MoneyMarketing March 2022

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WHAT’S INSIDE YOUR MARCH ISSUE BUDGET 2022 HIGHLIGHTS Finance Minister Enoch Godongwana delivered his maiden budget that not only contained several confidence-building features but some commitment to fiscal consolidation too Page 7

THE 2022 RAGING BULL AWARDS WINNERS Recipients of the 26th annual Raging Bull Awards let us in on their winning fund and investment strategies Page 9

THE GROWTH OF SHARI’AH INVESTING During 2020/1, Shari’ah funds saw substantial growth, peaking at $130bn in June 2021, ending the year at $120bn Page 22

OFFSHORE SUPPLEMENT MoneyMarketing’s guide to investing offshore amid volatility and uncertainty Page 25

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31 March 2022

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First for the professional personal financial adviser

Shari’ah investing finding a foothold in South Africa TIMOTHY RANGONGO Editor: MoneyMarketing

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he Muslim community represents nearly a quarter of the world’s population, yet a handful of global financial assets are Shari’ah-compliant. Despite that, a growing number of asset managers and banks are increasingly catering to this sector, with actual and planned launches of Shari’ah-compliant investment products. Not only is the investor base large and growing, but the types of assets investors are attracted to are also expanding.

Shari’ah investing vs conventional investing The key differences between Shari’ah and conventional investing relate to the screening methodology of investments, effectively resulting in enhanced due diligence to screen out non-compliant investments, explains Abdul Davids, head of research for Camissa Asset Management (formerly Kagiso Asset Management). He says the second key difference relates to responsible ownership through identifying and quantifying potential non-permissible income and donating that to charity.

Shari’ah is an Islamic principle that guides many aspects of a Muslim’s life, including the type of investments allowed.

Islam promotes the protection of religion, life, intellect, lineage and wealth, which guides investments towards accountable business activities that are socially responsible. Islamic finance encourages the sharing of risks and rewards, with Shari’ah-compliant products

and transactions adhering to several widely accepted practices, says Hamzah Latha, investment analyst, 27four Investment Managers.

He explains that one of the key differences between Shari’ah investing and conventional investing is that Shari’ah investments are bound by religious principles, which prohibit trading in certain sectors that are impermissible (Haraam), the use of interest (Riba) in all forms, and transactions should be free from speculation or unreasonable uncertainty (Gharar). There are alternatives within Shari’ah investments compared to conventional investments, such as: Conventional investing

Shari’ah investing

Interest

Profit and loss sharing

Prohibited (Haraam) sectors

Permissible (Halaal) sectors

Bonds

Islamic financial certificates (Sukuk)

Fixed-term deposits or loans

Equity (Mudarabah) or asset (Murabahah) based financing

Shari’ah investing’s growth in South Africa The Shari’ah market in South Africa is only about 25 years old, with the bulk of the growth occurring in the last 10 years, according to Davids, who manages four Shari’ah-compliant retail unit trust funds, as well as institutional clients’ funds.

Hamzah Latha Investment Analyst, 27four Investment Managers While platforms to access Shari’ah products have increased, the market is still in its infancy compared to the conventional market.

Notwithstanding, the market seems to be mature. It has got steady growth with regular savings growth in South Africa, according to Nadeem Hoosen, portfolio manager in the STANLIB Multi-Manager team. Shari’ah investing is now well known and many investors looking for Shari’ah-based products can obtain them easily, he adds.

Shari’ah investing and the principles of Islamic finance have become a norm in the day-to-day offerings to clients across the globe.

In the South African context, with a Muslim population of approximately 3% of the total population, some of the largest asset managers have introduced Shari’ah-compliant solutions as part of their product offering, says Latha.

He says products are constantly being developed, with much room to grow, “with more proficiency in Islamic financial knowledge, new products are being incorporated within the South African market”.

Continued on page 3

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NEWS & OPINION Continued from page 1 Shari’ah investing and ESG Up to this point, we have established that compliance with Shari’ah or Islamic law and the principles of Islam rests on certain moral factors. ESG investing and Islamic investments may thus be united in one investment opportunity, given that they are both guided by principles of morality, transparency and fairness.

Another key driver for the growing demand in Shari’ah investing, according to Latha, is the shared principles of ESG focused investing. “Islamic finance and impact investing have areas of overlap, such as doing good and avoiding harm, investment restrictions, and a general emphasis on ethics underpinning investment decisions.

The rising demand for investments that strongly consider the broader social and environmental impact has created an appetite for Islamic finance.”

While growing interest in Shari’ah investing was witnessed in the early part of the 2000s as new products were launched, Hoosen says that, at present, the interest/demand is in line with conventional investing.

Asked if this is also across a new generation of investors, who are the predominant proponents of ESG investing, Davids says they have seen a greater awareness of Shari’ah investing in tandem with the broader interest in ethical/ESG type funds from millennials.

• Asset-based financing products (Murabahah and Ijarah) • Shari’ah-compliant bonds – Islamic financial certificates (Sukuk) • Shari’ah-compliant insurance products (Takkaful).

He says Shari’ah investments have proven viable and competitive compared to conventional investments. They follow similar objectives and guidelines, albeit limited with certain Shari’ah restrictions.

How Shari’ah-compliant investments weathered Covid-19 Camissa Asset Management saw strong outperformance of their Shari’ah funds versus conventional peers during the Covid-19 market turmoil over the last two years, while STANLIB says Shari’ah investment products suffered the same fate as the conventional products. However, some of the fixedincome products fared better during market volatility due to the nature of these being more stable, says Hoosen.

“The tenets of Shari’ah-compliant investing includes limitations on the quantum of interest-bearing debt that companies may be exposed to. As a result, the onset of Covid-19 would have meant that businesses with less debt were likely to have weathered the mayhem caused

by Covid-19,” explains Latha.

While this is sector- and asset-specific, the principles of Shari’ah investing lends itself to a safer type of investment and one that may be more agile compared to conventional investments, he says.

Latha says Shari’ah investments managed to withstand the Covid-19 pandemic and bounce back quickly due to being based on profit and loss instead of interest, and being asset-backed instead of debt. “This is evidenced by the slow bounce back of companies that are reliant on interest.”

“The Shari’ah market in South Africa is only about 25 years old, with the bulk of the growth occurring in the last 10 years”

Shari’ah-compliant investments in South Africa Latha says there are a variety of Shari’ah-compliant investment options available in South Africa, with both local and global exposure. Almost all products within the conventional investment space have been mirrored to Shari’ah-compliant investment alternatives, which include: • Unit trust investments • Tax-free saving accounts • Retirement annuities, living annuities, endowments and preservation funds • Equity investments • Equity-based financing products (Mudarabah and Musharakah)

Undertaking Shari’ah investing Investors do not need to practice Islam to undertake Shari’ah-compliant investments. While these products are tailored for a specific market, they are available to those outside of the Islamic faith, according to Latha, Davids and Hoosen. In addition to being open to everyone, Hoosen says there is an ethical aspect to Shari’ah investing that may appeal to a wider range of investors.

All three fund houses, STANLIB, 27Four and Camissa, offer a diverse range of Shari’ah-compliant fund options – some of which are also Regulation 28-compliant.

Left: Abdul Davids, Head of Research for Camissa Asset Management (formerly Kagiso Asset Management) Right: Nadeem Hoosen, Portfolio Manager, STANLIB

EARN YOUR CPD POINTS The FPI recognises the quality of the content of MoneyMarketing’s March 2022 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 2

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EDITOR’S NOTE

F

inance minister Enoch Godongwana delivered his maiden Budget Speech just as MoneyMarketing published this issue. The speech, amid a lacklustre GDP growth outlook, reflected the country’s dire economic status quo, identified pertinent risks to be managed, but also nudged that fiscal consolidation is firmly on track.

Godongwana reiterated that it is a “tough love budget” to chart a course to growth and fiscal sustainability. The ‘tough’ part was about how things cannot be business as usual with State-Owned Enterprises (SOEs) – a line we are all too familiar with now. Godongwana revealed that SOEs have received R308bn in government bailouts to date and, while some will be retained in their current state, there is growing commitment for turnaround plans.

Among the numerous confidence-building features from the Budget was, as predicted, South Africa’s tax revenue projections that are well about a trillion rand, thanks to the mining sector and higher commodity prices. The R1.55tn revenue projection is R182bn higher than last year’s estimates.

The ‘love’ part of the Budget is the income relief of about R5.2bn to consumers. This is largely from adjusting income brackets in line with inflation and not increasing the Fuel and Road Accident Fund (RAF) levies. Corporate citizens also got some relief.

National Treasury will implement the corporate income tax rate reduction to 27% (from 28%) for companies with assessment years ending on or after 31 March 2023.

Of interest to most advisors will probably be that Godongwana has given the green light to the proposed restructuring of the retirement system for individuals to allow for greater preservation and partial access to funds via the two-pot system.

Another announcement of particular interest was that the offshore limit for all insurance, retirement and savings funds will be 45%, inclusive of the 10% allowance for Africa. This implies that the current Regulation 28 offshore limit of 30% will increase to 35%, with a further 10% for the rest of Africa.

The extent to which government can achieve fiscal sustainability will, of course, depend on the implementation of expenditure restraint and accelerated growth-enhancing reforms.

The proof remains in the pudding.

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

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31 March 2022

PROFILE

NEWS & OPINION

Craig Rich Wealth Manager and Partner at PSG Wealth

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

From a young age, the markets have always fascinated me and, as I always enjoyed numbers, I naturally leaned to financially orientated subjects at school – maths, accounting and economics. After I left school, I enrolled in a BCom Finance degree at the University of Pretoria. While in my Honours year at university, I was lucky enough to be offered an internship at Momentum Investments, where I ended up working across various businesses for eight years. During my internship, I realised that the advice industry was where I wanted to be, and more specifically, wealth management. Thirteen years later, I still find myself excited to do what I enjoy.

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

I was always told that you should own property rather than renting and paying someone else’s bond, so as soon as I could afford a property, I bought my first home.

I eventually sold the property and broke even from an investment point of view. Now, given my investment experience, I do not believe that buying property is always the best financial option as there are many considerations to take into account when property is involved. That being said, having a home is emotionally rewarding.

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

In recent memory, I would consider the extreme volatility that Covid-19 brought to Global markets as both a good and bad memory. I was still in university during the 2008 financial crisis. Therefore, the volatility experienced in markets at the onset of Covid-19 last year was my first hairraising experience as a professional investor/wealth manager. Luckily, the downturn was mostly driven by fear and uncertainty, and markets quickly rebounded and surpassed pre-Covid levels, as they continue to do. There were many client discussions had during this period and our clients remained mostly invested in our advice. The decision to remain calm

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benefited all clients. My worst financial moment was not investing more of my own funds when equity markets reached their lows during the crisis in 2020, as I focused on creating a safety net for our new baby.

What do you tell investors/clients who are worried about their investments due to SA’s current economic environment and Covid-19?

It can be concerning for investors to constantly be exposed to negative press when it comes to our country’s economic and political situation. I believe Covid-19 has magnified the challenges South Africa faces even more, and investors seem more concerned than ever. I find that our clients are particularly concerned about retirement savings, the limitations around offshore investment allocations imposed by Regulation 28 and, more recently, the murmurings around prescribed assets. It is important for investors not to get caught up in negative sentiment and to stick to their investment strategies to achieve their specific goals. To dispel some myths, the JSE has had a fantastic recovery and PSG still sees a lot of value in our local market: the rebound in the industrials and financial stocks over the last few months is a prime example of that.

What’s your view on Bitcoin and other cryptocurrencies?

One cannot negate the potential of blockchain technology, which will surely be part of our future.

However, there are still a number of concerns for investors considering Bitcoin and other digital currencies as an investment. There is almost no regulation, a lack of credible research and, as we all know, constantly sharp and rapid changes in valuations – generally, the unpredictable nature of the investment is a concern.

From a wealth management perspective, there is also no FSCA approval on cryptocurrencies, a limited understanding of all the risks involved, and a lack of clarity about the threats it may pose to global monetary policy. Therefore, it is difficult to advise clients on this as part of a goal-based financial plan.

VERY BRIEFLY FirstRand announced the appointment of Mduduzi Ndlovu as the new chief executive officer of Ashburton Investments, its asset management business, from this month. With broad South African investment industry experience of 27 years, Ndlovu brings a wealth of insight and knowledge Mduduzi Ndlovu to the investment team and is well placed to lead Ashburton’s next growth phase, says Mary Vilakazi, chief operating officer of FirstRand.

Ndlovu succeeds Sizwe Nxedlana, who is taking on a senior role within FirstRand. “I am honoured to join Ashburton, which I consider one of the most exciting players to emerge in the asset management industry.

I look forward to meeting the needs of our clients in these challenging times, which are also rich with opportunity,” says Ndlovu on his appointment.

Vilakazi says Nxedlana remains CEO of FNB’s wealth and investments business, and that moving back into the bank in this new role also means he is now uniquely positioned to drive greater penetration of wealth and investment products into the private bank client base, which she says is an important piece of FirstRand’s integrated financial services strategy.

Kagiso Asset Management (KAM) is changing its name to Camissa Asset Management, as part of corporate restructuring.

The restructuring transaction sees founding shareholder Kagiso Tiso Holdings (KTH) sell its 50.1% share Ronald Greaver in the business to KAM management, staff, and Sinayo Capital. KAM’s management and staff have taken control of the business with a 74% joint shareholding, and Sinayo Capital now owns a substantial minority stake of 26%.

“This transaction is a positive development at a time when our business is on a strong growth trajectory – on the back of excellent long-term investment performance. Majority staff ownership and greater independence further strengthens the business foundations for the next phase of delivering for our valued clients,” says Roland Greaver, CEO and cofounder of KAM.

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31 March 2022

NEWS & OPINION

The shrinking personal income tax base

ANGELIKA GOLIGER Chief Economist, EY Africa

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ersonal Income Tax (PIT) collection, the largest source of tax revenue in South Africa, has fallen in recent years. Between 2003 and 2012, the number of PIT taxpayers grew by 7%. Since 2012, however, some of these gains have been eroded with a -2.1% decline in the number of taxpayers, according to data from the South African Revenue Service (SARS).

This is particularly worrying as there were only 5.2m individual taxpayers in 2020. These

5.2m individuals (representing approximately 9% of the population) contribute 40% of South Africa’s total tax revenue. Breaking it down further, about 20% of individual taxpayers contributed to three-quarters of personal income tax revenue in 2020.

There are a couple of reasons behind this trend.

Firstly, the decline in PIT has been the result of the weak economy, which has reduced the ability of firms to grow, increase salaries and hire people. The outlook for South Africa’s economy is expected to remain muted (GDP is expected to grow between 1.4% and

“5.2m individuals (representing approximately 9% of the population) contribute 40% of South Africa’s total tax revenue”

1.8% by 2023), and the unemployment rate has remained at untenable levels. So, this trend is likely to persist. The other contributing factor to the decline in individual taxpayers is the emigration of skilled South Africans abroad. The UK, Australia and the Netherlands, for example, have all registered strong growth in the number of South African immigrants in recent years.

So what can be done to turn this situation around?

The quickest intervention to boost the supply of individual taxpayers is to simply import more skilled workers. Visas for skilled foreign workers should be encouraged and expedited. Fast-tracking the employment of foreign workers will benefit the economy for several reasons: (i) it will ease an immediate constraint and will allow businesses to grow, (ii) skilled foreign workers will create jobs directly for other South Africans; and, perhaps most crucially, (iii) South Africans working with these individuals will learn global knowledge and best practices in their respective industries.

We also need to encourage South Africans based overseas to come home. When South Africans return, following the siren call of family and culture, they bring with them knowledge, experience and access to global markets, which can be leveraged to start and grow local businesses. Beyond the ‘softer’ lifestyle aspects, we need to create a viable business case for South Africans to return, and this can only be achieved through a growing and vibrant economy.

