. Factors to consider for finding the right fit: • Does the potential candidate possess leadership and people management skills? The person you have in mind may have the technical know-how, but competency alone is not an indicator of an ability to lead and manage. • What are their weaknesses? Defining a potential candidate’s weaknesses can help you assess whether these shortcomings remove them from contention, or whether they can be remedied through formal training and development. 2. Appointing a continuity partner Ideally, a continuity partner should be an experienced adviser you know, someone you trust and, most importantly, an ethical person who will have your clients’ best interests at heart, and honour the fee payment agreement set up. You will need to ensure this person is adequately licenced and, importantly, has the time and capacity to take on your client base. Factors to consider for finding the right fit: • What is their investment approach and how do they approach client engagement? These are important questions to ask, and the answers will give you better insight into whether the partnership is viable. If, for example, you take an educational approach to managing your clients’ investor behaviour, then you would want to find an adviser who shares your approach to client care. • Does the practice have the capacity to service your clients? Here you will need to consider whether your potential continuity partner has the necessary infrastructure to service your client base. What

assurances can they offer to demonstrate that your clients’ expectations will be met? 3. Selling to a buyer When it comes to finding a potential buyer for your business, cultural fit is key. Of equal concern is ensuring your business vision and values align, and that the standard of service the firm provides is on par with the level of service your business provides. Factors to consider for finding the right fit: • Are you on the same page regarding your future role? It is important to establish both parties’ expectations around the scope of the role you will play at the business during the transition period and how long you will remain with the business following the acquisition. • Does the buyer have the right infrastructure in place? Consider whether the buyer has the capacity and adequate infrastructure to service your clients. • Are your client service expectations compatible? If you are a hands-on adviser and your clients have become accustomed to regular personal visits, it is essential to find a buyer who is equally handson – otherwise you risk losing clients. • Would you seek out their service for your personal affairs? You want to make sure your clients will be well looked after, and a good way to test for this is against your own comfort levels. If you wouldn’t go to the buyer for financial advice on your personal affairs, neither should your clients. Your clients are generally aligned with your investment approach and values – meaning if you aren’t comfortable, it is highly likely your clients also won’t be comfortable with the adviser. Give yourself enough time to put your succession strategy together; choosing a like-minded successor is a decision that shouldn’t be rushed or taken without following due diligence processes. In our fourth and final part of the series, we will share how you can get started on developing your succession strategy.

30 June 2021

SOFTWARE FEATURE

NEWS & OPINION

Challenges facing SMMEs in 2021

“

Starting a business is not too difficult. However, it requires a consumerdriven approach to offer products and services that meet market needs. To establish a sustainable business that will achieve your business goals and fulfil your vision takes loads of energy and determination,” says Jaco van der Merwe, Executive General Manager of Old Mutual Personal Financial Advice. “SMMEs are, more often than not, so busy with the business of business to keep their business afloat that they hardly ever have the time to focus on personal and business financial planning. Cashflow battles, how to grow sales, how to cut costs, and constantly putting out fires consume their days. For this reason, it can be especially helpful for business owners to use the services of a financial adviser.” The challenges that business owners face should resonate with financial advisers (intermediaries), who practically also manage businesses – whether working for a corporate company or managing a brokerage. “A business owner’s concept of value can change as the marketplace changes. To add value, we have to understand how the changing marketplace affects the business owner’s concept of value,” Van der Merwe adds. Financial advisers need to adapt to meet business owners’ current needs. Business owners succeed when they manage their businesses efficiently and fulfil their clients’ needs, or their clients’ current concept of value. The primary aim of a business is to maximise profit. A client’s priority is to buy the right product or service, at a competitive price, in a hassle-free manner, with readily available information that allows him/her to make an informed decision. A business owner, as a client, has similar needs. He or she needs the appropriate financial solutions, at a reasonable price, in a hassle-free manner, from a competent financial adviser who provides relevant information that enables the business owner to make an informed decision. “A financial adviser will appeal to a business owner if he or she makes it easier for the business owner to focus on his core business to maximise profit by

applying his profit responsibly to secure his personal financial goals, e.g. to retire comfortably,” says Van der Merwe. “To add value to the changing needs of clients, we might have to confront our comfort zones, the way we do things. Getting out of your comfort zone doesn’t have to be a radical act. Minor changes might bring forth significant results, as long as it meets the client’s concept of value. “ He concludes, “The pandemic changed the way we do business. Old Mutual Personal Financial Advice has invested extensively in communication technology, advice enablers and new solutions to enable advisers to have the edge in the market, both for their practices and when they sit in front of our customers. As part of implementing internationally benchmarked best practice principles, successful advisers subscribe to the Pareto practice management principle of a total client engagement journey, integrated wealth planning and being a trusted financial coach for their customers. It is exciting to see the shift in customer engagement and how advice businesses adapt to ensure they stay competitive and future competitive. “If we allow ourselves to learn fresh ways to address the diverse needs of clients, we can change our comfort zones to growth zones. It all starts with our mindset, for what we think becomes our words. Our words steer our actions and can form sound new habits, which will empower our destiny.”

“Financial advisers need to adapt to meet the business owners’ current needs”

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

Technology boosts business for brokers BY SAM FLEMING CMO Growth, Simply Financial Services

nnovation impacting brokers in the life insurance industry has accelerated significantly over the last year. COVID-19 (and especially lockdown) strangled brokers’ usual face-to-face interaction with clients and limited their ability to write new business. Use of technology platforms such as Simply’s Online Broker Platform grew exponentially during this time, providing brokers with opportunities to continue secure, compliant, end-to-end customer sales and service in just a few minutes online. Traditionally, brokers have seen insurtech companies as rivals. Insurtech was mostly represented as ‘disruption’ and an attempt to cut out intermediaries. However, since the advent of COVID-19, insurtech has increasingly become known for its possibilities of enablement, as brokers have turned to technology to help make their lives easier and meet customers’ needs timeously. When social distancing meant that brokers could no longer meet in-person with clients, many long-established broker processes came to a screeching halt. Zoom, MS Teams and WhatsApp calls became the norm for communication. While disconcerting, this had knock-on effects that were ultimately good for modernisation of the life insurance industry. Many broker processes that are traditionally slow and bogged down by paperwork have been in the spotlight. Where workflows used to take weeks or days, it’s now possible to digitise and simplify data collection, accurate personalised pricing, sales and digital records of advice – all through platform technology that delivers the goods within minutes. Customer habits have also changed. South Africans are increasingly comfortable interacting online for communication (WhatsApp and messaging tools), banking (online and appbased), and shopping (ecommerce). As a result, fear of technology has been put aside to deal with the pragmatic reality of life in a time of social distancing. Technology now feels safer and more trustworthy, even for financial services. There are still many brokers who complete proposal forms on paper, and require physical signatures from clients. When moving to an Online Broker Platform, the adviser is able to remotely complete underwriting and personal questions with their client, wherever they may be, make real-time adjustments to cover limits and see premium changes immediately, and confirm with the client via a secure OTP link. This puts valuable information in the hands of the broker, who is able to deliver an affordable, valued risk product to their customer instantly, closing the deal immediately instead of weeks later. Brokers don’t need to change their entire operating model in one go. Accredited brokers can use the Online Broker Platform with a tablet, computer or mobile phone to sell and service new policies. They’re able to digitally quote, bind and issue policies for life, disability and funeral products for both individuals and small businesses (Group). This empowers brokers to focus on the relationship with their client and the advice they need, instead of getting caught up in mounds of back office paperwork. Simply’s Online Broker Portal was launched in 2019, and sales grew five-fold during 2020 with the shift in consumer behaviour and widespread adoption of technology platforms. If you would like to grow your brokerage business to work smarter, with personalised, underwritten products and services available on the Online Broker Platform, get in touch with graham@simply.co.za

“Traditionally, brokers have seen insurtech companies as rivals”

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30 June 2021

SOFTWARE FEATURE

Iress provides simple, easy-to-use software for financial advisers BY BARRIE VAN ZYL Head: Account Management, Iress

loud-based financial solutions are progressively attracting attention from organisations, with IT spend increasingly being swayed to procure technology solutions that support the 4IR, and that are geared towards digital transformation and user engagement. Within this environment, financial advisers have been faced with several challenges over the last few CAM-2162 ZA_Money Marketing June years, with complex systems that are not

CMY

user-friendly, competition from roboadvice bots, a volatile market, COVID-19 lockdown restrictions and shifting global economies. With advice businesses now reliant on technology to perform their best, Iress has a relentless focus on quality client delivery through providing comprehensive tools while simplifying practices for an uncomplicated experience. Iress recognised the necessity for an improved user experience with its software solutions. In the past few years, Iress has geared up its innovation exponentially using a combination of user surveys and workshops, the Iress Labs initiative that allows users to provide input directly into software design and development processes, and an internal portal called Aha to capture clients’ user experiences. These initiatives help drive ongoing software development, with new features, widgets, and other intuitive innovations improving the overall user experience. Iress continuously evolves its platforms to advance performance and invests in 2021 ad.pdf 1 10/05/2021 11:15 its solutions to streamline processes and

improve how businesses perform. Barrie van Zyl, Head of Account Management at Iress, says, “We listened to our clients and implemented changes that will enhance user experience. We know our clients want to do more and use fewer functions to deliver better, more consistent outcomes for their clients. Through these detailed surveys, we have simplified certain processes by using technology as an enabler, automating manual steps to save time and improve overall business productivity.” Xplan offers both integration and automation, with a single system where customer data and documentation are stored, as well as an at-a-glance dashboard that allows for full workflow management capability, compliance, and comprehensive reporting for more accessible and more cost-effective business and revenue control. Supporting all types of advice, from simple through to complex needs, Xplan allows you to manage the entire advice process from discovery, current position, goal-setting, analysis,

strategy development, production recommendations, advice documentation through to implementation and ongoing review – accessing powerful modelling tools and product information. Xplan is complete and all-inclusive financial planning and wealth management software for advice practices of any size – from the smallest IFA to the largest networks. It is a comprehensive software solution that helps to reduce administration, maximise business opportunities and deliver high-impact financial advice. Iress understands that data is an enabler to decision-making. When we innovate our software, we always look at useful ways to enhance our user experience. Today and beyond, Iress will continue to tap into the market with surveys to evolve the software in a way that strives to supersede our client’s expectations. Interested in trying Xplan to deliver quality service and outcomes for your clients? Visit https://www.iress.com/ software/financial-advice/xplan/ for more information.