In the medium to long term, a growing economy is the most significant factor when it comes to sustainably growing PIT collections. The IMF, in its most recent Article IV consultation, has found that implementing the economic reform and fiscal consolidation agenda could result in South Africa’s GDP growth reaching 3.6% by 2025, compared with their baseline view of 1.4%. Consequently, this would reduce South Africa’s fiscal deficit from -8.3% of GDP in 2021 to -1.8% of GDP by 2025. There is no way of getting around the difficult decisions and hard work needed to drive the economy forward.

“The other contributing factor to the decline in individual taxpayers is the emigration of skilled South Africans abroad”

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31 March 2022

NEWS & OPINION

Euromoney Award affirms Nedbank’s world-class generational wealth management leadership TRACY MULLER Head of Fiduciary Advice, at Nedbank Private Wealth

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or most people, the ability to create and preserve wealth for the benefit of future generations is one of the key measures of true financial success. It’s also one of the most difficult aspects of wealth creation and management to get right. This is why successful wealth creators benefit from partnering with experienced family governance and generational wealth management professionals to help them create the legacy they desire and that their loved ones deserve.

Nedbank Private Wealth has once again been confirmed as a leader in this vital area of holistic wealth creation and management, taking top honours in South Africa for the Family Governance and Succession Planning category of the 2022 Euromoney Private Banking and Wealth Management Survey.

The annual survey is a benchmark of global quality in the private banking sector,

providing invaluable insight for high-networth individuals into the best providers of the professional wealth management services they require. The awards are based on peer nominations and reviews from experts at competing private banks and wealth managers.

According to Tracy Muller, head of fiduciary advice at Nedbank Private Wealth, the fact that the survey is

conducted among private banks and wealth managers around the world lends significant credibility to the results and means that clients can be confident that when they partner with Euromoney category winners, they are being served by the best in the business.

She points to Nedbank Private Wealth’s globally integrated advice-led approach as being key to its success and its recognition by its global peers. “At Nedbank Private Wealth, we don’t view estate planning in isolation from the provision of comprehensive wealth management advice, so we take a holistic approach to helping our clients connect their financial decisions to their life goals and aspirations, thereby creating the legacy they want to leave; one that combines a range of interconnected services and solutions, including private banking and structured lending, risk planning, investment management, estate planning and philanthropy,” Muller explains.

She says this integrated approach to generational wealth planning and legacy

“This Euromoney award is proof of Nedbank Private Wealth’s mastery in this vital aspect of wealth creation and management” creation delivers consistently pleasing outcomes for Nedbank Private Wealth clients, many of whom appreciate the inclusion of philanthropy services as part of a holistic wealth management proposition and the ability it gives them to extend their legacy beyond basic estate planning.

“The most meaningful and effective legacy is holistic, seamless and mindful by design,” Muller says, “and this Euromoney award is proof of Nedbank Private Wealth’s mastery in this vital aspect of wealth creation and management.”

Africa’s largest Alternative Investment Conference – 25 March 2022

I

n 2004, alternative investments accounted for only 6% of the global investable market. By the beginning of 2019, the size of the global market had doubled, while alternative investments had almost tripled!

The Chartered Alternative Investment Analyst (CAIA) Association estimates the size of the traditional global asset market at $102.6tn, while alternative investments have grown to $13.4tn.

Alternative assets make up 12% of the global investible market, making them an attractive alternative to traditional investments.

With the increasing demand for alternative investments, the Alternative Marketplace has, over the past five years, been hosting a conference that provides alternative investment fund managers with a platform to present their investment offerings to retail and institutional investors.

The next conference will be held virtually on 25 March and will be

showcasing a number of the market’s leading alternative investment fund managers. Included in the line-up are investments from financial institutions such as Laurium, Investec, Jaltech Fund Managers, 360NE, and Kalon Venture Partners. The conference will provide attendees with exposure to a diverse line-up of investments, including hedge funds, cryptocurrency, technology, structured products, private markets and more.

In addition, Tanya van Lill, CEO of Southern African Venture Capital and Private Equity Association (SAVCA), will provide an overview of the South African private equity and venture capital market.

The conference is the only opportunity in the market for retail and institutional investors to gain exposure to such a wide variety of alternative investments.

To register for the event visit www.altmarketplace.co.za

“Alternative assets make up 12% of the global investible market”

REGISTER AT: WWW.ALTMARKETPLACE.CO.ZA

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31 March 2022

NEWS & OPINION

Seatbelts matter on the journey to saving for retirement FRAN TROSKIE Investment Research Analyst, RisCura

“Members will effectively be wearing a seatbelt to ensure their safety on the post-retirement journey”

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here has been much debate on whether the government should have the power to prescribe how retirement fund members allocate their pension savings. If you want to buy a Lamborghini, surely that should be your prerogative?

But have you considered the potential outcomes?

At present, as pension fund members, we can withdraw a full lump sum from our retirement funds

at any time during our lives. We can do this when we are retrenched, or when we resign, or (flippantly) when we want to buy a fast car. The legislation underwent extended public comment that closed in February, proposing that members can only withdraw one-third of their pension savings to use at their discretion. The remaining two-thirds will remain invested in the designated pension vehicle.

The legislation aims to encourage prudent savings decisions by pension fund members.

Instead of emptying their entire pension pots to be able to buy a fast car, under the proposed legislation they would only have access to a third of their money and would need to carefully

assess how to use it. This way, a portion of pension savings will be preserved for eventual retirement: members will effectively be wearing a seatbelt to ensure their safety on the post-retirement journey.

Retaining a portion of pension savings is likely to ensure that fewer pensioners face destitution upon retirement. The social safety net, or seatbelt, helps them to reach their destination relatively unscathed. Ultimately, whether it is in a Lamborghini or a Toyota, the result is a more secure retirement (a vehicle with seatbelts).

Let’s extend the transport analogy and look at some of retirement fund members’ choices when they start their working life. At various times on the working journey, employees venture to the showroom floor of the car dealership to select suitable options for saving for and getting to retirement. Members make these choices when joining a firm, starting to save for retirement, selecting contribution rates and plans within the employer’s scheme, and deciding to retire. It is tempting to choose the Lamborghini, all bright and shiny. But the budget, in this case, consists of a third of the pension pot that can be accessed at any time. So, with a rather resigned sigh, they look at other options.

If, at the outset, retirement fund members were educated about their options and understood that this particular Lamborghini came without a seatbelt, would they still be so disparaged by the limitations to their choices? I suspect not.

It is also important to note that, even with a more limited choice, members still have a fair degree of discretion. There is room for flexibility. They can choose the make, model and colour and still effectively get to drive themselves on their retirement journey.

They can also choose to put more money aside in a retirement annuity. But, to emphasise a point, they get to do so safely.

It is the role of trustees, pension plan providers, consultants, and their ilk to help ensure that members are comfortable wearing their seatbelts. Members need to be educated as to the rationale for retaining two-thirds of their pension pot, and educated about the choices that are still available as they move closer towards retirement.

“If you want to buy a Lamborghini, surely that should be your prerogative?”

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31 March 2022

BUDGET 2022

Budget 2022 highlights MICHAEL KRUGER Investment Analyst, Morningstar Investment Management South Africa

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n 23 February 2022, Finance Minister Enoch Godongwana delivered the annual budget speech, providing an update on South Africa’s finances. Low economic growth, vast unemployment, increasing debt levels, coupled with South Africa still being in a state of disaster two years after the start of the Covid-19 pandemic, all contributed to a complicated juggling act for the Minister of Finance.

Given the unrest witnessed in 2021, along with weak foreign investment, the 2022 budget had to be geared not only to curb unemployment and to stimulate economic growth, but to also give assurance to foreign investors.

In the words of Minister Godongwana, “We need to strike a critical balance between saving lives and livelihoods, while supporting inclusive growth. This budget presents this balance.”

Some key aspects to consider that has affected spending potential and, therefore, economic growth: • An already high unemployment rate that was exacerbated by Covid-19.

• A lot of companies had to implement retrenchments and/or salary cuts, leading to lower household income and therefore lower spending.

• Lower income levels also directly impacted the amount of personal income tax and VAT that is gathered.

• Inflation has increased to 5.7% – placing increased pressure on low-income bracket tax earners.

• The emigration of highly skilled workers has increased.

• Higher commodity prices, which supported the economic recovery, slowed in the second half of 2021.

• Industrial action in the manufacturing sector, and the re-emergence of loadshedding, also slowed the pace of the recovery.

• Continued requests for financial support from financially distressed state-owned companies.

According to Minister Godongwana, “only through sustained economic growth can South Africa create enough jobs to reduce poverty and inequality; enabling us to reach our goal of a better life for all.”

Revenue, deficits and debt to GDP according to the 2022 budget: • Tax revenue for 2021/22 is estimated to be R1.55tn, exceeding the original budget estimate by about R182bn.

• Higher income levels have been primarily driven by the resources sector due to increases in commodity prices.

• The budget saw higher revenue from other sectors and other tax instruments, such as personal income tax, value-added tax followed by corporate income tax.

• Government debt has reached R4.3tn and is projected to rise to R5.4tn over the medium term.

• The consolidated budget deficit is projected to narrow from 5.7% of GDP in 2021/22, to 4.2% of GDP by 2024/25.

• The debt ratio will stabilise at 75.1% of GDP by 2024/25 (which is 3% lower than projected in the MTBPS).

Below is a quick overview of some of the key updates announced in the budget speech: Corporate income tax

As announced in the 2021 Budget, the corporate income tax rate will be reduced from 28% to 27%, for companies with years of assessment ending on or after 31 March 2023.

Personal income tax

Personal income tax brackets and rebates will be adjusted by 4.5%, in line with inflation.

The adjustments will mean that the annual tax-free threshold for a person under the age of 65 will increase from R87 300 to R91 250.

Tax on interest income

There will be no changes to the tax-free portion of interest income (R23 800 for under 65s and R34 500 for over 65s).

VAT

No change and remains at 15%.

Tax-free savings account

The annual limit and lifetime limit for investments in taxfree savings accounts will be kept unchanged at R36 000 and R500 000, respectively.

Capital Gains Tax

In terms of capital gains tax (CGT), the inclusion rate remains at 40%, the annual exclusion remains at R40 000 and the exclusion for the sale of a primary residence remains at R2m.

Transfer duty on property

The purchase amount free of transfer duty remains at R1m.

Dividends tax

No change – Dividends received by individuals from South African companies are generally exempt from income tax, but dividends tax, at a rate of 20%, is withheld by the entities paying the dividends to the individuals.

Estate duty tax

No change – Estate duty is levied at a rate of 20% on the first R30m, and at a rate of 25% above R30m.

Tax credits and rebates: Medical rebate

Medical tax credits will increase from R332 to R347 per month for the first two members, and from R224 to R234 per month for additional members.

Remote working

If you are an employee who works from home and has set aside a room to be occupied for ‘trade’, you may be allowed to deduct certain expenses incurred in maintaining a home office, which will be calculated on a pro-rata basis. SARS outlines these requirements on their website for consideration.

Levies, duties, and charges: Excise duties and tax

Excise duties on alcohol and tobacco will increase by between 4.5 and 6.5%. (A packet of cigarettes will cost an additional R1.03, a 340ml can of beer or cider will cost 11c more, and a 750ml bottle of wine will be 17c more expensive, to name a few examples).

Fuel levy

To provide some relief to households, no increases will be made to the general fuel levy on petrol and diesel for 2022/23. There will also be no increase in the Road Accident Fund levy.

Disclosure of wealth will be required to assist with the detection of fraud To assist with the detection of non-compliance or fraud through the existence of unexplained wealth, it is proposed that all provisional taxpayers with assets above R50m be required to declare specified assets and liabilities at market values in their 2023 tax returns.

Retirement fund taxation and reform on the cards Changes have been proposed to allow for greater investments into infrastructure funds

by Regulation 28 compliant funds. Amendments to Regulation 28 are expected to be gazetted in March 2022.

There are proposals to allow members access to one third of their retirement fund savings while the two-thirds balance must be preserved for retirement. The tax consequences of these changes are still being considered. The draft legislation on these amendments will be published for comment in the middle of the year.

“We need to strike a critical balance between saving lives and livelihoods, while supporting inclusive growth.

This budget presents this balance.”

– Minister of Finance, Enoch Godongwana

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31 March 2022

BEHAVIOURAL FINANCE

SA investors incurred a 3.5% behaviour tax in 2021, says Momentum report PAUL NIXON Head of Behavioural Finances at Momentum Investments

I

n a year where movement restrictions and lockdowns have resulted in increased savings rates around the world, with South Africa’s savings rate having escalated by nearly 22% from levels of less than 15% of gross domestic product (GDP) in 2019 to more than 18% in June 2021, rising levels of uncertainty have pushed investors to seek more control of their savings.

According to Momentum Investments’ latest Sci-Fi report, this shows that the behavioural patterns of South African investors became more palpable in 2021 as a record number of investment switches were processed.

The report measured investor behavioural patterns on the Momentum Wealth platform for the 2021 period. By analysing the behaviour of over 9 000 investors during this period, it was found that active investors (defined as investors performing switch transactions) increased by 80% and the number of switches by 50% to a recordhigh level of 27 994.

On average, investors were chasing past performance and up-risking their investment portfolios from October 2020 to April 2021. This reversed dramatically as the South African volatility index spiked and investors switched to worseperforming funds, downrisking their investments.

This resulted in an annualised behaviour tax of 3.5% for investors in 2021, amounting to over R90m.

The report also found that the high number of switches in September 2020 and November 2020 correlate strongly with high market volatility as per the South African Volatility Index (Savi). Head of Behavioural Finances at Momentum Investments, Paul Nixon, says, “As the Savi stabilises at lower levels, switch activity seems to reduce as well.

Sudden spikes in the Savi, as seen occurring in March and June 2021, does not seem to influence switching activity as much as prolonged periods of high volatility.”

“Clearly, we all struggle to bridge our intentions and our actions. It is clear that investors have become more engaged with their investments and, in doing so, incurred an annualised behaviour tax of 3.5% for 2021,” he adds.

Shifting investments around during market volatility usually results in a behaviour tax. Behaviour tax is

calculated as the difference in future performance between the funds switched from and the funds switched to. Overall, the rand value lost over the 2021 period analysed in this report was over R90m, which equated to an annualised behavioural tax of 3.5%.

“This essentially explains why following our gut instincts when investing does not always serve us well,” says Nixon.

The 2021 Sci-Fi report goes on to unpack the complexities of the 2020/2021 investment shifting behaviour. Momentum Investments Research Analyst Prof. Evan Gilbert says, “The findings support the need for effective short-term risk management among investors.

“This initial study shows that the switching decision of South African investors is not a simple, linear response to poor investment returns. There are several potentially rich alternatives to explore. To do so properly will require a model that includes all of these in an integrated fashion.”

The final section of the report deals with the investor behavioural archetypes that Momentum Investments observed in a previous white paper titled Understanding the great forces that rule the world: A study on South African investor behaviour.

By categorising switches based on the level of past relative performance, changes in the risk profile of the switched funds, and switching frequency and average asset allocation, Momentum Investments was able to identify groups of investors with similar switching behaviour. With further investigation into the general behaviour exhibited by each of these clusters, four investor archetypes were identified, which include: the avoider, the anxious, the assertive, and the market timer.

As expected, market timers (those who always try to beat the market) were the most active archetype during the period of analysis. Even though they made up the smallest portion of active investors, they made the most switch transactions. Market Timers realised the largest

“South Africa’s savings rate escalated by nearly 22% from levels of less than 15% of GDP in 2019 to more than 18% in June 2021”

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behaviour tax with an average of 5% per year of the switch amount lost.

As part of its conclusion, the report said the year 2021 was a period that saw increased engagement between investors and their portfolios. This was reflected by the 80% increase in the number of active investors and a 50% increase in the number of switch transactions. On closer investigation, there was overall an increase in the risk appetite of investors as investment flows climbed the risk spectrum from cash to more stable and balanced strategies. Another trend was the flow of funds offshore, which correlated particularly well with the extremely strong rand performance earlier in 2021.