Built for better advice. From a full suite of advice and investment management software, to better ways to track revenue, analyse data, source and compare the right financial products and deliver quality advice more efficiently, we’ve got financial advice covered. iress.com/financial-advice

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• Aﬀordable, great value product • Includes digital Record of Advice Cover Cover Premium • SelfForservice portal with OTP security feature Life, disability and funeral cover combo for individuals. • No blood tests or medicals Life First Assured: Cynthia J. Reed R500 000 R198 Optional 50% cashback after 5 years. Extended family • Instant cover, all online Disability First Assured: Cynthia J. Reed R500 000 R30 • No waiting period for covid-related death* funeral cover add on. Family Funeral First Assured: Cynthia J. Reed R50 000 R126 • Life Cover up to R2mil Extended • Disability Aunt: JaneCover Reed up to R2mil R50 000 R129 Simply Group Cover Family Funeral • Family Funeral Cover up to R50k Cashback (50% of premium) Policy Owner: Cynthia J. Reed R50 000 R155 • Backed by a trusted insurer Life, occupational disability and funeral

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30 June 2021

INVESTING

PSG celebrates unity, top advisers and offices

SG held its annual conference in May. This year’s event was entirely virtual, and although the special atmosphere at Sun City, where the event is usually hosted, is difficult to replicate online, there can be little doubt that a digital conference also brings some unique advantages. PSG used the opportunity to include more staff attendees and had greater access to high-profile international speakers due to the reduced travel (and time) demand. The 2021 theme was Unity in Opportunity, highlighting what is possible when we work hard together. Some key highlights of this year’s conference included US economist at the Brookings Institution and former Chairman of the Board of Governors of the Federal Reserve, Dr Ben Bernanke, who shared his insights on global economics. Other speakers included Irish economist David McWilliams, futurist Graeme Codrington, Caroline da Silva (formerly from the FSCA), and agripreneur Mbali Nwoko, who shared how to properly manage a growing farm. The session also featured a panel discussion by international fund managers, hosted by broadcasting personality Bronwyn Nielsen. The digital format also allowed for more product provider participation, sharing thoughts, trends and triumphs with both the Wealth and Insure adviser networks. The conference marked a great year for PSG overall.

Marius Kruger

Nerine Brink

“The 2021 theme was Unity in Opportunity, highlighting what is possible when we work hard together” Surviving and thriving “It has always amazed me what we can achieve – against all the odds – when we work together, and this year has been no different. Had I told you last year that PSG would be stronger, better and smarter in a year’s time, you would have thought we were being naively optimistic. However, a year on, that is exactly what we have seen,” remarked Francois Gouws, PSG Konsult CEO who opened the conference this year. PSG is immensely proud of its top advisers and offices, and all that has been possible despite the constraints of living during a pandemic. PSG’s annual awards recognise advisers’ successes PSG typically awards its winners at the annual conference gala evening in the Superbowl at Sun City, but this has not been possible for the last two years due to the pandemic. However, the firm invested great effort in ensuring this year’s digital event was memorable to nominees, award recipients and spectators. PSG is pleased to announce that 420 financial advisers are part of its Millionaires club, as they have each generated over R1m gross revenue in the past financial year. Their Gold club qualifiers are the financial advisers with more than R5m in gross revenue over the past financial year, which has grown to 74 advisers.

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Johan Borcherds

Struan Campbell

There are 58 advisers who have qualified in the Platinum club, who have achieved over R10m in gross revenue over the past financial year. PSG is immensely proud of their achievements despite the challenging business conditions we have seen over the past year.

The awards are given to top performing offices and individual advisers in various categories.

PSG’s top offices and advisers for the 2020/2021 year PSG’s annual awards encourage healthy competition among its network, and this year sees several winners receiving an award for the first time, along with some repeat nominees and winners, proving PSG’s strength and resilience. While profitability plays a role in the award selection, the extent to which advisers embrace the trusted PSG processes and live its values are also key considerations.

The winners are... Office of the year: PSG Wealth Silver Lakes & George Central take the title. Marius Kruger (pictured) accepted this first time win for the office. Employee Benefits Office of the year: Route21 Employee Benefits secures another win. Nerine Brink from the office is pictured. Wealth Manager of the year: Johan Borcherds from PSG Wealth Pretoria East (pictured) wins this highly competitive award.

30 June 2021

INVESTING

The world has changed but we’re making the most of it BY DAN HUGO Chief Executive of Distribution at PSG

Emile Janse Van Rensburg

Markus Fourie

Wealth Adviser Securities of the year: Struan Campbell (pictured) from PSG Wealth Umhlanga Stockbroking wins this award after several nominations in previous years. Wealth Adviser of the year: Emile Janse Van Rensburg (pictured), from PSG Wealth Paarl Cecilia Street wins for the first time. Insure Adviser of the year: Markus Fourie (pictured) from the PSG Insure Olympus Midas Avenue Short-Term office wins this award for the first time. A virtual wine tasting was arranged for the top advisers and offices after the awards. Congratulations to the 2021 winners.

Working has changed since the pandemic started, and rather than being temporary, these changes may prove permanent. Holistic advice and hyperpersonalisation are the cornerstones to building lasting relationships of trust, as every client has unique needs and goals. We believe that a hybrid of technology and advice as we know it will be key to success, and there are many opportunities available. PSG aims to be a highly respected, advice-led financial firm. Being prepared for a digital future before the pandemic hit, stood us in good stead to weather all that has followed since March 2020 and South Africa’s lockdown. Client service and engaging with our clients is our core focus, along with finding new ways to do this, given how the world has changed. Futurist Graeme Codrington, in his talk at the event, quite rightly suggested that the trend of the future will not so much be work-from-home as work-from-

New website, advertising campaign and corporate identity (CI) to match PSG has launched a new website with better functionality and a bright new look, along with a bold new CI more suited to the increasingly digital world. The bold cyan-and-black colour palette sets the tone for the next chapter for PSG, and shows the firm’s intent to continue boldly growing into the future. While PSG has not revised its CI over the last five years, the next five years are likely to look quite different, so a fresh and modern new look is a fitting way to signal readiness for the new challenges that lie ahead. Unity is what it’s all about PSG is always looking to increase the adviser network with the aim of serving clients better, wherever they reside. Thus, PSG has not let the pandemic set client engagement efforts back; rather, it has invested in sharing bigger picture ideas even more broadly in the digitally enabled environment. The Think Big webinar series continues to offer thought-leading subject matter, tackling all topics close to South African hearts, from COVID-19 vaccines to education, to rugby and all things in between. Viewers are encouraged not to miss any of the upcoming sessions, and recordings to all previous webinars are available on PSG’s YouTube channel.

anywhere. The world is certainly changing, and reaching clients through technology allows us to keep up, wherever they may be. PSG has been fortunate to operate seamlessly remotely, and it’s all thanks to technology. We collaborated with our advisers to get their input on what was needed digitally to best service clients, and this is something we continue to improve.

“It has always amazed me what we can achieve – against all the odds – when we work together, and this year has been no different” – Francois Gouws, CEO PSG

Looking ahead positively PSG has always been optimistic. However, rather than sitting back and waiting for the future to arrive, they opt to actively work on creating the future they want. It’s no wonder then that they believe the future looks bright. PSG comprises three divisions, namely PSG Wealth, PSG Asset Management and PSG Insure. It also has one of the largest networks of financial advisers in South Africa and Namibia within its PSG Wealth and PSG Insure offerings. The firm had 563 wealth advisers and 369 insure advisers, and 263 offices, as at 28 February 2021.

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30 June 2021

INVESTING

Laurium Capital launches Africa USD Bond Fund BY KIM ZIETSMAN Head: Business Development and Marketing, Laurium Capital

aurium Capital (Pty) Ltd (Laurium) launched the Laurium Africa USD Bond Prescient Fund in South Africa in December 2019 in the Regional MultiAsset Flexible sector for clients looking for exposure to a pure fixed-income Africa CIS fund to achieve competitive USD yields and diversify their portfolios with their rand investments. Due to the significant interest received from offshore investors and South African investors wishing to access the fund in foreign currency, Laurium has launched its first Irish-domiciled UCITS fund, the Laurium Africa USD Bond Fund, on the Prescient Global Funds ICAV platform.

The Laurium Africa USD Bond Fund is denominated in USD and has received FSCA approval under Section 65 of CISCA. Fund details The Fund invests primarily in USD and EUR denominated fixed-income instruments (eurobonds) issued by African sovereigns, excluding South Africa. A eurobond is a USD-denominated bond issued outside of the United States. There are over 20 African sovereigns issuing eurobonds via the Euroclear markets in Europe. The Fund aims to outperform the Standard Bank Africa Sovereign Eurobond (excl. South Africa) USD Total Return at lower levels of volatility over time. African eurobonds Since 2006, the African sovereign eurobond market has grown significantly to over $150bn and has generated USD annualised returns of 8.9% p.a. The African eurobond market trades around $500m a day. These USD-denominated, sovereign-backed eurobond instruments are settled via the Euroclear markets, carry no local currency risks, nor operational indecencies. Investment approach The fund uses fundamental bottom-

up research, with a valuation bias, to generate a concentrated portfolio with high conviction ideas with a focus on stock picking and risk mitigation. The Fund is invested in a minimum of 75% in eurobonds, typically with a higher weighting over time. It may also invest opportunistically in local currency sovereign and corporate fixed-income securities up to a maximum of 25%. With global investors on the hunt for yield, African eurobonds currently provide access to a liquid asset class that is offering some of the most attractive USD yields globally. The asset class has grown immensely over the past decade, with over $100bn in outstanding issuance across 20 countries in Africa, excluding South Africa. COVID-19 has provided an opportunity that has not happened since the Global Financial Crisis; spreads have widened providing an attractive entry point, similar to what investors are seeing in the global high yield space, but at half the volatility and risk. Laurium has been investing across the African markets since the company was founded in 2008. The team’s deep understanding and research across the African region, where data is scarce, provides a competitive edge by producing insights into the health of the underlying regional economies and their ability to pay

back debt. Laurium has a strong network of contacts, ranging from underlying corporates to African sovereign policy makers. The firm maintains a flexible investment approach, which has proven to be successful when investing in African markets. Laurium has an entrenched partnership with the team at Prescient, one that has led to much growth and success in SA. We are now looking forward to achieving our international ambitions with them, starting with our Africa USD Bond Fund, which we’re very excited about. Reasons to invest in African Fixed Income: 1. Attractive risk-adjusted yields and returns 2. Liquid market, with an investible universe of over $120bn and daily liquidity of around $500m 3. 20 countries issuing eurobonds across Africa with over 83 different issuances 4. Our Fund is currently offering higher yields than Global High Yield and Global EM Fixed Income 5. Actively managed Fund combining majority Africa eurobonds with opportunistic trades 6. Sovereign-backed drives lower default rates than high yield, both historically and going forward.