“On average, investors were chasing past performance and up-risking their investment portfolios from October 2020 to April 2021” “This report sets the scene for using psychometric data (the development of a South African financial personality assessment) in hyper-personalised nudging strategies as Momentum Investments enhances our capability to focus on target behaviours,” says Nixon.

Nudging or positive reinforcement and indirect suggestions are ways to influence groups or individuals’ behaviour and decision-making.

“Momentum Investments, however, is most certainly aiming to use nudging techniques to communicate with the different segments with the right message at the right time to deliver better client outcomes and to help investors on their journey to success. This is the next level in making investments truly personal,” concludes Nixon.

31 March 2022

RAGING BULL AWARDS

The 26th Raging Bull Awards winners

T

he 2022 Raging Bull Awards took place last month. The ceremony, which has traditionally been a blacktie gala dinner, was a much scaled-down affair this year as a result of the Covid-19 pandemic, taking the form of a video presentation streamed on the internet.

Up for grabs were 30 certificates for the best funds in their categories and eight Raging Bull trophies for the top-performing funds for performance to the end of 2021, with the highlights being the Offshore Manager of the Year and the South African Manager of the Year awards. Here are all the winners: CERTIFICATES Straight performance over three years Best South African Equity Resources Fund Sanlam Investment Management Resources Fund Best South African Equity Mid-and-Small-Cap Fund Coronation Smaller Companies Fund Best South African Multi-asset Flexible Fund Centaur BCI Flexible Fund Best South African Multi-asset Low-equity Fund Absa Smart Alpha Defensive Fund Best South African Multi-asset Medium-equity Fund Southern Charter BCI Balanced Fund Best South African Multi-asset High-equity Fund Emperor IP Balanced Fund Best South African Interest-bearing Variable-term Fund Absa Bond Fund

Best South African Real Estate Fund Harvard House BCI Property Fund Best South African Interest-bearing Short-term Fund Truffle Sanlam Collective Investments Income Plus Fund Best South African Multi-asset Income Fund Saffron SCI Active Bond Fund Best Global Multi-asset Flexible Fund Global IP Opportunity Fund Best Worldwide Multi-asset Flexible Fund Naviga BCI Worldwide Flexible Fund Best Offshore Europe Equity General Fund STANLIB European Equity Fund Best Offshore United States Equity General Fund Franklin US Opportunities Fund Best Offshore Far East Equity General Fund Schroder International Selection Fund All China Equity Best Offshore Global Real Estate General Fund Reitway Enhanced Global Property Fund Best Offshore Global Fixed-interest Bond Fund Allan Gray Africa Bond Fund Risk-adjusted performance over five years Best South African Multi-asset Low-equity Fund Amplify SCI Wealth Protector Fund Best South African Multi-asset Medium-equity Fund Southern Charter BCI Balanced Fund of Funds

Best South African Multi-asset High-equity Fund Gryphon Prudential Fund Best South African Multi-asset Income Fund Sasfin BCI Flexible Income Fund Best South African Interest-bearing Variable-term Fund Absa Bond Fund Best South African Interest-bearing Short-term Fund PSG Income Fund Best South African Real Estate Fund Harvard House BCI Property Fund Best Global Equity General Fund BlueAlpha BCI Global Equity Fund Best Global Multi-asset Low-equity Fund M&G Global Inflation Plus Feeder Fund Best Global Multi-asset High-equity Fund STANLIB Global Balanced Feeder Fund Best Global Real Estate Fund Reitway BCI Global Property Feeder Fund Best Global Multi-asset Flexible Fund MI-PLAN IP Global Macro Fund Best Worldwide Multi-asset Flexible Fund Select BCI Worldwide Flexible Fund TROPHIES Straight performance over three years Best South African Equity General Fund Counterpoint SCI Value Fund

Best South African Interest-bearing Fund Absa Bond Fund Best (South African-domiciled) Global Equity General Fund Sygnia FAANG Plus Equity Fund Best (FSCA-approved) Offshore Global Equity Fund Baillie Gifford Worldwide Long Term Global Growth Fund Risk-adjusted performance over five years Best South African General Equity Fund Counterpoint SCI Value Fund Best South African Multi-asset Equity Fund Gryphon Prudential Fund Best South African Multi-asset Flexible Fund Bateleur Flexible Prescient Fund Best (FSCA-approved) Offshore Global Asset Allocation Fund Sarasin IE Multi Asset Strategic Fund MANAGER OF THE YEAR AWARDS Offshore Manager of the Year Melville Douglas South African Manager of the Year – 3rd Place Coronation Fund Managers South African Manager of the Year – 2nd Place MI-PLAN South African Manager of the Year Ninety One

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31 March 2022

RAGING BULL AWARDS

Melville Douglas receives Raging Bull Award for Offshore Manager of the Year MIKE LAWS Managing Director, Melville Douglas

“

It’s personal” is the approach adopted by Melville Douglas, which has afforded them the ability and credibility to deliver great returns to clients for over 39 years. The driving force behind this boutique investment management company is an approach powered by a deep-seated commitment to fundamental research, underpinned by decisions based on balance and guided by a long-term view on investments.

At its core, Melville Douglas offers investors a range of investment solutions that provide clients with choices that range from fixed-income to multi-asset and equity investments. Moreover, investors can access Melville Douglas’ expertise through discretionary portfolio

THANDI NGWANE Head of Investments for South Africa

management services and a range of unit trust funds to best meet their personal needs. The discretionary portfolios are tailored to suit each client’s personal circumstances, and the flexible approach, combined with a comprehensive financial need analysis

“Melville Douglas offers investors a range of investment solutions that provide clients with choice”

and a full understanding of a client’s investment objectives, delivers a customised investment portfolio.

The firm’s flagship offering – the Global Equity Fund – is one of the best performing funds in its field, with over $1bn in assets under management and an impressive team of experts with over 300 years’ combined experience. With that in mind, managing director Mike Laws believes that to make it personal, “we dedicate two portfolio managers and a client services individual to each client, ensuring they have direct access to their portfolio manager and understand the investment decisions we make on their behalf”.

Throughout their 39-year history, the company has kept its offering lean, maintaining this philosophy across the domestic and global teams. Thandi Ngwane, head of investments for South Africa, says stability has been an integral part of Melville Douglas’ success. “Most senior leaders have been in the business for more than ten years, as have the senior analysts and portfolio managers.

This allows our philosophy and thinking to be passed onto new team members without disrupting the process.”

Sustainability and responsible investing are at the core of Melville Douglas’ philosophy. In a continued effort to lead with conscience, Melville Douglas launched a Global Impact Fund in 2021,

A comprehensive list of contacts for financial products, services and tailored solutions.

“The firm’s flagship offering – the Global Equity Fund – is one of the best performing funds in its field, with over $1bn in assets under management” which invests in companies that have a positive impact on society and the planet. As investors become increasingly conscious of their decisions, seeking opportunities that balance financial return with positive social impact is at the centre of their investment decisions.

Melville Douglas has set out to incorporate Environmental, Social and Governance (ESG) considerations across the entire business, with a key differentiator being the company’s endeavours to provide options for investors who want to invest for impact.

As the firm looks to the future, the Melville Douglas team intends to provide the consistency and stability for which they have become known.

For more information on Melville Douglas and its offering, as well as the award, visit www.melvilledouglas.co.za

Brought to you by

AVAILABLE ONLINE NOW WWW.MONEYMARKETING.CO.ZA 10

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cib.absa.africa

If it’s personal to you, it’s personal to us.

To do things the right way requires a personal commitment. A considered approach. That’s why we use decades of expertise and market knowledge combined with fundamental research to guide all our investment decisions.

Because when it comes to managing your wwealth, it’s not just a job, to us: it’s personal.

We care for our clients’ assets like our own because we never forget who they really belong to. If you’re an individual, family, charity, trust or corporate looking for a global investment manager with diversified investment solutions, choose the one that is personally committed to your future. The one who does things the right way. The Melville Douglas way. www.melvilledouglas.co.za

Best Offshore Management Company

Melville Douglas is a subsidiary of Standard Bank Group Limited.

Melville Douglas Investment Management (Pty) Ltd. (Reg. No. 1987/005041/07) is an authorised Financial Services Provider.

(FSP number 595). STANLIB is a registered representative in terms of CISCA. For any additional information and basis for the award please contact Melville Douglas.

31 March 2022

RAGING BULL AWARDS

Stability in a time of uncertainty ERROL SHEAR Fund Manager at Sasfin

W

hat is Stable Fund investing? For us it’s about seeking balance, working hard to protect our clients from losses over any year, while still growing our client’s investment above the inflation rate for the longer term. We know that equities have produced the best returns over time, but also some spectacular losses.

Over the last 60 years, the JSE All Share Index has fallen 14 times, while the S&P has declined in 18 years. Some years equities produce the best returns; some years it’s fixed-rate bonds, or property or other asset classes.

We believe it is best for our clients to be invested across all the asset classes – both for diversification to reduce risk, and to provide more opportunities for our clients to participate in the asset class, which offers the best return at an acceptable level of risk. We hold inflation linkers to give us protection against rising inflation. We vary our exposure to the different asset classes, looking for where we see the

best potential returns while moving away from areas where we see increased risk.

We also focus on lower risk individual assets within each asset class. For example, we held no Steinhoff shares or Tongaat shares when they collapsed – not because we saw the collapse in share prices coming, but because they were considered too risky for our Stable Fund. This didn’t stop us from holding MTN or RB Plats shares, which more than doubled last year.

We have two methods to reduce risk: first, by having less exposure to risky asset classes, and second, targeting lower risk individual assets.

If we look at stock markets, especially the big USA stock market, there is a belief that any pullback in the stock market is an opportunity to buy more stocks. TINA (There Is No Alternative) is often quoted.

And that was true in recent years, as governments pumped huge amounts of cash into the system and kept interest rates low to keep economies growing.

For 40 years, there has been a structural decline in interest rates. That may be about to change, with the Fed talking about a hiking cycle. If interest rise, there is an alternative to stocks.

At this point, there are huge risks in markets. Maybe that is a truism as there always are risks, but several major long-term trends may be slowing or even reversing. The four-decade trend of lower inflation and falling interest rates may be coming to an end. The economic miracle of China, the world’s most populous country, also began about four decades ago. That, too,

“Over the last 60 years, the JSE All Share Index has fallen 14 times, while the S&P has declined in 18 years”

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looks like it may be slowing. Chinese economic growth has helped resource-rich countries to grow through their growing demand for resources.

We also have a question about the huge increase in debt around the world, particularly during the Covid-19 pandemic. Can we wish away this debt, or will it result in higher taxes to repay this debt? Higher taxes are not good for company profits or consumers’ spending power.

The risks are rising for unstable markets. This is a good time to think of a more stable fund, such as the Sasfin Stable Fund. And stable does not necessarily mean low return. Our net return last year was 19.7%.

For more information on Sasfin Asset Managers and available funds, visit: www.sasfin.com

Top of the class investment managers The Sasfin Asset Managers team knows what it takes to finish at the top of the class. We've done it before, having won a Raging Bull award every year since 2018, and we have done it again! We're at the top of our game to make sure that you're on top of your investment goals. Join us at the top.

RAGING BULL AWARDS 2018 WINNER

RAGING BULL AWARDS 2019 WINNER

RAGING BULL AWARDS 2020 WINNER

RAGING BULL AWARDS 2021 WINNER

MORNINGSTAR AWARDS

2020 WINNER

MORNINGSTAR AWARDS

2021 WINNER

Asset Management

0861 SASFIN (0861 727346) info@sasfin.com Sasfin Wealth comprises Sasfin Securities (Pty) Ltd, JSE member; Sasfin Asset Managers (Pty) Ltd, FSP No. 21664; Sasfin Wealth Investment Platform (Pty) Ltd, FSP No. 45334; Sasfin Fiduciary Services (Pty) Ltd; and Sasfin Financial Advisory Services (Pty) Ltd, FSP No. 5711. This advert is general in nature and is not advice.

Sasfin Wealth accepts no liability for errors or changes. As clients are responsible for their decisions, they should obtain independent advice before taking any action.

31 March 2022

RAGING BULL AWARDS

The investment case for European Banks should ultimately reach positive territory in time. Implied real rates from years five to ten are at zero – too low for a normalised economy. Transitory elements of inflation, including commodity prices and supply-chain-induced price increases, should ease over the next year. However, more sticky elements like wages and shelter (rental), costs may remain elevated. Shelter costs are one-third of the more hawkishCPI basket and the single largest contributor – so any leaning Fed enduring rental inflation would be significant. has led to a A buoyant economy benefiting from accommodative rapid rise in nominal monetary policy will likely prolong a tight labour market and real bond yields; and should keep wage pressures elevated, potentially 10-year fixed rate yields increased by 27 basis points, pushing inflation above expectations. This will further and 10-year real yields increased by 39 basis points maintain the Fed’s hawkish stance and hence the path for over January. However, inflation expectations implied bond yields to rise further. Growth estimates remain above by the bond market remained stable, indicating that the trend, and monetary conditions are still favourable, given market remains confident in the Fed’s ability to contain that real rates are negative. This should support the ‘value’ inflation at around 2%. The bond sell-off spilled over into portion of the market, provided any inflation surprises and global markets, with European long bonds finally offering consequent Fed remedial actions are not overly aggressive. positive yields.

Rising inflationary pressures and rates are impacting Unsurprisingly, ‘growth’ underperformed ‘value’ in most regions but to varying degrees. Europe, which has global stock markets as long duration shares suffer struggled with below-target inflation for many years, is disproportionately from higher discount rates. The more experiencing higher inflation. Current expectations are for speculative growth companies with limited or no profit have the ECB to bring rate hikes forward and end their bondbeen in decline for most of last year, with some of the larger purchasing program sooner. As a result, European bond cap tech companies now also starting to underperform. yields have finally exited negative territory.

2022.pdfwe 1believe 2022/02/10 14:30 Aside from offering compelling value relative to the While realTruffle_MM_Mar rates remain negative, they SOPHIÉ-MARIÉ VAN GARDEREN Portfolio Manager at Truffle Asset Management

A

overall market, banks typically benefit from rising interest rates.

Banks earn a spread on the rate they charge creditors less the rate at which they borrow. When rates fall close to or below zero, they cannot reduce their borrowing rates below zero. Depositors who provide funding to banks don’t take kindly to being charged interest on their deposits! As a result, bank margins get squeezed. Furthermore, banks earn interest on their equity, which also suffers when rates are low.

Hence, rising rates are positive for bank earnings.

Globally, European banks, especially Spanish and Italian, are most sensitive to rising interest rates. These banks have a more significant proportion of floating-rate loan books, which they can quickly reprice as rates rise.

Some of these banks have been generating low levels of profitability and are operationally geared. Hence, they will benefit significantly from rising rates.

Given our expectations of positive revisions to earnings, combined with relatively cheap valuations and attractive dividend yields, we remain positive on European banks.

“Europe, which has struggled with belowtarget inflation for many years, is experiencing higher inflation”

When it comes to long-term investment success, a portfolio’s composition is crucial.

C

M

Y

CM

MY

CY

CMY

K

PROPERTY

CASH

BONDS

GLOBAL

EQUITIES

Enjoy the fruits of a well-diversified portfolio.

The value of experience. www.truffle.co.za

WINNER 2021

Truffle Asset Management (Pty) Ltd is an authorised Category I, II and IIA financial services provider (FSP No. 36584) (Date of Authorisation: 11/03/2009). Truffle operates independently from the Raging Bull Awards and is neither an associate or product supplier to Raging Bull. Full details and basis of the award are available from the Manager.

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31 March 2022

RAGING BULL AWARDS

Franklin Templeton wins another Raging Bull Award GRANT BOWERS Portfolio Manager for the Franklin US Opportunities Fund

F

ranklin Templeton is pleased to announce that the Franklin US Opportunities Fund won in its category at the 26th annual Raging Bull Awards ceremony, recently held virtually in Cape Town. The event recognises

SANDEEP SINGH Regional Head, Central and Eastern Europe, Middle East and Africa, Franklin Templeton

outstanding performance by unit trust fund managers in selecting investments for their portfolios, taking into account consistency and aversion to risk.

The Franklin US Opportunities Fund won the Best (FSCA-approved) Offshore

United States Equity General Fund award.

This certificate was awarded for Top Performance by a foreign [non-randdenominated] collective investment scheme for the three-year period ending December 2021.

The Franklin US Opportunities Fund aims to achieve capital appreciation by investing principally in equity securities of US companies believed to possess sustainable growth characteristics and which meet growth, quality and valuation criteria. These include small, medium and large capitalisation companies with strong growth potential across a wide range of sectors that have exceptional growth potential and fast-growing, innovative companies within these sectors.

Commenting on his outlook for the US market, Grant Bowers, Portfolio Manager for the Franklin US Opportunities Fund, said, “The US economy has been on a path of sustained post-pandemic recovery that we expect to continue in 2022. US growth has remained stronger than other developed markets, supported by healthy consumer spending and strong corporate

earnings. While the economic backdrop appears robust, we acknowledge that 2022 may bring an increase in financial market volatility from variables such as inflation, interest rates and the coronavirus.

However, we continue to see opportunities to invest in what we consider to be highquality businesses with sustainable growth drivers that are not reflected in current valuations.”

Commenting on the award win, Sandeep Singh, Regional Head, Central and Eastern Europe, Middle East and Africa, Franklin Templeton, said, “We are delighted that the Franklin US Opportunities Fund has again won at this year’s Raging Bull Awards. Managed by a tenured investment team with in-depth expertise of the US market, the strategy continues to offer South African investors access to US companies with strong growth potential. For almost 15 consecutive years, Franklin Templeton funds have been recognised at this prestigious industry event, testimony to the strength and depth of our investment strategies.”

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31 March 2022

RAGING BULL AWARDS

Outstanding performance sees SIM Resources Fund win at the 2022 Raging Bull Awards

T

he Sanlam Investment Management (SIM) Resources Fund won the Best South African Equity Resources Fund at the 2022 Raging Bull Awards on 1 February 2022. The fund is managed by Andrew Snowdowne, who joined Sanlam Investments (SI) in 2017 and has more than 22 years of experience in the field.

“Passion and consistency contributed strongly to the fund’s success. The award reminds us that

diligent and thoughtful work pays off. While this is only my fourth year of active fund management, I have analysed the Resources sector for over two decades. It is an honour to be recognised within a sector I am passionate about and to know that our team is doing the best we can to enrich others,” says Snowdowne.

SIM CEO Nersan Naidoo says the Raging Bull is a testament to the fund team’s unwavering commitment to delivering capital growth and moderate income return over the medium to long term.

“Andrew and

“Sanlam Investments is one of South Africa’s largest asset manager with assets under management of over R540bn” 16

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“The Raging Bull is a testament to the SIM Resources Fund team’s unwavering commitment to delivering capital growth and moderate income return” his team can be commended for this outstanding achievement.”

SI is one of South Africa’s largest asset managers, with assets under management of over R540bn. It is also one of the country’s most diversified managers, offering the full spectrum of investment services and products from ETFs and unit trusts to alternatives.

SI aims to be more than just an asset manager; it strives to be an agent for change and to bring financial independence to all South Africans by boosting financial literacy, investing in job creation, reducing our carbon footprint, and helping clients retire with dignity.

Partnerships with Robeco and Climate Fund Managers are contributing to its journey towards delivering long-term sustainability for local and international investors and future generations through investments.

SI believes that South Africa requires a just transition to clean energy when it comes to fossil fuels. If the country transitions too rapidly to green energy, it risks job losses and declining social inclusion. The business is hard at work to effect a just transition through its

investment processes.

Over the past few years, highlights have included launching the Investors’ Legacy Range, aimed at preserving or creating jobs in the face of the impact of Covid-19 on the economy, becoming South Africa’s largest black-owned asset manager through a deal with African Rainbow Capital (ARC), and a merger with ABSA Asset Management.

SI expertise spans active management, index tracking, alternative investments, sustainable and impact investing, multi-management and international investments. Its funds cover the full range of asset classes, including equities, fixed income, alternatives and property.

For more information, visit Sanlam Investments at www.sanlaminvestments.com The full details and basis of the award are available from the manager.

Sanlam Collective Investments (RF) (Pty) Ltd is a registered and approved manager in terms of the Collective Investment Schemes Control Act. A schedule of fees can be obtained from the Manager.

This is a South African Equity fund. Maximum fund charges (incl. VAT) include: Initial advice fee, (max.)

3.45%; Initial manager fee (N/A); Annual advice fee, (max.) 1.15%; Annual manager fee, 1.72%; Total expense ratio (TER), 1.86%. For more information visit www.sanlaminvestments.com. Sanlam Investment Management is an authorised financial services provider.

Confidence Rule 53:

IF YOU WANT TO WIN, PICK A WINNING TEAM.

The future is sustainability.

And we’re not the only ones who think so.

At Sanlam Investments, we’re on a mission to think bigger, look further and find smarter ways to grow our clients’ wealth, while investing in a more sustainable future.

So the SIM* Resources Fund being acknowledged as the Best South African Equity Resources Fund** at the Raging Bull Awards on 1 February 2022 is a big honour for us. It’s just the encouragement we need to keep working hard to find investment solutions that make a meaningful difference to communities, our planet and our future.

Investment solutions that help create a world where we all flourish, while ensuring a sustainable tomorrow.

Investments www.sanlaminvestments.com Sanlam Collective Investments (RF) (Pty) Ltd (“SCI”) is a registered and approved Manager in Collective Investment Schemes in Securities and retains full legal responsibility for the co-brand portfolios.

Collective investment schemes are generally medium- to long-term investments. Past performance is not necessarily a guide to future performance, and the value of investments/units/unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Maximum Fund charges include (incl. VAT): Initial advice fee, (max.) 3.45%.

Annual advice fee, (max.) 1.15%. Annual manager fee, 1.72%. Total expense ratio (TER), 1.86%. For more information visit www.sanlaminvestments.com. *SIM stands for Sanlam Investment Management. **The full details and basis of the award are available from the Manager.

31 March 2022

RAGING BULL AWARDS

Managing mayhem ABRI DU PLESSIS Portfolio Manager, Gryphon

G

ryphon’s multi-asset funds (Gryphon Prudential Fund and Gryphon Flexible Fund) present an investment philosophy that contends that, in efficient markets, value is added more reliably and consistently through asset allocation rather than by stock selection.

Both funds are managed exactly the same way; the only difference is that the Gryphon Prudential Fund is Regulation 28 compliant and will thus only ever hold a maximum of 75% in equities, where the Flexible Fund can hold 100%.

Our exposure to underlying asset classes is indexed, which assures our

18

investors of low cost and also means the products are scalable, i.e. returns will not be impacted as the funds grow in size.

Equities are accepted as the asset class of choice, the class most likely to deliver inflation-beating returns. That said, our philosophy maintains that there is a time in the cycle to be out of equities, to protect capital either in cash or other safe haven assets until the time comes to get back into the market.

Our asset allocation decisions are informed by a series of historic, data-based indicators that identify the various economic, business and investment cycles. The deliberate timing of these asset allocation decisions has resulted in the protection of investors’ wealth that ultimately leads to longer-term inflation-beating returns. This rules-based approach allows us to take the emotion out of managing money.

We believe in committing fully to whichever asset class offers the most relative value; this means we will either be 100% exposed to equities, or hold no equities at all. When our indicators signal value in the market (i.e. a bull market), we will be 100% exposed to equities; if our indicators signal a need for caution (i.e. a bear market), we protect investors’ capital and hold zero equities.

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The funds moved out of equities at the end of August 2018, manifesting our need to protect the fund from market volatility. From that point to end December 2021, the fund delivered a return of 10.9% p.a. This matches the 10.9% delivered by equities over this same period. The difference is that the equity return came with much greater volatility. The annualised cash return over the same period was 5.7%; we clearly outperformed cash.

Being out of equities does not mean just sitting idly by in an anaemic money market account – the outperformance the funds’ achieved is the result of making the

cash ‘sweat’.

Where are we now? Because of our focus on protecting capital, we are currently de-risked and out of equities.

While mindful that cash is a low-yielding asset, it offers investors downside protection and means that we keep our powder dry and can take advantage of opportunities that can appear suddenly in volatile markets like these.

Does this approach work? The chart below illustrates how the funds have performed versus the underlying asset classes... what do you think?

31 March 2022

RAGING BULL AWARDS

Schroders China Equity fund wins award as the region’s market outlook improves KONDI NKOSI Schroders’ country head in South Africa

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lobal asset manager Schroders was awarded Best (FSCA-Approved) Offshore Far East Equity General Fund at this year’s Raging Bull Awards.

Schroders is one of Europe’s largest independent investment managers by assets under management. It has a market capitalisation of over £9bn and employs over 5 500 people across 37 locations, offering innovative products and solutions across five business

areas: institutional, mutual funds, private assets & alternatives, and wealth management.

The fund invests in the equities of Chinese companies, and the fund management team has a particular focus on companies that grow shareholder value in the long term. The Raging Bull accolade comes as the outlook for China’s equity markets begins to improve after a strained 2021.

“We have always believed that China represents a very compelling investment opportunity for those wishing to diversify their investments offshore. Of course, last year, China’s equity markets struggled to continue the momentum seen in 2020, but there are certainly reasons to be optimistic going forward,” says Kondi Nkosi, Schroders’ country head in South Africa.

Nkosi explains that the correction in Chinese equities in 2021 produced opportunities in a variety of sectors.

“Compared to the beginning of 2021, current valuations are much healthier and should provide more downside protection amid the still challenging macroeconomic environment in 2022.”

According to Schroders, major catalysts for the market could be more policy easing and successful control of the pandemic in China under its zerotolerance policy.

Speaking about the award, Nkosi says that the recognition is a nod to Schroders’ China Equity approach and management team: “The success comes

“We have always believed that China represents a very compelling investment opportunity for those wishing to diversify their investments offshore” from having a stable on-the-ground team who – collectively – have been managing China equity for over 46 years.”

Nkosi also says a time-tested, disciplined process focusing on quality, sustainability and valuation has also contributed to the team’s success.

In terms of portfolio construction, Nkosi explains that what sets this fund apart is that it consists of an unconstrained, concentrated portfolio of 30 - 60 stocks from both the offshore and onshore Chinese market, with the flexibility to invest up to 50% into China A-shares – and a focus on quality companies.

“This approach has contributed to our proven track record of consistent outperformance over the medium and long term. The fund has consistently outperformed its benchmark, the MSCI China All Shares Index, since its inception in 2018. To be recognised by the Raging Bull awards is an added honour,” he concludes.

SIM Enhanced Yield Fund receives Raging Bull nod for best risk-adjusted return MELVILLE DU PLESSIS Portfolio Manager, Sanlam Investment Management Enhanced Yield Fund

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he SIM (Sanlam Investment Management) Enhanced Yield Fund was nominated in the category Best South African Interest-bearing Shortterm Fund on a Risk-adjusted Basis at the 2022 Raging Bull Awards. Now a decade old, the fund has repeatedly received Raging Bull Awards for best rolling threeyear performance in the category. The nomination for best five-year risk-adjusted return attests to the fact that the fund has delivered solid straight performance (superior total returns), as well as robust risk-adjusted returns over one of the trickiest chapters in human history – the era of the pandemic.

The fund ranked in the top in terms of performance at the end of 2021 compared to its peers for all periods of one year and longer. The award also highlights that the fund ranks top in risk-adjusted performance, despite the Covid-19

catalysed financial market volatility. In addition, the fund is now one of the largest funds in its category, with a strong track record a testament to the investment process and strategy behind the fund.

When we launched it in 2011, we said to ourselves, ‘Except for the category specifications, this fund has few other explicit limitations, so what’s the best we can do for clients?’ We knew that we needed to build a solid three- to five-year

track record to be taken seriously. And now it’s ten years later, and that’s a special milestone. The best straight performance speaks to consistency; we’ve now been able to repeatedly deliver superior performance for over a decade.

Getting it right takes a lot of work, a good team and a shared vision or, more specifically, investment philosophy.

Investment decisions are made by leveraging off the broader team within the fixed interest unit and the active management capabilities and business more broadly. We are supported by the comprehensive credit capabilities of the Sanlam Group and also the desk dealing team. With their research and input, the economics team also brings a massive amount of value.

The team’s investment philosophy is based on pragmatic value and a longterm investment horizon. We focus on valuations; I think what makes us tick is a combination of fixed income and analytical mindsets. We’re passionate about investments and financial markets

and economics and quants (quantitative trading) to optimise portfolios. But, at the end of the day, we are committed to delivering a good product to clients.

“We knew that we needed to build a solid three- to fiveyear track record to be taken seriously” This philosophy falls under Sanlam Investments’ overarching purpose to empower people to live with confidence.

Its mission is simple: to unlock the opportunities for its clients that are difficult to find. As a result, the SIM Enhanced Yield Fund has repeatedly unlocked value despite the difficulties of the past few years. The Raging Bull nomination meant a lot to the team and the business, further reinforcing their commitment to continue to build on the fund’s stellar track record.

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31 March 2022

RAGING BULL AWARDS

Amplify SCI* Wealth Protector outperforms yet again MARTHINUS VAN DER NEST Head of Amplify

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nique partnerships with agile, independent fund managers with proven ability to perform have paid off for Amplify Investment Partners, who walked away with yet another Raging Bull Award.

The Amplify SCI* Wealth Protector Fund won first place in the multi-asset low equity category for the best risk-adjusted performance over five years, adding to last year’s first place for straight-line performance over three years.

Amplify, which has a bouquet of long-only unit trusts and hedge funds managed by hand-picked independent

asset managers, has seen most of its funds outperform peers and benchmarks, attracting record inflows at a time when markets have been highly volatile.

“Our managers across the board have been doing really well, and we have been fortunate to see strong flows across our whole range of funds,” says Marthinus van der Nest, head of Amplify.

“We are proud of all our managers.

Although it’s not about winning awards, receiving recognition in what have been very difficult markets over the last five years is recognition of our and our managers’ processes, and the resulting performance,” Van der Nest says.

The winning Amplify SCI* Wealth Protector Fund, managed by Iain Power and his team at Truffle Asset Management, has been ranked – as at the end of 2021 and relative to peers in the multi-asset low equity space – number two since its August 2016 inception, number one in 2018 and 2019, and number six in 2020.

The multi-asset fund has a cautious risk profile aimed at providing capital

protection over a rolling one-year period and generating income over the medium term at low levels of volatility. The fund’s exposure to South African and foreign markets is capped at 40% for equities, 60% for bonds and 50% for cash. The limit for foreign exposure (including Africa) is 40% and 20% for property. Its benchmark is CPI +3% over a three-year rolling period.

“Because Truffle manages the fund on an absolute return basis, they are highly cognisant of risk in the markets, and the equity distribution is different to the Truffle house view as they are aware of managing the risk and downscaling certain shares and taking positions in other shares they see as relatively low risk.”

The fund, and others in Amplify’s suite, has seen some of the biggest inflows over the past year on the back of good performance.

“Winning the award continues to prove that our strategy of finding some of the best small managers in the market gives us a significant competitive advantage as they are nimble and can quickly adjust to

“The Amplify SCI* Wealth Protector Fund won first place in the multi-asset low equity category for the best risk-adjusted performance over five years”

market conditions,” says Van der Nest.