Are we in a commodities super-cycle? Commodity prices have rallied aggressively in the past six months on prospects for normalising global economic activity. Portfolio manager Mike Townshend responds to suggestions that the world is experiencing a new commodities super-cycle. BY MIKE TOWNSHEND Portfolio Manager, Foord Asset Management

il, copper, iron ore and platinum have rallied hard since the 2020 pandemic lows. Brent crude surged 150%, both copper and iron ore have more than doubled to new all-time highs and platinum gained 75%. There’s talk in the financial press of a new commodities super-cycle – what’s going on here? Commodity prices usually follow the supply-anddemand pressures of the economic cycle. During booms, commodity demand is fuelled by greater travel, manufacture, infrastructure development and trade. Rising demand drives up prices, incentivising producers to extract more commodities and explore for new reserves. As production rises, supply inevitably exceeds demand and prices eventually fall. Economic cycles repeat themselves every five to seven years, on average. Commodity cycles follow similar patterns. Super-cycles are extended periods of above-trend price gains seen across large parts of the commodities complex. They depend on megatrends that drive demand to new highs and can last for multiple decades. The last super-cycle began in the late 1990s, when rapid

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Chinese urbanisation and infrastructure development combined with global underinvestment in new commodity supply to drive commodity prices to multidecade highs. Producers initially struggled to increase output to match this unprecedented growth in demand, despite the incentive of extraordinarily high prices. The adage that the ‘cure for high prices is high prices’ then proved true as producers invested heavily to increase commodity output. At the same time, Chinese growth slowed from heady double-digit rates to more modest growth rates, with less emphasis on infrastructure development and more focus on the consumer. It may be too early to call, but I don’t believe the current commodity cycle will develop into a super-cycle. Firstly, recent price surges are mostly a recovery from the lows of early 2020 and boosted by the huge fiscal and monetary response to the pandemic. Secondly, what could be the catalyst for multi-decade demand? Chinese growth is slowing, India has a massive

population but does not have the political unity to coordinate sustained infrastructure spend, and the Western world is grappling with ageing populations and overindebtedness. There are no significant supply constraints. Specific commodities could nevertheless experience extended price growth. Demand for metals and materials that support renewable energy and electric vehicles should grow over the next decade. ‘Green metals’ such as copper, cobalt and lithium are probable beneficiaries of the transition to a more carbon-neutral economy. Foord’s portfolios have meaningful investments in the best quality resource shares. However, the cyclicality of earnings streams makes us reticent about being overweight in this sector in the long term. Material investment in diversified miner BHP Group (and to a lesser extent, Anglo American) affords valuable exposure to two of the world’s largest copper mines. Foord’s global funds have direct copper exposure via US miner Freeport-McMoran and leading lithium battery material producer Livent. ABOUT FOORD ASSET MANAGEMENT Foord Asset Management has been successfully growing retirement savings since 1981. The company offers a premium investment management service to long-term investors in retirement funds and unit trust portfolios. A multi-decade track record of successful investing evidences Foord’s ability to consistently deliver superior investment returns for a range of investment strategies. 1. As an independent and owner-managed boutique built on the principles of investment stewardship, we place investors’ interests ahead of our own 2. We construct diversified investment portfolios based on rigorous fundamental research, high conviction ideas and an adaptable, valuedriven investment policy 3. We embrace market volatility as opportunity, not risk. https://foord.co.za/terms-conditions

Offshore SUPPLEMENT

WHAT’S INSIDE ...

The best time to invest globally

Inflation and the road ahead

Offshore vs local? Both

There are widely available solutions packaged simply and cost-effectively to enable SA-based investors to invest offshore immediately

Investors should consider their portfolio positioning for the inevitable fading of the ‘reflation trade’

The secret is always to have a long-term mindset, focus on valuations, and diversify

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30 June 2021

OFFSHORE INVESTMENT SUPPLEMENT

Does an emissions scandal await the real estate sector? The property sector must agree on a coordinated approach to environmental standards if it is to reduce its carbon footprint. BY TOM WALKER Co-Head: Global Real Estate Securities, Schroders

What has the VW scandal got to do with the real estate sector? Firstly, much like the car industry, the real estate sector has one of the highest carbon footprints of any sector. It currently contributes 30% of global annual greenhouse gas (GHG) emissions and consumes around 40% of the world’s energy, according to the UN Environmental Programme. Secondly, the real estate sector does not seem to be regulating its emissions or pathway to net zero carbon (NZC) in any co-ordinated fashion. There is a danger that participants are relying on lazy metrics that are easy to achieve and will lead to no real reduction in GHG emissions. Analysing real estate companies from around the world, investing in many different types of real estate, means we are well-placed to identify hollow promises made by industry participants. Why are the sector’s green credentials problematic? The industry’s focus is almost exclusively on ‘operational’ carbon rather than on the ‘embodied’ carbon. This is a short-sighted and controversial methodology. Operational carbon comes from the daily usage of a building, from actions such as heating, lighting and cooling. This is different to the embodied carbon, which is the emissions created in the process of manufacturing materials required to construct the building. The key components of any development are concrete and steel, both of which produce significant carbon emissions.

BY GLYN OWEN Investment Director, Momentum Global Investment Management

n September 2015, news broke that Volkswagen (VW) had been selling cars in the US that had a so-called ‘defeat device’ that could detect when they were being tested and change performance to improve results. Modifying an environmental test and masquerading as ‘doing the right thing’ will obviously have no meaningful impact on the environment. You would expect that everyone would have learnt lessons from the car industry’s shameful episode. However, it is possible to identify another industry that is attempting to self-regulate its environmental standards in a bid for green bragging rights. And that industry is real estate.

The best time to invest globally

It is therefore nonsensical that a building can claim to be ‘green’ or net zero carbon (NZC) when it ignores the environmental cost of building the asset. A building cannot be truly net zero until it has paid back or offset its initial carbon debt (the embodied carbon) and has also considered what happens to the building at the end of its life. The key issue for the real estate sector is that there is no widely adopted market mechanism that aims to reduce embedded emissions. On the contrary, by focusing on operational energy consumption, the owners of many buildings are not even aware that new construction is contributing to the climate crisis instead of helping.

“The real estate sector has one of the highest carbon footprints of any sector” How can the real estate sector prevent its own emission scandal? The major impediment to success is the lack of agreement within the sector as to which sustainable metrics to focus on. As you would expect, there are vested interests that can make for difficult discussions. In addition to the focus on operational carbon, there must also be a ‘whole life cycle carbon’ assessment for new developments, something that regulators in the Netherlands have forced on developers since 2013. The sector must move forward together, only then will significant progress be made. From being the focus of controversy in 2015, the car industry is now becoming a case study for reducing GHG emissions. For the real estate sector, the direction of travel is clear: act together to enact positive change before it is too late.

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South African-based investor who restricts investments solely to domestic stocks is leaving behind approximately 99.6% of equity opportunities. The SA economy represents 0.4% of global GDP, and the stock market is a similar proportion of the global equity investment opportunity set. These stark statistics highlight the incentives of investing offshore. The SA market is one of the most concentrated: almost 30% of the market capitalisation is represented by just two stocks, and 50% by only five. Add to that the diversification benefits of investing in economies growing sustainably more quickly, in currencies that offer the prospect of long-term strength against the rand, in industries that are largely unavailable domestically, as well as in the world’s established and emerging growth stocks, and the case for global diversification becomes compelling. Fortunately for South Africans, regulations have been progressively eased, and there are increasingly efficient means of investing offshore, with a range of solutions to meet the wide range of risk preferences and objectives of retail investors, as well as investment platforms that remove the administrative burden.

“There are widely available solutions packaged simply and cost-effectively to enable SA-based investors to invest offshore immediately” Momentum Wealth International (MWI) is one such platform. As a truly offshore business with roots in Guernsey, MWI offers a myriad of benefits for clients wishing to invest offshore, including effective estate planning, tax reduction for higher-net-wealth clients, investor protection, multiple currency reporting and, importantly, investment choice and flexibility. With a broader investment opportunity set being available offshore, the ability to access various unit trust funds, exchange traded funds (ETFs) and personal share portfolios in multiple foreign currencies is a clear benefit of the platform. Against this background, a common question is: When is the best time to invest globally? Timing the entry point for investing is always difficult, and very few investors can demonstrate consistent success in doing so. ‘Time in the market almost always beats timing the market’ is never more relevant than when considering offshore investing. In the long term, international equities are more likely to deliver real growth in inflation-adjusted terms, as well as diversification across a wide range of currencies, economies, markets and industries, while companies will offer investors a much smoother, more reliable, and more rewarding journey to achieve their goals than investing solely in a narrow domestic market. It’s also no longer the case that the administrative burdens of investing offshore, alongside the ‘misery of choice’ (how do I begin to make selection decisions?), are a deterrent; there are widely available solutions packaged simply and cost-effectively to enable SA-based investors to invest offshore immediately. Our Momentum Global Managed Solutions fund range, as an example, takes the ‘guesswork’ out of navigating the investment choice as it includes three well-diversified, multi-asset-class funds that cater for a variety of risk appetites and time horizons. Investing globally should be for the long term. Whatever your starting point, careful selection, diversification and patience is likely to be rewarded, and will ensure your clients’ personal goals are met. The best time to invest globally might well have been twenty years ago, but the second-best time might be now. The information in this editorial is for general information purposes and not intended to be an invitation to invest, professional advice or financial services under the Financial Advisory and Intermediary Services Act, 2002. Neither Momentum Global Investment Management nor Momentum Wealth International, make any express or implied warranty about the accuracy of the information herein. Momentum Global Investment Management Ltd (FSP 13494) is an authorised financial services provider. Momentum Wealth International Ltd (FSP 13495) is an authorised financial services provider.

Our range and diversity give your clients an edge. Because with us, it’s personal.

We put a multitude of investment tools, solutions and capabilities in your hands. Select from a wide range of investment options to suit each of your client’s individual goals. Because with us, it’s 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. MI-CL-08-AZ-46060

30 June 2021

OFFSHORE INVESTMENT SUPPLEMENT

Going global: Navigating the complexities BY NICK JEFFREY Relationship Manager, Sanlam Private Wealth

nvesting offshore has always been a hot topic for South Africans – to protect wealth from domestic political or economic risk, to gain access to markets and opportunities unavailable locally, or to diversify across multiple geographic locations and currencies. There are different ways of accessing the global market. The simplest way is to invest in rand-denominated options such as dual-listed or rand hedge companies on the JSE, or local feeder funds providing access to offshore versions of these funds. Many South Africans prefer to invest directly offshore by owning hard currency assets, however. If your clients aren’t restricted by the SA Reserve Bank or SA Revenue Service from holding direct offshore assets, they can use their R10m foreign investment allowance and their R1m single discretionary allowance per year to transfer their after-tax funds abroad. Alternatively, if they don’t have the required regulatory approval or wish to invest more than their annual allowances, they can

make use of the asset swap capacity of a financial services provider such as Sanlam Private Wealth. If your clients are going the direct route, it’s essential to obtain expert advice to ensure they don’t get tripped up by the complexities that often accompany global investments. These could include complications around estate duty or inheritance tax, donations tax, local legislation and restrictions on investing offshore, and the overall effect of currency fluctuations. Key factors to consider include:

2105_2527_SPW_MONEY_MARKETING_PRINT_AD_155mmHx220mmW_FA.indd 16 www.moneymarketing.co.za

• The most appropriate structure. The most common ways of structuring a global investment strategy are investing directly in a client’s own name, integrating assets into a life insurance policy (often referred to as a ‘wrapper’), or lending money to an offshore trust to make investments. • Setup and administration of offshore trusts and company structures. Offshore trusts and company structures remain a popular option for asset protection, tax relief and estate planning purposes. However, setting up and managing these structures can be costly and complex. • Global life insurance solutions. Investing through an insurance ‘wrapper’ offers flexible investment options and some tax efficiencies, and your client’s estate won’t have to pay executors’ fees. • A joint tenancy arrangement. In certain instances, it might be a costeffective solution to invest directly in your own name with a joint tenancy arrangement. However, given the potential complexities, it may be a less flexible option. • Local and offshore tax advice

and structuring. Factors to take into account include local and offshore taxes, and SA Reserve Bank regulations. • Global estate planning. To ensure the orderly transfer of assets to the next generation, it’s important to consider: • Local and offshore inheritance taxes • Drafting and reviewing of local and offshore wills • Safekeeping of deeds of title, and original trust documents and share certificates • Executorships • Power of attorney to administer offshore estates. • Global asset management. Your clients will need an investment team with strong global asset management capabilities to ensure optimal longterm growth and preservation of their offshore assets. At Sanlam Private Wealth, we have all the key skills to assist your clients on their offshore investment journey, from start to finish. We can provide world-class advice and integrated onshore-offshore wealth management solutions – if you need further information, please contact us on info@privatewealth.sanlam.co.za

2021/05/10 11:26

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Why limit yourself to only 1%? Discover the full picture by investing offshore with Allan Gray and Orbis. Most investors tend to focus their attention on seeking opportunity locally, but with South Africa representing only around 1% of the global equity market, we understand the importance of seeing the full picture and unlocking investment opportunities beyond the local market. That’s why Orbis, our global asset management partner, has been investing further afield since 1989. Together we bring you considerably more choice through the Orbis Global Equity Fund and Orbis SICAV Global Balanced Fund.

Invest offshore with Allan Gray and Orbis by visiting www.allangray.co.za or call Allan Gray on 0860 000 654, or speak to your financial adviser.

Allan Gray Unit Trust Management (RF) Proprietary Limited (the ‘Management Company’) is registered as a management company under the Collective Investment Schemes Control Act 45 of 2002. Allan Gray Proprietary Limited (the ‘Investment Manager’), an authorised financial services provider, is the appointed investment manager of the Management Company and is a member of the Association for Savings & Investment South Africa (ASISA). Collective investment schemes in securities (unit trusts or funds) are generally medium- to long-term investments. The value of participatory interests or the investment may go down as well us up. Past performance is not necessarily a guide to future performance. The Management Company does not provide any guarantee regarding the capital or the performance of the unit trusts. The Orbis Global Equity Fund invests in shares listed on stock markets around the world. Funds may be closed to new investments at any time in order for them to be managed according to their mandates. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees, charges and maximum commissions is available on request from the Management Company.

30 June 2021

OFFSHORE INVESTMENT SUPPLEMENT

Are there real long-term opportunities in the US? BY MATTHEW ADAMS Portfolio Manager, Orbis Investment Management

ERIC MARAIS Investment Counselor, Orbis Investment Management

Inflation and the road ahead BY SCOTT COOPER Investment Professional, Marriott

ith just 30% of assets invested in US shares versus 66% for the MSCI World Index, the Orbis Global Equity Fund’s current underweight to the US market is the largest in its history. In recent years, the stock-picking environment in the US has been characterised by rising aggregate valuations, surging liquidity, dwindling concern for risk, and increasing speculation. Yet, despite stiff valuation headwinds at the broader market level, some of our highest-conviction ideas still come from the US market. By applying a bottom-up approach, we have uncovered shares of businesses that are cyclical, but also competitively advantaged, and that continue to offer attractive long-term risk-adjusted returns. One example is XPO, a transportation and logistics company that has been one of our largest holdings for many years, and since 2011 has outperformed the S&P500 index by 14% per annum. The market regime of the last decade in the US benefited the shares of the defensive growth businesses, which we have largely avoided in recent years. Below-trend economic growth since the global financial crisis (GFC) created an earnings headwind for cyclical businesses, while by comparison, earnings of many disruptive growth businesses look unusually attractive. At the same time, inflation remained subdued. Finally, with low growth, low inflation and aggressive central bank intervention, long-term interest rates were depressed to historically low levels, disproportionately benefiting long duration assets, such as the shares of richly priced growth companies. As this regime became entrenched, relative valuations for such businesses, which started low, were steadily amplified

by the circularity of the capital cycle. Growth managers outperformed, attracting new assets, spurring further buying of the same growth shares, pushing such shares ever higher, while the reverse happened to value managers and their shares. Yet, developments since the pandemic offer the tantalising possibility that this may be changing. Consider that the pandemic unleashed the most extreme increase in US government spending since World War II: $6tn of stimulus. The magnitude of this fiscal response is difficult to overstate and may well produce a period of unusually high economic growth in the coming years. Even without these extraordinary measures, the ‘real’ economy stands to benefit from accelerating vaccine deployment and the end of lockdowns, combined with enormous pent-up demand and the highest individual savings rate in decades. Additionally, the combination of surging demand, limited supply of both labour and goods, ongoing de-globalisation and exceptionally loose monetary policy potentially set the conditions for much higher rates of inflation and interest rates. Such a development would be a significant headwind to richly-priced growth shares. By owning individually attractive companies, though, we don’t need to bet on a regime change to find attractive investments, and the handful of ideas that make up our allocation in the US are among our highest-conviction holdings anywhere in the world. A clear lesson from history, though, is that big shifts can unfold dramatically, and it is critical to avoid areas of the market that look most overvalued. Therefore, it is less about trying to find the next Amazon, and more about trying to avoid being left holding the next Pets.com.

“The market regime of the last decade in the US benefited the shares of the defensive growth businesses”

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he past 15 months have been an interesting but uncertain time in global markets. As several major economies started to emerge from the pandemic, the first quarter of 2021 was all about ‘reflation’ – a belief that massive fiscal stimulus, historically low interest rates and the reopening of economies on the back of COVID-19 vaccinations will drive an economic boom, placing upward pressure on inflation. Although we expect a strong recovery in GDP growth and a pick-up in inflation in 2021, we do not believe these inflationary pressures will be sustained. This belief is driven by four core considerations: 1. Base effects. Annual inflation statistics over the coming months will be distorted by the disinflation that occurred in many economies in March and April last year as COVID-19 took hold. In the USA, for example, base effects are expected to contribute approximately 1% of headline inflation in April and May 2021. The important consideration is that these base effects are transitory and do not indicate longer-term inflationary pressures. 2. Temporary upward pressure on inflation as economies begin to reopen. It is expected that there will be some supply chain bottlenecks that cause temporary upwards inflation pressure. Importantly, however, it is expected that these will reduce over time as the bottlenecks clear. 3. An uneven global recovery. Much focus has been placed on increasing US inflation – as the vaccination levels increase, so the economy begins to reopen fully. The global recovery, however, is not equal. For example, the IMF, despite increasing global growth projections in April this year, noted that while China had already returned to pre-COVID GDP in 2020, many other countries are not expected to do so until well into 2023. This will act to curtail global inflation. 4. Global debt levels. The underlying health of the global economy has a major influence on how quickly it can recover from shocks. One concern is the relatively high amount of debt that was held prior to the pandemic (and subsequently increased by fiscal stimulus measures). The IMF notes, for example, that public debt-to-GDP of advanced economies was 105% in 2019 (in contrast to 72% before the 2008/9 financial crisis). This debt burden will likely prove deflationary in the years ahead. The impact of these factors is perhaps most aptly summarised in the US Federal Reserve statement made on 28 April 2021. Despite undergoing an extended period of accommodative monetary policy, the Fed believes “longer‑term inflation expectations remain well anchored at 2%”. Looking ahead, Marriott believes investors should consider their portfolio positioning for the inevitable fading of the ‘reflation trade’ as the market comes to realise that the economic road ahead will be a challenging one. We continue to believe a portfolio of high-quality, diversified, multinational companies with robust balance sheets and track records of delivering increasing dividend streams will serve investors well. Companies of this nature tend to be less volatile and more resilient, making them more predictable and less likely to come under pressure in the months and years ahead, if growth and inflation do not live up to the elevated expectations currently being priced into the market. The table below highlights the performance of one of Marriott’s offshore offerings, The Marriott International Growth Portfolio: A low-cost, tax-efficient portfolio where investors are the beneficial owners of shares in some of the world’s best dividend-paying companies, such as Johnson & Johnson, Nestle and L’Oréal:

Investors can also invest in these companies with Marriott via: • Marriott’s offshore share portfolio (International Investment Portfolio) • Marriott’s international unit trusts (Using your annual individual offshore allowance of R11m) • Marriott’s local feeder funds, which invest directly into our international unit trust funds (Rand-denominated).

International Investment Portfolio Invest in high quality companies for more predictable investment outcomes.

Contact our Client Relationship Team on 0800 336 555 or visit www.marriott.co.za

30 June 2021

OFFSHORE INVESTMENT SUPPLEMENT

Offshore vs local? Both BY IZAK ODENDAAL Investment Analyst, Old Mutual Multi-Managers

ffshore equity markets have run really strongly recently, led by the US and its giant technology firms. As a result, there is no question that global investments are more expensive than South African shares, bonds and property at the moment. At the end of April, MSCI put the forward price earnings (PE) ratio for the world market at 18x, the highest since 2002, while SA equities traded at 10x. Similarly, the South African 10-year government bond yield is double the Reserve Bank’s 4.5% inflation target, while the US equivalent is still below the Federal Reserve’s 2% target. This implies positive expected real returns from SA bonds and negative real returns from US bonds. So why would anyone take their money offshore? The answer is risk management through diversification. If I told you that Russian equities traded on a 7x forward PE, bonds offer attractive real yields, fiscal and monetary policy is conservative, and the rising oil price bodes well for economic recovery, you might say, “Great, let’s put 2% or 3% of my portfolio in Russian assets.” You wouldn’t bet 70% of your wealth on a single country, no matter how good the story. Yet, that is what South Africans do. Home bias is common, even in countries where there are few or no restrictions like our own Regulation 28. People tend to invest in what they know – whether it’s the savings account of a local bank, or the shares of the brand

names they consume every day. But it’s a big world, and home bias can mean missing out on opportunities. For many South Africans, their biggest assets are probably a company pension fund and their home. Some own businesses. The more affluent might have a holiday property. That means they are overexposed to the domestic economy and its cycles. Therefore, there is a strong case to be made that a significant portion of discretionary money should be offshore, but of course the size of the allocation depends on individual circumstances.

“No single manager has all the answers and performance tends to be cyclical” This is not about ‘fleeing’ South Africa at all, or implying the country is falling apart. It is simply about prudently spreading risk and widening the opportunity set. Yes, global equities are more expensive in aggregate, but among the thousands of listed companies there are those who are cheap relative to their fundamental value or growth prospects. In contrast, a big part of why South African equities trade on low valuations is because of high commodity prices boosting prospective earnings. These prices might stay high, but they might not. If they decline, it is a risk to local investments. Apart from mining, the JSE is simply very concentrated, with a single underlying exposure (Tencent) accounting for 15% to 25% of the overall market depending on the benchmark. If we look at the FTSE/JSE All Share Index, 60% of its market cap is contributed by the top ten shares. For the MSCI All

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Country World Index, the largest ten of the 2 974 constituents only make up 15% of the total market cap. If you think about local fixed income, the bond market is dominated by the government and its state-owned enterprises (virtually all junk status) and the money market by the big four banks. The global fixed-income universe is massive, spilt roughly half-half between sovereign and corporate (and other private) borrowers, and across all imaginable regions, maturities, credit ratings and currencies. Local property is mostly offices and shopping malls, which are at risk from work-from-home and shop-from-home, along with a big exposure to Eastern Europe (oddly enough). Global property is an extremely diversified asset class, including sectors that barely feature on our market, such as data centres, various residential options, hospitals, laboratories and communications facilities. What about the rand? Shouldn’t we wait for a more attractive entry point? The same conditions that cause the rand to strengthen – rising risk appetite, global economic growth, and firmer commodity prices – usually also result in global investments rallying. Therefore, waiting for a stronger rand to take money offshore often also means buying into more expensive investments on the other side. So, it’s swings-androundabouts. Finally, how do you go about investing abroad? Just as diversification across local and global investments is advisable, we think that investors should diversify across fund managers, because no single manager has all the answers, and performance tends to be cyclical. The new Old Mutual Multi-Managers global range of funds offers multi-asset class and equity funds. Our work in putting these funds together greatly