“This award recognises these skills in asset managers such as Truffle Asset Management, which manages this fund on our behalf.” *Sanlam Collective Investments Disclaimer: Amplify Investment Partners (Pty) Ltd is a wholly-owned subsidiary of Sanlam Investment Holdings and an authorised Financial Services Provider. Sanlam Collective Investments (RF) (Pty) Ltd is a registered Manager in terms of the Collective Investment Schemes in Securities. A schedule of fees can be obtained from the manager.

Amplify SCI* Wealth Protector Fund Maximum fund charges include (incl. VAT): Manager initial fee (max.): 0.00; Manager annual fee (max.): 1.00%; Total Expense Ratio (TER): 1.07%. The manager retains full legal responsibility of the third-party portfolio. The registered name of the fund is Amplify Sanlam Collective Investments Wealth Protector Fund.

Amplify Investment Partners (Pty) Ltd is an authorised Financial Services Provider (FSP 712). ​ Sanlam Collective Investments (RF) (Pty) Ltd (“SCI”) is a registered and approved manager in terms of the Collective Investment Schemes Control Act. Collective investment schemes are generally medium- to long-term investments. Past performance is not necessarily a guide to future performance, and the value of investments/units/ unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available from the manager on request. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee with respect to either the capital or the return of a portfolio. The manager has the right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate. Income funds derive their income primarily from interest-bearing instruments. The yield is current and is calculated on a daily basis. If the fund holds assets in foreign countries, it could be exposed to the following risks regarding potential constraints on liquidity and the repatriation of funds: macro-economic, political, foreign exchange. The manager retails full legal responsibility for the co-brand portfolios. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in the portfolio, including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Forward pricing is used. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-div date.

Performance is calculated for the portfolio and the individual investor performance may differ as a result of initial fees, actual investment date, date of reinvestment and dividend withholding tax.

Tax tools at your fingertips.

Dowload the Tax Guide 2022-2023 WWW.MONEYMARKETING.CO.ZA 20

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31 March 2022

SHARI’AH INVESTING

Growth in Shari’ah shows need for more values-based investing SALIEGH SALAAM Portfolio Manager, Old Mutual Investment Group

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uring 2020/1, Shari’ah funds saw substantial growth, peaking at $130bn in June 2021, ending the year at $120bn. Fitch Ratings estimate that the growth rate of Islamic funds has exceeded that of the broader global mutual fund industry. Clearly, when viewed in the context of the number of those who practice Islam, we can conclude that Shari’ah appeals to a broader investment universe than just Muslims.

This, coupled with the growth of ESG funds to $35tr in 2021, which Bloomberg says are “moving from the periphery to the mainstream”, was a direct result of the Covid-19 crisis highlighting the need for responsible investing, as the pandemic showed deficiencies in economies and societies across the world.

The popularity of Shari’ah investments among non-Muslim investors is nothing new for Old Mutual, with almost 30% of our Shari’ah funds held by non-Muslim investors.

principles while actively integrating ESG metrics. We seek to grow our clients’ wealth while simultaneously impacting the United Nations Sustainable Development Goals (UNSDGs) through the investment returns the Funds generate. Our first Shari’ah fund, the Old Mutual Albaraka Equity Fund, was launched in South Africa (SA) in 1992, and the latest, the Old Mutual Albaraka Income Fund, in March 2020. As a Sukuk fund that actively incorporates ESG, it’s a first of its kind in SA. Shari’ah investing principles have historically been interpreted by scholars to determine what the minimum standards are that an investment must satisfy to meet the requirements of Islamic Law. Our investment approach incorporates the higher purposes and objectives of Islamic Law by actively incorporating ESG principles and UNSDGs, sharing common values with the higher objectives of Islamic Law – which, among others, seeks the preservation and protection of life, resources and the environment.

Old Mutual Shari’ah We offer Islamic Funds with a market value of about $300m in global and South African assets, where we invest according to Shari’ah investing

“Shari’ah funds saw substantial growth, peaking at $130bn in June 2021, ending the year at $120bn” 22

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“Our investment approach incorporates the higher purposes and objectives of Islamic Law by actively incorporating ESG principles and UNSDGs” We go beyond the literal meaning of the law, raising the bar to incorporate the purposes and objectives behind Shari’ah, integrating both Shari’ah standards and ESG principles into our investment process. The wealth created from this investment approach is also shared with disadvantaged communities in support of the UNSDGs. Our partner in impacting the UNSDGs is The South African Muslim Charitable Trust (SAMCT), which was established in 2008 to act as a conduit for the provision of funding assets, services and other resources to approved public benefit organisations.

Since its creation, the Trust has made significant donations towards poverty alleviation, empowerment, community upliftment and sustainability programmes. Funds are distributed to

improve the health and development of people, irrespective of race or religion.

The Trust contributes towards four primary sectors: Education, Health, Social Development and Poverty Alleviation.

ESG ratings We partnered with MSCI to be the first LISP platform to rate our Shari’ah unit trust funds and publish them on the Old Mutual Wealth platform. All three of our Shari’ah Funds – Old Mutual Albaraka Balanced Fund, Old Mutual Albaraka Equity Fund, and Old Mutual Albaraka Income Fund – have their ESG Ratings listed on this platform. For more information, visit: https://www. oldmutualinvest.com/individual/oursolutions/shariah-investing Sources: Morningstar, Morgan Stanley, Reuters, Rifinitiv, World Economic Forum, Fitch Ratings

BEES GATHER NECTAR ONLY FROM THE FRESHEST FLOWERS. SO, THEIR HONEY IS FROM A PURE SOURCE. This inspiration applies equally to your investments.

When you invest responsibly, you can be assured that your investment rewards remain pure.

That’s why, in partnership with Al Baraka Bank, we are proud to of fer our investors a range of unit trusts that is as pure as the honey of a bee and complies with the principles of responsible investing.

OLD MUTUAL AL BAR AK A SHARI’AH FUNDS INVEST WITH FAITH To invest now, contact your financial adviser or visit oldmutualinvest.com/shariah or albaraka.co.za/collections/unit-trusts

Old Mutual Unit Trust Managers (RF) (Pty) Ltd is a registered manager in terms of the Collective Investment Schemes Control Act 45 of 2002. The fund fees and costs that we charge for managing your investment are set out in the relevant fund’s minimum disclosure document (MDD) or table of fees and charges, both available on our public website or from our contact centre. Old Mutual is a member of the Association for Savings and Investment South Africa (ASISA). Al Baraka Bank is an authorised financial services and credit provider.

31 March 2022

SHARI’AH INVESTING

Hybrid intelligence: a powerful partnership in investment decision making IMTIAZ SULIMAN Portfolio Manager at Sentio Capital Management

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A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” — Charlie Munger.

Making investment decisions is a complex decisionmaking process that involves human intelligence, and combining that experience with data and mathematics to arrive at a fair value of an asset. As investors, we are constantly making investment decisions. We make decisions of what asset to buy, how much to allocate to that asset and when to sell that asset. Getting the sizing right is just as important as getting the call right.

Given the proliferation of data that is available today, one often has to sift through the swathes of data sets available to ensure that the noise is filtered out while still making sure that the signal is not lost in the process. A solid decision-making process is crucial in a world overloaded with information. Websites providing company financial metrics, high-frequency data sets, macro-economic data and a host of other data can be easily accessed at the click of a button. Data, per se, is not the advantage – rather, it’s the way one arrives at a decision. Using all of the available data is what sets investors apart.

While humans are good at recognising an unusual pattern in data sets, it is machines that are really able to combine different data sets in ways that are exponentially more difficult for a human mind to comprehend. A computer algorithm can detect patterns in an unbiased and clinical way.

For investors, we believe that this does not mean that a quant strategy is superior to human decision making, or

vice versa. Quant strategies often have human intuition formulas built into them, and human beings often use quant screening and large data sets to come to an investment decision. The point is that by combining human intelligence and artificial intelligence, the decision-making process is greatly enhanced.

Machines may have superior data combing skills, but this is not the silver bullet in decision making. If something is unpredictable or the inputs into the decision are incorrect, then the predicted outcome will also be prone to error. When investing, one should use intuition to form hypotheses, use mathematics to verify them, and machine learning to apply them.

Shari’ah investing prohibits investing into certain assets based upon the criteria that are acceptable within Shari’ah Law. The screening process is largely a mechanical one whereby assets are filtered to arrive at an investable list. One can follow a simple rules-based process to derive this list. The next step would be to identify high-probability investment opportunities from this focused list. Combining human and artificial

intelligence is an effective way to identify these high-probability opportunities, which then allows the investment professional to dig deeper into a company’s fundamentals, using data and human intelligence to arrive at an unbiased valuation for the company.

Machine learning and algorithms are effective tools for combing these assets to build a portfolio that displays the best risk-adjusted return potential.

To summarise, human beings are prone to biases based on past experiences and emotions. Assessing more than one variable in combination with other possibilities takes on a non-linear form, which is best done by computers that process large amounts of data in an unbiased form. The combination of human intelligence with machine learning is a powerful process that can significantly improve investment decisions, which ultimately leads to superior riskadjusted returns.

“The combination of human intelligence with machine learning is a powerful process that can significantly improve investment decisions”

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

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VALUES-BASED ASSET MANAGEMENT Sentio’s Shari’ah products combine human knowledge and experience with sophisticated investment technology to achieve sustainable, repeatable returns in a Shari’ah compliant way.

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

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Offshore SUPPLEMENT

WHAT’S INSIDE ...

An investment case for India: Why SA investors should consider this emerging market

Shying away from the Market conditions are natural tendency to likely to become even more concentrate portfolios into challenging in the years yesterday’s winners ahead as interest rates rise

India is becoming more impactful for global growth through its trade linkages and global supply chain

Under-owned and under-valued markets, such as the UK and Japan, offer much better return prospects than the US market

The bond market is now pricing in the first US interest rate hike in this month

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31 March 2022

OFFSHORE SUPPLEMENT

Invest in India: Why SA investors should consider adding this emerging market to their portfolio KINGSLEY WILLIAMS Chief Investment Officer at Satrix Investments

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he imminent launch of a Satrix India-focused Exchange-traded Fund (ETF) will allow South African investors to get meaningful exposure to one of the world’s most promising emerging markets, India. The fund, which will track the MSCI India NET TR Index, will give investors direct access to the Indian economy at a time when the country is poised to outperform emerging market peers like Brazil, China, Russia and South Africa.

“Emerging markets have always fascinated local investors because they offer the potential for higher growth as increasing portions of those populations move into the formal economy, thereby gaining access to a wider variety of goods and services,” said Kingsley Williams, Chief Investment Officer at Satrix Investments.

He was commenting during a Satrix IndexMore event held under the tagline ‘India, the next giant’. IndexMore is an educational collaboration between Satrix (South Africa’s leading index manager) and BlackRock’s iShares.

There is a growing upswell among global fund managers that India could take over from China as the main driver of emerging market returns in coming years. According to Laura Cooper, Director at Blackrock, India’s economy is set to outperform that of China by two times in the next two years. IMF has forecast India’s GDP growth at 9% in 2022 and 7.1% in 2023, placing India at the top of the table among large emerging market economies.

Cooper dismissed concerns over the impact of inflation and ongoing pandemic uncertainty on India’s growth prospects.

“For as long as inflation remains contained, we expect conditions to be supportive of the IMF’s growth outlook,” she said. As for the pandemic, “With more than half of

the adult population fully vaccinated, the economy does remain relatively resilient in the face of further waves.” The Indian government has received widespread praise for its fiscal and monetary policy response during the pandemic, with its 2023 budget supporting infrastructurebacked economic and employment growth.

Much of India’s promise stems from its growing share of international trade.

“India is becoming more impactful for global growth through its trade linkages and global supply chain, but the key point is around its favourable demographics,” said Cooper. Not only will India overtake China as the world’s most populous country in coming years, but it is forecast that some five billion people will enter the middle-income segment in the next decade. India also boasts a median age of under 30, with 375 million people in the Generation Z sub-set compared to just 250 million in China.

Global investors seem to have cottoned on to India’s prospects, with the MSCI India Index outperforming the MSCI Emerging Markets Index by 28% in 2021 and the MSCI World Index by 7%. One of the key drivers of this outperformance is that the ‘digital first’ approach adopted by many countries in response to the pandemic has significantly benefited India’s economy, explained Tom Husmann, an Equity and Commodity

Product Strategist in the iShares EMEA Product Strategy Team. “From a long-term strategic growth perspective, India has a great deal of exposure to the megatrends that Blackrock believes are shaping the next era of investing,” he said. These megatrends include climate change and resource scarcity, demographics and social change, emerging global wealth and technology breakthroughs.

India’s technology breakthrough is illustrated by no fewer than 44 local startups reaching market capitalisations of over $1bn during 2021, from a staggering 61 000 start-up businesses countrywide. “India has the third-largest start-up ecosystem after the US and China, making them stand out from a technology breakthrough megatrend perspective,” said Husmann.

Another positive is that India is making strong progress in the renewable energy fields. It boasts the world’s third-largest renewable energy sector and ranks fifth for solar power. And there are plans to invest another $1tr in solar projects as the country works towards the net-zero carbon emissions targets set at COP26.

Fotios Kassianidis, an executive director of Indexed Investments and Solutions at MSCI Inc, said that the MSCI India Index offers investors “well-diversified exposure across different sectors, from energy to materials to utilities”. More importantly, 20%

“Emerging markets have always fascinated local investors because they offer the potential for higher growth”

“India is becoming more impactful for global growth through its trade linkages and global supply chain” of the MSCI India Index derives from the technology sector. “Software and services businesses within the emerging market block have enjoyed a consistent and smooth performance premium compared to the rest of the market [during times of crisis],” Kassianidis said. The conclusion is that the premium paid for this index, as measured by its price-to-book ratio, is more than offset by its weighting to software and services companies within the information technology sector.

How can South African investors get exposure to India?

The good news is that Satrix is in the middle of an initial public offering (IPO) for an ETF that will track the MSCI India NET TR Index.

Following the product launch, investors will be able to buy and sell exposure to India on an as-and-when basis. “We remain at the forefront of enabling South African investors to get access to an increasing array of investment opportunities across the global investment landscape,” concluded Williams.

“The themes we have discussed today illustrate the relevance of our latest product launch to track the MSCI India Index.”

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31 March 2022

OFFSHORE SUPPLEMENT

There ain’t no such thing as a free lunch, except...

ANDREW HARDY, CFA Director of Investment Management at Momentum Global Investment Management

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e all have our vices. Investors battle with theirs in the form of portfolio concentration, appealing in several ways, but it could ultimately be bad for their (financial) health. While concentration has been rewarded for much of the past decade, we believe true diversification is much

more important now.

There is a natural tendency to concentrate portfolios into yesterday’s winners, either through a passive approach that chases winners by design, or as the path of least resistance. But while the so-called ‘FANGS’ (comprising Amazon, Netflix and the like) may be great businesses, with over 9 000 international stocks for South African investors to choose from, can one really justify concentrating into less than 1% of those, as many do?

The pandemic should have served as a potent reminder of the need for diversification – a classic black swan event that punishes those who were overconfident and had all their eggs in one basket. However, that lesson has been missed by many as the eventual beneficiaries were the previous winners, namely expensive growth stocks, which many were itching to buy more of based on past performance. Diversifying assets were left for dust on a relative basis. But imagine a parallel universe where Covid-19 was an

“There is a natural tendency to concentrate portfolios into yesterday’s winners” 28

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unstoppable digital virus.

This year we are entering a new, more difficult phase of this economic cycle – one which will bring considerably more volatility – and could see a sharp rotation in market leadership. While the US market and high growth stocks have outperformed for much of the past decade, today’s very different environment of high inflation and rising interest rates will undoubtedly lead other sections of markets to pick up the baton.

We believe under-owned and undervalued markets, like the UK and Japan, offer much better return prospects than the US market at the broad index level. Beneath the surface, stocks on lower valuations, often in more cyclical industries or with asset-heavy business models, are set to outperform – potentially on a sustained basis for the first time in a decade. Strategies with limited exposure in these areas remain vulnerable to the type of violent rotations we saw at the start of this year.