“The secret is always to have a long-term mindset, focus on valuations, and diversify” simplifies the difficult job investors face when selecting managers from the thousands of global options across a range of countries and asset classes. The Old Mutual Multi-Managers Global Moderate Fund of Funds has a strategic asset allocation split roughly 50-50 between growth assets (property and equity) and fixed income. The Old Mutual Multi-Managers Global Growth Fund of Funds focuses on long-term growth to beat inflation but with a small fixedincome allocation to reduce volatility. The Old Mutual Multi-Managers Global Equity Fund of Funds is, as the name suggests, a pure equity fund. While these particular funds are a little over a year old, we have invested with most of these managers for many years since we use them in our local strategies and know them well. We follow the same approach in constructing these funds as we successfully did locally for almost two decades. The secret is always to have a longterm mindset, focus on valuations, and diversify, diversify, diversify. About Old Mutual Multi-Managers Old Mutual Multi-Managers is a specialist investment boutique, within the Old Mutual group, South Africa's largest and most established financial services company. We offer affordable investments that blend together the best of South African and offshore asset managers. The above content is for information purposes only and does not constitute financial advice in any way or form. It is important to consult a financial planner to receive financial advice before acting on any of the above information. For more information, visit: https://ommultimanagers.co.za/

PROUDLY SOUTH AFRICAN OR A GLOBAL CITIZEN? SMART INVESTORS ARE BOTH. Diversity is the key to a well-balanced portfolio and with our significant global experience, Old Mutual Wealth can offer the expertise you need to expand your clients’ portfolios offshore and reduce their risk. Take your clients’ wealth further with our wide range of expertly managed offshore solutions, built around their unique needs.

Stay connected to expert advice. www.oldmutual.co.za/wealth

DO GREAT THINGS EVERY DAY Old Mutual Wealth is brought to you through several authorised financial service providers in the Old Mutual Group who make up the elite service offering.

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30 June 2021

OFFSHORE INVESTMENT SUPPLEMENT

Inflation and the impact on financial markets NICO ELS Multi Asset Strategist, Ashburton Investments

CHANTAL MARX Head: Investment Research, FNB Wealth and Investments

nflation concerns have been on the rise and investors globally are seeing it as one of the biggest ‘tail risks’ for markets over the next few years. Financial markets generally do not perform well when there is a sudden shift in inflation expectations. For bonds, inflation may result in tighter monetary conditions, including rising interest rates and less liquidity in the market. In the case of higher interest rates, fixedincome instrument yields adjust upward, and prices move lower. This is because the interest payments from existing fixed-income assets become less competitive relative to newer, higher-rate fixed-income instruments. Less liquidity and bond-buying from central banks will also have a negative impact on bond prices. For equities, potential tighter monetary conditions will also drag on prices. Higher interest rates erode company profitability because debt becomes more expensive to service. Consumer-facing companies have the added burden of reduced share of wallet because consumers are spending more money servicing debt, which can weigh on sales. Higher inflation may also result in fixed costs increasing – employees may demand higher salaries and general costs will increase, which will have an impact on operating margins. All the above will weigh on company earnings and, therefore, valuations. As with bonds, less money in the system impacts on equity market volumes and demand for stocks, which could impact valuations. As a second-order consequence, higher bond yields have a negative impact on equity valuations because the value of future cash flows from companies reduce when bond yields increase.

“The Fed views the current expected increase in inflation to be transitory”

Of course, certain instruments benefit from higher interest rates, including variable rate cash instruments and interest-rate-linked instruments like preference shares. Certain sectors in the equity market also benefit from inflation, such as consumer staples with pricing power, banks (if yield curves steepen) and utilities. Inflation across the world The US has been of particular interest because forecasts suggest that the US will breach the Fed’s 2% target inflation level of inflation this year. And we have already seen inflation fears inducing bouts of volatility in bond and equity markets this year. Producer price inflation (PPI) numbers worldwide have been surprising to the upside as a result of higher commodity prices and supply chain bottlenecks. This could potentially reflect in the consumer price index (CPI) going forward. We are also starting to see some wage pressures building in the US, especially in the lower wage segments of the market. Although the above pressures should eventually be ‘transitory’, it might persist for a bit longer than anticipated. The Fed, however, has been consistently ‘dovish’. Its latest Federal Open Market Committee (FOMC) statement indicated that, even with strong economic growth numbers and higher inflation, it will need to see an improvement in broader measures of employment (labour force participation and wage growth) before considering a rate hike. The Fed views the current expected increase in inflation to be transitory. It also said that it will act on actual numbers instead of forecasted numbers. This means that it will be reactive in its approach rather than pre-emptive. The market, however, is pricing in four rate hikes to the end of 2023. The ultimate market reaction will be dictated by the Fed. If the Fed caves and tightens policy earlier than projected, the dollar will appreciate and risk assets could underperform. If the Fed is right, thereby suppressing US real rates, the opposite plays out – the dollar will weaken and risk assets should do well.

In emerging markets, headline inflation remains well below five-year averages. As is the case in developed markets, we expect a short-term pickup in inflation on base effects, oil and commodity prices, and economies reopening. For the medium term, there are still very large output gaps, with high unemployment, weak fiscal policy and globalisation placing downward pressure on inflation. In South Africa over the short term, headline inflation could breach 5% on the back of base effects, oil, and electricity prices. This should reverse before the year end. The output gap in South Africa is still large, which should dampen inflation to some extent. We therefore expect policy rates to remain lower for longer locally as well. Cyclical versus structural inflation Forecasts already reflect a spike in inflation, but we propose that this is more of a cyclical phenomenon as opposed to structural. There are some major structural factors that should keep inflation in check longer term: • Demographics: Lower birth rates and ageing populations are purported to be disinflationary. Aggregate demand declines since older populations tend to consume less, labour supply decreases, productivity levels decline and a sectoral shift in consumption patterns occur. We would anticipate these demographic changes to persist as more women enter employment. • Excess capacity: When actual economic output drops below its potential, it creates a negative output gap. Output gaps globally are still quite high and, while we expect this to narrow in the US this year, it is likely to remain a deflationary force elsewhere in the world. • Technology – digitisation and automation: Technology reduces the cost of producing goods and providing services. These savings can be passed on to consumers. If they are not passed on to consumers, it could lead to competition entering the market that will place pressure on end prices as well. The information explosion has also increased pricing power of consumers over producers. • High levels of debt: We live in highly leveraged, highduration economies and highly leveraged financial markets. Even small increases in long-term interest rates will be enough to cause a major economic slowdown and ease any potentially building inflation tensions. Conclusion While investors are right to be concerned over current inflationary pressures globally, we believe that this is likely cyclical and that monetary policy responses will reflect this. This is not to say that markets will not react to cyclical inflation fears from time to time. For now, however, it seems as if economic recovery will remain the priority for policymakers, both at central bank and central government level. Ashburton Investments and FNB are part of the FirstRand group.

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30 June 2021

ESG FEATURE

A closer look at the ‘S’ in ESG - especially when it comes to investing in China LARS HAGENBUCH Consultant, RisCura

he rapid growth of Asian stock markets has captured investors’ attention – but not without rising concerns about environmental, social and governance (ESG) factors, especially in China. Although China’s effort to tackle climate change, like lowering carbon emissions, is well recognised, concerns regarding human rights cast a shadow over the incredible growth opportunities. There is a belief that ESG and financial performance are integrally linked, and especially so in emerging markets. Several recent examples have cost investors dearly, including the Marikana massacre, which precipitated the end of mining conglomerate Lonmin; or furniture retailer Steinhoff International losing almost $10bn market cap when fraudulent accounting was exposed; or Chinese coffee chain Luckin’ Coffee collapsing shortly after listing on the NYSE when it was revealed a quarter of its sales were false. What about ‘social’? The ‘environmental’ and ‘governance’ subcategories within ESG are widely covered, but while most people have an intuitive understanding of what ‘social’ means, there is less guidance for investment professionals. The emphasis also differs by country or sector and is shaped by current affairs. For example, gender and ethnic diversity are currently topical in developed markets due to movements like the Black Lives Matter campaign, as are worries about how global Internet companies use our personal data. For investors in China, human rights are a concern. There is no clear worldwide standard for many ‘social’ issues. For example, attitudes to data privacy in Germany are very different from those in China, which is different again to the US. Some countries believe universal healthcare models are essential, others find the idea alien. Laws in one country prescribe child car seats, while in others there is no requirement. Product safety standards are not harmonised. ‘Social’ standards may therefore need to be adapted to a country and sector. In contrast, environmental factors are often fairly consistent. A closer look at China We suggest a distinction should be made between investing in a country and investing in companies. Investors may have little influence at the country level, but

great influence at the company level. We believe our clients have a duty to their beneficiaries, and ignoring the world’s fastest-growing economy because of controversies at the country level may come at a high opportunity cost. Rapidly developing countries like China also create jobs and products that improve local living conditions. However, if these producers are facilitating human rights abuse, this is unacceptable. Look at your T-shirt, or at your coffee. Who made these products? How? Even though incidents like the 2013 clothing factory collapse in Bangladesh exposed unacceptable working conditions, we are disappointingly still largely unaware of where many products come from and how they are made. But positive results can be achieved with engagement and co-ordination. Initiatives like the Fairtrade Coffee campaign show that we can achieve meaningful change through co-ordinated global efforts, particularly through consumer attitudes that consider other dimensions beyond price. The best solution is to engage and try to make a difference by investing in the right companies.

There are multiple examples where the Chinese state has shut down malpractices. Polluting steel mills, overcharging for generic drugs, promoting aggressive personal lending – all have been targeted and often changes came into effect at short notice and companies with unsustainable practices simply closed. In contrast, good operators in those sectors benefitted significantly from the resulting reduced competition. Chinese investment managers pay significant attention to unsustainable practices when researching companies as part of their ESG vetting process, as missing something could have a direct and material impact on financial return. As stakeholders demand greater focus on ESG, global companies are paying more attention to their supply chains. They can’t afford to use suppliers with poor ESG practices because when this is exposed, customers will leave. Losing customers is bad for business; therefore, an understanding of a company’s social record – including its supply chain – is essential when assessing its quality. But we need to respect that China is different and their way of life is different from ours. For example, as in many other Asian countries, the Chinese have a somewhat relaxed attitude to data privacy. China’s ability to deal with COVID-19 was largely due to the information authorities had on the whereabouts and status of citizens. The abundant data means China is ahead in artificial intelligence. For example, facial recognition technology is applied to curb jaywalking in major cities by publicly shaming the jaywalkers and sending them a warning message.

“China is a communist country that is run very differently from Western democracies”

Adapting the ‘S’ to China The average level of corporate governance in emerging markets like China is often poor; however, an active investor can select higher quality companies where ESG attitudes provide a competitive edge over those who are willing to take unsustainable shortcuts. China is a communist country that is run very differently from Western democracies. The state has a significant influence on society and the economy, and it can clamp down quickly and substantially on perceived malpractice. A clampdown could immediately overturn a company’s fortunes, including the possibility of a complete shutdown. In contrast, there are companies in the US or Europe who have had poor environmental and social records for many years – sometimes despite media and regulatory attention – and fraud also occurs in developed markets. The recent Wirecard scandal in Germany is a good example, where regulators sided with the company for a considerable time until evidence of the fraud became overwhelming.