‘There ain’t no such thing as a free lunch,’ goes the saying. The exception in investments is diversification. Some of the greatest value that investment managers can add is through countering the behavioural biases that so often undermine investor returns.

Today’s environment calls for exposure

“Under-owned and under-valued markets, like the UK and Japan, offer much better return prospects than the US market” to a wide range of geographies, sectors, and the confidence to position very differently from market indices. The opportunity cost of not doing so may prove painful in time.

With us, investing is personal, and outcome-based investing aligns well with what clients want to achieve when they invest offshore, namely an absolute real return in hard currency. An absolute indication of expected outcomes provides a more tangible goal for clients and helps them stick with their investment when times get tough.

At Momentum Global Investment Management, our multi-asset, multistyle and multi-manager approach builds in additional diversification levers that help smooth the investment journey we create for our clients.

Offshore investing content at your fingertips – with the Global Matters WhatsApp Bot from Momentum Investments.

The Global Matters WhatsApp community empowers financial advisers to have in-depth offshore investment conversations with their clients by providing them with easy and convenient access to regular and exciting offshore investing content such as articles, videos and other insights. It’s an innovation by the people of Momentum Investments. People dedicated to giving you every possible advantage to help your clients on their investment journey to success. Because with us, investing is personal.

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

Scan here to join the Global Matters WhatsApp Bot community.

Momentum Investments

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Momentum Investments

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

MI-CL-586-AZ-8454.

31 March 2022

OFFSHORE SUPPLEMENT

Beyond inflation: building offshore portfolios for the long term SCOTT COOPER Investment Professional at Marriott Investment Managers

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he economic response by policy makers in first world countries to the coronavirus pandemic has been both swift and of an unprecedented scale. This has enabled them to limit the damage to the global economy and manufacture one of the fastest economic recoveries in decades. The speed of the bounce-back can largely be attributed to: 1) the rapid rollout of vaccines; 2) ultra-accommodative monetary policy; and 3) unprecedented fiscal stimulus, which amounted to almost 20% of global GDP in 2020 and 2021.

Throughout the economic cycle, Marriott’s preference is to invest in high-quality, dividend-paying companies whose strong balance sheets, market

“The bond market is now pricing in the first US interest rate hike in March 2022”

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leadership, brand strength and pricing power enable them to produce more reliable dividend growth for investors.

During 2021, it was the pricing power of these companies in particular that helped our equity-based portfolios produce double-digit returns, as well as above-average income yields.

Looking ahead, while the actions of central banks and policy makers was initially effective, it has created three major challenges over the short to medium term: 1. Inflation. The major downside of the recent unparalleled monetary and fiscal stimulus is that consumer demand bounced back faster than supply, triggering bottlenecks and pricing pressures that would normally emerge far later in the economic cycle.

This rapid increase in inflation is piling pressure onto central banks to hike rates, and is particularly evident in the US and UK where inflation is at its highest level in three decades.

2. Rate rises in an indebted world.

In response to the surge in inflation, the bond market is now pricing in the first US interest rate hike in March 2022, and a succession of further rate increases over the next two years.

The chart highlights how global debt surged to historic highs during the pandemic. Considering the huge amount of debt globally, we are likely to see significant downward pressures on growth as interest rates rise.

3. Uneven global recovery. The stark contrast in vaccination levels and quantum of economic stimulus deployed between developed and emerging economies is staggering.

For example, approximately 75% of the global stimulus was carried out by the G-7 member countries alone.

Unsurprisingly, the recovery within

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“Market conditions are likely to become even more challenging in the years ahead as interest rates rise” these seven countries has been far more robust than is the case globally.

This unevenness will act as a drag on global growth in the years ahead.

As a result of the three factors discussed above, market conditions are likely to become even more challenging in the years ahead as interest rates rise and the economic recovery begins to slow. While these conditions persist, investing in the highest quality companies, such as Johnson & Johnson, will continue to serve investors well.

As you can see from the graph, Johnson & Johnson has been able to continue to grow their dividend payments to investors throughout a range of global macroeconomic challenges. Their market leadership, balance sheet strength

and ability to maintain profit margins have been integral to their success and positions them well for the challenges ahead. These characteristics are a key component of the companies within Marriott’s international portfolios and, looking ahead to 2022 and beyond, we are optimistic that our selected equities emphasising quality, resilience and dividends will continue to serve investors well.

These portfolios can be accessed 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

Worried about offshore limits?

Well let's get you up to speed!

Unlimited offshore opportunities: Regulation determines an institution’s offshore capacity within their retail products. The INN8 product range has significant retail offshore capacity – you can get your client the offshore exposure they require within these products: living annuity, endowment and sinking fund.

Help your clients take advantage of offshore exposure – without constraints.

PURPOSE BUILT. www.INN8.co.za.

NN8 Invest is a division of STANLIB Wealth Management (Pty) Ltd, an authorised Financial Services Provider, with licence number 590 under the Financial Advisory and Intermediary Services Act (FAIS). As neither INN8 Invest nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor’s unique objectives, financial situation and particular needs.

The information and content of this document are intended to be for information purposes only and should not be construed as advice. INN8 Invest does not guarantee the suitability or potential value of any information contained herein. INN8 Invest does not expressly or by implication propose that the products or services offered in this document are appropriate to the particular investment objectives or needs of any existing or prospective client. Potential investors are advised to seek independent advice from an authorized financial adviser in this regard. © 2022 INN8

31 March 2022

OFFSHORE SUPPLEMENT

How to capitalise on the patches of growth opportunity GEORGINA SMITH INN8

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s the world slowly emerges from its Covid-19 bubble of restriction and restraint and its economic and emotional impact, investors are again beginning to seek opportunities for growth. The question is – where will that growth come from and what could it look like?

Over the past year, growth opportunities for South African investors have started to materialise locally and globally. It will remain a bumpy ride, hampered by supply chain disruptions leading to steeply rising inflation and the shadow of the unknown path (hopefully) out of the pandemic.

Global growth forecasts (IMF and World Bank’s most recent, for example) clearly show that while large pockets of the world economy could grow above 5% in 2022, the South African forecast does not even reach 2% – and the two years after that doesn’t look much better.

With all this in mind, it’s understandable and responsible for investors to look globally for opportunities for growth and risk mitigation, which is, in essence, diversification.

Keeping all your assets locally is like walking into a sweet shop where there are shelves of jelly sweets, popping candy, chocolate buttons, liquorice and more – but always choosing the peppermints.

Expanding your horizons offshore can be done in two main ways: South African investors can either expatriate their funds into another currency or they can invest in global opportunity using local currency. To rand or not to rand, that is the question.

Look for limitless opportunity through local randdenominated feeder funds Getting offshore exposure through rand-denominated feeder funds will go a long way towards mitigating the risk of ‘keeping your eggs in one basket’, but you won’t benefit from the level of rand hedging that fully expatriating your funds would give you. Many investors feel this is a comfortable compromise given the ease of investing in feeder funds, as investors can access feeder funds through all tax wrappers.

However, there are a couple of watchpoints: retirement wrappers are subject to regulation 28 and are limited by law in their exposure to offshore assets via feeder funds. Life wrappers such as living annuities, endowments and sinking funds are wrappers where investors are able to allocate up to 100% of their portfolio offshore. However, some providers are restricted to how much they can offer their clients due to exchange control restrictions. I’m delighted that INN8 (and STANLIB and Liberty) life wrappers are able to offer their clients full 100% access to offshore investment should they wish to.

forecasts for 2022 and beyond, clear frontrunners surface in emerging and developing Asia – average expected growth in this region for 2022 is at 5.9%, with India at a robust 9%.

Within developed or advanced economies, you could also find opportunity in specific sectors or with boutique asset managers who craft and blend portfolios that give the right mix of exposure.

Truly offshore, diversified access in different currencies To fully exploit the global opportunity set, investors also need to physically move their money overseas. Here I’d recommend using the services of an independent financial adviser and an investment platform. The INN8 offshore platform, which is domiciled in Jersey, offers access to many offshore fund managers via six currencies.

Not forgetting the tax advantage of investing via a truly offshore platform – with no VAT on transactions, all your money goes into your chosen investment.

Because, let’s face it – not all offshore opportunity was born equal. If we go back to the IMF and World Bank

Grab those emerging opportunities now Going global should definitely be part of your investment strategy. The opportunities are calling, but you need the right adviser, on the right platform offering, with the right investment vehicles to fully capitalise on them and realise your own personal investment goals.

The benefit of an expert in the room The global investment universe should be your playground, but it can also quickly get large and scary.

Having an expert at hand with proven investment philosophies to manage your money helps you to not get lost.

Leveraging and using a discretionary fund manager (DFM), for example, to help manage your client’s portfolio, is a smart way to navigate the massive opportunity locked up in global investing. At INN8, we make access to model portfolios from various DFMs seamless and support these DFMs in managing those portfolios with automated rebalancing and detailed reporting.

“The global investment universe should be your playground”

Disclaimer:Liberty Group Limited is a Registered Long-Term Insurer and an authorised Financial Services Provider (“FSP”) with FSP number 4209 and registered office residing at 1 Ameshoff Street, Braamfontein, Johannesburg, 2001; INN8 is a registered trademark of STANLIB Wealth Management (Pty) Limited, an authorised FSP with licence number 590 and registered office residing at 17 Melrose Boulevard, Melrose Arch, Johannesburg, 2196, South Africa; and a registered business name of STANLIB Fund Managers Jersey Limited, regulated by the Jersey Financial Services Commission with registration number 30487 and registered office residing at Standard Bank House, 47-49 La Motte Street, St Helier, Jersey JE2 4SZ. © 2019 INN8

“It’s understandable and responsible for investors to look globally for opportunities for growth and risk mitigation”

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INTERNATIONAL DO GREAT THINGS EVERY DAY Old Mutual Life Assurance Company (SA) Limited is a licensed FSP and life insurer.

31 March 2022

OFFSHORE SUPPLEMENT

Investing offshore – your questions answered per annum as an individual or R20m per annum per household. Individuals may also use their R1m allowance.

Investors can then choose to invest directly in funds or in shares abroad. Or you could, of course, invest through an endowment wrapper. The advantage here is that the company with which you’ve taken out that policy does all taxes payable within the wrapper. Tax rates on a wrapper are generally more favourable.

WAYNE SOROUR Head of Old Mutual International Sales & Distribution

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he current political and economic landscape in South Africa has led to a surge in interest in offshore investment from local investors. The decision to invest offshore is predominantly influenced by the search for better returns, in addition to stability and security of assets, says Wayne Sorour, head of Old Mutual International Distribution and Sales.

However, navigating a complex environment of offshore investing can be challenging.

The key motivation for an investor to invest offshore should be to have an appropriately diversified investment portfolio in pursuit of real capital growth at an acceptable level of risk.

Sorour adds that it is estimated that between 65% and 80% of South African investors’ total wealth is exposed directly to the SA economy.

The majority of South African investors may have too many eggs in one basket, says Sorour. Regardless of the economic and political climate in the country, from an investment perspective, developed and other emerging markets offer more depth and breadth relative to the local market. This allows an investor to diversify risk and to access far more investment opportunities for growth.

Global investment markets present more opportunities to invest in long-term growth sectors such as technology and healthcare.

Simply put, if you want to mitigate risk and grow your investments in real terms over the long term, you will do

well to adopt the mindset of a global investor.

When investing offshore, you have two options: you could invest directly, in hard (foreign) currency such as the US dollar or the British pound; or through an indirect vehicle, such as a feeder fund or a unit trust, which uses an asset swap.

Direct offshore investing Direct offshore investing involves converting rands to a hard currency and investing it abroad. Investors apply through the South African Revenue Service and the South African Reserve Bank for direct investment clearance.

For direct investment, investors can apply for R10m

Indirect offshore investment Indirect offshore investment allows you to invest in offshore assets without the money physically leaving South Africa.

When you decide to invest offshore indirectly, you need a mechanism to get this money abroad – referred to as an asset swap, it is essentially an investment manager’s offshore allowance. No tax clearance is needed; however, the investment performance and value are reported and paid out in rands in South Africa.

Where do you invest?

Offshore investing has the added complexity of a choice of thousands of companies and funds to invest in, says Sorour.

This is where intimate knowledge and expertise of the offshore investment space plays a crucial role.

Based on medium- to long-term investment horizons, money allocated to offshore investing invariably forms part of an investor’s discretionary investment amount. Due to the added complexity of geographical exposure to equity markets in the US, UK, EU or emerging markets, among many others, finding an adviser familiar with offshore investing is crucial, says Sorour.

Can value continue outperforming growth, or are growth shares moving into value territory?

KYLE WALES Global Multi-fund Manager at Flagship Asset Management

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alue shares – those companies that are underappreciated and thus typically undervalued by most investors – managed to hold their own during a volatile start to the year

and when the rest of the market was losing ground. This has seen the value versus growth debate rear its head again.

The MSCI ACWI Value Index and the MSCI ACWI Growth Index are good representations of how each of these camps are performing, and these show that the Value Index (flat for the year thus far) outperformed the Growth Index (down some 10% in January) by a wide margin.

Value stocks, however, have underperformed their growth counterparts for many years. Thus the extent of the recent outperformance of value stocks may be exaggerated because it is calculated off a low base.

Growth stocks on the right side of a disruptive world Part of the reason that value has outperformed growth has simply

been that we are living in a world of disruption, and growth stocks have been on the right side of those changes. If anything, the rate of change in the world is more likely to increase than decrease – and this is the type of environment that favours growth rather than value stocks.

In the recent quarterly reporting cycle, the 20%+ sell-offs in Meta (Facebook) and Paypal have attracted much scrutiny.

While some investors view this as a comeuppance for investors with a growth bent, a far more productive exercise is to interrogate whether investors are being offered attractive entry points into these shares after their recent sell-off.

Meta now trades on a forward P/E multiple (after factoring in broker downgrades and deducting share remuneration expenses) of 20X, but it is still expected to grow earnings 17.7% in 2022. This is despite competitive threats from Tik-Tok. A compelling case can also be made for its earnings being low because all

the costs of building the ‘Metaverse’ are in this number, but little in the way of ‘Metaverse’ revenues. Any success Meta has in this space thus constitutes a free call option for long-term investors.

In the case of Paypal, it has downgraded its revenue guidance for 2022 from 18% to 15-17%.

Hardly a train smash, especially considering that management teams normally guide low. It mostly attributes this downgrade to macro factors like slower ecommerce growth (as the world re-opens post-pandemic) and the roll-off of Covid grants. Management asserts that its competitive position has never been stronger and has stuck to the guidance in its five-year plan of 20% per year (in year two).

While Paypal certainly does not trade on a low multiple (26X on a forward basis), this contracts to 13X three years out based on management’s guidance.

A rebound in the performance of value stocks was long overdue due to the massive underperformance of value stocks relative to growth stocks, but time will tell whether this outperformance can continue. Ironically, one of the largest obstacles to it continuing may actually be that post the recent falls in the share prices of so-called growth stocks, they may actually be moving into value territory.

www.moneymarketing.co.za

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31 March 2022

OFFSHORE SUPPLEMENT

Cyprus lifts travel ban to vaccinated South Africans

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on’t waste another second making an excuse for why you cannot put a Plan B in place for yourself and your family in Europe. Your procrastination could result in missed opportunities to buy an overseas property that will give you permanent residency and tangibly benefit you and future generations.

It’s easy to own your slice of paradise in The Med, and now is the time to book your tickets to come on a property inspection trip to Cyprus.

Property inspection trip invitation The best way to make a decision about buying a property abroad is by taking the time to view it for yourself. Join us on one of our customised inspection tours this year to investigate the property opportunities in Cyprus. The Cypriot Realty team will be with you as you experience the lifestyle aspects and look for your new home – making your Plan B in Europe a reality!