Engagement is better than exclusion Fund managers who actively engage with their investee companies to improve ESG make a bigger difference to the world than those who exclude ‘poor ESG’ companies from their universe altogether. However, if a company is involved in a problematic industry or service (like creating facial recognition software to identify ethnic minorities), exclusion may be the only option. More often, though, the best result can be achieved through engaging with management and advocating for better working conditions or safer products, which eventually leads to better corporate performance as less ethical competitors are shunned by consumers.

The time is now for global ESG regulation

global regulatory framework for environmental, social and governance (ESG) investing is now urgently required. This is according to Nigel Green, the chief executive and founder of independent financial advisory and fintech organisation, deVere Group. This comes as major financial institutions are handling a massive uptick of inflows into the sector but, at the same time, facing accusations of inconsistency in their approach to sustainable impactful investments. “Environmental, social and governance investing is this decade’s ultimate investment megatrend – and it has been accelerated since the pandemic began,” Green says. “There’s been a dramatic increase of inflows into the sector from both retail and institutional investors as it has become clearer than ever that human health is reliant upon healthy ecosystems.” Green adds that the trend is unlikely to slow down in a postpandemic world. “Millennials, who are statistically more likely to seek responsible investment options, are set to become the major beneficiaries of the largest inter-generational transfer of wealth – an estimated $30tn over the next few years. In addition, recent research reveals that the majority of environmental, social and governance investments have outperformed their non-sustainable counterparts over the last year and have had lower volatility.” Given the continuing and increasing demand, Green says that the regulatory landscape must reflect the situation. “Regulators need to catch up. Initiatives that began in the EU are now spreading worldwide, but much more needs to be done, at a faster pace and with a joinedup approach. There remains a startling lack of consistency in definitions and data. Considering the momentum of the sector, the time is now for the establishment of a global regulatory framework for ESG investing.” This, he says, will provide greater protections for those investors who are looking for profits with purpose. It will also help to reduce ‘greenwashing’, which is where an investment or company gives an inaccurate impression of its green, socially responsible or corporate credentials.

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30 June 2021

ESG FEATURE

The role of investors in closing the ever-widening income inequality gap BY JON DUNCAN Head: Responsible Investment, Old Mutual Investment Group

ROBERT LEWENSON Head: Stewardship, Old Mutual Investment Group

lobally, within the public market context, resolving for equitable reward across shareholders, executives and labourers is an issue that has had different remedies, some with more success than others. In South Africa, the King CodeTM has long recognised the importance of remuneration in responsible corporate citizenship. However, it was only in the most recent version of the Code that the concept of fair and responsible executive remuneration, regarding overall employee remuneration, was introduced. The latest version of the Code also introduced the concept of

WASEEM THOKAN Head: Research, Peresec Prime Brokers

mandatory engagement and commitment to changing remuneration practices if more than 25% of shareholders voted against the company’s remuneration policy, its implementation report, or both. Notwithstanding the introduction of these recent positive steps, the key issue left unaddressed is that shareholders of SA listed companies still only have a nonbinding vote on all aspects of executive remuneration. For the 2020 proxy voting season, some 16 JSE-listed companies had more than a 25% vote against their remuneration policy, and a further 26 JSE-listed companies

IFC and Absa partner on Africa’s first certified green loan

frica’s first certified green loan, announced last month by the International Finance Corporation (IFC) to Absa Bank Ltd, will increase funding for biomass and other renewable energy projects in South Africa, supporting the country’s power sector and economic recovery from COVID-19. The IFC is a member of the World Bank Group. The IFC will provide Absa Bank Ltd with a loan of up to $150m to support the bank’s strategy to expand its climate finance business and help SA meet its greenhouse gas reduction targets.

had votes of more than 25% cast against their remuneration implementation reports. As investors express their views on renumeration more clearly, there will be growing demand for transparency on remuneration data. One important aspect of assessing ‘fair and responsible’ renumeration in the context of SA’s inequality challenge is the quantum of pay. Prime broker Peresec has found that CEOs of the JSE’s top 100 companies earned 56x the single-year cash remuneration of their average employees in 2014, and this grew to 103x in 2017 before subsequently moderating to 48x in 2020, with the negative impact of the pandemic on CEO short-term incentives. Some CEOs during the period earned as much as 1500x their average employees in single-year cash remuneration. In other words, for much of the last seven years, CEOs earned more in any single year than the average employees in their companies would have earned in their entire lifetimes – even before considering long-term incentives. As striking as these numbers are, calculating them required resorting to a relatively crude process of extracting disclosures around staff costs and headcount from company reporting. This type of imprecision in data for both the numerators and the denominator inhibits

The loan is the first certified loan in Africa that complies with the Green Loan Principles. This means that lending by Absa for green projects will be disclosed, improving transparency, and encouraging other banks to follow the principles. In addition to the loan, the IFC will provide technical advice and knowledge-sharing to help the bank develop a green, social and sustainable bonds and loans framework. “Africa’s green transition requires considerable mobilisation of funds,” says Jason Quinn, Absa Interim Group Chief Executive. “The agreement with IFC bolsters our funding available for green projects and strengthens Absa’s position as a leader in financing renewable projects in SA,” he adds. Absa is the leader in arranging financing for SA’s Renewable Independent Power Producer Program, having structured and arranged financing for approximately 46% of projects concluded under the program to date. Adamou Labara, the IFC’s Country Manager for SA, explains that financial institutions and the private sector have an important role to play in helping the country to rebuild greener and more sustainably from the impact of COVID-19. “By increasing funding for renewable energy and climate-smart projects, we can help SA strengthen its climate change resilience and increase climate change adaptation,” he adds.

“SA has set the goal of reducing its greenhouse gas emissions by 42% by 2025” 24 www.moneymarketing.co.za

the ability of investors to make a clear assessment of ‘fairness’ of pay. Addressing this could potentially be achieved by mandating specific disclosures of inequality data. Most critically, disclosure of single-figure total remuneration data of executives (and anonymised disclosure for the highest paid employee should they not be a group executive) could be mandatory for all public companies. Secondly, disclosure could also be made of the total remuneration of the lowest paid permanent employee, as well as the lowest paid temporary employee. Thirdly, disclosure of the remuneration multiple between the top and bottom decile of earners could provide visibility of internal wage gaps. All this data exists within companies and is certainly relevant to both society and investors. The inevitable introduction of ‘say on pay’ legislation should come as no surprise to executives of JSE-listed companies, especially given the very real income inequalities that exist in SA. The provision of regulation to facilitate greater shareholders’ ‘say on pay’ would be an important step in closing the accountability loop between beneficiaries, asset owners, investors and the market, and it enables us to further deliver on our commitment to responsible investment practices. However, the exact nature of any ‘say on pay’ legislation should be coupled with an equally vigorous debate on regulation and policy related to job creation.

Jason Quinn, Absa Interim Group Chief Executive

SA has set the goals of reducing its greenhouse gas emissions by 42% by 2025 and its reliance on coal by 2050. Today, 90% of the country’s electricity is generated by coal-fired plants. The IFC estimates that there is a $588bn investment opportunity in climate mitigation across selected sectors in SA between now and 2030. The project with Absa is in line with a climate initiative the IFC launched in January 2020 to help financial institutions in SA, Egypt, Mexico and the Philippines to mobilise private sector financing for climate mitigation and adaptation projects, and help align financial-sector strategies with Paris Climate Agreement targets. In SA, financial institutions are critical sources of climate finance, with commercial banks currently providing 67% of the financing for renewable energy projects. This is the IFC’s fourth investment dedicated to green finance in SA’s financial sector.

GOOD GOVERNANCE BEGINS IN THE BOARDROOM.

With so many companies severely affected by Covid-19, we’ve all seen how vital it is that good governance is driven by strong leadership. That’s why Old Mutual Investment Group is always clear about what we expect from the companies we invest in. It’s how we encourage greater industry collaboration around key environmental, social and governance (ESG) factors like transformation, ethical leadership and green growth. And it’s an approach that helps us lead the way in responsible investing, delivering sustainable, long-term returns to our clients and making a positive impact along the way.

Investing for a future that matters. Visit oldmutualinvest.com/institutional to find out more.

INVESTMENT GROUP DO GREAT THINGS EVERY DAY Old Mutual Investment Group (Pty) Ltd (Reg No 1993/003023/07) is a licensed financial services provider, FSP 604, approved by the Financial Sector Conduct Authority (www.fsca.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group (Pty) Ltd is wholly owned by Old Mutual Investment Group Holdings (Pty) Ltd.

30 June 2021

ESG FEATURE

Investing in a future that matters In this article, we explore how the average person on the street can be an ‘Investor Activist’ when it comes to how and where they invest their savings. vote – shareholder activism in that case could take the form of attending the AGM and being vocal about contentious matters – and asking the ‘hard’ questions around the company’s corporate practices, particularly if the investor identifies practices that they believe to be unsustainable, harmful or against the principals of good corporate governance. If these efforts prove unsuccessful, the only remaining form of shareholder activism in some cases may be to ‘vote with your feet’ by choosing to divest in the face of pervasive issues that are not adequately addressed by the company.

BY MELISSA MOORE Investment Analyst, Futuregrowth Asset Management

ost of us get taught that to be financially responsible we must set aside some of our income each month, foregoing short-term gratification, to invest for our future. At Futuregrowth, we encourage investors to take this a step further. When you are investing in your future, consider the impact of your investments on the future of the world around you. In the same way you might support or boycott brands or companies based on what you’ve seen in the media or what you know about their corporate behaviour, you should be conscious about which companies you support with your investments. If you’re investing directly in the stock market, you can choose not to invest in a company that you know treats its employees unfairly or is a huge emitter of greenhouse gases, for example. The challenge, however, is that many people do not invest directly in the market. Their savings might be invested in unit trusts or a pension fund, which is managed on their behalf by an asset manager. As an asset manager, we are the custodian of large amounts of capital that we invest on behalf of our clients. Our clients may, for example, be pension fund investors or retail investors who have entrusted us with their savings. Given that we are entrusted with this responsibility, we have a fiduciary duty to deploy that capital to sustainable investments that will yield positive financial returns, but also to entities that are responsible corporate citizens. We essentially hold the key to keeping our clients’ investments accountable for maintaining high environmental, social and governance standards. As investors become increasingly focused on the impacts of environmental and social issues, we’re seeing new terms flooding the sector: ESG Integration, Socially Responsible Investing (SRI), Impact Investing, and Investor Activism. You may be wondering what distinguishes these terms from one another. Simply put: • ESG Integration is concerned with understanding and measuring the non-financial Environmental, Social and Governance (ESG) risks that a company faces as part of the investor’s overall investment screening and analysis process.