The trip itself is personalised and you will have your own representative host

Properties in Cyprus offer exceptional value for money compared to other European countries – especially homes right on or near The Med. The choice of where to buy is very personal and the type of property depends on your lifestyle requirements, your budget, and your plans. The lush and beautiful city of Paphos on the Western side of the island is very similar to the Western Cape and year-on-year continues to enjoy the most demand from investors.

Travelling to Cyprus As of 21 February 2022, all fully vaccinated passengers and all passengers who have recovered from Covid-19 are exempt from having to self-isolate in Cyprus on arrival.

They will need to hold a valid vaccination certificate issued by the Department of Health, do a PCR test 72 hours before flying, and a PCR test at their cost on arrival (€15 at Larnaca Airport and €19 at Paphos Airport).

you during the trip in order to make your time both an enjoyable and rewarding experience. Your agent will be at your disposal to answer any queries you may have on a one-to-one basis, dealing with you in a professional, confidential manner.

What you need to do: • Sign up on one of our tours • Book your air ticket • Secure your visa • Pack your bags and don’t forget your sunscreen.

Protect yourself, your family and your assets from unpredicted events by taking

advantage of the opportunity to secure permanent residency in Cyprus.

Think of getting residency as guaranteeing your and your family’s future.

An astute offshore property investment that works for you in the short, medium and long term is the achievement of a lifetime. Investing in Cyprus’ residency programme not only makes financial sense, but it will tangibly benefit your immediate family.

Can you afford not to take advantage of this while the programme is still open?

Your trusted partners Cypriot Realty – a company in operation for more than 14 years with offices in Sandton, Cape Town and Cyprus – is your trusted partner to realise your Plan B in Europe. We are recognised and respected as Southern Africa’s authoritative investment specialists promoting Cyprus as an ideal destination for acquiring EU citizenship or permanent residency, property investment, immigration or retirement, and starting an EU-based business. We understand investors’ needs, and we have an impressive track record showcasing our success.

Contact us for a confidential meeting to discuss how Cyprus can fit in with your offshore plans – we will assist and guide you every step of the way to realise your Plan B.

CYPRUS UP CLOSE SECURE YOUR ‘PLAN B’ IN EUROPE Join us on an inspection trip to invest in property & secure permanent residency .

SPECIAL TOUR OFFER

BOOK NOW!

Contact Jenny: 083 448 8734 / jenny@cypriotrealty.com / www.cypriotrealty.com

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www.moneymarketing.co.za

31 March 2022

RISK

Are we making straightforward claims too complicated?

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very now and then, we at BrightRock come across a claim where we think the conditions of a pay-out should be quite straightforward and simple, only to find that this is not the general view.

Here’s one recent example.

Our 42-year-old client, let’s call him John, was diagnosed with stage four oesophageal cancer. He had been to see his doctor after experiencing some stomach pain, which, it turned out, was being caused by a tumour at the base of his oesophagus. The diagnosis was simple: the cancer was very advanced.

John was an entrepreneur and had a combination of business and personal policies with us, catering very well for his family. BrightRock paid him out a total of R41m for permanent disability and additional expenses once we had received the paperwork confirming his diagnosis.

With some of this money, John was able to seek treatment options overseas, which unfortunately were unsuccessful, as he sadly passed away the next year. The money also ensured that he and his family were able to live comfortably in his last few months.

On the face of it, this was a very straightforward claim, as the diagnosis was clear. However, upon investigation, we found that some insurers do not have a clinical definition for stage four cancer under permanent disability and that only four out of eight other insurers would have paid him out the way that we did. The other four would not have

paid him anything at all, despite the seriousness of his condition. Here are some of the reasons why John’s claim would not have qualified for payment with some insurers.

Insurer One For the first insurer, a pay-out would need to be based on cancer being the cause of a loss of function and the ability of the person to do the normal activities of daily living. Insurer One stated that a client had to show a permanent ECOG status of 3 or 4. ECOG is defined as “a scale used to assess how a patient’s disease is progressing, assess how the disease affects the daily living abilities of the patient, and determine appropriate treatment and prognosis.”

An ECOG status of 3, which would result in only a 50% pay-out should the conditions be met, stipulates that 50% of the insured’s time must be spent in a bed or chair, where he or she was capable of only limited self-care. An ECOG status of 4 requires the patient to be totally confined to a bed or chair. John’s quality of life would therefore have to be incredibly poor to qualify and had he got to that stage, he would in all likelihood have stopped working some time before a payment could be made. He would not have met the criteria for ECOG status 3 or 4 when he was diagnosed and so would have received no pay-out at that time.

“A permanent disability claim for a straightforward stage four cancer diagnosis can still result in a complicated claim” dysfunction or damage’. There is a specific reference in this policy to upper gastrointestinal tract diseases.

To receive a 50% pay-out under this section, the insured must have lost weight to such an extent that their BMI should be less than 16. With a BMI of 32 at the inception of his policy and a height of 1.8m, John would have to be very ill for some time before he could qualify for a payment, if ever.

He would need to lose around half his body weight before qualifying for a pay-out, at a time when his medical team would be working to help keep him healthy and his weight up.

Insurer Three The third insurer has a section for terminal cancer in its policies but does also include pay-outs based on how cancer affects the body, specifically ’a functional impairment of the appropriate system’. For the terminal definition, however, the

insured’s life expectancy should be no longer than 12 months.

However, there is also a 90-day waiting period for the pay-out of all terminal cancer diagnoses. This means that, in order to claim, John would have to be sick enough to only live 3–12 months, but not so sick that he would die within the first three months.

So, as you can see from these three examples, a permanent disability claim for a straightforward stage four cancer diagnosis can still result in a complicated claim. John’s life was obviously severely impacted by his diagnosis, which he ultimately succumbed to. The purpose of life insurance is to assist people in their time of need, as in John’s case. While our industry is continually working to clarify and simplify claims criteria, our investigation of this claim suggests we still have far to go.

Insurer Two The second insurer bases a cancer payout on what cancer does to the body, in this case, ‘documented end-organ

“Some insurers do not have a clinical definition for stage four cancer under permanent disability”

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31 March 2022

RISK

Single mothers even more at risk when losing their income

“Income protection and disability cover allows a pay-out should an illness or injury result in one no longer being able to work”

KAREN BONGERS Product Development Actuary at Sanlam Individual Life

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ost parents will agree that raising a child is expensive.

Raising a child on one income is particularly tough but a reality for many South Africans. According to research conducted by the Human Sciences Research Council (HSRC) and the South African Race Relations Institute (SARRI), more than 40% of South African mothers are single parents.

Karen Bongers, Product Development Actuary at Sanlam Individual Life, notes that with so many women being solely responsible for their children, the importance of making careful provision should something unforeseen happen to

“Raising a child on one income is particularly tough but a reality for many South Africans” 38

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them cannot be overstated. Even shortterm income loss is challenging if there are no savings to dip into – a reality faced by many. When a single mother loses her ability to earn – either short term or a long-term permanent loss – the financial consequences are often devastating.

As an adviser, it is your role to empower clients who are single mothers by giving them the peace of mind that their income will be replaced should they no longer be able to work due to an accident or health problem, or should they pass away. Consider discussing

these points with your client: • Sole provider: As the sole breadwinners in their households, income protection becomes very important. A pay-out from an insurance product can be a lifesaver, enabling her to continue caring financially for herself and her family.

• Know the detail: It is important for her to understand exactly what she is covered for under each type of policy, and for what amount. Based on your clients’ specific circumstance and concerns, discuss the various types of cover available and what would work best for her.

• Income protection and disability cover would allow her to get a pay-out should an illness or injury result in her no longer being able to work. A lump sum pay-out from disability cover could help her repay debt, should she become permanently disabled, whereas income protection cover can replace her monthly income if

she cannot work due to illness or injury, either temporarily or permanently.

• Life cover can be used to pay off debt or it can assist with her dependents’ long-term expenses if she were to pass away. For the latter she may prefer a death income benefit over a lump sum to give her dependents a steady monthly income for a specified period without the risk of the money running out too soon.

• Should her child become seriously ill, her income may be affected in an indirect way. She may want to consider cover which would pay out a lump sum or income should this happen.

“The right insurance can enable your client to protect their livelihoods and meet the needs of those who depend on them financially when they are not able to do so themselves,” concludes Bongers.

KINGJAMES 53532

Confidence Rule 28: YOUR MOST VALUABLE ASSET IS YOUR ABILITY TO EARN. PROTECT IT.

The most valuable asset in this picture is the one most people forget to insure.

Your clients’ most valuable asset might not be something that they can see or touch, but it’s infinitely more valuable. It’s their ability to earn an income. Offer your clients peace of mind with Income Protector from Sanlam. It gets to work when they can’t by delivering a monthly income if an illness or injury leaves them unable to work, either temporarily or permanently. With first-in-market features and enhanced benefits, it gives clients a greater level of assurance and peace of mind that they will be financially secure, come what may. So they can live with confidence knowing that today will be good. And tomorrow will be even better.

Contact your Sanlam consultant for more information on our enhanced Income Protector offering.

www.sanlam.co.za

Sanlam is a Licensed Financial Services Provider.

Smart lifestyle choices carry a lot of weight Body Mass Index (BMI) consists of measuring the ratio between a person’s weight and height and the World Health Organisation (WHO) has used this as the standard to classify underweight, overweight and obesity since the early 1980s.

An example of how BMI is determined based on the following assumptions, includes: An adult who weighs 70kg and whose height stands at 1.75 meters will have a calculated BMI of 22.9.

BMI =

mass (kg) [height (m)]2

70kg/1.75m2 = 22.9

According to the WHO, overweight people are defined as having a BMI of between 25 and 30, and obese people of 31 or more.

Waist circumference measurements in men are defined as between 94 and 101.9 centimeters for overweight and more than 102 centimeters for obese. In women, these measurements are 80 to 87.9 centimeters for overweight and more than 88 centimeters for obese.

Claim statistics set the scene Jenny Ingram, head of Product Development for Momentum Retail Life Insurance states that, “In recent years, our claim experiences showed a strong correlation between an increased BMI and COVID-19 related deaths.” This is very much in line with the findings from the WHO in a discussion paper dated, 17 August 2021 where they stated that, “People with obesity have a four-fold higher risk of developing severe COVID-19 compared to people with no obesity.”

This poses a serious risk for the South African population since 68% of women, 31% of men and 13% of children in South Africa are obese, as confirmed by Statistics SA. On a global scale, the picture seems just as grim since obesity nearly tripled between 1975 and 2020. In fact, if the prevalence of obesity continues on its current trajectory, almost half of the world’s adult population will be overweight or obese by 2030.

Diabetes in perspective BMI is also a good indicator of the risk for other diseases that can be associated with increased body fat such as diabetes and the (WHO) has referred to diabetes as the “21st century epidemic.” In South Africa, obesity is the main driver of the current type 2 diabetes epidemic.

Diabetes can be catagorised into two types. Type 1 and type 2 diabetes are both metabolic diseases that cause blood sugar to increase and inhibit the production of insulin.

Type 1 diabetes is an autoimmune disease that prevents the pancreas from producing insulin and is believed to be triggered by genetics and the environment. Type 2 diabetes occurs when the body becomes resistant to insulin and is closely linked to family history and lifestyle choices. In fact, lifestyle choices play an important role in the development of type 2 diabetes, and according to 2019 figures published by the International Diabetes Federation, 463 million adults around the world, between the ages of 18 and 79, suffer from type 2 diabetes and they suggests that by 2045, this figure is set to reach 700 million people.

The link between obesity and cardiovascular diseases South Africa has one of the highest levels of overweight and obesity in the world, which is contributing factors for cardiovascular diseases (CVD). With CVD being the second biggest contributor to death in South Africans, it comes as no surprise that more citizens die from CVD than from all types of cancers combined. However, according to the Heart and Stroke Foundation, 80% of premature deaths (death before the age of 60 years) can be prevented by making smart lifestyle choices such as regular exercise, maintaining a healthy diet and to avoid smoking.

Another interesting aspect is the fact that Johns Hopkins researchers have found that excess weight is more than an “accomplice” in the development of heart problems.

They state that the pounds themselves can cause heart muscle injury. According to Johns Hopkins cardiologist, Chiadi Ndumele, “Being obese seems to be a ‘solo player’ associated with heart injury. Down the road, this can lead to heart failure.” This is a new way of looking at the impact of obesity, where obesity itself can lead to heart failure, even in the absence of known markers for heart disease, such as high blood pressure, diabetes and elevated cholesterol.

Heart failure refers to the organ’s inability to keep up efficiently with the demands placed on it and according to these researchers, it is becoming more and more common.

Ndumele further adds that, “Lots of factors can cause heart failure, and the obesity epidemic is a likely contributor” with one in five adults being prone to heart failure by 2030.

Conclusion Jenny concludes by saying that, “Although BMI is not an exact science, our past claim experiences have shown that it does influence our clients’ claims experiences significantly.

When one considers all the above-mentioned statistics, it is clear that smart lifestyle choices carry a lot of weight in securing a healthy and balanced lifespan.”

momentum.co.za Momentum is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider. Reg. No. 1904/002186/06

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 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.

31 March 2022

RISK

RETIREMENT

Retirement planning and How to pay less for insurance when the impact of death on beneficiaries and estate money is tight WYNAND VAN VUUREN Client Experience Partner, King Price Insurance

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or many South Africans, it’s a financial nightmare out there right now. They’re being battered by a triple whammy of rising interest rates, increasing inflation and less take-home pay in real terms.

DebtBusters’ Q4 2021 Debt Index found that with no increase in real income levels since 2016, consumers continue to supplement their earnings with unsecured credit. And according to TransUnion’s latest Consumer Pulse Survey, more than half of South African consumers (55%) say their household income is still being negatively impacted because of Covid-19.

But when you’re on the ropes financially, with no more credit available, where do you cut? As consumers look to cut costs out of their budgets, short-term insurance premiums are often an easy target – but that could just bring further financial pain down the line if disaster strikes while you’re not covered.

Insurance is not a ‘nice-to-have’. It’s absolutely critical to protect yourself from a range of risks, especially in a time of crisis. Insurance makes the difference between recovering from an accident or disaster or possible financial devastation. If your finances are under pressure right now, the most important thing is to talk to your insurer to see what you can afford. Here are King Price’s top five tips to get the best possible deal on your insurance and save some money in the process.

Review your current cover Go through your insurance policy line by line. Are you paying for assets you don’t even own anymore? Do you insure jewellery that’s kept in a safe and never worn out of the house? Do you have shortfall cover on cars that are paid off? Are your cars a year older, yet you’re still paying last year’s premium? Do you work from home, and your house is always occupied? Establish your actual risks, and cover those.

Shop around Don’t settle for the first quote you get. You’d be surprised by how much premiums can vary between insurers for the same car, buildings and home contents cover. Or find yourself an insurer that offers premiums that decrease monthly as your car loses value.

Review your excess Your excess is the first amount payable on any claim. Generally, the higher the excess you choose, the lower the premium you pay. But choose carefully because you still need to be able to pay the excess amount if you claim.

Combine your policies Insurers love clients who have more than one policy with them. So, if you cover your house contents and a car with the same insurer, you’ll probably pay less. You’ll also benefit from a multiple car discount if you cover two or more cars – up to 20%, in some cases.

Reduce your risks Insurers base your premium on your risk – so by demonstrating lower risk, you can save money. You can reduce your risk (and your premiums) by installing additional security measures like electric fencing and an alarm system linked to armed response, for example.

There are lots of relatively easy ways to cut your insurance costs without giving up your insurance and leaving yourself exposed. Even small amounts all add up. Then you can redirect those savings into something that pays off debt.

MADELEIN STEENKAMP CFP® Legal Specialist, PSG Wealth

S

aving for retirement is something that most people know they should do, but which many often postpone. Thus, by the time many people start saving, they have sadly lost valuable time – and the powerful benefit of compound interest that comes with it.