“Bondholder activism is a lot less commonly understood than shareholder activism” • Socially Responsible Investing refers to the practice of integrating ESG into the investment process and avoiding investing in companies that we deem to have negative social or environmental exposures. • Impact Investing talks to investing with the intention of generating positive and measurable social and/ or environmental impact alongside a financial return. A key feature of Impact Investing is the intentionality – to solve a specific problem or achieve a specific positive social and/or environmental outcome. This outcome must also be measurable – for example, to generate a certain amount of green energy per year through an investment in a renewable energy plant. • Investor Activism, on the other hand, talks to how investors use their position as shareholders or debt funders of a company to effect positive change in corporate behaviours or in the capital markets as a whole. More about Investor Activism Investor Activism refers to the actions taken by investors to engage with their investee companies on both financial and non-financial matters. They do this through public campaigns, attending company Annual General Meetings (AGMs), being vocal and voting on key matters, and presenting shareholder

26 www.moneymarketing.co.za

resolutions to deal with important ESG issues. In doing so, investors can encourage corporates to think beyond mere shortterm profits, and also to consider their long-term sustainability and overall impact on society. Investor Activism can take different forms, depending on the type of investment instrument. Shareholder activism Equity investors buy shares in a company and, in doing so, become part owners of the company. This means that they benefit financially when the company does well, through dividends and capital appreciation in the value of the shares. But it also means that as part owners of the business, they are partly responsible for ensuring that the company is a good corporate citizen in terms of how the company is governed, how it treats its staff, how it impacts the society within which it operates, and what its environmental footprint is. This is something that shareholders are increasingly realising, and are using their power to demand greater accountability and transparency from companies. One form of shareholder activism is simply exercising the right to vote on important matters. But, as a minority shareholder, one may not be able to materially influence the outcome of the

Bondholder activism Bondholder activism is a lot less commonly understood than shareholder activism. Bondholders provide debt funding to companies (or governments). They do not have an ownership stake in the investee companies, and as such cannot necessarily vote on matters relating to how the company is run. As the providers of large amounts of debt capital needed to fund the operations or growth of these entities, bondholders are nonetheless able to effect change in the borrowers’ behaviour in the following ways: 1. Firstly, they can vote with their feet, by walking away from bonds of companies or entities that they have pervasive issues with. 2. Negotiating for specific protections in their loan agreements that require the borrower to uphold certain standards of governance, that demand transparency on important matters or that outright prohibit certain actions. A simple example of this would be requiring a State-owned Entity to adopt a Conflicts of Interest policy to prevent the risk of tenders going to the directors’ friends or family. 3. Bondholders, much like shareholders, can also hold their investee companies accountable through direct engagement with management or by being vocal in the public domain on matters they believe require attention.

“As an asset manager, we are the custodian of large amounts of capital that we invest on behalf of our clients”

30 June 2021

ESG FEATURE

“We have a fiduciary duty to deploy that capital to sustainable investments that will yield positive financial returns” Investor activism can also include the way that investors engage with market regulators and other capital markets participants (such as the stock exchange) to promote safer, more transparent capital markets for investors. An example of this would be a South African investor pushing for more stringent requirements that companies must satisfy to be allowed to list their shares or bonds on the JSE. In this way we, as Futuregrowth, have exercised bondholder activism through our constant engagement around strengthening the JSE debt listing requirements. What can you do as a retail investor/ person on the street? Firstly, as a consumer, you can consider the environmental, social and governance practices of the brands or companies that you support. Read up and ensure that

you are informed, so that you can support brands with good corporate practices and boycott brands with known issues. Secondly, consider who you are supporting with your investments. If you are investing directly in the stock market, do so responsibly. If you have a pension fund or have money invested with an asset manager, you can take the following steps to ensure your money is invested responsibly on your behalf.

Review the mandates of the funds you are considering investing in (or are already invested in) • The mandate of a fund sets out the aim of the fund and the parameters within which it is supposed to invest. There are several ethical ESG or Responsible Investing unit trusts catering for short-, medium- and long-term goals. • If you find that the mandate of your current investments doesn’t sufficiently

detail the asset manager’s commitment to responsible investing or ESG integration, challenge this (or move your money).

Challenge the trustee of your workplace pension or provident fund on the steps they are taking to invest more responsibly • Ask them how they’re selecting asset managers or holding asset managers accountable for ensuring ESG integration in their investment processes. No matter how removed people may feel from their investments, as a client you have the power to challenge your asset manager and/or the trustee of your pension fund on how they are using your funds – and holding them accountable as the custodians of your wealth and your future.

“As a consumer, you can consider the environmental, social and governance practices of the brands or companies that you support”

Futuregrowth manages various fixed income funds on behalf of Old Mutual Unit Trusts. Published on www.futuregrowth.co.za/newsroom.

www.moneymarketing.co.za 27

30 June 2021

RISK

Insurers can bridge the relationship gap by focusing on digital customer communication

raditional insurers have never faced as much competition for their customers’ attention as they do now. A whole litany of tech-centric start-ups are coming for their lunch and they’re doing so by making life much simpler for customers. In order to remain competitive, therefore, insurers need to focus on building stronger relationships with customers. And the best way to do that is through digital customer communication. Doing so might mean breaking longheld ways of doing things. After all, insurers traditionally only contact their customers when they purchase or renew a policy, or when they make a claim. Even then, the actual point of contact might be an agent or broker, rather than the insurer itself. While that may once have sufficed, consumers have become used to the levels of engagement they get from other companies. As a result, they’ll quickly notice when a company doesn’t meet their expectations. In a digital world where everyone is online all the time, they’ll also be aware of the experiences offered by industry upstarts. With little to no control over customer touchpoints and the associated communications, insurers find themselves in the dangerous position of having a weak relationship with their policyholders. The relationship gap In fact, there is a distinct gap between what insurers can offer their customers and what customers expect. According to a recent Salesforce report, “there is misalignment in priorities between insurance buyers and insurers”. For instance, “knowledgeable salespeople” is the #1 requirement of the customer experience that policyholders want, yet it appears relatively low on the insurer’s priority list. The report also points out that mobile apps are considered a top priority for insurers, but are relatively low down on the customer’s list of priorities. That gap can only come from not understanding customer wants and needs. The end result is that customers don’t get the experiences they’re looking for. Building direct relationships Customer communication via digital channels is key to building those experiences. Good customer experience is, after all, based on building positive relationships – and you can’t do that in silence. The trouble for traditional insurers is that there have been relatively few opportunities to engage with their customers. In many instances, the only guaranteed interaction between an insurance provider and a policyholder is the bill or annual policy renewal. When these touchpoints are managed by the broker or via self-service on a

portal, the insurer is left with little to no opportunities to connect and engage with the customer. That does not mean, however, that insurers can’t interact with customers outside of these instances. In fact, they should. Insurers sit on vast amounts of data, which they can use to anticipate life events and send out communications that are timely, personalised and relevant to each individual customer. The heart of digital CX Ultimately, this underlines just how important customer communication is to creating great customer experiences. Knowing that’s key is, of course, very different to being able to build those experiences. Fortunately, there are some simple steps insurers can take when it comes to using customer communication to create great digital customer experiences. These include: • Digitise the customer communication experience by offering customers the option to receive bills, policies and other communication by email or online • Track customer behaviour to improve the relevance of customer communication and create personalised communications that drive customer engagement, loyalty and, ultimately, customer experience • Insert custom offers into transactional messaging. Customers appreciate relevant marketing information that is personalised according to their interests and life stage. These steps should form part of a defined customer communication management strategy that includes both the customer and the broker/agent that holds the relationship. This strategy should focus on removing any friction in the communication experience and on adding value to both broker and policyholder. Transform now and thrive Digital technologies are transforming insurance just as quickly as any other industry. Traditional insurers that don’t recognise this, risk falling behind and losing customers. Those that do, however, can build great, relationshipbased experiences for their customers, maintaining loyalty, and helping grow the customer base even further.

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Ross Sibbald, Commercial Director, Striata (Africa)

From left to right: Sean Hanlon (Executive Director), Schalk Malan (CEO) and Suzanne Stevens (Deputy CEO)

Celebrating 10 YEARS of #LoveChange

BY BRIGHTROCK

hen we started our change-loving company a decade ago, it was in the aftermath of the 2008 recession – a crisis that called into question the invulnerability of financial institutions. The global corporations tasked with protecting people’s money had failed to do so. It was also a time when new technologies enabled people to take control of their lives. BrightRock saw an inherent opportunity to use technology and people’s desire for control to be the architect of their needs-matched money products – thus helping them navigate change in their own lives. We’re proud to say that, thanks to your support, we have been able to do just that. Here are just 10 of the many memorable milestones we’ve reached over the past 10 years. 1. Launching the world’s first-ever needs-matched life insurance in 2012 – After starting the business in 2011, in April 2012, BrightRock launched its needs-matched life insurance product to independent financial advisers. Schalk Malan received the Cover Excellence Award for product innovation in 2013 as the main architect of BrightRock’s needs-matched product design. BrightRock has since featured at industry conferences in Germany, Australia, Singapore and the USA. 2. Helping people navigate change in their lives – In February 2014, we launched The Change Exchange, a digital platform that drives consumers’ most important financial decisions. Consumers can use it to share their thoughts and get information and support as they navigate through life’s major ‘change moments’: starting a family, tying the knot, making a home, and landing a job. 3. Diversifying our product offering into funeral parlours – In 2015, we expanded our offering by providing funeral parlours with a comprehensive solution for their insurance needs. 4. Exceeding the R100bn cover mark – BrightRock’s cover in force exceeded the R100bn mark in late 2015. This came at a time when the South African insurance industry had remained stagnant, while BrightRock was seeing an 89% increase in year-on-year gross premiums billed. 5. Playing the bounce – In 2016, BrightRock announced its sponsorship of the DHL Stormers and DHL Western Province. December 2017 marked the inaugural BrightRock Players Choice Awards – the only South African rugby awards for professional rugby players by professional rugby players. And in 2021, we announced our associate sponsorship of the Vodacom Bulls. 6. Expanding horizons with Sanlam – In September 2017, Sanlam acquired a 53% stake in BrightRock, which provided a stronger platform for growth and expansion. 7. Changing the group risk market – In May 2018, BrightRock introduced a group risk product that provides schemes with up to 40% more cover for the same premium. 8. Paying out R1bn in claims – In July 2019, BrightRock announced that it had reached the R1bn mark in claims paid, covering more than two million lives. This number has since increased to R2,4bn. 9. Enhancing temporary expenses cover – In October 2019, BrightRock added some enhancements to its temporary expenses cover products. These included the addition of new conditions to its list of clinical conditions, increased claims certainty for clients in specific occupations, and claim-stage choice between a lump-sum or a recurring pay-out – a market first. 10. Claiming 14.3% market share during COVID-19 – BrightRock’s new business market share increased to 14.3% in 2020 from 10.8% in 2019 – whereas the market declined by 16.5% on average. Now covering more than 2.8 million lives and more than 5 000 contracted independent financial advisers and more than R350bn total cover in force, BrightRock has grown into a financial services institution of scale over the past decade through our needs-matched approach to insurance. With your support, BrightRock is poised to continue growing and innovating, to find better ways to meet clients’ financial needs throughout their lives, and to change our industry. We’re excited about what the next ten years will bring.

30 June 2021

DREAD DISEASE & DISABILITY INSURANCE FEATURE

Why lump sum cover is inadequate when fighting cancer BY STEVE PIPER Chief Distribution Officer, FMI (a Division of Bidvest Life Ltd)

hen we first developed our critical illness product back in 2016, we set out to truly understand the underlying issues people had to deal with when faced with a critical illness such as cancer. We talked to many fighters and survivors who had experienced cancer first-hand and we established that a key dilemma for cancer patients is whether to continue working or not post diagnosis. This is also true for many other critical illness claimants. However, no two individuals are the same – many find returning to work a welcome distraction, while others find being able to stop working altogether helps enormously to eliminate stress and increase overall wellbeing. With the intermittent nature of radiation or chemotherapy treatment, there is often a financial impact created due to reduced working hours and time off required

for treatment and recovery, post each treatment session. Either way, both scenarios have financial repercussions that can add to the burden at an already challenging time. Countless patients also discussed with us the importance of embracing healthier habits, such as organic diets or attending yoga classes. For many, the emotional support found in counselling offers real relief, not only for themselves but for the whole family. Unfortunately, this all comes at an additional cost.