Statistics show that only a small percentage of the working population in South Africa will be financially independent when they retire. Of this small percentage of financially independent retirees, the majority are unlikely to have achieved this exclusively through contributions to an occupational retirement fund (such as their employer’s pension or provident fund). Additional investments are often required to ensure a comfortable retirement.

Supplementing retirement savings – what to consider Retirement annuities (RAs) are a popular choice to supplement retirement savings since contributions are tax deductible, like those of occupational retirement funds. Unlike occupational retirement funds, however, RAs are completely independent of your employer, meaning you have greater freedom of choice in terms of the funds you can invest in (subject to retirement fund regulations).

It is also important to understand the effect that retirement fund beneficiary nominations will have, and the impact of certain elections on your estate.

Your deceased estate comes into existence when you pass away and your estate will be administered either in terms of your will, or (in the absence of a valid will) the Intestate Succession Act. A further factor to consider is that certain assets will not be administered as part of your estate.

The power of the trustee If a member of a retirement fund dies before reaching retirement age, the death benefit will be paid to dependants as determined by the trustees of the retirement fund in accordance with Section 37C of the Pension Funds Act. While you may have nominated beneficiaries to your retirement fund, the trustees of the fund are not legally bound to follow your wishes. They will take your nominated beneficiaries into account, but there are other factors they need to consider.

They will also take into consideration anyone who is a dependant – including people you have not nominated as beneficiaries. This can be quite a lengthy process, as trustees have a period of 12 months from the date of death in which to make their determination, so you need to consider the financial stress that this delay can cause for dependants.

In light of this, a key consideration is the effect of possible maintenance obligations from previous marriages (and other financial dependants) on

the distribution of your retirement fund benefit at death. When providing for the maintenance of your family in your estate plan, be sure to take this into consideration to avoid unintended consequences that can cause your family unnecessary financial stress. To err on the side of caution, adequate provision needs to be made in your estate plan.

The impact of beneficiary election Once the trustees have made the election, dependants must decide how they wish to receive the benefit. There are three choices available: • They can choose to take the entire benefit as a cash lump sum (in which case the payment will be taxed according to the retirement tax tables applicable to the deceased) • They can purchase a compulsory annuity (in which case no tax will be paid on the benefit, but tax will be payable on the income received from the compulsory annuity, as per the income tax tables) • They can choose a combination of these two options, i.e. they can elect to receive part of the funds as a lump-sum cash payment and purchase a compulsory annuity with the balance.

In 2008, the maximum age at which members could contribute to their retirement annuities was removed and, at the same time, retirement fund benefits were excluded from estate duty. This created a loophole where clients could contribute large, taxfree lump sums to their retirement annuities.

However, this loophole was closed, and any lump sums taken by the beneficiaries up to the value of the non-deductible contributions will now be included as property in the estate for estate duty purposes. This needs to be considered in your estate plan, as this inclusion can affect estate liquidity.

Single life annuities and living annuities When selecting an appropriate annuity, you need to be aware of the differences between single life annuities and living annuities. Single life annuities are designed to provide a guaranteed monthly income until the death of the annuitant, and therefore come to an end on the death of the annuitant, leaving no capital payable into the deceased’s estate.

A living annuity, by contrast, is an investment held in the name of the annuitant. The annuitant accepts all the risk, and income is not guaranteed until death. A living annuity does not fall within the ambit of Section 37C of the Pension Funds Act and the capital will be paid to the nominated beneficiaries elected on the death of the annuitant. It is important to note that if no beneficiaries are nominated, the proceeds will be paid into the deceased estate.

Conclusion Navigating the world of retirement funds and the effect of beneficiary nominations can become very complex and needs to be carefully considered to avoid unintended consequences. A qualified financial planner can help you navigate this maze to ensure that you understand the impacts of your decisions and make adequate provision in your estate plan, ultimately giving you the peace of mind that your loved ones will be provided for in the event of your death.

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31 March 2022

RETIREMENT

Give retirement fund members a smooth investment ride at an affordable cost CHRIS COOKE Head of Technical Marketing for Investments at Momentum Corporate

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etirement fund members want their savings to work hard for them, delivering the highest possible return for the lowest possible risk. But if they want the inflationbeating returns that are an essential aspect of investing for retirement, they must deal with the market volatility that comes with exposure to high growth assets.

Chris Cooke, Head of Technical Marketing for Investments at Momentum Corporate, says that while smooth bonus portfolios offer a smoother investment ride, historically these portfolios have developed the dubious reputation of being expensive. In an environment where there is severe downward pressure on fees, the high costs synonymous with this kind of investing has overshadowed the value these portfolios can offer investors, especially those without an appetite for market volatility.

According to Cooke, there are many misnomers around these portfolios – one being that because they come with certain guarantees, asset allocation is conservative, and the returns of the underlying portfolio are not

competitive when compared to marketlinked investments. This is not so, with Momentum Corporate having a range of solutions, including smooth bonus portfolios offering high exposure to growth assets.

The other belief held by many is that smoothing always comes at a high cost, which eats into members’ already inadequate retirement savings. However, Cooke says Momentum now offers a new smooth bonus portfolio – one that offers all the benefits of a smoother investment ride but without the high costs.

“We recently added a new smooth bonus portfolio to our range, which focuses on smoothing returns while providing a lower guarantee than our other smooth bonus portfolios. This means investors can access all the benefits of smoothing at a much-reduced cost, plus enjoy a level of capital protection in the form of a guarantee that ensures the book value of their investment will never be less than 50% of the capital invested and 50% of all the declared guaranteed bonuses, irrespective of market conditions.

This provides peace of mind that if a benefit is paid in a market downturn, the payment will be at book value (i.e. guaranteed plus non-guaranteed account),” he explains.

According to Cooke, the smoother investment journey that affordable smoothing offers helps investors avoid

emotional decisions in times of market volatility, facilitating better retirement outcomes.

“Now your clients can access a new kind of smooth bonus investment that offers inflation-beating returns without the bumps of market volatility, all at a lower cost” “Many members make emotional decisions when they see the value of their retirement savings decline radically in market downturns. Affordable smoothing changes this behaviour. The portfolio is also ideal for soon-to-beretirees, allowing them to retain their exposure to highgrowth assets while seamlessly moving from a pre- to post-retirement investment strategy,” says Cooke.

Cooke concludes, “Your corporate clients should ensure that the umbrella fund they participate in offers members the option of an affordable smooth bonus portfolio. And if you advise stand-alone retirement funds, they should be considering the value this type of smooth bonus portfolio offers their members.”

How aggressive is too aggressive in a retirement fund?

MICHAEL TITLEY Business Development at Laurium Capital

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longer term. The result is strong pointto-point outperformance, but how was the investment experience? Relatively bumpy. The Max Risk Fund loses most of its lead twice in the journey relative to the average actively managed balanced funds (2008/2020).

On a rolling basis, the volatility of the Max Risk Fund makes more sense as the time horizon is extended. Over three years rolling, it outperforms the average fund 62% of the time between 2003 and 2021.

This increases to 71% when increasing to five years rolling and 88% when rolling 10 years. Graph 2 shows the five-year rolling annualised performance of the Max Fund versus the average.

On the above basis, some investors may consider maximising their risk and taking

an one be too aggressive over time in a retirement fund? After all, it is bound by Regulation 28, which puts several limitations in place in order to protect retirees from losing their capital over time. If one wants to get from Cape Town to Durban by car safely, but as quickly as possible, one is obliged to drive at the speed limit to get there safely.

However, if one wants to generate the largest retirement saving at the end of their and compared it to the average monthly career, does it make sense to maximise the performance of the ASISA Multi-Asset High asset class speed limits all the way?

Equity average.

If someone offered you a retirement The outcome shown in graph 1 agrees fund that maximised permissible risky with the theory that equities should liquid assets, it could look something like outperform other asset classes over the this: 35% SA Equity, 30% Offshore Equity, 10% Africa Equity, 25% SA Listed Property. I sense many may be running for the door already.

The reality is that this asset allocation mix is a Regulation 28-compliant retirement fund. In order to gauge the investment experience of being in such a fund, we have run the following analysis based on the relevant index data Graph 1. Source: Bloomberg; Morningstar (Max Risk Fund = 35% ALSI + 10% MSCI Africa ex SA +30% MSCI All Country + 25% SA Property Index. All Total Return indices, returns pulled from Bloomberg weighted monthly)

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Graph 2. Source: Bloomberg; Morningstar

the bumpy road to retirement, but this may only make sense over the very long term. The Max Fund also leaves investors vulnerable to market crashes as it ignores any active asset allocation, a powerful weapon in a multi-asset fund.

At Laurium Capital, we aim to deliver a smoother ride to retirement than red, needling the limit all the way. Our multiasset Regulation 28 funds use a balanced approach with a diversified blend of asset classes. The funds are actively managed by an experienced team against a strategic asset allocation, resulting in portfolios that deliver top quartile risk-adjusted returns.

Boutique managers like Laurium often have a differentiated way of managing money, resulting in better diversification of your clients’ portfolios.

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

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

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

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

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

BRAVE/7350/MOM/E

31 March 2022

RETIREMENT

Retirement planning and longevity risk

MARISKA COMINS Head of Technical Support at PSG Wealth

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lanning for retirement can be a daunting experience – whether early or later on in your career. The good news is that you don’t have to do it alone or feel overwhelmed by the complexities associated with financial products.

Making the most of your pre-retirement options Many employers offer a company pension or provident fund and can provide employees with access to counsellors who can assist in making informed decisions. Of course, you can also speak to a qualified financial adviser who can guide and assist you in making appropriate choices to help you meet your retirement goals.

“The ultimate retirement goal is to attain a comfortable standard of living after retirement relative to your standard of living before retirement” Retirement planning entails making provision for the income you will require to sustain your desired standard of living after you retire. This income will need to sustain you (and potentially your spouse and/or dependents) until your passing. The ideal replacement ratio is generally accepted to be around 75% of your final working salary, and while many struggle to retire comfortably (only around 6% as calculated by National Treasury), there are measures you can put in place to achieve this outcome.

Proper retirement planning is essential, as the income you receive will not only need to sustain you but also counter the effects of inflation over time.

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The ultimate retirement goal is to attain a comfortable standard of living after retirement relative to your standard of living before retirement. One can view retirement planning as a process of putting measurable plans in place – which may change throughout the different stages of your life – to attain your retirement goals.

Making the most of your retirement savings may involve, but is not limited to: • Selecting the most appropriate and cost-efficient investment product (such as membership of your employer’s pension/provident fund or a retirement annuity, or opting for a voluntary savings vehicle to supplement your retirement income) • Understanding the impact of fees on your retirement fund value over a long-term investment horizon • Understanding your risk/return profile – more aggressive growth assets are ideal the younger you are, and there is typically a transition towards a more conservative strategy the closer you get to retirement • Saving as much as possible – ideally, the percentage of your salary that you should contribute towards retirement savings is: • 15% if you start when you are 25 • 24% if you start when you are 35 • 43% if you start when you are 45 • 60% if you start when you are 50 • Starting to save as early as possible – on average, people have a 30- to 40-year window of opportunity (i.e. their working career), during which they can take advantage of the wonders of compound interest • Avoiding withdrawing funds from a pension/provident fund when changing employers and rather transferring these funds into a pension preservation fund or provident preservation fund.

Understanding investment risk and the importance of diversification Investment risk can be defined as the probability or likelihood of the occurrence of losses relative to the

expected return on any particular investment. While we don’t have a crystal ball, and cannot predict market or investment returns over time, the best ally you have on your side is diversification. Diversification helps prevent overexposure to any one particular asset, which helps reduce risk and volatility in your investment returns. As the saying goes, ‘Don’t put all your eggs in one basket.’

Longevity risk Longevity risk refers to the risk of outliving your savings and is one of the biggest risks facing retirees. Recent research has highlighted that the life expectancy of individuals is increasing and, for a variety of reasons (including medical advancements and a greater focus on healthy living), people are living longer today than they were 50 years ago.

This means that retirees may face a risk of their life expectancy exceeding the years they have savings available to draw an income from.

The data doesn’t lie Recent data compiled by the Organisation for Economic Co-operation and Development (OECD) indicates that the average life expectancies for developed economies are increasing. For example, in the United States and United Kingdom, average life expectancies are: • 18.2 and 18.8 years respectively for a 65-year-old male, and • 20.8 and 21.1 years respectively for a 65-year-old female.

Conclusion Research indicates that you are likely to live to age 85 or older on average. Therefore, one must have an adequate retirement plan that is frequently reviewed to mitigate the effects of longevity risk. Speak to your financial adviser to ensure that suitable products form part of your financial plan to mitigate this risk.

EDITOR’S

28 February 2022

BOOKS ETCETERA

BOOKSHELF

Making Numbers Count: The Art and Science of Communicating Numbers

By Chip Heath and Karla Starr

21st Century Monetary Policy: The Federal Reserve from the Great Inflation to COVID-19

By Ben S. Bernanke

Understanding numbers is essential – but humans aren’t built to understand them. Until very recently, most languages had no words for numbers greater than five – anything from six to infinity was known as lots. While the numbers in our world have gotten increasingly complex, our brains are stuck in the past. How can we translate millions and billions and milliseconds and nanometres into things we can comprehend and use?

Author Chip Heath has excelled at teaching others about making ideas stick and here, in Making Numbers Count, he outlines specific principles that reveal how to translate a number into our brain’s language. The book is filled with examples of extreme number makeovers, vivid before-and-after examples that take a dry number and present it in a way that people click in and say “Wow, now I get it!”

Spoilt Ballots: The Elections that Shaped South Africa, from Shaka to Cyril

By Matthew Blackman and Nick Dall If you paid even a moment’s attention during high school history class, you probably know that 1910 brought about the Union of South Africa, that the 1948 general election ushered in apartheid, and that the Rainbow Nation was born when Madiba triumphed in the country’s first democratic elections in 1994.

Spoilt Ballots dishes the dirt on these pivotal turning points in our history.

But it also sheds light on a dozen lesser-known contests, starting with the assassination of King Shaka in 1828 and ending with the anointing of President Cyril Ramaphosa at Nasrec in 2017.

The book is as much about the people who voted in some of our most decisive elections as it is about those who didn’t even get the chance to make their mark. It explains why a black man in the Cape had more political rights in 1854 than at any other point in the ensuing 140 years, and how the enfranchisement of women in 1930 was actually a step back for democracy.

Spoilt Ballots will leave you wondering if Paul Kruger’s seriously dicey win in the 1893 ZAR election might have paved the way for the Boer War and whether ‘Slim Jannie’ Smuts really was that ‘slim’ after all. It’ll explain how the Nats managed to get millions of English speakers to vote for apartheid, and why the Groot Krokodil’s attempt to co-opt coloureds and Indians into the system backfired spectacularly. It is entertaining and impeccably researched. Spoilt Ballots lifts the lid on 200 years of electoral dysfunction in our beloved and benighted nation.

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Ben Bernanke, the former chair of the US central bank, explains the transformation of one our most powerful and consequential institutions.

In response to the economic impact of the Covid-19 pandemic, the US Federal Reserve and central banks worldwide deployed tools that past policymakers and economists might have considered radical. Programs like largescale securities purchases and a new policy framework remain a source of confusion for investors, journalists and ordinary citizens alike.

Twenty-First Century Monetary Policy demystifies these opaque techniques to reveal how economic ideas, historical events and political forces have transformed the Fed’s policies over several decades. From the stagflation of the 1970s to the Great Recession and the recent pandemic, Bernanke masterfully examines how the Fed’s policies – and the institution itself – may change as it grapples with persistently low interest rates, systemic financial risk, rapid technological change, and polarised politics. With unparalleled depth of expertise and robust historical sweep, Twenty-First Century Monetary Policy is a must-read for anyone interested in understanding modern finance, investments or US economic policy.

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