“We believe optimal cover is a combination of income and lump sum benefits” The spouse also often endures additional strain when picking up all of the family’s day-to-day responsibilities such as

family meals, school runs, lunchboxes and grocery shopping, all while meeting the daily demands of work and additional time off required to take their ailing spouse to doctors’ appointments and treatments. It’s with all this in mind that we developed our unique Critical Illness (CI) Income solution. By providing a monthly income, FMI’s CI Income benefit ensures your clients will receive 130% of their temporary income protection cover for 12 months1, even if they continue to work. To offer further support for the family, CI Assist2 provides services to the value of R50 000 for counselling, transport and childcare. For expert medical guidance, policyholders also have access to our Medical Second Opinion3 service where they can receive an independent review of their diagnosis and treatment plan from a selection of the world’s leading medical centres. This offers them the peace of mind that they’re receiving the best possible treatment. While there are many advantages to opting for lump sum cover to pay for

once-off additional costs, this benefit falls short in addressing the lifestyle-related costs and daily reality of those fighting a critical illness. That’s why we believe optimal cover is a combination of income and lump sum benefits. When it comes to protecting your clients against the risk of a critical illness, the single most important thing you can do is to ensure they have a policy such as CI Income in place. This allows both you and your clients the peace of mind that financial and emotional support is in place when it’s needed most. Less the selected waiting period CI Assist is an automatically included benefit, at no additional cost, for all Critical Illness policyholders 3 Medical Second Opinion is automatically available to all FMI Individual policyholders, at no additional cost 1

My income impacts my family, my parents, and my employees and their families. – Siphiwe Nyanda

CMY

Insure your clients’ income against injury, illness and death. For 25 years, hardworking South Africans have trusted FMI to replace their monthly income when they've been unable to earn due to injury, illness and death. Today, we cover more occupations than any other insurer.

Client Care : 086 010 1119 FMI is a Division of Bidvest Life Ltd, a licensed Life Insurance Company and authorised Financial Services Provider FSP 47801 | The testimonial for Siphiwe Nyanda does not constitute as financial advice.

A division of

www.moneymarketing.co.za 29

DREAD DISEASE & DISABILITY INSURANCE FEATURE

Think of it as life cover for your clients’ income. Income protection covers a key element of your clients’ success – earning power. Momentum’s innovative income protection covers it better than any other – by being flexible enough to meet their unique, changing needs.

By adding our Permanent Disability Enhancer, clients can choose between a monthly income, lump sum payout or a combination of both when they have a qualifying claim. If they choose a monthly payout, but pass away before the end of the benefit term, the remaining payouts will be paid to their beneficiaries. So bring your clients the most comprehensive, flexible income cover available. To find out more, go to momentum.co.za Here for your journey to success

Terms and conditions apply. Momentum is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider. Reg. No. 1904/002186/06. BRAVE/6620/MOM/E

30 www.moneymarketing.co.za

30 June 2021

Future-proof your clients’ benefits BY GEORGE KOLBE Head: Marketing, Life Insurance, Momentum

s the COVID-19 virus continues to turn our lives upside-down, people are in desperate need of certainty, especially when it comes to their long-term physical and financial wellbeing. Therefore, critical illness and disability cover have arguably never been more relevant than now. It’s not one or the other, but both Critical illness and disability benefits are designed to cover different risk events during a client’s lifetime, and in most instances a combination of both benefits is most appropriate. One type of benefit might, however, feature more prominently than the other, depending on the claim event and when in a client’s life it happens. Critical illness cover is typically relevant for whole of life Critical illness cover is designed to assist with the costs incurred as a result of suffering a critical illness event, like a heart attack or cancer. It will generally pay out earlier and in more instances, based on the clearly defined definitions of this type of benefit, and explains why it is more expensive than disability cover. A client would typically require a lower amount of critical illness cover than disability cover, especially if they also have a medical aid that would cover many of the expenses associated with a critical illness. However, based on the costs associated with suffering many of the more severe critical illnesses, like cancer, and acknowledging that some restrictions exist in medical schemes, our view is that one should provide for at least R1m of critical illness cover, and more if possible. With longevity being a reality of life, even for clients who live with a critical illness, this cover can play a vital role to improve the quality of your clients’ lifespan – especially considering the phenomenal medical advances that are in play. Disability cover is typically only relevant during one’s working life In contrast to critical illness cover, disability cover is only relevant during a client’s working life and is designed to protect against a loss of income from one’s occupation as a result of becoming disabled through illness or injury. Disability cover typically falls away at retirement, after which impairment cover becomes much more relevant. The best type of disability benefits are those that are also underpinned by impairment cover and allow for a conversion to impairment cover at the disability benefit expiry date. All Momentum Myriad income protection and lump sum disability benefits are automatically underpinned by impairment cover.

A seamless approach to benefit integration The topic is much debated with many opposing views, but an income protection benefit is typically more affordable and more appropriate than a lump sum disability benefit. A regular income is often the primary source from which regular expenses are funded, such as utility bills (municipal bills), school fees, medical aid contributions, etc. An income disability benefit is typically the most efficient way to protect your client’s income, but admittedly, there is often a need for some measure of lump sum cover as well. If a client requires the certainty of long-term monthly payouts that an income protection benefit will provide, but might also require access to a lump sum payout at a specific point, or at different points in time, they will benefit from a new generation income protection benefit such as Myriad’s Complete Income Protector benefit, combined with their Permanent Disability Enhancer benefit. The best of both This combination of the Complete Income Protector benefit and the Permanent Disability Enhancer benefit represents the best features of both an income protection and a lump sum disability benefit. It will provide a regular income on temporary or permanent disability, but provide the flexibility to commute a part or all of their future monthly income protection payouts to a lump sum payout whenever they choose to, after a permanent disability claim was approved. A unique advantage of this combination of benefits is that, if a client selects the regular income after a permanent disability claim has been approved and subsequently passes away, the remaining income disability payouts they qualify for, up to the selected benefit expiry date, will be commuted to a lump sum and paid to their nominated beneficiaries or their estate. Conclusion Our innovative and client-centric approach to provide financial protection for your clients means they are covered for almost every possible life-changing event with our extensive range of critical illness and disability benefits. Whether it is a critical illness, a temporary or permanent disability or impairment, planning and ensuring that your clients have access to the most complete range of needs-based risk cover benefits should be top of mind.

EDITOR’S

30 June 2021

BOOKS ETCETERA

BOOKSHELF

Liftoff Elon Musk and the Desperate Early Days That Launched SpaceX By Eric Berger SpaceX – founded in 2002 by Elon Musk – has enjoyed a miraculous decade. Less than 20 years after its founding, it boasts the largest constellation of commercial satellites in orbit, has pioneered reusable rockets, and in 2020 became the first private company to launch human beings into orbit. Half a century after the space race, SpaceX is pushing forward into the cosmos, laying the foundation for man’s exploration of other worlds. But before it became one of the most powerful players in the aerospace industry, SpaceX was a fledgling start-up, scrambling to develop a single workable rocket before the money ran dry. In Liftoff, Eric Berger takes readers inside the wild early days that made SpaceX. Focusing on the company’s first four launches of the Falcon 1 rocket, he charts the bumpy journey from scrappy underdog to aerospace pioneer, drawing upon exclusive interviews with dozens of former and current engineers, designers, mechanics and executives, including Elon Musk. Gunship Ace The Wars of Neall Ellis, Gunship Pilot and Mercenary By Al J Venter A former South African Air Force pilot who received a Honoris Crux during the Border War and later became a private military contractor, Neall Ellis is one of South Africa’s best-known combat aviators. He participated in several major Border War operations, including Operation Protea, Super and Meebos. Apart from flying Alouette helicopter gunships in Angola, he has fought in the Balkan War (for Islamic forces) and tried to resuscitate Mobutu Sese Seko’s ailing air force during his final days ruling the Congo. In war-torn Sierra Leone, Ellis played a major role in the late 1990s and early 2000s in the fight against the rebel forces of Foday Sankoh. Twice he single-handedly turned the enemy back from the gates of Freetown, effectively preventing the rebels from overrunning the capital. Ellis was also the first private military contractor to work hand-in-glove with British ground and air assets in a modern guerrilla war and used his helicopter numerous times to fly elite Special Air Service (SAS) personnel on low-level reconnaissance missions into the interior of the diamond-rich country, for the simple reason that no other pilot knew the country – and the enemy – better than he did. Later in Afghanistan, Ellis flew helicopter support missions for three years where he had more close shaves than in his entire previous four decades put together. WFH (Working From Home) How to build a career you love when you’re not in the office By Harriet Minter

Uncaptured The true account of the Nenegate/Trillian whistleblower By Mosilo Mothepu When Mosilo Mothepu was appointed CEO of Trillian Financial Advisory, a subsidiary of Gupta-linked Trillian Capital Partners, in March 2016, the prospect of being at the helm of a black-owned financial consultancy was electrifying for a black woman whose twin passions were transformation and empowering women. Three months later, suffering from depression and insomnia, she resigned with no other job lined up. In October 2016, a written statement handed to Public Protector Thuli Madonsela detailing Trillian’s involvement in state capture was leaked to the media. Key to the disclosures were the removals of finance ministers Nhlanhla Nene and Pravin Gordhan from their posts due to the Guptas’ influence. Although she was not identified by name as the source of the affidavit, details of the revelations published in the media left no doubt in the minds of Trillian’s executives: Mothepu was the Nenegate whistleblower. Despite fearing legal consequences, Mothepu had decided that she could not just stand by as the country burned. Her disclosures resulted in the freezing of Trillian-associated company Regiments Capital’s assets and a High Court order for Trillian to pay back almost R600m to Eskom. Facing criminal charges and bankruptcy, unemployed and deemed a political risk, Mothepu experienced first-hand the loneliness of whistleblowing. The effect on her mental and physical health was devastating. Now, in Uncaptured, she recounts this troubling yet seminal chapter in her life with honesty, humility and wry humour.

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This is the ultimate guide to getting your work and life on track in the new flexible workplace. How do we adjust, thrive and excel in an environment where glitchy daily video conferences are the norm? By turns fierce, funny and highly practical, Harriet Minter shows readers how to boost their careers and improve their lives while WFH. Readers learn how to really shine onscreen, be an inspiring and energising manager, and have their true brilliance recognised – all the while building a career that is not just successful but will bring long-term happiness. With hard-won strategies, tips and techniques, the author draws on her experience as a career coach and consultant to FTSE 100 companies to help readers bring their best selves to work from their living rooms.

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MoneyMarketing June 2021

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Why lump sum cover is inadequate when fighting cancer

Investing in a future that matters

Inflation and the impact on financial markets

Offshore vs local? Both

The best time to invest globally

Does an emissions scandal await the real estate sector?

Are we in a commodities super-cycle?

Laurium Capital launches Africa USD Bond Fund

PSG celebrates unity, top advisers and offices

Iress provides simple, easy-to-use software for financial advisers